External Analysis Of bank of America
Describe how the 7 elements of the General Environment have an impact on Bank of American
The Demographic segment is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution. Demographic segments are commonly analyzed on a global basis because of their potential effects across countries' borders and because many firms compete in global markets.
economic environment refers to the nature and direction of the economy in which a firm competes or may compete. In general, firms seek to compete in relatively stable economies with strong growth potential. Because nations are interconnected as a result of the global economy, firms must scan, monitor, forecast, and assess the health of their host nation as well as the health of the economies outside it.
political/legal segment is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding interactions among nations as well as between firms and various local governmental agencies. Essentially, this segment is concerned with how organizations try to influence governments
The sociocultural segment is concerned with a society's attitudes and cultural values. Because attitudes and values form the cornerstone of a society, they often drive demographic, economic, political/legal, and technological conditions and changes.
technological segment includes the institutions and activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials.Given the rapid pace of technological change and risk of disruption, it is vital for firms to thoroughly study the technological segment
global segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets. For example, firms competing in the automobile industry must study the global segment. The fact that consumers in multiple nations are willing to buy cars and trucks “from whatever area of the world” supports this position
sustainable physical environment segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to those changes with the intent of creating a sustainable environment
(for organizational purposes use a clearly labeled paragraph for each element of the general environment).
In a concluding paragraph on the General Environment discuss possible trends, impacts, concerns… of the two or three most salient elements of the General Environment on your firm.
Using Porter’s Five-Forces model examin each of the five elements
Threat of New Entrants
Identifying new entrants is important because they can threaten the market share of existing competitors --- discuss possible barriers to entry
Bargaining Power of Suppliers
Increasing prices and reducing the quality of their products are potential means suppliers use to exert power over firms competing within an industry. If a firm is unable to recover cost increases by its suppliers through its own pricing structure, its profitability is reduced by its suppliers' actions.Footnote A supplier group is powerful when:
Bargaining Power of Buyers
Firms seek to maximize the return on their invested capital. Alternatively, buyers (customers of an industry or a firm) want to buy products at the lowest possible price—the point at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers bargain for higher quality, greater levels of service, and lower prices
Threat of Substitute Products
Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces.
Intensity of Rivalry among Competitors
Because an industry's firms are mutually dependent, actions taken by one company usually invite responses. Competitive rivalry intensifies when a firm is challenged by a competitor's actions or when a company recognizes an opportunity to improve its market position
(again, for organizational purposes use a separate paragraph for each of the five elements).
Include a concluding paragraph summarize the impact of the five forces and why you believe this to be an attractive or unattractive industry.
Analysis of Business Environment Aspects of Bank of America
The Demographic segment
The bank of American is seeking to grow into the global market especially the African, American and Asian markets. Since 1998 when the bank acquired NationsBank, it has continuously run its campaigns starting the year 2000. The campaigns were done on various radio and TV stations around the world aiming at widening its market base. The first TV and radio advertisements targeted the Vietnamese, Korean, Spanish and Chinese markets. Various advertisements were done by different teams who ensured that they incorporate foreign country’s cultural aspect or norm for the advertisement to be received well and create an impact on the banks business. Bank of America Merrill Lynch says "the private sector will play a pivotal role in addressing longevity challenges" (Bank of America, 2017) the firm predicts that the global ageing population will increase their healthcare financials and consumer goods, while the elderly enjoy spending more in their retirement as the young as saving and investing more.
The political segment explains the role played directly by the government of indirectly by the government institutions to shape up the company business. This role includes government policies and trade regulations that are meant to control and restrict businesses to bring about stability in business. The bank is involved in politics by coming up and maintaining a political action committee program that regulates the manner in which the bank or its employees involvement in political affairs. Though the bank does not provide funds directly to the PAC program, it provides the legal framework to allow its employees and partner’s participation in politics. The PAC program is funded by well-wishers, employees’ voluntary personal contributions and interest parties. The contributions from the PAC program are meant to support political parties, candidates and committees whose aspirations conform to the requirements of the program and are consistent with the bank’s interests.
The socio-cultural segment
The social cultural environment involves the society way of life and their attitude towards banking. the bank of America has involved itself in community projects over the years to b basically change the attitude and pull more people to the banking industry. The climate change advocacy is a major project of the bank of America whereby it campaigns for clean energy and a low carbon economy.
The economic environment involves the various economic factors that affect the bank such as interest rates, levels of disposable income GDP, inflation rates and the general economic growth. The bank of America has also realized that they need to address climate change as it also affects their economical environment. The bank is committed towards financing the transition to a low-carbon sustainable economy. In 2007, the bank set aside a budget of 20 billion US dollars towards the low-carbon and sustainable business activities that was carried out in 10 years. Years after achieving their commitment, the bank now is commuted towards allocating another 125 billion US dollars towards the initiative (Bank of America, 2017).
Sustainable physical environment
Refers to the conditions in which an organization thrives. The bank of America does not work in isolation of physical factors. It is also concerned with natural disasters, pollution and whether patterns. The bank has dedicated a group of leadership that is focused on matters concerning the physical environment. The team of experts has come up with an environmental and social risk policy (ESRP) which is an indication of how dedicated the bank is to matters of environment. The framework is designed to meet the changes that occur in business operations and risk tolerance in order to meet the needs of its customers (Bank of America, 2016).
As a financial institution, the bank understands the risks across all its business activities, customers and stakeholders. If the customers are affected by the physical environment factors than the company is also affected therefore the company has taken measures to work with stakeholders to determine the most important environment issues that have the capacity to challenge their business environment (Bank of America, 2016). The bank’s commitment towards low-carbon and sustainable business initiative cuts across its environmental and economic interests.
Technological and global segment
Technology is a point of concern in the current growing business environment and its importance cuts across most business aspects. The bank has invested in banking technology to ensure that its customers get the best of services. It has a technology team in charge of developing high technology infrastructure around online banking, mobile banking, risk & capital management, enterprise data management, and processing of payments. The company has also invested on cyber security with the third largest mainframe environment in the world. There is a growing investment globally in the banking sector. Technology is one of the segments that has enabled the bank of America to outgrow its competitors around the world.
Michael porter came up with five main models to help business founders understand the nature of competition:
Intensity of rivalry among competitors; the bank of America is highly competitive because their financial industry has been operating for many years. Upcoming banks try to lure customers into their services by higher rates, investment services and lower interests when offering loans. The bank of America therefore prefers merging with other banks rather than spending money in advertisement and marketing.
Bargaining power of customers; most buyers of the bank of America prefer it because of the ability to acquire all the services they need under one roof. They largely consider high switching cost and therefore decide to stick. The internet also helps the customers to easily compare the prices in other banks. Customers are always willing to buy at the lowest price as possible hence they bargain for higher quality, greater services and lower prices
Barraging power of suppliers; capital is the main raw material for the bank of America. There are four main suppliers namely loans from other financial institutions, mortgage, loans and customer deposits the bank of America maximizes the use of these supplies to ensure they have the necessary resources needed by their clients. This model is largely based on market.
Threat of substitute products; substitute products give the customers the opportunity to choose from a variety of products, the bank of America faces threat from non financial organizations. They tend to offer low interests insurances and mutual funds but it still remains the superior most financial organization
Threat of new entrants; many banks are trying to come up and compete with the bank of America but only a few succeed, this is because people are able and willing to invest their money in big banks where they are guaranteed of security. Some of the possible barriers to entry in the banking industry include; capital requirements whereby the amount required to start up bank is too high making it difficult for upcoming ones, product differentiation where the targeted customers have brand identification and customer loyalties, new entrants have to spend heavily to overcome these barriers, switching costs the cost of migrating from the bank of America to other banking institution is high forcing most of the customers to stay instead of incurring the cost
Aguilar, F J (1967). Scanning the Business Environment. Macmillan.
Bank of America., (2016). Corporation Environmental and Social Risk Policy Framework. Retrieved from: https://about.bankofamerica.com/assets/pdf/Environmental-and-Social-Risk-Policy-Framework.pdf
Bank of America.,(2017). Banking on a Low-Carbon Economy The Economic Impacts of Bank of America’s $125 Billion Environmental Business Initiative. Retrieved from: https://about.bankofamerica.com/assets/pdf/Environment-Economic-Impact-Report-2017.pdf
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