Both TCW and Activision Blizzard (Activision) operate in a competitive environment. For TCW, the investment management industry, while large, is filled with several formidable competitors such as Pacific Investment Management Company (PIMCO) and Oaktree Capital Management. Similarly, Activision fights for market share in the gaming industry, which is growing increasing crowded and experiencing shifting trends. To further grow in these industries, both companies need to innovate and take market share away from competitors. As both companies continue to innovate and expand, both company’s growth strategies will be further analyzed. An investment fund’s success is largely measured by three key metrics: Assets Under Management (AUM), fund return relative to its benchmark, and fund ratings. With $180B in AUM, TCW is one of the largest players in the fixed income investment management industry. The company has a strong history of outperforming its benchmark and has garnered high ratings from several rating agencies. However, with the number of investment firms increasing, the three key metrics are becoming increasingly difficult to not only grow, but to maintain as well. The example often given to explain the difficulty is the distinction between a “winner’s game” and a “loser’s game” in tennis. For professional tennis players, wining points entails outplaying the opponent and hitting winners, thereby making their game a winner’s game. However, for the average tennis player, winning points is a loser’s game as players typically focus on keeping the ball in play and waiting for their opponents to make an unforced error. In terms of investments, information is readily available to anyone and everyone while computers execute trades within milliseconds and take advantage of any arbitrage opportunities before any human can react. With this, many investment managers have lost their competitive advantage and potential clients cannot distinguish one investment firm from another. Essentially, the industry has turned from what was once a winner’s game to a loser’s game; firms hope other firms will make mistakes and underperform their benchmark. Activision is experiencing similar challenges as TCW is. The gaming industry is seeing an increasing number of competitors as companies compete for gamer’s limited gaming hours per day. World of Warcraft and Call of Duty, Activision’s flagship games, are seeing declining game sales with the former losing 44% of its subscribers in the last six years. Additionally, industry trends are shifting away from PC/console gaming towards mobile gaming. The challenge is not only to retain gamer’s attention through the release of popular and new games consistently, but to also take a significant market share within the growing mobile gaming industry. Both TCW and Activision need to continue to innovate to continue to grow within their respective industries. TCW and Activision responded to these challenges through different methods. TCW created an energy investment group to take advantage of several investment opportunities within the energy sector and Activision acquired King Digital Entertainment to expand their presence in the mobile gaming market. Both actions provide significant benefits to the company and the success can be measured by specific key metrics. For TCW, the CFO can measure the success of the energy group can be determined by the three key metrics measured previously: AUM, fund performance relative to benchmark, and fund rating. Creating a new energy group allows TCW to invest in a largely depressed energy sector. With oil prices at 5-year lows, oil company bonds are trading at large discounts. However, oil prices cannot remain depressed forever and are expected to reverse its downward trend in the near future. This reversal will provide significant upside for oil company bonds and allow TCW’s energy fund to outperform its benchmark by a large margin. Outperformance increases ratings, which in turn, drives AUM for the company. Additionally, the CFO can further drive AUM by reaching out to marketing personnel to raise awareness of TCW’s new fund. Although not directly related to the key metrics, the CFO can keep headcount stable to ensure profitability measures are retained. Ultimately, by identifying a trend that other investors fail to notice and creating a fund to take advantage of this, TCW can outperform its benchmark and provide a healthy return for its clients. In the end, all three key metrics, AUM, fund performance relative to benchmark, and ratings, will improve. For Activision’s CFO, the success of the acquisition boils down to increases in revenues, user traffic, and increased profitability. King Digital Entertainment, known for its Candy Crush Saga mobile game, generates $2B of revenues per year. Based on these metrics, the acquisition is considered a success as both revenue and user traffic grow. However, the CFO can ensure that cost efficiencies from the acquisition are realized to boost profitability. Acquisitions typically increase staff and creates redundancies in the consolidated company. The CFO can issue mandates to reduce staff or sell certain assets to maintain or even improve profit margins. In the end, Activision will realize higher profitability through these actions. The two companies utilized two different strategies to further company growth. TCW chose to create an energy group to take advantage of trends in the marketplace while Activision bought King’s Digital Entertainment to increase revenues and expand their presence in mobile gaming. While it is difficult to make a direct comparison since TCW is focused on investments while Activision is a gaming company, their strategies can be loosely compared. TCW’s strategic direction is more effective than Activision’s strategy as TCW focused on identifying industry trends and positioning themselves to take advantage of said trends. While Activision did utilize a similar strategy, their direction is more generic and unsustainable. Several companies have the same financial strength as Activision and can acquire other mobile gaming companies. What makes an acquisition effective is the potential synergies between the two companies. For Activision and King’s Digital Entertainment, there is very little overlap. The two companies create different games and also target separate demographics. For the acquisition to be more effective, acquiring another gaming company with more overlap would benefit Activision more. Both companies can learn from each other. TCW is operating in an increasingly competitive environment. Therefore, consolidation may help TCW retain its competitive advantages by reducing the number of competitors in the market or establishing the largest investment management firm in the market. As with Activision, consolidating two large gaming companies helps reduce the number of competitors. For Activision, the biggest takeaway from TCW is to focus on identifying opportunities to help position the company in taking advantage of changing industry trends. While Activision’s strategy of growth through acquisition does allow significant top-line growth, it isn’t a sustainable business model. To further increase revenues would require additional acquisitions and therefore, more debt. In conclusion, both companies chose different strategies to further grow. While I favor TCW’s strategy over Activision’s, it is too early to tell whether one will be more successful than the other. However, both companies have a strong history and will continue to innovate, providing further growth.…...