Risk at Freddie Mac SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Leadership & Managing People
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Risk at Freddie Mac
At year-end 2003, Freddie Mac's total mortgage portfolio reached a total principal of $1.4 trillion. The U.S. government did not explicitly back Freddie Mac, a stockholder-owned organization, but investors were said to perceive some degree of implicit government backing. After its success in the 1990s, Freddie Mac made maintaining steady earnings growth in the mid-teens an explicit goal through interest rate risk management. To smooth earnings in a changing interest rate environment, Freddie Mac prided itself on modeling, measuring, and managing credit and interest rate risk. Significant resources were devoted to developing sophisticated, quantitative risk modeling and solutions. Interest rate risk was reduced largely through the use of interest rate swaps and swaptions. The motivation to smooth earnings was inherent in Freddie Mac's culture and caused business problems: The operations (e.g., accounting, audit, etc.) of the organization were not well supported, executive compensation was tied to meeting earnings estimates, and employees involved in developing creative accounting solutions to manage earnings were thought of as "first-class citizens." On January 22, 2003, Freddie Mac announced it would restate earnings for 2002, 2001, and possibly 2000. The following June, the Office of Federal Housing Enterprise Oversight (OFHEO), Freddie Mac's regulator, began an examination of Freddie Mac's culture and the events leading up to the restatement. OFHEO determined that Freddie Mac had neglected operations risk management when managing interest rate risk and earnings, leaving room for accounting and disclosure issues. How should investors view the events leading up to the $5 billion restatement and Freddie Mac's management of interest rate risk and operations risk?
Swot Analysis of "Risk at Freddie Mac" written by Darrell Duffie, Erin Yurday includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Freddie Mac facing as an external strategic factors. Some of the topics covered in Risk at Freddie Mac case study are - Strategic Management Strategies, Forecasting, Government, Risk management and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Risk at Freddie Mac casestudy better are - – digital marketing is dominated by two big players Facebook and Google, increasing inequality as vast percentage of new income is going to the top 1%, central banks are concerned over increasing inflation, challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , wage bills are increasing, increasing commodity prices,
there is increasing trade war between United States & China, increasing transportation and logistics costs, etc
Introduction to SWOT Analysis of Risk at Freddie Mac
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Risk at Freddie Mac case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Freddie Mac, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Freddie Mac 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 Risk at Freddie Mac can be done for the following purposes –
1. Strategic planning using facts provided in Risk at Freddie Mac case study
2. Improving business portfolio management of Freddie Mac
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Freddie Mac
Strengths Risk at Freddie Mac | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Freddie Mac in Risk at Freddie Mac Harvard Business Review case study are -
Highly skilled collaborators
– Freddie Mac 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 Risk at Freddie Mac HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Learning organization
- Freddie Mac 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 Freddie Mac is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Risk at Freddie Mac Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Freddie Mac digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Freddie Mac 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.
Analytics focus
– Freddie Mac 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.
Effective Research and Development (R&D)
– Freddie Mac 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 Risk at Freddie Mac - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Organizational Resilience of Freddie Mac
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Freddie Mac does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Superior customer experience
– The customer experience strategy of Freddie Mac in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Freddie Mac has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Freddie Mac 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 recruit top talent
– Freddie Mac is one of the leading recruiters in the industry. Managers in the Risk at Freddie Mac are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Strong track record of project management
– Freddie Mac is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Cross disciplinary teams
– Horizontal connected teams at the Freddie Mac 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.
Innovation driven organization
– Freddie Mac is one of the most innovative firm in sector. Manager in Risk at Freddie Mac Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Weaknesses Risk at Freddie Mac | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Risk at Freddie Mac are -
High bargaining power of channel partners
– Because of the regulatory requirements, Darrell Duffie, Erin Yurday suggests that, Freddie Mac 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.
Slow to strategic competitive environment developments
– As Risk at Freddie Mac HBR case study mentions - Freddie Mac 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.
Workers concerns about automation
– As automation is fast increasing in the segment, Freddie Mac needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Risk at Freddie Mac 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 Freddie Mac 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, Freddie Mac is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Risk at Freddie Mac can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Products dominated business model
– Even though Freddie Mac 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 - Risk at Freddie Mac should strive to include more intangible value offerings along with its core products and services.
Lack of clear differentiation of Freddie Mac products
– To increase the profitability and margins on the products, Freddie Mac needs to provide more differentiated products than what it is currently offering in the marketplace.
High operating costs
– Compare to the competitors, firm in the HBR case study Risk at Freddie Mac 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 Freddie Mac 's lucrative customers.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Risk at Freddie Mac, in the dynamic environment Freddie Mac has struggled to respond to the nimble upstart competition. Freddie Mac has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Low market penetration in new markets
– Outside its home market of Freddie Mac, firm in the HBR case study Risk at Freddie Mac needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Freddie Mac is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Freddie Mac needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Freddie Mac to focus more on services rather than just following the product oriented approach.
Opportunities Risk at Freddie Mac | 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 Risk at Freddie Mac are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Freddie Mac 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.
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 Freddie Mac 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.
Building a culture of innovation
– managers at Freddie Mac 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 Leadership & Managing People segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Freddie Mac 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, Risk at Freddie Mac, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Leadership & Managing People industry, but it has also influenced the consumer preferences. Freddie Mac can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Freddie Mac can use these opportunities to build new business models that can help the communities that Freddie Mac operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Freddie Mac 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. Freddie Mac 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.
Buying journey improvements
– Freddie Mac can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Risk at Freddie Mac 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 Freddie Mac in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Better consumer reach
– The expansion of the 5G network will help Freddie Mac to increase its market reach. Freddie Mac 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.
Learning at scale
– Online learning technologies has now opened space for Freddie Mac 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Freddie Mac is facing challenges because of the dominance of functional experts in the organization. Risk at Freddie Mac 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.
Developing new processes and practices
– Freddie Mac can develop new processes and procedures in Leadership & Managing People 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.
Threats Risk at Freddie Mac External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Risk at Freddie Mac are -
Shortening product life cycle
– it is one of the major threat that Freddie Mac is facing in Leadership & Managing People 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 Freddie Mac business can come under increasing regulations regarding data privacy, data security, etc.
Consumer confidence and its impact on Freddie Mac 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.
Environmental challenges
– Freddie Mac 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. Freddie Mac can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Freddie Mac with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Regulatory challenges
– Freddie Mac 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 Leadership & Managing People industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Risk at Freddie Mac, Freddie Mac may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Freddie Mac can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology acceleration in Forth Industrial Revolution
– Freddie Mac has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Freddie Mac needs to keep up with the evolution of technology in the Leadership & Managing People 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.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Freddie Mac 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 Risk at Freddie Mac .
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 dependence on third party suppliers
– Freddie Mac 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.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Freddie Mac in the Leadership & Managing People industry. The Leadership & Managing People 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.
Weighted SWOT Analysis of Risk at Freddie Mac 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 Risk at Freddie Mac 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 Risk at Freddie Mac 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 Risk at Freddie Mac 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 Risk at Freddie Mac 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 Freddie Mac needs to make to build a sustainable competitive advantage.
