Essay explaining what the main strategy development tools are and how they are used in business.

Write an essay explaining what the main strategy development tools are and how they are used in business.

The following essay is based on Commonwealth Bank of Australia. This is purely for education purpose only.

Executive Summary:

Commonwealth Bank of Australia (CBA) is Australia leading multinational bank governed by Australian Government. It is a financial institute providing financial solutions such as retail, business and institutional banking, fund managements and many other services.

CBA's main objective is to focus on its customer satisfaction. Here in this paper, I have included four strategy tools to analysis the business strategy tools of CBA like SWAT analysis, PESTEL analysis, Porter five forces and Ansoff Matrix. Using these business strategy tools how CBA is operating, what could be the suggestions are included. The close competition with its rivalry, the environments it faces going in foreign land, the opportunities due to globalization. The scandals which had let it down, the threats it imposes in home and foreign country are included.

In conclusion what matters for CBA is its customer so it has tried to incorporate the youths from early age so that they remain for life long with the institution, it has brought up different schemes, new technologies to enhance the banking ability and improve the user acceptance.

Commonwealth Bank of Australia (CBA)

Commonwealth Bank of Australia an Australian multinational bank was founded in 1911 by the Australian Government under the Commonwealth Bank Act operating across New Zealand, Asia, the United States and the United Kingdom. CBA revenue is 26 billion AUD as per 2017. CBA is Australia's leading provider of integrated financial services. It has been providing financial solutions such as retail, business and institutional banking, funds management, superannuation, insurance, investment and broking services.

CBA has been outstanding is competitors though it is important to invest in improvement of its services and innovative product lines to maintain its leadership. As of CBA its primary focus is its customer so it will continue to maintain customer experience focusing on People, Technology, Productivity and Strength. We will be discussing how CBA has to take its business strategy to clarify and gain competitive advantage using different business strategy tools.

SWOT Analysis:

Strength:

CBA is a leading Australian bank and has maintained the highest satisfaction rating in December 2017 according to Roy Morgan market research company which is the key factor to its sustainability and success. The customer satisfaction includes mobile banking, online banking and Wealth Management segment. CBA is continuously focusing on improving and providing innovative services to its customer. The unique feature of CBA is its quality and diversified credit portfolio. It is operating in various countries such as New Zealand, Fiji, USA and the United Kingdom. Wide varieties of services like Consumer banking, Corporate banking, Investment banking, Global Wealth management, Insurance, Private Equity, Mortgages, Credit services, Financial planning makes it consumers number 1 choice. It has largest branch and ATM network.

Weakness:
CBA is highly dependent on its offshore borrowing which makes it vulnerable to risk both market sentiments and cross currency volatility. Australian Reports and Analysis Centre accused and lodged investment against CBA in deep money laundering in 2017 with involvement in anti-money laundering and terrorism financing which led down its reputation. The loan impairment expenses is high though it has declined by 1.5% according to CBA full year profit announcement.

Opportunities:

It has high opportunities to penetrate the European and Asian market. It has launched its services in China and India major giant of Asia in collaboration with the local banks yet it has been operating its branches in very low numbers. India and China are fastest growing economy are biggest market which will help to capitalize the trading transactions as an impact of globalization.

Threats:

The change in foreign exchange rates can be risky for CBA due to its operations in various geographies globally. The need to increase higher capital requirement (Tier One Ratio) by an average of around 100 basis points as indicated by Reserve bank of Australia. This will force CBA to increase the credit interest rates.

PESTEL Analysis:

Political Factor:

CBA is operating globally so it is exposed to different type of political environment and political system risks. It has to closely analyze following factors which will effect it profitability:

·         Political Stability

·         Level of corruption specially in developing country like India

·         Legal framework

·         Trade regulation and tariffs

·         Taxation system

Economic Factors:

The economic factors such as inflation rate, interest rate, foreign exchange rate. Things to consider as economic factors:

·         Need to know about economic system and stability in the country of operation.

·         Government policies regarding free market and banks.

·         Need to know about the comparative advantages that host country can have in the country of operation.

·         Things to consider like economic growth rate, labor costs, unemployment rate, inflation rate, interest rate, exchange rates.

Social Factors:

The culture of society impact the business of an organization. Understanding the customer and their needs is an utmost. Things to consider as social factors:

·         Purchasing power of people, buying habits, disposable income levels, education level, cultural aspect (gender based), attitudes.

·         Lifestyle such as religion, family. Asian countries are more likely to be family oriented and tends to save more for future.

Technological Factors:

We have seen many cases when business ruins out when not catching up with the technology like Nokia, one of the largest mobile manufacturer lost its market due to adaptation of windows operating system instead of android operating system. Its very much necessary for the financial institutions to catch up with the latest technology and provide more secured means of transactions. Things to consider:

·         What will be the impact of the products being offered to the customers?

·         What technological advancement has been made in its competitors recently?

·         The impact of its value chain structure in banking field.

·         The rate of technology growth.

·         The cost effect that will bring in with new technology offerings.

Environmental Factors:

To grow business, the business must be able to identify, analyze and execute with the change in internal and external environment. Business should identify the change and modify the business accordingly. While in business or entering in new business, requirement of environmental standards to operate the business is needed. Environmental factors to consider may be environmental pollution regulations, recycling, climatic change, weather, disturbance in the natural habitat.

Legal Factors:

Legal factors are the external factors which affects the business operation which is also key element to decide whether or not to do business. Legal factors to consider are Consumer law, discrimination law, copyrights, intellectual property law, health and safety law and employment law of the operation nation CBA is operating.

Porters Five Forces:

The understanding and utilizing Michael Porters Five Forces will help businesses to make proper strategy and build a sustainable competitive advantage.

Threat of New Entrants:

As Commonwealth Bank of Australia has started its operations in Asian, European and American region, these regions are always welcoming new forms of business. As we know that China is expanding its business globally so the financial institutes of China are also seeking potential markets outside its country. China has invested a huge amount in USA to get it out of recession of 2008 since it is one of the major trading platform for Chinese business houses. Also there is distinct case that China is going forward with its "One Belt One Road" to connect the trading path globally so the financial institute has started investing. The Bank of China has recently invested in Turkey by financing mega infrastructure, energy and transportation projects.

Bargaining Power of Suppliers:

Financial institute which has higher capital for investment can easily increases its rate of interest for saving and decrease the rate of lending. CBA is operating with large number of branches inside and outside Australia so it is holding bargaining power of interest rates and rate of investments. This is the reason why CBA has been a leading financial institution.

Bargaining Power of Buyers:

Customers own the right to invest their money as per their requirements so the power do not always remains in the hands of the suppliers only. With increasing education and marketing, people are aware of which banking institution can protect their money safely. The turnover ratio of the customers can arise due to customer dissatisfaction and if they see risk in their investment. CBA holds high in consumer satisfaction as of the market research so people are more willing to do business with CBA.

The Threat of Substitutes:

Along with CBA there are other three big financial institutions in Australia and every other banks in foreign soil is its biggest threat. Customer satisfaction comes as key factor here to bypass the substitutes. Also the interest rates, credit rates and the availability of branches and ATM services in ease will be key factors to outnumber the threats.

Rivalry between Existing Companies:

The intensity of the rivalry between the market players can significantly decrease the profitability of the institution but it will benefit the consumers by discounting in its services, offering higher shares and better quality of services. The current rivalry in Australia between the top financial institutions has no leaders so it is always challenging for CBA to meet up the expectations of customer in case of satisfactions. CBA is always educating its customers to manage their investments properly and providing credit cards in lower rate and low fee, providing personal loans at reasonable interest, providing international and travel accounts. Due to all this rivalry, the most benefits getting are the end consumers.

Ansoff Matrix:

Ansoff's matrix suggests the growth of business depends upon new or existing product in new or existing market. It consist of four strategies Market Penetration, Market Development, Diversification and Product Development.

Market Penetration:

CBA has numerous of product line and its existence in the market history is long. The product line and services in this field is similar in comparison with the competitors. The biggest growth opportunity of CBA is to win over the young generation who have dumped the bank in late 20's and early 30's as mentioned by Ian Nareve, Managing Director and Chief Executive Officer in an interview. The adaptation of leading technology and commitment towards its customer satisfaction has been key factors to hold the young generation. The home lending is the mega trend that exists in the Australian market currently though at higher risk which was one of the major reason of 2008 recession in US banking sector still has to deal with it for capturing the current market. Restructuring of the schemes and aggressive marketing is done in timely basis by CBA to keep engaged its customer.

Market Development:

CBA is operating in international market with its proven market in Australia, the market structure is different in global scenario. CBA has restructured its product and services according to cultural society of the operation country. We have history that Disney Land was not success in France since alcohol was not permitted in its premises and France has tradition of having glass of wine in every occasion. This is just an example how the cultural value should be incorporated with the business. CBA has operated in joint venture with the existing firms outside Australia to have cultural advantage by collaborating with the domestic financial institutes. In Australia, it is targeting the young age group people so that they turn out loyal customer for life long.

Product Development:

 In product development strategy, the market is existing one but has to capture with new products innovation. Normally business house spent a lot in research and development of product or its services. CBA keeps on launching new product offers. Currently innovative products of CBA are like

·         Albert, the clever EFTPOS; next generation payment terminal.

·         Commonbank Small Business App; payment terminal which turns Smart phones into payment too.

·         Everyday Settlement; access money as needed, pay your money to work faster and simplify reconciliation.

So a business form should be trying innovative products to keep the consumers engaged.

Diversification:

CBA has new market to operate and has to launch new product according to the need to that particular country. CBA has established Group Funding whose role is to make sure that the Commonwealth Bank Group has funding available from capital markets offshore and in Australia. It has major borrowing programs like USD70 billion EMTN program, USD35 billion USCP program, USD30 billion USMTN program, Domestic Debt Program. As per CBA target market sophisticated internationally and domestically.

In conclusion, we can say that different business strategy tools help to analyze and visualize the business and helps to know about the product or services. Different tools helps to analyze the strength and weakness of the product or services. The ultimate strategy of Commonwealth Bank of Australia has been customer satisfaction so CBA is always trying to out pass its competitors by creating innovative products and increasing quality of services. It has also started exploring globally to increase the opportunity to do business in new market.