Wharton Graduation Day!

Life wont be the same without these three and I wont be able to graduate without their support!

School said its the graduation celebration, to me it was all about celebrating the sacrifices they made to help me get here!!!

0-wharton-with-family

1-wharton-with-kids

2-wharton-with-maryam

Wharton Term 6

Now that its over, I think I will miss these sleepless night

Credits Course ID Course Title
0.5 FNCE-750-701 Vent Cap & Fnce Innovat
0.5 FNCE-891-701 Advanced Seminar: Corporate Restructuring
1.0 MGMT-691-701 Negotiations
1.0 MGMT-721-701 Corp Dev: Merg & Acquis
0.5 MGMT-804-701 Venture Cap & Ent Mgmt

Put yourself in the shoes of Japonica Partners considering an investment in Sunbeam Oster:

  1. What is Smith Barney’s valuation of Sunbeam Oster.

Smith Barney valued the company at $510M to $570M. He used the 1991 EBIT projection of the Debtor’s plan of $72.9M, build an arbitrary range of $68M to $76M (-$4.9M / +$3.1M) and then multiplied this number with 7.5. He determined the 7.5 multiplier by calculating the ratio of EBIT to market value of various assets in the industry.

For us, this approach is highly questionable. Taking the 1991 EBIT number out of an multiyear projection is arbitrary and easy to manipulate. According to the projection, the EBIT is supposed to rise y-o-y. Taking just one EBIT number doesn’t take this into account.

He should have rather used the DCF methodology to come up with a value estimation. After accomplishing this task, he should have carefully selected comparable firms (not all the firms in the list have similar portfolios as Sunbeam) and calculated their EBITDA (EBITDA is a good measure of core profit trends because it eliminates some of the extraneous factors) to value ration. By doing this, he should have taken into account that the other firms value might have been inflated due to the nature of the stock market. Sunbeam situation is different: they are not in a stable condition and have to win consumer confidence back.

What are the key sources of additional value that you see in the company that are not captured in this estimate?

  • SG&A cost cut by combining the administrative functions of Sunbeam and Osters, and by changing the focus focus of the sales force
  • Valuation of the Latin American Operations might be to low and should be re-assessed
  • Accounting methodology needs to be re-implemented to assure correct accrual/depreciation of CAPEX.
  • Risk allowances could be lowered e.g for disputed claims
  • Sunbeam might have off balance sheet assets, such as land and escrow accounts. This should be checked.
  • Re-assess number/ value/ scope of insurance policies. Some might not be needed any more.
  • There might be a tax loss carry forward as reorganized entity
  1. What is the enterprise value of Sunbeam Oster based on a DCF model with the projections in Exhibit 9 (and possibly some of your own assumptions) as inputs?

Our DCF valuation is based on the following facts and assumptions:

  • Market Risk Premium of 7.0% (Rm =15%);
  • Cost of debt: 8% (based on 30 y US treasury bond rate 8.3%)
  • Asset beta (sunbeam): 0.72
  • Tax rate: 40%
  • Unlevered cost of equity: 13.3%
  • WACC :8.2%
  • There might be a tax loss and a NOL carry forward of $18.8M/year as reorganized entity
  • Terminal (or perpetual) growth rate (g) = 3.0%

We also assume that the planning horizon is 5 years or more, which is common in the private equity space and allows sufficient time to stabilize the target acquisition company and implement the new business plan (including any cost reductions, synergies, bringing new products to market, and new marketing campaigns).

Based on these assumptions, we valued the enterprise at $725.7M:

We also ran a Monte Carlo simulation to assess the sensitivity to our assumptions of β, market risk and growth rate.

There are certainly other methods and assumptions that could be employed to do the DCF. However, we feel that our approach was reasonable, straight-forward and introduced the least amount of risk.

  1. Propose a plan of reorganization that allows you to capture the value you see in Sunbeam.
  2. How much equity would you raise to fund your plan? How much debt?

Using our enterprise value of $725M, we propose a capital structure of $400M in new debt and ~$325M in equity.  This  does achieve an IRR of 28.3%, even by conservative estimates.  However, achieving this requires 55.1% of the equity to go to debt, which violates the requirements under IRS section 382 (l)(5), which limits the use of the NOLs in the manner shown above. The alternative would be to apply the NOLs under 382(l)(6), which would severely limit the use of NOLs, reducing the IRR below the 25% level.

Additionally, it is important to note the multiples associated with this enterprise value and level of debt.  And enterprise value of $725M corresponds to an EBITDA multiple of about 7x.  That is in line with exhibits 13A and 13B in the case.  However, an equity value of $325M is less than a 6.5x EBITDA multiple.  These are not monumental differences, but it is worth noting that the equity is undervalued, and this may effect of the cost of equity going forward.  It may also result in rapidly rising stock prices after the first 4-6 quarters of financial performance are released, should the company meet or beat expectations.

 

  1. Can you deliver projected returns of 25-35% on an equity investment in Sunbeam? Why or why not?

A 5 year IRR of 28.3% is feasible at a Debt to Equity ratio of 55.1%. Please see the attached table for details.

Wharton Term 5

Credits Course ID Course Title
1.0 FNCE-731-701 Internatl Corp Finance
1.0 FNCE-899-756 Independent Study Project in Finance
1.0 MGMT-671-701 Executive Leadership: Total Leadership
0.5 MGMT-701-751 Strat & Compet Advantage
0.5 MGMT-773-751 Managing Org Change
0.5 MGMT-802-701 Innov, Chg and Ent
0.5 OPIM-654-701 Product Design&Devel

Strategy And Competitive Advantage Paper

Thomson Reuters – Strategy Overview

Overview of Thomson Reuters

Thomson Reuters Corporation (Thomson Reuters) is one of the leading providers of information for businesses and professionals across the world. Thomson Reuters is organized in the following four key business units, Financial & Risk, Legal, Tax & Accounting, and Intellectual Property & Science.  Financial & Risk division provides news, information and analytics for financial professionals, Legal division provides decision support tools such as software and services for legal professionals, Tax & Accounting division provides tax compliance and accounting information, software and services for professionals and Intellectual Property & Science division is a provider of intellectual property and scientific resources.

Thomson Reuters shares are listed on the New York Stock Exchange (NYSE: TRI) and the Toronto Stock Exchange (TSX: TRI).  Headquartered in New York, Thomson Reuters in 2011 had revenues of US $12.9 Billion and over 60,000 employees in more than 100 countries.  Of the US $12.9 Billion revenue Financial & Risk’s revenue was US $7.49 Billion, Legal’s revenue was US $3.43 Billion, Tax & Accounting’s revenue was US $1.149 Billion, and Intellectual Property & Science’s gross revenue was US $0.852 Billion.

In this paper we will discuss high level strategy for Thomson Reuters but our focus will be on its revenue leading business division Financial & Risk.  For the fiscal year ending December 2011, Financial and Risks (Markets) division increased its revenue by 4.5% over revenue in 2010.  In the Financial & Risk division, Sales and Trading unit accounted for 49.6%, Investment & Advisory for 29.5%, Enterprise for 16.5% and Media for 4.5% of the division’s revenue.  Financial and Risks division accounted for 58% of total Thomson Reuters` revenue.

Industry Analysis

Financial & Risk business segment provides news, financial products and analytics to business and Government professionals worldwide.  We will analyze the industry Financial & Risk business segment operates in by reviewing buyer power, substitution threats, supplier power, new entrants/entry barriers, complementors and industry competitors (intensity of rivalry).

Buyer Power:  Biggest customers of financials products are large financial institutions i.e large banks and investment banks.  Overall financial industry is going through tremendous amount of consolidation which is increasing buyer concentration.  Switching costs of financial terminals, a high margin product, for the customers is very low; many financials professionals are well versed with competitor’s products and can adopt different solution easily.  On the other hand switching costs of data feeds and other products which integrate with workflow of customers is relatively high.  Ability of the buyer to easily find a substitute product, buyer concentration and low switching costs indicates that the buyers have power over Thomson Reuters.

Substitution threats:  Data feeds and financial desktop/web based solutions are two main types of products Thomson Reuters provides.  Data provided by Thomson Reuters is integrated by customers in their databases and is critical in operations of business.  These data feeds are integrated with customer systems using some industry standard and few Thomson Reuters proprietary symbols.  Use of Thomson Reuters’ proprietary symbols and complex backend systems makes substitution of data feeds extremely difficult.  Financial desktop/web based solutions on the other hand are significantly easier to substitute.  Companies rarely have an exclusive contract with Thomson Reuters and customers using financial desktop/web based solutions are well versed with competitor’s products; These factors make substitution a serious threat.

Supplier power:  Top exchanges of the world such as NYSE, NASDAQ, Tokyo Stock Exchange, London Stock Exchange and government bodies such as SEC are main suppliers of data to Thomson Reuters and its competitor’s.  In many cases the suppliers are trying to compete with Thomson Reuters which makes negotiating with them for lower prices very difficult;  for example few weeks ago Thomson Reuters announced that it has reached an agreement to sell most of its corporate services businesses (from Financial & Risk division) to NASDAQ for $390 million in an all cash transaction.  Consistent feed of data from top suppliers is critical for any usable financial product which gives suppliers tremendous amount of power and little to no bargaining power to Thomson Reuters.  On the other hand Thomson Reuters is a high volume buyer for top technology hardware and software vendors.  These technology vendors (suppliers) don’t have much supplier power, and Thomson Reuters should be able to negotiate attractive discounts and payment terms.

Complementors:  Lack of complementors is one of the biggest weakness of Thomson Reuters’  products.  There are little to no suppliers or other products which are exclusively available in Thomson Reuters products.  Based on analysis of product portfolio and functionality offered in Thomson Reuters products it was difficult to find complementors due to which Thomson Reuters customers will value Thomson Reuters products more with these complementary products than when they have Thomson Reuters products or complementary product alone.

New entrants / entry barriers: Industry Financial & Risk division operates in is changing very quickly due to adoption of newer technologies and automation.  For example, a decade ago data feeds from SEC often required manual tagging to improve the quality of documents, providing these value added services required significant capital investment and it was difficult to enter this market but now most of the data coming from SEC is tagged and a new entrant can provide similar services with significantly with less than a tenth of past capital requirement.  Though it is easy to enter this industry by building new products, a large sales network and good brand equity of Thomson Reuters does give it an edge over new entrants with average products.

One key advantage new entrants have is that the product is information which distributed over internet and all new entrants have access to similar distribution (internet), in the last decade some new entrants have entered the market with good products and were able to take advantage of easy of distribution to successfully establish a niche.  As entry barriers continue to fall Thomson Reuters should keep a close eye on new entrants.

Industry competitors:  Thomson Reuters’ Financial and Risk division faces competition from companies such as Reed Elsevier, Bloomberg, FactSet, Standard & Poor, IDC, Broadridge Financial Solutions, Capital IQ, Morningstar, Dow Jones and many others.  These companies are big competitors in their niche and they have huge market shares in the segments they excel in.  There are high exit barriers for any company in this industry because in the current economic environment valuation will be low for assets related to companies providing services to financial industry.  As the customers consolidation causes the overall industry to shrink/stagnate, high fixed costs and high exit barriers will result in increased pressure from competitors as Financial & Risks division tries to grow.

Positioning Analysis

Different dimensions such as data timeliness, data quality, data types (different type of data – also known as data width), data depth (historic information – also known as data depth), production cost, sales cost/margins, and market cost position were analyzed.  For Financial and Risk division, the two dimensions they seem to differentiate on are content width & depth v/s cost position.  Please refer to Exhibit: 2. Positioning Chart.

Content width & depth:  For products providing financial data this is one of the very important dimensions.  Consolidating different types of data into a single product is very useful because it provides our end-user a single platform to perform all the tasks.  For example an associate performing analysis on a company could review company financials, estimates, deals, ownership, insider trades, analyst research reports and other financial information about a company in a single product.  Having this variety of data historically provides Thomson Reuters an edge and provides positioning advantage difficult to match.

Sales Cost / Margins:  One of the biggest competitors of Financial and Risks division is Bloomberg, a privately held company which is also a market leader in high margin terminal business.  When competing with Bloomberg, Thomson Reuters has lower sales price for products with similar functionality and comparable data coverage.

When you look at new entrants and most other competitors, content width & depth v/s sales cost position are very attractive dimensions because on one hand for a new entrant it is impossible to compete with Thomson Reuters on content width & depth and if they try to do that it will be impossible to match the price and still be profitable until they have a very high number of customers.  Though a new competitor could have a niche and could build a better product for a specific use case it is impossible to build something that could match Thomson Reuters’ content width & depth without significant investments for an extended period of time.

Over the last decade content width & depth has consistently been a key dimension for differentiation in the industry.  Thomson Reuters has benefited from this dimension but as advancing technology introduces disruptive changes in this industry, basic content with necessary depth and width will be a commodity and key dimension for future will be content insights (deep analytics of connected data) along with accuracy and timeliness of content.

Based on industry trends one should expect all competitors to implement advanced analytics on their data and the new entrants will collaborate with other smaller players to provide offerings which can plug and play with each other to provide content width they lack when they try to compete alone.

As industry shifts in this direction any company which has better intellectual property (patents etc) will benefit the most and should be able to consolidate its market position.

Activities Implementing Positioning

Two key factors impact positioning of Financial and Risk business:  1. High fixed cost to produce base content and financial systems for first customer; 2. Very low variable cost for new customers.   High fixed costs are associated with thousands of analysts collecting variety of content and large technology staff building IT systems and products, but once the content is collected and systems are built incremental costs as we add more customers is negligible.  Please refer to Exhibit: 3. Activity System for Financial and Risk business, different activities the group performs help implement the positioning of high content width and depth and low sales costs.  Following is description of key activity systems.

Collect wide variety of content (Content with width and depth):  Financial and Risks division has thousands of employees collecting data manually and they are actively looking for additional data sources – i.e. third party data feed providers.  This is a key activity which helps Thomson Reuters differentiate itself in marketplace and provides a key competitive edge.

Content Quality:  Focus on content quality is starting to increase, dedicated quality staff reviews all the content produced by different teams, separate quality staff reviews the products and other offerings to ensure that they are producing best quality content and financial systems.  (Thomson Reuters’ industry reputation is not very strong when it comes to content and financial systems quality and consistency – this should be the focus to drive future growth)

Content Timeliness:  Financial data is almost considered as commodity with little to no value if it is not accurate and provided in timely fashion.  Content Timeliness is a key goal and there are various SLA Thomson Reuters products maintain timely deliver data in timely fashion.

Cost Controls:  Collection of large amount of content and development of complex financial systems has high fixed costs.  To manage fixed costs various cost controls are implemented, such as in senior management, managers bonus is tied to margins maintained and on the other hand content analysts bonuses are based on quantity and quality of data collected.  With its global locations travel is a necessary activity but by adopting various technologies such as audio/video conferences the travel frequency is reduced and for necessary travel employees even sr managers don’t travel in first class.  (Only in a limited number of international flights allow for economy plus or business class travel)

Sales and Support Teams:  With low variable costs for adding new customers there is a large incentive in targeting new customers to increase sales.  There is a large sales and support team working with customers across the world trying to upgrade existing customers to newer products and finding new customers who currently use competitors’ products.  Often Sales and Support teams are dedicated to large customers to provide better customer experience and dedicated staff helps with cross selling other products.

Direct Distribution:  To maintain healthy margins Thomson Reuters provides data and products directly to end users (customers).  This strategy helps with not only maintaining low distribution cost and high margins but it also helps with branding.

Targeted Marketing Expense:  Thomson Reuters has a large customer base across the world but only a certain segment of general population uses Thomson Reuters products so marketing and sales expense needs to be managed very carefully to ensure that they are targeting the right segment and that investment are providing the required ROI.  This activity interacts with cost controls and with the large sales, marketing and customer support teams.

Global Location:  Thomson Reuters collects data for companies across the world from financial documents in different languages and also has customers in all countries with well-established financial markets.  Sales staff is based in all these regions.

Innovation:  Financial data analytics and information system design are key innovation activities necessary in this segment.  Generally Thomson Reuters website and other new releases talk about innovative new products etc though overall marketplace perspective of Thomson Reuters products is that the products are not very innovative and to generate any useful insights customers implement their own analytics and often refer to other products.

Branding:  Thomson Reuters is a big brand name with professionals in its target industry and is very important for the sales of its product. Directly distributing the products via terminal improves brand awareness and content quality, width and depth helps improve the brand value of Thomson Reuters and Financial and Risk division’s products.

Activities Reinforcing Each Other

Automation:  This is a critical activity and is related to different activities and re-enforces other key activities within the company.  Assuming that team automates tasks which were currently done by staff or activities which will be required to be done in near future, implementation of automated systems directly reduces the costs – Automation is key driver of fixed cost reduction.

Automated systems are not only efficient but when implemented correctly also significantly reduces the errors – thus improving the content quality.  Automated systems run on computers and can perform with high efficiency 24 hours a day thus improving the timeliness of content.

Automation activity can be sub divided into different types:

Content Collection Automation:  Data is usually collected by analysts by reviewing financial documents and public websites of companies, government agencies and exchanges.  In this type of automation activity the core task of collecting data is automated.  This can be done by either downloading data from external feeds or by parsing data out of documents automatically.  Recent advancements in technology have enabled both possibility and industry is experiencing significant amount of progress in automation of content collection.

Content Quality Check Automation:  Content quality checks until recently took hours and were largely manual tasks but these can be automated very easily by developing algorithms running on computers in few seconds.  Content quality checks can happen at run-time as analysts enter data to see if they made mistake in data entry, for example if a company had revenue of US $10 Million last years and revenue growth has been 5% – 10% in the previous few years and today if analysts enters US $111 Million as new revenue, an algorithm should be able to quickly check the past revenue, past revenue growth rate and project expected revenue range for next year and if the number entered by analyst is significantly different it can ask analyst to verify the numbers.  These types of error checks will not only help with improving quality of that one data item (revenue) but will also improve quality of other data items which are derived using this underlying data.

This type of automation also improves customer service calls received – thus further reducing operating costs.

Large Content Teams & Low Cost Content Collection Centers:  Providing a variety of data (width) with full historic information is often very manual and expensive task.  Moreover financial data is often very cyclical, i.e. it has very clear peaks and valleys; for example over 90% of annual reports filed by companies are with a week when mandated by SEC.  Quickly collecting all this data is critical to provide data to customers and to manage the various product SLAs.  Large content teams are critical to collect this variety of data in timely fashion.

Managing large teams is critical and it re-enforces other activities such as collection of width & depth of data, collect data in timely fashion and to collect data with high quality.

Large content teams will not only be very expensive in New York city or other part of US but it will also be very difficult to hire all resources with necessary language skills within US.  Having large content teams distributed in different countries reinforces other activities such as:

Content Timeliness:  Global teams allows content collection operations 24 hour hours a day without needing multiple shifts.  Ramp up and ramp down is also easier and cost effective in other countries.

Content Quality:  When collecting data from documents in different languages, having native speakers in different country collect data helps with increasing the accuracy of data collected, thus improving content quality.

Cost Control:  Having large content staff in countries such as India, China and Indonesia significantly reduces the operating (fixed) costs associated with collecting and managing this data.

Competitive Advantage Source

Thomson Reuters is a large organization and key source for competitive advantage is their sales staff and the current depth and width of data.  Current access to customer and existing contracts with customers is a significant competitive advantage because this makes it very difficult for new entrants to replace Thomson Reuters products especially when new entrants don’t have the data coverage to match Thomson Reuters products.

Thomson Reuters brand is also a huge competitive advantage.

Sustainability Assessment

Thomson Reuters announced that it has reached an agreement to sell most of its corporate services businesses (from Financial & Risk division) to NASDAQ for $390 million.  As key suppliers of data to Thomson Reuters enter the market with competing products one should expect Thomson Reuters to exit those markets.  Trying to compete with our suppliers would not only impact other lines of business but as competitive products from suppliers gain critical mass of customers the value of (purchasing) our business which own these products reduces.

Based on current market condition (ongoing consolidation) of financial industry one should expect Thomson Reuters to be conservative with investing more in Financial & Risk division in the year 2013 and 2014.  One should expect Thomson Reuters to have a net divesture in Financial & Risk over the next couple of years while it will continue to invest in targeted/strategic products in Financial & Risk division.

Healthy year-over-year revenue and gross margins in past and consistent growth rate (excluding financial crises) will make Financial & Risk division an attractive target for a Private Equity buyout.

Restructured Financial & Risk division with a leaner operations and faster adoption of newer innovative technologies to deliver content insights (deep analytics of connected data) along with accuracy and timeliness of content will help sustain growth in future and will help Financial & Risk division compete on dimensions important for future growth.

 

Wharton Term 4

Credits Course ID Course Title
1.0 FNCE-726-701 Advanced Corp Finance
0.5 LGST-621-701 Govt/Legal Environment
0.5 MGMT-654-701 Competitive Strategy
0.5 MGMT-655-701 Global Strategic Mgmt
0.5 MGMT-801-701 Entrepreneurship
0.5 MGMT-811-701 Entrep Through Acquis.
0.5 MKTG-728-751 Contagious
1.5 MKTG-890-703 Advanced Study Project

Making Things Contagious

Overview:  LifeLock had an ad campaign in which its CEO was shown while a truck drove behind him showing his social security number.  This was a TV and billboard advertising campaign.  LifeLock also had a print advertisement campaign showing his social security number.  In all the advertisements the CEO guaranteed that identity theft was impossible if someone used LifeLock service.

Lifelock spent a lot of resources but the ad campaign was not contagious and there was limited impact to the net revenue.

 

In this paper I will analyze this advertisement campaign of LifeLock using the S.T.E.P.P.S. framework and recommend alternative.  I will also analyze the alternative using the S.T.E.P.P.S. framework.

Current Advertisement & S.T.E.P.P.S. Framework

Social Currency:  People who understand issues around security and identity theft talked about this advertisement, unfortunately the discussion were about a person who tells his social security number and not about the company.  Though this advertisement creates a certain amount of discussion – the overall amount of discussion was rather limited.  Knowing about the products did not make people stand out or look good during discussions; the TV and print media was flooded with this advertisement (and the service could be purchased of little cost) so there was no exclusivity or scarcity about the product or the advertisement.  On scale 1 to 5 where 1 is low and 5 is high; Social Currency would be rated 3.

Triggers: There were no triggers associated with this advertisement.  Acts such as writing the social security number, looking at the truck, etc did not trigger a thought about this product.  Main trigger the company needed was to remind people to buy the service if they were giving the social security number to someone, it clearly didn’t.  On scale 1 to 5 where 1 is low and 5 is high; triggers would be rated 1.

Emotion:  Target customers had no emotional connection with this this advertisement.  The advertisement did not have practical value nor did it invoke anger, anxiety, surprise, interest or any other emotional feeling.  A small subset of people – hackers and people involved in identity theft, looked at the advertisement and it generated tremendous interest in a community which was not target customers.  Soon after this advertisement, CEO’s social security number was used over 10 times in identity theft.  This advertisement triggered a wrong emotion in wrong set of people.  On scale 1 to 5 where 1 is low and 5 is high; emotion would be rated 2.

Public: No one knew if people around them were or weren’t customers of LifeLock.   The product was not publicly visible.  On scale 1 to 5 where 1 is low and 5 is high; public would be rated 1.

Practical Value: Sharing information about the advertisement or LifeLock provided no practical value (or incentive) to the customer for sharing the information.  On scale 1 to 5 where 1 is low and 5 is high; practical value would be rated 1.

Stories: There was no narrative/story conveyed in the advertisement, at best the advertisement was showing the general public that no one could use the social security number for illegal purposes and it challenged the hacker community.  On scale 1 to 5 where 1 is low and 5 is high; stories would be rated 1.

New Idea

The recommended advertisement campaign would contain the following:

  • Story line: person writing social security number on an application and that application is used for identity theft. The person is not LifeLock customer and loses all his savings due to identity theft –the person was dreaming and wakes up all worried (funny scene).  He checks his email and finds an alert from LifeLock about possible identity theft.
  • Emotion: the advertisement should end of happy note – showing the person was able to save
  • Advertisement focus: focus on the advertisement should be on a person filling personal information online.
  • Statistics: End by saying how many identity thefts occur daily.

Analysis of New Idea

Social Currency:  Basic statistics about identity thefts can be used in conversation.  But overall the new idea would have limited social currency.

Triggers:  LifeLocks registration is done online.  Best trigger will be when user needs to enter personal information on a web page on the internet.  When this trigger occurs the user will be in front of the computer and could register for the service right away.  This trigger will prove very effective and should help increase sales.  Triggers are important especially when they enable user action which can improve sales, a trigger when a user is filling a form online will be a very useful.

Emotion:  The current customer who has a nightmare about identity theft will be made funny moreover the story ends on a positive note.  Executed right this can be very interesting advertisement which can go viral.

Public:  Current using this product is not public.  Onetime discount should be given to customers who share their social website access rights using which LikeLock can share public updates within network of customers on a periodic basis.  LifeLock can send tips to protect self from identity theft on customers social networking sites.

Practical Value:  LifeLock should integrate with social sites and should give customers shirts, car stickers etc for help improve visibility of the product.  Moreover user should be given special discounts when they recommend friends or when someone registers for LifeLocks service after visiting the LifeLock website from friend’s announcement on social networking websites or through invitation email friend sent from the website.

Currently there is no practical benefit to the customers to share information with others – in new approach users will have practical (financial) benefit.  (its hard to gamefy this product)

Stories:  Story of a victim who has his identity stolen and the trouble he goes through is a great story/example showing identity theft.  Story is a critical part of the advertisement; users should be able to connect with the story and understand the potential issues with identity theft.

LifeLock can also have an ad campaign in which it has true stories.

Wharton Term 3

Credits Course ID Course Title
0.5 ACCT-622-702 Fdmtls of Mngl Acct I
1.0 FNCE-601-702 Corporate Finance
0.5 FNCE-896-401 Finance in Europe
0.5 FNCE-897-401 Fnce in Mid East & N Afr
0.5 MKTG-621-702 Mktg Mgmt Prog Design
0.5 MKTG-622-702 Mktg Mgmt Strategy
0.5 OPIM-632-702 Op Mgmt: Spply Chain Mgt
0.5 WHCP-614-713 Management Communication

Mktg Mgmt Prog Design Homework – Cyworld

Executive Summary

Cyworld has reached a crossroad of its development. After aggressive growth, the users are now unable to  find useful information on Cyworld and are getting tired of the services offered.

Cyworld’s unique position, with high market penetration and the support of SK Telecom, offer a true competitive advantage and unique opportunity.

Cyworld can develop value added services linking social networking, wireless services and unique advertising for a local service called Cyworld-Jiyeog (Jiyeog means “local” in Korean).  Cyworld-Jiyeog is tailored to provide useful information to Cyworld users and to provide targeted marketing service for local merchants. Our conservative financial projections suggest over $34M of additional revenue in the first year through the launch of this service.

Situation Analysis

Cyworld grew rapidly from its inception to reach a user base of over 21 million by 2007, representing almost half of the entire population of South Korea. Cyworld has over 90% market penetration in the 20-to-29 year old market and accounts for almost 50% of SK Communications’ revenues and the majority of its operating profits. Growth in Cyworld has plateaued.

Almost 70% of Cyworld revenue comes from the sales of virtual items that its customers use to decorate their home pages, but the members are getting tired of buying these virtual items. The users’ loyalty and the number of visits have declined. The company has recently started selling advertising, which is now Cyworld’s largest growing segment with 16% annual growth ; Advertising revenues have exceeded industry growth rates and are expected to grow even more. However, Cyworld was built on the premise that they would provide a clean community with limited advertising.

The declining number of connections is another problem that should concern Cyworld; a lower number of connections and users correspond with a lower revenue.  Refer to appendix A for brief SWOT analysis.
5 C’s framework

Context

By mid 2007, customers started using free services, such as blogs, to communicate, and YouTube and Flickr to share videos and photos.

Company

Cyworld’s market penetration and local accessibility gives them a unique competitive advantage in the South Korean market. 70% of its revenue is generated by the sale of virtual objects, although this has plateaued.

Customers

The part of the revenue generated by advertisements has grown consistently. By directly pursuing this source of revenue, though, Cyworld may risk alienating its loyal customer base. Cyworld is popular  among 20-29 year olds , but adults consider it a waste of time. Adults represent a huge loss of opportunity. Another remaining possibility is to pursue International customers.

Competitors

The main competitors, Facebook and MySpace offer similar services as Cyworld and generate incremental revenue through advertisements but lack a strong mobile presence.

Collaborators

Another source of revenue for Cyworld is music sales; downloaded content is offered in collaboration with BMG, Universal and other local companies. However, Cyworld keeps more than 50% of the revenue generated by these sales, whereas competitors like iTunes only take 30%.

Product Strategy

Main Strategy

Cyworld will offer a service called Cyworld-Jiyeog that incorporates targeted local advertising. Although the 20-29 year old demographic  is saturated and interest in virtual gifts has plateaued, there is potential to increase number of users in other age-groups and to increase activity level of existing users by providing information useful in daily life.

Local merchants will create advertisements for offers in addition to creating minihompy’s. Based on users’ profiles and preferences, Cyworld will display these offers from local vendors.  This useful information is both of critical importance and also currently a gap that Cyworld isn’t meeting. No competitor in Korea provides local services in this manner, so Cyworld is in a unique position to create the Cyworld-Jiyeog service.

Initially, the segmentation will be focused on users with high activity levels as indicated in case appendix 9. As interest grows and members from different demographics join, the offers for local vendors will expand to these new segments but will remain targeted to the individual user.

This strategy will encourage more use, since users will want to see the frequently updating offers and will inform friends of deals that interest them. In addition, Cyworld-Jiyeog mobile application accessible on SK Telecom devices could increase customer loyalty for SK Telekom and vice versa. As consumers subscribe to both services, the churn rate is projected to decrease by 2.3% (Exhibit G).

The strategy will also encourage more users and more connections. As non-users discover the benefit of joining Cyworld in order to obtain local merchant discounts, they will start joining Cyworld.

Rationale

Alternative strategies such as additional generic advertisements, mobile applications for Cyworld, and games that interconnect NateOn and Cyworld, will result in more frequent use in the short-term but with these alternatives  do not provide useful information.

, Users will visit Cyworld-Jiyeog more frequently in order to view local deals they can immediately use. As a result, additional consumers from different age ranges will be enticed to join by word of mouth and through advertising, increasing use among current members, and increasing memberships and connections among non-users.

Targeting

In order to succeed in this segment, Cyworld-Jiyeog will need participation from numerous vendors. Therefore, Cyworld should start in a target-rich environment and develop a robust advertising campaign that is tactically targeted at more popular keywords used by consistent Cyworld users.  Cyworld will seek partnership with vendors whose products/services closely align with these keywords. This will ensure useful information is provided to meet the customers’ immediate needs. Over time, multiple segments will be targeted as new users join Cyworld from different demographics. These users will have different needs, so unique vendors will be pursued.

Risks

Local vendors will need to believe in this strategy’s potential, though without prior experience, it may appear speculative. If enough local vendors do not participate, the strategy will fail because users won’t see the value in logging on to check the deals, and non-users won’t be incentivized to join.

Marketing Plans

Positioning

Cyworld will  position itself as a social networking and local services engine.  Cyworld–Jiyong will be a premium destination for local businesses to promote their businesses.

 

Positioning statement –Cyworld–Jiyong will be  a premium online source for users to get useful information about local activities, events and businesses, appealing to users in the age-group of 19 to 29 who would otherwise have relied on coupons and local business advertisements received by mail”. (Exhibit H)

Implementation (4-P Framework)

Product

Cyworld-Jiyeog’s well-defined message –A platform for local interactions.  Cyworld-Jiyeog will be user-friendly, and will provide useful information about local services that the user is interested in, addressing the need for useful information and ease of use.

Price

Cyworld will continue to be free for users.  There will be no setup charge for local businesses, but Cyworld-Jiyeog will charge businesses 250 Korean Wons every time a user goes to a local business’ website or minihompy.  This is a new market for Cyworld, so there won’t be loss due to cannibalization. Cyworld-Jiyeog will increase stickiness (activity-level) of users on the Cyworld.  As shown in exhibit D, Cyworld-Jiyeog will generate over $34M in new revenues.

Promotion

Taking advantage of the 90% penetration in a key demographic and a huge user base, Cyworld-Jiyeog should conduct an 80% below the line promotion and 20% above the line promotion for local businesses.  Cyworld-Jiyeog should also provide incentives such as free clicks for the first three months to local businesses to incentivize them to try Cyworld-Jiyeog.  A key selling point to end users is the easy to use product with information and resources for users’ daily life.  For local businesses, the value proposition is to get customers who are interested in their products and services at a very low cost.   The promotion strategy for local businesses will be to invite them to take advantage of this online presence and reap the benefits before competitors join. Local vendors are incentivized by pairing with Cyworld’s established brand name. As the popularity of Cyworld-Jiyeog grows, more local businesses will recognize the value of advertising through Cyworld-Jiyeog in order to be viable in the competitive marketplace.

Placement

Cyworld-Jiyeog should first target SK Telecom customers who have business accounts and also build relationships with various city and local business associations. In the first quarter, Cyworld should focus on key metropolitan areas with a high percentage of youth and target local businesses such as restaurants, movie theaters and electronics stores.  Over the next few quarters, other types of businesses and rest of the country should be offered these services.

Conclusion

Cyworld-Jiyeog will not only generate additional revenue when new users join Cyworld to get local deals but Cyworld-Jiyeog will also generate $34M million in annual revenue by selling services to local businesses.  Cyworld-Jiyeog addresses the needs for useful information and decrease the churn rate of users. Cyworld’s brand in conjunction with the service partnership with SK Telekom should help establish a strong foundation for Cyworld-Jiyeog in the Korean market.

 

Winner of Innovation Challenge 2011 – NYSE Closing Bell Ringing!

The four-person team from Wharton was selected by Syngenta as the winning team because of their original ideas, realistic implementation and projected business impact.

“We saw a lot of impressive ideas from the teams who worked on our challenge,” says Alex Prohodski, Business Development, Syngenta North America. “It was tough to choose a winner, but the Wharton team deserved the prize. Meeting them in person and hearing even more of their ideas while we were in New York together confirmed that even more.”

Hard to describe the experience in words!

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Wharton Term 2

Credits Course ID Course Title
1.0 FNCE-602-701 Macroecn & Global Econom
0.5 MGMT-652-701 Foundations of Teamwork
0.5 OPIM-621-701 Decision Mdls&Uncertnty
0.5 OPIM-631-701 Op Mgmt: Quality & Prod
1.0 STAT-621-701 Stat Techniques For Mgrs

Wharton Term 1

Given the schedule, I think my target now is to do about one blog per term to share what I did and share atleast one homework assignment or paper to keep things interesting.

Term 1

Credits Course ID Course Title
1.0 ACCT-620-702 Financial Accounting
0.5 MGEC-603-702 Basic Microecon Analysis
0.5 MGEC-621-702 Managerial Economics
0.5 MGMT-621-702 Mgmt of People At Wrk
0.5 MGMT-653-702 Field Application Proj

Field Application Proj paper:

Transition to Practice Program for Pediatric Nurse Practitioners

Introduction: This paper examines the needs of newly graduated Pediatric Nurse Practitioners (PNP) to fully competent PNPs managing a full patient load, and makes recommendations to create or improve the transition process.  We collected data through focus group interviews and anonymous surveys. Over 650 PNPs, physicians and nurse leaders responded from hospitals nationwide.

Our initial findings suggested that:

  • PNPs experience substantial challenges transitioning into their new role
  • A variety of components, if included in a formal transition program, can positively impact the transition process.

The majority of PNPs surveyed did not participate in a transition program because their hospital or clinic did not provide one (Figure 1).

Diagnosis & Recommendations: We highlight key components of a successful transition program, from data collected in focus groups, surveys, theories covered in class and research publications Approximately 39% of the respondents did not have specific goals, 73% of respondents indicated that their supervisor did not set their performance goals, and only 35% of PNP respondents have clear milestones that are measured on a regular basis (Figure 2). We recommend that PNPs actively work with their supervisors to set specific goals and have intermediate milestones to help measure progress.  We also recommend holding supervisors accountable for managing an annual goal-setting process for the PNPs, and for reviewing the goals every 4 to 6 months.  We also learned of other deficits in the transition process including a lack of feedback, mentoring, a peer network, and clearly defined roles.

Key Recommendations for the Transition Program
·         Setting clear goals with intermediate milestones ·         Specialty PNP education and procedural training
·         Supervisors & physicians provide additional feedback ·         Time dedicated to studying during work
·         Establish mentorship programs (include physicians) ·         Simulation and scenario-based training
·         Provide emotional support – setup teams ·         Access to resources – common issues knowledge banks

Application of FAP findings: The recommendations detailed in the report will be piloted in two hospitals.  Additionally, the team will distribute the results to children’s hospitals and clinics nationwide to help address this timely and critical need.

Wharton MBA: My First Experiences

Humbling Days!!!

One word to describe the experience after spending the first few in Wharton is “Humbling”

  • The classmates are very smart, hardworking, competitive and FUN!
  • Professors and the academic staff is what makes this a top Ivy league school
  • Support staff – cant say enough about what they did to accommodate us!

OH! did I mention we got a welcome gift from the school – a new iPad

Wharton’s pre-admission conversations, email and all marketing always said that this was not a watered down experience …. well, I now know what they meant.

I can already see that homework is going to be a lot, but I will learn a lot and I am so looking forward to the next few years.

Grade Non-Disclosure Policy & the concept of LT’s

So I knew about grade non-disclosure policy but was introduced to the concept of LTs.  So this is how it works:

Student is graded A through D with +/- distinctions and F (which is quite common in many schools) but there is a concept of LT: Lowest 10% of each class; not noted on transcript – so basically you could do quite well in the exam and get descent score on the test but not only is the glade on a curve, you might be Lowest 10% of the class.

There is Probation & Dismissal based on accumulation of LT designations.

Dismissal: 5.0 or more credit units of LT in the first year and 8.0 or more cumulatively!

Anyway back to some accounting homework – I am loving this new life style!!!!