Fast changing economic circumstances

The fast changing economic circumstances of the last three years have impacted severely and urgently on earlier business strategy and have compelled significant changes. Critically evaluate this view with the aid of precise academic theory and using 2005 - 2009 data from large-scale business organisations in any two industries of your choice.

Introduction:

In order to critically evaluate the fast changing economic circumstances of the last three years and how these have impacted severely and urgently on earlier business strategy, it is important to understand the market conditions which exist in the present context. Significant changes have impacted on all industries due to the downturn in the global economic situation. At present many countries are experiencing recession. The question which is being asked is to identify and analyse the factors which are changing the marketplace and how have these significant changes affected the two chosen industries - motor and financial industries. There are many analyses which can take place to understand the market - PESTLE, Porter's Five Forces, Balanced Scorecard, and the Value Chain.

Organisational Strategies:

The strategic context of an organisation is a hugely significant factor in attempting shape the organisation, of what it can or cannot do within its market and how well it accomplishes the task. The competitive advantage to the organisation within the chosen market is an important factor, competitive advantage according to Lambin (2000: p. 342)

‘refers to those characteristics or attributes of a product or a brand that gives the firm some superiority over its direct competitors. These characteristics of attributes may be of different types and may relate to the product itself (the core service), to the necessary or added services accompanying the core service, or to the modes of production, distribution or selling specific to the product or to the firm.'

This competitive advantage can clearly been seen especially in the financial industry, banks such as HSBC and RBS are occupying a position on interest rates compared to their competitors. Competitive advantage is also important in the motor industry as from the recent downturn in the economy, it has proven that both these industries are changing a dynamic and dramatic way. The changes are happening extremely rapidly and there is a need to understand that the economic downturn, which is happening on a global scale, is exposing the risks and financial weaknesses in both industries. There has been a need to measure business competitiveness in order to allow the organisation to re-establish its market position, whether it is by reducing interest rates to undercut competitors or to reduce car prices or extend car scrappage schemes.

Organisational behaviour is essential to the study and purpose of how individuals and organisations interact. The purpose of organisational behaviour is to attempt to build better relationships by achieving the human, social and organisational objectives set down by the organisation. Both the financial and motor industries attempt to build on better relations with their customers by developing customer loyalty as well as giving the best customer service available. The culture of the organisation whether it be financial or motor industry, determines the factors such as communication, group dynamics and the type of leadership of the organisation. Strategic management specifics the organisation's mission, vision and objective, as well as developing the policies and plans of the organisation. Drejer (2002: p. xiii) wrote

‘Strategic management has always been about matching the internal knowledge and work of the organisation to the external challenges posed by its environment, as Peter Drucker pointed out almost 50 years ago (Drucker, 1958). However, today's external dynamics are muchgreater than 50 years ago - at least it seems as if we live in a very turbulent age.'

Competitive Advantage:

Porter's Five Forces Framework is one way for the financial and motor industries to determine their competitive advantage. It is these forces which affect the organisational ability to serve its customers. It is an investigative tool which is used to explore the market in which the industry is situated. These Five Forces are integral to the competitive advantage of the industry and for understanding where the power lies in any business market. The strengths and weaknesses are investigated as well as the development of the organisation into a stronger position.

Porter's Five Forces Framework:

Potential Entrants

Suppliers

Industry Competitors

Customers

Substitutes

Five Forces Framework

Financial Industry (HSBC, RBS)

Motor Industry (General Motors, Toyota)

Threat of New Entrants

Competition within the financial industry is exercised between a small number of key players - RBS, HSBC, Lloyds etc and there are not as many entry points.

Government legislation has realised that the market is not as competitive as it could be with banking institutions owning a number of High Street banks, therefore gaining an unfair advantage.

The motor industry is dominated by key players, but it is a wide and diverse market with numerous entry points, but many barriers still exist.

Government restrictions and legislation as well as tax breaks and incentives to invest in a particular economy influence the decision making process of where a manufacturer will base their operations. This has been evident in recent years in the decline of the motor manufacturing industry in Britain.

Worldwide recognisable brands competing against lesser known brands.

Threat of Substitute Products

Interest rates offered by other financial institutions - lower mortgage rates, lower borrowing rates and higher saving rates.

Increased threat of competition from other financial institutions - Monopolies Commission. Some financial institutions in the UK have been told to reduce the amount of holdings they have i.e. Lloyds and RBS.

The main alternatives to the motor industry are bus, train, motorcycle, trams and walking etc. The UK has seen many councils introduce congestion charges as well as seeking to re-evaluate public transport as an alternative to cars to reduce congestion.

Price of public transport versus price of running a car.

External market fluctuations - price of fuel, oil prices and governmental focus on green issues.

Bargaining Power of the Buyer

The consumer will shop around for the best deal for them. Financial Industry is extremely competitive due to the interest rates.

Customers are likely to hold a certain amount of brand loyalty to the financial institution as long as the financial institution are competitive with regards to mortgages, savings and investment opportunities.

Demand by the customer for a value for money approach - including bank charges.

There are large volumes of alternatives available to the consumer. The motor industry is extremely price sensitive - numerous different classes of car, numerous alternatives with the same level of functionability but vastly different prices.

Buyer information is extremely important to this industry - the demand for more value for money.

Brand loyalty is now harder than ever to achieve, placing the power in this industry solely at the purchasing end of the consumer.

Motor car owners are increasingly more concerned with the costs of fuel, the effects of fuel consumption etc.

Bargaining Power of the Supplier

The government are the main supplier to the financial institutions. The Bank of England is the highest banking establishment but when financial institutions get into trouble as has been seen in recent years, it is the government who bailed the banks out with the tax payers' money.

Core components such as metal, labour and fuel are the motor industries main suppliers. Mani supplier who holds any influence is fuel. Fluctuations in the price of a barrel of crude oil has a significant impact on the motor industry.

Industry Rivals

The main banks in the market - HSBC and RBS have industry rivals such as Lloyds, Santander etc. Each of these banks competes on the same products in the consumer market.

The main brands in the market - General Motors, Toyota etc have entered the market on all levels on all classes of cars. Each class of car has similar features, so each manufacturer has to compete on this level.

There are numerous ways in which critical success factors can be analysed and the most effective is the balanced scorecard. In both the financial and motor industry the balanced scorecard is an effective analysis tool to understand each of the industries. The balanced scorecard is the least complicated mechanism to evaluate the financial and motor industry. The Key Performance Indicators (KPI) for both industries can be seen below:

Balanced Scorecard for Financial Institution (HSBC, RBS)

Financial Perspective

Goals

Measures

Increased Revenue

Attempts to re-ignite products through interest rates

Success

Financial security/ financial reports

Internal Perspective

Goals

Measures

Product delivery

Product knowledge

Consistency

Ability to keep up with trends

Consumer Perspective

Goals

Measures

High level quality

Be the best financial institution

Customer satisfaction

Ability to build brand loyalty

Learning Perspective

Goals

Measures

Development of staff

Training

Analysis

Keep up to date with financial information

Balanced Scorecard for Motor Industry (General Motors, Toyota)

Financial

Goals

Measures

Increased sales

Like for like against last year

Success

Amount of profit

Stock control

Keeping stock up to date

Increased footfall

Ability to attract and keep customers

Internal

Goals

Measures

Product delivery

Product knowledge

Consistency

Keep up with trends

Customer

Goals

Measures

High level quality

Be the best in the motor industry

Customer satisfaction

Ability to build brand loyalty

Learning

Goals

Measures

Develop of staff/ new products

Training, Research and development

Analysis

Keep up to date with trends

Analysis:

The background for the present financial crisis can be traced back to the US mortgage crisis of October 2006. This has developed into a global crisis of financial proportions and in the last three years many organisations have had to reassess their strategies in order to survive. As a consequence of the mortgage crisis, in the UK, a variety of government bail outs were implemented to stabilise the financial economy. The first of the banks in the UK to be bailed out in the UK was Northern Rock. On 15th September 2007, queues of people began to demand the withdrawal of their savings because of the subprime crisis. The bank was nationalised by the government on 17th February 2008.

The main aim of an organisation is to supply high quality. In the financial market this is developed through the image they project as a specialist financial institution. How the financial institution such as HSBC or RBS can compete in the market is important. They need to be able to provide a competitive advantage as to a product or rate where they can get ahead. This is a major problem for HSBC and RBS at the minute with the current economic downturn. Until the banks and financial institutions begin tom lend again there is little hope that the financial world will recover at any kind of pace. HSBC is one of the world's largest financial institutions, it provides to over 100 million customers through four customer groups and global businesses. The Royal Bank of Scotland Group (RBS) is a diversified financial services group which is primarily engaged in banking and financial services in the UK, Europe, the USA and Asia. It operates through ten main divisions.

The motor industry is an important industry to look at in the present financial situation. With the economic downturn, car sales have fallen. Consumers are not as likely to buy in the present financial situation. As can been seen in Porter's Five Forces, the downturn in the financial markets is not the only factor which is problematic for the motor industry. Government policy is dictating the restrictions on car production, in that they are taking into account the amount of carbon emissions and congestion in the cities.

Another factor which needs to be taken into consideration is employment. This has been a major factor in the present climate as redundancy has held a major factor over the population. With more and more people losing their jobs, consumers are less likely to commit their long term financial future to high interest accounts as well as buying cars which they may not be able to afford in the long term.

Conclusion:

In conclusion due to the structures in place which each of the markets demonstrated through Porter's Five Forces and other economic tools of analysis, there is not a healthy forecast for the future of either the financial or the motor industry. The motor industry has felt the economic crisis in respect of the consumer and the lack of buying behaviour. This could be in direct relation to the effects of the financial industry and their refusal to lend. Recently, as both try to self finance and regain a footing within their respective markets, both have relied heavily on government funding and economic protection. This can only continue for so long before both industries, although never reaching their glory days of decades gone by, have to seriously readjust to the worst recession in sixty years.

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