Case Study Description of Introduction to Credit Default Swaps
Credit Default Swaps (CDS) are derivative instruments that allow investors protection against credit events such as downgrades of or defaults by single-name or a basket of obligors. Estimated by the Band of International Settlements to be at $32.6 trillion in December 2009, these instruments represent one of the largest and fastest growing financial product markets globally. This note is intended to introduce students to CDS, the pricing basics as well as the role in the 2008 subprime crisis.
Authors :: Muhammad Fuad Farooqi, Walid Busaba, Zeigham Khokher
Swot Analysis of "Introduction to Credit Default Swaps" written by Muhammad Fuad Farooqi, Walid Busaba, Zeigham Khokher includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Cds Swaps facing as an external strategic factors. Some of the topics covered in Introduction to Credit Default Swaps case study are - Strategic Management Strategies, International business and Global Business.
Some of the macro environment factors that can be used to understand the Introduction to Credit Default Swaps casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, there is increasing trade war between United States & China, wage bills are increasing, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing government debt because of Covid-19 spendings, increasing household debt because of falling income levels, supply chains are disrupted by pandemic ,
increasing commodity prices, competitive advantages are harder to sustain because of technology dispersion, etc
Introduction to SWOT Analysis of Introduction to Credit Default Swaps
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Introduction to Credit Default Swaps case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Cds Swaps, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Cds Swaps operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Introduction to Credit Default Swaps can be done for the following purposes –
1. Strategic planning using facts provided in Introduction to Credit Default Swaps case study
2. Improving business portfolio management of Cds Swaps
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Cds Swaps
Strengths Introduction to Credit Default Swaps | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Cds Swaps in Introduction to Credit Default Swaps Harvard Business Review case study are -
Ability to recruit top talent
– Cds Swaps is one of the leading recruiters in the industry. Managers in the Introduction to Credit Default Swaps are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Analytics focus
– Cds Swaps is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Muhammad Fuad Farooqi, Walid Busaba, Zeigham Khokher can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Strong track record of project management
– Cds Swaps is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Superior customer experience
– The customer experience strategy of Cds Swaps in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Cds Swaps digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Cds Swaps has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
High brand equity
– Cds Swaps has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Cds Swaps to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Innovation driven organization
– Cds Swaps is one of the most innovative firm in sector. Manager in Introduction to Credit Default Swaps Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Training and development
– Cds Swaps has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Introduction to Credit Default Swaps Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Ability to lead change in Global Business field
– Cds Swaps is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Cds Swaps in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Effective Research and Development (R&D)
– Cds Swaps has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Introduction to Credit Default Swaps - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Low bargaining power of suppliers
– Suppliers of Cds Swaps in the sector have low bargaining power. Introduction to Credit Default Swaps has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Cds Swaps to manage not only supply disruptions but also source products at highly competitive prices.
Highly skilled collaborators
– Cds Swaps has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Introduction to Credit Default Swaps HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Weaknesses Introduction to Credit Default Swaps | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Introduction to Credit Default Swaps are -
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Introduction to Credit Default Swaps HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Cds Swaps has relatively successful track record of launching new products.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Cds Swaps is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Introduction to Credit Default Swaps can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Introduction to Credit Default Swaps, it seems that the employees of Cds Swaps don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Aligning sales with marketing
– It come across in the case study Introduction to Credit Default Swaps that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Introduction to Credit Default Swaps can leverage the sales team experience to cultivate customer relationships as Cds Swaps is planning to shift buying processes online.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Introduction to Credit Default Swaps, in the dynamic environment Cds Swaps has struggled to respond to the nimble upstart competition. Cds Swaps has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High bargaining power of channel partners
– Because of the regulatory requirements, Muhammad Fuad Farooqi, Walid Busaba, Zeigham Khokher suggests that, Cds Swaps is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow to strategic competitive environment developments
– As Introduction to Credit Default Swaps HBR case study mentions - Cds Swaps takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Products dominated business model
– Even though Cds Swaps has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Introduction to Credit Default Swaps should strive to include more intangible value offerings along with its core products and services.
Slow decision making process
– As mentioned earlier in the report, Cds Swaps has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Cds Swaps even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Cds Swaps supply chain. Even after few cautionary changes mentioned in the HBR case study - Introduction to Credit Default Swaps, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Cds Swaps vulnerable to further global disruptions in South East Asia.
High operating costs
– Compare to the competitors, firm in the HBR case study Introduction to Credit Default Swaps has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Cds Swaps 's lucrative customers.
Opportunities Introduction to Credit Default Swaps | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Introduction to Credit Default Swaps are -
Loyalty marketing
– Cds Swaps has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Manufacturing automation
– Cds Swaps can use the latest technology developments to improve its manufacturing and designing process in Global Business segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Cds Swaps can use these opportunities to build new business models that can help the communities that Cds Swaps operates in. Secondly it can use opportunities from government spending in Global Business sector.
Leveraging digital technologies
– Cds Swaps can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Better consumer reach
– The expansion of the 5G network will help Cds Swaps to increase its market reach. Cds Swaps will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Cds Swaps can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Cds Swaps is facing challenges because of the dominance of functional experts in the organization. Introduction to Credit Default Swaps case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Cds Swaps can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Cds Swaps can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Cds Swaps in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Cds Swaps to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Cds Swaps to hire the very best people irrespective of their geographical location.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Cds Swaps can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Cds Swaps can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Cds Swaps can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats Introduction to Credit Default Swaps External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Introduction to Credit Default Swaps are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Cds Swaps in the Global Business industry. The Global Business industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High dependence on third party suppliers
– Cds Swaps high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Cds Swaps needs to understand the core reasons impacting the Global Business industry. This will help it in building a better workplace.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Cds Swaps will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Shortening product life cycle
– it is one of the major threat that Cds Swaps is facing in Global Business sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Consumer confidence and its impact on Cds Swaps demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Cds Swaps in the Global Business sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Cds Swaps with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Introduction to Credit Default Swaps, Cds Swaps may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Cds Swaps can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Introduction to Credit Default Swaps .
Regulatory challenges
– Cds Swaps needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Global Business industry regulations.
Increasing wage structure of Cds Swaps
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Cds Swaps.
Weighted SWOT Analysis of Introduction to Credit Default Swaps Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Introduction to Credit Default Swaps needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Introduction to Credit Default Swaps is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Introduction to Credit Default Swaps is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Introduction to Credit Default Swaps is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Cds Swaps needs to make to build a sustainable competitive advantage.
