Case Study: Charles Schwab: A Category of One - Essay Example

(your Case Study: Charles Schwab: A Category of One Introduction At the turn of the century, Charles Schwab and other full service firms are confronted with the hard fact of competition from discount service firms, significantly reduced entry barriers and industry consolidation across the spectrum of financial services. For the first decade of the new millennium, Schwab with its large network of branches and associated costs has to review its strategies to retain market share and ensure growth with profitability (Esperson, 2000, HBS Case study # 9-700-043).

Tools External analysis for the industry environment and internal analysis of the company will bring forth the four facets of TOWS and when these facets are studied in conjunction with Porter’s Five Force Analysis, issues at hand and possible alternatives will emerge (Porter, 2004. p.5). External analysis By 2000, government permitted diversification of financial institutions to offer a range of services covering securities, commercial/personal banking, travel/credit card business, insurance services etc.

This resulted in a series of mergers/acquisitions, consolidation of the industry, (your last name) 2 emergence of large players offering full-priced full services to compete with smaller-sized discount brokerage firms, who in turn leveraged the Internet and broadened their range of services at very economical costs. Thus, convergence of discount and full service brokerage occurred, with falling service charges per transaction. On the economic front, the year also saw inflation, rising interest rates, economic slowdown, poor performance of dot-com companies and migration of investments into mutual funds.

In this bleak scenario, discount brokerage firms further reduced their service charges, threatening Schwab’s competitive advantage. Internal analysis Schwab adopted technology early and created an extensive network of branch offices and associates, offering face-to-face advice to investors. It enjoyed the trust of a range of customers of different risk profiles, based on its brand reputation built over decades and advice offered by specialist agencies like Schwab AdvisorSource, Schwab Signature Services, Schwab OneSource and Schwab Mutual Fund Marketplace.

It positioned itself in the niche space between the full financial service and discount brokerage firms, resulting in its intermediate level charges. While 1999 continued the trend of earlier growth period, signs of slow down and shift in the stream of revenues from different portfolios is becoming evident by 2000. For example, while over 80% of new accounts were opened through branch offices, only less than 5% of trades were conducted at these offices; between 1999 and 2000, the percentage of online trades increased from 58 to 81; commissions/mutual fund distribution fee earnings rose significantly during 1999.

These trends underscore the reduced importance of branch offices for revenue generation. (your last name) 3 Issues How to confront competition from deep discount brokerage firms? Whether to further reduce its already low charges (compared to full discount firms) for tele-trading or online trading? Whether to expand into full financial services like Morgan Stanley, Merrill Lynch Dean Witter and Lehman Brothers? Whether to cut back on the role and hence operational costs, of its extensive network?

Comparable firms Competition resulting from emerging technologies as well as convergence is faced by firms in the online auction business, mobile computing and hand-held gadgets, to name a few. eBay, Lenovo, Google and Yahoo! are examples of firms with comparable issues. Selection and recommendation Schwab has been successful with its format of both personalized and non-personalized services. It should stick to this format and make it more cost effective by i) down-sizing branch offices/staff and discontinuing trading through them ii) promoting marketing of emerging investment options like mutual funds, and underwriting of issues/bonds iii) maintain leadership in tele-trading/online trading without reducing service charges.

(your last name) 4 Conclusion Charles Schwab is in the big league and hence is capable of exploiting emerging opportunities more effectively than the smaller players. Trust and reputation being strong factors in the financial services industry, Schwab attracts risk-averse customers in the entire demographic spectrum, who do not mind paying a premium price in exchange for reliability. Hence it should move up the ladder of premium services even while fine-tuning trading operations. (your last name) 5 Works Cited Esperson, T.

“Charles Schwab: A Category of One”, Harvard Business School Case # 9-700-043 Dec., 2000. Porter, M.E. (2004) “Competitive advantage”. Free Press, New York (p.5).