External Factors Affecting TSB Banking Group PLC’s Operations
Impact of Primary External Factors on TSB Banking Group PLC’s Operations
In the business era of twenty-first centuries, large developments can be seen in the business management so that the business operations can be carried in a more effective manner. At the same time, it can also be seen that frequent changes are taking place in the contemporary business world and the changes are taking place at an accelerating rate (Donaldson, Qiu and Luo 2013). The emergence of new economies is creating positive influence on different kinds of operations in the companies. Due to these positive effects, the companies are becoming able to increase their profitability along with getting the necessary competitive advantages. However, at the same time, the business organizations have to face different kind of challenges while continuing their business operations (Johnson 2014). Some of these challenges are the effect of external business environmental factors on the business operations; the fatal effect of global warming and climate change on the companies; rapid shifts in the demographics; crises in the financial markets, sudden rise in the number of corporate scandals and many others. For this reason, it is the responsibility of the business organizations to take into consideration all these aspects that is negative as well as positive aspects for the development of effective business strategies (Goetsch and Davis 2014). This particular report sheds light on two of the major contemporary management aspects for the business organizations. The first part of the report discusses about the effects of primary external factors on the business operations of TSB Banking Group PLC. The second part of this discusses about various aspects of competitive dynamics in the company. In this context, it needs to be mentioned that TSB Banking Group PLC is a major retail and commercial bank in United Kingdom and this bank is the subsidiary of the Sabadell Group.
From the above discussion, it can be seen that TSB Banking Group PLC operates in the banking sector of United Kingdom and the banking sector of United Kingdom is subject to various kinds of external business environmental forces that have both positive as well as negative effects on the baking operations of the banks. This aspect is also applicable for the banking operations of TSB Banking Group PLC. It can be seen that different external forces have influence on the bank. There are various tools available for measuring the impact of external forces on the companies. However, for TSB Banking Group PLC, LE PEST C is used. The detailed discussion is shown below:
Legal: Various legal aspects have major influence on the business operations of TSB Banking Group PLC as the bank needs to comply with different types of laws and regulations. For the implementation of safe and strong banking, the government of United Kingdom (UK) has introduced Bank of England Act and Banking Act (Murphy and Senior 2013). In addition, the authority has also introduced Banking Reform Act that put focus on the change of terms in banking culture and the structure of the banks. In the year 2013, the UK government has introduced Financial Services Act in order to regulate all the banks in UK (Coleman 2016). Thus, from the above discussion, it can be observed that the authority of UK has introduced several legal acts for the banks of UK and it is the obligation of TSB Banking Group PLC to comply with all these regulations. It needs to be mentioned that the bank has to face certain difficulties while complying with these regulations as the productivity of the bank gets affected.
Economical: In this case, the presence of certain risks and uncertainties can be seen. It needs to be mentioned that the exit of UK from Europe has developed a major challenge for TSB Banking Group PLC for continuing their business operations (Dhingra et al. 2016). In addition, as per the speculations, the condition is going to be worse in case Britain leaves the European Union by the year 2020. For this reason, the major effect on the banking operation of TSB Banking Group PLC will be the massive decline in the value of pound sterling against the major currencies all over the world. In addition, the incident of Brexit has major negative effects on TSB Banking Group PLC in the areas of capital requirement, operations, regulations and others. In this context, it needs to be mentioned that the nature of the UK banking industry is oligopoly (Feng, Li and Li 2014). According to the recent treads, the banking customers of UK have showing major interest in the process of online banking and this particular aspect is creating major business opportunities for TSB Banking Group PLC. Thus, it can be seen that economic factors have both negative and positive impact on the bank.
Political: It needs to be mentioned that the year 2016 was a challenging year for the banking industry of UK due to the introduction of different kinds of regulatory capital rules; some of them are EU Bank Recovery and Resolution Directive, UK Banking Reform Act and others (Gros and Schoenmaker 2014). All these regulations require the banks to enclose their core competences in an effective manner. All these requirements are known as Basel II implemented in the time of financial crisis in order to ensure that the banks have strengths and adequacy related with the capital reserve. In 2015, as per the requirement of Basel III, the banks are required to fund themselves with minimum Common Equity Tier 1 ratio of 4.5% of risk-weighted assets by the year 2019 (Angelini et al. 2015). For this reason, the banking operations of TSB Banking Group PLC are being affected in order to keep up with all these requirements.
Environmental: Different kinds of environmental factors have certain effects on the banking operations of TSB Banking Group PLC. It can be seen that respective authorities of UK have been taking major initiatives for bringing a low-cost carbon and resource-efficient future (Schaltegger and Wagner 2017). These particular initiatives have been affecting the business operations of every sector and there is no exception for the UK banking industry. For TSB Banking Group PLC, some of the major areas of concern are the protection of air quality, flooding and the natural habitats. In this aspect, it is important to mention about the Paris Agreement that provides the UK banks with the framework for encountering the effects of climate change in UK (Rogelj et al. 2016). It needs to be mentioned that TSB Banking Group PLC has taken various initiatives towards the environmental sustainability. Some of those major initiatives are the reduction of carbon footprint in the environment with the help of buying renewable energy, the reduction of wastes from the environment and many others. All these aspects have major influence on the banking operations of TSB Banking Group PLC.
Socio-Cultural: As per the socio-cultural aspects, the main aim of TSB Banking Group PLC is to meet the needs of the existing customers; at the same time, the bank is required to maintain the relation with the existing customers in order to ensure sustainable growth (Castaño, Méndez and Galindo 2015). It is a fact that the primary function of TSB Banking Group PLC is to provide their customers with various kinds of financial services; but, at the same time, it is the responsibility of TSB Banking Group PLC to create job opportunities for the people of UK. In this context, it needs to be mentioned that 7% of the total employment of UK can be seen in the banking industry and financial sector. There are many other factors related with socio-cultural factors. It is required for the banks of UK to change their core competence based on different types of demographic. In this aspect, it needs to be mentioned that TSB Banking Group PLC has developed their core competence as per the ageing population of the country and they have developed such financial services that can be highly beneficial for different kind people of UK (Andrew et al. 2013).
Technological: In this aspect, it needs to be mentioned that the technological advancements have major influence on the banking industry of UK and there is not any exception of this fact in case of TSB Banking Group PLC. The introduction of internet banking has changed the scenario of UK banking industry (Chavan 2013). Now-a-days, it has become mandatory for the banks of UK to cope up with the advanced technological changes. For this reason, the banks will be eliminated from the UK banking industry that is overlooking the advanced technological changes. Thus, it is required for TSB Banking Group PLC to adopt various technological innovations in their baking operations (Gutierrez, Boukrami and Lumsden 2015).
Competitive Forces: One of the major influence on the banking operations of TSB Banking Group PLC is the presence of various competitive forces. In this aspect, it needs to be mentioned that the banking industry of UK is full of competition as the leading banks of UK provided tough competitions to each other (Schaeck and Cihák 2014). The UK banking industry of capital intensive in nature and the new entrants require huge amount of capital for setting up the required infrastructure. As there is a presence of large number of banks, the banking consumers enjoy the power of bargaining. This bargaining power can be seen in different type of banking products; they are loan, mortgages, credit facilities and others (Coccorese 2013). TSB Banking Group PLC gets support from their wholesalers and the bargaining power of the suppliers is not an issue for TSB Banking Group PLC. In today’s financial sector of UK, it can be seen that the non-banking institutes are offering similar kind of products and services to the customers and it is increasing the threat of substitutes for TSB Banking Group PLC (Schaeck and Cihak 2012). Thus, based on the above discussion, it can be seen that banking operations of TSB Banking Group PLC has been affected with the above primary external factors.
I. Relevance and Influence
From the above discussion, it can be seen that competitive force is one of the major primary external factors that have its influence on the banking operations of TSB Banking Group PLC. In this case, it needs to be mentioned that Competitive Dynamics is an important part for the UK banking industry due to its high competitive nature (Chen and Miller 2012). Thus, there is not any exception of this fact in case of TSB Banking Group PLC as competitive dynamics have large influence on the policies and decision-making process of TSB Banking Group PLC.
Competitive dynamics refer to the analysis of the competition condition at the action and response so that the prediction can be done about how the companies will act or behave against the market completion or the competitors (Chen and Miller 2015). In the other hand, the term ‘competitive dynamics’ is used for providing the description of actions and reactions of the business organizations taken in order to stay alive in the highly competitive market. in order to get understanding about the company’s competitive dynamics, it is required for the firm to understand the competition and competitors of the companies (Nair and Selover 2012).
Relevance of Competitive Dynamics in UK Retail Banking Sector
As per the earlier discussion, it can be seen that the UK retail banking market is oligopolistic in nature. On a more specific note, it can be seen that there is not any balance between the banks and customers in the UK banking sector as the number of banks is less as compared to the number of customers (Banerjee, Van Hentenryck and Cebrian 2015). For this reason, it is described as oligopolistic. In case of the UK retail banking sector, it can be seen that the number of large banks in this market is less and this aspect is majorly responsible for the highly competitive nature of this market. In this context, it needs to be mentioned that the banking industry is considered as a special industry due to the combination of two separate market; first, the market for deposit where the banks act as a buyers; second, the loan market where the role of the bank is to be the seller (Platt, Fuqua and Bever 2012). However, on an overall basis, it can be said that the banks are the producers of financial products and services.
Banks that operate in the oligopolistic market are not the true price takers, but they enjoy some specific degree of market power in respect to their business customers. In this aspect, they should not ignore their competitors’ behaviors (Schaeck and Cihák 2014). The main reason is that in the oligopolistic market, the market price of the products is determined by the combined decisions of all the market players. It implies that in order to become successful, it is required for the banks of UK make the observation and necessary anticipation of decisions made by the market competitors as they should make the strategies accordingly. For example, it can be mentioned that the banks of UK have the ability to raise the margin for interest rate so that their non-interest cost can be covered; but they cannot afford to raise the interest rate margin more than their competitors as there is a possibility that they can lose the market share (Liu, Molyneux and Wilson 2013). For this reason, the competition dynamics can be considered as a game as the competitors are required to develop their own business strategies in order to achieve their objective by considering the strategies of their competitors. In this situation, the banking market moves to the equilibrium position as all the banks develop the best strategies in response to the strategies of the competitors. In the equilibrium point, banks do not want to change their developed strategies after the observation of the strategies of the competitors (Kopecky and Van Hoose 2012).
Relevance of Competitive Dynamics to Influence Policies and Decision-Making
From the above discussion, it can be observed that competitive dynamics have much relevance in the UK banking industry. Now, it needs to be mentioned that competitive dynamics is a driving force behind the policies and decision-making process of the banks. The earlier discussion states that banks of UK are developing the strategies and policies by keeping in mind the strategies of their competitors; and for this reason, they are almost indirectly forced to develop the bet policies for the banking operations (Chronopoulos et al. 2015). At the same time, there is a direct positive relation between the development of effective policies and correct decision-making process of the companies. In the presence of effective polices as per the nature of the banks, the management become able to take effective decisions for the improvements of all banking operations. At the same time, the presence of competitive dynamics can be seen behind all these aspects (Yu and Cannella Jr 2013). Thus, from the above discussion, it can be observed that better understanding about the competitors helps the banks in developing effective business polices along with undertaking correct business decisions.
II. Effectiveness of the Response of TSB Banking Group PLC
In case of TSB Banking Group PLC, it can be seen that the company has responded well over the years for the aspect of competitive dynamics. It can be observed that the company has been developing effective banking strategies in order to stay in the competitions. The responses in the form of effective strategies of TSB Banking Group PLC are discussed below:
- One major strategy of TSB Banking Group PLC was to increase the share of bank account by maintaining a more than 6% share of gross flow over the period of five years. In the year 2016, as a result of this strategy, it can be observed that there has been a growth in deposit by 13.6% worth £29.4 billion.
- Another major strategy of TSB Banking Group PLC is to bring a growth in the franchise customers from 40% to 50% over a period of five years. As a result of this strategy, some major achievements in the bank can be seen. First, strong growth in the balance sheet can be seen to 11.4%. Second, increase in gross mortgage can be seen in 2016 as compared to 2015; that is to £5.1 billion (publishing.service.gov.uk 2018).
- Another major strategy of TSB Banking Group PLC is to deploy the strong digital capabilities of the banks; and due to this, large number of customers are recommending the services of TSB Banking Group PLC and the Net Promoter Score of the bank increased by 7 points. Apart from this, independent research company, BDRC, regarded TSB Banking Group PLC as the most recommended high street bank of Britain in the year 2015 (publishing.service.gov.uk 2018).
- As a response of competitive dynamics, another major strategy of TSB Banking Group PLC is to grow their shares in the public current account market. In this strategy, the main aim of this company is to bring a growth in the current account market flow by 6%.
- TSB Banking Group PLC has discoverer the fact that the customers like to be rewarded for their loyally as being the long-term customers of the company. For this reason, the bank has been incorporating different kinds of loyalty and rewards programs for their customers (publishing.service.gov.uk 2018).
Thus, from the above discussion, it can be seen that TSB Banking Group PLC has effectively responded for competitive dynamics with the implementation of various effective strategies.
III. Areas of Improvements and Recommendations
From the above discussion, it can be seen that TSB Banking Group PLC has developed some of the major strategies in the response of competitive dynamics in the UK banking industry. They have developed major strategies so that they can get the necessary competitive advantage in order to achieve the organizational goals and objectives. The above discussion demonstrates that the bank has covered almost every areas necessary for strategic development to get the competitive advantages. However, there are some areas in TSB Banking Group PLC need improvements for getting competitive dynamics. These areas are discussed below:
- One of the major ways to get the competitive advantage is to cut the business operations having high cost along with low margins. In case of TSB Banking Group PLC, it can be seen that the bank has not take many initiatives for the exit lines having high costs and low margins. Thus, it is recommended to TSB Banking Group PLC to identify the exit lines to get competitive advantage.
- The banks of UK have different kinds of marketing activities for attracting more customers. At the same time, it can be seen that TSB Banking Group PLC does not have effective marketing campaign and standards for roles and responsibilities. As marketing activities are major deciders of competitive dynamics, it is recommended to TSB Banking Group PLC to adopt effective marketing strategies.
- Most of the banks in UK are adopting various kinds of automation tools in order to complete more number of transactions. To some extent, lack in this aspect can be seen for TSB Banking Group PLC. For this reason, it is recommended to TSB Banking Group PLC to implement different automation tool for increasing the efficiency in the banking process to get necessary competitive advantage.
From the above discussion, it can be seen that business organizations are operating in complex business environment and different types of primary external factors have influence on the business operations of TSB Banking Group PLC. These primary external factors are legal factors, economical factors, political factors, environmental factors, socio-cultural factors, technological factors and competitive forces. From the discussion, it can be observed that due to the presence of all these factors, TSB Banking Group PLC has to comply with different types of regulations and standards that are affecting the banking operation of the bank. The above discussion also shows that the banking industry of UK is full of competition due to the oligopolistic in nature. Due to the presence of less number of banks as compared to the customers, the customers get high bargaining power. At the same time, the threat of substitute products is also high as different non-banking institutions are providing same kinds of products.
As per the above discussion, it can be seen that competitive dynamics is an important aspect for the banks in UK as it has necessary relevance with the UK banking industry. In the banking industry of UK, it can be seen that the banks use to develop their banking strategies by observing the strategies of the competitors. Thus, from this aspect, it can be observed that banks always try to develop the best strategies as compared to their competitors. In case of TSB Banking Group PLC, it can be seen that the bank has undertaken several important strategies in order to stay in the competition. All these strategies provide great benefits to the bank. The study also shows that TSB Banking Group PLC needs to put more focus on some of the areas in order to stay in the competition; they are elimination of exit lines, development of effective marketing strategy and others.
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