Strategy and Innovation HSBC Holdings
Executive summary
HSBC Holdings Plc is headquartered in London, United Kingdom. Being one of the largest banks in the world, HSBC has an international coverage that is comprised of more than 10,000 offices in approximately 82 states and territories in Middle East Europe, Asia, the United States of America, and the Asia-Pacific Region (Lu, 2014, p. 1270). Guided by its mission, HSBC aims to achieve a significant amount of growth through the promotion of commercially and customer-centred activities. In order for HSBC to compete and achieve its competitive advantage, the organization should undertake a strategic analysis that covers both the micro and macro examination of its environment. Appropriate strategy tools such as PESTLE, SWOT, and VRIO analysis will be utilized to analyze the internal and external environment of the firm while identifying and analyzing the most essential business model.
Macro-Environment Analysis
Changes in the UK macro environment could result in a direct impact on the HSBC holdings as well as other players in the bank.
This PESTEL analysis provides details on operating challenges that HSBC is likely to face in the macro-environment. For instance, although HSBC would be profitable in the UK environment and register a high trajectory under normal condition, the unstable political environment can affect its growth.
PESTEL Analysis
| Political Ø HSBC is predisposed to the political uncertainty surrounding the Economic Union (EU) Ø Political stability is a strength that will encourage the firm’s growth Ø Brexit has created political debates and uncertainties Ø Brexit could also create growth opportunities (Lu, 2014, p. 1271). Ø Recent increase in crimes and violence is a cause of concern for the bank Ø UK has stable relations with other countries in the world Ø UK has a great influence on global cultural, economic, and political affairs thus the company’s operations are protected
| Economical Ø Records by World Bank (2018) show that the UK is among the largest economies globally. Ø 2019 records show an inflation rate of 1.7% which is close to the target by the Bank of England (BBC, 2017, p. 1). Ø The UK is an investment hub for organizations from different parts of the world. Ø Popular country for foreign direct investment (FDI).
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| Social factors Ø Large consumer market and a population of 67million as of 2018. Ø HSBS has an opportunity with the ageing population (Menuhin & McGee, 2001). Ø High costs of education and living – HSBC should satisfy the needs of the population in the form of college savings, mortgages, and retirement planning.
| Technological Ø HSBC can apply digital technology to digitize and automate its operations Ø It can also launch of “LinksScreen” and “Move Money” strategies
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| Legal Ø HSBC will need to comply with legal requirements such as the Employment Act of 1996 and the Equality Act 2010 | Environmental Ø Weather challenges would reduce profitability due to compliance rules Ø HSBC would benefit from tourism increase during summer (BBC, 2019, P. 1) Ø HSBC can participate in initiatives to promote environmental awareness |
SWOT Analysis
Understanding the company’s SWOT analysis will enable the management to understand the competitive landscape such as to influence the overall competitive advantage of the organization.
| Strengths Ø HSBC has more than 6,600 offices in approximately 80 countries in South America, Africa, Europe, and Asia. Ø Ranked amongst the leading banking firms in the world Ø HSBC has financial stability and strong brand reputation that helps to ensure stakeholder and customer trust Ø HSBC has a diversified base of customers Ø HSBC has an extensive investment in technology and a high ability to handle risky situations effectively (HSBC, 2011, p. 1) Ø Firm has undertaken various cost-reduction measures that have benefited its operation and promoted long-term profitability
| Weaknesses Ø The retail banking sector is weak in relation to its competitors Ø Diminishing customer base in the US has contributed to the firm’s financial weakness (Gakovic & Yardley, 2007). Ø Damaged business and brand reputation as a result of the reducing economy. Ø Increasing vulnerability due to its relations with the small business sectors. |
| Opportunities Ø HSBC stands high opportunity to expand its business to the global market. Ø Diversification opportunities such as to increase its customer base globally. Ø Opportunity to lower its interest rates in order to boost its market share. Ø Opportunity to grow its revenue through the inclusion of generation x and baby-boomer population Ø Strong capitalization provides HSBC with the opportunity to strengthen its market position (Gakovic & Yardley, 2007). | Threats Ø HSBC is likely to face a threat of financial volatility and unstable economic scenarios such as recessions and market downfall (Gakovic & Yardley, 2007, p. 21). Ø Unethical practices by financial institutions can decrease customer trust in the firm. Ø Defaults in the housing industry could hamper the firm’s profitability. |
Porter’s Five Forces
Understanding the firms’ Porter’s five forces will enable the organization to achieve its vision of being the choice bank for the individuals and organizations that aim at creating social, community, and environmental benefits.
Bargaining power of Buyers – Low
- HSBC industry has a high number of suppliers compared to firms that offer products or services.
- Buyers have fewer options to make their purchases thus their control on the prices is low.
- Income level is low thus buyers prefer to purchase in low prices (UK, 2018, p.1).
- HSBC has a high customer base due to customer loyalty, an aspect that weakens their bargaining power.
Bargaining power of suppliers – Low
- Low supplier bargaining power of products such as bank capital while the suppliers of computer equipment are many thus the power of suppliers is weak (Menuhin & McGee, 2001, p. 1).
- The suppliers of firm credit cards are few thus have moderate bargaining power and could extract high prices from the firm.
Threats of New Entrants – Weak
- The threat of new entrants is weak due to the fact that HSBC enjoys economies of scale, an aspect that is difficult to achieve in the financial sector.
- Firms that produce large volumes such as HSBC have an advantage of economies of scale which makes the process of production more expensive for other firms (Worthington & Welch, 2011, p. 197).
- HSBC also invests in innovation and designs, an aspect that most consumers are often looking for.
Threats from Substitute Products – High
- The availability of the internet has increased substitutes such as Pay Pal and Western Union, among others.
- Customers need low-prices, convenience, and high efficiency, an aspect that creates the need to opt for available substitutes.
The rivalry of Existing Players – Low
- Rivals in the financial industry are low where HSBC operates.
- Rivals aim at becoming the market leaders.
- HSBC focuses on differentiation strategies to reduce the effects of the rival’s action in order to retain the base of the customer with the market position.
VRIO Analysis
The VRIO analysis will consider internal resources to ascertain whether they provide an unused competitive advantage, temporary competitive advantage, sustained competitive advantage or competitive disadvantage.
| Resources and Capabilities of HSBC: | Value? | Rare? | Costly to Imitate? | Organization? | Competitive Implication |
| Financial Resources: Ø Resources are valuable in investing in arising external opportunities (ONS, 2019) Ø Helpful in combating external threats. Ø Financial resources are rare since they are possessed by few companies only Ø Costly to imitate since they have been acquired through the accumulation of prolonged profits (Worthington & Welch, 2011, p. 197). Ø New competitors would require high profits and a long period to accumulate similar resources Ø Organized as they are used to invest strategically, combat threats, and take advantage of new opportunities. Ø Source of sustained competitive advantage | Yes
Yes | Yes
Not Rare | Yes
No | Yes | Sustained Competitive Advantage |
| Local Food Products Ø Food products are highly differentiated and a valuable resource Ø They are not rare since they are provided easily in the market. Ø HSBC can invest in this resource since it is valuable Ø Can be acquired by rivals and entrants with a good investment in R&D | Yes | No | No | Competitive parity | |
| Employees: Ø HSBC employees are highly trained, an aspect that increases productive output. Ø Employees are loyal thus high levels of retention (translates to higher value) Ø Better compensation and work environment ensure they do not leave the company. Ø Loyal employees and retention levels for the organisation are high (BBC, 2011, p. 1). Ø Not costly to imitate since other companies can train their employees | Yes
Yes | Yes | No | No | Temporary Competitive Advantage |
| Patents: Ø Valuable as they enable HSBC to sell its products without any form of competitive interference thus resulting in higher revenue. Ø Patents provide licensing revenue in the event that it licenses the patents to other manufacturers (The World Bank, 2018) Ø Rare in that they are not available or possessed by competitors easily Ø Difficult to imitate due to legal protections Ø Not well organized. HSBC Holdings is not using them to the full potential Ø Unused competitive advantage. Can be a basis of sustained competitive advantage.
| Yes | Yes | Yes | No | Unused Competitive Advantage |
| Distribution Networks: Ø Distribution networks are valuable in that they help to reach out to additional customers. Ø Increases revenue for the holdings. Ø Ensures easy translation of promotion activities to sales since products are easily available. Ø Distribution networks are rare since competitors would need additional time and investment to generate a better version. They are possessed by a few firms. Ø Difficult to imitate since it has been developed gradually for a long time. Ø Competitors would need to invest in time and money Ø Organized in that company often uses to reach to its customers Ø Source of sustained competitive advantage | Yes | Yes | Yes | Yes | Sustained Competitive Advantage |
| Cost structure Ø Not a valuable resource since the production methods cause higher costs than its competitors thus affecting the firm’s profits
| No | No | No | Competitive Disadvantage | |
| Research & Development: Ø R&D costs are higher than the benefits derived from innovation (BBC, 2011, p. 1). Ø Few innovative breakthroughs thus making R&D a competitive disadvantage Ø R&D teams should be improved to cut costs | No | No | No | Yes | Competitive Disadvantage |
The VRIO analysis identified that the distribution networks and financial resources provided HSBC Holdings with a sustained competitive advantage. The patents have not been exhausted thus are an unused competitive advantage. The local food products provide a competitive parity while the cost structure and R&D act as a competitive disadvantage.
HSBC Strategies
HSBC Holdings has a high potential to establish indomitable strategies in the innovation and product development sector. However, the organization must take advantage of skilled employees and innovative technology to achieve a competitive advantage. As shown in the VRIO analysis, the company has not taken advantage of the R&D thus its innovation is lagging behind. Being at the top position, HSBC should incorporate advanced innovation and strategic approaches to maintain a new outlook, stay ahead of competitors, and meet changing customer needs (Dubey et al., 2019).
Five Year Plan
Based on the PESTEL, SWOT, Porters five forces, and VRIO analysis, HSBC Holding should:
- Invest in generic strategies to differentiate itself from competitors through cost, price, place, and product strategies.
- Make use of R&D to adopt advanced technological strategies and innovations to remain ahead of competitors.
- Train employees to win customer trust and confidence (Taylor, 2017).
- Prioritize growth strategies to venture into the global market widely
- Make use of social media platforms to understand customer needs and preferences
Business Model in the Context of Innovation and Technological Disruption
Cloud Computing
The application of cloud computing will enable improved customer service while improving productivity and efficiency (Sibanda, Ndiweni, Boulkeroua, Echchabi, & Ndlovu, 2020). HSBC should consider the implementation of an intense-wide cloud strategy to ensure the optimum mix of private, traditional, and public clouds to create a competitive advantage.
Artificial Intelligence (AI)
In order to simplify mobile banking and ensure 24/7 access to customer banking operations by customers, HSBC should adopt artificial intelligence. This will also help to diminish fraud, boost security, and boost risk management strategies.
Instant Payments
HSBC Holdings should take advantage of technology to invest in instant payments in order to improve efficiency and achieve customer satisfaction (Barnes, 2002). This will help to achieve transaction speed such as to improve banking experience and increase the experience of customers.
Other strategies that the organization can adopt include big data, robotic process automation (RPA), voice interfaces, and cyber resilience and security.
Conclusion
The analysis has shown that HSBC is a successful financial institution that has managed to stand out from its competitors for a long time. This is because HSBC has essential resources in terms of employees and technology to expedite its activities and organizational objectives. In future, however, there is need for the organization to invest in innovative approaches in terms of advanced business models, recruitment and training of employees, and product development in order to benefit from competitive advantage and achieve sustainable growth.
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