Case Study Description of FINANCIAL STRATEGY AT BAA PLC (A)
Grupo Ferrovial from Spain acquired BAA PLC, the UK airport operator, in June 2006 following one of the most interesting battles for control in recent years in Europe. BAA was an extremely successful and profitable company, managing Heathrow and Gatwick airports in London, among others.The A case, Financial Strategy at BAA PLC, discusses the structure of the target company and specifically its capital structure. BAA's asset base was very stable, low risk and very well protected from competition. The firm had been generating substantial cash flows over the past few years and had completed some acquisitions at home and abroad. Yet, it was underleveraged, not only according to the simple capital structure theory but also compared to its peers. Therefore, Grupo Ferrovial (and Goldman Sachs, which was competing to acquire BAA) found a great value opportunity by leveraging up BAA's assets. The B case, Ferrovial Conquers the UK, guides us through the acquisition process and in particular through the financing aspects of the deal. The BAA-Ferrovial Acquisition received the Finance Package of the Year Award by Acquisitions Monthly Magazine. The deal was the largest infrastructure acquisition financing ever undertaken in the debt markets; it contained the largest second lien tranche ever, which maximized liquidity, tapping interest among both banks and fund investors; and had a groundbreaking structure designed potentially to survive a whole-business securitization. Learning objectives: The case can be used with a broad range of audiences and provides opportunities to discuss the basics of capital structure and financial policy; to describe the functioning of debt markets; to follow a complex acquisition that went from hostile to friendly; to discuss syndication in the credit markets; and to analyze the challenges that CFOs face in order to balance the threat of acquisitions with the need for a conservative capital structure. It can be used in a basic finance course to introduce capital structure and debt financing. It can also be used with finance teams and with executives in general as a way to discuss the complex terms of the transaction.
Swot Analysis of "FINANCIAL STRATEGY AT BAA PLC (A)" written by Arturo Bris, Sophie Coughlan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Baa Ferrovial facing as an external strategic factors. Some of the topics covered in FINANCIAL STRATEGY AT BAA PLC (A) case study are - Strategic Management Strategies, and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the FINANCIAL STRATEGY AT BAA PLC (A) casestudy better are - – geopolitical disruptions, there is backlash against globalization, increasing inequality as vast percentage of new income is going to the top 1%, increasing energy prices, competitive advantages are harder to sustain because of technology dispersion, there is increasing trade war between United States & China, supply chains are disrupted by pandemic ,
challanges to central banks by blockchain based private currencies, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc
Introduction to SWOT Analysis of FINANCIAL STRATEGY AT BAA PLC (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in FINANCIAL STRATEGY AT BAA PLC (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Baa Ferrovial, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Baa Ferrovial 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 FINANCIAL STRATEGY AT BAA PLC (A) can be done for the following purposes –
1. Strategic planning using facts provided in FINANCIAL STRATEGY AT BAA PLC (A) case study
2. Improving business portfolio management of Baa Ferrovial
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 Baa Ferrovial
Strengths FINANCIAL STRATEGY AT BAA PLC (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Baa Ferrovial in FINANCIAL STRATEGY AT BAA PLC (A) Harvard Business Review case study are -
Strong track record of project management
– Baa Ferrovial is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Ability to lead change in Leadership & Managing People field
– Baa Ferrovial 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 Baa Ferrovial in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Sustainable margins compare to other players in Leadership & Managing People industry
– FINANCIAL STRATEGY AT BAA PLC (A) firm has clearly differentiated products in the market place. This has enabled Baa Ferrovial to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Baa Ferrovial to invest into research and development (R&D) and innovation.
Analytics focus
– Baa Ferrovial 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 Arturo Bris, Sophie Coughlan 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.
Digital Transformation in Leadership & Managing People segment
- digital transformation varies from industry to industry. For Baa Ferrovial digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Baa Ferrovial 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.
Cross disciplinary teams
– Horizontal connected teams at the Baa Ferrovial 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.
High brand equity
– Baa Ferrovial has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Baa Ferrovial to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Highly skilled collaborators
– Baa Ferrovial 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 FINANCIAL STRATEGY AT BAA PLC (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Training and development
– Baa Ferrovial has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in FINANCIAL STRATEGY AT BAA PLC (A) 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 Baa Ferrovial in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Operational resilience
– The operational resilience strategy in the FINANCIAL STRATEGY AT BAA PLC (A) 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.
Organizational Resilience of Baa Ferrovial
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Baa Ferrovial does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses FINANCIAL STRATEGY AT BAA PLC (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of FINANCIAL STRATEGY AT BAA PLC (A) are -
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study FINANCIAL STRATEGY AT BAA PLC (A), in the dynamic environment Baa Ferrovial has struggled to respond to the nimble upstart competition. Baa Ferrovial has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Products dominated business model
– Even though Baa Ferrovial 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 - FINANCIAL STRATEGY AT BAA PLC (A) should strive to include more intangible value offerings along with its core products and services.
Lack of clear differentiation of Baa Ferrovial products
– To increase the profitability and margins on the products, Baa Ferrovial needs to provide more differentiated products than what it is currently offering in the marketplace.
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 Baa Ferrovial supply chain. Even after few cautionary changes mentioned in the HBR case study - FINANCIAL STRATEGY AT BAA PLC (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Baa Ferrovial vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– Baa Ferrovial 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.
Interest costs
– Compare to the competition, Baa Ferrovial 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.
No frontier risks strategy
– After analyzing the HBR case study FINANCIAL STRATEGY AT BAA PLC (A), it seems that company is thinking about the frontier risks that can impact Leadership & Managing People strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Low market penetration in new markets
– Outside its home market of Baa Ferrovial, firm in the HBR case study FINANCIAL STRATEGY AT BAA PLC (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High bargaining power of channel partners
– Because of the regulatory requirements, Arturo Bris, Sophie Coughlan suggests that, Baa Ferrovial 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 cash cycle compare to competitors
Baa Ferrovial 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study FINANCIAL STRATEGY AT BAA PLC (A), is just above the industry average. Baa Ferrovial 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.
Opportunities FINANCIAL STRATEGY AT BAA PLC (A) | 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 FINANCIAL STRATEGY AT BAA PLC (A) are -
Leveraging digital technologies
– Baa Ferrovial 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.
Using analytics as competitive advantage
– Baa Ferrovial 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 FINANCIAL STRATEGY AT BAA PLC (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Baa Ferrovial to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Building a culture of innovation
– managers at Baa Ferrovial 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.
Manufacturing automation
– Baa Ferrovial can use the latest technology developments to improve its manufacturing and designing process in Leadership & Managing People 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.
Developing new processes and practices
– Baa Ferrovial 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Baa Ferrovial can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Baa Ferrovial 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Baa Ferrovial is facing challenges because of the dominance of functional experts in the organization. FINANCIAL STRATEGY AT BAA PLC (A) 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.
Buying journey improvements
– Baa Ferrovial can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. FINANCIAL STRATEGY AT BAA PLC (A) 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.
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. Baa Ferrovial can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Baa Ferrovial 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 Baa Ferrovial to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Baa Ferrovial 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.
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 Baa Ferrovial in the consumer business. Now Baa Ferrovial can target international markets with far fewer capital restrictions requirements than the existing system.
Threats FINANCIAL STRATEGY AT BAA PLC (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study FINANCIAL STRATEGY AT BAA PLC (A) are -
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.
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 Baa Ferrovial in the Leadership & Managing People sector and impact the bottomline of the organization.
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 Baa Ferrovial business can come under increasing regulations regarding data privacy, data security, etc.
Regulatory challenges
– Baa Ferrovial 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.
Stagnating economy with rate increase
– Baa Ferrovial 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.
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. Baa Ferrovial 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.
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 Baa Ferrovial.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Baa Ferrovial 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.
High dependence on third party suppliers
– Baa Ferrovial 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.
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. Baa Ferrovial needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Baa Ferrovial with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
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. Baa Ferrovial can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
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 FINANCIAL STRATEGY AT BAA PLC (A) 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 FINANCIAL STRATEGY AT BAA PLC (A) 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 FINANCIAL STRATEGY AT BAA PLC (A) 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 FINANCIAL STRATEGY AT BAA PLC (A) 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 FINANCIAL STRATEGY AT BAA PLC (A) 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 Baa Ferrovial needs to make to build a sustainable competitive advantage.
