Harvard Case - BlackRock (A): Selling the Systems?
"BlackRock (A): Selling the Systems?" Harvard business case study is written by Ranjay Gulati, Jan W. Rivkin, Kelly McNamara. It deals with the challenges in the field of Strategy. The case study is 9 page(s) long and it was first published on : Oct 12, 2016
At Fern Fort University, we recommend BlackRock pursue a strategic shift towards offering its proprietary systems and technology as a standalone service to other financial institutions. This move would capitalize on BlackRock's core competencies in technology and analytics, allowing them to diversify their revenue streams and establish a sustainable competitive advantage in the evolving financial landscape.
2. Background
BlackRock, the world's largest asset manager, faces a complex decision regarding its proprietary systems. These systems, developed over years of internal use, are a key driver of BlackRock's success. However, the company must decide whether to continue using these systems solely for its own operations or to leverage them as a source of revenue by offering them to other financial institutions.
The case study focuses on Larry Fink, BlackRock's CEO, who is considering the potential benefits and risks of this strategic shift. The company's current focus is on managing its own assets, but the opportunity to monetize its technology platform presents a significant growth potential.
3. Analysis of the Case Study
Competitive Analysis:
- Porter's Five Forces: The financial services industry is characterized by intense competition, with numerous players vying for market share. The threat of new entrants is high, driven by technological advancements and the emergence of fintech companies. The bargaining power of buyers is moderate, with large institutional investors having some leverage. The bargaining power of suppliers is also moderate, as financial institutions rely on a range of technology providers.
- SWOT Analysis:
- Strengths: Strong brand reputation, extensive client base, robust technology infrastructure, deep expertise in investment management, strong financial position.
- Weaknesses: Potential for cannibalization of existing business, risk of losing control over technology, potential for security breaches.
- Opportunities: Growing demand for technology solutions in the financial services industry, potential for global expansion, diversification of revenue streams.
- Threats: Competition from established players and new entrants, regulatory scrutiny, technological disruption.
Value Chain Analysis:
BlackRock's value chain can be analyzed through the lens of its core competencies in technology and analytics. The company's proprietary systems play a crucial role in its information systems, data management, and risk analysis capabilities. By offering these systems as a service, BlackRock can capitalize on its core competencies and create a new revenue stream.
Business Model Innovation:
BlackRock's current business model is focused on asset management. By offering its systems as a service, the company can adopt a business model innovation strategy, diversifying its revenue streams and entering a new market segment. This move aligns with the disruptive innovation paradigm, where a new technology or service disrupts existing markets and creates new opportunities.
Strategic Planning:
BlackRock needs to develop a comprehensive strategic plan for this transition. This plan should include:
- Market segmentation: Identifying target customer segments within the financial services industry.
- Pricing strategy: Determining a competitive pricing model for the technology services.
- Marketing strategy: Developing a targeted marketing campaign to reach potential clients.
- Sales strategy: Establishing a dedicated sales team to promote and sell the technology solutions.
- Implementation strategy: Defining a phased approach for implementing the new business model.
4. Recommendations
BlackRock should pursue a phased approach to offering its systems as a service, starting with a pilot program targeting specific customer segments. This approach allows for:
- Testing the market: Assessing demand and refining the service offering based on initial customer feedback.
- Minimizing risk: Reducing the potential impact on BlackRock's core asset management business.
- Building expertise: Developing internal expertise in technology service delivery.
Key Milestones:
- Year 1: Conduct a pilot program with a select group of financial institutions.
- Year 2: Expand the service offering to a wider range of clients.
- Year 3: Establish a dedicated business unit for technology services.
5. Basis of Recommendations
These recommendations are based on:
- Core competencies: Leveraging BlackRock's expertise in technology and analytics to create a new revenue stream.
- External customers: Addressing the growing demand for technology solutions within the financial services industry.
- Competitors: Differentiating BlackRock's offering by leveraging its unique proprietary systems and expertise.
- Attractiveness: The potential for significant revenue growth and market share expansion.
6. Conclusion
By offering its proprietary systems as a service, BlackRock can leverage its core competencies, diversify its revenue streams, and establish a sustainable competitive advantage in the evolving financial landscape. This strategic shift requires a well-defined plan, a phased approach, and a commitment to building expertise in technology service delivery.
7. Discussion
Alternatives:
- Continuing with the current business model: This approach carries the risk of falling behind competitors who are embracing technology-driven solutions.
- Acquiring or partnering with a technology company: This option could provide access to new technologies and expertise, but it also carries risks related to integration and cultural clashes.
Risks:
- Cannibalization of existing business: Offering technology services could potentially compete with BlackRock's existing asset management business.
- Security breaches: The company must ensure the security of its systems and data to maintain customer trust.
- Competition: The market for financial technology solutions is becoming increasingly competitive.
Key Assumptions:
- Demand for technology solutions: The market for financial technology solutions will continue to grow.
- BlackRock's technology advantage: The company's proprietary systems offer a unique advantage in the market.
- Successful implementation: BlackRock can successfully implement the new business model and navigate the challenges of entering a new market.
8. Next Steps
BlackRock should:
- Form a cross-functional team: To develop the strategic plan for offering its systems as a service.
- Conduct market research: To identify target customer segments and understand their needs.
- Develop a pilot program: To test the service offering and gather feedback.
- Secure necessary resources: To support the implementation of the new business model.
By taking these steps, BlackRock can capitalize on the opportunity to leverage its technology and analytics expertise and establish a new source of revenue growth.
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Case Description
As the case opens in 1999, several key leaders at BlackRock, Inc.- then a relatively small asset management firm -- are trying to convince CEO Larry Fink and others that the firm should begin to offer Aladdin -- its proprietary analytics and trading platform -- to other asset managers. While some members of the senior team saw "selling our systems" as an opportunity, others likened it to "selling weapons to the enemy" or "giving away the crown jewels." What should Fink do? The case provides an overview of the asset management industry, the beginnings of BlackRock, and details around the Aladdin platform.
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