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Key Topics
- Requirement
- Solution
- Introduction
- Company Background
- Discussion
- Ratio Analysis
- 1b): The Current Situation
- 3a). External Environment
- 3b). External Factors: Opportunities and Threats
- A. Porter’s Five Forces Model
- B. Industry Analysis
- C. External Factors Analysis Summary (EFAS)
- 4 a). Internal Environment
- A. Structure
- B. Culture
- C. VRIO
- D. Porter’s Value Chain Model
- Product DevelopmentRBC has four major products: Fixed deposits, Personal accounts, Personal Finance, Merchant Services and Personal Cards etc. (RBC Royal Bank. (2016).
- 4 b.) Internal factors
- 5 a.)Strategic Factors in Light of the Current Situation
- B. Strategic Factors Analysis Summary
- 5 b.) Necessary: Mission, Objectives
- 6 a.) Generate and Evaluate Strategic Alternatives
- 6b.) Select and Recommend Best Alternative
- 7) Implement Strategies: Programs, Budgets and Procedures
- 8) Evaluate and Control
- References
Requirement
Steps in Preparing a Comprehensive Written Case Analysis
Step 1a): Evaluate Current Performance Results In this step you need to assess who well the company the is performing. It is highly recommended that you do some financial statement analysis, ratio analysis, horizontal analysis and vertical analysis to diagnose the current financial performance of an organization.
Step 1a): Evaluate the Current Situation In this step it is important to examine the firm’s existing mission, vision, objectives, strategies and policies.
Step 2: Review Corporate Governance Determine the structure of the board of directors for the organization. Examine how well the board of directors are performing their duties which include: board leadership, strategy management, risk management, succession planning and sustainability. Identify the top management team of the company and assess how well they are overseeing the entire company.
Step 3a) Scan and Assess External Environment Perform environmental scanning in order to formulate a strategy. This involves assessing how the natural, societal and task environment affect the firm. STEEP Analysis is a great tool to use to monitor the trends and identify important variables in both the natural and societal environments.
Step 3b) Analyze External Factors: Opportunities and Threats In this step opportunities and threats should be identified from the STEEP Analysis performed in step 3a). In order to peform a complete environmental analysis you may want to consider using tools such as Porter’s Five Forces Model, Industry Matrix and External Factors Analysis Summary (EFAS). These tools will also allow for an assessment of the attractiveness of the industry and how well the firm is positioned in that industry. It will also allow for further assessment of the opportunities and threats in the environment.
Step 4a) Scan and Assess Internal Environment (Structure, Culture, Resources) Determine how the organization is structured (i.e. simple, functional, divisional, SBUs, Conglomerates). Then assess the organizational culture in the organization to determine whether it is positive or negative. Then assess the organization’s resources using tools such as VRIO and Porter’s Value Chain Model.
Step 4b) Analyze internal factors (Strengths, Weaknesses) After condcuting a thorough internal scan the next step is to use a tool such as Internal Factors Analysis Summary (IFAS) to analyze the strenths and weaknesses identified for the firm.
Step 5a) Select Strategic Factors in Light of the Current Situation In this step a full situational analysis needs to be peformed through a SWOT Analysis. The SWOT analysis will allow for creating a fit between the internal strengths and opportunities and it will allow for creating work arounds for the weaknesses and threats. The Strategic Factors Analysis Summary (SFAS) should be used to summarize an organization’s strategic factors taking into accounting the external factors from the EFAS and the internal factors from the IFAS.
Step 5b) Review and Revise as Necessary: Mission, Objectives A full review the firm’s mission and objectives need to be examined and revised before strategic alternatives can be formulaed.
Solution
Introduction
The Canadian Banking industry is dependent on the selected banks and Royal Bank of Canada is among them. This study aims to analyze the strategies of RBC along with its competitive positioning within the Canadian Banking sector for getting a better understanding of the strategic decisions taken by the organization and how it responds to the changes present in the business environment. The report begins with RBC’s introduction followed by an analysis of the current performance results and discusses the company's strategic position by analyzing strategy models like STEEP, Porter’s Five Forces Framework, SWOT analysis etc. In the end, recommendations and conclusion has been provided on the basis of the findings.
Company Background
Royal Bank of Canada
The Royal Bank of Canada is the largest bank in Canada and a multinational financial services company serving over 16 million clients and employs a staff of over 78,000 worldwide. RBC was founded in 1864 in Halifax, Nova Scotia. The headquarters of the company is located in Toronto, Ontario.The Royal Bank of Canada is a banking services providers offering a range of insurance, finance, banking, investment services and products to their corporate, individual and SME clients.(RBC Royal Bank, 2016).
Type Public
Industry Financial Services
President David I. McKay
Headquarters Toronto, Ontario, Canada
Revenue C$ 35.321 billion (2015)
The Bank has been listed as the largest Canadian company on the basis of the market capitalization and revenue by The Globe and Mail. In 213, it was ranked at 50 on the Forbes Global 2000 listings.The personal and commercial banking operations being performed in Canada are branded as RBC Royal Bank which has a network of 1209 branches and serves ten million clients. Additionally, the Canadian banks are termed as the safest bank in the world whereas the Canadian Banking system has been ranked as the soundest banking system. According to the Global Finance magazine (2011), RBC is the 11th world's safest banks. The figure given below depicts top five Canadian Bank on the basis of the total assets.
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Discussion
Current Performance Results
We have prepared financial statement analysis of Royal Bank of Canada from the Annual report of 2015.
Trading Revenue increased by 6% in 2015 compared to 2014. Reason being increase in Foreign exchange gains in the first half of the financial year. However, the interest income has substantially decreased considering the challenging market conditions
Credit Losses have increased by 6% in 2015 compared to 2014. Reason being lower personal and commercial banking.
Non-interest expenditure has increased by 6% reflecting an increase due to foreign exchange fluctuation.
Income tax expense decreased by 4% mainly due to excess allowances in the year 2015 compared to the previous financial year
Asset under management decreased by 1% compared to previous year. Unfavourable market conditions and client asset mix are the reasons for the marginal fall.
Ratio Analysis
Particulars 2015 2014
1 Efficiency Ratio 46.20% 47.80%
2 Average Loan to Value ratio- Home line products 70% 71%
3 Provision for Credit Losses 0.24% 0.27%
4 Gross Impaired Loans 0.47% 0.44%
5 Liquidity Coverage Ratio 127% 117%
6 Tier I Capital Ratio 12.20% 11.40%
The above ratio analysis consists of financial statement analysis, Horizontal analysis and vertical analysis.
1b): The Current Situation
When an organization is able to reach agreement to the vision and mission statements of the organization, the process of reaching on agreements with the strategies, objectives and policies of the organization is facilitated. Therefore, the success of the organization depends on the reasonable agreement on all these concerns and a clear mission statements is considered to be the most important strategic management tool.
The Royal Bank of Canada has established comprehensive strategic framework which includes a clear set of mission and vision defining the functioning of the organization along with the values driving the organization’s actions. The clear and defined set of vision, mission and goal has led to the immense success of the organization.
Purpose, Vision, Values, and Goals of Royal Bank of Canada are listed below:
Purpose
Helping clients thrive and communities prosper
Vision
To be among the world’s most trusted and successful financial institutions
Values
Client First: We will always earn the right to be our clients’ first choice
Accountability: We take ownership for personal and collective high performance
Collaboration: We win as One RBC
Integrity: We hold ourselves to the highest standards to build trust
Diversity & Inclusion: We embrace diversity for innovation and growth
Goals
In Canada
To become the most undisputed leader in the field of financial services
In U.S.A.
To become the most preferred partner to the institutional, corporate and high net worth clients along with their businesses.
In select Global financial centers
To become the leading financial services partners that is valued for its expertise.(RBC Royal Bank, 2016).
2. Corporate Governance
The list of board of directors of RBC is given below:
Board Member Year Location Position
W. Geoffrey Beattie 2001 Toronto, Ontario Chief Executive Officer, Generation Capital
JacyntheCôté 2014 Montreal, Quebec Corporate Director
Andrew A. Chisholm 2016 Toronto, Ontario Corporate Director
David F. Denison,
O.C., FCPA, FCA 2012 Toronto, Ontario Corporate Director
Toos N. Daruvala 2015 New York, New York Senior Advisor and Director Emeritus, McKinsey & Company
Thomas A. Renyi 2013 New Harbor, Maine Corporate Director
Richard L. George,
O.C. 2012 Calgary, Alberta Partner, Novo Investment Group
Heather Munroe-Blum,
O.C., O.Q., Ph.D., F.R.S.C. 2011 Montreal, Quebec Professor Emerita and Principal Emerita, McGill University
Alice D. Laberge 2005 Vancouver, British Columbia Corporate Director
Bridget A. van Kralingen 2011 New York, New York Senior Vice President, Industry Platforms, IBM Corporation
Thierry Vandal 2015 New York, New York President, Axium Infrastructure US Inc.
David I. McKay 2014 Toronto, Ontario President and Chief Executive Officer, Royal Bank of Canada
Michael H. McCain 2005 Toronto, Ontario President & Chief Executive Officer, Maple Leaf Foods Inc.
Kathleen P. Taylor
C.M. 2001 Toronto, Ontario Chair of the Board, Royal Bank of Canada
Edward Sonshine,
O.Ont., Q.C. 2008 Toronto, Ontario Chief Executive Officer, RioCan Real Estate Investment Trust
The strength of the corporate governance of RBC start from the very top. The organization has an independent chairman with well-informed and experienced directors who ensure the existence of standards for promoting ethical behavior within the organization, give their utmost priority to the strategic planning and continuously seek improvements in the governance practices.
Strategy Management:The strategic planning process is performed efficiently where the formulation of strategic direction, plans and priorities are supervised followed by an effective monitoring. The Board of Directors and other Executive Directors review and approve the corporate financial goals and actions of the bank which includes expenditures, capital allocations and transactions exceeding the threshold amount.
Risk Management: The management ensures that all the processes are able to identify the principal risks associated with them. The systems being implemented by the management are reviewed for managing the risks. The department also reviews the processes for ensuring the compliance applicable with the securities, corporate, regulatory and other requirements.
Succession planning: The succession planning processes are supervised thoroughly which include the appointment, selection, development, compensation andevaluation of the Chairman, Chief Executive Officer and the management team.
All these strenghts are seen to foster the managemnet of RBC and are further fostered by a proactive governance culture of RBC.
3a). External Environment
STEEP Analysis
STEEP analysis has been used for monitoring the trends and for identifying the societal and identifying the variables in natural and societal environment affecting the business of the organization.
SOCIAL
1. Consumer Confidence
2. Pension worries
3. Career attitudes
TECHNOLOGY
1. Technological arrange is speeding up.
2. Improved communication.
3. Technology develops –the now products (internet).
4. Internet business and security
ECONOMIC
1. Inflation
2. Competition from resources
3. Differing policies in the Country
4. Employment law
5. Financial Regulation
6. Canadian Dollar Strength
7. Weakness of US economy
8. Debts
ENVIRONMENTAL
1. Environmental protection legislation
2. Reduction of carbon emissions
3. Oil Sand operations
4. Discrimination issue in US
5. Ottawa branch firebombing,
POLITICAL
1. Political stability adversely affects the business decision.
2. Consumer protection.
3. The public interest must be protected by government.
4. Regulations of business activities.
Social: The social aspect includes the career attitudes, pension worries and consumer confidence. RBC can improve the career attitudes by organizing campaigns for unemployed workers for attempting to begin their own business. The RBC can also enhance the consumer confidence by marketing the low costs of capital. Pension worries might get alleviated by the Wealth Management of RBC along with subsequent campaigns which will emphasize on the emerging markets, investments in the staple sectors and firms experiencing the above average growth.
Technology: With the advanced technology, internet has improved the technology affecting the functioning of RBC. The organization has been looking for different systems and is using internet for getting their customers to be in touch with them. RBC has been using special facilities to help then advance in their productions and operations.
Economic: RBC is the leading and completive bank of Canada in the banking and finance sector. It has the most secured and successful economic strength and therefore the organization goes beyond all the struggles to provide a better economic condition for those dealing with unemployment. The strong position of the Canadian dollar might be responsible for impacting the income coming from foreign operations. Further the potential slowdown and weakness is US economy impacts its business. (Allen, J., &Engert, W., 2007).
Environmental: RBC is the largest financiers of organizations engaged in Canadian boreal forest region’s oil sands operations. These operations presents a plethora of resource- intensive environmental challenges like land disturbance, heavy water use, emission of air pollutants and toxic waste storage impacting the local residents and wildlife which led to introduction of market risks and regulatory and reputational problem to RBC. Later on, the organization stepped away from the oil sand operations and with their new policy, they made a promise of taking responsibility for their finances in the tar sands along with upholding the First Nations Rights. (Big Bank Adopts Groundbreaking Oil Sands Lending Policy, but Will It Have Teeth?, 2011).
Political: The Royal Bank of Canada shelters itself from the policies and regulation made by government. The organization has tried its utmost to remain with the government agreed policies for making sure that company accomplishes all their business operations effectively amidst the government policies.
3b). External Factors: Opportunities and Threats
An assessment on the attractiveness of the Canadian banking industry and the positioning of the RBC is performed using Porter’s Five Forces Model, Industry Analysis and External Factors Analysis Summary (EFAS). These further assess the opportunities and threats present in the environment.
A. Porter’s Five Forces Model
Potential entrants - LOW
The banks are usually seen to benefit from the economies of scale and therefore do not pose a threat. However, the capital requirement for new entrants is seen to be high for establishing the distribution channel along with credit provision to customers and advertising. The strong business positioning and brand recognition of RBC provides benefits and deters the new entrants who cannot match the level of large Canadian banks. The regulatory framework of Canada not allowing any non- Canadian entity or person to acquire more than 25 percent of a Canadian Bank unless the government approves it also poses an entry barrier. Moreover, the OSFI’s (The Office of the Superintendent of Financial Institutions) rules against anti-money laundering requires the banks to implement sophisticated monitoring system, leaving little space for the new entrants. (Ratnovski, L., & Huang, R., 2009).
Bargaining power of customers- HIGH
The customers are sometimes the suppliers in the banking industry thereby banks are seen to face an issue of deciding upon a price which will not alienate their funds supply. RBC and the Canadian Banking Industry has created a strong presence and value affecting the occupation from one of the two important forces from the powers of the customers. RBC has managed their customers effectively and has allowed to gain itself a strong customer loyalty. This strategy, used by RBC has allowed it to become the leader of the banking industry in the Canadian market.
Threat of substitutes- LOW
There is a low substitute of products and services in this industry. One major threats being faced by the Canadian banking industry is the personal consumption which reduces the rate of savings and availability of funds. The other substitutes are the credit cards being issued by retailers which are usually combined with their loyalty programs and the loans provided by the retailers. These products are existing and legitimate but their influencing power is limited and does not pose a major threat to RBC or the banking industry.
Bargaining power of suppliers- LOW
The bargaining power of suppliers in the Canadian market is limited apart from the Central Bank due to their limited ability of influencing the price which the banks are willing to pay for the investments being made. The prime suppliers are the equipment manufactures and the service provides like Microsoft and Bloomberg.The employees of the organization possess the most power over their banks. Therefore, this factor is offset due to the lack of labour and dynamiclabour market of Canada.
Rivalry among current competitors- HIGH
The prime rivals of RBC are Toronto Dominion Bank (TD), The Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC) and Bank of Montreal (BMO). The Canadian Banks do not compete on the basis of the price but focus on differentiation in the field of brand image, product features, customer services etc. There is a strong competition among these five banks and the retail and commercial loan products.
B. Industry Analysis
The attractiveness of the banking industry has been declining due to no growth, low regulatory barriers encouraging the substitution and entry, convergence of banking, insurance, trust, wealth/ securities management, fast consumer adoption of technological advances, likelihood of continue consolidation, narrowing spreads and overcapacity, increased customer buying power as the banking industry has been proceeding to increased efficiency and reduction in cost.
C. External Factors Analysis Summary (EFAS)
-
Customer requirements
The product offering is customer service and high quality service. The accessibility and availability of product and service are high through the multi-channel service offering. -
Competitive factors
The Canadian banks are seen to compete on service and quality of their products and services. This market puts emphasis on the differentiation and image differentiation using the complementary services like bundling services and additional product features. However, the primary competitive ground is on the basis of customer services and Canadian banks are therefore trying to improve themselves by serving at longer operating hours. -
Industry regulation and standards
The industry is a well regulated one having well-defined regulations and standards for customers and industry. Canadian banks do not acquire each other as a means for limiting the concentration and increasing the competition. The large Canadian banks have been held widely and their maximum holding is limited by an investor for 20 percent of their voting shares (Schaffnit, C., Rosen, D., &Paradi, J. C. (1997). -
Access to resources
The deposits, physical and labour capital are the main resources. A healthy, increasing and stable deposit base is experienced in Canadian banks. An access towards strong and dynamiclabour market is present for the Canadian Banks giving them good access of the resources. These banks are seen to be well capitalized and have no difficulties while increasing their capital.
4 a). Internal Environment
A. Structure
The organization has divisional structure which is presented as given below:
The divisional work are seen to work well as they allow the respective teams to focus on a specific product and services and with a perfect leadership the strategic objectives are supported (Services Marketing People, Technology, Strategy, 5/e., 2016)
Also this structure supports the higher morale and better knowledge to the portfolio of the division.
B. Culture
This is an integrated structure giving rise to conservatism and dependency in the process of decision making as it affects the overseas branches of this multinational. This type of system rules out the risk taking resulting in underdevelopment as there is almost no room for the manager of the periphery branch to take control of the initiative which decides on the loan. Secondly, the managers are tend to get doubtful with the modern lines of communication of telex and telephones for consulting the more detached regional offices prior to taking any decision. In this form of organization, the risk-aversion tendencies of the regional and local offices tend to become crystallized ad reinforcing of the uniformity of conservatism.
C. VRIO
Valuable Rare Worthy of Imitation Utilizable Competitive Implications
Product Development Yes NO Yes Yes Similarity
Product Support No No Yes Yes Similarity
Marketing Yes Yes Yes Yes Sustainable Advantage
Sales/ Services Yes Yes No Yes Sustainable Advantage
Human Resources as Social Development Yes Yes No Yes Sustainable Advantage
IT Yes No Yes Yes Similarity
D. Porter’s Value Chain Model
-
Product Development
RBC has four major products: Fixed deposits, Personal accounts, Personal Finance, Merchant Services and Personal Cards etc. (RBC Royal Bank. (2016). -
Product Support
In order to have a safe and stable based and for maintaining competitive advantage, RBC has outsourced most of its product support services like payment processors, plastic cards etc. -
Marketing
RBC aims to differentiate its products from the other Canadian Banks by performing virtuous marketing and brand-building methods which underline the loyalty of the customers and reminds them about the extraordinary retail services of RBC. -
Sales and Service
All the products are linked to finance and therefore bank tries its best to contribute to social responsibility and similar causes like Environment, youth, health and education. -
IT
Most of the softwares used by the Bank are acquired by a third party like Microsoft, Bloombeg etc. for their cost and their development and against the flexibility, stablity and security. These reaosn have led to become a major threat for adopting innovative banking solutions. -
HR
The strategy of the bank is supported by their most strategic asset, the human resouces. The group culture has been successfully turned into employee growhth program, strict hiring practices, reward systems and community services. -
Infrastucture
A well distribute net of branches have been established by the bank across USA, Caribbean, Brazil etc. The bank also provides ATM machines in vital places and has its headquarters at Toronto, Ontario which has a state of art furnishing with great designed interior.
4 b.) Internal factors
A. Strengths
The bank has a huge clientage of around seventeen million clients and employees over eighty thousand employees. It is considered as the largest Canadian company on the basis of market capitalization and revenue and therefore has a huge reputation. Its global operations are seen to spread across the globe operations in the Unites States, Canada and 51 other countries. Due to this leading position in its business lines, it has been enjoying the status of most valuable brand of Canada.The strong financial statements can be reflected strongly in their financial statements.
B. Weakness
The RBC enjoys a limited global popularity compared to other banks as it is operating mainly in Canada and US only. Additionally, the bank is dependent on the volatile financial market leading to various uncertainties.Additionally, the bank has been dealing with various controversies and issues like the financing of oil sand bitumen extraction, discrimination issue in US and Ottawa branch firebombing, etc.
5 a.)Strategic Factors in Light of the Current Situation
A. SWOT Analysis
STRENGTHS
-
1. Leading market position in Canada
-
2. High domestic brand recognition
-
3. Solid financial fundamentals
-
4. Loyal customer base
-
5. Experienced executive management
-
6. Growing global wealth management business
WEAKNESS
-
1. Weak US operations with ongoing losses
-
2. High cost brick and mortar infrastructure
-
3. Heavy reliance on wholesale funds
OPPORTUNITIES
-
1. Export of Canadian Bank image to other markets
-
2. Strength of Canadian dollar provides high acquisition opportunities in the foreign markets along with higher GDP growth
-
3. Global growing wealth
THREATS
-
1. Income from the foreign operations is seen to be impacted by the ongoing strong Canadian dollar.
-
2. Enduring potential slowdown in the Canadian Market and weakness in the US economy and housing market
-
3. Credit markets are impacted by the European sovereign debt crisis
-
4. Increasing global regulation
-
5. Slowing down of the loan growth due to High consumer debt levels
-
6. High potential of a flattening yield curve that would end up putting high pressure on net interest margins
-
7. Continued tightening of credit spreads
-
8. Higher non-performing loan levels in foreign target markets
On the basis of the strengths, weakness, opportunities and threats the internal factors analysis summary (IFAS), external factors analysis summary (EFAS) and strategic factors analysis summary (SFAS) have been discussed below:
External factors Weight Rating Weighed score Comments
Opportunities
Export of Canadian Bank image to other markets 0.20 5 1.00 RBC is the best Canadian Bank
Strength of Canadian dollar provides high acquisition opportunities in the foreign markets along with higher GDP growth 0.10 4 0.40 High economic growth is expected due to strong presence of Canadian Dollar
Global growing wealth 0.05 3 0.15 Higher growth in future
Threats
Higher non-performing loan levels in foreign target markets 0.10 3 0.30 Focus on the demands of international clients
Income from the foreign operations is seen to be impacted by the ongoing strong Canadian dollar. 0.05 2 0.10
Continued tightening of credit spreads 0.10 3 0.30
High potential of a flattening yield curve that would end up putting high pressure on net interest margins 0.10 4 0.40
Slowing down of the loan growth due to high consumer debt levels 0.05 3 0.15
Enduring potential slowdown in the Canadian Market and weakness in the US economy and housing market 0.10 2 0.20
Position will be better in future with economic growth
Increasing global regulation 0.10 2 0.20 Local, regional and global rules and regulations
Credit markets are impacted by the European sovereign debt crisis 0.05 3 0.15 Next strategy must be implemented
Total 1.00 3.35
Internal factors Weight Rating Weighed score Comments
Strengths
Leading market position in Canada 0.20 5 1.00 RBC is the best Canadian Bank.
Strong financial fundamentals 0.15 4 0.60 RBC has strong hold over its financial regulations
High domestic brand recognition 0.15 5 0.75 RBC is the best Canadian Bank.
Loyal customer base 0.15 4 0.60 Passionate and experienced management enhance the customer experiences
Experienced executive management 0.05 3 0.15 Good learners and hardworking staff
Growing global wealth management business 0.10 4 0.40 Higher growth in future
Weakness
Weak US operations with ongoing losses 0.10 3 0.30 Majority of the US commercial and retail operations have been sold by RBC and only the capital markets operations and the wealth management remain intact in the US.
High cost brick and mortar infrastructure 0.05 2 0.1 Emphasis on its infrastructure must be done
Heavy reliance on wholesale funds 0.05 3 0.15
Total 1.00 4.05
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Place Your OrderB. Strategic Factors Analysis Summary
Strategic Factors Weight Rating Weighed score Duration Comments
Short Medium Long
Strength of Canadian dollar provides high acquisition opportunities in the foreign markets along with higher GDP growth 0.10 4 0.40 X High economic growth is expected due to strong presence of Canadian Dollar
Increasing global regulation 0.10 2 0.20 X Local, regional and global rules and regulations
Leading market position in Canada 0.20 5 1.00 X RBC is the best Canadian Bank.
Weak US operations with ongoing losses 0.10 3 0.30 X Majority of the US commercial and retail operations have been sold by RBC and only the capital markets operations and the wealth management remain intact in the US.
Enduring potential slowdown in the Canadian Market and weakness in the US economy and housing market 0.10 2 0.20 X
Position will be better in future with economic growth
Strong financial fundamentals 0.15 4 0.60 X RBC has strong hold over its financial regulations
High domestic brand recognition 0.15 5 0.75 X RBC is the best Canadian Bank.
Loyal customer base 0.15 4 0.60 X Passionate and experienced management enhance the customer experiences
4.05
From the EFAS analysis of RBC illustrated above it can be seen that the score of RBC weight above 3 that is above average. In other words, the bank is average when it comes to dealing with the strategic factors related to the external analysis. Therefore bank should implement and design new strategies for seizing new opportunities and for mitigating the threats.
From IFAS analysis for RBC, it indicates that the total weighted scores are 4.05 depicting that the RBC has good response to the strategic factors present in the internal environment, therefore the organization is dealing efficiently using all its strengths and should focus on overcoming its weaknesses in order to compete better in international markets.
According to the strategic factor analysis summary (SFAS), the total weighted score is 4.05. Therefore, it responds efficiently with the strategic factors present in the internal and external environment. RBC is in a strong position to respond effectively towards all the marketplace environmental factors of the Canadian banking industry and should try to focus on international markets for achieving success in future.
5 b.) Necessary: Mission, Objectives
Purpose
Helping clients thrive and communities prosper
Goals
In Canada: To become the most undisputed leader in the field of financial services
In U.S.A.: To become the most preferred partner to the institutional, corporate and high net worth clients along with their businesses.
In select Global financial centers: To become the leading financial services partners that is valued for its expertise.
RBC has been effective in fulfilling its purpose of helping its clients to thrive and the communities to prosper and has also been able to achieve it decided goal in Canada by becoming the most undisputed and the best bank in the field of financial services. However, its goals of becoming the most preferred partner to the institutional, corporate and high net worth clients along with their businesses in USA is yet to be fulfilled. With majority of the US commercial and retail operations been sold by RBC and only the capital markets operations and the wealth management remain intact in the US, RBC has not be able to fulfill this goal. Additionally, its goal in some selected global financial centers towards becoming a leading financial services partners who is always valued for their expertise, RBC needs to implement some strategies.
6 a.) Generate and Evaluate Strategic Alternatives
The core strength of RBC had been its ability to understand the needs of the customers and to segment their market needs therefore it has a loyal customer base in Canada. It has achieved economies of scale only using the organic growth and has successfully differentiated itself from other leading Canadian Banks. RBC has further always been willing to upgrade its legacy and implement strategies that can foster its market value.(Kavanagh, M. H., &Ashkanasy, N. M., 2006).
-
1. RBC needs to find a suitable merger partner in the USA for increasing its market value internationally: RBC should pursue its strategic plan of M&A. with this consolidation it will be able to achieve the targets it has mentioned in its vision and mission. An appropriate merger partner must be selected by evaluating various factors like cultural fit, location, size of partners, financial condition and proclivity towards consolidation.
-
2. RBC should boost its share in the investment banking market of the USA: RBC must focus on its opportunities with large and mid-sized clients and by filling up the gaps that were left thescaling back of European Banks.
-
3. More amount of investments in multichannel platforms like online investment platforms and success performance in mobile banking: Although this solution is not unique and every bank has come up with this alternative, RBC has high probability of gaining from this alternative.
-
4. Migrating to cost-based strategy in the international markets.
6b.) Select and Recommend Best Alternative
SFF matrix was used for selecting the best alternative out of the four discussed above:
Sustainability Feasibility Flexibility Total
Alternative A 3 2 2 7
Alternative B 4 3 2 9
Alternative C 3 3 3 9
Alternative D 4 3 3 10
The best recommendation for RBC is to migrate itself to the cost-based strategy in the international markets.In the short to medium term, a cost-based strategy is selected as the best approach for achieving the member acquisition objectives. Despite all the cultural fronts and infrastructure issues, to become successful RBC has to recognize all the realities of retail banking and outlook for future and should adapt with the changing needs of external target market.
7) Implement Strategies: Programs, Budgets and Procedures
The implementation of the cost-based strategy includes challenges concerning the corporate culture of the bank and improvements in the efficiency ratio of the bank.
Corporate culture change
A corresponding shift in the culture of bank is required in migration to a cost-based strategy for supporting the business strategy. A resistance will be seen due to the heritage of the bank and therefore a smooth transition is required to manage this resistance. All the misperceptions regarding low-cost strategy must be addressed with the employees. Therefore it is important that cultural transformation cannot occur overnight and a significant commitment is required from entire company and especially from the top management during the transition period (Kavanagh, M. H., &Ashkanasy, N. M., 2006).
Improvements in the efficiency ratio of the bank.
The Bank can improve its efficiency ratio by focusing on the target market. Bank should adopt to its present efficient customer service along with focusing on the targeted basis by conducting a profitability analysis of its current customer base and further to understand the dynamics of the profitability at the customer level. This will help in understandingthe dynamics of profitability which can be implemented at the USA level.
Projected financial statements
Particulars Figures in $ Million
Assets 2016 2015
Cash and Cash equivalents 37,142 35,142
Securities 2,20,508 2,15,508
Repurchase Assets 1,76,723 1,74,723
Loans and advances 4,90,223 4,72,223
Other current assets 1,78,782 1,75,782
Fund Net assets 830 830
TOTAL 11,04,208 10,74,208
Liabilities
Deposits 697227 697227
Fund Liabilities 830 830
Other CurentLiabiities 304845 304845
Debentures 7362 7362
Long term Borrowing 20000
Equity holders 73944 63944
TOTAL 11,04,208 10,74,208
We have assumed the company has taken aid of an outside borrowing of $20000 million and Equity infusion of $10000 million. the same has been done to increase the financial leverage. He company operates at a very thick equity. Considering the type of industry and its requirements, it is quite necessary for the orgaization to procure outside funds and a cost of debt which is lower than the return on investment. With the help of outside funds the company can invest in Personal and Commercial borrowing. We have identified few Non-performing assets which are being re-purchased by the company. The asset under management needs an improvement. We have also parked certain funds in security to get more credit sanctions. As the company does not require to invest on Tangible long term assets like building and machinery, we have not done so.
8) Evaluate and Control
The given steps will be followed for evaluating and controlling the strategy. These are(Rumelt, R., 1980).
1. Fixing benchmark of performance – Benchmarks must be set by covering all the requirements. Quantitative and qualitative criteria must be set by the organization which have to be evaluated from time to time. The quantitative criteria include the ROI, net profits determinations, revenue etc. and the qualitative factors include the risk taking potential, flexibility of the plan etc.
2. Measurement of performance – The organization must implement a standard reporting and communication system for helping to measure the performance. In this process, variable objectives must be set for measuring the performance. The financial statements must be set like the profit loss account, balance sheet etc.
3. Analyzing Variance – The negative and positive deviations must be evaluated from time to time along with the reasons for causing the deviations. Corrective actions must be taken timely for overcoming it.
4. Taking Corrective Action – on identifying the deviation, corrective action must be set. If the organization notices that the performance requirements are not in accordance with the organization potential, corrective actions must be reformulated.
References
- 1. Personal and Business Banking Services - RBC Royal Bank. (2016). Rbcroyalbank.com. Retrieved 25 October 2016, from http://www.rbcroyalbank.com/
- 2. Global Finance Magazine - WORLD’S 50 SAFEST BANKS 2011. (2011). Global Finance Magazine. Retrieved 25 October 2016, from https://www.gfmag.com/awards-rankings/best-banks-and-financial-rankings/worlds-50-safest-banks-2011
- 3. Big Bank Adopts Groundbreaking Oil Sands Lending Policy, but Will It Have Teeth?. (2011). Reuters. Retrieved 25 October 2016, from http://www.reuters.com/article/idUS362545447820110106
- 4. Allen, J., &Engert, W. (2007). Efficiency and competition in Canadian banking. Bank of Canada Review, 2007(Summer), 33-45.
- 5. Ratnovski, L., & Huang, R. (2009). Why are Canadian banks more resilient?.IMF working papers, 1-19.
- 6. Schaffnit, C., Rosen, D., &Paradi, J. C. (1997). Best practice analysis of bank branches: an application of DEA in a large Canadian bank. European Journal of Operational Research, 98(2), 269-289.
- 7. Services Marketing People, Technology, Strategy, 5/e. (2016). Google Books. Retrieved 25 October 2016, from https://books.google.co.in/books?id=-4WZdB4ykPgC&pg=PA55&lpg=PA55&dq=strategic+alternatives+for+royal+bank+of+canada&source=bl&ots=vCyuBJ2IWr&sig=fRfIu-oA8bHSuVp8cdHgdy-Vt9M&hl=en&sa=X&ved=0ahUKEwiw9KyG5vXPAhUDQ48KHdkAATYQ6AEITDAI#v=onepage&q=strategic%20alternatives%20for%20royal%20bank%20of%20canada&f=false
- 8. Kavanagh, M. H., &Ashkanasy, N. M. (2006). The impact of leadership and change management strategy on organizational culture and individual acceptance of change during a merger. British Journal of Management,17(S1), S81-S103.
- 9. Rumelt, R. (1980). The evaluation of business strategy. Business policy and strategic management, 3.
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