Morgan Stanley Dean Witter

EXECUTIVE SUMMARY

Investment Banks are defined as financial intermediaries that focus on the capital raising needs of firms through the use of debt and equity. In this capacity, Investment Banking firms concentrate primarily on underwriting debt and equity issues, as well as provide valuable consulting information for other firms in need of merger and acquisition expertise.

A co-petitive analysis provides the analytical framework for an industry to evaluate its key external relationships relative to the industry's customer base and supply inputs. Some customer competitors identified are investment banks offerings in the same markets, federal and municipal governments, and Big 6 accounting firms. Examples of supply competitors include commercial banks, private investors, and strategic consulting firms. Customer complementors consist of financial media, institutional investors, and software developers. Lastly, corporations subject to consolidation and higher institutes of learning compose the industry's supply complementors

In determining "what matters" in the external environment, competitive, social/cultural, legal, economic, political, and technological forces are analyzed. Factors such as pressures for globalization, demographic trends, changing legal policies, and strong economies impact the investment banking industry.

The opportunities and threats identified here are the critical success factors in the external environment that can help position the industry to be profitable. The chief opportunities identified include the favorable economic environment that fosters mergers and acquisitions. Further, investment banks themselves have a unique window of opportunity to merge or acquire other investment banks which in turn promotes globalization. Erosion of the Glass-Steagall Act will provide long range opportunities for investment banks to diversify their offerings and lines of business.

In the short run, however, disappearance of Glass-Steagall poses major threats to investment banks as their long time underwriting monopoly is vanishing as commercial banks are gradually being permitted to provide this same service. The increase in competitiveness among investment banking firms also poses a dangerÐ'--declining profit margins. To a lesser extent, private placement rules along with the loss of 12b-1 fees will present future difficulties for this industry.

With the use of tools such as the Internal Factor Evaluation Matrix and the Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix, I was able to analyze and devise one primary strategy and one secondary strategy for Morgan Stanley Dean Witter.

These two strategies were Market Penetration and Market Development. Both of these strategies have annual objectives that are attainable and which involve Morgan Stanley Dean Witter becoming the preeminent Investment Bank in the World.

The Industry

The securities industry spans a wide range of financial services that include: "1) providing a mechanism that links people who have money with those seeking to raise money; 2) delivering a means of valuing and pricing investments; and 3) offering a vehicle that investors can use to liquidate their investments" (Mote, 1995: 838). Investment banking is a sector within the securities industry that focuses on raising capital through debt and equity issues as well as providing advisory services for mergers and acquisitions (M&A). The principal investment banking firms in the United States are Merrill Lynch; Morgan Stanley-Dean Witter, Discover & Co.; Goldman Sachs; Salomon Smith Barney; and Lehman Brothers, Inc. (S&P's Industry Survey Quarterly, 1997: 7). Foreign firms that have a similarly strong presence include Deutsche Morgan Grenfell (Germany) and Nomura (Japan). These companies operate globally and the majority of their customer base is composed of institutions.

What Matters?

In order to survive and remain profitable in today's competitive marketplace, Investment Banks need to be able to react and adapt to changes in the external environment and ideally be proactive in impacting these forces. External environment factors can be classified into five general categories: competitive, social/cultural, legal, economic, political, and technological. Current trends that are affecting the investment banking industry include globalization, increasing emphasis on higher education, demographic changes, erosion of the Glass-Steagall Act, heightened merger and acquisition activity, government movements towards privatization in developed and emerging markets, and rapid advancements in technology development.

Competitive Forces

Globalization has already had and will continue to have an impact on the investment banking industry. As the world becomes a "global village," international markets become more accessible. This leads to vast opportunities in several different ways. Companies continue to expand abroad, investing more in physical assets like plant, property, and equipment. These companies need to raise increasing amounts of capital to grow their operations and offer more products and services in foreign markets. This need for additional financing increases the demand for debt and equity underwriting. It has also created opportunities for firms to offer new services such as helping corporations manage interest rate or currency risks (Biggar, 1998: 48-2).

Furthermore, globalization opens up new customer markets to which a firm can sell its services. "Foreign purchases and sales of U.S. securities, for example, reached $7.2 trillion in 1995, up sharply from $198 billion in 1980" (U.S. Industry and Trade Outlook, 1996: 48-2). Investors are attracted by the knowledge that holding a globally diversified portfolio reduces their risk" (S&P's Industry Surveys Quarterly, 1997: 7).

Internationalization also allows companies access to a broader pool of potential employees. Additional flexibility in choice allows for especially selective hiring which leads to a more qualified, competent work staff. Diversity in the workplace is advantageous for companies for a variety of reasons. It brings new perspectives to the analysis of business decisions and can also provide a company with access to and first-hand knowledge of a foreign market in which it might be interested in operating.

Social/Cultural

In addition to this increase in the potential applicant pool, the growing emphasis and importance that is being placed on higher education results in more students who have classroom training from solid undergraduate business or MBA programs. Investment banking firms are also interested