Example Of Case Study On Porter Fiver Forces Analysis Of The Banking Industry 4
Industry analysis 3
Competitive rivalry 4
New entrants 5
Bargaining power of suppliers 6
Bargaining power of the buyers 7
Threat of substitutes 7
Competitive strategies 8
SWOT matrix 8
The Bank of America is a large bank holding company that within the recent years has been ascending within the banking industry with a top position. As such, the organization has been steadfast towards the provision of diverse financial services that encompass commercial, wholesale banking, wealth management, treasury services and so forth. However, the prospect of credit crisis had a significant and adverse impact on the banking industry resulting to the notion of collapse of numerous regional banks and the prospect of rise in mergers and acquisitions within the industry. As such, Bank of America was no exception to the evident industry situation. However, in comparison to the organizational competitors, the bank managed to perform better thus resulting into a plausible image and reputation among its clientele. The plausible performance, as compared to the rivals played a pivotal role towards the increase in market share dyeing the market down turn through acquisition of poorly capitalized banks. Through the evident investment into strategic approaches, Bank of America managed to catapult its operations and sustain performance as the years progressed. Thus, this paper will examine Bank of America and the environment of operation through an in-depth analysis of the diverse factors that impact on the operational mandate.
In diverse industries, there are operational strategies that are highly evident. As such, from the evaluation of the banking industry, mergers and consolidation have become the operational approaches among the diverse sector players. Through the investment into mergers and consolidation, it has become highly daunting to make a precise definition of the industry due to the conglomerate banks. Bank of America currently functions in the national commercial banks sector which is within the commercial banking industry (Ackoff 2009). Despite the notion that Bank of America concentrates on commercial banking, it has undertaken diversification of financial services. As such the industry comprises of organizations that specialize on the provision of numerous services such as international banking, insurance, securities and investment banking. Though it is highly daunting towards quantifying the size and scope of the diversified financial services industry, it is simpler to comprehend the magnitude of the banking industry due to the extensive supervision and regulation of the latter. Since the recession, the regulation of the financial services has become highly close and within a plausible scrutiny. On the other hand, the US commercial banking industry is extensively fragmented and competitive. In accordance to the data published in 2010, there exist 8091 banks (Bradley 2011). Among the diverse banks, there are 6911 commercial banks and 1180 saving institutions. The companies that prevail within both the diversified financial industry and the commercial banking sector include JP Morgan chase, Bank of America, Wells Fargo, SunTrust banks, capital one financial and so forth (Bradley 2011). Hence, from the evaluation of the industry overview, the inculcation of the Porter five forces analysis is a plausible approach towards comprehension of the competition within the banking industry within an in-depth mandate.
Porter fiver forces analysis of the banking industry
As aforementioned, the banking industry is vastly fragmented and competitive. As such, the financial services industry has been in existence for over a hundred years and consumers requiring the evident banking services are already using banks. Thus, towards expansion of the market share, a bank has to ensure that it can convince is clients to switch to their bank. Furthermore, the commodity-like nature of the financial services products has become an imperative aspect towards the increase in competition. Copyright infringement is non evident within the financial products thus it is impossible for banks to develop highly differentiated products from their rivals. Hence, even if a commercial bank introduces a novel product, the prospect of competition is always there. Additionally, non-financial companies can provide services that are preferable substitutes hence the intensification of competition within the industry. In reference to Bradley (2011) the Gramm-Leach act 1999 is one of the vital factors that has led to the heightening of the degree in competition within the industry. Through the act, the concept of banks taking advantage of entering into other business lines such as insurance, investment banking and commercial bank. Furthermore, the act enabled banks to consolidate their operations through the investment into the diverse sectors. As a clear example, the recent financial crises led to the numerous mergers and acquisitions thus resulting into financial conglomerate. Thus, as per diverse pundits, the industry is bound to consolidate further. The evident regulations and the prospect of non-differentiation of operations is bound to further catapult the competition within the industry.
Within a holistic mandate, the banking sector is highly difficult for an individual to commence or start a bank or a financial service company. First and foremost, the special banking license issued by the government is mandatory prior to commencement of operations. Additionally, after the commencement of operations, organizations are subjected to diverse regulations. Moreover, economies of scale prevail to the larger companies thus favoring the large firms (Gluck 2012). According to analysts, the larger the company is the more the diversification of products. Thus, the larger firms accrue competitive advantage from the broad distribution channels. Furthermore, it is easier to the large banks to advertise and strengthen their brand image. Start-ups which are smaller than the evident large organizations such as Bank of America are at a disadvantage in competing with the existent players. The high barriers of entry pose a daunting environment for the prospective entrants.
Bargaining power of suppliers
Within the commercial banking sector, banks grapple with three kinds of suppliers. Depositors, credit market and central bank are deemed as the most fundamental suppliers. The three evident stakeholders provide the bank with funds. As the first group, the depositors do not exude high bargaining power. Within a general mandate, banks offer a given interest rate and prices. Depositors can opt to either accept or decline the prices. Additionally commercial banks pay nothing for the evident demand deposits. Larger clients such as wealthy individuals exude a higher level of bargaining power. Nonetheless, the bank is still the dominant party comparative to the type of client (Ackoff 2009). Despite the evident aspects, the bank’s bargaining powers may be threatened by the large clients that hold a huge amount of deposits through switching to other banks. As the second supplier, the credit market is highly open to banks. The openness of the credit market entails that banks are not threatened by the market as the source of funding. Finally, the central bank denotes the lender of last resort. As the lender of last resort, the bank continues to supply liquidity to the banking industry within a reasonable cost. However, the recent crisis exudes the shift in regards to regulations with the central bank imposing stricter regulations to ensure plausible operations of the central banks.
Bargaining power of the buyers
Retail customers do not exude any bargaining power to the diverse banks. Additionally, in the instance that the buyer has diverse financial services within one bank, the prospect of switching to other banks is highly daunting. The concept of cross selling coupled with resultant switching costs is high from switching from one bank to another (McGee & Wilson 2012). Due to the evident high switching costs, buyers do not exude substantial threats to the organizations. Despite the large bargaining power of the corporate clients as compared to the retail clients, the evident authority that the corporate clients can exude is highly limited (Ackoff 2009). The evident negotiation of terms of conditions between the corporate client and the bank should be within a win-win mandate. The deals are structured within a manner that ensures mutually construed benefits to the parties. Hence, even though the huge clients have the power to negotiate or bargaining, it does not pose an extensive threat to the bank.
Threat of substitutes
The SWOT matrix denotes an evaluation of the organizational strengths, weaknesses, opportunities and threats. As such, the SWOT matrix is highly viable since it generates a plausible avenue for the organization to evaluate both its internal and external operational aspects. Hence, through an analysis of the strengths and weaknesses an effective analysis of the internal environment while the latter’s provide proper evaluation of the external environment at Bank of America (McGee & Wilson 2012). Thus, a SWOT analysis of Bank of America is as follows:
Formidable growth through acquisitions and mergers: the company has been growing formidably with a top notch ranking in the banking industry. In the past 5 years the company has added over $ 3 billion in assets through acquisitions of low risk banks.
Prudent risk management: analysts affirm that Bank of America is one of the most conservative organizations in underwriting and loan lending. The aforesaid approach has enabled the company to maintain high credit quality as compared to its rivals.
Over emphasis on business lending: over 50% of the lending within Bank of America entails businesses (Baker 2011). The evident emphasis on the commercial lending has led to a higher vulnerability to risk mainly from the street economy.
Emerging markets: regions such as Brazil, India and china have become plausible markets in which the company can further catapult its market reach (Baker 2011). As such, the investment into the aforesaid market is bound to ensure profitable returns due to the softening regulations within their financial sectors.
Growth of online banking: online or internet use has been growing at a tremendous rate. As a clear example, US market has over 80% internet users (Baker 2011). The evident internet use is posing a plausible market for Bank of America to further enhance its reach.
Heightened competitive rivalry: competition is highly extensive within the banking industry. The evident over 8000 banks pose an avenue for competitive rivalry that banks such as Bank of America need to mitigate to further heighten their performance.
Stricter government regulations: regulatory reform in US has been highly evident. As a clear example, the Wall Street reform and consumer protection act has highly restructured the operations of the sector players. Size and scope of operations have been impeded by new restrictions for the organizations.
Thus, from the above analysis, a summarized SWOT matrix is as follows:
Business operations are dependent on effective evaluation of the environment of operation. Through thorough evaluation of the environment, proper strategy formulation and implementation is bound to prevail. Thus, Bank of America should extensively evaluate the internal and external environment through the use of the porter five forces and the SWOT matrix to ensure proper strategies towards tackling the highly cutthroat market.
Baker, S. (2011). New consumer marketing: Managing a living demand system. New York: John Wiley & sons.
Bradley, N. (2011). Marketing research: Tools & techniques. London: Oxford University Press.
Ackoff, R. L. (2009). Creating the Corporate Future. New York, NY: Wiley & Sons.
Drucker, P. F. (2008). The practice of management. New York: Harper.
Gluck, F. W. (2012). A fresh look at strategic management. Journal of Business Strategy, 6(2), 4-19.
Tregoe, B. B., Zimmerman, J. W., Smith, R. A., & Tobia, P. M. (2007). Vision in action: Putting a winning strategy to work. New York: Simon & Schuster.
Wells, D. L. & Doherty, L. M. 2008. A Handbook for Strategic Planning (Publication No. 94- 02). Washington, DC: Department of the Navy Total Quality Leadership Office.
McGee, J., Thomas, H., and Wilson, D. 2012: Strategy Analysis & Practice. London
Johnson, G., Scholes, K., Whittington, R. 2011: The Environment (In Exploring Corporate Strategy, Pearson Education, pp. 64‐87)
Barney, J. 2009: Firm Resources and Sustained Competitive Advantage. (In: Journal of Management, 1991, vol. 17, no. 1, pg. 99‐120)
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