Strategic Analysis of Global Banking Industry - Research Paper Example

 Table of content 1. Introduction to the Global Banking Industry The global banking industry has undergone a series of transformational phases which has redefined the business processes of banking industry. The technological and innovative approaches have helped the banking industry to serve beyond the basic banking services with many other financial services. The over all system of banking has became more decentralized in terms of their organizational structure and consolidation. The banking industry can be viewed as two distinct categories of commercial and investment banking which were separated by Glass Steagall Act in 1933 (Hayes et al., 1983). The rate of economic development around the globe has accelerated the banking industry around the world since better economy leads to better banking and financial strength (OSWEGO, n.d.). Removal of regulatory barriers from international banking by many nations with encouraged involvement of advanced technology, have helped the global integration of banking industry (Federal Reserve Bulletin, 2003). 1.1 Analyzing the Global Banking Industry 1.1.1 Selection and Justification of the Analyzing tool For critical analysis of the global banking industry several frameworks can be adopted which helps them identifying the core competencies of the industry. These competencies help organizations in developing their competitive strategies. The framework of Competence Pyramid is one of the analyzing tools for identification of the core competencies. The framework considers two crucial aspects of current business environment which are responsible for the globalization of the business operations. One of them is the Technological competencies which are required to improve the efficiency and integration of the business processes around the world. Apart from these advanced technological resources proper managerial capabilities are also required which supports the proper utilization of the resources and provides a link between the managerial processes and the technological competencies. The analysis of the industry through the framework helps in identifying the competencies of the organization also bringing clarity over the required competencies for the global banking industry. To have better understanding of global business environment the framework helps in identifying the required competencies to know about the local environment and communities of the business locations. Another crucial factor to be considered is the risk and its proper management which are present in the global business environment. These risk factors can also be identified through the help of the framework (Waddell, 2002). 1.1.2 Industry Analysis through the selected tool The analysis of the banking industry through the framework of competence pyramid divides the industry into two parts within a pyramidal structure. The upper part of the structure is related to the managerial processes and capabilities and the lower part of the pyramid consists of the advanced technological resources. These two different parts together performs the business activities in coordination with each other. The managerial processes and capabilities provide links between the usages of various essential resources. The framework helps in identifying the knowledge which supports an organization to excel in its specific industry. The general competencies which are identified through the framework belong to both the production and service industry and have their implications in them. The general competencies are Materials, Fabrication and assembly, Knowledge-based services, and Knowledge-embedded services. These identified competencies fit according to the specific industry. In context of banking industry the competencies referring to knowledge-based services and knowledge-embedded services are of crucial importance and have their implications on them. The banking industry mainly includes services which require strong knowledge base of the business operation which is influenced by several factors such as the employment system and organizational structure, customer relationship management, and outsourcing which has taken pace over the time. The banking industry has adopted the knowledge management approach in the process of performing their business operations at international level. The process of knowledge management coordinates relationship among the aspects such as technological resources, human resources and other organizational resources which provide them with learning and improvement. Considering the technological aspects of the industry major identified aspects are aggressive use of outsourcing which have turned their focus from cost reduction to the core competencies of the business. The outsourcing of business processes to external entities helps the organizations in cost reduction due to low cost of service. This is why the outsourcing industry is mostly concentrated in the developing economies where the workforce is cheap. In the process of knowledge management relationship management has also played a crucial role by which organizations store historical information of customers which are used in the decision making process. Under the process of knowledge management the act of outsourcing has remained in trend which has advantages and disadvantages towards the industry and the organization. During the initial phase banks simply outsourced their several activities to other organizations but many risk factors emerged form this act of outsourcing. To minimize the risk factors banks started making alliances and joint ventures with organizations serving for outsourced works (Yamagata, 2002). This strategic alliance helps organization in developing synergies among their partners. The technological advancements also brought the concept of retail banking and additional financial services. 1.2 Implications of the Analysis The analysis of the banking industry has helped in identifying several areas of the business which require the involvement of top-level strategic planning. The corporate level strategy covers a broad range of issues which are considered under the strategic planning. The major issues of the business operations considered under the strategic planning are strategy, structure, and business development which require the top level management contribution towards the strategic approach of the firm. Under the strategic approach towards the business process of the banking industry decision of mortgage lending to a larger proportion of the total amount as compared to the earlier lower proportion. The strategic planning also influences the funds management activity of the banking industry by which they obtain and disposes the funds within their business operations. This indicates that there is an efficient management is required to manage the assets and liabilities of the organizations in such a dynamic environment. In the global banking industry the business operations are performed with a sense of matched business conditions which reduces the level of risk. Apart from this banking organizations have started integrating their funding operations in order to achieve the best performance of fund management. By the achievement of such integration the organizations have gained support in managing the liabilities and assets o global basis. The basic concept behind managing the fund operations is flexibility of fund raising which could be achieved through the subsidiaries and branches of the organization across the world (Coulbeck, 1984). 2. Analyzing Strategic Capabilities of the Organization The strategic capabilities of an organization are developed by adopting the paradigm of strategy-structure-performance which establishes a relationship between the strategy and structure with their combined impact on the performance of the organization. Analysis of the strategic capabilities of the organization provides a multi-facet outcome with a clear understanding of relationship between the strategy, organizational structure, the internal process structures fit with SBUs’ strategy, and their “intra-corporate fit” within the organization. These analyses performed at various levels of the organization on the basis of strategy-structure fit provide improvement to the organizational performance (Laurentis, 2005). For better understanding the study has been conducted considering the global banking industry as the case and Hong Kong Shanghai Banking Corporation (HSBC) as the case organization. Through this study various strategic capabilities of HSBC will be identified and a deep strategic analysis of the case organization will be done with the help of Competence Pyramid framework. 2.1 Selection and Justification of the Analyzing tool To analyze the core competencies of HSBC with respect to the current trend in the global banking industry Competence Pyramid Framework has been used with considering all the crucial aspects of the business organization. The competence framework supports the organization in its full potential. The framework helps the organization to identify and adapt to factors such as cultural change, growth of the business, and the processes of improvement (Fletcher, 1998). The framework of competence is based on the two basic concepts of technology and management present within an organization. The framework is intended to establish the link between the technological resources available within an organization and the managerial capabilities of the organization. These management capabilities drive the technological resources towards the development of the organization and its business operations in global market. The synchronization between the technology and management has become an essential part of the business organization to have their business operations in international market. The framework describes the importance of technology and management capabilities both in order to achieve the excellence in their specific industry in global market. In case of banking industry one of the identified types of service under the framework of competence pyramid is the knowledge-embedded services which have relation with the ATM (Automated Teller Machines) used by banking organizations. With the help of technological competences the banking industry has made this service possible which has made the banking easily accessible and convenient. The limitation over the time of business operations such as financial transactions has been removed through the help of ATM. 2.2 Organizational Analysis through the selected tool The framework of competence analyzes the core competencies of HSBC by dividing the organization into two types of competencies which are identified as management capabilities and technological competencies. The aspect of technological competencies and management capabilities are the main source of improvement in the business performance in the international market. The management capabilities of HSBC consist following strengths which makes them capable of performing at their best in the global banking industry; The organization possesses a customer driven approach which serve as the guideline for the management in their planning and control. Under the customer driven approach the organization again has a distinct approach for each of its customer segment. This customer driven approach supports the organization to have more grip over the customer groups. Another major capability of the company is their unmatched customer service which provides them recognition among the customer group. The company’s management also keeps on expanding their product range with numerous choices for their customers. The company also has a concern for its traditional and cultural values which is reflected in its organizational system. To have better position in the global banking industry the company has a multiple channels of performing business operations. Better channelization provides the organization more leverage in terms of having global presence. The management capabilities of HSBC focuses on collective management character which is based on the long-term career of its workforce and the organization. In the context of technological competencies the organization is strong enough which is very much evident form its global presence. The technological competencies also supported the organization in achieving the level of excellence in the global banking industry (Khuu et al., n.d.). The major technological competencies of the organization can be identified as follows; Creating a brand image in the global has taken pace due to excessive competition in the global banking industry. The case organization has taken technological approach to have a strategic brand management under which it has implemented the technology of Customer Relationship Management (CRM). The system of CRM with the help of marketing concepts has initiated a marketing revolution in the global industry. The company also uses technology of data mining which also adds strength to its competencies. The company uses the concept of data mining for decision making and tries to introduce the system across all of its branches with the help of technological tools. The company also emphasizes on having customer data integration for which it uses various technological tools which helps in consolidating, and aggregating the information related to customer, product and other associated data. These systems also help in cleaning and updating of customer records which are of great use in analyzing the customer behavior and change management (Gamble, et al., 2007). 2.3 Implications of the Analysis The capability of strong customer oriented approach of the organization has led the organization to be one of the leading firms in the global banking industry. Under this approach the organization has focused on creating value for its customer’s through the service innovation at HSBC. The company has a unique approach towards its customers according to which the company approaches to its customer only when it has identified the need of its customer and the service or product which it has for them. Proper timing of product launch instead of randomly placing the product in the market also helps the organization in gaining customers attention (Gamble, et al., 2007). The organization ahs also concern for its service quality since it basically belongs to the service industry. The analysis over the quality of the service has indicated that quality should be conformance to the specification and another aspect of quality is the fitness for purpose. The simultaneous presence of these aspects helps in improving the quality of the service. Addition of technological competencies makes these approaches more effective and efficient which reflects on the ultimate performance of the organization (Buttle, 2004). 3. Introduction to Strategic Choices The approach of strategic management involves multiple steps which results into a strategy which is further implemented on the organization to improve its business operations and profitability. During the process of strategy development numerous alternatives all identified as the strategic choices. Out of those identified strategies the best alternative is selected and further implemented. This part of analytical process involves the identification of important choices which is done by organizations and understands their implications on the organization. Organizations operating in a system experience numerous forces which keep on manifesting creating variable impacts on the organization and its business operations. Organizations take decisions to resist those forces and maintain their business performance (Christensen, 2004). These decisions are taken from the indentified set of choices developed from the analysis and strategic approach. 3.1 Generic Strategies of the Organization The generic strategies of the organization have been useful in terms of strategic management approaches towards the various levels of the organization. The case organization identified two of is competitive advantage which it has over its competitors in the global banking industry. According to the definitions of Michael Porter for generic strategies three major strategies are cost leadership, differentiation, and focus. The strategies of cost leadership and differentiation are considered to be mutually exclusive by Porter. Both the strategies cannot be adopted simultaneously which could result into adverse outcome for the organization. The company has significantly acquired the market around the world with its major operations in Asia (47.60%), followed by Europe and North America as 39.50% and 13.20% respectively. The total income around the world is $10.51 billions which have operations in all of the major economies and developing economies also (Rugman & Verbeke, 2005). The other major strategies under generic type are differentiation and focus strategies where differentiation strategy considers the industry wide factors for the strategy while focus strategy considers the single segment (Grant, 2005). In terms of differentiation strategy the company has launched numerous products which indicate their approach of product differentiation. The approach for product differentiation helps them in providing products according to their demand and needs. Under the approach the involvement of information technology has also played a very crucial role in developing differentiation strategy for the market and customer group. The organization has also declared that its products and services ranges are specific to the needs of its global customers and their demands. The company has done numerous strategic investments in this concern and has retrieved the return form its investment by having its business across the world (Porter, 1998). 3.2 Specific Strategies of the Organization The specific strategies of the organization refer to those which make it different form others in the industry. These strategies are intended to have approach of doing things in a different way instead of doing different things. This has also been accepted by the service industry because present day market has become more prices sensitive and commodity-like. These specific strategies help them in inventing the growth factor and leading the market. The specific strategies developed by the organization focus more on the targeted segments of customers which are done through the process of markets segmentation. The case organization has evidently proved that these specific strategies require certain basic strategies pertaining to the brand and positioning in the market. Other specific strategies of the organization which makes it different form its competitors in the global market are mainly concerned with activities which are performed for the overall development of the society as a whole within which the organization is operating. Under this initiative the organization has taken many steps which are dispersed globally. Some of its initiatives are encouraging scholarships for better education for the society and its development. The Commit-to-Change Scholarship is one of such examples of strategies developed by the case organization. The organization has taken steps in its local region for educational development by introducing Scholar-In-Residence Program (Anonymous, 2009). These programs are for development of recognized talent and provide them with opportunities for growth and societal development. 3.3 Implications of the Strategies on the Organization’s Innovation and Entrepreneurship The strategies developed form the identified competencies are of vital use for the organization which has also proved to be equally effective in influencing their business operations. The company has achieved the level of social and technological innovations which has created its unique image in the global banking industry. In context of social innovation the practices of microfinance, insurance, savings and many other financial services has helped the organization to grow as a global leader. Organization has also adopted numerous strategies for technological innovation such as Electronic Data Processing (EDP) which has improved the performance of the organization. But this is very common with many other financial firms working in the global banking industry. This gives a clear relationship between the financial activities and importance of information technology in reinforcing the continuous research for finding solutions and to have a robust system of business operations. In this context it is understood that technological aspect of the initiative is the main perspective of innovation in the industry. This approach also supports in meeting the customers expectation form the retail banking services a standard quality of service. The company has equipped itself by identifying the current market requirement and as a result of which the company has one of the most reliable, robust, resilient, and a very cost-effective technologies (Fonseca, 2004). In terms of entrepreneurship development the company has also taken several initiatives which have resulted into development of their own network of fibre optics which covers a region of around 368,000 kilometers which has the self-managing capability. This has been done with an intention to reduce the cost because lending the network from other providers cost more while the network of HSBC runs on one seventh cost of the total cost which would have required by the other network. This has drastically improved their services as this technology has allowed them to exchange data worldwide basis within a second or two. The company ahs also worked on the consolidation of back office activities across the borders. This has also supported the organization in cost reduction (Cheng, 2006). 4. Justification of the Strategies The justification of any strategy refers to its evaluation in context of its effectiveness and efficiency towards the organization. In the present case of HSBC the company has adopted numerous strategies which have helped them in emerging as a leading name in the global banking industry. The company has always tried to shape its business to deliver their aligned presence according the current global trend of banking industry. The company has emphasized on investments which are made towards the developing markets. These developing markets serve as the potential source of profitability and improved business performance for the organization. The organization gives equal importance to the global expansion as a result of which it also continues to work on the developmental activities to have better international presence. To have the better global presence the company uses its extensive international connectivity. Another major strategy of the firm is its concern for financial stability and strength. The company always tries to maintain its financial strength which ensures their long term existence and resisting global financial crunch which has been reported in past recent years of global economic recession (HSBC, 2009). 4.1 Implications of the Strategies on business operations of the Organization Some of the historical strategies adopted by the organization have proved to be of effective and efficient use in the early days of the business environment but strategies are required to be modified with the changing business environment. The significant strategies are “Click and Mortar” strategy which denotes the usage of internet technology and introducing the concept of internet banking. With the introduction of such innovative banking system the organization received significant number of customers who availed this facility of internet banking. The recorded number of customers who availed the facility of internet banking was 1.5 million during the initial phase of internet banking. Another major strategy of the bank was “Managing for Value” which emphasized on creating value for its customers. Under this strategy the company tried to harness the potential capabilities which are available around the world. This strategy also helped the organization in providing the best in class product and services to its valuable customers. Another major emphasis of the strategy was more investment in adopting the e-commerce technology. As a result of which the company became more capable of performing numerous business transactions globally at a lightening fast speed. This advanced technology provided the organization with more of competence to lead the global bank industry. These strategies were the basic strategies adopted by the organization to secure its market position but in the mean time it has also developed strategies to meet the future demands of the market and compete in the highly competitive business environment. The organization developed numerous strategies to meet the present day and future demand of the business environment while it has also done several modifications in their existing strategies. The strategies developed by the organization to meet its future demand are as follows; the organization has observed the growing trend towards asset deposition and asset management activities. To have their best practices in the field the organization has tried to bring together the world’s best asset depositor and the world’s best deposit gatherer which will help the organization to have a strong financial strength across the world. The organization has given equal importance to its business line diversification by covering maximum geographic locations around the world. The concern for household has also been addressed by the organization under which it has tried to stabilize the cost and funds to be low with more ease of access to the market by its customers. The present day banking practices divides the service into retail and commercial banking and the company has expertise in both of the domains. The strategies adopted to improve both of its segments mainly entitles to broadening of product range which it offers to its customers. The company has always taken care of this fact and offers products which are very much specific to the customers’ needs. Due to its global presence the company experiences various cultures and values with different traditional approaches. The company uses these traditional values and approaches to develop household models which they include into their offerings at international level. Maintaining the current business trend the organization has introduced credit management services and technological skills with more emphasis on marketing concept for leveraging household’s strong marketing (Khuu et al., n.d.). The company has an underlying step of execution of strategies which mainly emphasizes on leveraging the brand and its network to have increased level of revenue. Proper measuring steps are also adopted by the organization to maximize their efficiency across the world. Considering the aspects which are internal to the organization it keeps aligning its objectives with proper incentives which ensure engagement of its workforce in the business operation of the organization (HSBC, 2009). Developing multiple channels of service to have greater command over the customer service is another major concern for the organization and has been accepted by the organization to be one of the most innovative approaches and better customer service is considered as the major reason for innovation. The company has spent at Group level an amount of US$4.8 billion in the current year out of which half of them have been spent on improving the business operations and involvement of more IT concepts into that (Cheng, 2006). The remaining amount has been spent on adopting innovation and deployment of latest technology to give better efficiency and effectiveness to the business operation. Reference OSWEGO. (n.d.). The Banking Industry: Structure and Competition. [Online] Available at - http://www.oswego.edu/~edunne/340chapter10.ppt [Accessed on December 14, 2009] Federal Reserve Bulletin. (2003). Global Integration in the Banking Industry. [Online] Available at - http://gates.comm.virginia.edu/dcs8f/FR%20Bulletin%20Lead%20November%202003.pdf [Accessed on December 14, 2009] Yamagata, K. (2002). Knowledge Management in Banking Industry: Comparative Analysis between U.S. and Japan. 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