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Strategic Management

A Strategic Plan for Westpac Retail Bank

Australian Institute of Business Michael C Yule - A001322735 10th December 2013

Word Count 2678

Executive Summary
This paper will create a strategic plan for the Westpac retail network. Firstly a unique vision, mission statement and a statement of values will be created. Critical analysis will be carried out for the Westpac retail network, both internally and externally via a SWOT Analysis. During the discussion, it is evident that while Westpac is financially strong, there are some fundamental changes to be implemented to ensure continued competitive sustainability. Using relevant Strategic Management tools and theories throughout this study certain strategies will then be recommended with the reasons behind the recommendations discussed, for the Westpac retail business to remain sustainably competitive both in the short term, and for many years into the future.

Table of Contents

Introduction Vision Statement Mission Statement Statement of Values SWOT Analysis Conclusion Strategy Recommendations

5 6 7 8 9 11 12 14 15

References Appendix

Introduction
Westpac Banking Group as of September 2013 had a total of 33,000 employees, 12 million customers, market capitalisation of nearly 102 billion AUD, and net profit after tax of just over 6.8 billion AUD. (WBC 2013) Figure 1.0 in the Appendix illustrates a key snapshot of the highlights of Westpac Groups 2013 Annual Report, showing the growth from previous years for the Group. The Westpac Banking Group consists of the Westpac retail, business and private banking network, as well as other business units. Figure 1.1 in the Appendix displays the different business units that Westpac Group consists of.

This study subscribes to the definition of an organisations strategic management, defined by Thompson, AA et al. (2014) in which it is not merely temporary competitive success and profits in the short run, but rather the sort of lasting success that can support growth and serve the companys future over the long term. As the Westpac Group encompasses such a broad range of individual business units across many different countries, for the purpose of this study the Westpac domestic retail banking business will be used. This will ensure a more specific and unambiguous application of certain Strategic Management theories and models that will be used during the case study. At the start of this discussion to create a Strategic Plan for Westpac Bank, a vision statement will be created followed by a mission statement. To create a strategic plan for Westpac Bank is dependent on the previous three crucial elements which are absolutely necessary for a solid and successful Strategic Plan.

Vision Statement
The vision statement is critical to the success and the long term sustainability to an organisation. The Vision statement also helps organisational members to tackle obstacles and maintain their focus through the ever changing environment. (Thompson, AA et al. 2014) Westpac Groups current vision in the 2013 Annual Report is Westpacs vision is To be one of the worlds great companies, helping our customers, communities and people to prosper and grow. (WBC 2013) The above vision is considered too long, attempting to engage as many stakeholders, both internally and externally as possible in one statement. Traditionally, especially after the Global Financial Crisis, the trust perceived of banks by many clients has dropped significantly. The significance and the losses of the Global Financial Crisis reduced the credibility of banks and financial institutions in general, as well as increased their perceived self interest, which is an important factor in regards to trust. As the Westpac Groups Vision Statement is quite broad and targeted toward a large audience, the Vision Statement for Westpac Retail Bank this study believes should be more specific and targeted towards key stakeholders, especially the mass retail clients. This study believes that the specific Vision for Westpac Retail Bank should be; Persistence from every opportunity, perfection in every outcome, along with personal service every time The reason this was chosen was the three words persistence, perfection and personal are easily recognisable. Not only does this create focus and motivation for internal employees and stakeholders, it also provides a culture that is perceived by internal and external audiences, such as employees, analysts and investors.

Mission Statement
The mission statement is targeted more towards society, and is a statement which reveals what the organisation intends to do to reach its vision. Compared to the vision statement which is usually aimed at internal stakeholders such as the employees, the mission statement historically has a larger exposure to the public. Mission Statements aim to communicate the message and motivate people to work towards the organisations goals, both externally as well as internally. Cady, S et al. (2011) reviewed various literature studies into the importance of Mission Statements, as well as analysing the concepts used in over 474 statements from Jeffrey Abrahams book, The Mission Statement Book. (Abrahams, J. 1995) This literature review concluded that while studies into the value added by various Mission Statements was unclear, it is absolutely critical that the formal Mission Statement reflects the organisations true values and identity. While this review studied the most frequent concepts used from many different companies Mission Statements, the study of the correlation between various organisations Vision Statements and Mission Statements could be of further benefit. Figure 1.2 in the Appendix shows the results that Cady, S et al. (2011) discovered during their case study. While developing the Mission Statement for Westpac Bank, it is important to verify that the Mission Statement reflects the action and motivation that needs to take place to reach the organisations vision. Thompson, AA et al. (2014) state that a mission statement should be purely descriptive to show all internal and external stakeholders specifically what the organisation does, how it does it and why it carries out the business. As in the previous section the Vision Statement was Persistence for every opportunity, perfection in every outcome, along with personal service every time. A Mission Statement for Westpac Retail Bank should show congruence to this vision and be easily understood by both internal and external stakeholders. A Mission Statement that this study concludes which is appropriate, following this discussion is; Westpac Retail Bank aims to unlock and help achieve success for all our clients, whatever that may be 7

Statement of Values
The Westpac Group in their 2013 Annual Report lists the values that the group strives to represent. The Statement of Values is crucial as it observed by employees, investors, analysts as well as the general public. Once again looking at the statement of values that the Westpac Group has listed in their Annual Report for 2013 there are some common themes; Delighting customers One team Integrity Courage and Achievement

This statement of values can be seen to have a positive correlation with the Westpac Groups Vision, though these are used among all the various business units that make up the Westpac Group. Specifically for Westpac Retail Bank, the statement of values should reflect the culture and attitudes of the organisation. Another aspect when considering the values that should represent the organisation is the strategic position that it wants to strive for. As Porter, ME 1996 states, Strategic positions can be based on customers needs, customers accessibility, or the variety of a companys products or services. Banking services traditionally are aimed to meet the needs of the clients, and are demand driven. A companies core values are the beliefs, traits and behavioral norms that are expected to pursue its strategic mission. Specifically for Westpac retail Bank, the core value statements that would accompany the banks mission would be;

We will always go the extra step (or steps!) Honesty in all our relationships We work with people, not money Remember our heritage as the oldest company in Australia

The above values achieve numerous goals. They show the wider community and internal stakeholders that as a bank we deal with human beings and not numbers, and we are honest and persistent in all our dealing throughout the business. The last value statement also adds credibility of Westpac not only being the oldest bank in the country, though also the oldest company in Australia. 8

SWOT Analysis
There are many different types of models that can be used to conduct an analysis for the purpose of Strategic Planning for an organisation. There are many discussions as to which model is the most appropriate, such as the GE Nine-cell Matrix, one of the matrix approaches and the well researched SWOT Analysis. The GE Nine-cell matrix expands on the simplistic model of the BCG matrix, however is still limited for larger more complex organisations and also can succumb to personal subjective perceptions. (Thacker, C, & Handscombe, B 2003) The SWOT Analysis for this study will be used as a SWOT Analysis can display much more information and create a more appropriate discussion, and is not as rigid as the matrix models that can be used. A SWOT Analysis is performed by compiling a list or chart, of the organisational attributes for each category to determine where resources are best allocated. (Rice, JF 2010) This report subscribes to the theory that Chermack, T, et al. (2007) concluded that SWOT be used as a part of the strategy process, and that the outcomes are actually used in subsequent components of Strategy Development. SWOT can be and is a very powerful tool; however it is crucial that is forms part of the overall Strategic Management process. The Strengths and Weaknesses focus on internal situations, where the Opportunities and Threats focus on the external environment. For Westpac Retail Bank, this study will now conduct a SWOT Analysis below to determine the appropriate strategies for management to pursue.

STRENGTHS Westpac Retail Bank is has strong financial fundamentals, with an 8% increase in cash earnings for the last financial year and a one year earnings per share increase of 13%. (WBC 2013) An excellent market position in the strong Australian Banking Industry Sufficient capital for new investments and risk exposure, with Westpac paying a 20 cent special dividend for the 2013 financial year

WEAKNESSES Increasing share of interest income compared to complete income may increase negative interest rate moves (COMPANY PROFILE WBC SWOT ANALYSIS' 2013) Technology is outdated and falling behind other close competitors such as CBA 9

OPPORTUNITIES The increase of mobile and Internet Banking usage will make this easier for Westpac to reach out and target a larger audience Asia has an increasing middle wealth market this would be a longer term ( 5-10 years) Strong standing with Insurance, was favorably looked upon during the floods and fires of Victoria and Queensland and has a strong reputation in the industry The demographics of clients are increasing in average age causing an increase for wealth and super products an advice

THREATS Increase in natural disasters could affect insurance book of Westpac RBA cash rate will ultimately lead upwards maybe causing an increase in defaults in loan book The introduction of the FOFA regulations could be detrimental to cash flow, and would also need to be implemented accurately and correctly

In Figure 1.3 of the Appendix, Porters 5 forces of competition towards an organisation are visually displayed, and have stood the radical changes in business to this day. During the recommendation of strategies that this report advises that Westpac Retail Banks management should carry out for a sustainable and competitive advantage over its rivals, the 5 forces of competition will be referred to in this study. The Banking industry is quite unique as it is a highly regulated industry that the most important factor in Porters 5 forces of competition is the intense rivalry between other organisations. Substitutes are always present, but they are of little concern because they may appear to be very different from the industrys product and not meet the needs of consumers. (Porter, ME 1979) It is evident due to the highly regulated industry and the high barriers to entries to compete on a large scale such as the big 4 banks, the threat of new entrants and even the threat of new substitutes are not a concern for Westpac Retail Bank in the near to medium term future. Bargaining power of suppliers, such as interbank lending can play a role in the organisations success, and the Global Financial Crisis saw this in action.

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There is evidence of some new entrants to the industry within Australia that are utilising the Internet to provide an overall low cost provider strategy, by strategically removing costly processes of the value chain. Banks such as U Bank and ING Direct are some of the players that are aiming to compete with the mass market that are price elastic and for clients that are more self directed. Online financial service providers such as U Bank and ING Direct aim to cut critical costs from their value chain and have cumulative costs lower than their rivals. (Thompson, AA et al. 2014) The main way the above mentioned organisations compete is by drastically reducing their distribution and service sections of their value chain. The increased profit margins do come at a cost, such as a lack or personable service and perceived credibility. Low Cost Provider Strategies can work well when the products are essentially the same (such as banking account and term deposits etc) Another argument to support the lack of concern for Low Cost Providers within the banking sector for Westpac is that even though buyers incur low costs associated with switching providers (such as from WBC to ING Direct), there is still a mentality among consumers that this is too time consuming and difficult. This cost per se is not so much a financial cost though is perceived as a time cost from the lens of the consumer.

Conclusion
This report has critically analysed Westpac Bank using relevant Strategic Management theories and models after an extensive literature review, focusing on the SWOT Analysis. Vision and Mission Statements were created, along with a Statement of Values for Westpac Bank. As discussed in the Introduction, Westpac Retail Bank was used to further critically and specifically analyse the current Strategic Management theories for this study.

Further analysis into the correlation between Vision and Mission statements would be of benefit in future studies, to discover whether any added value is achieved from the key concepts compared to the Vision and Mission Statements, as there was a lack of data when conducting the literature review. As this was only a brief case study on Strategic Planning for Westpac Retail Bank, two key recommendations arising from the analysis were discussed; however equally important is the timing of the implementation, execution and post evaluation of these strategies after they have been implemented. 11

Strategy of Recommendations
To correctly implement the strategies that were mentioned in the study, further analyses would need to take place as the Implementation stage of Strategic Management is quite comprehensive and equally as important. It is also important to note that timely and appropriate steering of a firm's business strategies is a key matter for any firm in sustaining business success. (Askar, M, et al. 2009) Figure 1.4 in the Appendix provides a brief overview of the complexity of the decision making from all business units that have to be decided upon before the execution stage.

IMPLEMENTATION OF ELECTRONIC COMMUNICATION It is evident that Westpac Bank, even though was one of the first adopters of electronic banking back in the late 1990s, has fallen behind the advancements in electronic banking to other rivals such as CBA and NAB. Siaw, I, & Yu, A (2004) stated in their case study that raising finance and capital was one of the easiest tasks within a financial organisatsion. Banks that anticipate the power of the Internet will be in control of events. Conversely, banks that do not respond will be forced to accept changes that others initiate and will effectively find themselves in a position of competitive disadvantage. As stated by Blount Y et al. (2005) Banking institutions now face the challenge of managing customers with whom they never (or rarely) interact on a personal level and of trying to maintain their loyalty without the traditional branch-based relationship. Electronic Communication is a Weakness as well as a Threat in the above SWOT Analysis. As this is an opportunity for not only Westpac, though for all competitors such as domestic and even internal financial organisations, this should certainly take top priority in strategy creation moving forward for the bank. This includes updated mobile banking capabilities and investment into data mining from the information captured from the various new banking technologies.

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STRATEGIC FOCUS ON WEALTH AND SUPERANNUATION PRODUCTS Another organisational strategy that is crucial to Westpac Retail Banks sustainability is the organisational steering towards the increased demand for wealth and superannuation products as Australia is succumbing to an aging population, due to the baby boomers nearing retirement. This could be the same opportunity for other competitors; however Westpac has a substantial advantage of capital security, which is listed in the Strengths area under the SWOT Analysis. Reflecting on Porters 5 forces of competitor rivalry, there would be a potential threat of new entrants into the market trying to capitlise on this demographic shift to an aging population. Superannuation is also compulsory for most employers and recently was announced to increase to 12% of an employers salary by the year 2020. The strategic focus on wealth products and superannuation (including self managed super funds) would also benefit the organisation by reducing the dependency on income derived from lending to clients, as the revenue generate from wealth and insurance products is much easier to obtain and is not as dramatically affected by interest rate changes, though it is uncertain what policies (such as the retirement age in Australia which is under debate as this study is being written) decided by Parliament could affect this situation. This strategy would also have the added benefit of shifting the revenue generated by the bank, and decrease the risk RBA interest rate changes and other global economic external factors, which could result in a smaller amount of bad debt.

Another point to note is the introduction of FOFA, following certain changes in the domestic and global financial system. This is listed under the Threats of the SWOT Analysis that was carried out during this report. The introduction of FOFA (Future of Financial Advice) is considered a threat as there are many regulatory changes and administrations that the bank has to ensure are in place by the due date. On the other hand, this could also act in Westpacs favour as it will increase the barriers to entry into the banking industry for both domestic and international competitors alike.

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References
Abrahams, J. (1995). The Mission Statement Book:301 Corporate Mission Statements from America's Top Companies. Berkeley, CA: Ten Speed Press. Askar, M, Imam, S, & Prabhaker, P 2009, 'BUSINESS METRICS: A KEY TO COMPETITIVE ADVANTAGE', Advances In Competitiveness Research, 17, 1/2, pp. 90-108, Business Source Complete, EBSCOhost, viewed 30 November 2013 Blount, Y, Castleman, T, & Swatman, P 2005, 'E-Commerce, Human Resource Strategies, and Competitive Advantage: Two Australian Banking Case Studies', International Journal Of Electronic Commerce, 9, 3, pp. 7389, Business Source Complete, EBSCOhost, viewed 30 November 2013 Cady, S, Wheeler, J, DeWolf, J, & Brodke, M 2011, 'Mission, Vision, and Values: What Do They Say?', Organization Development Journal, 29, 1, pp. 63-78, Business Source Complete, EBSCOhost, viewed 30 November 2013 Chermack, T, & Kasshanna, B 2007, 'The Use and Misuse of SWOT Analysis and Implications for HRD Professionals', Human Resource Development International, 10, 4, pp. 383-399, Business Source Complete, EBSCOhost, viewed 30 November 2013 'COMPANY PROFILE Westpac Banking Corporation SWOT ANALYSIS' 2013, Westpac Banking Corporation SWOT Analysis, pp. 1-7, Business Source Complete, EBSCOhost, viewed 30 November 2013 Michael A. Hitt, R. Edward Freeman And Jeefrey S. Harrison 2006 The Blackwell Handbook of Strategic Management Blackwell Publishing eISBN: 9780631218616 Porter, ME 1979, 'How competitive forces shape strategy', Harvard Business Review, 57, 2, pp. 137-145, Business Source Complete, EBSCOhost, viewed 30 November 2013 Porter, ME 1996, 'What Is Strategy?', Harvard Business Review, 74, 6, pp. 61-78, Business Source Complete, EBSCOhost, viewed 30 November 2013 Rice, JF 2010, 'ADAPTATION OF PORTER'S FIVE FORCES MODEL TO RISK MANAGEMENT', Defense AR Journal, 17, 3, pp. 375-388, Business Source Complete, EBSCOhost, viewed 30 November 2013 Siaw, I, & Yu, A 2004, 'An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter's Five Forces Model', International Journal Of Management, 21, 4, pp. 514-523, Business Source Complete, EBSCOhost, viewed 1 December 2013 Thacker, C, & Handscombe, B 2003, 'Innovation, Competitive Position and Industry Attractiveness: A Tool to Assist SMEs', Creativity & Innovation Management, 12, 4, pp. 230-239, Business Source Complete, EBSCOhost, viewed 2 December 2013 Thompson, AA, Peteraf, MA, Gamble, JE, & Strickland, AJ 2014, Crafting and Executing Strategy: The Quest for Competitive Advantage Concepts and Cases, 19th edn, New York, McGraw-Hill. WBC 2013 The Westpac Group Annual Report 2013 viewed http://www.westpac.com.au/about-westpac/investor-centre/annual_reports/ 30th November 2013

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Appendix
Figure 1.0 Performance Highlights of Westpac Group Financial Year 2013

WBC 2013 The Westpac Group Annual Report 2013

15

Figure 1.1 Divisions of the Westpac Banking Group

WBC 2013 The Westpac Group Annual Report 2013

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Figure 1.2 Most frequently used concepts in an organisations Mission Statement

(Cady, S et al. 2011)

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Figure 1.3 - Porters Five Forces Model

Rice, JF 2010

Figure 1.4 - Different theories of Implementation Research within an Organisation

Michael A. et al. 2006 P 648

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