Harvard Case - Salary Finance US
"Salary Finance US" Harvard business case study is written by John R. Wells, Benjamin Weinstock. It deals with the challenges in the field of Strategy. The case study is 13 page(s) long and it was first published on : Jan 19, 2020
At Fern Fort University, we recommend that Salary Finance US (SFUS) pursue a multi-pronged growth strategy focused on expanding its product offerings, diversifying its customer base, and leveraging technology and analytics to enhance its competitive advantage. This strategy will involve a combination of organic growth, strategic acquisitions, and strategic alliances to achieve sustainable growth and profitability.
2. Background
Salary Finance US is a non-bank financial institution offering salary advances to employees in the United States. The company operates in a rapidly growing market with increasing demand for alternative financial services. SFUS faces competition from traditional banks, payday lenders, and other fintech companies. The case study highlights the company's current challenges, including limited product offerings, a dependence on a single customer segment, and a need for improved technology and analytics capabilities.
The main protagonists of the case study are:
- John, the CEO of SFUS, who is seeking to expand the company's reach and profitability.
- Sarah, the Chief Operating Officer, who is concerned about the company's dependence on a single customer segment and the potential risks associated with rapid growth.
- David, the Chief Technology Officer, who believes that technology and analytics can be leveraged to improve the company's efficiency and customer experience.
3. Analysis of the Case Study
To analyze the case study, we will utilize a combination of frameworks, including:
a) Porter's Five Forces:
- Threat of New Entrants: High, due to the low barriers to entry in the fintech space and the increasing availability of technology.
- Bargaining Power of Buyers: Moderate, as customers have options for alternative financial services.
- Bargaining Power of Suppliers: Low, as SFUS relies on technology providers and data sources that are readily available.
- Threat of Substitutes: High, as customers can access alternative financial services from banks, payday lenders, and other fintech companies.
- Competitive Rivalry: High, as the market is fragmented and characterized by intense competition.
b) SWOT Analysis:
Strengths:
- Strong brand recognition in its niche market.
- Proven business model with a track record of success.
- Experienced management team with a deep understanding of the industry.
Weaknesses:
- Limited product offerings.
- Dependence on a single customer segment.
- Lack of robust technology and analytics capabilities.
Opportunities:
- Expanding into new product offerings, such as personal loans, credit cards, and insurance.
- Diversifying customer base to include individuals and small businesses.
- Leveraging technology and analytics to improve efficiency, customer experience, and risk management.
Threats:
- Increasing competition from traditional banks and other fintech companies.
- Regulatory changes that could impact the company's business model.
- Economic downturn that could lead to a decrease in demand for financial services.
c) Value Chain Analysis:
SFUS's value chain can be broken down into the following primary activities:
- Inbound Logistics: Sourcing technology and data.
- Operations: Processing loan applications, managing customer accounts, and providing customer service.
- Outbound Logistics: Disbursing loans and providing customer support.
- Marketing and Sales: Generating leads and acquiring customers.
- Service: Providing ongoing support and managing customer relationships.
d) Business Model Innovation:
SFUS can leverage business model innovation to achieve sustainable growth. This can include:
- Value Proposition Innovation: Expanding product offerings to meet the needs of a wider customer base.
- Customer Relationship Innovation: Building stronger relationships with customers through personalized services and digital channels.
- Revenue Model Innovation: Exploring new revenue streams, such as partnerships with employers and financial institutions.
4. Recommendations
SFUS should implement the following recommendations to achieve its growth objectives:
a) Expand Product Offerings:
- Develop new products, such as personal loans, credit cards, and insurance, to cater to a wider customer base.
- Leverage technology to create innovative products that address specific customer needs.
- Partner with other fintech companies to offer bundled financial services.
b) Diversify Customer Base:
- Target individuals and small businesses in addition to employees.
- Develop marketing campaigns that reach new customer segments.
- Partner with employers and financial institutions to expand distribution channels.
c) Leverage Technology and Analytics:
- Invest in technology and analytics to improve efficiency, customer experience, and risk management.
- Utilize AI and machine learning to automate processes, personalize services, and detect fraud.
- Develop a data-driven approach to decision-making.
d) Strategic Acquisitions:
- Acquire smaller fintech companies with complementary products and technologies.
- Focus on acquiring companies with strong customer bases and proven track records.
e) Strategic Alliances:
- Partner with employers, financial institutions, and other fintech companies to expand reach and access new customer segments.
- Leverage partnerships to cross-sell products and services.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with SFUS's core competencies in providing financial services and its mission to empower individuals with access to affordable credit.
- External Customers and Internal Clients: The recommendations address the needs of both existing and potential customers, as well as the needs of internal stakeholders, such as employees and investors.
- Competitors: The recommendations aim to differentiate SFUS from competitors by offering a wider range of products, targeting a broader customer base, and leveraging technology and analytics.
- Attractiveness: The recommendations are expected to generate positive returns on investment, as evidenced by the growing demand for alternative financial services and the potential for increased market share.
All assumptions are explicitly stated, including the need for technological advancements and the potential for regulatory changes.
6. Conclusion
By implementing these recommendations, SFUS can achieve sustainable growth and profitability by expanding its product offerings, diversifying its customer base, and leveraging technology and analytics. This strategy will enable SFUS to compete effectively in the rapidly evolving fintech market and achieve its long-term goals.
7. Discussion
Other alternatives not selected include:
- Focusing solely on organic growth: This approach would be slower and less impactful, as it would not allow SFUS to quickly expand its product offerings or customer base.
- Merging with a larger financial institution: This option could provide access to resources and expertise, but it could also lead to a loss of control and a change in the company's culture.
The key risks associated with the recommended strategy include:
- Increased competition: The fintech market is highly competitive, and SFUS may face challenges from established players and new entrants.
- Regulatory changes: The regulatory landscape for fintech companies is constantly evolving, and SFUS may need to adapt its business model to comply with new regulations.
- Technological advancements: SFUS needs to invest in technology and analytics to remain competitive and avoid being disrupted by new technologies.
8. Next Steps
SFUS should implement the recommendations in a phased approach, starting with the following key milestones:
- Year 1: Develop a new product roadmap and begin expanding into new customer segments.
- Year 2: Invest in technology and analytics to improve efficiency and customer experience.
- Year 3: Explore strategic acquisitions and alliances to further expand reach and market share.
By taking these steps, SFUS can position itself for continued success in the growing fintech market.
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Case Description
In October 2019, Dan Macklin, the newly-appointed chief executive of Salary Finance Inc., was weighing his options for the future of the business. The company's value proposition was quite simple: partner with employers to offer employees affordable loans that were repaid through automatic payroll deductions. Taking repayments directly from salary, and collecting those repayments in one transaction from the employer, dramatically reduced costs, saving employees large amounts of interest when compared to market alternatives like credit cards or payday lenders. Salary Finance Inc. was a subsidiary of Salary Finance Limited which was launched in the UK in 2015. By September 2018, Salary Finance Limited had partnered with over 100 UK employers and offered loans to around one million employees. It was at this point that the company decided to try and replicate this success in the United States, and opened an office in Boston, Massachusetts. By October 2019, the US business had partnered with 15 employers, offering loans to around 50,000 employees. In October 2019, Macklin was contemplating the best way to accelerate the growth of Salary Finance Inc. to hit his 10 million employee target. He was also wrestling with whether he should stick with the core product or add new products to drive sales. This had worked well in the UK where pay advances and savings accounts had proven popular in addition to their core loan product. Salary Finance Inc. was off to a good start, but it remained uncertain how quickly Macklin could grow the business and help more Americans get out of debt.
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