Strategic analysis: 'Deutsche Bank'

Deutsche Bank AG alone is too small to make its mark as a global player. DB AG only has 8.5 Million private customers, representing 7% of the German market share. This compared to other major banks in Europe which have up to 20% market share.

Nevertheless, Deutsche Bank AG achieved an excellent quarterly result in Private and Business Clients (PBC). This shows that Deutsche Bank’s intense focus on the private clients is paying off. (Deutsche Bank, 2004a)

Environmental Analysis and Significance of Challenges

The PESTEL-Analysis is a common approach for examining the general business environment in order to manage the future opportunities and threats from probable changes in the environment (Mullins, 2002; Farnham, 1999). This tool offers a checklist which divides the environment into six Categories: Political, Economic, Socio-Cultural, Technological, Environmental and Legal (Johnson and Scholes, 2002). McMillan and Tampoe, (2000) state that the PESTEL framework represents a guide to the general environment but is based only historical data and the past, but it refers to forces of changes in the environment and can be used to forecast the future. In other words, understanding changes taking place currently is an important guide to anticipating the future (Fahey, 1986).

The analysis results provide organisations with lead time to identify, understand, and adapt to external issues, to anticipate the consequences of environmental trends, and to develop well thought out positions and policies. In addition, lead time enables organizations to convert emerging issues from threats to opportunities. (Bower et al., 1988)

The Political character of a government and the potential for change can have important implications for businesses, both nationally and internationally. Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. According to Clark, (2000) tax policy, employment laws, environmental regulations, trade restrictions, tariffs and political stability are some examples which have to be considered in environmental analysis. The political aspect is probably the most turbulent force in the environment (Fahey and Narayanan, 1986).The political system based on the political ideology, which is the set of beliefs, theories and principles within a society. The political

ideology can often be linked to economic ideology and both help to explain the national economic policy of a country. Environmental issues enable companies to build strong relationships with consumers by enhancing the company’s reputation.

• Public policy priorities have shifted towards enhancing banking efficiency through competition

• Public policy has become less protective of the banking industry

• Relaxation of the Glass-Steagall Act in the United States and a similar process of deregulation in Germany (Basel II) are forcing Deutsche Bank AG to dedicate growing attention to market risk management and liquidity risk management.

• Freeing up some regulatory constraints (such as restrictions of the use of electronic signatures)

• Government is cutting expenditures of old-age benefits

• “Product safety” in terms of a depositor's guarantee fund are becoming more strict

The economic environment covers all aspects of economic behaviour at an aggregate level and includes government economic policy. Clearly, factors such as the level and rate of growth in incomes will have important implications for the level of consumer spending. Often, it is not sufficient to consider individual economic variables by the mselves, as the interaction between variables can be important (Ennew, 1999). For instance if there is a decline in internal economic activity restrictions against foreign investment to strengthen the domestic economy.(Hibbert, 1997) Thus governments play a key role and politics becomes linked to economic influences directly the economic environment by their main politic instruments the fiscal and monetary policy. Economic factors do not automatically indicate consumers’ buying preferences, why these need to be analysed and an effort put into attracting customers (Ngobo, 2004), before strategic goals are set.

• Increasing local and global competition in terms of both markets (geographic diversification) and products.

• Contamination among different industries due to progressive relaxation of regulations an huge inter-industry acquisitions

• Increase of importance of private pensions, mutual funds and private banking operations

• Worldwide consolidation and consequent restructuring affects German retail sector

• Product and process innovations affect the existing price and margin structures

The social and cultural influences on business vary form country to country. The social segment consists among other things of demographics, lifestyles, income distribution, levels of education, social mobility and social values. From this segment business seek to understand shifts in the structure of the population within countries and regions and mobility across national boundaries, how lifestyles are changing and whether social value change is taking place within countries and regions. (Segal-Horn, 1994)

• Slowing population growth and increasing life expectance and per capita income

• Consumers become increasingly price sensitive and less loyal to established brands

• More clients wa nt a global relationship so that they can leverage value form it

• Baby-boom generation is retiring,

Technology is concerned with the technological progress or advancements taking place within and across societies. New products, processes, or materials; general level of scientific activity; and advances in fundamental science are the key concerns in this area. (Segal-Horn, 1994) Generally, there are two types of innovation that can occur as a result of technological change: product innovation and process innovations (Worthington and Britton, 2003). Especially changes in information technology have had the effect of transforming existing business activities as well as creating new ones. This involves collection, handling, analysis and transmission of information.

• Information, trading and delivery technology is transforming the industry

• A significant boost to the use of eBanking is expected to occur as mobile telephony develops and particularly , digital television becomes common

• Advances in technology fundamentally changes the distribution platforms used to process and deliver financial services

The microeconomic environment represents another part of the economic environment businesses face. It focuses on individuals and companies in a single industry. Interactions between the industry and the economy are here neglected (Worthington and Britton, 2003). Whereas Stonehouse argues that the industry dynamics are in turn also affected by changes in the macro environment. A good technique for analysing the microenvironment is Porter’s five forces model that helps to identify the level of competition in an industry (Stonehouse, 2001). However, it is essential, by using this model, to consider the characteristics of the industry in regard to technological and economical environmental aspects and the influence of the government in regulation competition (Porter, 1980).

It identifies the value created by firm mutually with buyers and suppliers and how it is shared among the players (Brandenburger, 2002). Olivia, (2002) d enoted that Porter’s model as a tool should be taken out, dusted off, and used in a new context that can be more valuable than ever.

However, some criticism has been made that the five forces are an analytical tool and rather static. Rumelt, (1991) suggested that companies have company-specific preferences of strategic development regarding profitability, which has lager influences than the competitive forces of environment. Furthermore, the five forces largely ignores the human resources aspects of strategy (Farnham, 1999), which will be of increasing importance in the future.

The advent of digital/networked technologies has not meant the death of business strategy. In fact, quite the opposite. It made strategic thinking and exploration of new sorts of business designs more important than ever. In this context, Argyres et al, (2002) is giving insight in Porter’s assertion: “ The specifics of completion change every day, but I do not believe that the fundamentals of competition change very much if at all”. Brandenburger's (in Argyres et al, 2002) work has appropriately put more weight on the relationships between complements and the overall size of an industry.