Commonwealth Bank Business Report Essay

portion 1 Executive summaryCBA has put record profit of $8.68 trillion dollar although the company is facing Royal focussing inquiry with regard to monetary Planning scandal (Yeates 2014). At present, CBA is a dominant leader in the retail-banking sector across the Australian financial services industry with subvention price trade due to its largest customer base in Australia with its disruptive engine room (Rose 2014). However, it is primary(prenominal) for CBA to invest in service breakments and innovation to maintain its current market leadership position. Therefore to identify the success factor behind CBA, it is important to assess Australian Financial industry as a whole to examine the attractive features of Australian Banking sector and the internal strength of CBA to clarify its emulous advantages and capabilities.Industrial life cycleAustralian Financial industry has exhibited the characteristics of shake bring out stage lifecycle stages (Shapiro 2014). In shake out stage cycle, competition and price-war between financial institutions befuddle intensified since epic intravenous feeding banks are imposing discounts on variable interest judge available to a broader range of borrowers and lowering their fixed rates on mortgage offers (AAP 2014). Since then, services offered by big four banks become difficult to differentiate each different and this has helped the customers to broaden their option to postulate selective acquisition with the major banks. Further analysis will explain CBAs clients and competitors power change due to industry evolution and its regional expansion strategy. Then, the just report will analyze the reason behind CBA to attain premium stock price over competitors and its ethical implication in financial industry.Section 2 Environmental AnalysisExternal AnalysisTo analyze the external industrial environment that lead CBA to stay ahead of competitors, overall Australian Financial industry will need to be analyzed in te rm of Porters five forces followed by PESTLE model to observe how the fighting of the Australian Financial environment and macroeconomics factors start out changed within the industrial structure (Thomas 2007).PESTLE ModelPolitical-LegalConservative supervisory of APRA, which approached more intensive than the Basel II negligible requirement, has assisted Australian Financial Institutions to have minimum impact during the 2008 GFC period (RBA 2014). Moreover, Four Pillar Policy which prevents mergers between Australians big four banks to main competitive financial environment at low risk had also shielded the Australian Banking System from the worst of 2008 GFC (Durie and Gluyas 2009). Consequently, Australias strong and energizing financial policies have favoured sustainable growth even in the tight time to former government owned incumbent CBA to withstand attack from assertive competitors under a well-regulated financial environment (Brisden 2012).EconomicalDuring the pre G FC time, RBAs interest rate has increased from 5.50% in 2000to 7% in 2008 (RBA 2014). These inclining rates have favored big four banks during the crisis period since the in high spirits interest rates increased the banks deposit and helped Australian Banks to fund their debt in the hard time (Kerr 2011). Beltratti and Stulz (2009) also verbalize that the larger banks within strict regulations with more deposit financing at the end of 2006 had significant high grant during the GFC. Therefore, during the crisis, the assemble of GFC on Australian Financial Institutions were considerably low compare to other developed economies and CBA had also came through the economic turmoil with strong gain in deposit piece by delivering $4.72 billion full-year net profit in 2008 (Leyden 2009). This has clearly showed that favorable Australian economical scape has favored CBA to retain premium share over competitors in post and pre GFC periods.TechnologyEyers (2014) stated that Fintech (Financ ial Technology) scene is expanding rapidly in world financial centers. Financial Technologies are also challenge existing business models of financial institution since non-traditional players in Australian financial sectors are leveraging new innovation to deliver flexible services to consumers in a more convenient way (Wade 2014). However, CBA is operating efficiently in the dynamic technological environment. This is because, CBA has set its strategy to capitalize on the difference between its three big rivals by injecting $1.1 billion upgrade to its core banking system and invest $300 million a year in the high-tech modernization program (Smith 2012). So, this has clearly clarified that technology is one of the factors that lead CBA in a dynamic business environment to stay two to three long time ahead of competitors (Faherty 2013).Porters five forcesNext, Porters 5 forces will be used to determine the financial industrys profitability, which influence over the success of CBA in Australian financial market.The threat of new entrantsNowadays, the digitalized financial system appears to be reaching maturity and every major big four banks are utilizing different channels of entrants to capture the market share (Eyers 2014). Consequently, in that respect is a high threat from competitors in financial market beyond APRAs highly regulatedfinancial systems since potential competitors from overseas and domestic (e.g woolworths/Coles) could have used technologies to offer virtual and physical financial services in Australian Financial Market (Eyers 2014). Since then, this could eventually challenge the growth of CBAs physical banking in the long run. However, CBA is still a major incumbent in a financial industry, which captures majority of market share with strong domestic presence in Australia (CBA 2014).Bargaining power of customersIn Australian Financial industry, there is a high bargaining power of customers since Australian major big banks have brought sim ilar financial packages with competitive rates to expand their market share in a concentrated market. As Australian market is favoring customers to bargain on the best rate, CBA has dynamically influenced the bargaining power of the market by fling an aggressive rate at low risk to itself for such customers by dropping its five years fixed home loan rate to record-low 4.99% in 2014(Yeates 2014).Rivalry among existing competitorsTodays, the financial market in Australia appeared to be reaching maturity. Mason (2014) stated that financial industry in Australia has developed at compound annual growth rate of 13% over the past decade and ranked among the most profitable banks in the developed world (Australian Trade Commission 2011). Nevertheless, Australian Financial industry is considered as Red Ocean since big four banks could potentially face more mortgage competition each other for the concentrated market share (Janda 2014). Thus, if market leader CBA failed to maintain its curren t competitiveness in an aggressive market, the market share could be missed out and it will be given away to competitors.Section 2.2 Internal AnalysisStrategic ResourcesHarrison (2014) stated that combination of tangibles and intangible assets of which control by the CBA could be set as key resources to execute its strategical capabilities. Resources include teamwork among managers and Past/Present Chief executive officers, firms reputation among customers and its strong balance tabloid has helped CBA to attain premium share price over competitors. The possession of CBAs strategic resources ahead ofcompetitors has favored its long-term survival and alleviated its competitive advantage. The strategic resources of the CBA will be demonstrated by using the value Chain framework.Value Chain AnalysisPrimary activitiesOperation EfficiencySmith (2012) stated that CBA appears to be ahead of competitors in its IT development strategy and this has induced CBA to attain not only cost and op erational efficiency but also improve customer satisfaction. As a result, due to its new modernization in core banking system with best in class online banking platforms, CBA has attained the biggest improvement in its customer satisfaction score out of big fours and achieved Money magazines best innovative awards in 2014(News 2014). Moreover, CBAs strong shareholder with a resilient balance sheet has also empowered full funded acquisition from internal and external stakeholders (Letts 2014). CBAs significant balance sheet growth with high earning assets and deposit has empowered organic capital growth and investors confidence in investment. Therefore, it is assumed that strong financial strength with high profit return has amplified CBA to stay ahead rivals and trades its shares at premium over their domestic competitors.Outbound ActivitiesCBAs strong acquisitions with Aussie Home loan and concrete financial brokers network have improved its home loan supply to the new customers in the financial market (Elsworth 2014). Moreover, CBAs 1000 plus extensive branch network in Australia with highly efficient technology platform has also aided CBA to gain solid netbank customer loyalty bases in Australia (CBA 2014).