Strategic Analysis Of Commonwealth Bank: Opportunities, Threats, And Key Resources

Macro-environmental Analysis

Commonwealth Bank is a multinational bank in Australia which has its businesses in many other countries such as the Asia, Europe, United Kingdom, New Zealand and the United States. The bank provides financial services such as funds management, broking services, retail, insurance, investments, business accounts, business loans, asset finance, superannuation and other services. It is one of the largest banking services in Australia and is listed on the Australian Securities Exchanges as one of the largest companies. The Commonwealth Bank was founded by the Australian Government by the year 1911 and the bank was further privatised in the year 1996. It is one of the banks of the bug four along with Westpac, National Australia Bank and ANZ (Commbank.com.au, 2018). In the year 1991, the bank became a part of the Australian Stock Exchange. The current headquarter of the Commonwealth Bank is in Darling Harbour, Sydney, Australia. The Commonwealth Bank Act was the beginning of the Commonwealth Bank in the year 1911 which was started by the government of Andrew Fisher Labour. This was established for the nationalisation of banks and the act was brought into effect on the 22^ndDecember, 1911.In current scenario the bank offers many benefits and features to their customers such as managing risks, online banking and news updates. The report will contain a detailed analysis of the macro-environment of the commonwealth bank with the help of PESTEL analysis tool. The analysis will be done to understand about the key factors and the opportunities and threats that are faced by the bank and the impact that it has on the growth of the bank in the future. The report also conducts an industry analysis with the Porter’s five forces model and an internal analysis containing the key resources and capabilities of the bank followed by the findings that has been derived through the analysis.

The macro-environmental analysis of the bank is done with the help of PESTEL analysis which consists of six factors namely political, economic, social, technological, environmental and legal factors.

1. Political –The political analysis consists of privatisation and the financial deregulation of the bank which led to it changing to a private organisation as opposed to being a people’s bank in earlier times (Zolin, 2013). After the privatisation the bank did not have any responsibility towards the community and increased the returns that were given to the managers and the shareholders. The two changes in the Commonwealth Bank led to a disaster within the Australian community. Financial deregulation meant that there was an increase in the fees and the charges for the customers availing the services of the bank along with the cutting of certain services.
2. Economic –The economy of Australia is ever growing and evolving which has a great impact on the Commonwealth Bank. The risk adjusted capital (RAC) and standard ratio shows that the Commonwealth Bank has a capital position. The Commonwealth Bank proposed to strengthen their capital level with the framework which falls under the Basel III regulatory capital. Using this framework would help the bank to create a strong impact on their setting of neutral capital (Moro Visconti, 2016). The changing economic scenario of the country that they operate in would have a great deal of impact on the bank and their operations. A growing economy would help in the success of the bank and also help them to grow.
3. Social –The Commonwealth Bank takes into consideration the well-being of the society and the people of the community. The bank offers several financial programs and helps the community by forming collaboration with the organisations of the community so that the people would be able to understand the different financial options that would be available to them (Ho, 2014). For the young population and the adult population the bank provides several educational services which are mainly related to educating them financially. These initiatives taken by the bank creates a positive impact on the minds of the people in the society and helps to create a good bond among the bank and the community organisations.
4. Technological –Commonwealth Bank was amongst the first banks in Australia to offer customers with banking and real time settlement. A 24 Hours service was provided by the bank through different banking services such as telephone banking, EFTOS and ATM. There are other facilities as well such as net banking which is very famous in the community. Commonwealth Bank have given rise to certain innovations which would help the bank in providing easier services such as starting social media banking, manage loan documents through a secure portal online and others (Barba, Sanchez, Segui, Darabkhani & Anthony, 2016). These innovations give the customers an easy way out to manage their financial documents and carry out other financial services from their own comfort zone but in a secure manner.
5. Environmental –Being one of the largest financial services in Australia, the operations carried out by the Commonwealth Bank, has a direct or an indirect impact on the environment of the country. The harmful impact that is created by the bank can be prevented with the help of Carbon Reduction Target which would reduce the amount of carbon emissions into the environment and become a low carbon economy (Wall, 2014). This target of carbon reduction can be reached by changing the lights in the company which might be inefficient and emits a lot of carbon and by upgrading the air conditioner, heating system and ventilation within the bank and their subsidiary buildings. They could also have an infrastructure or office location in a building which is environment friendly.
6. Legal – There have been many allegations against the Commonwealth Bank regarding their part in money laundering and such litigations (Eva, Hindle, Paul, Rollaston & Tudor, 2014). The bank has been involved in several legal battles; however, they have always maintained their position in the market as a bank with no illegal operations.

1. Opportunities –The bank focuses on the establishment of new trends which can open several new markets for the bank. The changes that have been seen in the facilities of the bank such as online banking services and managing banking documents have made the work of the customers easier with the additional facility of being secure in nature (Babalola & Rashidat, 2013). This facility have attracted many new customers and thereby been positive for the bank. The bank also focuses on sustainable opportunities which will be environment friendly and thereby will be favoured by the community and the society which will help in the growth and the positive promotion of the bank.
2. Threats –The intense competition that is slowly emerging in the banking sector globally and also in Australia can be a huge threat to the bank. The continuous changes in technology would force the bank to upgrade themselves with new facilities and technology which might not be possible at all times. New technologies require huge investments which, if failed, could be a drastic loss for the bank (Vinod, Singh & Rajesh, 2013). The competitors take advantage of this situation and could take steps to remove the bank from their high position in the market. Different laws and regulations also oppose a threat to the bank and the ongoing legal battle could prove to be a danger regarding the image of the Commonwealth Bank in the long-run.

Conclusion

From the above macro-environmental analysis it can be seen in current times Commonwealth Bank have evolved to be one of the largest financial service providers in Australia and other countries. There is a lot of scope that is being provided by the bank in terms of their services to their customers and to the community. The bank have always remained upgraded with the new technology and invested in several innovations which would make their operations and the work of their customers easier. Even though there are certain controversies that are faced by the bank, overcoming the issues and the legal problems would help the bank to grow in the long run.

The Porter’s five forces model is used to determine the analysis of the industry where the company is operating. The factors of the five forces model are competitive rivalry, bargaining power of customers, bargaining power of suppliers, threat of new entrants and threat of substitutes.

1. Competitive Rivalry –Commonwealth Bank is one of the banks of the big four with the others being Westpac, National Australia Bank and Australia and New Zealand Banking Group. These three are the biggest competitors of the Commonwealth Bank (Weill & Woerner, 2013). There is high rivalry among the banks that are present in Australia and the bank has to operate in the competitive market. This competition takes a huge toll on the profitability of the company in the long run (E. Dobbs, 2014). The bank would have to ensure that they are able to adopt strategies which would give them a competitive edge so that they can compete with the other banks in the industry and overcome the challenges.
2. Bargaining power of customers –Customers are a major part of the bank and their services. The bank always strives to offer their best services to the customers and ensure that they are satisfied and happy with the services that are being provided by the bank (Burns & Dewhurst, 2016). There are several other banks which could prove to be a good choice for the customers if the Commonwealth Bank is not able to provide the best services o if the prices of the products and services that is being offered by the Commonwealth Bank is extremely higher than the other banks and is not to the satisfaction of the customers (Fabbri & Klapper, 2016).
3. Bargaining power of the suppliers –Suppliers are very important for any kind of industry. Even in the banking and financial sector, suppliers play a very important role for banks (Marshall, 2013). Suppliers are in a very dominant position for the Commonwealth Bank and they can create an impact on the margins of the bank. Unlike other sectors, banking sectors cannot often change their supplier since they have to provide secure services to their customers. This is why the suppliers have a strong hold over the bank and their bargaining power becomes quite high (Haucap, Heimeshoff, Klein, Rickert & Wey, 2013). To ensure that the suppliers do not exploit their position, Commonwealth Bank would be maintain an efficient and smooth supply chain with their different suppliers and also have to keep their options open in case the current suppliers drastically increases their price.
4. Threat of new entrants –The Commonwealth Bank enjoys a very dominant position on the financial industry in Australia. The new entrants who would be entering the Australian banking industry would have to invest a lot of their capital and time to reach the position that is being enjoyed by the Commonwealth Bank. On the other hand, with the current developments in technology in different industries, the new entrants would be able to bring many new innovations and changes which might not be adopted by the bank since they would be set on their own techniques and rules (Porter & Heppelmann, 2014). New companies are more open to change and new ideas which might be attractive to the crowd. The safety of the innovation comes at a later stage for some customers even in banking services, as they are more attracted to new things. Hence, looking at the technologically advanced population of Australia, the threat of new entrants might be moderate for Commonwealth Bank (Jarzabkowski & Kaplan, 2015).
5. Threat of substitutes –The threat of substitute products and services is a continuous worry for every industry (Rajasekar & Al Raee, 2013). However, in the banking sector the threat of substitute is more on a different bank than on a different product or service since the products and services of different banks would be quite similar. This can be evaded by Commonwealth bank by ensuring that they provide the best quality products and services to their customers.

Conclusion

Hence, it can be seen from the above industry analysis that the competitive rivalry is quite intense among the big four banks which makes it a continuous struggle for Commonwealth Bank to maintain their position and foothold in the Australian market. The bargaining power of the customers is quite high along with the bargaining power of the suppliers. The threat of new entrants in the Australian banking market is quite moderate as is the threat of suppliers, both of which can be avoided by the Commonwealth Bank by maintaining efficiency in their products and services.

Opportunities and Threats

Key resources and capabilities are used to determine the factors which create value in an organisation. The resources and capabilities are the different means through which the company achieves a competitive edge (Mention & Bontis, 2013). The resources of Commonwealth Bank are finance, technology, location and brand image. Finance is the most important resource of the Commonwealth bank in developing their competitive edge and growth of the Commonwealth Bank. The revenue of the bank should be able to exceed the revenue generated by their competitors, only then would the Commonwealth Bank be able to gain superiority over the other banks. Kiragu (2014) states that technology is also an important resource which is needed by the bank since most of their services would depend on technology in current times. Technology makes the work easier and increases the capability of the bank in dealing with the information and operations. The bank has to keep them updated regarding new technology and also maintain their focus on their human resources which is needed for their daily functions (Demirkan & Delen, 2013). The location of Commonwealth Bank is at a place where the demographics and psychographic targeting would be fulfilled by the bank. The brand image of the bank is favourable in increasing the revenue of the Commonwealth Bank. It is important to maintain the brand image of the bank so that they are able to gain competitive advantage over the other banks.

The capabilities of Commonwealth Bank are product development, financial management, online banking and strategic management. Product development is the way that the bank continuously develops its financial products and services. The bank continually finds new ways through which they can make the work easier for both the bank and the customers (Wu, Ramesh & Howlett, 2015). This way customer would be able to make the desired functions in a much faster and efficient way due to the continuous changes that has been brought about in the products. Financial management is another capability of the bank which is present in the bank and helps them to retain the experienced and knowledgeable staff that would help in their operations (Koryak, Mole, Lockett, Hayton, Ucbasaran & Hodgkinson, 2015). Online banking is a major capability of Commonwealth Bank. In the times where online services and technology has seen a huge rise, developing online banking facilities have helped the bank to instil trust within their customers and retain them (Beattie & Smith, 2013). Strategic management is a very important capability that is managed by the bank with great detail. The bank adheres to their mission and develops strategies which would be able to help in the achievement of their mission. These key resources and capabilities help the bank to stay on their track and work for the fulfilment of their organisation mission and vision to be successful.    

From the different analysis that has been conducted on the Commonwealth Bank, many things were derived which would help in the strategic formation of the bank. The PESTEL analysis derived the different external environmental factors which would help in the operations of the business. The analysis showed way for much scope where the business could improve upon to grow more in the long run. This external analysis was important to overcome the different issues that have been faced by the bank and to gain knowledge of the opportunities and threats that surrounds the bank. An industry analysis was also conducted regarding the bank which helped to understand the situation of the market and the competitors of the bank. This would help the bank to form the correct strategies and understand the market and the needs of the customers, both of which is required for the success of the bank. Moreover the changing trends of the market should be determined by the bank so that they have an upper hand over their competitors to survive in the market. The key resources and capabilities are the strengths that are possessed by the Commonwealth Bank and would help them in their future operations.  

Industry Analysis

Conclusion

Hence, it can be concluded that the Commonwealth Bank is huge banking industry with several financial products and services which are designed after extensive market research and with alignment with the market changes so that they can satisfy the needs of the customers. The wide range of products and services help them to retain the huge customer base and gain new ones from their competitors. They also focus on the changes in technology and the market and try to incorporate them in their operations to make the experience of their customers more convenient and smooth with increased efficiency in operations.

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