The Strategic Position Of Lloyds Banking Group Marketing Essay

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This report will critically evaluate the strategic position of Lloyds Banking Group and propose how emerging technology may impact on the future position of the organisation. Lloyds banking group was chosen as it is a company with accessible information and the report will aid with the overall understanding of strategy and innovation within a large multinational corporation.

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As established in the introduction the company selected is Lloyds Banking Group plc (LBG). Lloyds Banking Group plc, formally known as Lloyds TSB became the U.K’s largest retail bank after the acquisition of Halifax Bank of Scotland in January 2009, Appendix 1 gives a brief time line of LBG from its origins in 1765 to its position as the U.K’s largest retail bank.

Lloyds Banking Group has a base of over thirty million customers throughout varies brands owned by the group such as Cheltenham and Gloucester and Scottish Widows, the companies assets total £1.1 trillion and a detailed view of the company’s balance sheet can be seen in Appendix 2.

In today’s economy many financial companies are experiencing some form of financial difficulty, this can be seen in the collapse of Northern Rock, Lehman Brothers and Fannie Mae. Lloyds is no exception as it was recently bailed out by the government with a £260bn loan to secure its toxic debts, this now means that the government now owns 43.5% of Lloyds.( www.ft.com/Lloyds escape plan put to test, October 16 2009).

The company however, believes it can harbour the rest of the economic recession and emerge with its position as the U.K’s largest bank still intact, a recent statement by Lloyds chief executive reinforces this statement ” the economy has moved into recession and the global financial crisis is ongoing. The outlook is tough with our retail impairments expected to increase…the key point however, is that we have a clear view if where our business is going and what needs to be done.”( http://www.lloydsbankinggroup.com/home/values ,2009 ) The statement issued advises that the company has a “clear view of where our business is going” which appropriately leads onto the next section which will critically evaluate the current strategic position of Lloyds Banking Group.

Contents

1.Introduction

This report will critically evaluate the strategic position of Lloyds Banking Group and propose how emerging technology may impact on the future position of the organisation. Lloyds banking group was chosen as it is a company with accessible information and the report will aid with the overall understanding of strategy and innovation within a large multinational corporation.

2.Overview

As established in the introduction the company selected is Lloyds Banking Group plc (LBG). Lloyds Banking Group plc, formally known as Lloyds TSB became the U.K’s largest retail bank after the acquisition of Halifax Bank of Scotland in January 2009, Appendix 1 gives a brief time line of LBG from its origins in 1765 to its position as the U.K’s largest retail bank.

Lloyds Banking Group has a base of over thirty million customers throughout varies brands owned by the group such as Cheltenham and Gloucester and Scottish Widows, the companies assets total £1.1 trillion and a detailed view of the company’s balance sheet can be seen in Appendix 2.

In today’s economy many financial companies are experiencing some form of financial difficulty, this can be seen in the collapse of Northern Rock, Lehman Brothers and Fannie Mae. Lloyds is no exception as it was recently bailed out by the government with a £260bn loan to secure its toxic debts, this now means that the government now owns 43.5% of Lloyds.( www.ft.com/Lloyds escape plan put to test, October 16 2009).

The company however, believes it can harbour the rest of the economic recession and emerge with its position as the U.K’s largest bank still intact, a recent statement by Lloyds chief executive reinforces this statement ” the economy has moved into recession and the global financial crisis is ongoing. The outlook is tough with our retail impairments expected to increase…the key point however, is that we have a clear view if where our business is going and what needs to be done.”( http://www.lloydsbankinggroup.com/home/values ,2009 ) The statement issued advises that the company has a “clear view of where our business is going” which appropriately leads onto the next section which will critically evaluate the current strategic position of Lloyds Banking Group.

3.Current Strategic Position of Lloyds Banking Group

This section is divided into three separate parts and uses proven strategic indicators to determine the current strategic position of LBG. As the company has assets spread over many sub companies ( Cheltenham and Gloucester, Scottish widows etc) the analysis will be focused on the customer service sector of Lloyds retail bank

3.1Internal Environmental Analysis

In order to understand the internal environmental analysis the company’s mission and purpose statements will be analysed.

The Lloyds purpose statement issued in the company’s website advised that their purpose is “to build deep, lasting customer relationships which help our customers achieve what is important to them.” This indicates that their strategy with customers is to create a mixture of emotional and social values with them i.e. they are creating emotional values ” what is important to them” and the social values focuses on ” lasting customer relationships.” How these values are created can be seen by using the frame for Porters value chain and applying it to LBG in figure 3.1.1.

Ref Porter.M.E, “The Competitive Advantage”, 1985

Figure 3.1.1

The main objective for the value chain is to show what activities contribute to the company’s overall margin. The margin in this instance is perceived customer values. The primary value chain activities identified for Lloyds are identified as Operations, Marketing and Sales, Customer Service and Work Allocation. These activities directly add to value creation but would not be operational without the support activities.

Lloyds core competencies is in its efficiency and customer service, its ability to quickly deal with customers requests and deal with them correctly help generate the margin that the company is looking for . The margin for many other companies such as Microsoft or Mercedes is to create economic profit but from a customer service perspective it is to provide the customer with social and emotional value. This is done so that an economical value will hopefully be created later in the savings and investment sector at LBG.

It is perceived that if a customer is happy with the company’s efficiency and service with seemingly trivial requests i.e. transferring direct debits, opening bank accounts, they will then be more likely to recognise the group as efficient when it comes to other products and services. This is especially beneficial when the customer is looking to use a product that will generate an economic profit such as mortgages and personal loans.

Lloyds see that the customer recognising their ability to carry out their designated processes efficiently and correctly as an integral part of their future, this is reinforced by the company’s vision statement “our vision is to be recognised as the best financial services company by customers colleagues and shareholders.” The vision statement is slightly unusual is doesn’t mention growth which is usually a priority and key driver for most organisations. It instead mentions the shareholders, this may be that Lloyds are trying to gain the confidence of the shareholders before beginning to focus on the growth as the main driver.

This could be due to the current recession and are trying to maintain their position as the U.K’s largest bank until the recession shows signs of declining. Once or if this does happen it is likely a new vision statement will be issued.

As the shareholders are mentioned in the vision statement this gives them a high level of power within the bank, this may be a lesson learned from the horizontal diversification that took place when they acquired HBOS, as the HBOS shareholders lost confidence due to the banks growing dept the share price plummeted resulting in the takeover.

By plotting Mendelow’s stakeholder matrix in figure 3.1.2 is possible to see what sector the Lloyds shareholders fall into:

Figure 3.1.2

From the matrix it can be seen that the shareholders would be category D, key players. As key players within the Organisation the power will be shared with the executives within the company. For Lloyds this will be Chief Executive Eric Daniels and his Executive Management Team, a view of this team can be seen in figure 3.1.3

Eric Daniels

(Chief Executive)

Helen Weir

Truett Tate

Tim Tookey

Archie Kane

Figure 3.1.3

Ultimately Eric Daniels has the power to make any decisions within the company but he can be influenced by his executive management team and the shareholders. This power structure makes up part of Lloyds’ cultural web. The cultural web is split into six sub categories and is used to show what makes up the culture of the company (figure 3.1.4)

Figure 3.1.4

Stories: From surveys conducted by Lloyds over 50% of customers believe that processes covered in the survey have improved in the last 12 months( ref Llyodstsb.com / press release, 04/03/2009). The stories concerned with the company are not always going to be from a customer’s perspective or in a positive light. According to Quarter 3 employee questionnaire (Appendix 3), only 30% of employees in former HBOS business centres are satisfied with their job compared to 88% in original Lloyds business centres, this leads to stories of unmotivated staff, unwilling to contribute to company by working extra hours and not recommending the company to friends and family as a place to work.

Symbols: In the retail sector all teams are guided by status symbols, which is based on an elementary traffic light system.

Red = under 90 % of designated workload being processed

Amber = 90-95 % of designated workload being processed

Green = 95-100% of designated workload being processed

Blue= 100+% of designated workload being processed

There is also company specific jargon that is used and understood by every colleague.

Power Structure: As covered previously in this section, Chief Executive Eric Daniels makes any decisions that will affect the company at a corporate level, these decisions can be influenced by his executive team and shareholders but ultimately lie with him. Diagram 3.1.5 gives an indication of the power structure and the decisions that are likely to be made:

Figure 3.1.5

Organisational Structure: The organisational structure for Lloyds in similar to the power structure as is hierarchical with Eric Daniel at the pinnacle filtering all the way down to branch and processing colleagues.

Control Systems: The LEAN process has strong controls over how existing processes are carried out and how new processes are formed. Another control system is the colleague grading system, this requires every colleague to be graded quarterly by a balance score card, and this is a reflection of the employee’s quality, efficiency and contribution to the company. These are carried out to ensure the colleagues are carrying out their tasks effectively and correctly

Rituals and Routines: Employees expect to have a set amount of work given to them every day and monthly meetings are held for each business centre with their respective General Manager.

After examining each aspect of the culture web it can be concluded the culture within Lloyds is regimented and static. This is due to the rigid management structure and daily routines, all further controlled by the LEAN process. This may not be a negative culture when analysing the market and field it is in. A company with thousands of employees needs a strict management and power structure to ensure a stable organisation, especially when it is required to protect and service people’s finances twenty four hours a day. This culture has proven that it can work as Lloyds now has the biggest customer base of any U.K bank, providing it with the largest market share. The culture web helps gives an indication of Lloyds strengths and weaknesses which will influence its strategic position.

To complete the critical evaluation of Lloyds’ strategic position it is necessary to examine the external environmental factors that are affecting the company.

3.2 External Environmental Factors

There are several methods that can be used to determine how the external environment is affecting the strategic position of a company, this section will cover two methods and conclude with the company’s overall strategic position.

One method that is widely used in environmental analysis is Porter’s Five Forces analysis. Figure 3.2.1 gives an indication of Porter’s Five Forces.

Figure 3.2.1

(Ref Porter, M.E, How competitive forces shape strategy, Harvard business Review, 1979.)

Bargaining power of customers: This force differs within the banking section compared to a company selling a specific product. Customers do not have a high level of bargaining power unless they are high investors within the company but these customers make up less than 5% of the overall customer base.

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Threat of new entrants: Within the banking sector there is very little threat of new entrants, the main concern can actually be rival brands merging or the acquisitions of another brands to create larger/stronger banks which will then dominate a larger sector of the market.

Bargaining power of suppliers: This does not particularly apply to Lloyds banking group, this is because it is providing a service to the customer and not a physical entity. There is some level of supply within the organisation i.e. office supplies and food supplies but this will have no effect on the overall all value of the service.

Threat of substitute products: This section poses the largest threat to the company’s market share and is closely linked with section 5. – Competitive rivalry within an industry. Currently Lloyds five different current account on offer but each bank offers very similar products to one-another so a lot of the company’s capital and time is spent on marketing new products and researching new ones. The competitive rivalry is unique to the banking sector as it offers prospective customers money and assistance to transfer from rival companies to theirs in order to gain larger market shares.

If a company’s market share is deemed to be too large by the monopolies commission is can force that company to sell parts of its infrastructure off, as it classifies the company’s success and domination unfair to the rest of the companies competing in that particular sector . This idea of political issues being one of the external environmental issues is an idea that was developed in PEST(Political/Legal, Economic, Socio-cultural and Technological) analysis. This framework will also be used to determine factors that could affect Lloyd’s current strategic position.

As mentioned previously there are political and legal implications of a company growing too powerful, this is apparent within LBG as it has recently become the focus of the monopolies commission. U.K. Chancellor of the Exchequer Alistair Darling said “What you really want to do is to have quite a substantial divestment” by RBS and Lloyds…If we don’t have more competition we’re going to end up with perhaps half a dozen big providers and that really would represent quite a major reduction in choice and that just would not be acceptable,”

If a company’s market share is deemed to be too large by the monopolies commission is can force that company to sell parts of its infrastructure off, as it classifies the company’s success and domination unfair to the rest of the companies competing in that particular sector . This idea of political issues being one of the external environmental issues is an idea that was developed in PEST(Political/Legal, Economic, Socio-cultural and Technological) analysis. This framework will also be used to determine factors that could affect Lloyd’s current strategic position.

Political/Legal: As mentioned previously there are political and legal implications of a company growing too powerful, this is apparent within LBG as it has recently become the focus of the monopolies commission. U.K. Chancellor of the Exchequer Alistair Darling said “What you really want to do is to have quite a substantial divestment” by RBS and Lloyds…If we don’t have more competition we’re going to end up with perhaps half a dozen big providers and that really would represent quite a major reduction in choice and that just would not be acceptable,” This idea of selling of parts of these banks has also been backed by the European Commission so it is likely that this has a strong possibility of happening which would drastically reduce Lloyds market share(Bllomberg.com/Lloyds sell off will boost competition,01/11/2009).

Economical: There are many economical factors that are currently affecting LBG, one of the main factors is low interest rates, this does encourage people to invest in the economical generators Lloyds offers i.e. mortgage, but the low interest rate coupled by the highest unemployment of 7.9% (statistics.gov.uk, 14/10/2009) means that they are generating revenue but not at the rate they would like.

Sociocultural Factors: One of the main sociocultural factors that is benefiting all banks is the nation’s increasing use of the internet and their confidence in using it. As more people use internet banking this means that the companies need to employ less staff the deal with the customers’ demands as they are doing it themselves. As the demographic of UK citizens that have been brought up using computers ( Educated from 1970’s onwards) is constantly increasing this may be something that banks are aware of because as the public’s confidence in using automated machines and the internet increases, the need for branch and processing staff decreases, giving the banks smaller operating costs , generating a larger profit margin. One report published by Cahoot advises that “67 per cent of internet users in London prefer to conduct their finances online, with only a quarter preferring to visit a bank” (www.easier.com/view/News/Finance, 2005).

Technological: The main technological factors that are being applied to banking is mainly focused on security. Whether its customer verification software or fraud prevention the customers security is always a top priority, “ICBA Community Bank Technology Survey, released earlier this month, 81% of the 1,280 respondents said keeping customer data secure was their most pressing issue. Fifty-seven percent said they plan to increase spending on security technology over the next two years while 51% said they will increase spending on fraud detection technology” (searchfinancialsecurity.com/Community banks to increase security spending,27,Oct 2008)

3.3 SWOT Analysis

The information gathered and processed in this chapter indicates that Lloyds is using one of its core competencies to keep its high market share and that is its efficiency, by having a strict regimented structure and a clear indication of how it creates value for its customers it intends to stay as the nation’s largest retail bank. While Lloyds strength is its efficiency in dealing with customers requests the mentality behind the efficiency also presents it weakness. The weakness is now that as Lloyds focuses on reducing process times with the LEAN project, it is losing many of its customer services skills and customers may feel isolated as their requests are no longer met with phone calls or personal letters but generic automatically produced ones. However Lloyds can argue that it now hold the largest customer base for any retail bank in the U.K so its balance of efficiency and customer service must be right. This balance may change in the future as customers become more accustomed to dealing with computers and not place so much emphasis on the level of personal service.

Since the “credit crunch” shows no signs of receding yet and as other companies continue to struggle this may present Lloyds with more opportunities for horizontal diversification. If other banks begin to struggle (similar to HBOS) Lloyds may again acquire another national bank, further cementing itself as the U.K’s most powerful bank. This would all depend on certain regulatory commissions. Already Lloyds are drawing the attention of the monopolies commissions due to its size as previously discussed, this could therefore prove a threat to Lloyds if the Monopolies commission decides parts of Lloyds are to be sold off to ensure fair competition.

3.4Strategic Conclusion

From the analysis conducted in this chapter it is apparent that Lloyds current strategic position is at the pinnacle of the U.K banking sector ,which through its continuing of core competencies such as efficiency and its strict work driven culture within the company ,it intends to stay. This strategy may only be until the economic recession has died, but the mission and vision statements both support this evaluation.

4.Emerging Technology

This section will identify emerging technologies and how they may impact on the future position of Lloyds Banking Group. It will not be specific to one technological advance but to an area of technology that is already present within the banking sector. This will be divided into three sub categories, each with a specific piece of technology.

4.1 Signature Verification

“We use signatures everyday to authorise credit card transactions, documents and contracts” (Ravi Das, Consultant for HTG Solutions, Keesing Journal of Documents of Identity , issue 24 June 2007). The use for verifying signatures has existed for hundreds of years, for this time the signatures have always been verified by human judgement. This process not only takes time to evaluate the signature but may result in an error as it is being performed by a human. Signature verification technology eliminates both of these problems created by human verification, the time taken is reduced to the processing capability of the computer which will be almost immediately and it illuminates the possibility of a mistake.

One company that supplies signature verification software for payment transactions and in electronic processes is Softpro. Their product Signplus “encompasses data and signature storage, maintenance and presentation as well as signature verification.”(www.softpro.com/products/signpro , 19/10/2009)

This technology is not necessarily emerging today, but the advancement in computer processing power behind the software now means that signatures can be verified instantly. Therefore the technology not emerging, buts its ability to be integrated into the banking sector is emerging.

4.2 Facial Recognition Software(FRS) Combined With Fingerprint Recognition

Facial recognition software is another security feature that is not necessarily emerging but increased computer power has made it available to mainstream companies. Companies such as Toshiba and Asus already use facial recognition software in their laptops known as Recognition 2.0.2.32 and Smartlogon 1.0.0005 respectively ( www.theregister 19/02/2009). The laptops use webcams in conjunction with facial biometric software as an alternative to the more conventional username and password logon (www.theregister 19/02/2009). This type of software can not only be used as a security measure within the banking sector but can also be used to service customers more efficiently, this will be examined in more depth in section 5. The need for high computer processor power is due to the complex algorithms used in recognition software.

The continual increase of computer processing power is not the only advancement in this field that will help bring FRS to the mainstream, the development of new less complicated algorithms will also help. These new algorithms are being developed by a team of engineers at Florida Atlantic University, their technique for implementing the algorithm “is not only faster and works with low resolution images such as CCTV, but also solves the variation problems caused by different light levels and shadows.” (www.gizmag.com/face-recognition-algorithm, 22/10/2009)

The two-fold advancement in processing power and software means that FRS is becoming easier and cheaper to use. This technology can also be combined with other security features such as fingerprint recognition.

Fingerprint recognition has been around for almost a century, since being in 1914 by Sir Francis Galton it has lasted the test of time because of fingerprints’ uniqueness and the ease in acquisition of fingerprints. Nowadays fingerprints are registered straight into data bases where they can be extracted at anytime if needed, while this technology is not emerging it will be used in conjunction with the previous methods to ensure the highest level of security. The next section indicates how this technology could be implemented.

5. Implementing Technology

The technology identified in section 4 can be implemented into the company in many different ways. It can be used as security for personnel entering business centres or as previously acknowledges, the FRS could be used for employees to log onto their computers but these ideas would not add any value to the customer if implemented. This section will examine the possibility of integrating the emerging technology with the view of adding to value to the customer.

One of Lloyds’ core competencies is its efficiency, it is how quickly and correctly they deal with a customer’s request. Since it has implemented LEAN into its processes, any software or piece of technology that would add to the efficiency of a process would be greatly received. This is where signature verification software could excel in Lloyds.

In Lloyds Glasgow processing centre the implementation of LEAN has meant a dramatic decrease in the number of separate entities that make up a process. The entities that have been removed are mostly based around contact with the customer, this type of reduction has been mirrored across all Lloyds sites. An example of a pre LEAN process compared to a post LEAN can be seen in Appendix 3

For a specific example the process of a customer changing their name or address has been examined. As can be seen from Appendix 5 the process is now dominated by verifying the customers signature and this constitutes 70% of the daily workload for the Change of Name and Address Team (CONA). The work is undertaken by 32 staff in the one CONA team, if Lloyds brought in the software that automatically verified the customer’s signature and processed this then the workload would effectively be cut by 70%. From Appendix 5 it can be seen that any signatures that cannot be verified then a predetermined letter is sent to them, a task easily capable of a computer.

This is just an example of one process that would benefit from signature verification software, In Glasgow Service Centre alone, there are six more processes that would benefit highly if implemented, especially as Lloyds continue to use LEAN the mentality to drive towards the automation of processes is apparent.

5.1 Implementing Facial Recognition

Facial recognition can be used, not only in customer security but also in improving customer service. It can add to efficiency by automatically recognising a customer when they walk into a bank and their information will be on the member of staffs screen when they arrive at their designated desk. This may only slightly add to efficiency but could be the first step in the ladder to the branch becoming completely automated with the customer interacting with a computer interface in the future.

5.2 Implementing Facial Recognition Software with Fingerprint Recognition

If Lloyds were to manufacture a “hole in the wall” that combined FRS with fingerprint recognition this would show customers their level of commitment to security increasing the customers’ emotional value. If the machine were to be patented this could prevent the threat of new entrants as it would be established as the first or original bank dedicated completely to customer safety. This would avoid the threat of new entrants and may also provide more of a market share. The improved “hole in the wall” on its own would simply not lead to the idea of a completely secure bank but using this in conjunction with the other security methods mentioned previously would add to the overall security and efficiency of the organisation, as it would dramatically reduce the risk of a customer identification being stolen if their fingerprint and verification of their face was required before a transaction.

6. Impact

If the improved security measures along with methods in increasing workload capabilities mentioned in the previous chapter were implemented into Lloyds it could lead to an increased market share which is what would be the main catalyst from the customer services perspective. The results to the questionnaire in appendix 4 concluded that today people are valuing the security of their money before their satisfaction with the service they received, therefore the implementation of the technology could increase Lloyds competitive advantage within the banking. As people’s perception of the bank changed if Lloyds were to implement the security features, this would lead to a change in the cultural web.

The stories people told about the organisation would change from it being an ordinary bank to one that they feel their money is safe with and they know any requests they make will be dealt with efficiently and effectively.

In regards the companies value chain the activities will be the same but the margin will be greater as there will be a decrease in the customer service and operations due to verification software replacing many staff, this would also lead to a decrease in the number or staff required in human resource management. The only increase in the value chain would be I.T development as more computers and different processing technology will require regular updates and services to ensure efficient work.

If these implementations were to take place it can be argued that it would benefit the future strategic position of the company. This would be due to Lloyds increasing their core competency of efficiency while adopting security minded stance on banking. These assumptions are also based on the understanding that the populations increase in use of computers and confidence in security software coupled with an increase in ID theft will continue to increase. If they do and Lloyds have adopted the security and process measured stated in section 6, then they may have the perfect balance of a bank that people can rely on to look after their finances effectively and securely but also deal with any products/requests they need quickly and correctly.

This would give Lloyds a larger competitive advantage over other banks but only of the technology was implemented before the other banks. The impact on the company would also coincide with the company’s vision and mission statements that they want to “help customers achieve what is important to them” and “be recognised as the best financial services company.”

7. Conclusion

This report has critically evaluated the strategic position of Lloyds Banking Group and how emerging technol

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