The Commonwealth Bank, which has businesses across United Kingdom, USA, Asia, Fiji and New Zealand, is an Australian multinational bank. It offers a wide range of financial services such as insurance, superannuation, institutional, business and retail banking, funds management as well as broking services. It is ranked as the second largest bank in Australia as per the Australian Security Exchange. Some of its brands include Commonwealth Insurance Limited, Commonwealth Security Limited, First State Investments Limited, Bankwest among others.
The bank was founded through Commonwealth Bank Act in 1911 and became the first bank to receive Federal Guarantee due to its nationalism. The first branch was opened in 1912 in Melbourne and it merged with states savings bank. Its role in central banking expended between 1920 and 1960 leading to controversy between the commercial banks and central bank. As a result, the government decided to split these roles by giving the Reserved Bank of Australia central banking function whereas the Commonwealth Bank remained as a commercial bank. The bank diversified its services between 1960 and 1983 by venturing into areas such as travel and insurance. It later acquired other banks such as ASB bank, became privatized and merged with seven other banks. Commonwealth bank remains as one of the best financial provider not just in Australia but all over the world (Amos, 1948).
External Analysis
SWOT Analysis
Strengths
The bank owns several brands such as Commonwealth Insurance Limited, Commonwealth Securities Limited, ASB Bank, Bankwest among others. These brands give the bank a competitive edge because each of them is independent of each other and offers distinctive services. Therefore, when the customers dislike one brand it does not affect the others. Again, the bank has its operations in various countries such as United Kingdom, USA, Fiji and New Zealand thus making it a multinational bank. Whenever there are political unrest and economic instability in one country, banks in the other countries will still perform. It is also listed as one of the largest companies in Australia; in fact, it is among the top four Australian banks. It, therefore, means that it owns a large share in the market making it more influential over other local banks. Additionally, it provides additional services such as credit cards, private equity, global wealth management, corporate banking, mortgages, insurance and other additional services that most local banks do not offer. It is also estimated that the company has around 44,000 employees who are highly skilled and well motivated. It thus makes them work extra hard to ensure that the bank does well.
Weaknesses
The bank is embroiled in a number of controversies that has affected its operation. For example, in 2011 Geoff Shannon a former client of Bankwest commercial begun a lobby group and a website that was popularly known as Unhappy Banking. The group attracted the attention of the senate that initiated an inquiry together with Australian Corporate Watchdog (ASIC). The senate concluded that ASIC lacked the legal mandate to fully investigate such matters. However, a week later Ralph Norris who was a former CEO apologized and confirmed that there were rogue financial planners in the company by denied any covering up conspiracy. The bank is low financial rating. Moody rated the Commonwealth Bank at B- in terms of financial rating thus making it less competitive and challenges its reputation in the market. The impairment expense is another concern that has slowed the banks chances in penetrating the market.
Opportunities
The bank has a chance of implementing and integrating technology in its banking activities. Implementation of technology has the potential of improving the quality of services thus expanding the market share. Given the increasing number of banks, quality of services has become an important factor in banking sector. The bank also has a chance of generating more initiatives that can improve customer relationships. For example, the bank recently introduced “One Commbank “an initiative that has greatly improved bank-customer relationships. Finally, it has the potential of expanding to other new markets within Asia and even in other continents. There is still a large market that needs to be reached because the bank has not met full demand for its services globally.
Threats
Investor confidence in the global market can greatly influence profitability of the bank. Thus, the bank feels the threat of economic outlook because this can either attract or scare away the potential customers. Foreign exchange rates usually fluctuate from time to time, which affects its operations. Unstable foreign exchange rates thereby pose a threat to the bank because they are not predictable and may lead to additional costs. Finally, bank’s counter party pose another threat to the bank given that sometimes these parties do not meet the expected obligation influx.
Industry Analysis
Commonwealth bank’s industrial analysis can be well described using Michael Porter’s model of industrial analysis, that Porter’s Five Forces that analysis competition level within an industry as well as strategy development of the firms in that industry. Porter considered these forces as the micro environment arguing that they are factors affecting company's ability to serve its customers. The five forces are; industry rivalry, bargaining power of customers, bargaining power of suppliers, threat of new entrants and the threat of substitutes (Porter, 1980).
The figure below is a graphical representation of Porter's five forces
Threat of entrants
New firms are always attracted to markets with high returns. Banking industry is one of those firms with high profitability, which has eventually decreased profitability of the original banks. Most investors are venturing in the banking sector because gives good returns on investment. Commonwealth bank has however designed barriers to entry to block too many people from entering the market through pricing and patenting its innovations. It gained power so it can influence government policies in its favor. Furthermore, it enjoys economy of scale because it has so many branches thus operation cost is minimal. Product differentiation and customer loyalty has also given the bank an added advantage over other local banks.
Threat of substitute products
Substitute products are the alternative products that customers prefer due to its attractiveness in terms of either price or quality. Banks offer different services and sometimes banks may differ in the variety of services they offer. Local banks that compete with Commonwealth bank majorly offers normal banking services whereas Commonwealth bank has differentiated its services. For example, it offers both mortgages and housing loan to satisfy those clients who wish to build their houses and those who prefer already build houses. Therefore, clients are not tempted to shift to other banks.
Bargaining power of customers
Customers bargaining power is the ability of customers to impart pressure on the company. It also determines customer's sensitivity to changes in prices. The power of customers is highly dependent on the availability of alternatives in that if there are more alternative banks that can offer the same services as Commonwealth bank locally then its customers are more powerful. To counter this, the bank charges reasonable prices and offers high-quality services.
Bargaining power of suppliers
Suppliers bargaining power is sometimes considered as the inputs of the market, which is the ability of those who supply services, labor, components and raw materials to influence the firm. The number of suppliers in the market determines supplier’s power. The bank has always ensured that it has multiple suppliers supplying different items such as the stationaries and other inputs so that in case one supplier fails others will still supply the required inputs or services.
Intensity of competitive rivalry
Intensity of the rivalry is the central force that influences all the other four forces. High competition in the banking industry has intensified the rivalry between the local banks. Commonwealth bank has put more efforts in advertizing, innovation, transparency and employing powerful competitive strategies. Advertizing, for example, has demystified myths about the bank and has maintained the good name of the company.
Internal Analysis
Competitive Advantage
Apart from investing heavily on information technology, Commonwealth bank has focused majorly on four areas, which has given it a competitive advantage over other local banks. These areas are; industrial operation, return on capital, asset protection and delivery transformation (Hooley, 1993).
Figure showing key areas giving Commonwealth bank competitive advantage
Industrial operation
Delivery Returns on capital
Transformation
Asset protection
Industrial operations
Executives of the Commonwealth bank have intensified their efforts in cutting down on operation costs in order to protect the profit margins. All the executives have made it their mandate to avoid any unnecessary spending. The bank is focusing on avenues such as outsourcing, restructuring and reengineering all with the aim of reducing cost. Structures have also been streamlined to ensure that there is transparency and that accurate expenditure reports.
Asset protection
The bank has improved its capabilities to manage risks. Technology-based risks for instance, the cyber threats have become a concern for many banks especially with the advent of online banking. Therefore, the bank has invested in high banking technologies in order to ensure that it is a step ahead of these threats. It has made sure that assets of the bank, as well as that of its customers, are well-safeguarded thus boosting customers and investor confidence.
Delivery transformation
In ensuring good delivery of services to its clients in a more efficient way, the bank has also ventured in the most lucrative field of mobile banking. Unlike other local banks, the Commonwealth bank has embraced mobile payments with the understanding that it is more convenient to its clients. Through this the bank has increased its customer base tremendously because it has provided the necessary infrastructure to allow many people to enjoy mobile banking services.
Return on capital
The Commonwealth bank is a product of acquisitions and mergers. The bank has acquired several other bank and financial institutions and merged with other big banks to make it more powerful and influential in the market. Currently, its clients do not just enjoy services within Australia but also in other countries around the world. The bank is among the top four most influential banks in Australia with good returns on capital. Therefore, more and more investors are willing to invest their capital in the company because they are sure of good returns.
Non-Marketing strategies
Non-marketing strategy is a technique of pursuing the strategic goals of the organization via social and political advantage. Lt is achieved through influential groups, government and the press. Being one of the “big four” banks in Australia, Commonwealth bank enjoys the privilege of influencing government policies in its favor. Through publications, research, sponsorships, networking, public events and other strategies, the bank has positioned itself well in terms of social and political strength. The bank has adopted a non-marketing model as shown in the figure below:
In terms of action plans, the bank has established a team to set out some of the activities that the bank needs to implement, when and how to implement them. The policies are formulated through collaboration of various stakeholders to come up with comprehensive policy statements that can be adopted by both the bank and the government. The bank has also ensured that the core strategies are formulated and reviewed regularly and that they are shared among all the stakeholders of the bank. At the conceptual framework level, the top management designs the organizational vision and motivates the rest of the staff to works together as a team towards achievement of a common goal (Aggarwal, 2003).
There are a number of challenges, which has made it difficult for the Commonwe4alth bank to enter into China’s market. For example, the regulatory challenges such as heavy taxation on foreign banks, long procedures required to get a license, capital requirements, bond underwriting among others. Employees are also another major challenge that is most employees are on the move looking for greener pastures. Reports show that the bank finds it difficult to get talented employees. Additionally, there is the problem of salary inflation, which raises the operation cost. Other challenges include difficulty in adapting to China’s market, stiff competition from China’s local banks, fluctuating foreign exchange rates among others. Therefore, Commonwealth bank has seen a lot of potential in China’s market but it stiff faces a wide range of problems (Zhang, 1993).
