Chapter 2

Strategic Formulation

PRESENTATION OF INTERNAL AND EXTERNAL FACTORS

Internal factors matrix

# Internal Factors Description Description Reference

1 Convenient access to resources Strength Operations

2 Diversifying & expanding services beyond online domestic retail Strength Operations
brokerage offerings
Management

3 Difficulty in finding sustainable leadership in top management Weakness Management

4 Cut costs by reducing workforce Strength Human Resource

5 Divisional by-product structure of organization Strength Management

6 Company has licensed & branded retail segments Strength Marketing

7 Capital structure is highly dependent on debt Weakness Finance

8 Increased advertising efforts Strength Marketing

External factors matrix

# External Factors Description Description Reference

1 People are very engaged with market activity Opportunity Demographics

2 Stock prices are rising Opportunity Economic

3 Value of dollar falls Threat Economic

4 Unemployment remains high Threat Economic

5 Economies present new customers Opportunity Demographics

Economic

6 Federal Funds rate lowered Opportunity Legal

7 S&P composite stock index rose to 88% Opportunity Economic

8 S&P downgraded credit rating Threat Economic

9 2010 Dodd-Frank Wall Street Reform & Consumer Protection Act, Opportunity Legal
and Credit Card Accountability Responsibility and Disclosure
(CARD) Act was implemented

10 Extensive banking/securities rules and regulations Threat Legal

11 Increased nature/number of competitors Threat Competition

12 Competitors provide a host of financial products Threat Competition

13 Competition with mutual fund companies Threat Competition

14 Fidelity Investment remains the largest broker in the industry Threat Competition
CRITICAL FACTOR EVALUATION MATRIX

Critical External Factors Evaluation Matrix

# TN Critical Factors Weight Rate Weighted

score

1 EF1 People are very engaged with market 0.13 4 0.52

activity

2 EF2 Stock prices are rising 0.15 2 0.30

3 EF8 S&P downgraded credit rating 0.18 1 0.18

4 EF9 2010 Dodd-Frank Wall Street Reform & 0.20 3 0.60

Consumer Protection Act, and Credit
Card Accountability Responsibility and
Disclosure (CARD) Act was
implemented

5 EF10 Extensive banking/securities rules and 0.19 3 0.57

regulations

6 EF11 Increased nature/number of 0.15 2 0.30

competitors

1 - Not Responding

2 - Responding

3 - Moderately Responding

4 - Strongly Responding

Interpretation:

In the external factors, the implementation of Dodd-Frank Wall Street Reform & Consumer Protection Act,
and the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act got the highest weighted
score because these affect the company in its overall operations by placing some restrictions in the
companys way of doing business and if these are not complied, it might bring adverse effects to the
company which may lead to financial strain. The critical factor that got the lowest weighted score is
about the downgraded credit rating of the US economy. Although it also affects E*TRADE in some way,
this factor is like a summary of all the business in the US and is not only associated with E*TRADE and is
also deemed uncontrollable.
Critical Internal Factors Evaluation Matrix

# TN Critical Factors Weight Rate Weighted

score

1 IF1 Convenient access to resources 0.19 4 0.76

2 IF2 Diversifying & expanding services 0.20 3 0.60

beyond online domestic retail
brokerage offerings

3 IF3 Difficulty in finding sustainable 0.13 2 0.26

leadership in top management

4 IF5 Divisional by-product structure of 0.15 3 0.45

organization

5 IF6 Company has licensed & branded retail 0.15 3 0.45

segments

6 IF7 Capital structure is highly dependent 0.18 1 0.18

on debt

1 - Major Weakness

2 - Minor Weakness

3 - Minor Strength

4 - Major Strength

Interpretation:

Convenient access to resources got the highest weighted score among the internal factors because this
somewhat pertains to how a customer or client transact with E*TRADE. This serves as an input operation
so this will also determine the attractiveness of clients doing more business with E*TRADE which is also a
determining factor of more earnings to E*TRADE. The lowest weighted score in the internal factors is
about E*TRADE being highly dependent on debt. This is only a capital structure issue and may be
addressed by issuing stocks or paying some liabilities. E*TRADE has more important things to address.
 COMPETITIVE PROFILE EVALUATION MATRIX

E*Trade Charles Schwab Ameritrade

Weighted Weighted
# Critical Factors Weight Rate Rate Rate Weighted Score
Score Score

1 Advertising 0.1 3 0.3 3 0.3 4 0.4

2 Marketing 0.1 3 0.3 4 0.4 3 0.3

3 Customer service 0.05 3 0.15 4 0.2 2 0.1

4 Brand awareness 0.1 3 0.3 4 0.4 2 0.2

5 User-friendly website 0.1 4 0.4 4 0.4 4 0.4

6 Revenue growth 0.05 3 0.15 4 0.2 4 0.2

7 Financial condition 0.05 3 0.15 4 0.2 4 0.2

8 Customer loyalty 0.05 2 0.1 4 0.2 4 0.2

9 Market share 0.15 2 0.3 4 0.6 2 0.3

10 Product quality 0.05 3 0.15 4 0.2 3 0.15

11 Global expansion 0.05 3 0.15 3 0.15 3 0.15

12 Price competitiveness 0.15 1 0.15 2 0.3 4 0.6

TOTALS 100 2.60 3.55 3.20

Interpretation:

The company that has the most competitive edge is Charles Schwab which has the largest market share.
Given this, Schwab has more customers and thus generate more earnings. The lowest weighted scores
associated with Schwab are those relating to customer service, customer loyalty, product quality, revenue
growth, and financial condition. However, these factors still gained higher weighted scores than that of
E*TRADE which is why Schwab is still considered the most competitive. The other competitor, Ameritrade,
emphasizes price competitiveness which may attract potential clients into doing business with them. It
has almost the same product quality and global expansion as those with E*TRADE which are the lowest
among its factors. The highest weighted score of E*TRADE is its user-friendly website which the other
companies also have. E*TRADE gained the lowest weighted scores in customer service, product quality,
price competitiveness, global expansion, revenue growth, and financial condition. So in order for E*TRADE
to at least rise in the ranks of competition, it must first address these factors to gain a competitive edge.

SWOT MATRIX ANALYSIS

GROUPING OF STRATEGIES

Strategy Group SN Activity Description

Service Development WO1 Find a leader who can and is willing to comply with the company's
legal requirements

Lean more on equity financing

WO2
Clearly set rules and regulations to ensure compliance
ST2
Minimize debts by reducing borrowings
WT2

Market Penetration SO1 Enhance convenience of services, esp. websites, to continually attract
customers

Product Developent ST1 Maintain and upgrade online features

WT1
Assign a leader with a knack for innovation

Market Development SO2 Maintain online presence of segments' websites

QUALITATIVE EVALUATION OF STRATEGIES

Service Development

Strategy Advantages Disadvantages

WO1 Finding/developing a good leader has long term benefits It may be time consuming to
(decision making) and short term benefits (compliance find/develop a good leader
with legal requirements)

WO2 There is less risk in equity financing Equity financing is usually more
costly

ST2 Increased credibility of the company Takes time

WT2 Less risk involved Debt is cheaper than the

alternative financing

Market Penetration

Strategy Advantages Disadvantages

SO1 Company can generate more earnings Unavoidable technical difficulties

may have significant
consequences

Market Development

Strategy Advantages Disadvantages

SO2 Easily accessible and services are made well known High maintenance costs

Product Development

Strategy Advantages Disadvantages

ST1 Maintains their competitive edge in the industry High maintenance costs

WT1 Better governance and an atmosphere for innovation is Finding/developing one is rare
set
QUANTITATIVE STRATEGIC PLAN

Weig Service Market Market Product

hts Develop Penetration Development Development
Critical Factors ment

# TN STRENGTHS A WTD AS WTD AS WTD AS WTD

S SCOR SCOR SCOR Score
E E E

1 IF1 Convenient access to .19 0 0 3 .57 2 .38 4 .76

resources

2 IF2 Diversifying & .20 2 .4 1 .2 4 .80 3 .6

expanding services
beyond online
domestic retail
brokerage offerings

3 IF5 Divisional by-product .15 3 .45 0 0 0 0 0 0

structure of
organization

4 IF6 Company has licensed .15 4 .6 3 .45 2 .3 0 0

& branded retail
segments

WEAKNESSES

5 IF3 Difficulty in finding .13 1 .13 0 0 0 0 0 0

sustainable leadership
in top management

6 IF7 Capital structure is .18 2 .36 0 0 0 0 0 0

highly dependent on
debt

OPPORTUNITIES

7 EF1 People are very .13 4 .52 3 .39 1 .13 2 .26

engaged with market
activity

8 EF2 Stock prices are rising .15 3 .45 0 0 0 0 4 .60

9 EF9 2010 Dodd-Frank Wall .20 3 .6 2 .40 1 .2 0 0

Street Reform &
Consumer Protection
Act, and Credit Card
Accountability
Responsibility and
Disclosure (CARD) Act
was implemented

THREATS
10 EF8 S&P downgraded .18 0 0 2 .36 0 0 1 .18
credit rating

11 EF10 Extensive .19 4 .76 1 .19 0 0 0 0

banking/securities
rules and regulations

12 EF11 Increased .20 4 .60 2 .3 1 .15 3 .45

nature/number of
competitors

TOTALS 2.00 4.87 2.86 1.97 2.85

Interpretation:

The best strategy for the company to undertake is the Service Development. It has a major advantage
compared to the other strategies, because most of the important factors are attracted significantly to the
Service Development. If the company can focus their resources mainly on service development strategies,
they can help improve the situation of the company

Chapter 3

RECOMMENDATION

STATEMENT OF RECOMMENDATION AND STRATEGY IMPLEMENTATION

EVALUATION AND CONTROL

Strategy 1

FIND A GOOD LEADER WILLING TO COMPLY WITH REQUIREMENTS

Key Result Performanc Program/Ac Timeline Key Person Budget Other

Area e Indicator tivity

Improved Complied Involve 2011-2012 Chief $500,000 none

Decision with the employees Human
making and requirement in setting Resource
credibility s and the vision, Officer
due to performed goals, and
compliance at a high strategies of
level the
Chief
company;
 leadership Executive
teams and Officer
programs

Strategy 2

EQUITY FINANCING

Key Result Performanc Program/Ac Timeline Key Person Budget Other

Area e Indicator tivity

Less risk of Lowered Sell more 2011 Chief $100M none

not being level of debt securities onwards Financial
able to pay to equity Officer
on maturity ratio
involved
Minimize
borrowings Chief Risk
Officer

Strategy 3

CLEARLY SET RULES AND REGULATIONS

Key Result Performanc Program/Ac Timeline Key Person Budget Other

Area e Indicator tivity

Increased Less conflict Employees, 2011 Chief $250,000 none

company of duties especially onwards Human
credibility new ones, Resource
and undergo an Officer
reputation orientation
Fluency of
to the legal on the
operations
authorities company
Chief
and and their
Communicat
customers roles in the
ions Officer
company

Strategy 4
 MINIMIZE DEBTS

Key Result Performanc Program/Ac Timeline Key Person Budget Other

Area e Indicator tivity

Less risk of Lowered Minimize 2011 Chief $100M none

not being level of debt borrowings onwards Financial
able to pay to equity Officer
on maturity ratio
involved
Take
advantage Chief Risk
Lower level of discount Officer
of debt periods
financing on
capital
structure.

Implementation and Control

In an event that the strategies will not work, the company can always address their high reliability to their
debts by leaning on their expertise on the field of financial support, and find ways to effectively reduce
their debts by, basically, leaning more on their equity financing to finance their operations. Finding a good
leader may be too time consuming, so the company could assign a person who is the best performer in
the class (the leadership program/team) to consider as their CEO to be reviewed by the Board of
Directors.

Business/Company Policy for Employee

STANDARDS OF CONDUCT

DEALING WITH THIRD PARTIES

LITIGATION, INVESTIGATIONS, INQUIRIES AND COMPLAINTS

DEALINGS WITH E*TRADE

NON-DISCRIMINATION AND ANTI-HARASSMENT POLICY

HANDLING COMPANY DOCUMENTS AND INFORMATION

TREATMENT OF INSIDE INFORMATION

OUTSIDE BUSINESS ACTIVITIES

EMPLOYEE TRADING
Business/Customer Policy

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