Strategic Condition of Charles Schwab and Company - Case Study Example

This report is a blueprint for the present strategic condition of Charles Schwab and Company. The report has undertaken the SWOT analysis of Charles Schwab and Company and the Securities and Exchange market in United States. It contains practical and suitable recommendations for the Economic and strategic set-up of company for increasing the sustainable growth and competitiveness of the company and its contribution to regional and universal prosperity. The Committee is expecting that the implementation of these initiatives and recommendations will lead to prosperous growth of the company. On behalf of the ----- financial consultant Company development Committee, I present this report to the respected management of Charles Schwab and Company. Executive Summary: Perhaps the foremost aim of the private and public organization in recent decades is to earn enormous profits with adoption of fair and just practices. This report contains the strategic audit of Charles Schwab and Company. The Instruments used are SWOT analysis and SWOT matrix. Analysis of the company’s position has been undertaken. Different technology models have also been applied in order to undertake the analysis of the technology practices in the company. In the end suggestions and recommendations are presented in order to improve the competitive position of the Company. Introduction: The strategy of a company requires constant updating. With the changing conditions of market and industry it is important for an organization to keep its strategy in tact with the changing environment. An out dated strategy cannot fulfil the needs of today’s global environment. In order to go through the updating process the organizations should carry on an audit to analyze which aspect requires improvement. It also specifies what strategy is necessary to support the business operations, the information people use currently and the gaps in these functions and the business goals. By assessing the knowledge possessed by an organization about its competitors and market environment the mangers can effectively take decisions in order to find the most feasible way for their businesses to maximize profits and improve market share. It is also important to calculate the extent to which change needs to be introduced to the organization. Although the identification of the problem is a big issue but the finding a solution making sense with business world is the main purpose of change in the organization. “Back in 1970 Alvin Toffler in Future Shock (Toffler, A. 1970) describes a trend towards accelerating rates of change. He illustrated how social and technological norms had shorter life spans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In the volatile business environment of the 21st century the most important requirement of today’s business is constant changing and updating with the external conditions. Change can be referred to as Internal, External, and business process re-engineering and transformation programs. The purpose of this report is to analyze the strategy of the Charles Schwab & Company in order to find the strengths and weaknesses and to suggest measures. Charles Schwab was founded in 1971. Being the founder of the customer centric focus investment techniques the company was a success story till 2000. However 2000 proved to be a high-water mark. By mid 2003 the company succeeded to reverse its position to 20 percent growth in annual revenue growth. In order to analyze the strategic situation first of all SWOT analysis have been under taken, which I have presented as under: SWOT Analysis of the Schwab Company STRENGTHS Strong Brand name. Extended customer. Differentiation strategy by branch network, technology and information. Web-based system based on real time information, personalization, customization, and interactivity. Low threat of new entrants. Continuous training programs for employees. High budgets of advertising and promotion. Good relations with media. Web based presence. WEAKNESSES Third position behind Fidelity and Vanguard. Threat in E-Trade from other online brokers such as Ameritrade. Old image still exists. Inconsistent marketing message. OPPORTUNITIES Expansion in shape of introduction of new and innovative products. Expanding market due to globalization. THREATS Current economic climate. Over reliance on the debts. Low assets of $84 billion. Results to be achieved in future can be less than projected “The Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is an important matching tool that helps managers develop four types of strategies: So Strategies, WO strategies, ST Strategies, and WT Strategies. SO strategies use a firm’s internal strengths to take advantage of external opportunities. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats.” (David, 180-181) SWOT Matrix: Internal Strengths (S) 1 Schwab has remained a major investor in “further establishing brokerage facilities, distribution networks, and technology. 2. Schwab has an employee base of 16,000. 3.Continuous improvement in the company by research and communication of company with customers. 4. The company does a fairly good job of disclosing its true drivers of performance and areas of concern in the MD&A and footnotes. 5. Schwab has a number of intangible assets, consisting of trademarks, goodwill, and franchise rights. 6. Schwab is one of the many organizations that use SAP R/3 Enterprise Resource planning software. Internal Weaknesses (W) 1. Schwab showed a relatively low ROE as compare to its close rival Fidelity and Vanguard. 2. Relation ship with subsidiaries creates legal and territorial problems. 3. Lack of assets. 4. Old image still exists. 5.Inconsistent marketing message. SO Strategies 1. Increase in investment in the creation of improved services base. (S1, W2, W3) 2. Keep quality standards above the competition for more revenue. (S4, S5, O5) WO Strategies 1. Continuous introduction of new products in different directions with the changing demands of consumers. (W1, O4) 2. Introduction of technology in advertisement. (W5, O1, O2) ST Strategies 1. Advertise more about our top selling products instead of just high end products. (S4, S5, T1, T4, T5) 2. Advertise the televisions that we are able to get mass quantities year round. (S4, S5, T1, T4, T5) 3. Keep the product price competitive by keeping updates about the price policy of competitors. (S3, S4, T2) WT Strategies 1. Obtain a more reliable information management system for the company all over the world. (W2, T3) Having contacts with the subsidiaries offering low cost and efficient services. (W5, T3) Financial accounting and reporting or information disclosure is thought to provide users of financial statements with information that is useful for efficient decisions making, hence the importance of accounting information disclosure to shareholders and investors is multiplied. According to SFAC 1 (FASB 1978, par. 34), financial reporting "should provide information that is useful to present, potential investors, creditors, and other users in making rational investment, credit, and similar decisions". Therefore, a useful accounting system should produce information that is useful for decision-making. Investors in the stock exchange markets, including shareholders, creditors and others are considered one of the most important groups of decision makers that use accounting information and, therefore, it is important to investigate the extent to which accounting information is valuable to firms and investors in monetary markets. Necessary factors for making a successful self-service system Substituting human contact with technology does not always reach the intended result; it is the case for Schwab. Nevertheless, the advent of the Internet has revitalized the concept of self-service and added a new channel for service delivery. Many scholars have written about the reasons and obstacles for self services (Moon and Frei 2000). In the article titled “Exploding the Self-Service Myth”, these authors explain that the main aim of e-services is to be able to give the clients the best service they could get from their own convenient situation. However, some people misunderstand the fact behind self-service provisions through the Internet sites. As added by Moon and Frei, there are some misconceptions regarding Internet self-service systems that the clients mistakenly refer to whenever Internet services are being discussed. “Instead of forcing the customers to do all the work, the most successful e-commerce sites are taking over many aspects of the shopping process” (2001, 15), the authors added. According to them, there are necessary parts of the internet sites that are not at all that needed for having the expected results from the expected results from the site operations. Some of these may include too many choices, which at times, instead of helping the clients decide only contributes to their confusion of which service to choose. Steps to need to be taken by Schwab in creating a Self Service effective strategy: 1. Breakdown the whole transaction into manageable and simple tasks. 2. Identify the functions that are performed by the service provider, and those that are performed by the customer. 3. Classify the functions that the services provide can take responsibilities for (bearing in mind the cost and benefit for such functions). 4. Continuously try to find new means for enhancing the customer experience by making the service simpler to use, or bundling new service delivery options. (Source: Moon & Frei. Exploding the Self-service Myth) This strategy provides the customer with user-friendlier interface and allows the service to be provided much more effectively. As continuously repeated through the pages of this study, E-Systems applied on brokerage processes are expected to being cost-effective ways of pursuing different business transactions. Aside form this fact; there are still other issues that needs to be addressed to be able to meet the required progress for Internet sites that host brokerage services. Bhasin in his article explained different benefits of e-brokerage system, which are also provided by the e-brokerage system at Schwab. Bhasin breaks down these benefits in three major parts, which are as follows: Easier Risk Management- because of the fact that the transactions are occurring through the Internet, the providers are in many points able to avoid the payment risks and other financial matters that are usually involved in business transactions. Greater Business Potential- this proposes a more simple and convenient way of transactions between company owners and the clients. Since the Internet has wider scope of clients, the said market would be much productive for Clients around the world for a considerably long time. Lower Staff Costs- Since the operation of Internet sites require only a few agents to work as customer support personnel, the cost of compensation for workers or employers are then lowered down, hence the Clients are the ones who would benefit so much for this fact. These three beneficial factors of concern for Clients are indeed to be observed well. The exchange of both costs and transactions through the web could be considered one of the most progressive benefits of the said system. Aside from the fact that Schwab was able to gain so much benefit from the said web hosting system, the clients also benefited so much from the services provided in the said field of industries. Lee breaks down these benefits in his book “Doing business electronically, a global perspective of E-commerce”. The said benefits are as follows: Lower expense costs - As mentioned earlier, the costs of expenses that the clients usually pay for travel to be able to get the service they would want from the company that are established as physical offices. More Practical ways of coming up with transaction options - The fact that the services are provided through the Internet, the more effective it is that the clients are able to get the best possible services they expected from the company at their own convenience. Better choices, stronger control - When it comes to the choices offered through the web, the clients gain the idea that they are able to get what they want within their own controls. This way they are able to really decide with what they ought to have from the choice products and services posted through the web. The benefits for clients listed herein are mainly focused upon the satisfaction that they receive from the providers of the sites that they visit every now and then. In this case, the issue discussed in this paper certainly helps identify the benefits that a client of an e-brokerage web site should be able to have after being able to visit the sites offered by financing companies through the web. Problems of E-Brokering: With all the advantages attached the online brokerage system has its own problems and glitches. In Staff Legal Bulletin No. 8 ("Bulletin No. 8"), the SEC legal department determined that "the internet contains multiple potential choke points that can slow the flow of information, it is difficult to determine what caused the delays faced by online users attempting to request information or place orders electronically."(SEC, 1998) Of course, in a broader view, the control of both the organization and the clients who are viewing the sites is not an easy task. The fact that the people visiting the web every now and then have different identities, nationalities and characteristics, every person does have a certain requirement and expectation from a company which is offered through the net, and these expectations are usually based upon their roots of origin. Therefore it becomes difficult to forecast the client profile and their preferences before a service if offered and feedback is analyzed. Another issue may be regarding the security measures that are applied within the system of the company providers. For clients who are willing to invest and sign contracts through the Internet, security measures are of high concerns. Their identity and their security numbers are supposed to be shared through the operating web sites within the internet, and since there are a lot of people who are able to surf the net, security from identity thefts are among the main concerns of online business and servicing. Security could also involve the updated facts or accurate information provided through the Internet by the web sites of broker firms. Since the facts involves the present situation of the trading industry within the country which provides the e-service, it is very important that everything is up to date and on real time basis. This is simply because of the fact that the financial matters are highly in risk by this service provision. It is important for the investors to have at least a basic form of assurance that what they see is indeed true and accurate for their own benefit in the future. The fact that they are supposed to invest within the trading industries of a certain country, they should be given fine service with regards to on time news and information which they could utilize for their own business activities such as decision making. Suggestions: With regards to this, according to Bakos, there are certain measures of edging the competition in E-brokerage industries. Moreover, this edge usually includes the existence of extra needed services provided by the company for the customers to utilize during their trading transactions with other investors from other countries through the net. Among those features listed above are to be described in the list to follow as based from the details provided by Bakos in his book entitled: “The Impact of E-Commerce on Competition the Retail Brokerage Industry”: Real-time trading prices – Every now and then, the exchange rate of different monetary measures in the global market changes; This is the reason why there is a need to continuously update the investors or the traders with regards to the latest exchange rate in the market. Therefore, the business entities of the investors, which are utilized for trading in the global market, could always be adjusted with regards to their capability to meet the demands of the changing status of the trading industries from tome to time. Research on Listed Companies within the E-Brokerage System Offerings – This usually refers to a brief overview of the companies that are enlisted on the system of the brokering company, which are authorized to be viewed by the companies themselves. Of course, certain measure of security should be considered upon doing this motion of uncovering the identity of the companies to the investors. Of course, it is the right of the investors to know who they are exchanging their products or services with, however, it is also a right on the part of the ‘posted’ companies to have a certain level of privacy with regards to the details that they ought to provide the net surfers about their company’s identity. Availability of research analysis information- This includes the latest researches that the company is able to retrieve with regards to latest trading trends or processes. This could either be for financial ease or the trading process ease for both the investors and the providers. By providing such information, the investors who are surfing the company’s brokering web site could be invited to join the trading systems they ought to offer. Real time alerts – All the client al means available to provide for real time alerts for any transactions or market activity to allow the client with more actionable information at the most convenient time. These alerts could be in the form of emails; SMS and web based alerts. Real-time settlement and clearing processes- The transactions, both contractual and financial, which are processed through the net, should be hosted by the Schwab as an important factor considering real-time information processing. This would mean that in many cases, the transactions made by both parties of two different investors through the global trade should be transparent and fast to be able to cater to the needs of the businessmen. This would also allow them to have constant tract of their growth or failure in the trading industries, and thus be able to make any necessary adjustments immediately. Multi-language Support System- Every surfer in the net is expected to have different nationalities and thus they speak different languages. This is the reason why it is very important to have at least three different languages that are available for reading and surfing through the company web site. This could help Schwab in serving the clients and help them understand the information posted through the company’s site better and clearer. The three languages may include the language of the host company, meaning the country where the company is based, English, which is a universal language, and another language which the company thinks is the language used by the most common visitors of their web site. Through the help of these features, it is indeed an edge for a brokerage company like Schwab that they are able to cater to the needs of their clients. This would help in the alleviation of their services a well as of their reputation in the e-trading industry. References Accenture (2004). ‘Helping Customers Help Themselves: self-service Opportunities for Telecommunications Companies’ Bhasin, M. (2005.) E-Brokering as a tool for marketing financial services in the global market. Journal of Services Research, 5(2): 151-167. SEC, Staff Legal Bulletin No. 8 (MR), at http://www.sec.gov/interps/legal/slbmr8.htm (Sept. 9, 1998). Moon, Y., Frei, F. (2000) ‘Exploding the self-service Myth’. Harvard Business Review, 78(3): 26-27 Fred R. David, Strategic Management Concepts and Cases, Eleventh Edition, pp.165-166. Read More