Posted at 11.28.2018
The emergence of Santander in to the UK market with the acquisition of Abbey represents a major move across Europe in the bank industry. This article aims to judge the result of the move across boundary while analysing various strategy and tools that have been used in the procedure. This survey shows the composition and dynamics of the industry in which Santander competes and the result it is wearing the industry. It also analyses the industry where Santander competes in using the Placement school, Tool Based View and analytical tools including the five forces platform, Infestations, VRIN and Porter's general technique to analysing the transformation and growth of Santander in the united kingdom since its acquisition of Abbey in 2004.
Strategy is the route and scope of organisation over an extended term, which achieves advantages in a changing environment through its settings of resources and competences with the purpose of fulfilling stakeholder goals (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008). In addition they explained that the term strategy is associated with different issues, one of which is the tactical fit with the business enterprise environment. Here, organisations need appropriate setting in their environment i. e. the product or service should meet obviously discovered market needs. While the Resource-Based View of strategy is approximately exploiting the tactical capability of an company, in terms of its resources and competences, to provide competitive advantage and/or deliver new opportunities.
Mintzberg's (1987) view of strategy as a Plan, Ploy, Design, Position and Point of view covers the various ways which strategy is defined. He mentioned that strategy is an idea used to carry out an objective. It is a unified, complete, and integrated plan designed to ensure that the essential goals of the business are achieved (Glueck, 1980:9).
As a plan, a strategy can be a ploy; too, really simply a specific "manoeuvre" designed to outwit an opponent or competition.
Strategy is a routine- specifically, a pattern in a blast of actions.
It is a posture; a way of locating a business in what theorists prefer to call an "environment".
It is also a perspective, its content consisting not merely of the chosen position, but of your ingrained way of perceiving the earth.
Santander, the Spanish financial heavyweight in retail banking purchased Abbey, the English mortgage company in past due 2004. After stabilizing Abbey in 2005, it developed a three (3) time ambitious plan with the goal of keeping the performance of products with already high significant market value and show position, increasing its presence in other banking segments such as consumer finance, insurance and SME and Commercial loaning in order to transform the organization into a full-service retail loan provider with an array of product and service offerings.
Santander primarily embarked on its strategy basically by exploiting its internal resources through Integration of human resources, release of its Technology, income growth and efficiency, retaining a prudent method of associated risk management.
The industry consists of several firms producing products that are basically the same (Gerry Johnson, Richard Whittington and Kevan Scholes, Checking out Strategy, 2011).
Santander competes in banking industry where it encounters stiff competition from other major players on the market like Barclays, Lloyds TSB, HSBC, HBOS and Royal Standard bank of Scotland (RBS) otherwise known as "the top 5" and its own major line of business is the retail banking which accounts for over 1 / 2 of its net gain.
Its key market in the UK is centred on Home loans, Savings and safeguard although it also competes in Brazil and other parts of Europe
including Portugal where it is regarded as the fourth greatest retail bank with a customer base of 1 1. 7 million, 670 branches, 6000 employees, a mortgage market show of 16% and over 18% in shared funds.
As explained by (Porter 1985), the strength of each of the five competitive makes is a function of industry structure, or the underlying economic and complex characteristics of a business (Competitive Edge: Creating and Sustaining Superior Performance by Michael Porter, 1985).
To analyse the structure and dynamics of the market in which Santander runs, it is vital to understand the major factors which have an effect on the Industry generally which in this case includes other major bankers, their products and services, structure and also their advantages and weaknesses as this sorts the competitive causes in the market
These are the barriers that need to be conquer by new entrants if they're to compete effectively (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008).
Entry barrier for competing in this area is high since it is a capital intense industry.
Achieving economies of size is one factor for contending in the bank industry as it would require new entrants to remain competitive on a single level of the other major players in the industry if they're to make it through.
As seen from the situation, Santander could gain access with a 9 billion acquisition of Abbey in 2004 that was at the time, Europe's biggest cross-border banking offer and it already possessed experience in Western retail banking which at that time, accounted for over 1 / 2 of its net gain prior to the acquisition of Abbey.
As it is an extremely contested market for customer bottom part, the amount of difficulty in accessibility is quite high because the market is already handled by the major banking companies with strong brands like Barclays, LTSB, HSBC, HBOS and Royal Loan provider of Scotland and It might be quite difficult for beginners to convince customers to go from these already known and founded brands.
Santander was able to gain entrance into the market through the acquisition of Abbey which already acquired a solid customer base of 18 million and a well-known brand name.
It also experienced a competitive border. Santander launched Partenon, its successful core banking platform and this technology allowed Santander to perform a smooth integration, launch new products with minimal business lead time.
Entry barrier into the corporate and business and SME sector is also high. Although Abbey achieved significant growth in that area, it was still essentially controlled by the "Big 5" banks.
Abbey's plan to successfully get into and compete for the reason that section will be dependent on the release of its Partenon system.
The bargaining ability of suppliers is high. The "Big 5" bankers (Barclays, HSBC, LTSB, RBS & HBOS) control almost the same amount of talk about in a few areas like the Credit Card Market and SME Banking and offer similar services. A company group is powerful where it is dominated by a few companies and is more concentrated than the industry it offers to (Porter 1980).
Buyers compete with the industry by forcing competition on prices, bargaining for higher quality or more services, and playing competition against each other- all at the trouble of industry profitability (Porter 1980). With this being truly a highly competitive market, the bargaining power of buyers is also high and there is competition on price.
According to Porter 1980, the risk of substitute is high if it includes a nice-looking price performance trade-off to the industry's product. In this field, the risk of substitutes is quite low.
The rivalry among existing opponents is high especially one of the "Big 5" lenders and this reflects in the close similarity in their market stocks. As point out by Porter (1980), the strength of rivalry is most significant if rivals are numerous or are roughly equal in proportions and electricity.
Critical success factors (CSF) are those factors that are especially valued by a group of customers and, therefore, where in fact the organisation must excel to outperform competition (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008).
To compete in its market, its new CEO Francisco Gomez- Roldan shown a three calendar year ambitious arrange for achieving success that was tagged "The Three 12 months Plan: A Blueprint for success" which was a key factor to be executed for them to be competitive in the financial market with the other major banking companies. This new plan was set up in order to achieve the Group's vision to become the best retail standard bank in the UK. To begin with, the program was targeted at retaining the performance of products like mortgage loans which already possessed a higher market share position and increase its earnings in other banking segments such as funding, insurance, SME and commercial loaning in order to transform the establishment into a complete service retail standard bank with a variety of products. The plan focused on increasing its earnings, efficiency and keeping a prudent method of risk management. To do this, it further grouped its procedure into three main divisions and this was centred on Retail, Insurance and Advantage Management (IAM) and Abbey Financial Market (AFM).
In the retail section, its goal to attain 75% in revenue and 70% of pre-tax income would be through more sales, customer and savings retention, cross sales and exploitation of new progress opportunities.
The Insurance and asset management (IAM) section was to contribute 13% of its revenue before tax through its back e book management. With a new regulation which allowed an individual considerable freedom in their pension contributions been set up and becoming effective as of 6 April 2006 in the UK, it was envisaged that there would be increased demand for pension related products and advisory services and would lead to new opportunities for investment across sales. To key-in and compete in this section, Abbey will do so by growing its intermediary and end-customer centered retention programmes, bring in new stake-holder-focused communication strategies and remediation tasks in order to reduce risks. Another area which would contribute 10% of Abbey's earnings and 17% of earnings after duty is its financial market (AFM) and this was to be achieved by increasing its product range, customer basic and transaction circulation.
In addition to the above, rebuilding Abbey's sales features in mortgages, personal savings and cover, increasing its occurrence in lender accounts, unsecured unsecured loans (UPL), investment and pensions through the implementation of retention and motivation schemes proposed to target higher-value segments, creating a sustainable technique for its online business Cahoot, increasing its telephone sales capabilities and also creating new branch sales system with advanced pricing by customer segment and increased focus on existing clients and mix sales for the unsecured personal loan section will play a major role in contending successfully in its market.
Resources are the assets that an organisation have or can call upon and competences are the ways those belongings are being used or deployed effectively (Gerry Johnson, Richard Whittington and Kevan Scholes, 2011) while features refers to the ability to combine, build, and configure inner and exterior competences to address rapidly changing conditions. Thus, it reveal an organisation's potential to achieve new and ground breaking form of competitive edge given avenue dependencies and market positions (Leonard-Barton, 1992)
Santander's competence and capacity in retail banking in Spain which makes up about half of its income is a strong advantage for them in terms of competing in the united kingdom.
They have an experienced and amazing CEO in Antonio Horta-Osorio, who succeeded Francisco Gomez- Roldan after he passed on. His vision of earning Santander the best commercial bank in the UK by concentrating on efficiency, service quality, customer loyalty, teamwork and meritocracy demonstrated his importance as a strong force which mirrored on the progress of Santander since its entry into the UK.
Another great resource which Santander contains is its technology. The intro of Partenon, its biggest technological property which helped in the seamless integration and empowered them launch new products with minimal lead time.
Their potential to outsource operations to Spain, Portugal and Poland in other to lessen the cost-to-income proportion while still maintaining physical interface with customers. With this reference, they were in a position to achieve economies of level and offer reasonably priced products and services which recommended higher income and increased customer devotion.
The proper utilisation of these human and technological resources by its management team led Abbey to win the Euromoney award for best Loan company in the UK in mid-2008.
Competitive gain is how an SBU (Strategic business unit) creates value because of its users both greater than the cost of offering them and superior to that of rival SBUs (Gerry Johnson, Richard Whittington and Kevan Scholes, 2011). It really is further explained that with an advantage, they need to have the ability to create increased value than opponents because in the lack of a competitive gain, the SBU is usually vulnerable to episode by competitors.
Barney's (1991) VRIN construction is also used to ascertain if a reference is a way to obtain sustainable competitive benefits. To serve as a basis for lasting competitive benefit, resources must be valuable, exceptional, inimitable and non-substitutable (fig 2).
Competitive gain is realised based on three factors (Sudarshan D, 1995): (1) the firm's marketing strategy, (2) implementation of this strategy and (3) the industry context which identifies Porter's general strategy.
Previous study by Porter (1980) presents generic competitive strategies for gaining competitive edge as:
Overall cost leadership
The differentiation strategy is one of differentiating the merchandise or service offering of a company, creating something that is perceived industrywide to be unique (fig 1).
Santander's main way to obtain competitive benefit which is unique is its IT Partenon banking program. They differentiated themselves and gained a competitive edge over its rivals through the use of Partenon. With this advanced business mode of operation, these were able to operate from other German and Italian centre through their data centre in Madrid, gain the trust of these customers, introduce a more secure way of doing business and provide a top quality of service compared to its major competition.
In addition, it gave them an initial mover advantage so this means they were in a position to eliminate duplicated operations, reduce the cost per business deal, and release new products in to the market with reduced business lead time before their competitors.
Santander also gained competitive gain by being the price leader. Relating to Porter (1980), Cost command requires aggressive development of efficient-scale facilities, strenuous pursuit of cost reductions from experience, small cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on.
With Santander's experienced management team in conjunction with their experience in retail bank, they were able to introduce best practices into the UK market at low priced and with an advantage in inputs in conditions of its Partenon system, they were able to slice cost in functions while providing quality services for their customers.
The Macro/Micro environment consist of broad environmental factors that impact to a greater or lesser extent on virtually all organisation and the Infestations framework recognizes how future fads in political, economical, social, technological, environmental and legal environments might impinge on organisations (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008). The evaluation below shows the various environmental marketing issues confronted by Santander.
The new legislation in the UK which became effective by 6th Apr, 2006 "PER DAY" afforded individuals sizeable flexibility in their efforts to the pension plans and other investment possessions. This development is an chance for Abbey as it will bring about an increase in demand in the pension plans and investment area through new product and advisory services offering.
The British market for electric motor finance that was still fragmented with the three leading providers retaining a mixed market share of 30% presents a chance for Santander to increase its activities in consumer fund in the UK as it is a respected car finance service provider in Continental Europe, its knowledge, product range and economies of range in conjunction with a joint with a joint venture with Abbey would develop the British market.
With the general business climate in the UK housing market slowing down, the mortgage financing and market talk about faced a downward slip and this presents a threat to Santander's 10% market show in mortgage loans. Its counter-intuitive decision to decrease its market show from 10% to 6% before the downward change in the area because of its cautious and advisable approach to business was a timely and great decision made by Santander.
A repeat of monetary recession which occurred in the past could be a risk to Santander.
With the acquisition of Abbey and access into the British isles market without previous operations in the united kingdom market, Santander could face a solid wall at the initial stages of it operation in the united kingdom because of the differences in countrywide culture and business organisational culture. The assumption is that with the introduction of experienced management jogging the operations, and with the progressive benefits of its other resources, the result of change can be cushioned.
At enough time of its acquisition, it was mentioned that Abbey possessed a total of 18 million customers, a strong brand that was built over time, but got weaknesses in customer relationship, poor sales productivity and sales culture. This is a weakness for Abbey because customer romantic relationship and devotion is an integral factor for success on the market.
In other words, they were poor in customer orientation. This matter should be apportioned priority due to the fact Santander got just gained entrance into the UK market by acquiring Abbey. Further operation under those poor customer marriage circumstances would most likely lead to reduction in customer foundation and have an adverse effect on Santander's total income.
Technology advancement through Partenon remains one of Santander's marketing property that have helped to help expand strengthen the development of the business since its release into Abbey's businesses. The timely advantages of Partenon afforded Santander an possibility to reduce cost of operation and allowed them release new products in to the market in minimal time. The launch of Partenon could be a challenge and an opportunity for Abbey. As it was a new system launched, it required a lot of time and training before it could be fully implemented but proper training and steady implementation, it converted into a major source of competitive benefits for Santander.
The domination of the visa or mastercard section by the big clearing banks such as Barclays (16%), LTSB (11), RBS (16), HSBC (14), RBOS (6), and MBNA (9%) designed Abbey had little if any control on the market and this was consequently of its insufficient experience in the region. Its intend to build a new credit business by concentrate on its existing customer bottom part and prospects in the UK through strong product offerings will be a pleasant development for Santander. However, this could be more relevant in the future after Santander must have cemented its position on the market combined with the big bankers.
A organization characterised as market oriented might have: developed an appreciation that understanding present and possible client needs is fundamental to providing superior customer value; prompted systematic gathering and writing of information regarding present and customers and competitors and also other related constituencies; and installed the sine qua non of an integrated, organisation-wide top priority to react to changing customer needs and competitor activities to be able to exploit opportunities and circumvent threats (Hunt and Morgan, 1995; Kohli and Jaworski, 190; Narver and Slater, 1990).
Considering Santander's intend to build preferred products areas on a stand- alone basis, both organically and by acquisitions because of its Commercial and SME portion, it could be said that it is quite market oriented.
It can be argued that Santander is not very market focused because they mainly respond and operate utilizing their internal capacities such as human, financial and technological resources to gain market presence and share without about the needs and wishes of the customers. For example, it received Abbey for its large customer foundation and physical location and figured they can offer their services by function of procedure and technology (Partenon) to gain more customers and market stocks even though they had no prior experience in the UK market.
Santander should think about a more intense oriented method of compete in the market as against its advisable methodology which it is currently known for. As explained by (Clark and Montgomery, 1996; Fombrum and Ginsberg, 1990), aggressiveness captures the facet of a firm's strategic orientation that, in comparison to its competitors, rapidly deploys resources to improve market position.
High focus on R&D in other to recognize new services or products with popular in other to create a first mover advantage while bettering on its IT program which remains one of its major resources of competitive advantage.
The strategy evaluation method utilised in section I & II was from the position university and the Resource Based point of view of strategy and the Porter's five makes theory as they relate with how Santander operate in the united kingdom market and the pushes which affect the marketplace in general.
Findings show similarities and differences in the position university and RBV. While the RBV refer to the internal features, some of which can be intangible and largely unique assets of any organisation which they apply to gain competitive edge, the positioning school revolves around rivalling with unique resources predicated on the analysed competitive pushes of the industry. As discussed with Porter's three common strategies which can be; cost authority, differentiation, and emphasis strategy (fig 1), organisations be competitive using uncommon resources to put themselves in a profitable environment in so doing gaining competitive advantage. Both these strategies seek to exploit the organisation's functions in other to attain a lasting competitive edge.
With this circumstance and having applied both positioning and resource-based view strategy, both strategies seem to be to be employed by Santander as they both revolve around capitalising on features either by fitted into places of advantages uncovered in the external environment by the five makes or by using inside capabilities or organisational resources/features to set-up competitive advantage. In strategizing, whichever suits an company and allows it operate efficiently should be used.
As most organisations be competitive using their way to obtain competitive advantage by applying it through setting or RBV strategy, a concern that can minimise the likelihood of implement your options is the very thought of a rare tool becoming available to competitors, this may cause it to lose its competitive advantage over it opponents.
To overcome this change, continuous development and development is essential for an company for it to keep to stay relevant and be competitive over time.
Santander has shown strong prefer to compete and become one of the best banks in the UK since its entry. However, for this to keep in its expansion, high focus on market orientation is vital in other to increase business performance across every area of its procedure.
Also, continuous development of its product range should be placed into consideration although it persists further development on its technology system as this has shown to be one of its traveling forces in contending with the other major finance institutions.