Strategic Analysis Of Commonwealth Bank – A Multi-National Bank

Environmental Analysis with the help of PESTLE Analysis

The paper will discuss about the strategic analysis of the chosen organisation that is Commonwealth bank. Commonwealth bank is an Australian multi-national bank headquartered in Darling harbour, Sydney, Australia. It provides a number of financial services like business banking, institutional banking, retail banking, insurance, broking services, funds management and superannuation. Commonwealth bank along with ANZ, Westpac and National Australia Bank is known as “big four”. The company is one of the main and important banks of Australia. The bank has many branches all over the world. Commonwealth bank also engaged with the process of issuing Australian currency notes. The company has earned many investors. This paper will analyse the financial industry of Australia as well as Commonwealth bank of Australia. The Environmental analysis will be don with the help of three market analysis tools. PESTLE analysis will help to understand the key factors like Political, Economical, Socio-cultural, Technological, Legal and Environmental factors affect the business organisation. Porter’s five forces analysis will help us to understand the bargaining power of the buyer, bargaining power of the supplier, competitive rivalry, threats of substitute product and the threat of new entrances. SWOT analysis will help us to understand the key strengths, weaknesses, threats, and opportunities of the organisation. This paper will also contain the key resources and competencies of the organisation. 

Commonwealth bank is an Australian multinational bank that also operates its business in the United States, United Kingdom and New Zealand (“Personal banking including accounts, credit cards and home loans – CommBank”, 2018). Commonwealth bank provides a number of different financial services that includes business banking, institutional banking, retail banking, insurance, broking services, funds management and superannuation. In August 2015, Australian Securities Exchange ranked commonwealth as the largest company of Australia. Australian government founded this bank in 1911 and it was privatised in the year 1996. Commonwealth bank along with ANZ, Westpac and National Australia Bank is known as big four Australian Bank. The company headquarter is located in Darling harbour, Sydney, Australia.

The bank was founded in the year 1911 by the government of Australia. Under commonwealth Bank Act in 1911, the bank was established. The first branch of the Commonwealth bank was inaugurated on 15^th July 1912 at Melbourne (Black et al., 2013). By 1913, the bank established their branch in six different states (Schlagwein, Thorogood & Willcocks, 2014). In 1920, commonwealth bank took a big step and started issuing Australian currency notes; this was just the beginning of acquiring the power of the central bank.

Porter’s 5 Forces Analysis

Commonwealth bank provides financial services like business banking, institutional banking, retail banking, insurance, broking services, funds management and superannuation. The bank was founded in 22 December 1911. The company headquarter lies in Darling harbour, Sydney, Australia (Tonts & Taylor, 2013). Presently commonwealth bank has more than 1100 branches worldwide and has over 4300 ATMs. Commonwealth bank earned revenue of 26.005 billion Australian dollars. The net income Commonwealth bank is 9.881 billion Australian dollars and the total asset of the organisation is accounted to 976.374 billion Australian dollars. The organisation has a total equity share of 63.716 billion Australian dollars. Presently the company owns 51800 employees. Commonwealth bank services are divided into Retail bank services, Institutional banking, business and private banking, international financial services and wealth management. Commonwealth has a number of subsidiary companies such as ASB Bank, Commonwealth Securities, Bankwest, Colonial First State and CommInsure. Products of commonwealth banks are Finance and insurance, corporate banking, mortgages, credit card, investment management, consumer and corporate banking, private equity and global wealth management.  

Key figures of commonwealth bank:

• Catherine Livingstone AO (Chairman of Commonwealth bank)
• Ian Narev (Chief Executive officer and Managing director)
• Matt Comyn (Appointed CEO in January 2018)

PESTLE analysis will help us to understand the factors, which will affect the work process of Commonwealth bank. PESTLE analysis identifies the Political, Economic, Socio-cultural, Technological, Legal and Environmental factors that will externally affect the organisation (Anton, 2015).

• Political stability: Political stability is an important factor for the financial development of a country. Political instability can be of two types, political instability within the country or political instability of neighbouring countries can affect the banking industry. The political instability decreases the balance in liabilities and assets of the banking sector (Aisen & Veiga, 2013).
• Level of corruption: The level of corruption in the country directly affects the banking sector and the growth of the country. Corruption and fraud creates a huge impact on the people of the society, which also affects the banking sector (Ayaydin & Baltaci, 2013).
• Laws: Different political government impose different laws in the banking industry. The banking policies and the changes are highly dependent on the laws of the existing government. This includes trade restrictions, tariffs, and labour law (Kennedy & Keino, 2017).
• Risk of military invasion: A banking sector always keeps the risk of military invasion into their mind before making any policy.

• Economic system: The economic condition of the country affects the banking industry. Economic condition means the economic system, whether the country is a developed economy or underdeveloped economy. The economic stability of the company also affects the financial process of the banking industry.
• Exchange rates: Exchange rates of the company and the stability of the country’s currency rate plays an important role for the economic industry of the company. The stability in currency helps the banking sector in smooth functioning of the organisation (Klein, 2013).
• Unemployment rate: The main reason for the lack of growth for financial industry in the underdeveloped country is the high rate of unemployment. Countries like Australia, Singapore has seen a huge growth in the financial industry and one of the reason behind this is the huge employment rate of the country.
• Investors: Investors often does not want to invest in the countries where the currency rate/value is high.

• Demographics: Demography of the country influence the working of the financial industry. Availability of skilled labour or employees is one of the positive factor for the banking sectors (Cambra-Fierro, Perez & Grott, 2017).
• Culture: The culture of a particular community also affects the working environment of the banking sector. Gender roles and social conventions is a huge factor to be kept in mind for the banking sector.
• Education level: The education level simply decides the economic condition of the country. Developed country has a high level of education level.

• Advancement in technology: Technology is growing day by day. It is making the life of consumer easier. The advancement of technology is forcing the banking sector to change its traditional way of working.
• E banking: Advancement of technology helped in E-banking process. Now the consumer does not have to go and stand in the queue for updating their balance or for fund transfer. Smartphones have made the life easier for the consumer (Martins, Oliveira & Popovicx, 2014).

• Climate: The climatic change affects the business environment of the banking sector. Revenues of the bank in the underdeveloped country is highly dependent on the climate.

• Consumer laws: The financial institutions are highly dependent on the consumer laws of different countries. The financial industry is bound to follow the consumer laws of the country (Elkins, 2014).
• Employment Law: The financial industry is highly affected by the employment rules imposed by the government of the company.

Porter’s five different forces helps to identify the key forces that influences the banking sector. The five forces of Porter’s are Competitive rivalry, bargaining power of the buyers, bargaining powers of the suppliers, threat of substitute products and threat of new entrants (Dobbs, 2014).

• Competitive rivalry (High): Banking industry is highly competitive. Reports have shown that there are 300 new bank openings in each year. Countries like Singapore, Australia and Unite kingdom has a high competition in the financial markets due to their developed economy. Apart from this, the developing country is also having a tough competition in their own financial industry. Commonwealth bank has a huge competition in the market (Mulyaningsih, Daly & Miranti, 2015).
• Bargaining power of the buyers (Medium): The bargaining power of the buyer is highly dependent on the other options or substitute products available in the market. Banking sector competition is growing due to the formation of new financial institution in the market, which is also increasing the availability of substitutes. Commonwealth bank may not suffer the bargaining power of the buyers in huge amount due to the brand loyalty the organisation have.
• Bargaining power of the suppliers (Medium): The ratio between number of available organisation and number of available suppliers decides the bargaining power of the supplier. The bargaining power of the supplier is medium because nowadays market is filled with investors and who are ready to invest on the financial industry.
• Threat of substitute products (High): A new service or products when fulfils the need of a customer in many ways the profitability of the industry suffers. The financial industry has a lot of competitor who provides same services and products, which increases the risk of customer lastingness. Commonwealth bank may face huge threats of substitution in the future.
• Threat of new entrances (High): As discussed earlier there has been rapid growth in the number of financial institution. Reports have proved that there every year 300 new financial institution comes in to this industry. However, the cost of setting up a financial institution is high and the governments laws are strict for many countries to enter the market still new organisation are coming in the market every year.

SWOT analysis will help us to understand the key internal and external factors that affects Commonwealth bank. By using this analysis, we will come to know about the internal factors like strength and weaknesses and the external factors like opportunities and threats of the organisation (Suh, 2014). For understanding, how internal environment plays in the financial industry commonwealth bank is taken as an example.

Internal factors:  

Strengths:

• Commonwealth bank has many subsidiary companies for example ASB bank, Commonwealth insurance, Bankwest etc (Bank, 2014).
• The bank is widespread and has branches in many countries such as New Zealand, United Kingdom, USA and Fiji.
• The bank along with National Australian bank, ANZ and Westpac is known as the ‘Big four” due to the market size and growth of their organisation.
• In August 2015, Australian Securities Exchange ranked commonwealth as the largest company of Australia.
• The strong and increasing revenue of the company increases the goodwill of the organisation.
• Commonwealth bank employs 51800 employees and it has been a part of the Dream Employer’s list.

Weakness:

• Few years back the bank was involved in some controversies. The controversy was started by a website named as “unhappy rating  banking”
• Moody’s eating for financial strength for Commonwealth Bank is B-. 

Opportunities:

• Advancement of technology and using the right technology can help Commonwealth bank is grabbing the interest of new customers. This will also help in providing quality services to the customer.
• Building relations or creating a good and understanding bond will help the organisation. Initiatives as “One Commbank” has already proved how effective and helpful it can be if the organisation implements similar kind of initiatives.
• Commonwealth bank can expand its business in Asia and other developing markets, which will help them in long run.

Threats:

• Banks financial activities and revenue is highly influenced by the investors. Investors are often hesitate to invest in a country with weaker economy.
• Commonwealth bank can face issues due to the change in the foreign exchange market.
• Competition is increasing and it will affect the Commonwealth bank.

Key resources:

The key resources can be sub-divided into Physical, financial, human.

Physical resources

• Technology- Technology will help Commonwealth bank in increasing their customer base.
• Natural resources- Natural resources means good environment for banking industry.  
• Physical Infrastructure- Buildings, plants which will help the commonwealth bank in running the organisation smoothly without any disturbance.

Financial resources

• Investors- Availability of investors will help the organisational growth.
• Government funding- Funding from the country’s government helps in growth of the financial industry. 

Human resources

• Availability of skilled employee- Skilled employee always helps in the smooth functioning of the organisation without committing any mistake.
• Good customer relationship- Good customer relationship helps in increasing the brand loyalty of the customer.  

The key competencies can also be sub-divided into Physical, Financial and Human.

Physical competencies:

• Productivity- The productivity of Commonwealth bank is huge. This is one of the reasons why Commonwealth considers as one of the member of the “Big four”
• Marketing strategy- The marketing strategy of Commonwealth bank have improved its customer base.
• Flexibility in policies- Flexibility in the policies helped in attracting the customer from different income level.

Financial competencies:

• More investors due to brand loyalty- The brand loyalty of the customer towards commonwealth bank has increased the interest of the investors to invest in the bank.
• Good interest rates- Good interest rates helped Commonwealth bank in gaining more customer.

Human competencies:

• Efficient and skilled employees- The availability of skilled and efficient employees helped commonwealth bank in improving their working environment.
• Huge number of employment, 51800 employees. 

Conclusion:

This paper discusses about the strategic analysis of the chosen organisation that is Commonwealth bank. Commonwealth bank is an Australian multi-national bank headquartered in Darling harbour, Sydney, Australia. It provides a number of financial services like business banking, institutional banking, retail banking, insurance, broking services, funds management and superannuation. Commonwealth bank along with ANZ, Westpac and National Australia Bank is known as “big four”. Commonwealth bank services are divided into Retail bank services, Institutional banking, business and private banking, international financial services and wealth management. The environmental analysis of the organisation is done with the help of three different marketing analysis. The macro-environmental analysis is done with the help of PESTLE analysis. PESTLE analysis will helped to understand the key factors that affects the company. PESTLE analysis helped to understand how the Political, Economical, Socio-cultural, Technological, Legal and Environmental factors affect the business organisation. The porter’s 5 forces analysis helped us to understand how the five forces affect the working of the business environment. The five forces like bargaining power of the buyer, bargaining power of the supplier, competitive rivalry, threats of substitute product and the threat of new entrances affects the organisation structure. SWOT analysis have also been done to understand the internal environment. The four points of the SWOT analysis helped to understand the organisations Strengths, Weaknesses, Opportunities and Threats. The financial industry is rising and expanding day by day, this expansion also grabbed the attention of many new entrepreneurs, and they are coming with their start-ups. This also increased the competition in the market. To tackle the competitive market Commonwealth bank have to come up with some new policies that will benefit the customer and the organisation. This paper also contains some of the key resources and competencies of Commonwealth bank. 

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