The case introduces students to the nature of collateralized debt obligations (CDO) and the CDO origination process, with emphasis on the corporate structure of the special purpose vehicles, cash flows to various CDO tranches, and motivation behind CDO origination. Students will learn to quantitatively evaluate the risk-return profile of CDO tranches with emphasis on the equity tranche (also known as "toxic waste"). This is ideal for MBA and advanced undergraduate level courses on financial markets, financial institutions, and investments. In the case, an associate at the Debt Capital Markets desk of Lehman Brothers prepares a CDO issuance for Western Asset. Western Asset had been contacted by a group of commercial banks eager to sell senior secured bank loans and high-yield corporate bonds to lower their capital requirements and free up capital for additional lending.
Swot Analysis of "Western Asset Arbitrage" written by Elena Loutskina, Rahul Prahbu includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Cdo Origination facing as an external strategic factors. Some of the topics covered in Western Asset Arbitrage case study are - Strategic Management Strategies, and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Western Asset Arbitrage casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, supply chains are disrupted by pandemic , wage bills are increasing, geopolitical disruptions, increasing transportation and logistics costs, increasing energy prices, challanges to central banks by blockchain based private currencies,
increasing commodity prices, there is increasing trade war between United States & China, etc
Introduction to SWOT Analysis of Western Asset Arbitrage
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Western Asset Arbitrage case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Cdo Origination, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Cdo Origination 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 Western Asset Arbitrage can be done for the following purposes –
1. Strategic planning using facts provided in Western Asset Arbitrage case study
2. Improving business portfolio management of Cdo Origination
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 Cdo Origination
Strengths Western Asset Arbitrage | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Cdo Origination in Western Asset Arbitrage Harvard Business Review case study are -
Ability to lead change in Finance & Accounting field
– Cdo Origination 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 Cdo Origination 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)
– Cdo Origination 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 Western Asset Arbitrage - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Ability to recruit top talent
– Cdo Origination is one of the leading recruiters in the industry. Managers in the Western Asset Arbitrage are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Cdo Origination digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Cdo Origination 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 Western Asset Arbitrage 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.
High brand equity
– Cdo Origination has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Cdo Origination to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
High switching costs
– The high switching costs that Cdo Origination 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.
Organizational Resilience of Cdo Origination
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Cdo Origination does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Finance & Accounting industry
– Western Asset Arbitrage firm has clearly differentiated products in the market place. This has enabled Cdo Origination to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Cdo Origination to invest into research and development (R&D) and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Cdo Origination 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.
Learning organization
- Cdo Origination 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 Cdo Origination is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Western Asset Arbitrage Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Diverse revenue streams
– Cdo Origination is present in almost all the verticals within the industry. This has provided firm in Western Asset Arbitrage 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.
Weaknesses Western Asset Arbitrage | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Western Asset Arbitrage are -
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Western Asset Arbitrage, in the dynamic environment Cdo Origination has struggled to respond to the nimble upstart competition. Cdo Origination has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Workers concerns about automation
– As automation is fast increasing in the segment, Cdo Origination 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.
Aligning sales with marketing
– It come across in the case study Western Asset Arbitrage 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 Western Asset Arbitrage can leverage the sales team experience to cultivate customer relationships as Cdo Origination is planning to shift buying processes online.
Need for greater diversity
– Cdo Origination 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.
Capital Spending Reduction
– Even during the low interest decade, Cdo Origination 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.
Low market penetration in new markets
– Outside its home market of Cdo Origination, firm in the HBR case study Western Asset Arbitrage needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High cash cycle compare to competitors
Cdo Origination 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.
High operating costs
– Compare to the competitors, firm in the HBR case study Western Asset Arbitrage 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 Cdo Origination 's lucrative customers.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Cdo Origination is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Western Asset Arbitrage 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, Cdo Origination 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Elena Loutskina, Rahul Prahbu suggests that, Cdo Origination 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.
Opportunities Western Asset Arbitrage | 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 Western Asset Arbitrage are -
Buying journey improvements
– Cdo Origination can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Western Asset Arbitrage 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 Cdo Origination 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Cdo Origination 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, Western Asset Arbitrage, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Cdo Origination is facing challenges because of the dominance of functional experts in the organization. Western Asset Arbitrage 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.
Leveraging digital technologies
– Cdo Origination 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.
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 Cdo Origination in the consumer business. Now Cdo Origination can target international markets with far fewer capital restrictions requirements than the existing system.
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. Cdo Origination can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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. Cdo Origination 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. Cdo Origination 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.
Learning at scale
– Online learning technologies has now opened space for Cdo Origination 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.
Creating value in data economy
– The success of analytics program of Cdo Origination has opened avenues for new revenue streams for the organization in the industry. This can help Cdo Origination to build a more holistic ecosystem as suggested in the Western Asset Arbitrage case study. Cdo Origination can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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 Cdo Origination 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.
Low interest rates
– Even though inflation is raising its head in most developed economies, Cdo Origination 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.
Using analytics as competitive advantage
– Cdo Origination 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 Western Asset Arbitrage - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Cdo Origination to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Western Asset Arbitrage External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Western Asset Arbitrage are -
High dependence on third party suppliers
– Cdo Origination 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.
Shortening product life cycle
– it is one of the major threat that Cdo Origination is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Cdo Origination 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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Western Asset Arbitrage, Cdo Origination 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 .
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. Cdo Origination needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Regulatory challenges
– Cdo Origination 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.
Environmental challenges
– Cdo Origination 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. Cdo Origination can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
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 Cdo Origination in the Finance & Accounting sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Cdo Origination 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 Western Asset Arbitrage .
Stagnating economy with rate increase
– Cdo Origination 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.
Consumer confidence and its impact on Cdo Origination 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.
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 Cdo Origination.
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.
Weighted SWOT Analysis of Western Asset Arbitrage 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 Western Asset Arbitrage 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 Western Asset Arbitrage 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 Western Asset Arbitrage 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 Western Asset Arbitrage 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 Cdo Origination needs to make to build a sustainable competitive advantage.
