1. How has Schwab's strategy evolved over the years? How have these changes affected its information needs? Have the different versions of the Profitability Analysis System [PAS] satisfied those needs?
Schwab strategy has evolved into a customer focused strategy with emphasis on thorough resource and cost allocation and encourages ongoing analysis of profitability of products, segments, and channels. At Schwab’s conception, the initial focus was to make stock-trading services accessible to the average person, as explained in the case (made fees affordable such as brokerage service fees which were competitive). Under Pottruck’s direction, the company suffered financial set-backs when they did not lower prices in the highly competitive market instead deciding to focus on expanding the business to include institutional trading and research, dropping individual investors on their list of priorities. The strategy again shifted to their initial strategy, focusing on the company’s long-term relationship with individual investors, providing competitive service fees, and careful allocation of resources under the reestablished management of Mr. Schwab’s. Customer retention, customer attainment, establishing long-lasting customer relationships, and building upon a structure that supports effective business decision are also key parts of the strategy.
The strategy focused on customer relationships, competitive pricing, and thoroughly analyzed resource allocation. With the changes in strategy at Schwab, information needs increased. In regard to the strategy, Schwab needed to capture data that could successfully allow them to properly allocate resources and identify profitable areas, non-profitable areas, and cost saving opportunities. The changes in strategy at Schwab have required more detailed data to be gathered for effective profitability analysis.
The different versions of PAS (Profitability Analysis System) has satisfied the information needs for the new strategy. How? After identifying the information needs and the vital contribution of data for the support of business decision-making, Schwab developed MUSE (Model for Understanding Schwab Economics), it was the first cost system introduced and later MUSE II was developed.
MUSE allocated costs among products, segments, and channels. Special focus was given to products since they had the most baring, positive or negative, on customers, which was the focal point under the Schwab strategy. MUSE II was later introduced and reflected the original cost system with the addition of the activity-based costing principles in order to capture profitability data. The cost systems developed in pursuit of establishing a profitability analysis system served a very effective purpose. With the individual investor the root of the strategy it was important to maintain a positive relationship to retain customers. Mr. Schwab implemented the new or initial strategy because it had proven to be the key to success for Schwab. In order to assess the satisfaction of the customers, it made sense to zero in on the product and customer engagement and results. The cost systems developed provided that information for Schwab. MUSE II was very effective in providing valuable insight for management by capturing very detailed and thorough data. With the division of segments, products, channels and customer segments, data was very specific and abundant. Muse II provided insight into Schwab’s cost structure for effective decision-making. CAP (Customer Account Profitability) indentified individual customer profitability which was limited information as to not create an aggressive sales environment. According to the case, both versions evaluated segments and channels on revenues they generated and costs that were under their direct control.
By identifying profitability they can effectively price products and equally important, they can create cost savings for customers by identifying the...
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