Structured Credit Index Products and Default Correlation SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Finance & Accounting
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Structured Credit Index Products and Default Correlation
In mid-2003, Morgan Stanley and JPMorgan launched a number of structured credit products that had exposure to correlations in the credit risks of the firms underlying the TRAC-X index: tranched TRAC-X NA, tranched TRAC-X Europe, and options on both TRAC-X NA and TRAC-X Europe. The values of these TRAC-X derivatives were determined by some key parameters: the probabilities of default of each of the firms covered in the index, the recovery rates of the underlying corporate debt instruments in the event of default, and credit risk correlations among the underlying firms (plus, the value of TRAC-X options was also influenced by the volatility of CDS premiums). Tranched TRAC-X and other tranched products were often quoted in the market at prices that were expressed through an implied correlation parameter. Among the issues facing Morgan Stanley's Lewis O'Donald was the implication of the "implied correlation" quotations on the tranched products. Taken at face value, the quotations available in the market seemed to indicate that different tranches on the same underlying index of firms were trading at different implied default correlations. The market prices of the different tranches implied different default correlations for the same set of underlying firms--meaning that credit protection for the same set of underlying firms could be bought or sold at prices that assumed that the defaults of the underlying firms were correlated differently from the viewpoint of different tranches. This correlation skew across the different TRAC-X tranches represented a form of pricing discrepancy.
Swot Analysis of "Structured Credit Index Products and Default Correlation" written by Darrell Duffie, Erin Yurday includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Trac Tranched facing as an external strategic factors. Some of the topics covered in Structured Credit Index Products and Default Correlation case study are - Strategic Management Strategies, Financial markets, Product development, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Structured Credit Index Products and Default Correlation casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing transportation and logistics costs, there is backlash against globalization, talent flight as more people leaving formal jobs, wage bills are increasing, there is increasing trade war between United States & China, increasing household debt because of falling income levels,
increasing energy prices, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
Introduction to SWOT Analysis of Structured Credit Index Products and Default Correlation
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Structured Credit Index Products and Default Correlation case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Trac Tranched, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Trac Tranched 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 Structured Credit Index Products and Default Correlation can be done for the following purposes –
1. Strategic planning using facts provided in Structured Credit Index Products and Default Correlation case study
2. Improving business portfolio management of Trac Tranched
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 Trac Tranched
Strengths Structured Credit Index Products and Default Correlation | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Trac Tranched in Structured Credit Index Products and Default Correlation Harvard Business Review case study are -
Innovation driven organization
– Trac Tranched is one of the most innovative firm in sector. Manager in Structured Credit Index Products and Default Correlation Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Highly skilled collaborators
– Trac Tranched has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Structured Credit Index Products and Default Correlation HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of Trac Tranched
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Trac Tranched does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Trac Tranched 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.
Operational resilience
– The operational resilience strategy in the Structured Credit Index Products and Default Correlation 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.
Effective Research and Development (R&D)
– Trac Tranched 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 Structured Credit Index Products and Default Correlation - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Trac Tranched digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Trac Tranched 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.
Ability to recruit top talent
– Trac Tranched is one of the leading recruiters in the industry. Managers in the Structured Credit Index Products and Default Correlation are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Analytics focus
– Trac Tranched 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 Darrell Duffie, Erin Yurday 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
– Trac Tranched has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Trac Tranched 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.
High brand equity
– Trac Tranched has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Trac Tranched to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Trac Tranched in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Weaknesses Structured Credit Index Products and Default Correlation | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Structured Credit Index Products and Default Correlation are -
Products dominated business model
– Even though Trac Tranched 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 - Structured Credit Index Products and Default Correlation should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Structured Credit Index Products and Default Correlation, in the dynamic environment Trac Tranched has struggled to respond to the nimble upstart competition. Trac Tranched has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Structured Credit Index Products and Default Correlation, is just above the industry average. Trac Tranched 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 strategic competitive environment developments
– As Structured Credit Index Products and Default Correlation HBR case study mentions - Trac Tranched 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, Darrell Duffie, Erin Yurday suggests that, Trac Tranched 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.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Trac Tranched supply chain. Even after few cautionary changes mentioned in the HBR case study - Structured Credit Index Products and Default Correlation, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Trac Tranched vulnerable to further global disruptions in South East Asia.
Skills based hiring
– The stress on hiring functional specialists at Trac Tranched 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.
Interest costs
– Compare to the competition, Trac Tranched 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 dependence on star products
– The top 2 products and services of the firm as mentioned in the Structured Credit Index Products and Default Correlation 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 Trac Tranched has relatively successful track record of launching new products.
High cash cycle compare to competitors
Trac Tranched 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Trac Tranched 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.
Opportunities Structured Credit Index Products and Default Correlation | 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 Structured Credit Index Products and Default Correlation are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Trac Tranched 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
– Trac Tranched 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 Structured Credit Index Products and Default Correlation - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Trac Tranched to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Leveraging digital technologies
– Trac Tranched 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
– Trac Tranched 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.
Learning at scale
– Online learning technologies has now opened space for Trac Tranched 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.
Loyalty marketing
– Trac Tranched 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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Trac Tranched 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 Trac Tranched to hire the very best people irrespective of their geographical location.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Trac Tranched 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, Structured Credit Index Products and Default Correlation, 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, Trac Tranched is facing challenges because of the dominance of functional experts in the organization. Structured Credit Index Products and Default Correlation 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.
Creating value in data economy
– The success of analytics program of Trac Tranched has opened avenues for new revenue streams for the organization in the industry. This can help Trac Tranched to build a more holistic ecosystem as suggested in the Structured Credit Index Products and Default Correlation case study. Trac Tranched can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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. Trac Tranched 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. Trac Tranched 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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Trac Tranched can use these opportunities to build new business models that can help the communities that Trac Tranched operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Buying journey improvements
– Trac Tranched can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Structured Credit Index Products and Default Correlation 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.
Threats Structured Credit Index Products and Default Correlation External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Structured Credit Index Products and Default Correlation are -
Consumer confidence and its impact on Trac Tranched 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.
Increasing wage structure of Trac Tranched
– 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 Trac Tranched.
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.
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. Trac Tranched 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.
Regulatory challenges
– Trac Tranched 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Trac Tranched with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Environmental challenges
– Trac Tranched 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. Trac Tranched can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Technology acceleration in Forth Industrial Revolution
– Trac Tranched has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Trac Tranched 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.
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 Trac Tranched in the Finance & Accounting sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Structured Credit Index Products and Default Correlation, Trac Tranched 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 .
Shortening product life cycle
– it is one of the major threat that Trac Tranched is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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. Trac Tranched can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Trac Tranched 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 Structured Credit Index Products and Default Correlation .
Weighted SWOT Analysis of Structured Credit Index Products and Default Correlation 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 Structured Credit Index Products and Default Correlation 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 Structured Credit Index Products and Default Correlation 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 Structured Credit Index Products and Default Correlation 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 Structured Credit Index Products and Default Correlation 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 Trac Tranched needs to make to build a sustainable competitive advantage.