NovaStar Financial: A Short Seller's Battle SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of NovaStar Financial: A Short Seller's Battle
The NovaStar case describes the challenges faced by short seller Marc Cohodes of hedge fund Rocker Partners as he tried to expose what he thought was widespread fraud in mortgage lender NovaStar Financial. The case is set in the time period from 2001 to 2007 and tracks the growth of the subprime industry and its collapse leading to the financial crisis. The case describes the business model of NovaStar, a leading subprime mortgage lending company, and its accounting practices with a focus on the key risks and opportunities facing the company. The case requires students to put themselves in the shoes of Marc Cohodes in order to understand the business model and accounting numbers and to identify if the financial performance is a good representation of the true economic performance. In particular, students learn accounting concepts related to securitization, gain on sale accounting, valuation of available for sale securities, and analyzing the statement of cash flows. The case also allows students to understand the roles and incentives of various capital market participants such as sell-side analysts, the media, auditors, and the Securities and Exchange Commission (SEC).
Swot Analysis of "NovaStar Financial: A Short Seller's Battle" written by Suraj Srinivasan, Amy Kaser includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Novastar Cohodes facing as an external strategic factors. Some of the topics covered in NovaStar Financial: A Short Seller's Battle case study are - Strategic Management Strategies, Corporate governance, Ethics, Financial analysis, Financial management, Product development, Recession and Finance & Accounting.
Some of the macro environment factors that can be used to understand the NovaStar Financial: A Short Seller's Battle casestudy better are - – there is backlash against globalization, digital marketing is dominated by two big players Facebook and Google, banking and financial system is disrupted by Bitcoin and other crypto currencies, talent flight as more people leaving formal jobs, increasing household debt because of falling income levels, cloud computing is disrupting traditional business models, central banks are concerned over increasing inflation,
there is increasing trade war between United States & China, technology disruption, etc
Introduction to SWOT Analysis of NovaStar Financial: A Short Seller's Battle
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in NovaStar Financial: A Short Seller's Battle case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Novastar Cohodes, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Novastar Cohodes 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 NovaStar Financial: A Short Seller's Battle can be done for the following purposes –
1. Strategic planning using facts provided in NovaStar Financial: A Short Seller's Battle case study
2. Improving business portfolio management of Novastar Cohodes
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Novastar Cohodes
Strengths NovaStar Financial: A Short Seller's Battle | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Novastar Cohodes in NovaStar Financial: A Short Seller's Battle Harvard Business Review case study are -
Diverse revenue streams
– Novastar Cohodes is present in almost all the verticals within the industry. This has provided firm in NovaStar Financial: A Short Seller's Battle case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Ability to lead change in Finance & Accounting field
– Novastar Cohodes 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 Novastar Cohodes in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Low bargaining power of suppliers
– Suppliers of Novastar Cohodes in the sector have low bargaining power. NovaStar Financial: A Short Seller's Battle has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Novastar Cohodes to manage not only supply disruptions but also source products at highly competitive prices.
Superior customer experience
– The customer experience strategy of Novastar Cohodes in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– Novastar Cohodes has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Novastar Cohodes to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
High switching costs
– The high switching costs that Novastar Cohodes has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Training and development
– Novastar Cohodes has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in NovaStar Financial: A Short Seller's Battle 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.
Effective Research and Development (R&D)
– Novastar Cohodes 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 NovaStar Financial: A Short Seller's Battle - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Innovation driven organization
– Novastar Cohodes is one of the most innovative firm in sector. Manager in NovaStar Financial: A Short Seller's Battle Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Sustainable margins compare to other players in Finance & Accounting industry
– NovaStar Financial: A Short Seller's Battle firm has clearly differentiated products in the market place. This has enabled Novastar Cohodes to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Novastar Cohodes to invest into research and development (R&D) and innovation.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Novastar Cohodes digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Novastar Cohodes 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.
Operational resilience
– The operational resilience strategy in the NovaStar Financial: A Short Seller's Battle Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Weaknesses NovaStar Financial: A Short Seller's Battle | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of NovaStar Financial: A Short Seller's Battle are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study NovaStar Financial: A Short Seller's Battle, is just above the industry average. Novastar Cohodes needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Novastar Cohodes is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study NovaStar Financial: A Short Seller's Battle can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Products dominated business model
– Even though Novastar Cohodes 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 - NovaStar Financial: A Short Seller's Battle should strive to include more intangible value offerings along with its core products and services.
Need for greater diversity
– Novastar Cohodes has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High operating costs
– Compare to the competitors, firm in the HBR case study NovaStar Financial: A Short Seller's Battle 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 Novastar Cohodes 's lucrative customers.
Low market penetration in new markets
– Outside its home market of Novastar Cohodes, firm in the HBR case study NovaStar Financial: A Short Seller's Battle needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Novastar Cohodes has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Slow decision making process
– As mentioned earlier in the report, Novastar Cohodes 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. Novastar Cohodes 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Novastar Cohodes needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High cash cycle compare to competitors
Novastar Cohodes has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Skills based hiring
– The stress on hiring functional specialists at Novastar Cohodes has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Opportunities NovaStar Financial: A Short Seller's Battle | 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 NovaStar Financial: A Short Seller's Battle are -
Loyalty marketing
– Novastar Cohodes 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Novastar Cohodes is facing challenges because of the dominance of functional experts in the organization. NovaStar Financial: A Short Seller's Battle 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. Novastar Cohodes can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Using analytics as competitive advantage
– Novastar Cohodes has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study NovaStar Financial: A Short Seller's Battle - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Novastar Cohodes to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Novastar Cohodes can use these opportunities to build new business models that can help the communities that Novastar Cohodes operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Novastar Cohodes can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Low interest rates
– Even though inflation is raising its head in most developed economies, Novastar Cohodes can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Manufacturing automation
– Novastar Cohodes can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting 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.
Learning at scale
– Online learning technologies has now opened space for Novastar Cohodes to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Buying journey improvements
– Novastar Cohodes can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. NovaStar Financial: A Short Seller's Battle suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Novastar Cohodes in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Novastar Cohodes in the consumer business. Now Novastar Cohodes can target international markets with far fewer capital restrictions requirements than the existing system.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Novastar Cohodes can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, NovaStar Financial: A Short Seller's Battle, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats NovaStar Financial: A Short Seller's Battle External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study NovaStar Financial: A Short Seller's Battle are -
Stagnating economy with rate increase
– Novastar Cohodes can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Novastar Cohodes in the Finance & Accounting industry. The Finance & Accounting 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.
Shortening product life cycle
– it is one of the major threat that Novastar Cohodes is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Consumer confidence and its impact on Novastar Cohodes 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study NovaStar Financial: A Short Seller's Battle, Novastar Cohodes may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Technology acceleration in Forth Industrial Revolution
– Novastar Cohodes has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Novastar Cohodes needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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. Novastar Cohodes needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Environmental challenges
– Novastar Cohodes needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Novastar Cohodes can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Novastar Cohodes can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 Novastar Cohodes in the Finance & Accounting sector and impact the bottomline of the organization.
Increasing wage structure of Novastar Cohodes
– 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 Novastar Cohodes.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Novastar Cohodes with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of NovaStar Financial: A Short Seller's Battle 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 NovaStar Financial: A Short Seller's Battle 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 NovaStar Financial: A Short Seller's Battle 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 NovaStar Financial: A Short Seller's Battle 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 NovaStar Financial: A Short Seller's Battle 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 Novastar Cohodes needs to make to build a sustainable competitive advantage.
