Blackrock Inc. strategic business and model - Essay Example

? Blackrock Inc. strategic business and model All organizations whether public or private sector, profit seeking or nonprofit making, large or small has a purpose of their business and that is articulated as the mission statement of the company (Thompson, 2001). Corporate strategy is quite challenging and exciting. It proposes the fundamental decision regarding the future plans of the organization like the mission, resources required to fulfill the mission and techniques of interaction with the world in which it operates.Every aspect of the organization plays a significant role in formulating the strategy (Lynch, 2007). The study highlights on the development of corporate strategy for BlackRock. Strategic position and Business Model of BlackRock Strategic position helps the organization to influence every aspect of business such as development of product, services provided by the company, location of operation and day to day operations (R. Abrams and R.M. Abrams, 2003). BlackRock believes in the core philosophy that gives paramount importance to the requirement of the clients and their business aims towards managing the assets of the clients based on their requirements only. In this context BlackRock has a team of investment professionals who are experts in global capital market. The focus of the company is on excellent investment and state-of-art analytics, which is complemented by senior level commitment towards service. This helps the company to build dynamic relationship with the client and serving them with a range of services that caters to their liabilities and asset allocation needs (BlackRock, 2013). Business model is defined by the operations, policies and technologies used by the business. The business model of an organization describes how the company generates revenue (Morley and Parker, 2009). The business model of BlackRock is very simple. They invest heavily in management and risk management and gives first priority to the interest of the clients. By following this business model they make themselves easily differentiable from their competitors. They do not make any differentiation between the clients whether it is Federal Reserve, insurance company, pension plan, wealth fund or any individual client, everyone is treated with the similar proprietary structure (Fink, 2010). SWOT Analysis of BlackRock Inc. SWOT analysis is the technique that is easily understandable and provides strategic analysis of the company by sorting the ideas about the future and the ability of the firm to exploit the future (Piercy and Giles, 1989). By listing the unfavorable and favorable, external and internal issues, the planner can understand how the strength can generate new opportunities and how weaknesses can slow down the progress of the firm and create threat for the organization (Helms and Nixon, 2010). Strength BlackRock looks toward providing opportunities to build a better financial future for its clients. They have a huge unparallel range of passive and active investment strategy among which iShare is the leading. iShare is used by clients to equitize their cash and adopt tactical and core exposures. iShare has recorded the strongest business by generating $18.2 billion new business or an annualized growth of 12% (BusinessWire, 2012). BlackRock has a strong set of expert people who are working with them to provide excellent solution. At the same time they are also backed by “World class risk management capabilities of BlackRock solutions” (BlackRock Inc., 2011, p. 3). Business Operation Group established by BlackRock ensures that all the operations are efficient and consistent across the products, regions and client channel. The employees of the company feel that BlackRock has a meaningful and strong cultural base and they have rated themselves as highly engaged. This shows that the employees are also satisfied with the firm (BlackRock, 2013). The reputation and brand name of the company contributes efficiently towards the strength of the company. Moreover the company has strengths in multiple areas like stock price performance, growth in EPS and revenue, increase in profit margin and net income (TheStreet Wire, 2013) Weaknesses The company is the leader among all investment management companies. However it still suffers some minor weakness but they do not hamper the results of the company (TheStreet Wire, 2013). BlackRock has attained growth by acquiring for the past two decades. But now the company is shifting from being an acquirer to operating its business. However some of the analysts and employees feel that they lack strategy. Since while concentrating on acquisition they paid very little attention towards the improvement of their fund middling performance (Toonkel, 2012). Opportunities BlackRock has gone for numerous acquisitions and mergers creating a new set of opportunities for them. The main objective behind this was to transform BlackRock from a boutique bond shop to the world’s renowned money manager. Merger with Barclays Plc and Merrill Lynch & Co are one of the biggest mergers and BlackRock is going to benefit hugely from those (Bhaktavatsalam and Leondis, 2012). On September 2006, BlackRock completed merger with Merrill Lynch Investment Managers (MLIM). Through this merger world’s premier investment management company was created who had combined asset valuing $1.046 trillion. This merger has provided the company with resources and global scale that created unified platform through which the retail and institutional clients can share information and realize the opportunities available in marketplace. This also provides an opportunity for the company to increase its product range and build scope and scale (BlackRock, 2006). At the same time the merger with Barclays Global Investors (BGI) not only allowed the company to offer most comprehensive and complete product profile to the clients but also leads to the future prospects of developing more robust and deeper relationship with the clients (Fink, 2010). Apart from these mergers the company is also looking towards attracting more investor’s deposit. Threats BlackRock who is one of the world’s biggest exchange traded fund provider is getting threatened due to the loss of their market share in Exchange traded Fund (ETF) business to Vanguard Group Inc. Vanguard Group Inc. is well known for its low-cost index fund. The market share of BlackRock has experienced a decline of 1.4% whereas the market share of Vanguard Group Inc. has increased by 1.7%. This is the threat for the company (Leondis, 2012). Generic Strategy of BlackRock Michael Porter suggested three generic strategies that the firm should follow in order to outperform its competitors. These three strategies are cost leadership, differentiation and focus (Nielsen, 1986). Cost Leadership: The firm follows this strategy if it wants to become a cost leader in the industry. The firm has a broader scope by serving various industry segments and can even work in related industries. For cost advantage, firm’s volume and breadth of sales are also significant. Differentiation: The firm tries to be unique through some dimensions that are exclusive to the industry and are valued by the customers. They select such an attribute which is perceived to be important by the customers and they position it uniquely. The firm in return is rewarded with premium price. Focus: This strategy rests on selection of constricted competitive capacity within the industry. The firm selects a particular segment or collection of segments in the industry. In case of cost focus the firm targets the segment with cost advantage whereas in case of differentiation focus the firm targets the segment through differentiation from its competitors (Moon, 1993). The generic strategies given by Porter enable the firm to accurately synthesize its uniqueness and promote superior performance (Chakraborty and Philip, 1996). The analysis helps in understanding the generic strategy adopted by BlackRock. The merger between BlackRock and Barclays Global Investor (BGI) is seen as a huge strategic decision taken by the company. BGI was one of the great competitors of BlackRock, who enjoyed great legacy and has a huge share in the investment management business. The main attraction for BlackRock to enter into a merger with BGI was that 80% of BGI’s business was additive for BalckRock. It was the largest merger that had ever happened in investment management and that lead to the formation of huge variety of product mix. For instance BGI’s legacy was indexing and BlackRock has just started to drift into indexing on seeing that the clients were showing interest in beta products. BlackRock was in the fifth position in indexing with about $80 billion. On the other hand BGI was leading with $1.2 trillion. This merger created a platform that provided BlackRock with a different league. So it suggests that through acquisition of BGI, BlackRock was able to have a much more comprehensive dialogue with the client and has differentiated BlackRock from the other firms since no other firms had so much diversified alpha and beta products (Fink, 2010). The market was as such that clients wanted to go for asset allocation in beta or ETF products, which was previously done through alpha products. Since the beta products provides more return and it is the normal desire of the client to have better returns so the clients are more inclined to that. Thus it can be concluded that through this acquisition they followed the “Differentiation focus strategy”, where they provided new better product mix to the market of indexing. Ansoff Matrix for BlackRock Ansoff Matrix provides the basis of the process through which the objectives for the business are set. It also helps in laying down the policies that provides a direction for the future (Bennett, 1994). It is based on the supposition that a business can achieve appropriate growth only by appointing the decision of selling new or old product in the new or old market. It is used by the managers for forecasting and decision making. It is based on the four vectors. The first vector says that changing nothing and selling the existing product to the same set of existing customers. The second vector says that serving the existing market with the new products. Development of new product should be approached only when there is strength related to the specific customer rather than specific product. The new products can be developed by innovation, improving the product range and quality or creating a new brand. The third vector suggests searching for new market with the existing products. This strategy is quite risky and involves high expenditures. The fourth vector says approaching new market with new set of products that is the company is going for diversification (Bachmeier, 2009). Most appropriate strategy for BlackRock is market penetration and product development. BlackRock is viewing enormous opportunity in the retail market of U.S. BlackRock is still underpenetrated in the retail market excluding ETF. Asset management under open-end mutual fund occupies a market share of less than two percent (Leondis, 2013). So BlackRock wanted to penetrate this market through by investing on this segment. They wanted to replace the team dealing in underperforming active products (Leondis, 2013). BGI has been dealing in iShare, which is the leading ETF platform and has a brand name. iShare has attracted the attention of the public and by entering into the merger with BGI, BlackRock will be able to utilize this opportunity. Corporate Strategy The SWOT analysis suggests that the main threat to the company BlackRock is the competition from Vanguard Group Inc. Vanguard is performing better in the ETF market due to which there is a decline in the market of BlackRock. Though BlackRock has already provided product iShare by merging with BGI and is performing well but still this decline is imposing a major impact on the business of BlackRock. Thus it needs to work on this segment. The company can introduce some more ETF products, at lower cost than Vanguard. Apart from introducing new products the company also needs to increase the attractiveness of its existing products. Moreover it also needs to make changes in these products that have been highly recognized by the customers. This may help them in increasing their revenue. Suitability The mission of BlackRock is to provide its customer with premium quality service. They place their customers at the top of their priority list. Moreover the study also suggested that how the changing demands of the customer, made the company to go for new venture to provide the customers with ‘iShare’. So this strategy is expected to work in line to the mission of the company. Such type of initiatives also speaks high about the company and makes it go into the good books of the customers. Blackrock has gone for enough mergers and acquisition, more acquisition is absolutely not required. Alliance with other firms in order to improve their capability is also not required since they are technologically sound and there is no legal gap that may pose threat to the company. Feasibility The cash flow analysis (See appendix figure 1) and the forecasting, which assumed 2011 as the base year, suggested that the company is running in profit and the strategy implementation will only help it in gaining some extra revenue. The best case and worst case analysis (See appendix table 3 and 4) shows that in the best case due to the implementation of new strategy will help in gaining some more revenues, while in the worst case the revenue seems to decrease. Since the company is already into business for a long time and has a good reputation in the market so it has already reached its breakeven point, the implementation of the new strategy will only help in increasing its sales and occupy larger market share (See Appendix figure 2). The new resources required for the company are capital and skilled workforce. For any new venture, capital is required since new employees are hired, marketing and promotion is done and other resources are required that requires investment of sufficient amount. Moreover skilled workforce is required for the development of better portfolios. Acceptability This new strategy is going to affect shareholders, customers and employees. If the project works successfully then shareholders are going to get better dividends, employees can also see their organization to grow and can expect better results in future and the customers get a new set of product from which they can get better returns. However if the project fails the company may have threats like shareholders can oppose the issuing of new shares, employees and unions can oppose outsourcing for fear of losing their jobs, customers can have concerns over a merger with regards to quality and support. But since BlackRock have a very strong position in the market, it is capable enough to fight with the situation and get back the confidence of the Stakeholders. Implementation The improvement of the ETF is going to work. BlackRock for the past few years have already gone for enough of mergers and acquisition due to which attention towards their core products has got hampered. Now the company has decided that they will be not going for anymore acquisitions. Investment in internal development is good option to go with, since it will lead in the improvement of the company (See table 1 in Appendix). A team of experts need to be formed who have prior experience in the ETF market and provide some strategic view points. Marketing team needs to be prepared who should have sound knowledge about the product and should design proper promotional strategies. New employees should be recruited who will be trained along with the existing one. BlackRock can gradually penetrate the market of other countries with their new products and mark its presence in the industry. Conclusion BlackRock Inc. is the foremost provider of risk management, investment management and advisory services to the retail and institutional clients present all over the world. The firm is renowned for managing assets across equity, cash management, advisory strategies and fixed income. Though it is doing well in the investment management industry, but by introducing the new product BlackRock will be able to gain competitive advantage over its competitors. If the project is implemented properly it will provide more benefits not only to the company but also to the stakeholders. Reference Abrams, R., and Abrams, R.M., 2003. The Successful Business Plan: Secrets & Strategies. London: The Planning Shop. Bachmeier, K., 2009. Analysis of Marketing Strategies Used by PepsiCo Based on Ansoff's Theory. Munich: GRIN Verlag. Bennett, A.R., 1994. 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Appendix Table 1: Evaluation of Strategy Options suitability feasibility acceptability Merger and acquisitions x x x New Product yes yes yes Alliances with other firms yes x x Investment in internal development yes yes yes Table 2: Projected Sales Table 3: Forecasted Cash Flow (Best case) Forecasted Cash Flow (Best case) Period Ending 31-Dec-12 31-Dec-13 Operationg Activities, Cash Flows Provided By or Used In Net Income 2460000 2600000 Depre r4zciation 350000 310000 Adjustments to net Income 195000 210000 Changes In Accounts Receivables -297000 -250000 Changes in Liabilities 410000 500000 Changes in Inventories Changes In other Operating Activities -860000 -920000 Total Cash Flow from Operating Activities 2258000 2450000 Investing Activities, Cash Flows Provided By or Used In   Capital Expenditures -140,000 -180000 Investments 366,000 450000 Other Cash flows from Investing Activities -480000 -389000 Total CashFlows from Investing activities -254,000 -119000 Financing Activities, Cash Flows Provided By or Used In Dividends Paid -1061000 -1300000 Sale Purchase of Stock -1292000 -1150000 Net Borrowings 1328000 1330000 Other Cash Flows from Financing Activities 82000 95000 Total Cash Flows From Financing Activities -943000 -1025000 Effect Of Exchange Rate Changes 72000 140000 Change In Cash and Cash Equivalents 1,133,000 1446000 Table 4: Forecasted Cash Flow (Worst case) Forecasted Cash Flow (Worst case) Period Ending 31-Dec-12 31-Dec-13 Operationg Activities, Cash Flows Provided By or Used In Net Income 2400000 2480000 Depriciation 350000 310000 Adjustments to net Income 195000 210000 Changes In Accounts Receivables -297000 -355000 Changes in Liabilities 410000 500000 Changes in Inventories Changes In other Operating Activities -860000 -980000 Total Cash Flow from Operating Activities 2198000 2165000 Investing Activities, Cash Flows Provided By or Used In   Capital Expenditures -140,000 -200000 Investments 366,000 400000 Other Cash flows from Investing Activities -480000 -389000 Total CashFlows from Investing activities -254,000 -189000 Financing Activities, Cash Flows Provided By or Used In Dividends Paid -1061000 -1300000 Sale Purchase of Stock -1292000 -1150000 Net Borrowings 1328000 1330000 Other Cash Flows from Financing Activities 82000 95000 Total Cash Flows From Financing Activities -943000 -1025000 Effect Of Exchange Rate Changes 72000 140000 Change In Cash and Cash Equivalents 1,073,000 1091000 Figure 1: Operating Cash Flow Analysis Figure 2: Breakeven Analysis Read More