Redefining Customer Relationship Management - Case Study Example

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Corporate Strategy Assignment Table of Contents Table of Contents 2 Introduction 5 Product & Service Mix 5 Geographic Scope 5 Corporate Strategy Theory 8 Origin 8 It’s not only about SWOT Analysis 8 Porter on Corporate Strategy 9 HSBC- Corporate Strategy 9 External Analysis 9 PSETEL 10 Social 10 Environmental 11 Legal 11 PORTER’s Five Forces 11 Bargaining Power of Buyers 11 Bargaining Power of Suppliers 11 Threat of New Entrant 12 Threat of Substitute Products 12 Intensity of competition 12 Internal Analysis 13 SWOT Analysis 13 Strength 13 Weakness 13 Opportunities 13 Threat 13 Value Chain Analysis of HSBC 14 Inbound Logistics 14 Operations 14 Outbound Logistics 14 Marketing and Sales 15 After sales service 15 Core Competency of HSBC 15 Five Filter Frameworks 15 Sustainable Savings 16 Rumelt Strategy Analysis 16 Consistency 16 Consonance 16 Feasibility 16 Advantage 16 Conclusion 17 References 18 Appendix A 20 Introduction HSBC Holdings Plc or recurrently known as HSBC, is renowned multinational financial and banking service provider of United Kingdom. The company is headquartered at Canary Wharf, London, United Kingdom. The company was established by Sir Thomas Sutherland in the year 1865. In the initial years the company was known as The Hong Kong and Shanghai Banking Corporation Limited. Formally HSBC Holdings Plc was established in the year 1991. In the year 2012, Forbes magazine has recommended HSBC as sixth largest publicly traded company while other industry reports have confirmed that the company is third largest bank of the world. Product & Service Mix HSBC is primarily focused on providing retail banking services, investment banking services, wealth management and global private banking. The company is one of the major financial services and banking service provider in the world. Company products include current and savings account, long term and short term loans, various types of insurance, fixed deposits, credit cards, advisory services and investment services. Geographic Scope Europe In the year 2011, the company has earned pre tax profit of US$1.7 billion from their European operation. HSBC has launched global investment centre in Europe in order to fillip their mortgage lending business. Hong Kong The company has earned pre tax profit of US$5.8 billion with an increase of 5% from previous years. The company offers various products such as life insurance, residential mortgages and credit cards to people of the country. Asia Pacific The company has earned pre tax profit margin of US$7.3 billion in the year 2011. Business of the company is growing at a rate of 23% in the Asian region. Currently HSBC is operating in 23 countries of Asia pacific region. The company is primarily focussing on renminbi trade settlement services in order to trigger business pace in Chinese market. North America HSBC is still recovering from financial crisis of USA region caused by economic recession started in the year 2008. In the year 2011 HSBC has earned US$870 million from their business operation in the north American region. HSBC is primarily banking on retail service and wealth management in order earn revenue. The company has established 195 strategic branches to boost credit card sales and retail banking efficiency. Latin America The company is operating in four countries such as Brazil, Mexico, Argentina and Panama in the Latin American region. In 2011, the company has earned profit of US$2.2 billion from their operation in South American region. Business of HSBC is growing at a rate of 21 per cent in Latin American countries. The company has collaborated global banking service and commercial banking service in order to fulfil requirement of South American people. Middle East and North Africa In 2011, HSBC has earned pre tax profit of US$1.5 billion with 57% growth rate from their business operation from African countries. The company has reconfigured existing branch network in five countries in order develop wealth Management services. HSBC also launched mobile banking service for African people. (Source: HSBC, 2011) Corporate Strategy Theory Origin Richard Rumelt has pointed out that corporate strategy is relatively new concept in comparison to other strategic models such as generic strategies, portfolio business model. B.H. Liddell Hart and Bruce Henderson (founder of Boston Consulting Group) started researching on corporate strategy during the time second world war. Academic scholars have found that concept of corporate strategy was evolved during 1970’s. It’s not only about SWOT Analysis Kenneth T. Andrews has pointed out that SWOT analysis can be used in order to assess potentiality of corporate strategy. Academic scholars have found that only SWOT analysis cannot answer all the details of corporate strategy (Ferrell and Hartline, 2011, pp. 221-224). In 1985, Gary Hamel and C.K. Prahalad in Harvard business review have argued that focus of corporate strategy should rely on making profitable position for firms in competitive and changing market dynamics. They presented the concept of strategic business unit as a part of corporate strategy. Discussion about core competency can be formularised in the following manner. Strategic Business Unit Core Competency Competition Competition focuses on product portfolio Inter firm competition Corporate Structure Business portfolio is measured in terms of market penetration Corporate structure cannot be easily imitated by rivals Resource Allocation Capital is allocated to business units in stepwise approach Resource is allocated in order to create a sustainable future of the business (Source: Prahalad and Hamel, 1985) Porter on Corporate Strategy In 1987, Michael Porter has pointed out that companies having multiple businesses across the globe need to manage strategic synergy and value added linkage in order to gain business advantage. In accordance with Porter, transfer of employee skill and sharing certain value chain activities can be termed as essentials for corporate strategy. Porter has indicated three tests such as attractiveness test (structural attractiveness of the industry supporting diversification decision), cost of entry test (total investment required for diversification) and better off test (linking the competitive advantage for new unit with existing business operation) in order to examine corporate strategy of a firm (Mayer and Volberda, 1997). HSBC- Corporate Strategy Companies use corporate strategy to attain predetermined objectives and goals. Two types of analysis such as internal and external are to evaluate objective of corporate strategy. HSBC uses business diversification strategy in foreign market as a part of their corporate strategy. HSBC is emphasizing on “managing for growth” strategy in order to expand their business in foreign shore (Patil and Verma, 2007). Financial highlights (see appendix A) of the company show that they are going through a challenging environment due to various issues such as sovereign debt crisis and economic recession. External Analysis PESTLE and Porter’s five force analysis is needed in order to measure corporate strategy of HSBC in terms of external environment analysis. PSETEL Political In generally countries where HSBC operates business such as China, USA, Brazil, UK etc. have steady political situation. In addition, all the above mentioned countries have healthy framework to manage the banking and financial services. Economical The world is going through economic contingencies such as sovereign debt crisis, recession and other issues hence global slowdown has impacted business growth of HSBC (Lynn, 2011, pp. 94-110). Global GDP has mitigated from 5% to 3.9% due to financial crisis. Social HSBC changes their business strategy in accordance to social, cultural trend of a particular country. For example, in China the company has changed the architecture of their business unit in accordance to Chinese culture. Technological In 2005, HSBC processed almost 15 billion customer transactions data with the help of digital technology. The company has deployed OTPs or one-time passwords in order to protect customer from phishing, hacking of sensitive personal information. Environmental HSBC has already incorporated environment sustainability program in order to protect human race from ill effect of green house gas emission. The company has invested capital on deploying environment sustainability campaign in China as a part of their CSR strategy. Legal Accounting division of the company follows GAAP rules for doing business in North American market. In general the company IFRS rules for accounting purpose. PORTER’s Five Forces Bargaining Power of Buyers Some of the general functions for buyers using banking service are investment, money deposit, insurance and currency exchange among others (Ablott, 2004). In a global perspective, the financial sector is complemented by number of players while the story is same for domestic market. This condition increases switching opportunity for buyers and interesting thing is that switching cost is also not high enough to prevent buyers to select new service provider. It can be inferred after analyzing such situation that bargaining power of buyers high. Bargaining Power of Suppliers The suppliers of a financial institute include software suppliers, hardware suppliers and suppliers of cards. Customers can also be referred as cash supplier for bank. Since the suppliers of fundamental items are in attendance of substantial number hence it can be concluded the bargaining powers of suppliers are medium. Threat of New Entrant Many countries have already joined WTO or World Trade Organization hence shenanigan trade barriers were lifted. Entering global banking industry for small players became simple after trade barriers were lifted (Turner, 2009). Fact of the matter is that competing with large multinational company like HSBC is not easy for regional players due to resource constraints (financial, technological, human resource and information technology) hence it can be inferred that threats of new entrants are moderate. Threat of Substitute Products Substitutes for banking industry includes investment companies, non-banking financial institutions, depository companies and Para banking services. HSBC faces threat from small level firms having expertise in providing investment financial service to local customers. It can threat of substitute products is high for the bank. Intensity of competition The concentration of competition relies on entry-exit barriers, strategic objectives, degree of differentiation, industry costs, switching objectives and opportunity cost. The global banking industry is complemented with large number of financial service providers and mid level competitors. Therefore it can be inferred that intensity of competition within the industry is high. Factors Threat of new Entrants Threat of substitutes products Bargaining power of buyers Bargaining Power of Suppliers Existing Rivalry Level of Impact High Medium Low (Source: Author’s Creation) Internal Analysis Value chain analysis and SWOT analysis can be used to measure corporate strategy of HSBC on the ground of internal environment. SWOT Analysis Strength Weakness The bank has strong global scale and expanded international network. Strong international network helps the company to catch global trends and change service mix accordingly. Diversified revenue mix of the company helped them to reduce volatility of cash flow. Strong financial position of the bank helped them to take growth driven corporate strategy. Asset quality of the bank has deteriorated over the course of time and profit margin has also declined severely in recent years. Market capitalization of the company has decreased manifold due to weak performance of their strategic business units. Lapses of operational security have also increased privacy of concern of existing clients. Opportunities Threat HSBC has the opportunity to improve their portfolio management in order to increase overall enterprise value. The bank has the opportunity to expand their business in Latin America, Asia Pacific (market is growing at 23% growth rate) and other developing countries. They need to focus on low interest rate mortgage as next big thing to increase market share and revenue. Stringent regulatory framework of developing countries such as China, India (governed by reserve bank of India) can be pain areas for the bank in future. Market competition dynamics in terms of retail deposit will increase funding cost for the bank in near future. Financial glitches such as sovereign debt crisis and banking problem of Europe can be major threat for HSBC. Value Chain Analysis of HSBC Inbound Logistics The inbound logistics comprise the suppliers providing fund to HSBC bank. Consequently the stakeholders such as cross coutry investors can be classified as suppliers. The investors principally invest in shares and commercial papers. Operations The operations of the HSBC bank is complemented by various things such as commercial banking services, retail banking, wealth management, investment banking and global private banking. The also offers diversified product portfolio such as insurance, fixed diposits, advisory service, investment facility, loans, credit cards, current and savings account. Outbound Logistics HSBC is trying to increse customer engagement in more than one conformist way of retail and branch banking (Peel and Gancarz, 2002, pp. 1-17). Therefore in order to increase customer reach the bank has adopted number of services such as branch banking, e-banking, mobile banking and ATM service. Marketing and Sales HSBC follows direct sales channel for majority of countries. Meanwhile at some parts of the globe HSBC has apponteed subsidiaries or third party contractor to carry out the selling function. After sales service Once the selling cycle gets done, then after sales service comes up. In this circumstance HSBC has fponded strong customer query handling cells (Cohen and Agrawal, 1999). HSBC uses specialized software tool for maintaining strong customer relationship service. Core Competency of HSBC HSBC has planned two way approaches to maintain growth in terms of capital flow, wealth creation and international trade in future. Currently they are eying on retail banking as profit driver and also are a way to fulfil target of 12-15 % return on equity to shareholders. The company has achieved cost efficiency ratio of 45% last year which is way above than industry average. HSBC uses group wide review in order to ensure effective capital deployment. Strategic initiatives of the bank can be briefed in the following manner. Five Filter Frameworks The bank uses five filter frameworks for examining profitability of portfolio in each country in order to deploy capital effectively. HSBC tests strategic relevance of service portfolio for particular country in terms of five filters such as economic benefit, connectivity, profit margin, cost efficiency and liquidity. The company did 19 disposals in last two years in order to sharpen their portfolio. HSBC closed down their retail banking operation in China, Russia, Poland and Thailand due to poor profitability. Disposal strategy of the company helped them to reduce US$50 billion risk weighted assets. HSBC has transferred almost 12,000 full time employees to acquirers in order to decrease total operational cost. Sustainable Savings The company is focusing on improving cost efficiency in order to increase their sustainable savings up to US$0.9 billion. HSBC has implemented global business model for restructuring and removing layers of management. Rumelt Strategy Analysis Corporate strategy of HSBC can be evaluated on the basis of model proposed by Rumelt in the year 1980. Rumelt model analyzes corporate strategy in terms of consistency, consonance, feasibility and advantage. Corporate strategy of the bank can be evaluated in the following manner. Consistency Consistency aspect of is variable for HSBC’s corporate strategy. The bank changes its corporate strategy in terms of five filter framework. Strategy implemented in Asian market differs from strategy implemented in East European market. Disposal strategy maintained by HSBC also supports the fact that there is variance in the corporate business model. Consonance The company uses five filter frameworks to formulate strategy for particular country. For example, during the time of Tsunami HSBC adopted corporate social responsibility strategy for South Asian market in order to boost trust about the company among people. HSBC has opened more than 100 branches in order to fulfil requirement of dense population. Feasibility HSBC uses their resources such as financial, human resource, information technology and structured value chain in order to deploy corporate strategy for a particular country. The bank uses its resources in accordance to requirement of situation while in some cases they use retrenchment strategy to shape up the portfolio. Advantage HSBC has achieved high cost efficiency ratio in last five years which can be termed as strategic advantage for the company. Disposition strategy of the company helped them to reduce US$50 billion risk weighted assets and sufficient amount of operational cost. Conclusion It is evident from above discussion that the company follows flexible corporate strategy in terms of connectivity and relevance. Corporate strategy of the company focuses on designing business model in accordance business situation of particular country. References Ablott, M., 2004. HSBC Cashes in on Household Cards International [e-journal] Available through: ProQuest Central [Accessed 10 November 2012]. Cohen, M. and Agrawal, V., 1999. After-Sales Service Supply Chains: A Benchmark Update of the North American Computer Industry. Fishman-Davidson Center for Service and Operations Management, the Wharton School of the University of Pennsylvania (August 1999). Ferrell, O. C. and Hartline, M. D. Marketing Strategy. 5th ed. Stamford, Connecticut: Cengage Learning. HSBC., 2011. Connecting Customers to Opportunities. [pdf] Available at: [Accessed 10 November 2012]. Lynn, M., 2011. Bust: Greece, the Euro and the Sovereign Debt Crisis. Hoboken, New Jersey: John Wiley & Sons. Mayer, R. J. H. and Volberda, H. W., 1997. Porter on Corporate Strategy. [pdf] Available at: [Accessed 10 November 2012]. Patil, D., and Verma, M., 2007. HSBC’s Growth Strategy. [online] Available at: [Accessed 10 November 2012]. Peel, J. and Gancarz, M., 2002. CRM: Redefining Customer Relationship Management. Amsterdam: Elsevier. Prahalad, C. K. and Hamel, G., 1985. Do You Really Have a Global Strategy? [pdf] Available at: [Accessed 10 November 2012]. Turner, L., 2009. The Turner Review a Regulatory Response to the Global Banking Crisis. [pdf] Available at: [Accessed 10 November 2012]. Appendix A Financial Snapshot of HSBC Read More