Competitive Forces Shape Strategy In The Banking Industry

Carrington et al. (1997:72) stated that the challenge for banks is how to avoid simply automating the paper-based techniques and processes on which they have built their success and to redesign these processes from scratch and take advantage of the capabilities of the new technology. Carrington et al. (1997:72), citing Foster (1986), describes the S-Curve in Figure 2.9 as a slow progress during infancy followed by an explosion of growth and finally maturity. S-Curves usually come in pairs, with diminishing returns from the established technology providing much of the incentive for attempting the risky and expensive leap into the new infant technology. This is precisely where the banking industry found itself, in the difficult and dangerous

From "How Competitive Forces Shape Strategy" by Michael E. Porter, March 1979. Copyright © 1979 by the Harvard Business School Publishing Corporation; all rights reserved.

The Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:

i. Supplier Power: Banking is now a capital intensive business with high fixed costs and low margins (Carrington et al., 1997). ii. Buyer Power: Customers have a choice of three other major banks to turn to when they need better service and lower prices. iii. Competitive Rivalry: There are four established major banks in South Africa which offer equally attractive products and services. The major banks ' customers will go elsewhere if they don 't get a good deal. On the other hand, if no-one else can do what is expected to be done, then the leader can often have tremendous strength. iv. Threat of Substitution: The ability of bank customers to find a different way of cross-border payments is limited due to Foreign Exchange Control Regulations and authorised dealers require a banking license to operate a financial institution. Therefore the threat of substitution is