STRATEGIC ANALYSIS OF A RETAIL BANKING FIRM Tracy Tong Bachelor of Commerce, University of British Columbia, 1997 PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In the Faculty of Business Administration O Tracy Tong 2005 SIMON FRASER UNIVERSITY Summer 2005 All rights reserved. This work may not be reproduced in whole or in part, by photocopy or other means, without permission of the author. APPROVAL Name: Tracy Tong Degree: Master of Business Administration Title of Project: Strategic Analysis of a Retail Banking Firm Supervisory Committee: Senior Supervisor Ed Bukszar, Associate Professor Second Reader Neil Abramson, Associate Professor Date Approved: SIMON FRASER UNIVERSITY Partial Copyright Licence The author, whose copyright is declared on the title page of this work, has granted to Simon Fraser University the right to lend this thesis, project or extended essay to users of the Simon Fraser University Library, and to make partial or single copies only for such users or in response to a request from the library of any other university, or other educational institution, on its own behalf or for one of its users. The author has further granted permission to Simon Fraser University to keep or make a digital copy for use in its circulating collection. The author has further agreed that permission for multiple copying of this work for scholarly purposes may be granted by either the author or the Dean of Graduate Studies. It is understood that copying or publication of this work for financial gain shall not be allowed without the author's written permission. Permission for public performance, or limited permission for private scholarly use, of any multimedia materials forming part of this work, may have been granted by the author. This information may be found on the separately catalogued multimedia material and in the signed Partial Copyright Licence. The original Partial Copyright Licence attesting to these terms, and signed by this author, may be found in the original bound copy of this work, retained in the Simon Fraser University Archive. W. A. C. Bennett Library Simon Fraser University Burnaby, BC, Canada Citizens Bank of Canada is a full service electronic bank that serves its members across Canada through the Internet, telephone banking, 24-hour member service centre, and two retail locations in Vancouver and Calgary. Citizens Bank is a wholly-owned subsidiary of Vancouver City Savings Credit Union, Canada's largest credit union. This paper analyzes the strategic direction of the bank's retail arm, which accounts for roughly three-quarters of firm revenue. Industry dynamics and competitive trends are forcing a migration to a cost-based strategy. Executing this shift in strategy will require a number of significant changes internally within the bank and ultimately a more comprehensive look at the bank's role within its parent company's overall strategy. iii DEDICATION To my husband, Ron... Thank you for your unwavering support and your ability to make me laugh incessantly over the last two challenging but memorable years. TABLE OF CONTENTS .. Approval ..........................................................................................................................................11 ... Abstract ..........................................................................................................................................111 Dedication...................................................................................................................................... iv Table of Contents .......................................................................................................................... v List of Figures .............................................................................................................................. vii ... List of Tables ...............................................................................................................................VIII 1 ProductslMarkets & firm Overview .........................................................................................1 1.1 Firm Description............................................................................................................... 1 1.2 Focus of paper .................................................................................................................1 1.3 Company Background .....................................................................................................2 1.3.1 Ownership Structure & Parent Company Information ................................................2 1.3.2 Company History ........................................................................................................3 1.4 Product and Service Overview ........................................................................................4 1.4.1 Product and Service Descriptions ..............................................................................4 1.4.2 Pricing .........................................................................................................................9 1.4.3 Distribution Channels ...............................................................................................10 1.5 Target Market................................................................................................................. 14 1.5.1 Current Retail Membership Base .............................................................................14 1.5.2 Consumer Trends in Retail Banking .........................................................................15 1.5.3 Target Market ...........................................................................................................17 1.6 Product Revenues and Profitability ...............................................................................18 2 Industry Analysis ................................................................................................................... 20 2.1.1 Porter's Five Factor Analysis ....................................................................................20 2.1.2 Industry Attractiveness .............................................................................................32 2.1.3 Key Success Factors ................................................................................................32 3 Internal Analysis ..................................................................................................................... 34 3.1 Generic Strategy of Citizens Bank: Stuck in the Middle ................................................34 3.2 Strategic Fit ....................................................................................................................35 3.2.1 Product Strategy .......................................................................................................35 3.2.2 Research and Development (R&D) ..........................................................................36 3.2.3 Organizational Structure ...........................................................................................38 3.2.4 Decision Making .......................................................................................................39 3.2.5 Manufacturing ...........................................................................................................39 3.2.6 Labour....................................................................................................................... 40 3.2.7 Marketing ..................................................................................................................40 3.2.8 Risk Profile................................................................................................................ 41 3.2.9 Capital Structure .......................................................................................................41 3.2.1 0 Discussion of Strategic Fit ........................................................................................42 3.3 Value Chain ...................................................................................................................43 3.3.1 Industry Value Chain: Retail Banking .......................................................................43 3.3.2 Firm Level Value Chain: Citizens Bank ....................................................................46 3.4 Primary Activities ...........................................................................................................53 3.4.1 Marketing.................................................................................................................. 53 3.4.2 Retail Operations ......................................................................................................54 3.4.3 Sales & Service ........................................................................................................57 3.5 Value Creation - Citizens Bank .....................................................................................58 3.5.1 Firm Culture ..............................................................................................................59 3.6 Financial Analysis ..........................................................................................................62 3.6.1 Internal Key Performance Indicators ........................................................................62 4 Issues ......................................................................................................................................68