On Tuesday, we discussed a case on Charles Schwab. It was interesting because this was the first case we’ve looked at that is an “appreciation case” versus a “decisional case.” With an appreciation case, there is no decision to be made. The purpose of the case is to give the reader a good understanding of the industry and the characteristics and strategy of the company. All of the previous cases we’ve looked at (Bally, Wynn, Harley-Davidson and Toyota) have been decisional cases, in which the reader is faced with a strategic problem the company has encountered and challenged to discover a solution.
The business model for Charles Schwab is to offer discounted stock trades without providing investing or consulting advice. The company’s competitive advantage is that it is trusted by customers because they are not trying to offer advice or sway the customer’s decision to purchase a particular stock. The company is also extremely operationally efficient both online and in their physical branch locations.
We reviewed a brief history of the firm and its origins as an entrepreneurial venture started by a young, smart businessman with the idea of forming a discount brokerage company that would empower investors by giving them the information and tools required to make their own decisions about securities investments. The firm was initially sold to Bank of America in 1983, but went through a management buyout a couple of years later, followed by an IPO. Charles Schwab served as CEO until 2003, when David Pottruck became CEO. However, one of the most interesting actions that happened with the firm was their decision to fire Pottruck in 2008 and reinstate Schwab as CEO, after Pottruck failed to maintain the company’s focus and mission on empowering investors and providing them with ethical financial services. It was interesting to learn the company’s justification for firing Pottruck because you don’t often hear about CEO’s being fired.