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 - – increasing household debt because of falling income levels, increasing energy prices, competitive advantages are harder to sustain because of technology dispersion, increasing inequality as vast percentage of new income is going to the top 1%, talent flight as more people leaving formal jobs, increasing government debt because of Covid-19 spendings, increasing commodity prices,
challanges to central banks by blockchain based private currencies, increasing transportation and logistics costs, 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 -
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.
High switching costs
– The high switching costs that Baa Ferrovial 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.
Successful track record of launching new products
– Baa Ferrovial has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Baa Ferrovial 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.
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.
Innovation driven organization
– Baa Ferrovial is one of the most innovative firm in sector. Manager in FINANCIAL STRATEGY AT BAA PLC (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
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.
Learning organization
- Baa Ferrovial 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 Baa Ferrovial is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in FINANCIAL STRATEGY AT BAA PLC (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Effective Research and Development (R&D)
– Baa Ferrovial 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 FINANCIAL STRATEGY AT BAA PLC (A) - 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 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.
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.
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.
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.
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 -
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Baa Ferrovial is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study FINANCIAL STRATEGY AT BAA PLC (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Slow to strategic competitive environment developments
– As FINANCIAL STRATEGY AT BAA PLC (A) HBR case study mentions - Baa Ferrovial 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.
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.
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.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study FINANCIAL STRATEGY AT BAA PLC (A), it seems that the employees of Baa Ferrovial don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Increasing silos among functional specialists
– The organizational structure of Baa Ferrovial is dominated by functional specialists. It is not different from other players in the Leadership & Managing People segment. Baa Ferrovial needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Baa Ferrovial to focus more on services rather than just following the product oriented approach.
Aligning sales with marketing
– It come across in the case study FINANCIAL STRATEGY AT BAA PLC (A) 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 FINANCIAL STRATEGY AT BAA PLC (A) can leverage the sales team experience to cultivate customer relationships as Baa Ferrovial is planning to shift buying processes online.
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.
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.
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.
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.
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 -
Better consumer reach
– The expansion of the 5G network will help Baa Ferrovial to increase its market reach. Baa Ferrovial 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.
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.
Learning at scale
– Online learning technologies has now opened space for Baa Ferrovial 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Baa Ferrovial 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, FINANCIAL STRATEGY AT BAA PLC (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
Creating value in data economy
– The success of analytics program of Baa Ferrovial has opened avenues for new revenue streams for the organization in the industry. This can help Baa Ferrovial to build a more holistic ecosystem as suggested in the FINANCIAL STRATEGY AT BAA PLC (A) case study. Baa Ferrovial can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
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.
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.
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.
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.
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.
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.
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.
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.
Environmental challenges
– Baa Ferrovial 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. Baa Ferrovial can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
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.
Consumer confidence and its impact on Baa Ferrovial 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.
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.
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 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.
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.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study FINANCIAL STRATEGY AT BAA PLC (A), Baa Ferrovial 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 .
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.
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.
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.