Strategic Management Theories Applied To Standard Chartered Group In Essay.

Introduction to Standard Chartered Bank

Question:

Discuss about the Strategic Management at Standard Chartered Group.

Strategic Management is identifying the strategies that can be applied by an organization to achieve an improved performance and a competitive advantage. It can also be defined as the decisions made by management that influence an organization’s performance. The management must know the general and competitive environment of the organization to make the correct decisions (Slack, 2015). A SWOT analysis can be conducted to identify the organization’s strengths, weaknesses, opportunities, and threats. In strategic management, an organization plans for predictable and unpredictable circumstances. Small businesses and large corporations can formulate it. By formulating the right strategies, organizations can gain competitive advantage. It also helps us to identify the direction in which an organization is moving. It is a continuous process, which analyses and takes control of the business and the industry where an organization operates (Harrison & John, 2013). It also looks at its competitors and formulates objectives and strategies to beat the competition. These strategies are continuously analyzed over time and replaced if they are no longer assisting the organization. Strategic Management also gives the staff of an organization a wide perspective, and they can understand how their roles and responsibilities fit into the organization's strategies and how it is correlated with all the other staff in the company. Employees are managed in such a manner that will achieve organizational goals. The aim is to make employees more trustworthy, better committed and satisfied (Rothaermel, 2015). They also get a deeper understanding of the environment in which the organization operates and understand when the company makes any changes to meet environmental demands. Both leaders and staff have to be effective and efficient. The functional areas of an organization have to be harmonized, and management has to keep a constant focus on the organizational objectives.

Various strategic management theories help us to understand the concept of strategy and how an organization can implement it successfully. These theories are going to be applied to the Standard Chartered Group. Standard Chartered Bank was founded in 1969 through the merger of the Standard Bank of British South Africa and the Chartered Bank of India, Australia, and China. The banks have since expanded to Europe, Asia, and Africa. The chartered bank was founded in 1853 by James Wilson and operated in Mumbai, Kolkata, Shanghai, - and Singapore. In 1957, they established a presence in the Gulf. John Paterson founded the standard bank in 1862.It finances development of diamond fields in the 1970s.In 1987 Standard Chartered sold its stake in Standard Bank, which is a separate entity (Kondapalli, Kumar, Tirthala & Murthy, 2015). The bank offers a variety of services to its customers and has applied various strategies to remain one of the top banks in the world.

The first strategic theory is the Porters five forces model, founded by Michael Porter. This model provides a viewpoint for evaluating and analyzing competitive strength and position of an organization. Michael Porter was born in 1947 and acquired an economics doctorate at Harvard. His research was based at the Harvard Business School. He co-founded with Mark Kramer, ‘The Foundation Strategy Group,' which was a social enterprise dedicated to advancing philanthropy through consulting organizations. After working on corporate strategy earlier, Porter applied his theories on competitive positioning of countries. By 1990’s Porter had earned a reputation as a strategy guru. His book, ‘Competitive Strategy’ became a bestseller and is considered a pioneer on corporate strategy. It remains a global guide for leaders all over the world on strategic matters and has been published in nineteen languages, reprinted over sixty times. Porter discussed five forces that affect a company’s competitive position (Holtbrügge &Friedmann, 2016).

Understanding Porter's Five Forces Model

 The first force is the threat of new entrants. A profitable market will keep attracting new organizations, as the returns are high. When entrants become too many, profitability decreases. Unless incumbents block the entry of new organizations, then abnormal profit rate will move towards zero. New entrants are however affected by various factors. The first is patents or rights that companies may have obtained in the market. Organizations are attracted to markets where entry barriers are high, and exiting is easy. Government policies and capital requirements also determine the number of new entrants into a market. Economies of scale and switching costs are also factors that must be considered by organizations entering a new market.  Standard Chartered is in the financial sector, which is highly characterized by high entry barriers and low barriers when exiting. It is a complicated process for the bank to enter into new markets because of legislative procedures. Many banks are coming up hence the threat of new entrants is high. The threat of new entrants is high as there more banks are coming up to satisfy customers (Bank, 2015). However, Standard Chartered was an early entrant, and brand loyalty has made it difficult for their market share to be taken away.

The second force of Porter's model is the threat of substitutes. The more the products available then, the more likely customers are to switch.  This may be affected by the way customers perceive product differentiation. Standard Chartered faces this threat from organizations like leasing companies and insurance companies. This is hampering future growth for the bank as consumers are going to these institutions due to better rates. In the banking industry, substitute products are very easy to find. Also, different banks are offering same products as Standard Chartered hence the bank has to differentiate itself through service to maintain market share.

The bargaining power of customers is the third force of porter’s model and is described as the ability of consumers to put an organization under pressure, and it affects the sensitivity to changes in price. The bargaining power for Standard Chartered’s corporate and individual customers is different. Deposits from an individual are insignificant as compared to total amounts of deposits. Corporates have large deposits hence can negotiate for special rates. Standard Chartered is a market leader hence they have a strategic advantage. The bank distinguishes its prime customers by giving them special interest rate.

The fourth force is the bargaining power of suppliers, which is also known as the market of inputs. Raw material suppliers can be a source of power of the firm if there are few substitutes. Suppliers can refuse to work with an organization or charge exorbitantly.  Standard chartered‘s financial standing is good, and it has a solid capital structure. The focus is on loan provision, as the bank needs more money for investments (Bank, 2015). The bank, therefore, needs high deposits for it to be able to meet the demand for loans. The suppliers have bargaining power as they have many options of investing their funds. The bank, therefore, has to carry out deposit campaigns and give special rates to attract depositors.

Threat of New Entrants

The fifth force is Industry rivalry. The primary determinant of competitiveness is a rivalry. Factors that can affect this are innovation that causes sustainable competitive advantage and powerful competitive strategies (Hill et al., 2014). There is fierce competition among foreign banks for example in a market like Bangladesh. Standard Chartered has a very large market share among foreign banks. Customers, however, prefer national banks and foreign banks, therefore, compete for market share. Citibank and HSBC are some of the competitors of Standard Chartered. In this situation, increasing one’s business means another bank is losing their share. Foreign banks, therefore, aim to attract customers of the local banks.

Stakeholders are also elements that have been added for analysis due to the increasing concern over social and environmentally conscious practices of businesses. Standard Chartered Bank is very careful on how it portrays itself to customers (Bank, 2015).  They, therefore, publicize their CSR initiatives, and there is a great focus on sustainability where they aim to apply the UN principles on sustainability. 

This model of Porter can be used very well along SWOT and PEST tools of analysis. Porter also identified five generic industry descriptions. He described them as fragmented, emerging, mature, declining and global.

The BCG matrix is used to show a brand’s portfolio or strategic business units on a quadrant along a market share axis and speed of market growth. The growth-share matrix uses the relative market share and industry growth rate causes to evaluate business potential and to suggest more investment strategies. The BCG matrix was created by Boston Consulting Group to analyze the strategic position of an organization, and it’s potential (Guta, 2017). It divides the business portfolio into four categories dependent on growth rate and market share. This helps an organization to understand what brands it should invest in and which ones should be dropped.

Relative market share is used to evaluate an organization. When an organization has a high corporate market share, then it gets higher cash returns. A company that produces a lot benefits from many economies of scale and this results in high profits. Market growth rate influences organizations. If a market is growing at a high rate, then there are higher earnings and profits though sometimes investments cost a lot of capital. Businesses should, therefore, invest only where they expect a high return.

In The BCG Matrix, classification is in four types, Star, Dogs, Question Mark and Cash Cow. Dogs hold a low share of the market as compared to their competition. They also operate in a market that grows very slowly. It is not worth for a company to invest in them as they have low returns. Standard Chartered has invested in the insurance sector. It, however, faces stiff competition from numerous insurance companies hence take up is a bit low as compared to other products.

Cash cows are the most profitable and the organization should, therefore, milk to get as much as possible. The cash that the organization gets here should be invested in the stars to help them grow further. Corporates should support cows to maintain their market share. Standard Chartered’s Corporate Banking is their cash cow. The company has reached a large global market, and there is still potential to grow (Mostafiz, 2014). They have an established corporate market through tailor-made products for their corporate customers like ‘The Private Bank.’

Threat of Substitutes

Stars usually operate in high growing industries, and they maintain a high market share. They use cash but also generate cash. The organization should invest its money here because they later turn into cash cows. In rapidly changing markets, however, stars may not turn into cash cows. Some may end up as dogs. Standard Chartered has been able to capture the China Market by adopting the Renminbi, a new currency. This has moved faster than anticipated and it has given investors and institutions immense opportunities (Mostafiz, 2014). The currency is being accepted very fast as an international one and the usage of it to facilitate trade through bans like Standard Chartered has increased sevenfold since 2010.

Question Marks require a close consideration. They have a low market share in a rapidly growing market and consume much cash hence leading to losses. They do not necessarily succeed, and even if the company invests a lot of money here, they may struggle to get a foothold in the market and eventually turn into dogs. Standard Chartered have come up with Islamic Banking products that are still growing. One of them is the Saadiq cards. Many Muslims prefer their local Muslim banks hence this affects the take-up of this product.

Organizations should not apply the BCG matrix blindly. They can assist as investment guidelines but should not change the organization’s strategic thinking. Organizations should look at things like SWOT analysis to make good investment decisions. The BCG matrix is a good place for an organization to start as it moves towards analysis that is more thorough. The Growth share analysis has received heavy criticism as its oversimplified and lacks any useful application. In this theory, business is only put into four quadrants, yet a unit may fall right in the middle. It also lacks a good definition of what market is, and it is very easy to misclassify a business. This model does not also consider external environmental factors, which may completely change everything (Mostafiz, 2014). The model only considers the market share and industry growth as leading to profitability yet high market share may not necessarily lead to high profits. Lastly, the model does not acknowledge that there is a relationship between various business units (Guta, 2017).

This theory describes actions that organizations should take to achieve a competitive advantage in the marketplace. It encourages organizations to focus on the areas where they have their core strengths or competencies. It also gives a definition of core competency as something that should not be easy for competitors to copy (Foss & Knudsen, 2013). It can also be reused over the markets that the organization operates in and should add value to end-users. An organization must, therefore, orient its strategy to tap into its core competency, which is the main basis for value added by the company.

CK Prahalad and Gary Hamel who are leading experts in management invented the term core competency. They pioneered this concept and laid the foundation for organizations to follow suit. Core competencies can include superiority in technology, customer relationship management, and efficient processes. Each organization has an area where it does better than its competitors do. The organization can use this area of excellence in its other products to add value to its consumers. Core competencies must be nurtured by an organization and its business model built around this. Standard Chartered has a history of entrepreneurship and innovation (Weele & Raaij, 2014).

Bargaining Power of Customers and Suppliers

Standard Chartered’s core competence is doing business in the markets they know intimately hence offering products that they understand fully. Due to this, they have been able to establish a loyal customer base as they keep differentiating and offering products according to market needs (Bank, 2015). They focus on research and development, and this helps them to understand the market and their customers well.

This theory has provided Standard Chartered with a framework where they have been able to identify their core strength, which is understanding their market and they have used this to strategize accordingly. Organizations should be careful not to identify too few or too many competencies that may lead to redundancy.

Globalization has increased the need for higher productivity and meeting customer expectations. Organizations are also constantly speaking about the future direction for their businesses.  Mckinsey did a quarterly survey of 800 executives, and only 45 percent were satisfied with their company’s strategic management process. Many executives are wondering how to make the process more effective. To enhance strategic management, an organization like Standard Chartered can start with looking at the issues that the company is facing. The CEO should involve all the departmental leaders in identifying issues that are affecting each department. This way the company will be able to come up with effective strategies. Standard Chartered can use this in its different units, and they will identify issues that may be affecting achievement of strategy in some product lines (Grant, 2016).To enhance strategy, a company needs to bring the right people together. All business units should be involved, and decisions should not only be made at the top of the company. There should be an outline of the proposed strategies and questions should be asked. This outline should not be too long. If Standard Chartered does this, it will be able to capture issues and ensure that any questions regarding a product are asked before production and release, and this may save money in defects that may not have been detected.Organizations should also adopt planning cycles to the needs of each business unit. The strategy should only happen when necessary, and a unit should not be forced to some up with a strategic plan when previous plans are still in effect and not obsolete. Standard Chartered can adopt this strategy so as not to do away with plans that may still be good for the company (Grant, 2016).

Organizations should also implement strategic performance management systems. Many companies have good plans but do not execute. Some companies implement but do not track. Banks like Standard Chartered should, therefore, ensure that they have a system to monitor the progress of strategic processes. Strategic teams should don reviews of both financial and non-financial factors. These systems can warn a company of problems with the initiatives that are being taken (Tseng & Lee, 2014).

Human resources should be engaged in the strategic plan. The success of Strategic planning is dependent on how human resources are treated and compensated. Evaluation and compensation of employees should be tied to the progress of the new strategic initiatives. Companies should have short-term and long-term goals so that the plans can be achieved progressively. The advantage of this method is that it motivates employees to flag down any problems early enough before full implementation (Grant, 2016).

Strategic Management is imperative to an organization, and various theories can be applied to achieve the same. Successful global leaders like Standard Chartered have been able to adopt various theories so as to enable them to achieve their goals. Through making sure that they focus on strategic planning, they have been able to gain competitive advantage even in the toughest of markets. Continous innovation has ensured that products are of quality hence despite numerous substitutes, Standard Chartered has been able to maintain a loyal customer base. Organizations should borrow a leaf of such companies to be able to implement their strategies effectively.

References

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