ANZ Group of Companies - Assignment Example

ANZ Group of Companies ANZ is a member of the global ANZ group of companies. In New Zealand, ANZ is among the largest companies operating under six different financial brands. As at 31 December 2003 ANZ held 34 per cent of the total assets of the New Zealand banking system. ANZ was set up in 1840 thus making it New Zealand’s oldest bank. The bank has a strong legacy in Business Banking though it also offers the full range of banking options available in modern banks. ANZ Retail Distribution offers individual loans, financial advice, day- to-day banking, corporate and business banking. However since the bank operates under the ANZ group of companies it inherits its structure from the group. The banking industry in New Zealand has 19 banks registered with the Reserve Bank of New Zealand as required by law. The banking system continues to be in robust health, with a good level of profitability, high asset quality, sound capitalisation and a generally well diversified portfolio of assets. However, according to Matthews (2004): …the banking system is not immune to potential vulnerabilities. These vulnerabilities are related to concentrations of risk in a number of areas for instance ownership of the New Zealand banking system is dominated by Australian banks; indirectly this means that the New Zealand system is exposed to changes in the Australian banking system. The New Zealand banking system has also become more concentrated in terms of the number of banking groups (pp. 46-47). The group’s technology division is responsible for global delivery of ANZ's information technology solutions, security and infrastructure. The bank prides itself in delivering technology solutions that cater for simplicity, security and convenience for its New Zealand customers. The bank’s strategy is to increase its focus on core customers and geographies. It aims to bank a full range of customers while building dominance in a limited number of segments. ANZ’s priority customer segments are: natural resources because of the strong Australian natural resources client base and an established and growing network in Asia; agribusiness because of the growing soft commodity demand from Asia; and infrastructure especially in Australia and New Zealand (Elliott, 2010). The bank’s homepage URL is http://www.anz.co.nz/personal/. Strategic role of information systems Porter’s five forces is a framework that has been accepted globally as a model that could be used to better understand the industry within which a firm operates. In our case we shall apply this model to argue out the strategic role of information systems to ANZ’ s banking business. The five forces we shall be looking at as per Porter’s model are: rivalry, barriers to entry, threat of substitutes, supplier power and buyer power (Laudon & Laudon, 2010). Intensity of rivalry is generally influenced by the number of firms in an industry, diversity of firms in the industry, the rate of market growth, level of switching costs, level of product differentiation, exit barriers and industry shakeout. ANZ is a major player in New Zealand financial products with a 34 percent market share (ANZ, 2010) and to this effect Varian (2003) argues that they could use IT to further reduce industry rivalry and increase their market share. He says that information technology is helpful in collecting information about consumers, in designing product lines, and in actually producing the different versions of the product itself. ANZ could use their already huge market share to build switching costs that are substantial enough to cause customer lock-in. Customer lock-in is useful in creating a long-term substantial source of profit to the firm. One way the company could achieve this is through bundling up their products or services. From this there are two distinct economic effects involved: reduced dispersion of willingness to pay, which is a form of price discrimination, and increased barriers to entry (Varian, 2003). In as much as IT could be used to create conditions for customer lock-in by major players, ANZ would need to be wary of the role of ‘disruptive technologies’, i.e. low cost and initially low quality innovations that have the potential to unseat established industry players. According to Varian (2003): IT has, in many cases, reduced fixed costs over time, leading to more entrants; particularly in industries where there is high demand for variety [banking is an industry with a high demand for variety]…rapid reduction in costs and rapidly growing markets offer a fertile ground for competition and disruptive technologies (p. 9). Carr (2003) contributes to this by saying that only protected, proprietary technologies could be the foundations for long term strategic advantages to businesses. However, as ANZ seeks to develop such proprietary technologies it needs to be wary of what Carr (2003) refers to as ‘too much of a good thing’ – overinvestment in IT because of the dazzle of seemingly unlimited commercial possibilities brought about by new technologies. What ANZ will need to do therefore is to frame strategy and its execution within the framework of a business model as they search for opportunities to create and exploit game changing innovations (Applegate, 2008). Elliot (2010) writing in ANZ’s Institutional Division Discussion Pack talks about the group seeking to have a regionally networked model to build upon and so as that they can be uniquely placed to offer better insight to regions where the bank operates. To do this the ANZ’s Institutional Division proposes that they need to invest in technology and product development. This shows that the bank has already identified the strategic advantage that they could harness from IT. Porter’s model views substitutes as products from other industries offering competition to one’s product. With information technology’s ability to lower barriers to entry new technologies are enabling non-banking competitors to grab more of the profitable parts of the banking business (Jayawardhena & Foley, 2000). Such entrants are exploiting the unique capabilities of electronic networks and leveraging their own resources through Web based strategies. ANZ will also need to be aware that there has been a push towards standardization in IT from software to infrastructure. The drive towards standardization has been largely due to the development of network economies and the increasing influence of buyer power. With information systems customers have easy access to information and could for example take up banking services from competitors located in a different geographical location. Also with greater access to information e.g. from banking services comparison websites, customers are becoming more demanding and more fastidious. Suppliers of IT infrastructure on the other hand will also be strengthened by this thrust towards standardization due to the economies of scale in manufacture and risk reduction. One could argue that standardization would make IT suppliers weak yet the huge capital outlay required for start-up and operations and the relatively low profit margins have been the barriers to entry into IT infrastructure industry. Specific social, ethical and legal issues While information systems are renowned for their potential to create sustainable competitive advantages to businesses their potential to cause unfathomable losses are also as great. The loss we aim to look at here is not strictly the financial but that of a social, ethical or legal nature. The quickest IT infrastructure that comes to mind is the internet. According to Matthews (2004): …the number of transactions undertaken by either personal computer banking or internet banking [in New Zealand] continues to rise rapidly – a 99 per cent increase over the last five years [1999 - 2003] (p. 41). The fears over possibility of compromised confidential data and malicious attacks from outside sources have mostly been eased away with increased encryption and data security technologies to the extent that privacy is no longer an issue. The issue now as Varian (2003) points out is that of trust. With all the personalization capabilities available through continual recording and analysis of customer data, consumers want to control how information about them is used. They therefore seek assurances that their persona information will not be misused by online organisations. Benamati & Serva (2007) inform us that: … trust is an emotional response that is primarily fostered through interpersonal interactions… [while] automation may result in considerable cost savings for the bank; it may also further erode the trust that is engendered when consumers establish interpersonal relationships with branch personnel (p. 164). Therefore as banks strive to motivate customers to adopt online banking and other automating technologies, they may also need to consider carefully the implications of the resulting increase in the interpersonal distance between their customers and themselves. While inconvenient, this traditional arrangement had the advantage of interactions with a human teller who could reassure the customer that the transaction was completed successfully. Plus, accountability was clear because the customer had a paper record of the transaction and a teller who could attest that such a transaction occurred. As if the trust and human interaction issues are not enough, ANZ will have to contend with the increased costs associated with the need to comply with new regulations that govern information security within the financial industry. Additional costs come from installation of firewalls, antivirus, encryption software, authentication software and tools e.g. biometrics, etc. Other costs will include regular hiring of auditing firms to conduct security audits, review technologies, procedures, documentation, training and personnel. References Applegate, L (2008, 31 January). Crafting Business Models. Crafting Business Models Online Tutorial. Harvard Business School Publishing. Benamati, J & Serva, M. A. (2007). Trust and Distrust in Online Banking: Their Role in Developing Countries. Information Technology for Development, (13) 2, 161–175. Carr, N. G. (2003, May 1). It doesn’t matter. Harvard Business Review. 41 – 49. Elliott, S. (2010). ANZ Institutional Division Discussion Pack. Retrieved May 3, 2010, from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9Mzc0MTI4fENoaWxkSUQ9MzcyMTQ4fFR5cGU9MQ==&t=1 Matthews, K. (2004). Developments in the New Zealand banking industry during 2003. Reserve Bank of New Zealand: Bulletin, (67) 2, 35 – 48. Jayawardhena, C. & Foley, P. (2000). Changes in the banking sector – the case of internet banking in the UK. Internet Research: Electronic Networking Applications and Policy. (10) 1, 19 - 30. Laudon, K. C & Laudon, J. P. (2010) Management Information Systems (11th ed.). Prentice Hall: London. Varian, H. (revised 2003 23 March, 2001 July). Economics of IT. Retrieved May 3, 2010, from http://people.ischool.berkeley.edu/~hal/Papers/mattioli/mattioli.html Appendix I – Assignment work plan journal Day 1: Selection of company to research: ANZ, New Zealand. Get to understand the company, its key products / services and its corporate mission through the company website: http://www.anz.co.nz/personal/. This exercise took me approximately two consecutive hours interrupted by a 5 minute coffee break. Day 2: Developed a profile of ANZ based on the internet research conducted on Day 1. This profile was developed so as to assist me in knowing which aspects of the company I had not tackled and to develop ideas on how to go about obtaining answers to those questions. The profile developed showed that I needed more detailed information about ANZ’s use of information systems and whether the company did indeed view it as being of strategic advantage to their business. I wrote down a list of pertinent questions. This process took two consecutive hours with the mandatory coffee break in between. Day 3: Booked an interview with ANZ’s local branch manager to get clarification on the list of pertinent questions developed on day 2. I developed an interview template based on my pertinent questions list so as to save time and eliminate the chance of me forgetting to ask some questions on the material date of the interview. Developing the interview template took unexpectedly long because I had to first research on how to conduct good interviews and how to develop a proper interview schedule. Then the process of selecting what to ask and what not to ask added to the length of the process. Cumulatively I used four and a half hours with a five minute coffee break in between. Day 4 and 5: In preparation for the interview I did a state of the art research that consisted of reading two articles: Economics of Information Technology by Hal Varian, It Doesn’t Matter by Nicholas Carr. In Economics of Information Technology, Varian explains why information technology (IT) is central to a business and how it could help business leverage itself against its competitors. On the other hand, Nicholas Carr argues about the ubiquity of IT in businesses today to the extent that he posits that it no longer acts as a source of competitive advantage. I also read sections of the course text, Management Information Systems by Laudon & Laudon that discussed about strategic advantage of IT, and the social, ethical and legal issues. I found an article by Lynda Applegate titled Crafting Business Models to be also extremely useful with regards to understanding why and how businesses should fit their IT strategy to their business models in this era of high IT use. It took me two days to read the state of the art on importance of information systems to business and then to summarise the knowledge I had obtained from them. Day 6: I revised my interview template based on my ‘new’ knowledge obtained from the literature review I had conducted. This took 30 minutes. Day 7: Today was my interview appointment date. The interview went well and I scribbled some down answers on my notebook. It lasted 45 minutes. In the evening I took one and a half hours to consolidate my answers and to write a rough draft to this assignment. Day 8: I wrote this final copy of the assignment that I am submitting. It took me two and a half hours with my characteristic five minute coffee break in between. Read More