MBA 5004 – Managing Decision Making Processes

Assessment 3 – Consultative Management Report

Submitted To Dr Priyantha Bandara

Submitted by:
1) Lovdeep Kaur
2) Kawaljeet Kaur
3) Neha Gartan
4) Yamini Rajeev Pechetti
5) Shilpa
6) Aditi
Executive Summary
The Commonwealth Bank of Australia (CBA), a prominent banking institution boasting a
storied legacy tracing back to the year 1911, has undergone substantial strategic alterations.
This report has delved into CBA's venture into the credit card market, the incorporation of
artificial intelligence for tailored banking services, and its multifaceted approach to engaging
customers. Although there have been noteworthy obstacles, such as the global economic
panorama and heightened competition, CBA's financial performance has demonstrated
resilience, with revenues steadily ascending since the year 2020. It promotes sustainability
and mitigates risks. Recommendations include customer-centricity, technology, innovation,
diversification, and responsible environmental practices. CBA's strategies position it for
growth and success in the financial sector.
Introduction
The Commonwealth Bank of Australia (CBA) stands as a formidable presence within the
Australian financial realm, renowned for its unwavering dedication to innovation and
customer-centricity. This report delves into the bank's endeavour to set itself apart in the
fiercely competitive banking sector by catering to the ever-evolving requirements of its
esteemed clientele. It examines CBA's strategic endeavours, notably its venture into the
credit card market facilitated by the bank, its pioneering utilization of artificial intelligence to
deliver customized banking services, and its multifaceted approach to enhancing customer
relationships(Nete, 2019).

The Commonwealth Bank of Australia (CBA) is directed by a mission to offer outstanding

banking and financial services to its customers. Its vision is to become a pioneering pioneer
in the sector, committed to the contentment of its customers. CBA's objective includes
attaining financial steadiness, nurturing ingenuity, and upholding customer-centeredness,
while its objectives encompass enriching financial offerings, utilizing artificial intelligence for
customization, and strengthening customer connections.

Scope
This report offers a thorough analysis of the Commonwealth Bank of Australia (CBA) and its
strategic endeavours designed to achieve excellence in the fiercely competitive banking
sector. It mainly focuses on three key areas:
 CBA's experimentation in the market for credit cards issued by the bank to enhance
the alignment of its offerings with the evolving demands of customers, its innovative
utilization of artificial intelligence to provide exceptionally personalized banking
services, and its multi-channel strategy devised to cultivate deeper and more tailor-
made customer relationships(McAfee, 2019).
 The report delves into the consequences of these strategies and their influence on
CBA's financial performance and customer satisfaction.
 The analysis includes a variety of financial and operational metrics, providing insights
into how CBA has successfully achieved robust business performance.
Limitations
Although this report provides a comprehensive examination of the Commonwealth Bank of
Australia (CBA) and its strategic endeavours, it is imperative to recognize specific constraints
that must be duly considered. Some limitations are:
Temporal Constraints: The information and data in this report are based on knowledge up to
September 2021. Therefore, any developments or changes by CBA after this date may not be
included. To ensure accuracy, it is advisable to consult the bank's latest reports for the most
recent information.
Specific Financial Data: This report offers an overview of CBA's financial performance, but
specific figures may not be up to date. Detailed financial data can change quickly due to
market fluctuations and economic conditions. Therefore, readers seeking the most current
financial information should refer to the bank's official financial reports.
External factors: Global economic events and regulatory changes, can greatly impact a
bank's financial and operational performance. This report does not examine these external
factors extensively, so a comprehensive understanding of CBA's performance may require
considering these external variables.
Data Sources: The report uses publicly available information and data sources, which may
have limitations in accuracy and comprehensiveness. Additional insights may be gained by
accessing proprietary or internal data not disclosed by CBA.

Background of the Company

It was established in 1911 with an extraordinary vision, as it aspired to offer not just savings
but also comprehensive banking services, a departure from the prevailing norms and
practices of that era(Buckley & Gollan, 1969). Furthermore, CBA holds the distinction of
being the inaugural bank within Australia to secure a guarantee from the federal
government, thereby highlighting its paramount importance within the nation's financial
framework.
In July 1912, CBA established its first branch in Melbourne, signifying the initiation of its
branch network. Furthermore, it performed banking services through post office agents
under a long-lasting contract with Australia Post, which is still in operation today. By 1913,
CBA broadened its operations to include all six Australian states after acquiring the State
Savings Bank of Tasmania in 1912. CBA was one of the first banks to be privatized, starting in
1991-1992. CBA stands out because the government gave up complete control after
additional offerings. Other partially privatized banks may still have non-commercial
objectives or government intervention in management(Otchere & Chan, 2003).

Methodology
This report concerning the Commonwealth Bank of Australia (CBA) is founded upon a
meticulous approach that includes the gathering and examination of diverse data sources
and information. Some methodologies are:
Data Collection: The gathering of information regarding CBA's strategic endeavours, financial
performance, and customer-centric approaches was executed through the utilization of
publicly accessible sources, encompassing CBA's annual reports, financial statements, official
press releases, and reputable news articles.
Internal Analysis: A comprehensive internal analysis of CBA's financial data and operational
metrics was undertaken within the confines of the report, with a specific focus on pivotal
indicators such as Common Equity Tier 1 (CET1) Capital Ratio, Net Profit after Tax (NPAT),
loan impairment, net interest margin, dividend, credit quality, and total impairment
provisions.
Qualitative Assessment: The qualitative data was meticulously evaluated to comprehend
CBA's strategic initiatives, including its experimentation within the credit card market,
employment of artificial intelligence for personalized banking, and the adoption of multi-
channel customer engagement strategies. Additionally, the report took into account
customer feedback and satisfaction statistics(Matt Comyn, 2022).
Data Set

Quarter Revenue Earnings Operating Net Earning Total Equity Total Debt Cash & Debt Price to No
expenses Profit s per Short Term Equit earnings em
Margi share Investment y ratio
n s Ratio
31/03/1 $ 22,940 $ 8,617 $ 9,340 59% $ 4.89 $ 69,649 $ 2,52,916 $ 87,108 3.63 14.5
9
30/06/1 $ 22,304 $ 8,042 $ 9,150 59% $ 4.90 $ 69,649 $ 2,52,916 $ 87,526 3.63 18.2
9
30/09/1 $ 22,218 $ 8,028 $ 8,960 60% $ 4.98 $ 71,153 $ 2,47,612 $ 83,052 3.48 17.8
9
31/12/1 $ 22,131 $ 7,966 $ 8,821 60% $ 5.00 $ 71,153 $ 2,47,612 $ 83,052 3.48 17.7
9
30/06/2 $ 21,408 $ 7,388 $ 9,251 57% $ 5.02 $ 71,938 $ 2,35,149 $ 1,20,742 3.27 16.6
0
30/09/2 $ 21,357 $ 7,042 $ 9,315 56% $ 5.09 $ 75,003 $ 2,41,281 $ 1,17,138 3.22 16.0
0
31/12/2 $ 21,213 $ 6,695 $ 9,548 55% $ 5.10 $ 75,003 $ 2,41,281 $ 1,17,138 3.22 21.7
0
31/03/2 $ 22,501 $ 7,769 $ 9,891 56% $ 5.12 $ 78,688 $ 2,46,742 $ 1,58,098 3.14 19.6
1
30/06/2 $ 23,652 $ 8,843 $ 9,722 59% $ 5.20 $ 78,688 $ 2,46,742 $ 1,58,098 3.14 20.0
1
30/09/2 $ 24,520 $ 9,334 $ 9,998 59% $ 5.29 $ 74,663 $ 2,62,988 $ 1,47,942 3.52 19.8
1
31/12/2 $ 25,068 $ 9,825 $ 10,102 60% $ 5.60 $ 74,663 $ 2,62,988 $ 1,47,942 3.52 17.5
1
31/03/2 $ 24,827 $ 9,749 $ 9,906 60% $ 5.61 $ 72,838 $ 2,94,015 $ 2,22,143 4.04 18.5
2
30/06/2 $ 25,225 $ 9,673 $ 10,054 60% $ 5.62 $ 72,838 $ 2,94,015 $ 2,22,143 4.04 15.9
2
30/09/2 $ 26,032 $ 9,911 $ 10,337 60% $ 5.79 $ 72,543 $ 2,89,346 $ 1,64,362 3.99 15.5
2
31/12/2 $ 26,631 $ 10,148 $ 10,449 61% $ 5.97 $ 72,543 $ 2,89,346 $ 1,64,362 3.99 17.1
2
31/03/2 $ 26,426 $ 10,168 $ 10,481 60% $ 6.00 $ 72,005 $ 2,90,648 $ 2,08,141 4.04 16.3
3
$378,453 $139,198 $1,55,325 $11,73,017 $ 41,95,597 $ 22,88,987

Dashboard
Data Analysis
The data collected from FY2019-22 is included in the dataset with wide set of variables
contributing towards the revenue. After analysis of the data, it is indicated that

 There had been a slight decrease in revenue during 2020 owing to the effects of
economic crisis due to the pandemic. However from 2021, there has been a
continuous improvement in the revenue. Despite the geo political tensions and rising
financial stress in 2023, the revenue and the total earnings has increased due to the
increased interest rates on loans
 The operating expenses has been gradually increasing mainly due to CBA investing in
technology infrastructure and AI.
  Due to increased revenue and net profit after tax, the earnings per share has
increased.
 The cash and short term investments has significantly increased due to CBA’s
continuous investment into strategic partnerships and digitization of banking.
 Total debt has increased over the years resulting in high debt to equity ratio. High
debt to ratio is not necessarily a negative impact on CBA balance sheet. Considering
the recent investments of CBA towards innovation, infrastructure and green energy,
it is given that D/E ratio increases as the debt is being used towards fund to improve
business resulting in long time profits.

Commonwealth Bank Situational Analysis

Increase in revenue and profitability are the objectives of a typical commercial bank. In
present day ever evolving financial landscape, it is imperative to analyse the business models
of the organisations within the industry. Although Commonwealth bank remains the largest
bank in Australia, it also faces cutthroat competition from the remaining banks from the “Big
Four” which include National Australia Bank (NAB), Westpac Banking Corporation, and
Australia and New Zealand Banking Group (ANZ). With the introduction of neo banks and
digital banks, the financial industry is evolving with innovative and cost effective banking
products.
The below mentioned suggestions will help CBA to rethink, review and reform its strategies
towards increasing its revenue and occupy significant market share in the financial industry.

A) Customer centric approach: Acquisition of new customers and customer retention

are important in the banking sector. Increasing customer retention by 5% could
increase profits from 25% to 95%. CBA should introduce new and personalised
financial products like credit cards, Buy now pay later services, low interest loans
targeting customers of different age, income and needs while simultaneously
providing a seamless digital experience to attract new customers. Retaining old
customers is equally important as they promote brand advocacy. Going extra lengths
to provide operational excellence helps in retaining customers. Inclusive banking,
educating customers regarding financial fraud and scams, creating better end to end
customer experience is essential.

B) Digital transformation : CBA is rebranding by embracing technology by offering best

financial services and ultimate digital experience to its 7.6 million digital
customers. Although CBA is taking a step towards digitization, there has been no
investment towards innovation. Instead of acknowledging the evolving financial
climate, Commonwealth bank was buying out neo banks and copying the technology
into the existing product. Adapting to the rapidly developing technology within the
financial landscape is essential to maintain a competitive edge. CBA should invest in
technology including AI, digital infrastructure and innovation to ease the digital
transaction all the while maintaining privacy and security of the transactions.

C) Market expansion: CBA should broaden its horizons from traditional banking into
establishing strategic partnerships with potential sectors such as retail, software,
 telecommunications , mobile wallets, banking apps and so on to provide best offers
to the consumers.

D) Product Diversification: Diversification provides bank with stability and resilience

(Itay Goldstein, 2023). CBA should engage in new business segments to diversify its
financial portfolio. Diversification helps in reducing risk and increases bank’s’ lending
capacity even in times of inflation and slow economic growth.

E) Human resources management and training : Talented team of employees deliver

the greatest impact in operational excellence creating value and building strong
customer relations and engagement. CBA should focus on maximising the capability
across the organisation by providing platform to learn and develop. CBA should
create learning modalities to train employees in digital, face-to-face, on the job and
peer-to-peer communication. By providing practical and supportive environment,
mentoring and tutoring, the management team should be able to nurture technical
and communication skills of employees to provide high standards to customer
service. The introduction of technology graduate program, internships and talent
campaigns to gain insights into the industry will help in career progression.

F) Marketing and advertising: CBA has campaigns such as “We Can Together”, CAN lives
here and recent #Break the Bias and Next Chapter campaigns gained interest among
consumers. In the age of digital media marketing, CBA should invest in social media
and influencer marketing and take initiatives through ecommerce strategies such as
mobile apps and BNPL to promote its business. With the recent negative publicity
due to financial fraud and customers data breech, CBA needs to promote its
infrastructure advancements to gain trust among consumers.

G) Legal Compliance: CBA needs to abide by the laws and regulations of the governing
bodies that set a framework of prudential standards and guidelines. They work
towards ensuring the stability of the financial system. Any occurrences of financial
fraud will impact the goodwill of the company among the consumers. Maintaining
transparency with the financial statements like balance sheet will help gain trust
among consumers, shareholders and creditors.
The regulatory bodies governing banks in Australia include
a) Australian Prudential Regulation Authority (APRA)
b) Australian Securities and Investments Commission (ASIC)
c) Reserve Bank of Australia (RBA)

H) Social responsibility: The global challenge of climate change requires a coordinated

effort and action of all. With increasing awareness of environmental sustainability
among consumers, they tend to associate with an organisation that aligns with their
values. CBA with its objective of net zero carbon emission by 2050 needs to invest in
green energy, encourage non fossil fuel energy resources and sustainable products. It
needs to implement strategies to combat climate change, global warming and
 deforestation. CBA needs to also invest in communities towards brighter future. With
values of care, courage and commitment, CBA should focus on enriching lives
through its programmes helping community and the planet.

I) Mergers and Acquisitions: Mergers and acquisitions help in scaling up and gain large
number of new customers. It also provides the bank with more equity and increasing
its lending capacity. It increases the operating efficiency and consolidate the financial
standing of the company in the industry. CBA has the resources to expand its
operations through mergers and gain competitive edge. CBA in 2008 acquired
Bankwest ( Bank of WA). CBA should focus on investing its capital towards potential
acquisitions to gain profits.

Risk management strategies:

The operations of a bank is complex and creates new risks that affects current risk priorities.
A Group Risk Management Framework enables the Board, Executive Leadership Team (ELT)
and consumers to make informed risk decisions.

Key considerations for risk management include:

1) Macroeconomic pressures: The pandemic and geo political tensions affected the
local and global economic performance. Increased interest rates led to financial
strain on the Australian households struggling to repay the loans. Increased cost of
living , variable interest on loans impact households ability to meet the financial
obligations

2) Increased scams, frauds and cybercrime: Australians lost $3.1 billion to scams in
2022 as reported by ACCC.

3) Environmental sustainability

4) Cutthroat competition from other banks and non-traditional competitors like neo
banks and fintech companies.

5) Global economic instability

A risk management framework identify, analyse and manage the risks that impact bank and
its employees, consumers, shareholders and the community.

Steps to mitigate risks include

 Maintain healthy balance sheet with funding from deposits and excess liquidity.
Perform stress tests to be well prepared in case of economic distress.
 Invest in latest technology to combat financial frauds, scams and cybercrimes.
Collaborate with the government and software organisations to develop advanced
technology with ability to detect and prevent fraud.

 Safeguard consumers data and privacy by developing policies and standards such as
data management programs.

 Build talented workforce through training programmes and workshops whilst

ensuring diversity, inclusion and equity.

 Implement strategies towards environmental sustainability by investing in green

energy.

 Deter financial crimes by compliance and working closely with the regulatory bodies.

 Broaden the investment portfolio by planning and prioritisation.

 Monitor the financial health through security risk reviews, monitoring of threats for
disruptions to critical operations and business processes.
References
The Commonwealth Bank Growth Story. Strategy Study. (n.d.).
https://www.cascade.app/studies/commonwealth-bank-strategy-study

Tan, A. (2023, January 5). How technology is Fuelling Commbank’s customer experience:
Computer Weekly. ComputerWeekly.com.
https://www.computerweekly.com/news/252528886/How-technology-is-fuelling-
CommBanks-customer-experience

Nurturing repeat business. CommBank. (n.d.).

https://www.commbank.com.au/business/small-business/nurturing-repeat-
customers.html

Determined to be different. how did CBA achieve this? (n.d.-a).

https://www.business.unsw.edu.au/AGSM-Site/Documents/The-Leader-March-2011

2023 annual report. CommBank. (n.d.-a).

https://www.commbank.com.au/about-us/investors/annual-reports/annual-report-
2023.html

Banking Regulation in Australia: Overview | practical law. (n.d.-a).

https://uk.practicallaw.thomsonreuters.com/w-006-9098?contextData=(sc.Default)

Buckley, K., & Gollan, R. (1969). The Commonwealth Bank of Australia: Origins and Early
History. Labour History, 16, 65. https://doi.org/10.2307/27507939
Matt Comyn. (2022). 2022-annual-report_spreads.pdf.
McAfee, E. B. and A. (2019). The Business of Artificial Intelligence. Harvard Business
Review Home. https://hbr.org/2017/07/the-business-of-artificial-intelligence
Nete, J. (2019). Commonwealth Bank of Australia A Case Study of Corporate Governance
and Ethical Conduct.
Otchere, I., & Chan, J. (2003). Intra-industry effects of bank privatization: A clinical analysis
of the privatization of the Commonwealth Bank of Australia. Journal of Banking &
Finance, 27(5), 949–975. https://doi.org/https://doi.org/10.1016/S0378-4266(02)00242-
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Appendices