Porters Five Force Model of Australia and New Zealand Banking Group Ltd - Case Study Example

ANZ Bank Based on Porter’s Five Force Model Executive Summary Porter’s five force model is a tool used by most of the current organizations to study about the strengths and weakness of an organization. Porter model is capable of predicting even the future challenges and opportunities for an organization. Threat of new entrants, bargaining power of supplier, bargaining power of buyers, threats of substitute products, industry rivalry or competition etc are the five forces which can affect an organization’s performances according to Michael Porter. With total assets of AUD 135 billion, Australia and New Zealand Banking Group Ltd (ANZ) is the second largest banking group in Australia. ANZ offers a full range of financial products and services in Australia and New Zealand and has representation in more than 50 countries at present. It operates internationally. But it is impossible to comment that everything is safe for ANZ Bank either in Australia or in other parts of the world. Globalization and liberalization has produced major challenges for ANZ Bank because of the threats of new entrants in the Banking sector. Moreover, the recent economic recession has badly affected banks and other financial institutions. Recession has affected countries like Australia very much whereas it has not affected some of the emerging economies like China or India. In other words, Australian banking sector is facing stiff challenges from the financial organizations of these countries at present. Part 2 Analysis of ANZ bank based on Porter’s five force model Michael Porter’s famous five forces model or theory is used extensively in the industrial sector at present in order to analyze the attractiveness of an organization in the market. It helps the organizations to learn more about the current strength and weakness of the organization with respect to the market competition. Porter model can be used to foresee the future threats and opportunities and the organizations can plan well accordingly. Porter’s model of competitive forces assumes that there are five competitive forces that identifies the competitive power in a business situation which are; Threat of substitute products, Threat of new entrants, Intense rivalry among existing players, Bargaining power of suppliers and Bargaining power of Buyers (Porter’s Five Forces Model, 2009). The figure given below illustrates the Porter’s five forces theory. (Porter’s Five Forces Model, 2009) Operating in more than 50 countries, ANZ bank is one of the largest banks not only in Australia and New Zealand, but internationally as well. Founded in Sydney in 1835, its headquarters shifted to Melbourne in 1838. The 170 years history of ANZ brought many impressive results in the banking sector (Australia and New Zealand Banking Group Limited (ANZ), 2010). ANZ bank Substitutes are those products which are quiet different in form but which offer a real alternative to the industry competitor’s product (Michael E Porter and sustainable competitive advantage, Chapter 4, p.40). Threat of substitute products means the easiness in changing the consumer behavior to opt for substitute products. For example ANZ is facing stiff challenges from other prominent banks domestically and internationally. Competitors always try to produce goods of same quality with cheaper prices. The availability of more attractive substitute products will drive away customers from ANZ. ANZ is currently focusing more in the Asian market. “In a number of Asian countries, foreign banks cannot enter the market on an unrestricted basis” (Lewis, 2007). The restrictions in this region are a big handicap for ANZ. For example, Indian national banks can offer many products to their customers like, mutual funds, term deposits, etc whereas it is difficult for ANZ to offer such products to Indian customers. Threat of new entrants depends on the barriers to entry. Barriers to entry depends on economies of scale, product differentiation capital requirements etc (Michael E Porter and sustainable competitive advantage, Chapter 4, p.35). Threat of new entrants is the second element in the analysis of an organization with respect to Porter’s five force theory. New entrants always weaken the power of an organization. In the case of ANZ, globalization has raised many concerns about the entry of new international banks in Australia and other countries. It is easy for an Indian or Chinese bank to establish business in Australia at present because of the liberalized market conditions. In fact recent recession has destroyed the backbone of many of the Australian banking organizations like ANZ. On the other hand, China has not faced much trouble with respect to the recession and hence it is easy for the Chinese banks to enter the Australian market and raise challenges to ANZ. Industry rivalry is another major threat for the development of an organization. For example, ANZ is facing stiff challenges from domestic bans and international banks such as CBA, NAB and WBC, regional banks and, in lending, mortgage brokers and originators. It also competes against the standalone wealth managers such as AMP, AXA and Perpetual (Australia and New Zealand Banking Group Limited , n. d) Apart from these local financial institutions, many other international banks also offering stiff resistance to ANZ’s growth prospects. For example in Indian market, ANZ is facing stiff challenges from ICICI, HDFC, and many other local banks. Industry rivalry often resulted in unhealthy competition and the profits of the organizations may become zero. Bargaining power of the buyers increased a lot in the recent times because of the availability of better products and services due to the advancements in technology. For example, better technology helped banks to provide internet banking, mobile banking, core banking etc like modern facilities. If ANZ fails to offer any of such services to the customers, customers will opt for other banks for better services. Moreover, ANZ cannot charge much for the services they offer as most of the competitors are also offering similar services at competitive prices. In other words, it is difficult for ANZ to fix a higher price for their products because of the increased bargaining power of the customers Bargaining power of the suppliers is the fifth element in the Porter’s five force analysis of an organization. If the suppliers have connection with ample other organizations, they will not compromise much in negotiations whereas if the suppliers have fewer options they will ready to compromise in order to sell their raw materials. If the organization failed to keep relationships with multi-suppliers, sometimes, the sole supplier may exploit it. As far as bargaining power of supplier is concerned, ANZ has not many worries as banking industry is not much dependent on suppliers for the banking product formulation. Most of the banks often buy services and materials from a variety of suppliers without benefiting from economy scales (Supplier relationship management in banking industry, n. d, p.1). Outsourcing of works is a major habit in the banking industry at present in order to reduce the internal workload. For example, telemarketing of banking products is a common outsourced banking job. Suppliers of these outsourced works may charge heavily, but ANZ like banks may still go for it in order to reduce the internal paper works and to focus more on other banking segments. Part 3 Industry structure suitable to ANZ Differentiation of the products is the best way for ANZ bank to stay active in the market based on Porter’s five force model analysis. Differentiation advantage is obtained only when a firm was able to charge a premium price for its products and still retain its customer base (Michael E Porter and sustainable competitive advantage, Chapter 4, p.45). As explained earlier, banking sector all over the world is undergoing stiff competitions. It is easy for the international banking organizations to operate in any of the countries because of globalization. Even though most of the countries allow international banks to operate in their territory, they will not give much freedom to such international banks just like the domestic banks. Banking regulations are enforced in every country and for the international banks these regulations are stiffer. In other words, ANZ cannot operate in a foreign soil just like their operation in Australia or New Zealand. Under such circumstances they have develop new challenging products or services to attract international customers. The buyers will buy a product even for a higher price if they feel such products are unique in the market. For example, in India like countries, Unit Linked Policy Schemes or (ULIPS) are offered by the domestic banks to the customers. It offers the customers the chances of participating in the share market without much risk as most of the ULIPS have a sum assured upon maturity. But the major disadvantage of these schemes is the high service charge taken by the banks. Even then many of the Indian investors are investing heavily in such schemes considering the growth prospects and the offer of the assured sums. ANZ should think in terms of such revolutionary products which can conquer the market. They should remember that new products always accepted with both hands if it offers value for money even if the price was higher than the competing products. To implement a differentiation strategy or product successfully, ANZ require the support of R & D and adequate co-ordination among different banking functions. It is not necessary that a product or service offered to the Australian customers might suit to the Indian or Chinese customers. ANZ should treat different markets differently in order to formulate right product for the right country. For example, Australians need not bother much about savings whereas Indians are particular in saving for the future. In other words, products or services offered for long term benefits may not succeed in Australia whereas such products may excel in Indian market. In other words, ANZ should think differently for making strategies for different countries. The consumer behaviors are influenced by many parameters like, culture, religion, economy, education, tradition, etc. When globalization first entered the global business arena, Parker Pen Company tried to sell their products in different countries using the same marketing strategies. They failed to recognize that even for the same product different marketing strategies are required. Same way, ANZ also think of different marketing strategies in different market. For example, Ricky Ponting might be a good brand ambassador for ANZ in Australian market whereas in Indian market instead of Ponting, they need either Sachin Tendulkar or Dhoni as their brand ambassadors. In other words, differentiation should not be limited to the product or service, but it should be implemented in all the organizational functions in different markets. According to Harvard Professor, Rosabeth Moss Kanter, companies are shifting away from defining their strategies in terms of competitive advantages, low cost and differentiated features. Instead, core competence, time compression, continuous improvement and relationships are the new strategies adopted by companies at present (The new wisdom of Rosabeth Moss Kanter, Chapter 5, p.60). In other words, along with differentiation strategies, ANZ should think in terms of developing strong relationships with the customers. They should deliver product or service without any time delay. Customers should feel that they are capable of delivering good services in no time. Unnecessary time delays will drive customers away from ANZ. Part 4 Three major problems faced by ANZ at present The entry of new entrants is one of the major problems faced by ANZ at present. As mentioned earlier, barriers to entry has weekend due to globalization and it is possible for the financial institutions of one country to operate in another country. Foreign Direct Investments are welcomed by most of the countries and in order to attract FDI the rules and regulations or the barriers to entry has been considerably reduced by many countries. Australia is also one country which encourages foreign direct investment and the entry of new foreign companies in their soil. In order to escape from the threats caused by the new entrants, ANZ has the only way to expand to other countries. Attack is the best way of defense and ANZ has to implement that principle in practice. Currently they are operating in more than 50 countries and they can expand that to more other countries. At the same time they must try to develop new product and services to sustain their customer base and to escape from the threats of new entrants. Challenges from substitute products are the second challenge faced by ANZ Bank. Competing banking companies offering many attractive products to the customers and hence ANZ should develop new services or products in order to keep their customer base. Increased buyer power is the third problem faced by ANZ. It is impossible for a banking company to sell any of its product or services at a higher price. Customers have the option of many other competitive service providers and hence ANZ should devise strategies to sustain their customer base. Relationship building is the best way to sustain the customer base, but according to Ferguson, (2008), some of the recent activities of ANZ in risk management have developed skepticism among customers (Ferguson, 2008). ANZ should keep more transparency in their dealings and to remove the concerns of the customers about its abilities to manage risks. Customers or the buyers are the asset of an organization and the success of an organization lies in maintaining or improving its customer base. References 1. Australia and New Zealand Banking Group Limited (ANZ), (2010) Retrieved on 29 June 2010 from http://www.anz.com/about-us/our-company/profile/facts/history/ 2. Australia and New Zealand Banking Group Limited, (n. d) Retrieved on 29 June 2010 from http://www.investsmart.com.au/shares/asx/ANZ-Bank-ANZ.asp 3. Ferguson(2008), Punters ponder: can we bank on ANZ? Retrieved on 29 June 2010 from http://www.theaustralian.com.au/news/punters-ponder-can-we-bank-on-anz/story-e6frg7f6-1111115988833 4. Lewis P L, (2007), Australian banks diverge on Asia: while ANZ and the Commonwealth Bank are increasingly active in the emerging economies of Asia, and Westpac holds its line in an attempt to grow organically in the region, National Australia Bank appears reluctant to engage, Retrieved on 29 June 2010 from http://findarticles.com/p/articles/mi_hb4849/is_3_16/ai_n29337850/pg_2/?tag=content;col1 5. Michael E Porter and sustainable competitive advantage, Chapter 4 6. Porter’s Five Forces Model, (2009), Retrieved on 29 June 2010 from http://notesdesk.com/notes/strategy/porters-five-forces-model-porters-model/ 7. Supplier relationship management in banking industry, (n. d), Retrieved on 29 June 2010 from http://www.sap.com/usa/solutions/business-suite/srm/pdf/BWP_SB_SRM_for_Banking.pdf 8. The new wisdom of Rosabeth Moss Kanter, Chapter 5 Read More