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Strategic Management MGT 8002
By: Pavlova Valeriya ID: 0050098500
By: Pavlova, Valeriya
1 Id:0050098500 firstname.lastname@example.org
2008). It provides a list of influences and trends which are likely to determine the success or failure of a given strategic choice or developed strategies (Barth & Wolff 2009. and inflation increased by 2% from 3. Economic. followed by an analysis of the bank’s strategic capabilities. The first section of the essay will focus on the analysis of the industry in which Kiwibank competes in. Then it will engage in a critical discussion of the bank’s strategic choices. Therefore PESTEL is considered an appropriate tool for conducting the external analysis. The essay will focus on one of New Zealand’s leading banks. therefore it is vital for the organization to take into the account relevant environmental factors and changes. Valeriya 2 Id:0050098500 lerazuma@gmail. if any. al. A sharp downfall in domestic economic activities has led to a significant increase in food and fuel prices. the essay will focus on the alternative strategies. During times of global financial crisis and low economic activities it is vital for any organization to monitor and understand relevant environmental changes.a. In addition the country’s GDP growth rate was equal to 0% p. Social. Environmental and Legal. that the bank should pursue. However the New Zealand government introduced the retail banking deposit guarantee which reinstated retailers’ confidence in banking (The Treasury 2009). al.com . The PESTEL framework analysis is the one most frequently applied. The PESTEL framework analysis helps to classify the various environmental factors into relevant categories (Oxford University Press 2007). Finally. PESTEL is the abbreviation for Political. By: Pavlova. The environment can become a source of organizational survival as well as become a threat to that survival (Johnson et. all negatively reflected in the banking sector. 2008). Especially this is relevant to the banking industry as the financial sector was the one which has been majorly affected by the current crisis. Technological.MGT8002-Strategic Management Assignment -1 The purpose of the essay is to investigate strategic management practices and how the strategy applies to the different sections of business operations. This section of the essay will analyse the industry and the environment Kiwibank competes in. Economic factors: The current global financial crisis has strongly affected New Zealand’s economy. Furthermore there has been strong uncertainty around financial markets and international commodity prices (The Treasury 2009).1% to 5.1%. Kiwibank. Johnson et. using analytical tools such as the PESTEL framework and Porter’s five forces framework. Strategy development is highly influenced by environmental changes. accompanied by high interest rates and a dramatic downfall in house prices.
and overseas owned banks.com . Minzberg & Quinn 1996). The New Zealand government policy in regards to the financial sector is aimed at the support of economic growth in with the sector. In addition. New Zealand government is focused on the development of a world class financial sector which would encourage healthy growth for all the companies involved (Ministry of Economic Development 2009). as well as the new liquidity policy can present significant problems to already registered banks. al. as well as focused on establishing the balance between innovation in the sector and associated with the innovation managerial risks (Ministry of Economic Development 2009).MGT8002-Strategic Management Assignment -1 Political & Legal factors: In October 2009 the Reserve Bank of New Zealand released new liquidity policies for the all registered banks in the country (The Reserve Bank of New Zealand 2009). Environmental. unlike PESTEL.al 2002. the competitive rivalry and the threats of potential entrants. It is important to understand the strength and the nature of each force in order to develop a competitive strategy for the organization. Porter’s five forces framework. In addition. it can become a key in the development of diversification (Campbell et. The PESTEL factors discussed above are considered to be the key drivers for change and are likely ‘to affect the success or failure of strategy’ (Johnson et. Other PESTEL factors such as Technological. financial organizations etc) and investors. Valeriya 3 Id:0050098500 lerazuma@gmail. analyses the extent of the competition within the industry (Campbell et. Therefore Porter’s five forces model can be considered an important tool in analysing Kiwibank’s competitiveness in the industry. development of confidence in the financial sector for institutions (banks. Furthermore the Reserve bank set new compulsory requirements on registration for most local banks. threat of substitutes. the RB is likely to propose new conditions for the registration of registered banks. and also indicates the strategic changes and future trends which may result in greater payoffs: finally. all of these banks will be influenced by a new liquidity policy (The Reserve Bank of New Zealand 2009). and Social aspects are considered to be low impact factors and therefore are not looked at in detail.56). identifying the organization’s positioning. Tougher registration requirements and the new liquidity policy may be strong barriers to new industry entrants. By: Pavlova. In addition. Furthermore in-depth knowledge of these forces assists in identifying the key organizational strengths and weaknesses. 2008. These five forces which make up the industry structure include: the power of buyers & suppliers.al 2002). new entrants. p.
in every day banking). There are 18 other registered banks besides Kiwibank and a number of other financial institutions that provide similar services in nature (The Reserve Bank of New Zealand 2009). The Reserve Bank of New Zealand is the primary supplier to all the registered banks. The supplier power is moderate.e. mortgages) only can be financed by the bank itself. Thus it becomes vital for any organization to monitor the industry and environmental changes. The first tool which can be utilized to analyse the organization’s strategic capabilities is the analysis of the organizational resources and competencies. The PESTEL analysis and Porter’s Five forces analysis are the primarily tools used to monitor those changes. ANZ. Westpack and The National Bank. and to be able to respond to them promptly. The two tools of analysis discussed are resources and benchmarking analysis. Buyers can easily switch to competitors out with experiencing harsh penalties from banks.e. Furthermore the intense level of competition in the market and high entry costs are also considered to be strong barriers for new entrants. Yet their rate is higher to a degree than the rate offered by the bank.com . The power of buyers is high due to the low switching costs (i. al. The barriers for the new entrants are mostly set by the new requirements for bank liquidity. There offshore owned banks are likely to be supplied by their quartets head from the bank’s country of origin. There are number of finance companies/institutions available in the market that provide term loans (provide small to medium loans up to $30. 2008). The majority of multinational corporations have come to the conclusion that the key element to survival is to develop an organization’s core competency (Blevins 2003). al.000) that are similar to banks. The primary cause of strategic failure for organizations is any incapability of the firm to adapt to the rapidly changing external environment (Collis & Montgomery 2004). The following section of the essay focuses on the analysis of the organization’s strategic capabilities. Everyday banking and some of the loans offered by the banks (i. The industry growth rate was 1.4% for the year (New Zealand Bankers’ Association 2009). Therefore it can be concluded that the threat of substitutes is low. It is believed that By: Pavlova. Kiwibank’s top competitors are the Bank of New Zealand. This analysis helps to identify an organization’s sources of competitive advantage as well as providing the information on the organization’s resources required for its operations (Johnson et. Strategic capability is defined as the resources and competences required for an organization’s survival and development/growth (Johnson et. ASB. 2008). and new rules for the bank registration process set by the Reserve Bank. Valeriya 4 Id:0050098500 lerazuma@gmail.MGT8002-Strategic Management Assignment -1 The intensity of the competition can be categorised as high. There are few substitutes available to the buyer when it comes to banking.
The group has over $30 million equity injection on an annual basis and demonstrates healthy annual growth of 14. Microsoft 2009).2% (Kiwibank Annual Report 2009). the chairman is an ex NZ prime minister). 2007). which provides more convenience to the bank’s customers.al. Other sources of competitive advantage are found in the bank’s unique resources such as strategic partnership with the Citi bank and the advanced IT solutions offered by Microsoft (Citi Bank 2009. It is present in more than 300 post offices which have become bank branches (Kiwibank 2009). Partnership with Citi bank has not only minimized the impacts of the competition but also provided Kiwibank with the sources/channels to extend its operations (Kiwibank uses Citi’s processing and infrastructure network). and which has an in-depth knowledge of the industry and are able to bring their knowledge to significantly contribute to strategy development.MGT8002-Strategic Management Assignment -1 Kiwibank’s core competency is its unique distribution chain or more specifically its branches. The employee’s capabilities are vital when developing strategies. Companies should put leadership in front when it come to strategy development. For example in remote areas of the country where there are no competitor bank branches Kiwibank can become the monopolist in this area and therefore have total control over an area’s financial activities.e. Distribution channels are critical for any organization as they determine the product/service market presence and the buyer’s accessibility to this product/service (Pride et. Therefore leadership should become the starting point in developing strategy (Ross 2005). An additional element of the bank’s strategic capabilities that should be analyzed is threshold resources. Kiwibank uses New Zealand Post distribution channels to reach its customers (Kiwibank 2009). Strategic partnerships of a similar nature provide the opportunities for business growth. Some of the branches are open outside usual banking hours (compared to the hours the bank’s competitors offer) and on the weekend. The unique distribution system which no other competitor is able to imitate or obtain is considered the primary source of competitive advantage for the bank. The Kiwibank group has over $35 million in assets in addition to the $697 million available for sale assets (Kiwibank Annual Report 2009). O.com . and recruit the brightest minds in the industry to lead this complex process to success (Ross 2005. reduce the costs and complexity of business operations which in term improves productivity and therefore the level of customer satisfaction (Electronic News 2006). Furthermore the Group’s executive comity is made of well educated professionals. some with the strong political backgrounds (i. That information would allow us to give a generic judgment of organizational success. Crockett & Kharif 2008). The threshold resources analysis should supply information about the financial health of the organization and its assets. By: Pavlova. Valeriya 5 Id:0050098500 lerazuma@gmail.
assets and equity. Low price strategy is based on the concept of entering the market with prices lower than competitions.MGT8002-Strategic Management Assignment -1 The second tool that can be used to analyze an organization’s strategic capabilities is benchmarking. while offering the same quality or perceived value product as the competition (Cohen 2001).429 Mil Mil Mil $65. Valeriya 6 Id:0050098500 lerazuma@gmail. unique resources accompanied by a strong financial position and experienced leadership team indicate the organization’s strong strategic capabilities and present a significant threat to its rivals.230. Therefore it can be concluded that Kiwibank has a considerably weaker financial position than its rivals.420 Unavailable Unavailable 184 156 NZ$1. The following section will focus on performance benchmarking.19). The next section of the essay will critically discuss the bank’s strategic choices that are pertinent to strategic positioning of the company. Mil 219. Benchmarking can be defined as a continuous systematic process aimed at evaluation of industry leaders in order to identify methods or business practices that are considered ‘the best practices’ and to ‘establish rational performance goals’ (Zairi 1996.6 Bil $3.365 Westpack 1. however. Kiwibank 2009).2 Mil 200+ NZ $11. There are number of variations of benchmarking techniques available for analysis.008 $453 Mil $449 Mil Mil 37.000 330 NZ$312. Performance benchmarking provides data which indicates performance gaps between organizations. By: Pavlova. p.983 Mil NZ 30. it does not offer solutions or generate ideas on how to close this gap(s) (Global Benchmarking Network 2009). The key generic strategy that Kiwibank focuses on is categorized as price-based strategy.371Mil $355. Kiwibank beats its rivals by offering at least 30% lower fees and rates (Sunday Star times 2008. Mil BNZ ANZ ASB Unavailable 144 NZ$1. Mil 36.571 Mil Source: Data Monitor 2009.9 Mil $10. specifically low price strategy. The following table benchmark Kiwibank against its primary rivals fro the year ended Sep 2009: Comparison Criteria Customers Branches Revenue Assets Equity Kiwibank 600. Performance benchmarking focuses on a performance comparison between competing organizations or on an internal parameters assessment in the organization (Global Benchmarking Network 2009).158.404 Mil 34. The analysis demonstrates that Kiwibank has the most branches in the country yet it is last by revenue. Benchmarking results allow the organization to identify strengths and opportunities for improvement (APQC 2009). A combination of Kiwibank’s unique core competencies.com .
attracted new and competition’s customers. Kiwibank was the first one to introduce innovative solutions such as debit cards. perceived as cheap) (Murane 2002. mobile banking. A low price strategy is considered to be risky and not easy to sustain. low price strategy has several significant disadvantages.MGT8002-Strategic Management Assignment -1 The strategy proved to be very effective for Kiwibank. Nevertheless. A critical aspect for the organization that relies on low price strategy as the key to strategic advantage is to avoid price wars (Patki 2007). new strategy development may require significant financial injections. Product development can be defined as a type of strategic direction where organization improves an existing product or develops new kinds of products to be introduced to the existent markets (Johnson et. Also a low price strategy may hold up future organization’s growth.com . The Kiwibank competes with the industry leaders with much greater financial resources which can be used for the marketing campaign to minimize the Kiwibank’s price advantage. The Kiwibank should focus on development of alternative strategies to a low price positioning. Valeriya 7 Id:0050098500 email@example.com. After the organization has chosen a low price strategy it may become impossible to raise prices to stimulate growth (Cohen 2001). In addition the industry leaders can easily drop prices to a lower level than Kiwibank.e. which due to the currently implemented strategy the bank may not afford. term deposit fund. TXT alerts and online international money transfers (Kiwibank 2009). A low price strategy usually associated with the low earnings/profits margins therefore the bank has to work twice as hard to make the same profit as the competition for the same period of time. However there is a positive side to a new product development. achieved almost 30% return on investment and to win the Supreme award as the best value bank for three consecutive years (Kiwibank 2009). additional human resources contributions etc. Furthermore it may interfere with the brand’s value positioning and lead to the low operating profit and create undesirable brand image (i. From the firs opening in 2002 the bank managed to maintain steady growth over the years. Cohen 2001). Additional risks may be associated with large investments and the possibility of a new product being unwanted by a market (Wang 2002). On the other hand. 2008).. The product development is usually associated with the high risks of new strategic capabilities and project management risks (Johnson et. Product development can By: Pavlova. The bank should focus on less risky options that will guarantee long term sustainability. A price based strategy is more suitable for the new business that yet has to attract customers and strengthen its position on the market. The Kiwibank takes strategic direction towards new product development. These actions are likely to provoke Kiwibank to a price war where the bank is likely to suffer a significant loses or even declare bankruptcy (Teinowitz 1993). 2008). al. Therefore the gradual contributions may be required.
al. Critical analysis indicates that Kiwibank uses variety of different approach in its strategic choices. Emphasizing on how the new product adds to the overall value of the service can become source of competitive advantage (Browning et. The Kiwibank uses Citi’s processing and infrastructure network to operate its international money transfers (Citi Bank 2009). 2008). The strategic alliances usually associated with certain risks and difficulties. Furthermore new product may add value to the brand or the service.MGT8002-Strategic Management Assignment -1 become an effective tool in initiating the organizational changes which can become vital if the company needs to adapt to the changing environment. uncertainty of the outcome due to the partner’s change in objectives or environment and finally the management of relationship between the partners (Luffman et. Product development may be used by the top management to bring organizational change with the aim to improve organization’s internal performance or process (Junginger 2008). That would increase perceived value of the initial service (savings account). sale and assets (Acquaah et. 2008). Problems usually associated with the strategic alliances include lack of control over the final outcome due to the other party involvement. The Kiwibank implements this technique by introducing the ‘hero’ services (Sunday star times 2008). Valeriya 8 Id:0050098500 lerazuma@gmail. 2002). The Kiwibank already successfully integrated the low cost strategy into its business model thus it will be easier to develop diversification strategy only as the low-cost By: Pavlova. It is believed that the bank should develop hybrid strategy. Some of the approaches are associated with the high risks however the exceptionally high results indicate on the effectiveness of chosen techniques or methods.al.al.al. There are indications that combination of the low-cost and diversification strategy can be positively related to the organizational performance as well as increase of returns on investments (equity). The final section of the essay will focus on developing of the alternative strategies that Kiwibank should pursue. failure of one party to contribute the required resources (including time) which leads to mismatch in final and desirable results. The hybrid strategy uses methods to simultaneously achieve lower price compared to the competitors and diversification (Johnson et. One of the instruments Kiwibank uses to pursue its strategic choices is strategic alliances precisely subcontracting. In addition there is a risk of becoming dependant on the partner’s strategic resources which may lead to difficulties in strategic development outside formed partnership (Thompson and Strickland 2001).com .000. Final aspect of strategic choices on which the essay focuses on is the strategic methods of how organization peruses its strategic choices. through utilizing methods of organic development and through strategic directions such as product and market development. 1996). For example the mobile banking could become free support service with the savings account over $10.
In conclusion. 2008). Finally. In addition to the strategies and strategic methods in place it was recommended to Kiwibank to develop hybrid strategy as well as to add strategic direction and methods such as market development and internal development. The PESTEL and five forces analysis demonstrated that the bank competes in challenging industry with the high degree of competition and bargaining power of buyers. Strategic capability analysis determined that the bank possess some unique resources and has developed unique core competency (unique distribution chain). improve the brand name perception and build stronger relationship with the customers (as there will be some certainty that the international bank will not disappear with the customer’s life savings). in addition to the strategic alliances the bank should adopt methods of organic development. The environment analysis concluded that it’s vital for organization to monitor the environment’s changes in order to survive and grow. It was identified that the bank developed priced based strategy. increase its regional presence hence market share. The effective strategic mix should be made of compromises and most of the time involves high risk on the road to success. price sensitive segment) as well as to acquire new customers who are looking for the new diverse kind of service. The bank should consider opening branches in the Asia-Pacific region (outside its home market) for example in Pacific islands or selected areas of Australia. The market development strategy should be developed as an alternative strategy to the highly-risky new product development strategy. Secondary. The bank should focus on market development as well as on already existent product development. The market development strategy should take the ‘new geographies form’. took product development strategic direction and used the strategic alliances method to pursue its strategic goals. the various analysis and critical discussion in the essay determined that there is no perfect strategy to follow. A combination of these two strategies would allow the bank to keep existent customer base (i.com . Internal development focuses on the development of the organization’s own capabilities (Johnson et.MGT8002-Strategic Management Assignment -1 strategy already in place. By: Pavlova. developing its own capabilities for the international money transfer would make the bank fully independent from Citi bank resources hence to save on costs in the long term run.e. The Kiwibank should focus on the knowledge and capability development.al. increase the existent earning and ROI. Developing the new markets would allow the banks to gain new experience which can be later used in the domestic market. Valeriya 9 Id:0050098500 lerazuma@gmail. For example. The market development strategy is concerned with offering existent products to the new markets (Kurtz 2008). Kiwibank should add an additional strategic direction through which the bank will seek to achieve its strategic goals.
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Valeriya 13 Id:0050098500 lerazuma@gmail.MGT8002-Strategic Management Assignment -1 By: Pavlova.com .
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