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 - – digital marketing is dominated by two big players Facebook and Google, wage bills are increasing, increasing transportation and logistics costs, increasing household debt because of falling income levels, increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, challanges to central banks by blockchain based private currencies,
supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, 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 -
Strong track record of project management
– Novastar Cohodes is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
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.
Learning organization
- Novastar Cohodes is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Novastar Cohodes is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in NovaStar Financial: A Short Seller's Battle Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
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.
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.
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.
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.
Analytics focus
– Novastar Cohodes 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 Suraj Srinivasan, Amy Kaser 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.
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.
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.
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 -
Interest costs
– Compare to the competition, Novastar Cohodes has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study NovaStar Financial: A Short Seller's Battle, in the dynamic environment Novastar Cohodes has struggled to respond to the nimble upstart competition. Novastar Cohodes has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
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.
Slow to strategic competitive environment developments
– As NovaStar Financial: A Short Seller's Battle HBR case study mentions - Novastar Cohodes 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Suraj Srinivasan, Amy Kaser suggests that, Novastar Cohodes 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.
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.
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.
No frontier risks strategy
– After analyzing the HBR case study NovaStar Financial: A Short Seller's Battle, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
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.
Aligning sales with marketing
– It come across in the case study NovaStar Financial: A Short Seller's Battle 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 NovaStar Financial: A Short Seller's Battle can leverage the sales team experience to cultivate customer relationships as Novastar Cohodes is planning to shift buying processes online.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the NovaStar Financial: A Short Seller's Battle 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 Novastar Cohodes has relatively successful track record of launching new products.
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 -
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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Novastar Cohodes can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Building a culture of innovation
– managers at Novastar Cohodes can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Novastar Cohodes 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 Novastar Cohodes to hire the very best people irrespective of their geographical location.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Novastar Cohodes to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Better consumer reach
– The expansion of the 5G network will help Novastar Cohodes to increase its market reach. Novastar Cohodes 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.
Creating value in data economy
– The success of analytics program of Novastar Cohodes has opened avenues for new revenue streams for the organization in the industry. This can help Novastar Cohodes to build a more holistic ecosystem as suggested in the NovaStar Financial: A Short Seller's Battle case study. Novastar Cohodes can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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.
Leveraging digital technologies
– Novastar Cohodes 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.
Developing new processes and practices
– Novastar Cohodes can develop new processes and procedures in Finance & Accounting 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.
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 -
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.
Regulatory challenges
– Novastar Cohodes 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 Finance & Accounting industry regulations.
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.
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.
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.
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. Novastar Cohodes 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.
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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Novastar Cohodes.
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.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Novastar Cohodes business can come under increasing regulations regarding data privacy, data security, etc.
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.
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.
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.