- Majority of customers are very price sensitive
(This is through the availability of interest free credit cards/reduced rate loans/competitive savings rates)
- Customers can easily obtain accurate financial information
(Information technology has enabled this; loan rates/ credit cards can be searched and compared online offering the best product to the customer with little effort)
- Customers utilise more services, therefore demand higher quality
Bargaining Power of Supplier:
- As interest rates are governed by the Bank Of England Monetary Policy Committee (MPC) at the moment interest rates are on hold at 4%.
- Base rates significantly influence financial services products; this however is out with the control of financial service providers
Jockeying for Position:
- The financial services industry current growth is expected to be slow, therefore there is a foreseeable struggle for market share
- De-regulation of the financial services industry has introduced non conventional banks into the market such as Sainsbury Super market/ Tesco Supermarket
- Internet banking stand-alone banks, which have appeared in the industry, examples here being: Egg/Cahoot/Smile/ IF/First Direct. As these banks do not support traditional “brick & mortar branches” they are able to offer competitive products at reduced rates, which make them more competitive.
Substitute Products:
- Product differential is common in the financial services industry
- Examples of product differentiated can be seen below:
Increased number of Credit Unions in the form of credit cards/store cards
An example here is unconventional distributing channels taking form such as Marks & Spencer who now offer a store card and a credit card to customers along with reduced personal loan rate. Along with Easy Money part of the Easy group who now offer a “no frills” credit card. There is also a number of personal loan providers based solely on the Internet who have no association with traditional banks.
It is clear that by offering substitute products at reduced interest rates this can limit the potential of an industry. Unless traditional banks can upgrade the quality of products available online, it may suffer in earnings and possibly in growth.
The above model, as suggested by (Porter, 1985) largely determined the type and level of competition within the financial services industry. (Put in importance of this model here)
In order to continue with the strategic analysis the next model, which will be used, will take the form of a SWOT analysis.
A SWOT analysis is the traditional process for developing strategy and consists of analysing the internal and external environments of an organisation, in this case Lloyds TSB. Com. This will allow Lloyds TSB strengths, weaknesses, opportunities and threats to be highlighted.
It is suggested by (Harrison, St John 1998) that the results from this situation analysis may form the basis for developing missions, goals and strategies.
Figure 2 below highlights the SWOT Matrix
Strengths:
- Lloyds TSB is Europe’s fourth largest bank
- Lloyds TSB is Britain’s Eighth largest company based on market capitalisation
- Lloyds TSB has a strong branch network of 2300
- Possess 16 million customers
- Possess a strong brand recognition
- Provide a full range of financial service products including mortgages, investments
- Provide a fully functional internet banking site for both personal and business customers
- Provide a range of delivery channels to customers: Branch/telephony/internet
- Specific online banking products have been developed; some traditional banking products have been re-configured. These have been accepted by customers rapidly
Opportunities:
- Increase the number of internet banking customers
- Increase the number of premier customers
- Increase the amount of wholesale market
- Pursue strong brand recognition to increase number of customers
- Manage more of there customers financial affairs
- Cross sell (As a range of products exist therefore take advantage of the strong brand name) Example: Foreign Currency + Travel Insurance
Mortgages + Life Insurance
Home Insurance + Home Utilities
Weaknesses:
- Unstable Interest rates/ related to inflation & base rate
- Recent adverse publicity related to the mis-selling of Scottish Widows(Part of LTSB) Policy’s
- Resistance to change to Internet banking due to security, privacy and reliability concerns of customers
Threats:
- New unconventional banks forming (Internet Only Banks)
- New unconventional industries have entered into the financial services industry such as Sainsbury’s supermarket, Marks & Spencer, Tesco Supermarket.
- Lack of customer loyalty present
- Financial services industry is to slow down over the next two years, this will have a significant effect on Lloyds TSB
The significance of the SWOT analysis undertaken above is to use the existing business strengths to exploit opportunities, to create new opportunities, to counteract threats and repair any weaknesses as suggested by (Robson 1997)
Further strategic analysis will be undertaken by utilising product portfolio analysis; this will be achieved by using the BCG matrix. The concept of product portfolio is used here to describe the financial health of a collection of business products and is equivalent to an investment portfolio.
This matrix produced by the Boston Consultancy Group (BCG) is used as a planning tool to divide the various business units of a firm into categories associated with particular characteristics and actions. Figure 3 overleaf displays this model.
To understand this model, the vertical axis is the overall growth rate of the industry; the horizontal axis is the market share of the product or business relative to that of the largest competitor. The matrix is divided into four (not necessarily equal) quadrants each of which is labelled according to the type of business or product located within it.
Each quadrant will not be explained to contribute to the understanding of this complex model as suggested by (Robson 1997)
Stars:
- Products or business divisions in this segment are the ones that provide significant revenue now and are expected to continue to do so in the future. In this quadrant, the organisation will wish to seek opportunities to increase profits and extend the life of the product or division. However, as these products services require on-going investment they do not generate as much margin as cash cows.
Cash Cows:
- Products or divisions in this segment are those that are the current high income earners for the organisation. They are expected to provide the major part of current profits and form the major source of funding for future developments. However, cash cows are relatively short-term so they are not expected to provide significant future revenues. For business areas in this segment, the organisation should look to adopt measures to increase the profit, extend the life time, or shift the division of the product into the star quadrant.
Problem Children/?
- Products or divisions in this segment provide little or no contribution to profits today and it is not expected that this situation will change. This segment should be removed or by taking steps to reduce associated costs, it should be moved into the cash cows. These products/ divisions are seen to have lost market share to competitors or are in a declining market.
Dogs:
- Divisions or products in this quadrant are those that the organisation is currently prepared to “carry” since, although they make little or no contribution to revenue now, they are expected to in the future. These are usually young areas or products and are probably still being developed. It is suggested that investments should be made cautiously in this segment since the risks associated with this segment are higher than with others. Theses products or divisions if successful will become stars.
The importance and advantages present in the utilisation of this portfolio analysis is that it focuses attention the abilities of businesses to generate cash and allows management to decide how best to allocate cash and other resources to different divisions in the business. This is also a useful tool in aiding development of strategies to sustain the long-term growth of business portfolios. In addition, it provides a means of assessing both products and business units and therefore, is applicable at different levels within the firm.
The BCG matrix will now be developed in relation to Lloyds TSB divisions.
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The above-completed BCG Matrix highlights all the different divisions within Lloyds TSB. For ease of understanding the matrix has been discussed further explaining the different divisions, which exist, and the quadrants in which they are aligned to. For further interpretation of the matrix above, the radius of the circle depends on what division is doing most of the business for the organisation.
Cash Cows:
- The Mortgage division within Lloyds TSB is performing exceptionally well in comparison to competitors
- This division can be seen to be doing most of the business for the company
- Investments division is also performing well, followed by savings and credit cards
Stars:
- The Internet banking division has achieved strong market position within a rapidly growing market
- The personal current accounts division is growing rapidly along with personal loans
Problem Children/?
- The home utility division while having a high market growth Lloyds TSB continue to have a low market share here
- The insurance division is whist also having a high market growth continues to have a low market share
Dogs
- Lloyds TSB pensions can be seen as currently having low market growth and a low market share
- The travel money division can also be seen to currently having a low market growth and low market share.
Portfolio planning therefore recognises that diversified companies are a collection of businesses, each of which makes a distinct contribution to the overall corporate performances and which should be managed accordingly. This approach allows management to see business performance as largely determined by the companies’ position within the industry. This is clearly portrayed in figure 2 above.
Having completed the strategic analysis a proposed strategy plan has now been developed and can be seen below:
Lloyds TSB Vision:
- Lloyds TSB vision is to be the best financial services company in the UK. They will do this by building strong customer relationships, if they are able to flawlessly execute for the customer this will earn them the right to look after more of there customers financial affairs. Lloyds TSB is focused on meeting customer needs better than any of there competitors.
Lloyds TSB Mission Statement:
- To make Lloyds TSB the best company in the financial services industry – a great place for staff to work and a great place for customers to do business.
Lloyds TSB Goals:
- Position the Lloyds TSB group for growth
- Will aim to win a greater number of new and existing customer’s business.
Lloyds TSB Objectives:
- Place much greater emphasis on developing customer relationship management skills in each of our core business divisions
- Increase customer service in order to meet customer needs and create more value for them than Lloyds TSB main competitors
- Improve products & services and build on recognition
Lloyds TSB Strategies:
- Develop more tailored customer offers
- Undertake better integration of offers and services
- Substantial investment will be made into business areas with the greatest potential an example here being; Lloyds TSB internet banking service in order to become a high performance organisation
- Flawless execution is one of the key things that distinguishes successful companies over time – therefore this will help develop relationships with customers
- Increase measurement to improve all processes and target key areas of customer dissatisfaction
Critical Evaluation:
The strategy plan established for Lloyds TSB has been created after undertaking a through environmental and portfolio analysis.
It is clear from undertaking the environmental analysis that competition within the financial services industry is intense and the UK market is influenced by the impact of ever-increasing regulation and Government-driven price controls. There is no clear indication in the environmental analysis undertaken that indicates that in the future the competition will be any less fierce or regulation any less intrusive.
The strategy plan developed exists to understand Lloyds TSB current position in the financial services industry. The plan considers how the organisation can move forward with a sense of direction, purpose and urgency. In addition, it has been developed in order to have a significant impact on the industry and more importantly the plan exists to highlight how to achieve some degree of sustainable competitive advantage.
Strategic planning as suggested by (Robson 1997) highlights that strategic planning turns a organisations vision into concrete achievable. It describes the initiatives that will achieve the vision in ways deemed consistent with the organisation, its assumed market and the competitive environment. The strategies that have been highlighted are likely to create the future of the organisation.
However, in developing a strategy plan it is vitally important to involve the creation of new and lasting competitive advantages and the development of new products and services. It is important whilst strategy making that innovation and dynamism is concurrently endeavoured for as suggested by (Porter 1987)
The strategy plan developed consists of a vision for Lloyds TSB followed by a mission and goals. The goals highlight how the company will continue to strive for market leadership. The objectives which follow have been selected as they include innovation and dynamic approaches to follow in order to achieve the vision of the organisation.
Overall, the process of developing a strategy plan is a complex task; however, once this has been developed and strategies have been underpinned the outcome is a clear direction for the organisation to follow to remain competitive and in preparation for the uncertain future ahead.
R E F E R E N C I N G
Chen, S, (2001) Strategic Management of E-Business, John Wiley & Sons, Chichester
Harrison J, St. John, C (1998) Foundations in Strategic Management, South Western College Publishing, Ohio
Porter, M. E. (1987) The State of Strategic Thinking, The Economist
Porter, M. E. (1980) Competitive Strategy: Techniques for Analysing Industries and Competitors, Free Press
Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, Free Press
Robson, W (1997) Strategic Management and Information Systems; an integrated approach, Financial Times Management, Kent
