ROI for Retail Banking Industry
Section 1
Read:
- Reeves, Love, and Tillmans, “Your Strategy Needs a Strategy,” Harvard Business Review, September 2012, 2-9.
- Porter, Michael E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review (January), 24-40.
Questions:
- Porter’s five-factor model provides a structure for analyzing the investment value of an industry or market/submarket, i.e., how profitable the average firm in the industry will be. Using this structure, assess whether each of the five factors is “good”, “bad”, or “uncertain” news for the retail banking industry (e.g., Wells Fargo, Fifth Third, etc.). Based on this analysis, what level of ROI would you expect firms in the industry to achieve, on average?
- Why does Porter not include market size and growth rate when determining the profitability of an industry or market/submarket?
- What is the right “style” strategy for the retail coffee market? What is the risk of pursuing this style?
SECTION #2
Read:
- Porter, “What is Strategy?” Harvard Business Review, November 1996, 61-78.
- Barney, Jay (1991). Firm resources and sustained competitive advantage. Journal of Management, 17 (1), 99 – 120. (Skim read – understand VRIN framework.)
- Christensen, Johnson and Rigby, “Foundations for Growth: How to Identify and Build Disruptive New Businesses”, Sloan Management Review, Spring 2002, 22-31.
- Christensen, C. M., M. E. Raynor, and R. McDonald (December 2015). What is disruptive innovation. Harvard Business Review, 44-53.
- Markides and Oyon, “What to Do Against Disruptive Business Models”, MIT Sloan Management Review, Summer 2010, 25-32
- Christensen, Anthony, Berstell and Nitterhouse, “Finding the Right Job For Your Product”, MIT Sloan Management Review, Spring 2007, 38-47.
- Dawar, “When Marketing Is Strategy” Harvard Business Review, December 2013, 101-108
Questions:
- What is sustainable competitive advantage (SCA)? How does a firm get/keep it??
- According to the 2015 Christensen et al. article, how do managers often misunderstand the concept of disruptive innovation?
- What is the link between disruptive innovations and SCAs?
- Why are disruptive innovations so difficult for incumbents to compete against?
- What are the major implications of the Porter article for marketing strategy?
- Which of Porter’s ideas/concepts, if any, might you question or challenge?
- Does the 2007 Christensen article support Porter’s concept of strategy? Does Dawar?
Applying Porter’s five-factor model to the retail banking industry:
- Threat of new entrants: uncertain (barriers to entry such as regulatory requirements and brand recognition may deter new entrants, but new fintech firms are disrupting traditional banking services)
- Bargaining power of suppliers: good (there are many suppliers of banking technology and other inputs)
- Bargaining power of buyers: bad (customers have significant power to negotiate fees and rates, and can easily switch to competitors)
- Threat of substitutes: bad (customers can easily switch to alternative financial products such as credit cards, peer-to-peer lending, or cryptocurrency)
- Intensity of competitive rivalry: bad (there are many competitors in the industry competing on price and service differentiation)
Overall, this analysis suggests that the retail banking industry faces significant challenges in maintaining profitability due to high competition, customer bargaining power, and the threat of substitutes. Therefore, we would expect firms in the industry to achieve a moderate ROI, below average compared to other industries.
Porter does not include market size and growth rate in his analysis because they do not directly determine the profitability of an industry or market/submarket. Instead, he argues that the five competitive forces he identifies determine the average profitability of firms in the industry, regardless of its size or growth rate. However, he acknowledges that market size and growth rate can indirectly affect the competitive forces, for example by influencing the bargaining power of suppliers or buyers.
