CIIM pro­fes­sor wins in­ter­na­tional ‘busi­ness case’ award for Zor­bas plan in New York

Financial Mirror (Cyprus) - - CYPRUS -

Dr Olga Kandin­skaia, a full-time res­i­dent fac­ulty at Cyprus In­ter­na­tional In­sti­tute of Man­age­ment CIIM, has re­ceived a pres­ti­gious Johnathan Welch Award by NACRA for the busi­ness case she au­thored about the Cypriot com­pany Zor­bas Bak­eries.

NACRA, North Amer­i­can Case Re­search As­so­ci­a­tion, is the world’s lead­ing aca­demic case re­search body with 500 re­searchers, case writ­ers and teach­ers in the busi­ness dis­ci­plines, which holds the an­nual con­fer­ence as the fo­rum to present best busi­ness cases in dif­fer­ent man­age­ment dis­ci­plines. Dr Kandin­skaia pre­sented her newly-writ­ten fi­nance case about Zor­bas Bak­eries at the re­cent NACRA con­fer­ence held Oc­to­ber 4-6, in Or­lando, and she won the Johnathan Welch Award, which NACRA grants ev­ery year for the ‘Best Case in Ac­count­ing, Fi­nance and Eco­nom­ics.’

It is all the more im­por­tant as it is the sec­ond time, in re­cent years, that Olga has won such an ac­claimed award for a case about a Cypriot com­pany go­ing in­ter­na­tional. In 2017, Dr Kandin­skaia won a top prize in the pres­ti­gious an­nual case writ­ing com­pe­ti­tion or­gan­ised by the Case Cen­tre in the com­pe­ti­tion ‘Out­stand­ing New Case Writer’ with her case “Engino Toys: Stay­ing in China or Mov­ing to Europe?” It was the first time that a busi­ness school or univer­sity from Cyprus was awarded a top prize in the in­ter­na­tional com­pe­ti­tion by the Case Cen­tre.

Win­ning case: Zor­bas

Olga’s win­ning case is about a new project in New York un­der­taken by the lo­cal Zor­bas Group.

What is the story in the case? As Olga ex­plained, “the case presents a de­ci­sion sit­u­a­tion. The case set­ting is Ni­cosia, De­cem­ber 2014. Zor­bas Bak­eries, a large fam­ily-owned Cypriot com­pany, was con­sid­er­ing at that time a new strate­gic ini­tia­tive: open a new con­cept store abroad in a ma­jor big city, such as New York. More­over, it wasn’t just about open­ing one shop, but the shop that would be used as the pat­tern for the fu­ture in­ter­na­tional fran­chise stores. Such a project would be most un­ortho­dox for a Cypriot fam­ily-owned com­pany and in­volve mul­ti­ple risks. The Manag­ing Di­rec­tor of the com­pany, Demetris Zor­bas, was as­signed re­spon­si­bil­ity for this project.”

What are the learn­ing out­comes? As Olga noted, “this case is ideal to ex­pose MBA and MSc stu­dents to a wide range of is­sues re­lated to the strate­gic in­vest­ment de­ci­sion process cov­ered within the cor­po­rate fi­nance course or sim­i­lar. The stu­dents are taken step-by-step through a fi­nan­cial mod­el­ing ex­er­cise in Ex­cel, which al­lows them to ac­quire both the­o­ret­i­cal knowl­edge and prac­ti­cal skills. This case high­lights that the stan­dard net present value anal­y­sis does not take into ac­count the flex­i­bil­ity in­her­ent in the cap­i­tal bud­get­ing process, and in some cases such flex­i­bil­ity be­comes very im­por­tant and in fact may even change the de­ci­sion. What flex­i­bil­ity do we mean? In real life, man­agers may have flex­i­bil­ity em­bed­ded in the fol­low­ing op­tions: an op­tion to de­lay, an op­tion to ex­pand, and an op­tion to aban­don. In other words, in the sit­u­a­tions of un­cer­tainty and when man­agers have the chance to learn from the first try and adapt their fu­ture be­hav­ior, the project re­sem­bles a clas­si­cal op­tion, i.e. an op­por­tu­nity but not an obli­ga­tion to go ahead (or not go ahead). This is what they call ‘real op­tion’ in fi­nance.”

Real Op­tions’ the­ory

The ‘real op­tions’ the­ory is a rel­a­tively new con­cept in the in­vest­ment de­ci­sion mak­ing. It is not an al­ter­na­tive to the tra­di­tional DCF val­u­a­tion but a con­tin­u­a­tion of it.

“When it comes to val­u­a­tion, we are talk­ing in such cases about adding a cer­tain pre­mium to our stan­dard NPV anal­y­sis in or­der to un­der­stand the real value of the pro­posed in­vest­ment. Fa­mous fi­nance pro­fes­sor from the Stern School of Busi­ness at New York Univer­sity, Aswath Damodaran, uses the words ‘elusive pre­mium’ since the added value is not easy to as­sess,” said Olga.

She con­tin­ued: “Ap­ply­ing the ‘real op­tions’ the­ory to this case only came at the fi­nal stage of my anal­y­sis. When I started work­ing on this case a year ago, I ini­tially sim­ply wanted to show my Mas­ter stu­dents a very re­mark­able in­ter­na­tional project by a lo­cal com­pany. I have worked with the man­age­ment team of Zor­bas Group for many years and have al­ways ad­mired their ini­tia­tives. When work­ing on the case anal­y­sis, I re­alised that this project fits per­fectly with the ‘real op­tions’ the­ory.

“Ul­ti­mately, this is what the Mas­ter de­gree in busi­ness is all about: stu­dents should be able to recog­nise in the sim­ple ev­ery-day sit­u­a­tions cer­tain pat­terns and be able to ap­ply the the­ory to make suc­cess­ful busi­ness de­ci­sions. They should be able to use the re­sults of the com­pu­ta­tional ex­er­cise mean­ing­fully in an over­all strate­gic anal­y­sis. I like to quote to my stu­dents the words by Em­manuel Faber, CFO of Danone: “Fi­nance with­out strat­egy is just num­bers, and strat­egy with­out fi­nance is just dream­ing.”

Stu­dents’ per­spec­tive

Evita Si­zopoulou, CIIM MSc Busi­ness Man­age­ment stu­dent, has her own prac­tice as den­tist in Li­mas­sol. She com­mented: “In a rapidly chang­ing busi­ness en­vi­ron­ment, mod­ern uni­ver­si­ties and pas­sion­ate teach­ers are re­spon­si­ble for of­fer­ing stu­dents the abil­ity to learn how to solve small and big chal­lenges in everyday work­ing life. Work­ing on the case project like Zor­bas Bak­eries gave all of us the chance to work as a team of man­agers by study­ing in depth the fi­nan­cial as­pects of a busi­ness ex­pan­sion and pre­pare our­selves for the real busi­ness world. From my point of view, in ad­di­tion to the knowl­edge we ac­quired in fi­nance, the added value of work­ing on Zor­bas case was the ex­tra skills we gained like: strate­gic think­ing, ex­pe­ri­ence, flex­i­bil­ity, and vi­sion.”

Eliana Dji­ak­ouri, CIIM MSc Fi­nan­cial Ser­vices stu­dent, works at Pri­vate Bank­ing of the Bank of Cyprus in Li­mas­sol. She said: “Cor­po­rate fi­nance was a valu­able source of skills and knowl­edge. The holis­tic course tack­led most of the cor­po­rate fi­nance top­ics with a strong em­pha­sis on ap­pli­ca­ble Ex­cel skills for fi­nan­cial and sen­si­tiv­ity anal­y­sis, mod­el­ing, val­u­a­tion and bud­get­ing. By the end of Zor­bas case study, which was a re­al­is­tic val­u­a­tion as­sign­ment through in­ter­ac­tive learn­ing, I be­came aware of ap­pre­ci­at­ing fi­nan­cial strat­egy is­sues, fi­nan­cial choices avail­able to or­gan­i­sa­tions, how fi­nan­cial struc­ture should be de­ter­mined and, be­ing able to make in­vest­ment de­ci­sion for com­pa­nies.” Dr Olga Kandin­skaia is As­sis­tant Pro­fes­sor of Fi­nance and MSc Busi­ness Man­age­ment Di­rec­tor at the Cyprus In­ter­na­tional

In­sti­tute of Man­age­ment CIIM: olga@ciim.ac.cy.

Dr Olga Kandin­skaia of CIIM with Kathryn Sav­age and Jeff Shay, Co-Pres­i­dents of NACRA

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