Strategic Management for Commonwealth Bank: Innovation through FinTech

This report sheds light on the business growth through strategic innovation. Commonwealth Bank can reinvent the value of the customers through strategic innovation. The report evaluates the current growth strategy of Commonwealth Bank using BCG and McKinsey GE frameworks and recommends innovation opportunities using MACS framework.

Running head: STRATEGIC MANAGEMENT
Strategic Management
Assignment 2
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Executive Summary
This report sheds light on the business growth through strategic innovation. Commonwealth
Bank is the largest bank of Australia and Commonwealth Bank can reinvent the value of the
customers through strategic innovation. In Australia, the banking sector of Australia is currently
focusing on the scrutinising the current earning through legal oversight. The customers must be
able to access the banking facility all across the globe. Bankers think that threat of banking lie in
the online platform from the tech giant Google, Apple and Facebook. Economic condition is
stable in Australia and people keep their money in bank and financial instructions. Technologies
play important role in banking as the people like to use Smartphone and desktop for money
transaction. BCG matrix is used to justify the position of the products of the bank;
Commonwealth Bank can keep the stars for online banking and cash cows for the various types
of loans. GE McKinsey Framework has been given in this report to show the position and
investment opportunity in innovation. Commonwealth Bank is taking the innovation of FinTech
which aims to compete with traditional financial methods that can deliver the financial services.
MACS framework has been used to as it shows the snapshot of the business as it considers
improving the service innovation. FinTech technology is the innovation in the financial banking
sector as it is the use of financial study that can apply in the technology to develop financial
activities. FinTech is the new processes, applications and products of the business models in the
financial businesses.

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Table of Contents
Introduction......................................................................................................................................3
Overview of the organisation: Commonwealth Bank.....................................................................3
1. Identifying the need for innovation.............................................................................................4
Threats evident from industry analysis........................................................................................4
Threats from PESTLE analysis...................................................................................................5
2. Identifying and evaluating its current growth strategy................................................................6
BCG Matrix.................................................................................................................................6
McKinsey GE framework............................................................................................................7
3. Evaluating innovation opportunity it is currently pursuing.......................................................10
MACS framework and considering its growth vehicle choice..................................................10
Recommendations..........................................................................................................................12
Conclusion.....................................................................................................................................13
Reference List................................................................................................................................14
Appendix........................................................................................................................................17

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Introduction
Strategic innovation is about establishing the growth strategies, net service categories or
the business model that help the organisation to change the process of generating new values for
the customers and the organisation itself. Innovative strategies help the organisation to drive the
success without changing the underlying technologies (Palacios-Marques et al. 2015). Strategic
innovation is about the making an innovation of the strategy and the organisations can make
dramatic redefinition of the base of the customers. The organisations can reinvent the concept of
the value of the customers and the management of the organisations can also choose dramatic
redesign of the end-to-end value chain of the architecture.
In this report, Commonwealth Bank is chosen to identify the need for the innovation of
the business. At the first part of the report, threats evident from the industry and the external
environment are explained. In the second part, identification and evaluation of the current
innovation strategy are discussed using BCG and McKinsey GE frameworks. In the final section
of the report, one innovation opportunity of Commonwealth Bank which the bank is currently
pursuing is stated using the MACS framework.
Overview of the organisation: Commonwealth Bank
Commonwealth Bank is public sector bank with businesses across Asia, New Zealand,
Australia and the United States and in the UK. Headquarter of the Commonwealth Bank is
situated in Darling Harbour in Sydney, Australia. Currently, Commonwealth Bank of Australia
has its branches in more than 1100 locations. Commonwealth Bank offers the products and
services like finances and insurances, corporate banking, investment banking, global wealth

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management, private equity, credit cards and mortgages. Commonwealth Bank employs more
than 51,800 employees and revenue of the organisation was AUD 26,005 billion in the year 2017
(Commbank.com.au 2018). Commonwealth Bank made the innovation in the banking structures
as they introduced retail banking, premium businesses services, wealth management and
executive leadership.
1. Identifying the need for innovation
Threats evident from industry analysis
In Australia, big banks can no longer depend on the market power or consistent price
growth that helps to underpin returns. The banking industry in Australia put recent efforts of
regulators to ensure the financial stability so that they can address the community concerns. In
recent time, the market expects the margin can peak in the next six months when the housing
loans growth will be slowed down. As stated by Funk (2014), new technologies like the mobile-
banking payment and real-time payment is blissful for the customers; however, it makes the
banking process complex for the banks. This disruptive innovation can lift near-time investment
before the technologies can pursue a step change to cost savings. Australian banking sector is
scrutinising the current earnings estimate as it fully capturing the downside risks stemming from
the regulatory and legal oversight. Banking sector cited the risks of the capital management as it
highlights the recent assets sakes that will free up the money for share buybacks.
Therefore, Commonwealth needs innovation in satisfying the customers and the global
peers through technological improvement. The customers must be able to access the banking
facility all across the globe. Bankers think that threat of banking lies in the online platform from
the tech giant Google, Apple and Facebook. The banking industry is trying to invest more in

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financing technology (FinTech). Commonwealth bank can be innovative in increased the
scrutiny related to the current earnings estimates of the bank.
Threats from PESTLE analysis
The political condition of Australia is stable and financial sector is under the scrutiny of
the government. In addition, warming relationship with China and other Asian countries will be
fruitful for the banking industry. The government has not increased the tax rate and it will be
beneficial for the banking industry. The economic condition of Australia is stable also as the
GDP growth is 3% at present and the PPP was $1.24 trillion in the year 2017. The inflation rate
in Australia is 1.8% and the labour force in Australia 12.7 million (Bell 2017). Gloomy
macroeconomic outlook is risky for the business and ageing population can help to evolve the
business. In the banking sector, the threat lies in the poor GDP growth and the lower FDI in
Australia. Social factors in financing are associated with the cosmopolitan culture and the
preferences of the people are associated with the user of the mobile and online transaction.
People do not like to visit the banks now; as they want to make the transaction using Smartphone
or computers. Technological factors are investments in generation financial technology to build
the banking strong financial network. Banking industry started investing the financial technology
so that they can provide support to the customers. As stated by Booth and Whelan (2017),
banking and financing sector is a major area of cybercrime as cybersecurity is the major area of
the concern in the financial industry. In addition, financial allegations of money laundering cases
can make differences. In Australia, laws are there to wipe out the corruptions in the banking
sector. The government laws and litigations can impact on the banking sector (Mortimer et al.
2015). Lastly, in the environment; banking institutions can regulate the land and water
resources. Legal actions can be taken on failure to disclose the CSR and climate change risks.

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Therefore, the innovation is needed in the technological improvement of making the next-
generation financial technology along with the cyber-security.
2. Identifying and evaluating its current growth strategy
BCG Matrix
BCG framework assumes that market share improvement can help the organisation to
generate maximum cash (Torquati et al. 2018). This kind of assumption is real as the
organisation makes the experience curve.
Dogs: ‘Dogs’ is in the low market share and in low growth rate; therefore, this place does
not consume or generate a large amount of cash. As stated by Palia et al. (2014), dogs can be
treated as cash traps as the money can be tied up in the business that has just little potential.
Commonwealth bank offers various types of services and products to the customers; among this;
asset finance can be categorised as the Dogs as in this section; the bank is not the market leader.
The asset finance products are equipment loan, finance lease, hire purchase, vehicle fleet leasing,
equipment operating and equipment import finance.
Question marks: Question marks can be defined growing rapidly and this may consume
a large amount of cash. The question mark has the potential to achieve the market share and it
can become the star. The question mark may not be succeeded in becoming the leader of the
market; these products can be treated as dogs. Commonwealth bank provides the Net Banking
features and CommBiz mobile banking features to the customers. Commonwealth Bank provides
the computers and mobile banking; these services provide online transaction.

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Stars: Stars mark can generate a huge amount of cash as this product provides strong
relative and market share. This product helps to provide a large amount of cash as it has high
growth rate and helps to generate high market share. If star mark can maintain strong market
share for a long time; it may become the cash cow. Commonwealth Bank makes the business
accounts as these accounts are the highest sellers in the banking industry. Maximum customers
of the banking industry come to make the business transaction accounts, business online saver,
premium business accounts and Visa Debit cards (Lukkanen 2016). The customers opt to take
the business credit cards, such as low rate credit cards, corporate credit cards, interest-free days
credit cards and awards credit cards.
Cash cows: ‘Cash cows' is the leader in the market share as this product or service
provides the return on the assets as it is greater in the market growth rate. This product or service
of the company ‘return on asset' is more than the market growth rate; hence this product or
service can generate more cash. Commonwealth Bank provides loans and merchant services to
the customers. Loan department of Commonwealth bank is helpful as the business loans are
associated with the business overdrafts, business line of credit, market rate loan, bill facility and
Butter-business loans. In addition, merchant services are payment-in-store, simple merchant
plan, payments on the go and accept bill payments. These merchant services will be famous in
the future more as this has a technological link to provide financial technology services.
(Refer to Appendix 1)
McKinsey GE framework
GE framework of McKinsey is the nine-box matrix that offers a systematic approach for
the decentralised corporation to determine the place to invest the cash. There are two sides'

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matrix; industry attractiveness and strengths of business unit or product. Industry attractiveness
shows how it is hard or easy to make a profit in business. As stated by Johnson (2016), the more
profitable the industry is more attractive it becomes. Industry attractiveness consists of the
factors to determine the competition level. Some of the factors of industry attractiveness are
long-run growth rate, industry profitability, industry size, industry structure, product lifecycle
changes, seasonality and trend of prices and availability of labour and market segmentation.
Competitive strengths of the business are the market rivalry as the businesses always try to
manage the competitive advantage. The factors of competitive strengths are total market share,
market share and growth, the profitability of the company, customer loyalty and VRIO resources
and level of product differentiation.
Industry attractiveness:
Factors Weight Rating Weighted score
Industry size 0.22 4 0.88
Industry profitability 0.25 3 0.75
Industry infrastructure 0.18 2 0.36
Trend of prices 0.16 3 0.48
Market segmentation 0.10 4 0.40
Industry growth rate 0.09 5 0.45
Total 1.00 3.32
Competitive strengths:
Factors Weight Rating Weighted score

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Relative growth rate 0.24 4 0.96
Company profitability 0.23 4 0.92
Market share 0.17 3 0.51
Brand value 0.15 2 0.30
0.11 4 0.44
VRIO resources 0.07 5 0.14
Total 1.00 3.25
Figure 1: McKinsey GE framework
(Source: Self-developed)

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There are different investment implications that need to follow in depending on the
matrix. Commonwealth Bank has to choose selectivity/earnings more in business innovation as
this business promises to the high return. Banking sector requires a lot of money in order to
operate; however; financial technological innovation can bring the business desired market to
grow. Commonwealth bank can invest into the business on online banking product if the
business has leftover money for investment.
3. Evaluating innovation opportunity it is currently pursuing
MACS framework and considering its growth vehicle choice
MACS framework represents the recent thinking and strategy of the finance. MACS
helps to measure the business' stand-alone value within an organisation and it can measure the
existing business' fitness. The horizontal axis of MACS framework states about business's value
creation potential as the stand-alone enterprise and the vertical framework states company's
ability to extract value (Fostel and Geanakopols 2016). The horizontal dimension states the
potential to create value and Commonwealth Bank can create value through innovation. One of
the existing innovations of Commonwealth Bank is using financial technology (FinTech).
FinTech is the new technology and it is the innovation aiming to compete with traditional
financial methods that can deliver the financial services. The use of Smartphone and Computers
are the potential spheres to use the FinTech technology. The recent improvement in the investing
in crypto-currency and mobile app-based banking is some of the usages of the FinTech
technology. Commonwealth Bank is trying to take this sphere to replace another small
technology start-up to enhance the usage of financial services of the company.

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Horizontal dimension shows the potential value of and the measure can be qualitative.
Commonwealth Bank can calculate the maximum potential value of FinTech and the optimal
value can depend on the industry attractiveness as it is the function of the structure-conduct-
performance model. In this horizontal dimension; the position of the business within the industry
can be shown along with sustain higher price. Commonwealth Bank can improve the chance of
attractiveness through improving the competitive positioning. On the other side, vertical axis
measures the organisation’s ability to extract the values. As stated by Sibirskaya et al. (2014), the
strength of the vertical dimension is the explicit true requirement of the corporate performance
and it can extract the value from the assets.
Figure 2: MACS framework
(Source: Self-developed)

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MACS matrix shows the snapshot of the business as it considers improving the service
innovation. Commonwealth Bank takes the service innovation of FinTech technology as the
bank is well equipped to enhance the value of the business through internal development.
Commonwealth Bank divests structurally to attract the business and the bank provides top
priority that lies toward the far left of the matrix. The organisation tries to develop the products
internally if the products are the natural owner. Commonwealth Bank has its business units
located in Australia and New Zealand. Subsidiaries of Commonwealth Bank are the Bankwest,
ASB Bank, Sovereign Limited and Colonial First State. The parent company may take the
strategy of envisioning the future to sell, buy or manipulate the assets that can create the new
equilibrium.
Recommendations
Commonwealth Bank Australia can start providing various types of loans to the
customers in Australia and they can advertise on the print media and in the online platforms.
Commonwealth bank can start advertising on the social media about loans; loans processes can
be done without visiting the bank physically. Therefore, the customers can apply for the loan and
the bank can develop the technology to approve the loan process via online. Most importantly,
Commonwealth Bank can start investing in the research about financial technology. The whole
process of banking in Commonwealth bank can be done through online or through mobile
banking. This innovation process can bring the issue of cybercrime. Therefore, the bank can start
the data security so that the process can be out of scamming, hacking and phishing. Data breach
is another issue of the banking sector when the bank provides the service of online transaction.
The process of the online transaction can increase the target of distributed denial of service
extortion by rivals.

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Commonwealth Bank in Australia is the largest bank and it is the multinational bank with
a presence in Asian countries and in the UK. Commonwealth Bank needs innovation in the
business so that they can grow in the market to gain more customers. The bank can reach more
customers if the bank uses FinTech technology. FinTech technology is the innovation in the
financial banking sector as it is the use of a financial study that can apply the technology to
develop financial activities. FinTech is the new processes, applications and products of the
business models in the financial businesses.
Conclusion
The strategic innovation of Commonwealth Bank can be brought through collaborative
effort process across various departmental functions and teams can be aligned with the mission
of the organisation. The banking sector has the potentiality to bring strategic innovation to the
customer's groups are larger in the banking industry. Strategic innovation is the episodic reaction
to isolate the initiative and Commonwealth Bank is the senior-leader-led culture that can bring
together the multi-functional approach of the creative assets. Commonwealth Bank has the
technological threats from the larger technological giants as the large multinational IT companies
are coming up with the FinTech technologies to attract the customers. Commonwealth Bank is
taking the growth strategy to diversify the business in FinTech where the bank can provide
technical services regarding financial services.

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Reference List
Anderson, N., Potočnik, K. and Zhou, J., 2014. Innovation and creativity in organizations: A
state-of-the-science review, prospective commentary, and guiding framework. Journal of
Management, 40(5), pp.1297-1333.
Bell, S., 2017. Great Ideas of Central Banking: Values, Ideas and the Transformation of Central
Banking and Monetary Policy in Australia. In Government Reformed (pp. 35-54). Abingdon:
Routledge.
Booth, S. and Whelan, J., 2017. Hungry for change: the food banking industry in
Australia. British Food Journal, 116(9), pp.1392-1404.
Commonwealth Bank. 2018. Strategies of Commonwealth Bank. Available at:
https://www.commbank.com.au/content/dam/commbank/microsite/2013shareholderreview/
downloads/CBA-OurStrategy-2013. [Accessed on 29th May 2018]
Fostel, A. and Geanakoplos, J., 2016. Financial innovation, collateral, and investment. American
Economic Journal: Macroeconomics, 8(1), pp.242-84.
Funk, R.J., 2014. Making the most of where you are: Geography, networks, and innovation in
organizations. Academy of Management Journal, 57(1), pp.193-222.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper
Saddle River, NJ: Pearson.

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Herrmann, N. and Herrmann-Nehdi, A., 2015. The Whole Brain Business Book: Unlocking the
Power of Whole Brain Thinking in Organizations, Teams, and Individuals. McGraw-Hill
Education.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Laeven, L., Levine, R. and Michalopoulos, S., 2015. Financial innovation and endogenous
growth. Journal of Financial Intermediation, 24(1), pp.1-24.
Laukkanen, T., 2016. Consumer adoption versus rejection decisions in seemingly similar service
innovations: The case of the Internet and mobile banking. Journal of Business Research, 69(7),
pp.2432-2439.
MACS framework and considering its growth vehicle choice (500)
Mortimer, G., Neale, L., Hasan, S.F.E. and Dunphy, B., 2015. Investigating the factors
influencing the adoption of m-banking: a cross-cultural study. International Journal of Bank
Marketing, 33(4), pp.545-570.
Palacios-Marqués, D., Merigó, J.M. and Soto-Acosta, P., 2015. Online social networks as an
enabler of innovation in organizations. Management Decision, 53(9), pp.1906-1920.
Palia, A.P., De Ryck, J. and Mak, W.K., 2014. Interactive Online Strategic Market Planning
With the Web-Based Boston Consulting Group (BCG) Matrix Graphics Package. Developments
in Business Simulation and Experiential Learning, 29, pp.23-34.
Sibirskaya, E.V., Stroeva, O.A., Khokhlova, O.A. and Oveshnikova, L.V., 2014. An analysis of
investment-innovation activity in Russia. Life Sci J, 11(7s), pp.155-158.

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Torquati, B., Scarpa, R., Petrosillo, I., Ligonzo, M.G. and Paffarini, C., 2018. How Can
Consumer Science Help Firms Transform Their Dog (BCG Matrix) Products Into Profitable
Products?. In Case of Studies in the Traditional Food Sector (pp. 255-279).

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Appendix
BCG Matrix of Commonwealth Bank
High (Market share) Low (Market share)
High (Cash usage) Stars
Commonwealth Bank makes the
business accounts as these
accounts are the highest sellers in
the banking industry. Maximum
customers of the banking industry
come to make the business
transaction accounts, business
online saver, premium business
accounts and Visa Debit cards
Question Mark
The asset finance products are
equipment loan, finance lease, hire
purchase, vehicle fleet leasing,
equipment operating and
equipment import finance.
Low (Cash usage) Cash Cows
Commonwealth Bank provides
loans and merchant services to
the customers. Loan department
of Commonwealth bank is helpful
as the business loans are
associated with the business
overdrafts, business line of credit,
market rate loan, bill facility and
Dogs
Commonwealth bank provides the
Net Banking features and
CommBiz mobile banking features
to the customers. Commonwealth
Bank provides the computers and
mobile banking; these services
provide online transaction.

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Butter-business loans.