Business Simulation And Experiential Learning: A Report On Strategic Innovation Of The Commonwealth Bank

Overview of the organisation: Commonwealth Bank

Discuss About The Business Simulation And Experiential Learning.

Strategic innovation is about establishing the growth strategies, net service categories or the business model that help the organisation to change the process of generating new values for the customers and the organisation itself. Innovative strategies help the organisation to drive the success without changing the underlying technologies (Palacios-Marques et al. 2015). Strategic innovation is about the making an innovation of the strategy and the organisations can make dramatic redefinition of the base of the customers. The organisations can reinvent the concept of the value of the customers and the management of the organisations can also choose dramatic redesign of the end-to-end value chain of the architecture.  

In this report, Commonwealth Bank is chosen to identify the need for the innovation of the business. At the first part of the report, threats evident from the industry and the external environment are explained. In the second part, identification and evaluation of the current innovation strategy are discussed using BCG and McKinsey GE frameworks. In the final section of the report, one innovation opportunity of Commonwealth Bank which the bank is currently pursuing is stated using the MACS framework.

Commonwealth Bank is public sector bank with businesses across Asia, New Zealand, Australia and the United States and in the UK. Headquarter of the Commonwealth Bank is situated in Darling Harbour in Sydney, Australia. Currently, Commonwealth Bank of Australia has its branches in more than 1100 locations. Commonwealth Bank offers the products and services like finances and insurances, corporate banking, investment banking, global wealth management, private equity, credit cards and mortgages. Commonwealth Bank employs more than 51,800 employees and revenue of the organisation was AUD 26,005 billion in the year 2017 (Commbank.com.au 2018). Commonwealth Bank made the innovation in the banking structures as they introduced retail banking, premium businesses services, wealth management and executive leadership.

In Australia, big banks can no longer depend on the market power or consistent price growth that helps to underpin returns. The banking industry in Australia put recent efforts of regulators to ensure the financial stability so that they can address the community concerns. In recent time, the market expects the margin can peak in the next six months when the housing loans growth will be slowed down. As stated by Funk (2014), new technologies like the mobile-banking payment and real-time payment is blissful for the customers; however, it makes the banking process complex for the banks. This disruptive innovation can lift near-time investment before the technologies can pursue a step change to cost savings. Australian banking sector is scrutinising the current earnings estimate as it fully capturing the downside risks stemming from the regulatory and legal oversight. Banking sector cited the risks of the capital management as it highlights the recent assets sakes that will free up the money for share buybacks.

Identifying the need for innovation

Therefore, Commonwealth needs innovation in satisfying the customers and the global peers through technological improvement. The customers must be able to access the banking facility all across the globe. Bankers think that threat of banking lies in the online platform from the tech giant Google, Apple and Facebook. The banking industry is trying to invest more in financing technology (FinTech). Commonwealth bank can be innovative in increased the scrutiny related to the current earnings estimates of the bank.

The political condition of Australia is stable and financial sector is under the scrutiny of the government. In addition, warming relationship with China and other Asian countries will be fruitful for the banking industry. The government has not increased the tax rate and it will be beneficial for the banking industry. The economic condition of Australia is stable also as the GDP growth is 3% at present and the PPP was $1.24 trillion in the year 2017. The inflation rate in Australia is 1.8% and the labour force in Australia 12.7 million (Bell 2017). Gloomy macroeconomic outlook is risky for the business and ageing population can help to evolve the business. In the banking sector, the threat lies in the poor GDP growth and the lower FDI in Australia. Social factors in financing are associated with the cosmopolitan culture and the preferences of the people are associated with the user of the mobile and online transaction. People do not like to visit the banks now; as they want to make the transaction using Smartphone or computers. Technological factors are investments in generation financial technology to build the banking strong financial network. Banking industry started investing the financial technology so that they can provide support to the customers. As stated by Booth and Whelan (2017), banking and financing sector is a major area of cybercrime as cybersecurity is the major area of the concern in the financial industry. In addition, financial allegations of money laundering cases can make differences. In Australia, laws are there to wipe out the corruptions in the banking sector. The government laws and litigations can impact on the banking sector (Mortimer et al. 2015). Lastly, in the environment; banking institutions can regulate the land and water resources. Legal actions can be taken on failure to disclose the CSR and climate change risks.

Therefore, the innovation is needed in the technological improvement of making the next-generation financial technology along with the cyber-security.  

BCG framework assumes that market share improvement can help the organisation to generate maximum cash (Torquati et al. 2018). This kind of assumption is real as the organisation makes the experience curve.

Threats evident from industry analysis

Dogs: ‘Dogs’ is in the low market share and in low growth rate; therefore, this place does not consume or generate a large amount of cash. As stated by Palia et al. (2014), dogs can be treated as cash traps as the money can be tied up in the business that has just little potential. Commonwealth bank offers various types of services and products to the customers; among this; asset finance can be categorised as the Dogs as in this section; the bank is not the market leader. The asset finance products are equipment loan, finance lease, hire purchase, vehicle fleet leasing, equipment operating and equipment import finance.

Question marks: Question marks can be defined growing rapidly and this may consume a large amount of cash. The question mark has the potential to achieve the market share and it can become the star. The question mark may not be succeeded in becoming the leader of the market; these products can be treated as dogs. Commonwealth bank provides the Net Banking features and CommBiz mobile banking features to the customers. Commonwealth Bank provides the computers and mobile banking; these services provide online transaction.

Stars: Stars mark can generate a huge amount of cash as this product provides strong relative and market share. This product helps to provide a large amount of cash as it has high growth rate and helps to generate high market share. If star mark can maintain strong market share for a long time; it may become the cash cow. Commonwealth Bank makes the business accounts as these accounts are the highest sellers in the banking industry. Maximum customers of the banking industry come to make the business transaction accounts, business online saver, premium business accounts and Visa Debit cards (Lukkanen 2016). The customers opt to take the business credit cards, such as low rate credit cards, corporate credit cards, interest-free days credit cards and awards credit cards.

  Cash cows: ‘Cash cows’ is the leader in the market share as this product or service provides the return on the assets as it is greater in the market growth rate. This product or service of the company ‘return on asset’ is more than the market growth rate; hence this product or service can generate more cash. Commonwealth Bank provides loans and merchant services to the customers. Loan department of Commonwealth bank is helpful as the business loans are associated with the business overdrafts, business line of credit, market rate loan, bill facility and Butter-business loans. In addition, merchant services are payment-in-store, simple merchant plan, payments on the go and accept bill payments. These merchant services will be famous in the future more as this has a technological link to provide financial technology services.

Threats from PESTLE analysis

GE framework of McKinsey is the nine-box matrix that offers a systematic approach for the decentralised corporation to determine the place to invest the cash. There are two sides’ matrix; industry attractiveness and strengths of business unit or product. Industry attractiveness shows how it is hard or easy to make a profit in business. As stated by Johnson (2016), the more profitable the industry is more attractive it becomes. Industry attractiveness consists of the factors to determine the competition level. Some of the factors of industry attractiveness are long-run growth rate, industry profitability, industry size, industry structure, product lifecycle changes, seasonality and trend of prices and availability of labour and market segmentation. Competitive strengths of the business are the market rivalry as the businesses always try to manage the competitive advantage. The factors of competitive strengths are total market share, market share and growth, the profitability of the company, customer loyalty and VRIO resources and level of product differentiation.

Factors	Weight	Rating	Weighted score
Industry size	0.22	4	0.88
Industry profitability	0.25	3	0.75
Industry infrastructure	0.18	2	0.36
Trend of prices	0.16	3	0.48
Market segmentation	0.10	4	0.40
Industry growth rate	0.09	5	0.45
Total	1.00		3.32

Factors	Weight	Rating	Weighted score
Relative growth rate	0.24	4	0.96
Company profitability	0.23	4	0.92
Market share	0.17	3	0.51
Brand value	0.15	2	0.30
	0.11	4	0.44
VRIO resources	0.07	5	0.14
Total	1.00		3.25

Figure 1: McKinsey GE framework

(Source: Self-developed)

There are different investment implications that need to follow in depending on the matrix. Commonwealth Bank has to choose selectivity/earnings more in business innovation as this business promises to the high return. Banking sector requires a lot of money in order to operate; however; financial technological innovation can bring the business desired market to grow. Commonwealth bank can invest into the business on online banking product if the business has leftover money for investment.   

MACS framework represents the recent thinking and strategy of the finance. MACS helps to measure the business’ stand-alone value within an organisation and it can measure the existing business’ fitness. The horizontal axis of MACS framework states about business’s value creation potential as the stand-alone enterprise and the vertical framework states company’s ability to extract value (Fostel and Geanakopols 2016). The horizontal dimension states the potential to create value and Commonwealth Bank can create value through innovation. One of the existing innovations of Commonwealth Bank is using financial technology (FinTech). FinTech is the new technology and it is the innovation aiming to compete with traditional financial methods that can deliver the financial services. The use of Smartphone and Computers are the potential spheres to use the FinTech technology. The recent improvement in the investing in crypto-currency and mobile app-based banking is some of the usages of the FinTech technology. Commonwealth Bank is trying to take this sphere to replace another small technology start-up to enhance the usage of financial services of the company.

Identifying and evaluating its current growth strategy

Horizontal dimension shows the potential value of and the measure can be qualitative. Commonwealth Bank can calculate the maximum potential value of FinTech and the optimal value can depend on the industry attractiveness as it is the function of the structure-conduct-performance model. In this horizontal dimension; the position of the business within the industry can be shown along with sustain higher price. Commonwealth Bank can improve the chance of attractiveness through improving the competitive positioning. On the other side, vertical axis measures the organisation’s ability to extract the values. As stated by Sibirskaya et al. (2014), the strength of the vertical dimension is the explicit true requirement of the corporate performance and it can extract the value from the assets.

Figure 2: MACS framework

(Source: Self-developed)

MACS matrix shows the snapshot of the business as it considers improving the service innovation. Commonwealth Bank takes the service innovation of FinTech technology as the bank is well equipped to enhance the value of the business through internal development. Commonwealth Bank divests structurally to attract the business and the bank provides top priority that lies toward the far left of the matrix. The organisation tries to develop the products internally if the products are the natural owner. Commonwealth Bank has its business units located in Australia and New Zealand. Subsidiaries of Commonwealth Bank are the Bankwest, ASB Bank, Sovereign Limited and Colonial First State. The parent company may take the strategy of envisioning the future to sell, buy or manipulate the assets that can create the new equilibrium.

Commonwealth Bank Australia can start providing various types of loans to the customers in Australia and they can advertise on the print media and in the online platforms. Commonwealth bank can start advertising on the social media about loans; loans processes can be done without visiting the bank physically. Therefore, the customers can apply for the loan and the bank can develop the technology to approve the loan process via online. Most importantly, Commonwealth Bank can start investing in the research about financial technology. The whole process of banking in Commonwealth bank can be done through online or through mobile banking. This innovation process can bring the issue of cybercrime. Therefore, the bank can start the data security so that the process can be out of scamming, hacking and phishing. Data breach is another issue of the banking sector when the bank provides the service of online transaction. The process of the online transaction can increase the target of distributed denial of service extortion by rivals.   

BCG Matrix

Commonwealth Bank in Australia is the largest bank and it is the multinational bank with a presence in Asian countries and in the UK. Commonwealth Bank needs innovation in the business so that they can grow in the market to gain more customers. The bank can reach more customers if the bank uses FinTech technology. FinTech technology is the innovation in the financial banking sector as it is the use of a financial study that can apply the technology to develop financial activities. FinTech is the new processes, applications and products of the business models in the financial businesses.

Conclusion 

The strategic innovation of Commonwealth Bank can be brought through collaborative effort process across various departmental functions and teams can be aligned with the mission of the organisation. The banking sector has the potentiality to bring strategic innovation to the customer’s groups are larger in the banking industry. Strategic innovation is the episodic reaction to isolate the initiative and Commonwealth Bank is the senior-leader-led culture that can bring together the multi-functional approach of the creative assets. Commonwealth Bank has the technological threats from the larger technological giants as the large multinational IT companies are coming up with the FinTech technologies to attract the customers. Commonwealth Bank is taking the growth strategy to diversify the business in FinTech where the bank can provide technical services regarding financial services.

Reference List

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MACS framework and considering its growth vehicle choice (500)

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