PESTLE Model

This report comprises of discussion related to several strategy development tools that play a significant role in the growth of the business enterprise. These tools help in building a blueprint of future organization perspectives and thus help in removing uncertainty in the business environment (Paksoy, Pehlivan and Kahraman, 2012). Moreover, it also helps the organization in achieving its mission, objectives and vision. For more understanding, a finance company is taken i.e. Common Bank of Australia, a multinational bank of Australia. This will be beneficial for the explicit understanding in relation with practice of these strategy development tools.

A PESTLE analysis is a tool or framework help the business organization in analysing the various macro-environmental factors that directly or indirectly influence the organizational performance (Srdjevic, Bajcetic and Srdjevic, 2012). This tool is widely used by the business enterprise when they want to open a new business or enter in to a foreign market with their existing market. However, long running and stable organization also conduct this analysis due to the market competiveness and dynamic business environment due to which the customer needs and preference is change continuously.

The PESTLE analysis of Common Bank of Australia will be like –

• Political Factors – Warming relation with China and other Asian countries.
• Economic Factors – The population of Australia is ageing with evolving economy.
• Social Factors – Cosmopolitan culture marked by diversity (Colic-Peisker, 2011).
• Technological Factors – Cyber security impact on business, investment in next generation financial technology to help CBA in developing a strong technological framework.
• Legal Factors – Allegation of money laundering and other litigations against the bank.
• Environmental Factors – Several regulations on land and water to impact banks, legal action on failure to disclose climate change risks.

Analysis of all these factors helps Common Bank of Australia in continues growth and diversity. It will also help in market penetration and development.

A SWOT analysis is an organized list of the business greatest strengths, weakness, opportunities and threats. It helps the organization to identify its potential strengths and weakness as well as wider opportunities and threats (Gunn and Williams, 2007). It will help the business enterprise in strategic both planning and decision-making. Primarily, this method was developed for organization and industry but it is equally important in the work of community, education and also for personal growth. SWOT analysis of Common Bank of Australia will be –

Strengths · It is one of the leading Australia banks as per the MFI (Main Financial Institution) ranking (Anz, 2014). · The institution provides superior quality products and also have well established diversified credit portfolio. · The bank also has strong financial position in the market and capital ratios.	Weakness · The bank highly depends on offshore borrowings. · The name of this bank is also listed in money laundering scandal. · It has limited geographical diversity. · Moreover, the operating expense of bank is also increasing.
Opportunities · The bank has opportunities to expand their business portfolio in the Asian markets. · Indigenous Customer Assistance Line (ICAL)	Threats · Higher capital requirements by APRA. · Crumbly business environment and slowdown in China. · Phasing out of the government guarantees the bank.

M. Porter built five forces model in 1979. The main objective of this model is to acknowledge the key five competitive forces having a direct or indirect impact on the industry (Vilanova, Lozano and Arenas, 2009). This model helps in determining the structure of industry as well as the level of competition prevailing in that industry. This tool is very important in formulating firms’ strategy. Five-force model of Common Bank of Australia will be –

• Threats of New Entrants – New entrants in Bank bring innovation and may put pressure on Commonwealth Bank of Australia. However, with the help of lower-pricing strategy, dropping costs, and delivering new value proposition, Common Bank of Australia has maintained a competitive edge in the market and also put barriers for the other ventured to enter into a banking industry. In addition, they also continuously innovating in their sector, building economies of scale, and do investment in research and development so as to make stand in the dynamic industry. It will help them in significantly reducing the extra ordinary profits of the new firms and thus deject new entrants in the industry.
• Bargaining power of Supplier – From various suppliers, most of the organization in the Banks industry purchases their raw materials. Suppliers in dominant position can reduce the profitability of Common Bank of Australia. Powerful suppliers even able to yield higher profits from the banking firm. However, being a giant banking firm, Common Bank of Australia is tackling these suppliers effectively (RBA, 2018). They are building efficient supply chain with multiple suppliers. In addition, they are also experimenting with the product design with several materials so that if the price of one raw material goes high, they can easily move with the other suppliers.
• Bargaining power of buyers – In banking industry, buyers demands a lot. They need best offerings at minimum price and this can put pressure on Common Bank of Australia and may affect their profitability in the long run. More the bargaining power of buyers, higher they seek for the respective discounts. Common Bank of Australia tries to build a large customer base, which will reduce the bargaining power of buyers and also gives them opportunity in establishing a coordination in sales and production process. They trying to innovate new products and also reducing the defection of existing customers of the bank to its competitors.
• Threat of Substitute products or services – The profitability of industry will suffer when a new product meets similar customers’ requirements in several ways. However, Common Bank of Australia is tackling this situation by being service oriented rather than just product oriented and also acknowledge the core needs of the customers rather than just analysing their purchasing behaviour (Eyers and Shapiro, 2018). They also try to increase the switching cost for the customers.
• Rivalry among the existing customers – Common bank of Australia functions in very competitive Banks industry and this competition is having a direct impact on the long-term profitability of the organization. Common Bank of Australia is dealing with this situation by developing a sustainable differentiation and also collaborating with competitors to gain more market size.

This tool helps in marketing planning model that helps a business in determining its product and market growth strategy. It was invented by Igor Ansoff in 1965 (Martinet, 2010). This tool is also widely used by the business enterprise due to its simplicity and easy to use functionality.

• Market penetration – This including selling more products to the existing customers. In this aspect, CBA does aggressive advertising and promotion to penetrate the market in an effective way. The bank also wants to be the best in digital medium as there is a presence of huge customers on social media and digital platforms.
• Product development – It includes building of products for loyal customers. For instance, the bank in bringing new equity products for the investors, Comm banks accounts, travel money card and many more.
• Market development – It includes bringing the products into new markets, segment or country. For instance, they are various opportunities in the Asian market and emerging nations which can bring huge customer base for the company.
• Diversification – It includes bringing a fresh portfolio of products to a completely new market and segment. The bank is also trying to diversify with the help of ETF, stands for Exchange traded funds (Commbank, 2016). For example, it will be possible to buy ETFs that tracks specific share markets like US, Japan, Australia or various other sectors.

Conclusion

It can be concluded that strategy development tools are very important for the organization to gain competitive advantage in this dynamic environment and marketplace. These tools also help them to pull out various opportunities from the surrounded business environment so that an organisation can come up with new and innovative products.

Common Bank of Australia is leading in the banking sector, however, due to some scandal, their reputation in the marketplace goes down and this benefitted the other competitors. It is important that they need to use these strategy development tools in advance as well as effectively to make combat weapon that can easily push down these threats out of the business area.

References

Anz. (2014) Top 10 Banks In Australia [ONLINE] Available from: https://anz.businesschief.com/leadership/1364/Top-10-Banks-In-Australia [Accessed 16/12/2018].

Colic-Peisker, V. (2011) A New Era in Australian Multiculturalism? From Working-Class “Ethnics” To a “Multicultural Middle-Class”. International Migration Review, 45(3), 562-587.

Commbank. (2016) HOW ETFS MAY HELP DIVERSIFY YOUR PORTFOLIO AND SPREAD RISK [ONLINE] Available from: https://www.commbank.com.au/guidance/investing/how-etfs-can-help-you-diversify-your-portfolio-and-spread-risk-201605.html [Accessed 16/12/2018].

Eyers, J. and Shapiro, J. (2018) Commonwealth Bank hit with $1b capital charge after scathing APRA report [ONLINE] Available from: https://www.afr.com/business/banking-and-finance/commonwealth-bank-hit-with-1b-capital-charge-after-scathing-apra-report-20180430-h0zg14 [Accessed 16/12/2018].

Gunn, R. and Williams, W. (2007) Strategic tools: an empirical investigation into strategy in practice in the UK. Strategic Change, 16(5), pp.201-216.

Martinet, A.C. (2010) Strategic planning, strategic management, strategic foresight: The seminal work of H. Igor Ansoff. Technological Forecasting and Social Change, 77(9), pp.1485-1487.

Paksoy, T., Pehlivan, N.Y. and Kahraman, C. (2012) Organizational strategy development in distribution channel management using fuzzy AHP and hierarchical fuzzy TOPSIS. Expert Systems with Applications, 39(3), pp.2822-2841.

RBA. (2018) The Implementation of Monetary Policy: Domestic Market Operations [ONLINE] Available from: https://www.rba.gov.au/mkt-operations/resources/implementation-mp.html/ [Accessed 16/12/2018].

Srdjevic, Z., Bajcetic, R. and Srdjevic, B. (2012) Identifying the criteria set for multicriteria decision making based on SWOT/PESTLE analysis: a case study of reconstructing a water intake structure. Water resources management, 26(12), pp.3379-3393.

Vilanova, M., Lozano, J.M. and Arenas, D. (2009) Exploring the nature of the relationship between CSR and competitiveness. Journal of Business Ethics, 87(1), pp.57-69.