Business Strategy: Assessment of Macro and Micro Environment

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This report provides an assessment of the macro and micro environment for Klarna Bank, including a PESTLE analysis and VRIO analysis. It also applies Porter's five forces model to evaluate the attractiveness of the industry.

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Business Strategy

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Assessment of macro environment........................................................................................1
TASK 2............................................................................................................................................3
P2 Analysis of micro environment and capabilities....................................................................3
TASK 3............................................................................................................................................5
P3 Application of Porter five forces model.................................................................................5
TASK 4............................................................................................................................................7
P4 Application of theory to devise strategic management plan..................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12
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INTRODUCTION
Business strategy refers to set of activities planned by the management professional for
attainment of objective of expansion of business. In this report, business strategy has been
formulated for Klarna Bank. Klarna is a Swedish company that renders banking solutions to the
citizens. The report cover the assessment of macro environment of the country and how it affect
the growth of the company. Further the report include the analysis of internal environment and
capabilities of the given company. The report also include the application of Porter's five forces
model to evaluate the attractiveness of the industry. The report also comprise the application of
suitable theory for the formulation strategic management plan of the given organisation (Akter,
and et. al., 2016).
TASK 1
P1 Assessment of macro environment
PESTLE Analysis
The study of macro environment is more important to analysis because company are
more vulnerable to factors that arise outside the organisation. Macro environment are not in the
control of organisation but company is required to take measure to get rid of hazard persist in the
country. To analyse the external factors PESTLE analysis is used. PESTLE analysis cover all the
aspect of macro environment. PESTLE is an acronym for political, economical, social,
technological, legal and environmental. It define how favourable are the external factors for the
company. PESTLE analysis of United Kingdom with reference to Klarna bank is given below:-
Political Factors: United Kingdom is enjoying stability in its political structure. There is
less intervention of government in the businesses of the nation. UK comes in the list of powerful
countries of the world. Citizens of the choose a new prime minister periodically. Prime minister
serves the country for five years. Prime minister possess the supreme dominance over the
country. Addition to political stability, nation maintains a peaceful relations with other powerful
and developed countries mainly United States of America. Overall political environment is
appropriate for growth of Klarna bank (Higgins, Omer, and Phillips, 2015).
Economical factors: United Kingdom follows a mixed economy approach than means
economy is a blend of capitalism and socialism. Country enjoys advantages of both capitalist and
socialism economy however in mixed economy nation also bear the disadvantages of both the
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economies. UK is a wealthy country. Citizens have no dearth of money. Inflation rate of the
country is not very high therefore loan are cheap and attainment of financial goal is also very
easy. UK is a centre of attraction for many foreign direct investors. There is lot of foreign direct
investment in the several industries of the country. Hence economical factors are favourable for
the country.
Social Factors: UK is a multi-cultural marketplace. There is a existence many kinds of
culture in the country. Moral freedom in UK is high. Citizens gives more importance to good
moral values. Population growth had been increased in recent years. There is a significant
increase in population density of the country. Age of population is also increasing as average age
in UK reach to 40 (Some parts of UK ageing twice as fast as others, new research finds. 2020).
Citizens of UK are highly educated. Increment in mean age of population is not a major concern
for the company. Hence social factors are not creating any barrier for the company.
Technological Factors: United Kingdom is known to be a technological hub of the
world. Highly advanced technology persist in the country. Internet is also penetrating in the
country at extreme rate. Companies are continuously bringing innovation in their goods and
services in order to delight customers. Nation had faced boom of technological advancement in
recent years. Organisations are investing in research and development to discover new
technology that can beat rivals. Technological advancement is extremely beneficial for growth of
the Klarna bank (Woerner, and Wixom, 2015).
Legal Factors: Law and order are made for welfare of the society. Legal landscape of the
country is inclined towards safety and welfare of the people. Law is equal for all and there is a
provision of strict punishment to offenders. Labour laws and employees legislations are enforced
by the government to safeguard employees from exploitation. Company has to adhere the laws
and legislation. Company cannot extend working hours of the company to make extra profit.
Firm also required to render one day rest in a week to all the employees (Martinez-Simarro,
Devece, and Llopis-Albert, 2015).
Environmental Factors: Government are becoming more concerned towards
preservation of environment. Government is making laws and taking initiatives to encourage
firms to adopt sustainable development practices. As Klarna is a banking solution company
therefore there is no harm environment by the organisation.
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Power Interest Matrix
Companies have to take into account degree of influence an entity hold on business as
well as the level of interest they show in the business of the company. For the purpose of
identification of power and interest matrix is used. Power interest matrix is a grid that determine
the way to deals with various stakeholders of an organisation. The detail description of power
interest matrix in context with Klarna bank is given below:-
High power and high interest: Shareholder comes in this quadrant of the quadrant.
They possess power to influence decision and functions of company and show keen interest in
the growth of the business. Klarna bank is required to completely engage shareholders and
endeavour to satisfy them.
High power and low interest: Government possess immense power of impacting the
working and growth of business but show less interest in the growth and products of an
organisation. Company needs to make government satisfy enough to streamline the operations of
the business. Organisation have to adheres the policies and laws made by government so that
companies would not face any legal trouble (Soltanizadeh, and et. al., 2016).
Low power and high interest: Stakeholder who possess less power of influencing the
working of the business but show keen interest in the goods and services of the company is
placed in this quadrant. Customer have low power of impacting business working mechanism but
exhibit high interest in the products of the company. Klarna bank is required to keep customers
aware regarding the products and services company going to be launch in the future (Amran,
and et. al., 2016).
Low power and low interest: These neither owns sufficient nor exhibit sufficient
interest in the business. Suppliers comes in this category. Klarna bank needs to just monitor the
activities of suppliers and there should be limited interaction with them.
TASK 2
P2 Analysis of micro environment and capabilities
VRIO Analysis
It is an tool used to analyse the competency of company's resources, products and
procedures. VRIO stands for value, rareness, difficulty level in imitation and lastly organisation.
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VRIO analysis was first introduced by Jay B. Barney. VRIO analysis of Klarna bank is given
below:-
Value: Klarna bank is a banking solution company. It render payment gateway to the
customers. Financial resources are the valuable asset of the company as it helps in utilizing
investment opportunities that can raise the growth of business. Human resources is also valuable
to Klarna bank as they possess exceptional capabilities to draw innovation in the product.
Rare: Financial resources of the Klarna bank is rare as a couple of companies owns such
excellent financial resources. The patent of Klarna bank is extremely rare as rivals cannot access
the patented technology. Patent give competent advantage to the company (Holotiuk, and
Beimborn, 2017).
Difficulty to imitate: One of the major resource that is tough to imitate is Klarna bank
financial resources. Klarna achieve high level of financial resources by gaining supernormal
profits over the years. In order to attain the Klarna level of financial resources rival needs to earn
good profit continuously over the years. Patent of the Klarna bank is difficult to copy because
rival cannot access the patent.
Organisation: Financial resources of Klarna bank is organised in a way that it can take
the full advantage of opportunities. It helps in boosting the growth of the company. The
distribution network of the company is well organised to such an extent that it make products
accessible to customers at every corner of the country.
McKinsey’s 7S Model
McKinsey’s 7S model is a tool used to analyse the important elements of an organisation
that give a major contribution to the growth of the company. McKinsey’s model composed of
seven elements that are divided into two dimensions- soft elements and hard elements. The seven
elements of this model are strategy, structure, skills, shared values, style, staff and system.
McKinsey 7S model of Klarna bank are given below:-
Hard elements
Strategy: Product of Klarna bank is customer centric. They focus on rendering best
services to customers. Klarna bank developed a payment system that render convenient
translations platform to the customers (Marx, 2015).
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Structure: Klarna had been divided its employees base in 300 teams. Every team
accountable solving a particular problem which contribute to the accomplishment of Klarna
overall business objectives (Chen, Eshleman, and Soileau, 2017).
Systems: Klarna bank adopted a system of handling customer data and addressing their
grievances in a highly professional manner. They provide an online payment solution that cater
to the needs of merchant.
Soft Elements
Shared values: Klarna bank is strongly obsessed with their customers. They take best
effort to create product that increase convenience of customers. They are conscious towards their
enrichment of their team status.
Skills: The company is embedded with highly skilled employees. The skills that
employees of the exhibit are analytical reasoning ability, logical thinking, innovative minds and
good problem solving skills that leads to the growth of the company.
Staff: Klarna bank recruit highly skilled and talented employees. Employees of the
company follows all the principles prescribe. Staff of the firm is equipped with both technical
and soft skills. They owns highly innovative minds that can create highly optimized services that
sufficient to delight customers (Leischnig, Woelfl, and Ivens, 2016).
Style: Top management of Klarna bank is very supportive and cooperative. Their
leadership style is directive and supportive. They give clear instructions to the employees
regarding the task. Leadership style is tilts towards attainment of objective. They also addressed
employee's grievances of the staff employees.
TASK 3
P3 Application of Porter five forces model
Porter's five force model
Porter's five forces model is a framework that render a thorough insight of attractiveness
of the industry. This model was created by Michael E Porter in the late 20th century. The five
forces depict by Michael E Porter are competitive rivalry, threat of new entrants, bargaining
power of supplier, bargaining power of customers and lastly threat of substitutes. Application of
Porter's five forces model to assess the industry attractive of banking sector are given below:-
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Threats of new entrants: there is need of huge capital to open a bank therefore threat of
new entrants. It is very difficult for common man to establish a bank because there is a
requirement of large amount of capital and complex formalities. However UK is a rich country
and there are existence of many millionaire in the nation. Hence despite of high entry barrier
large number of bank incorporated in the country. Threat of new entrants is persist in the
country. The key factor that helps in sustainability of big players is trust. People trust in
renowned brands. Despite having fact that new bank render more interest in saving and fixed
deposit. Overall threat from new entrants is low in banking sector (Mellat-Parast, and et. al.,
2015). Thus, it can be evaluated that threats of new entrant is moderate for Klarna bank as it is
not easy for a new organisation to open a bank due to requirement of large amount of
CapitaLand high entry barriers.
Bargaining power of suppliers: Bank comes in the category of service. Bank does
produce or sell any kind of tangible product. Bank requires money to cater to the needs of the
people. Capital acts as a raw material as well as product of the firm. Bank seek finance from four
sources- saving and fixed deposits interest paid by borrower, securities backed by mortgage and
loans from other financial companies. Banks have to maintain optimum amount of capital in
order to render loans to borrower and allow depositors to withdraw cash. The barging power of
suppliers that the one whose money is traded is also moderate for Klarna bank as it proper
written agreement is there between a the suppliers of money and finance and large number of
suppliers and investors are available in UK thus, risk of bargaining power of suppliers is limited
for Klarna bank.
Bargaining power of customers: It is a difficult task to convince a customer to change
bank even if bank render high interest of convenience service to account holder. A well
established bank need not have to concerned about bargaining power of customers as owns a
strength of trust. Imbalance in deposit and loan ratio is a major concern for the customers. Buyer
prefer borrowing loan from bank demanding lower interest rate. Banks is required to lower down
the interest rate in order to attract more customer. Excellent customer service is main dimension
which helps in retaining and acquiring customers (Kossyva, Sarri, and Georgolpoulos, 2015).
The bargaining power of customers is high in case of Klarna bank as large number of banks is
there in UK but still with offering better services and higher interest rate Klarna bank can easily
cope up with threat of bargaining power of customers.
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Threat of substitutes: There in no close substitute of bank that render deposit and
facility. However there are some services that has been subject to threat from substitutes.
Facilities such as loans, advances, insurance and securities are also rendered by non banking
financial companies. Non banking financial companies does not renders deposit, debit card and
credit facility. There is serious hazard of installment strategy alternatives and advances for the
enterprise. Non banking financial companies render lower financing cost than banks on
instalment therefore shoppers prefer financial institution instead of conventional bank loan.
Thus, it can be evaluated that threat of substitutes for Klarna bank is not so high as other Non
banking financial companies does not offer that much services like a bank but still due to large
number of banks in UK which are providing same services threat of substitute also exists for
Klarna bank.
Competitive Rivalry: Banking business is lucrative in nature. Competition in banking
industry is not very intense as there is high barrier to entry. Banks takes all effort to offer
excellent customer services in order to beat the rivals. Major banks are continuously bringing
innovation in their services to encourage large number of customers to become part of their
customer base. Bank have to give strong justification about the effectiveness of their services in
order to withdraw customer attention from rival banks. Beside this, it has been find out that still
a large number of banks are there in UK that is creating a threat of high competitive rivalry for
Klarna bank.
Thus, on the basis of above discussion about forte’s five forces it can be evaluated that
Klarna bank is having moderate risk from new entrants as it is difficult to open a new bank for an
organisation. Further, the threat of bargaining power of suppliers and threat of substitutes is at
moderate level due to change in quality of services and satisfaction provided to customers
through financial products. But the risk of bargaining power of customers and competitive
rivalry is high due to immense competition from larger number of banks operating in UK.
TASK 4
P4 Application of theory to devise strategic management plan
Ansoff Matrix
Ansoff matrix is a strategic tool use companies to formulate appropriate strategy to attain
the specific objective of business. It is also called product/ market expansion grid because it
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suggest plan of action for expanding product range as well as reach of the business through
exploring and serving new marketplace. Product/market expansion grid compose of four
quadrants. Each quadrants suggests expansion strategies drives by product and market. The four
strategies of Ansoff matrix are market penetration, product development, market development
and diversification. The detail description of Ansoff matrix are given below:-
Market Penetration: In this strategy, firm endeavour to lure customer by providing
goods and services at low price compares to competitors. The main objective of market
penetration is to capture as large market share as possible. Market penetration strategy is
implemented by the companies using sales promotion tactics such as vouchers, discount coupons
,cash backs and freebies. Another approach of market penetration is purchasing another
company of the same industry (Johnson, 2016).
Product Development: In this strategy, company offer new product range for existing
marketplace. Product development strategy is suitable when company have proprietary
technology that can attract new potential customers. Organisation conduct a proper research on
consumer before the starting the production process of new product range. This strategy come
out to be successful when new product is able to solve the existing problem in a highly efficient
manner.
Market Development: When company offer existing product to new marketplace than
the market development strategy is said to implemented. Market development strategy is turn out
to be successful when the new consumer segment accept the product. Firm adopt market
development strategy when launching existing products in new marketplace seems to be
lucrative. Organisation implement this strategy in several ways such as rendering products to
consumer belonging to different demography or by providing goods and services to new new
region within the country and outside the border of the country.
Diversification: When company enter in the new industry with new product than the
diversification strategy is said to be executed. Diversification is the riskiest strategy of all as
company loses its focus from the core product. Diversification is of two types- related
diversification and unrelated diversification. Related diversification is define as the introduction
of new product with some kind of link with current product. On the contrary, unrelated
diversification is the launch absolutely new product with no link with present product
(Thompson, Strickland, and Gamble, 2015).
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Out of the above mentioned strategies, product development strategies is the most
appropriate for the company because there is wide scope of new product in the innovation driven
banking industry. The new product that company produce will be duo card. A card that possess
the features of both debit card and credit card.
Porter's Generic Strategies
In order to sustain in this competitive business world companies is required to give
justification to customers that its product is superior than competitors products. Justification can
be in terms of good quality or low price. Porter generic strategies connotes to the strategies that
aids companies in take over of competitors market share by justifying the worthiness of the
product to main market and subset of main market. The detail description of Porter generic
strategies is given below:-
Cost Leadership Strategy: In this strategy, companies endeavour to lower down cost of
goods and services in order to attract price sensitive customers. Cost leadership strategy assist in
capturing market share of the rivals. However this approach can force companies to sacrifice the
quality of the product which posed a contrast effect on the growth of the company. It also affect
the profitability of the firm (Buckley, and Ghauri, 2015).
Product Differentiation Strategy: In this approach, company offer highly differentiated
and unique product at the industry standard price or even high price. Product differentiation
strategy allow companies to sell its product at high price. This strategy is implementable when
company possess a proprietary technology that can unique and useful features to goods and
services. This strategy eliminate the pressure of sacrificing profit margin by the organisation.
Focus Strategy: This strategy is a recipe for success of the company in an environment
of cut throat competition in the industry. Firm implement focus strategy when it becomes
successful in discovering a niche market. After successful discovery of niche market
organisation cater to the needs of niche market by leverage cost leadership or product
differentiation strategy. Implementation of cost leadership strategy on the specific subset of
market is called cost focus strategy. On the other hand, implementation of product differentiation
strategy on the niche is called differentiation focus strategy (Moseley III, 2017).
From the above mentioned Porter generic strategy, the most appropriate strategy for
Klarna bank is product differentiation strategy. Klarna bank will create a differentiated product.
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The differentiated product will be duo card. A card fulfilling the purpose of both credit and debit
card.
Company Overview
Klarna is a banking solution company operating in Sweden. It renders online financial
services to the customers such as platform of online transaction of money. It was incorporated in
the year 2005. Company's main product is to manage customer payments thus removing the risk
for purchaser and seller (Malerba, and et. al., 2015).
Objectives
Company is aiming to increase market share by 15% within the tenure of one year.
Vision
Klarna' s vision statement is to improves the life of people by rendering safe and
convenient mode of payment.
Mission
Company's mission statement is to streamline the function of online transaction.
Strategies
The strategy that company utilize with product development. Firm will develop a duo
cash card. Klarna bank will create a cash card that can be used as both debit card and credit card.
Product will be highly differentiated and target main market. Left side of the card will fulfil the
need of debit and righ side will show the function of credit card (Motohashi, 2015).
Tactics
Klarna bank will form a research and development team that will find out the techniques
that can be utilized to make a duo cash card. After successful creation of duo cash card the
company will distribute this plastic money to employees for test marketing purpose. Post test
marketing firm commercialise duo plastic money to common people. Company will follow
integrated digital marketing approach in which product visibility will accelerate using all
channels of digital marketing. Klarna bank will promote its commodity on social media, search
engines, websites, mobile apps and games.
SAF Criteria
When company decided to implement a strategic plan than the question arises about the
degree of benefits firm will seek from the strategy. For this purpose a tool named SAF criteria is
used. SAF stands for suitability, acceptability and Feasibility. It define the suitability,
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acceptability and feasibility of the strategy. SAF criteria of Klarna bank duo cash card is given
below:-
Suitability: It give the answer to the question how much strategy contribute in the
accomplishment of company's desired objective. The new duo plastic money can fulfil the
objective of enlarging consumer base of the bank.
Acceptability: Company is require to judge the acceptability of the new product. Debit
cum credit card will accept by the common people and shareholder because it render
convenience to customers.
Feasibility: It is a term which define the profit making potential potential of the product.
As duo cash card is an innovative solution of transactions therefore customer will excite to get
one. This will increase the profitability as company will receive both debit card annual charge
and interest on credit card.
CONCLUSION
From the above report it has been concluded that macro environment are almost
favourable for the company. The report also conclude that financial resources and patent of
Klarna bank are rendering long term competitive advantage. Further the assignment also
conclude that threat of new entrants is low in the industry therefore competition is also low.
Company will use product development strategy and the new product of the company will be
debit cum credit card. The chosen strategy is also fulfilling the SAF criteria.
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REFERENCES
Books and Journals
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Chen, Y., Eshleman, J.D. and Soileau, J.S., 2017. Business strategy and auditor
reporting. Auditing: A Journal of Practice & Theory, 36(2), pp.63-86.
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its tax aggressiveness. Contemporary Accounting Research, 32(2), pp.674-702.
Holotiuk, F. and Beimborn, D., 2017. Critical success factors of digital business strategy.
Yuliansyah, Y., Gurd, B. and Mohamed, N., 2017. The significant of business strategy
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Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Kossyva, D., Sarri, K. and Georgolpoulos, N., 2015. Co-opetition: A business strategy for SMEs
in times of economic crisis. South-Eastern Europe Journal of Economics, 12(1).
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market performance?.
Malerba, F., and et. al., 2015. Dynamics of knowledge intensive entrepreneurship: Business
strategy and public policy. Routledge.
Martinez-Simarro, D., Devece, C. and Llopis-Albert, C., 2015. How information systems
strategy moderates the relationship between business strategy and performance. Journal
of Business Research, 68(7), pp.1592-1594.
Marx, T.G., 2015. The impact of business strategy on leadership. Journal of Strategy and
Management.
Mellat-Parast, M., and et. al., 2015. Linking business strategy to service failures and financial
performance: Empirical evidence from the US domestic airline industry. Journal of
Operations Management, 38, pp.14-24.
Moseley III, G.B., 2017. Managing health care business strategy. Jones & Bartlett Learning.
Motohashi, K., 2015. Global business strategy: Multinational corporations venturing into
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Soltanizadeh, S., and et. al., 2016. Business strategy, enterprise risk management and
organizational performance. Management Research Review.
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Woerner, S.L. and Wixom, B.H., 2015. Big data: extending the business strategy
toolbox. Journal of Information Technology, 30(1), pp.60-62.
Online
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Some parts of UK ageing twice as fast as others, new research finds. 2020. [Online] Available
through:<www.theguardian.com/science/2019/oct/28/some-parts-of-uk-ageing-twice-as-fast-as-
others-new-research-finds>/.
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