Why do shares in NEC Electronics, a publicly listed subsidiary of Japan conglomerate NEC trade at a discount to their fundamental value? Can Perry Capital, a U.S. hedge fund, restructure this subsidiary and generate significant returns? This case provides students with an opportunity to analyze Perry's decision to invest in NEC Electronics. In doing so, it asks for the reasons that NEC might take actions that destroy value and shift value away from NECE's minority shareholders. The events covered allow for a discussion of how ownership concentration constrains restructuring alternatives, how hedge fund investors might confront controlling shareholders, and how the mispricing of agency costs can give rise to ownership structures that allow for minority shareholder expropriation.
Authors :: C. Fritz Foley, Robin Greenwood, James Quinn
Swot Analysis of "NEC Electronics" written by C. Fritz Foley, Robin Greenwood, James Quinn includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Nec Electronics facing as an external strategic factors. Some of the topics covered in NEC Electronics case study are - Strategic Management Strategies, Corporate communications, Corporate governance, Entrepreneurial finance, Financial management, Reorganization and Finance & Accounting.
Some of the macro environment factors that can be used to understand the NEC Electronics casestudy better are - – talent flight as more people leaving formal jobs, geopolitical disruptions, increasing energy prices, there is increasing trade war between United States & China, digital marketing is dominated by two big players Facebook and Google, customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing,
challanges to central banks by blockchain based private currencies, increasing household debt because of falling income levels, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in NEC Electronics case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Nec Electronics, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Nec Electronics 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 NEC Electronics can be done for the following purposes –
1. Strategic planning using facts provided in NEC Electronics case study
2. Improving business portfolio management of Nec Electronics
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 Nec Electronics
Strengths NEC Electronics | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Nec Electronics in NEC Electronics Harvard Business Review case study are -
Analytics focus
– Nec Electronics 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 C. Fritz Foley, Robin Greenwood, James Quinn 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.
Successful track record of launching new products
– Nec Electronics has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Nec Electronics has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Ability to lead change in Finance & Accounting field
– Nec Electronics 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 Nec Electronics 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 Nec Electronics in the sector have low bargaining power. NEC Electronics has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Nec Electronics to manage not only supply disruptions but also source products at highly competitive prices.
Learning organization
- Nec Electronics 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 Nec Electronics is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in NEC Electronics Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Nec Electronics digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Nec Electronics 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.
Effective Research and Development (R&D)
– Nec Electronics 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 NEC Electronics - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High brand equity
– Nec Electronics has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Nec Electronics to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Nec Electronics are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Training and development
– Nec Electronics has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in NEC Electronics 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.
Superior customer experience
– The customer experience strategy of Nec Electronics in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Innovation driven organization
– Nec Electronics is one of the most innovative firm in sector. Manager in NEC Electronics Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Weaknesses NEC Electronics | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of NEC Electronics are -
Lack of clear differentiation of Nec Electronics products
– To increase the profitability and margins on the products, Nec Electronics needs to provide more differentiated products than what it is currently offering in the marketplace.
Increasing silos among functional specialists
– The organizational structure of Nec Electronics is dominated by functional specialists. It is not different from other players in the Finance & Accounting segment. Nec Electronics needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Nec Electronics to focus more on services rather than just following the product oriented approach.
Products dominated business model
– Even though Nec Electronics 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 - NEC Electronics should strive to include more intangible value offerings along with its core products and services.
Slow to strategic competitive environment developments
– As NEC Electronics HBR case study mentions - Nec Electronics 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.
Aligning sales with marketing
– It come across in the case study NEC Electronics 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 NEC Electronics can leverage the sales team experience to cultivate customer relationships as Nec Electronics 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 NEC Electronics 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 Nec Electronics 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, Nec Electronics is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study NEC Electronics can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Interest costs
– Compare to the competition, Nec Electronics 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.
Capital Spending Reduction
– Even during the low interest decade, Nec Electronics 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study NEC Electronics, in the dynamic environment Nec Electronics has struggled to respond to the nimble upstart competition. Nec Electronics has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study NEC Electronics, it seems that the employees of Nec Electronics 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.
Opportunities NEC Electronics | 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 NEC Electronics are -
Loyalty marketing
– Nec Electronics 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.
Developing new processes and practices
– Nec Electronics 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.
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. Nec Electronics can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Leveraging digital technologies
– Nec Electronics 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Nec Electronics can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Nec Electronics 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, NEC Electronics, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Nec Electronics 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. Nec Electronics 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.
Manufacturing automation
– Nec Electronics 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Nec Electronics 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Nec Electronics can use these opportunities to build new business models that can help the communities that Nec Electronics operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Buying journey improvements
– Nec Electronics can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. NEC Electronics 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.
Learning at scale
– Online learning technologies has now opened space for Nec Electronics 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.
Using analytics as competitive advantage
– Nec Electronics 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 NEC Electronics - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Nec Electronics to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats NEC Electronics External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study NEC Electronics are -
Technology acceleration in Forth Industrial Revolution
– Nec Electronics has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Nec Electronics 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.
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.
Shortening product life cycle
– it is one of the major threat that Nec Electronics 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 Nec Electronics business can come under increasing regulations regarding data privacy, data security, etc.
High dependence on third party suppliers
– Nec Electronics 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.
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 Nec Electronics in the Finance & Accounting sector and impact the bottomline of the organization.
Consumer confidence and its impact on Nec Electronics 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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Nec Electronics with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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. Nec Electronics 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.
Stagnating economy with rate increase
– Nec Electronics 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 Nec Electronics 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.
Environmental challenges
– Nec Electronics 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. Nec Electronics can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Weighted SWOT Analysis of NEC Electronics 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 NEC Electronics 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 NEC Electronics 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 NEC Electronics 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 NEC Electronics 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 Nec Electronics needs to make to build a sustainable competitive advantage.
