Analyse the external factors facing Nationwide
This statement willanalyse the external factors facing Nationwide and point out the resultingopportunities and risks it faces as an company as a result of thisanalysis. Before this is addressed within the next section, a brief record onNationwide's business, mission, goals and targets is provided below.
The NationwideGroup is the world's greatest building society that is part of a group oforganisations offering retailing bank services.
Nationwide hasits hq in Swindon, 1 major administrative centre in Northampton, abranch network spread over the UK and 11 subsidiary companies.
Residential mortgage lending (funded through retail cost savings)
General retail bank services
Personal investment products
Offshore first deposit taking
Commercial lending treasury operations
Honest and uncomplicated. Treats all people with respect andas individuals and targets building long-term and beneficial relationshipswith people and employees with the objective to be the best retailfinancial services business in the UK.
Nationwide'sgoal is to increase overall market shares in the retail cost savings and residentialmortgage markets.
To maximise value, which is comprised of the mutuality dividendand retained profits, in the long term for our current and future participants;and
To provide our people with a range of top quality, competitivefinancial services that are widely available and delivered with swiftness, courtesyand reliability, guaranteed by plans of fairness, honesty, employee importanceand commercial responsibility
Nationwide iscommitted to remaining a building contemporary society and consequently spread the successof its business functions to its present and future customers, also known asmembers, through better quality and cheaper financial loans. It believes -and the majority of its participants support this view - that learning to be a bank willremove that emphasis meaning that business strategies will be geared towardsmeeting shareholders needs to the detriment of the people.
The External Environment
The externalenvironment is effectively everything beyond your building culture that mayaffect its performance or reputation, either straight or indirectly.
Understanding Nationwide's position, now and in the years ahead withinthe exterior environment it functions in
Preparing Nationwide for major changes in this environment
Enabling the building population to recognize the externalopportunities and dangers it faces, as part of a talents, weaknesses, opportunities and dangers audit (SWOT)
Developing suchan understanding allows Nationwide to place action ideas in destination to exploit theopportunities and minimise the dangers it encounters.
This analysiswill include examples of dangers and opportunities that Nationwide faceconsequently, summarised at the end of the micro-environment section.
The macro-environmentin which financial services organisations operate can be analysed using thePESTEL mnemonic framework, with each letter standing representing, politics, economic, social, technical, honest and legal analysis respectively.
The UK political world is one of democratic stableness. This sense of democracy permeatesthrough to the financial services industry as reasonable competition, development andentrepreneurial nature are motivated and backed by respective governments.
Raise the speed of sustainable expansion; and
Achieve increasing prosperity
HM Treasury aimsto achieve these goals by creating economical and employment opportunities (www. dti. gov. uk), thus striking a balancebetween financial efficiency with regulation and safeguard of consumers offinancial products and services.
Providing relevant and well-timed information with their customers
Striking a balance between profit-making and exploitingcustomers.
One area wheregovernment treatment is required is in the problem of publicized typicalrates. For example, a Barclays Loan company may advertise that its typical loan rateis 6. 9% when the truth is only a little proportion of the customers receive thatrate with almost all being quoted in excess of that.
Nationwidecharges only 1 rate because of its PERSONAL BANK LOAN product, currently 6. 7%. When thisissue is tackled, Nationwide could potentially increase its market show ifits 6. 7% is less than Barclays publicized rate (i. e. rate quoted to bulk ofcustomers).
The economicoutlook in the UK looks strong as at January 2006. Interest levels arestable. Retail sales have stayed strong - up 2. 1% on a year ago and0. 7% on Dec 2005. Consumer self confidence is improving while earnings growthhas increased.
House priceshave increased for the fourth consecutive month, since Sept 2005.
Personal lendingis on the increase due mainly to the increase in secured financing. However, unsecured lending has decreased, unlike expectations. Mastercard debtgrowth is lessening, indicating more debts consolidation
Investment inthe overall economy is increasing, up 2. 2% on the previous quarter and 3. 9% on January2005. Inflation levels are generally down, as measured by the Retail PriceIndex (RPI).
The favourableeconomic outlook reveals opportunities for bettering secured loaning likemortgages. Organisations must be aware of the risks posed by thediminishing overall unsecured lending portfolio, which could mean adding inplace strategies that targets increasing the rates incurred for theseproducts to pay for the potential reduced quantities for example.
The UK demography is changing. The populace is getting older and by 2015, there will be more65 12 months olds than teenagers aged below 16 years (www. statistics. gov. uk).
Life expectancyis also on the increase therefore is the average retirement.
People are moreknowledgeable when it comes to financial services products. This has resultedin less consumer loyalty and customers patiently check around to discover the best dealsor comes back and also requiring better customer support. Buying behaviour isalso changing with the use of increased technology.
Household income is increasing.
Opportunitiesfacing organisations is holding on the well trained personnel for longer credited toincreased retirement. Lending policies that restrict loaning beyond acertain age will need to be examined.
Technologicalinnovation and development is becoming increasingly imperative to attaining andsustaining competitive advantages. Organisations have increased the range ofservices they provide through online and cell phone banking. Technology isincreasingly used to automate inefficient manual processes in order to controlcosts.
Keeping up withthe rate of change could however, be costly and may make organisationsuncompetitive.
Financialservices organisations are paying a great deal of attention to its socialaccountability and responsibility and aren't shy to publicise that fact.
The occurrence ofpressure and environmental categories, for example, keep these organisations awareof their tasks as the undesirable publicity that can be made, if abusiness is regarded as to be acting irresponsibly can do long lasting damage tothat organisation's reputation. Consequently, organisations includeEnvironmental initiatives within their overall group strategy.
The FSA focuseson legislation intended for organisational behavior and customer relationships (www. fsa. gov. uk). There has been a greatemphasis positioned on providing more information to customers that to makeinformed decisions, lately.
Basel IIrequirements, which makes effect in 2007 and 2008 puts a necessity onorganisations to carry sufficient reserves of capital for unexpectedlosses. For businesses that are considered to properly identify and evaluate theirrisks, they might be permitted to carry less capital, thus providingopportunities to make use of extra money to increase their businesses. For example, Nationwide anticipates that their capital reserve necessity will reduce by upto 60% under Basel II. It is anticipated, however, that competition formortgage loaning which is low risk will become fiercer as competition also meetthe requirements.
Finally, financial reporting in the united kingdom must meet the requirements of the InternationalFinancial Reporting Criteria (IFRS), which requires more detailed reporting. Businesses not complying may potentially present more volatile results and inNationwide's case turn away spending members.
Themicro-environment is effectively the industry in which Nationwide operates inand is concerned with the competitive pressures experienced within that industry. Porter's five pushes model isuseful in analysing the micro-economic environment.
Bargaining power of buyers
Buyers refer toconsumers in the financial services industry. Consumers are better informed, thanks a lot mainly to the initiatives of the FSA who promote transparency in organisationsto allow them to make better informed decisions. For home loans, for example, consumers could transition lenders after a short term gives them theopportunity to obtain more favourable rates. Product and servicedifferentiation is little thereby improving the bargaining electric power of clients. Thebargaining vitality of potential buyers is increasing, thereby representing a danger toorganisations that cannot provide their services at competitive prices
Bargaining ability of suppliers
This isrelatively low. Dot com organisations get caught in this category. Getting intotheir 'best buy' furniture could result in significant extra business. However, taking place such tables be based upon the price of the product being sold rather thanthrough what is paid to dot com organisations as percentage. However, thesesites could be utilized to advertise individual organisations products.
Threat of New Entrants
Competition isencouraged in the financial services industry this means new entrants areencouraged through administration support and legislation. However, the industryis dominated by approximately a dozen organisations in conditions of market share(including Nationwide), which operate successfully, use technology ascompetitive gain and possess extensive brand reputation, thus making thethreats of new entrants to be quite low. However, as margins are gettingtighter through increased competition, any new significant entrant could provecostly to existing organisations
Threat of replacement products
Product and service differentiationis nominal, in general, which means risk of consumers moving over to asubstitute product is little.
The extent of competitive rivalry
Competition isintense, due to the high bargaining power of buyers. A small difference ininterest rate can bring about significant difference in business volumes.
Products andservices offered are also similar, while there's also many providers. However, branding is very important and the likelihood of a person opting fora Personal Loan with Nationwide at 6. 7% say is greater than deciding on XYZ NewEntrant at 6. 5%.
Strength of the economy
Increase in old age age
Less customer loyalty
Increase in household income
Pace of technical change
Increased bargaining electric power of buyers
Meeting Basel II requirements
Low bargaining ability of suppliers
Low threat of substitute products
Low risk of new competitors
Figure 2 Opportunities andthreats facing Nationwide Group
Nationwide arein a position to exploit the opportunities above by formulating andimplementing strategies that deliver increased performance throughprofitability. Additionally it is able to minimise the hazards throughputting set up appropriate strategies. It will be in a position to do thisby firstly carrying out an research of its exterior environment.
Begg, D et al 1997, 'Economics' 5th model, McGraw-Hill, Maidenhead
Buckle, M & Thompson, J 1999, 'The UK Financial System', 2ndedition, Manchester School Press, Manchester
Howells, P & Bain, K 1998, 'The Economics of Money, Bankingand Money' Addison Wesley Longman, Essex
www. dti. gov. uk
www. fsa. gov. uk
www. hm-treasury. gov. uk
www. countrywide. co. uk
www. palgrave. com
www. reports. gov. uk
www. wikipedia. org
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