ANZ Bank: Overview and Operations
Discuss about the Business Environment And Strategic Management of ANZ.
Australia and New Zealand Banking Group Limited (ANZ) is the third largest bank in Australia by market capitalization. The bank mainly deals in retail and commercial banking and most of its operations are based in Australia. ANZ is the largest bank in New Zealand where it is called ANZ Bank New Zealand Limited. Apart from Australia and New Zealand,the bank also has operations in 34 other countries. In the year 2008,ANZ was the most sustainable bank globally according to the Dow Jones Sustainability Index. ANZ is ranked number seven out of the top 2000 companies in Australia. (Sekhar, N.D.). In the year 2017, the company generated revenue of A$34.221 billion. Over the same period, the company had about 44800 employees working in Australia. The banking industry is very dynamic and competitive in Australia and globally. This, therefore, necessitates the need for organizations in this industry to keep on innovating and coming up with new strategies in order to remain highly competitive. At the end of every planning period, it is important for an organization to review its performance. Based on the current performance, the management should review and redirect its strategy going into the future (Coste-Maniere, 2012). In order to develop effective strategies, it is important for the organization to understand its internal and external environment. The study on ANZ relies on scholarly journal articles and books that are highly researched. The study begins with an analysis of the internal environment of ANZ and how the company has been reacting the internal environment. The external environment of ANZ is done using PESTEL analysis technique. The competitive environment of ANZ is analyzed using Porters Five competitive forces. The sources of competitive advantage of ANZ isanalyzed. All the relevant available industry data is used for the analysis. The strategic dilemmas created by cryptocurrency for ANZ are analyzed based on the information collected during the study (Baines, Fill & Page, 2010). Cryptocurrency has had a huge impact on the financial markets and banks. Cryptocurrency is a digital currency in which encrypted technologies are used to regulate the generation of currency and transfer of funds. One of the ways that cryptocurrency has affected the financial markets is that it has affected the use of paper money as a medium of exchange. Despite some of its shortcomings, cryptocurrency has some advantages as discussed in this report.
The strategic environment of ANZ is carried out using PESTEL analysis as follows;
Banks have become increasingly global in the business environment of today. The geopoliticalenvironment that banks like ANZ operate have had a huge impact on the operations of these companies and it has affected their profitability. Political differences between Australia and some other countries have made it difficult for the bank to open branches in these countries. ANZ strategy is to keep expanding to other continents such as Asia (Kotler&Pfoertsch, 2010). The political instability in countries such as Iraq and Syria has made the environment hostile for business and hence making it impossible for ANZ to expand to these regions (Argenti, 2013). Political unrest in countries in the Pacific region such as Fiji and Tonga has affected the economies of these countries and hence making them unattractive for the bank to invest in such areas.
PESTEL Analysis of ANZ Bank’s External Environment
Economic factors have had a huge impact on the performance of ANZ. Global and the regional economic situation has an impact on the operations and performance of banks. The economic environment of ANZ has been positive and the trend is expected to continue in future. This has fuelled the growth in profitability of the company over the recent years. The economy of Australia has been growing continuously over the years and this, therefore, explains the positive economic environment the bank is experiencing. In addition to this,most of the other countries and regions that ANZ is operating are experiencing economic growth. Growth in investment in these countries increases the demand for loans and hence guaranteeing more profits for the company.
The education level of people in a country influences their consumer behavior. In the banking sector, people with higher level of education have bank accounts and are more likely to transact using banks. The education level of people in Australia is very high and this creates a huge pool of customers for ANZ. The level income level of Australians has been rising. This means that their disposable income, savings,and investment increase and hence affecting ANZ positively. The huge population of young people, as well as the growing demand for bank services,havecontributed to growth in the banking industry (Chishti&Barberis, 2016). Stable social structures and the diversity of the culture of people has been a positive influence in the banking industry. In addition to this,the workforce of ANZ is very professional and ethical. This plays a very big role in the success of the company since it is able to satisfy consumers.
Technology plays a great role in operating efficiency and in customer satisfaction for ANZ. ANZ has had major technological innovations that have promoted the medium term and the long-term technology vision of the company. The company enables customers to deposit and withdraw funds from their bank accounts using the mobile phone. This has been a major innovationsince it ensures that customers do not have to visit banking halls in order to transact. Online banking has also been very helpful to the bank since it has promoted high-quality services and hence increased customer satisfaction(Frynas, 2015). ANZ bank has introduced digital certificate technology which offers customers a secure online environment.
All financial institutions are required to comply with rules and regulations that govern the industry and the country in which it operates. ANZ has to operate in accordance withthe Banking Act 1959.the bank also has to hold an Australian Financial Service license as required by the Corporations Act 2001 (Gandellini, Pezzi&Venanzi, 2012). ANZ also complies with the audit regulations as required by the laws in the various jurisdictions in which it operates.
ANZ has developed a social and environmental policy to monitor and identify potential social risks in the approval of credit facilities. The bank has also been involved in environmental conservation activities to help promote environmental sustainability in its business operations.
It is important to understand the competitive environment of ANZ bank order to understand the strategies that the bank need to employ n order to remain competitive in this very competitive industry. ANZ is ranked at number four among the biggest banks in Australia. The main competitors of ANZ include;Commonwealth Bank of Australia, Westpac Banking Corporation and the National Australia Bank Limited (Lee KuoChuen, 2015)According to the information from IBIS, the banking industry in Australia in the year 2017 was estimated to be 146.196 billion. The industry turnover growth rate during the 2017/2018 year was estimated to be 1.39% (Chuen,2018). The information also shows that ANZ has a market share of 14.40 %. The competitive environment is analyzed using Michael Porters five competitive forces model. The following is an analysis of the five competitive forces in regard to ANZ competitive environment:
Porter’s Five Competitive Forces Analysis
The banking industry serves a wide variety of customers ranging from mass-market individuals, groups as well as small and medium businessmen. The banks also have customers who are large multinational customers with high financial capacity. In the banking industry,the number of buyers is very high. The effect of losing or gaining a customer is significant depending on the contribution of the customer to the profits of the organization (Kulkarni, Pachpande&Pachpande, 2011). This, therefore, means that ANZ customers are very powerful and they have an influence on the prices and the quality of service offered by the bank. Switching costs for bank customers are not very high. This means that customers can move from one bank to the other easily and hence further reinforce the power of customers.
Despite operating in the service industry,ANZ bank deals with very many suppliers. These suppliers include; software developers, computer hardware suppliers, suppliers of office stationery as well as various contractors (Fleisher &Bensoussan, 2015). The suppliers of these products and services have theability to influence the bank’s ability to meet the needs of customers and hence they are powerful. There are also few suppliers in the industry. This means that once if the bank decides to change suppliers,it may not get a supplier who is reliable and capable of meeting customer needs. The fundamental aspects of banking systems such as the network of card payment transactions such as Visa, Mastercard,and the American Express are supplied by only a few suppliers and hence they are very powerful.
Regulatory barriers in the financial market in Australia makes it difficult for new firms to enter the market. The Australian laws require that banks fulfill very stringent conditions in order to be registered to provide financial services. Capital requirement for new firms entering the industry is very high and therefore scaring off new firms from entering the industry (Rao, Rao&Sivaramakrishna, 2008). It is difficult for a company to exit the industry and hence discouraging new firms from entering the industry. The profit margins in the banking industry are very impressive and therefore many firms may wish to join this industry.
The substitute for banks includes; loans from family and friends, Saccos, loan sharks and payday lenders. The available alternatives to banks are not regulated like the banks and they offer limited products compared to banks. ANZ customers have many substitutes since there are many competitors in the market. The customers can switch from one bank to another at no or minimal cost and therefore increase the level of competition in the industry.
There is stiff competition between players in the banking industry in Australia. The players include; investment bank firms, investment advisory firms, mortgage banking companies and mutual fund companies. The rivalry is huge because, the degree of differentiating products and services is limited and hence increasing competition (Marmol, Feys&Probert, 2015). In addition to this, the players in the industry spend huge financial resources in marketing and advertising and hence increasing the rivalry in the industry. Other factors that determine the level of competition in an industry include; competitors size, ease of expanding, costs of switching, number of players and zero-sum game in the industry (Botsman& Rogers, 2011).
Sources of Competitive Advantage
Bitcoin involves peer to peer electronic transmission of cash. This means that cash moves from one person to another without going through a financial institution. Over the years, commerce on the internet has relied on financial institutions serving as trusted third party agents to process payments. The system has experienced problems reversing payments in case wrong payments are made and therefore inconveniencing customers. The transaction costs using this system are also high since the financial institutions charge mediation costs (Holland, & Lam,2014). These costs can be avoided by using an electronic payment system that is based on cryptographic proof rather than trust.
The development of the electronic payment using cryptocurrency brings about the strategic dilemma for banks globally.Usingcryptocurrency means that the role of banks as the trusted agent in the transaction will no longer be required. This means that the banks will lose revenue that they earn from the payments made by customers through them. ANZ will strategically be affected by cryptocurrency because profits generated by through payments made is substantial. Cryptocurrency presents competition for banks and other financial institutions that deal with payments (Kumar, 2014). ANZ is, therefore, facing increased competition in form of payments and money transfer. This section of the business has been lucrative for ANZ. Cryptocurrency reduces the number of players in the transaction. This offers customers increased efficiency as compared to banks where transactions take time to process. Due to this, there is a very high likelihood that the customers who depended on banks for transactions are going to shift to using cryptocurrency and hence the banks may lose customers (Erbenova, YanKyriakos-Saad, Nadim, n.d.).
The fact that cryptocurrency reduces transaction costs also is also a challenge to banks like ANZ. Cryptocurrency reduces transaction cost by up to 40% (Lee & Deng, 2018). since most customers are price sensitive, there are customers who will shift and start using cryptocurrency in order to reduce the cost of transactions.
Cryptocurrency also eliminates the need for paper money. This means that customers will not be depositing money in the bank and the transaction using paper money and hence affecting the economy in general (Vigna& Casey, 2016) Another strategic challenge that cryptocurrency brings about is that it promulgates peer to peer lending. This means that it will pay the role that is currently being paid by banks. The ability to offer peer to peer credit facility will mean that ANZ will lose the revenue that it gains as interest rates on lending. Since the income from interest rates represents the highest proportion of profits, the banks may be driven out of business.
Conclusion
The report discusses the results of the study conducted to determine the strategies applied by ANZ in its business operations. The report begins with a discussion of the strategic background of ANZ. The history of the company and the major strategies implemented by the organization in the recent past is discussed. An environmental analysis of the company is also conducted. The internal and external environment of ANZ is analyzed. PESTEL analysis technique is used to analyze the internal environment of ANZ. The political, economic, social and technological factors affecting the company are discussed. The competitive environment is also discussed using Michael Porters` five competitive forces.
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