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5.3 Strategy

5.3.1 Concept

The object of strategic management (the WHAT) is the question as to how companies can use competitive advantage to gain added value for shareholders or simply to maintain their right to exist. Strategic management is therefore concerned with the targeted orientation of companies. Strategies are measures to secure longterm success. From an economic history perspective, long periods of evolutionary development of competitive positions are repeatedly replaced by breakthrough phases with strategic changes in course as a result of technological innovations. The challenges faced by companies are, on the one hand, the evolutionary preservation of their competitiveness in phases of stable development, and on the other hand timely agenda-setting and the adaptation of the organisational form to revolutionary innovations, otherwise survival is seriously endangered (Mintzberg 1987; Mintzberg et al. 2012).[1]

The concrete strategy—which impels the direction of the company's action— consists of a sufficiently precise description of the target situation, the necessary activities and a time horizon. The activities are a decision pathway, and not an exact plan. They are prepared by means of an environmental and a company analysis, which allow a specific business model to be conceived.

5.3.2 Environmental Analysis

The environmental analysis focuses on analysing the influential factors external to the company and derives from this the opportunities for and dangers to the success position of a bank. This market-based view of strategy considers three possible reasons for permanent success (Porter 1980, p. 4 ff.):

• Industry structure

• Strategic behaviour of competing companies

• Positioning along the value chain

The industry structure is heavily determined by the intensity of competition. The greater the competitive intensity, the smaller are the chances of success in an industry. Five competitive forces have been defined: potential new competitors, suppliers, buyers, threats from substitute products and existing competitors. Competitor analysis focusses on the strategy and possible behavioural changes of individual competitors within the industry. The third element defined, the value chain, will be addressed in Chap. 7.

Three generic types of strategy can be distinguished for industry-specific success positions:

1. The objective of the cost leadership strategy is to achieve the lowest unit cost.

Despite this low-cost strategy, the service quality must remain positive. Thanks to the lower costs, this strategy protects the bank against all five competitive forces, as the competitor will always be the first to experience difficulties in the event of declining profitability. There can only ever be one cost leader in any industry (Porter 1980, 1985).

2. The differentiation strategy aims to achieve a distinction from the competition by offering unique customer benefits. Customers are prepared to pay a higher price compared to that of a rival company, if the singularity means more to them. It is possible to achieve a higher-than-average profit only if the surplus price is not exceeded by the differentiation costs. This strategy can be selected by many providers within one industry, as long as different differentiation features are possible (Porter 1980, 1985). Both of these strategies are oriented towards the entire banking sector.

3. By focussing on one single market segment, a focussing or niche policy can be pursued. Both cost leadership and differentiation strategies are conceivable within the niche.

  • [1] Understanding this innovation dynamic is essential for the successful transformation of the existing business models of banks.
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