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Introduction to Strategic Management
Strategy management is an art of managing resources of an organisation efficiently in to achieve its objectives and goals in a planned manner. For the purpose of managing both external and internal business activities businesses requires to formulate effective strategies. This can be done by conducting a detailed analysis of the business environment. For this purpose prudential Plc has been taken to analyse the importance of strategic management. Prudential Plc is a financial service group that operates and provide life assurance, and other financial products and services internationally. For this report, Prudential UK & Europe has been selected to analyze its strategies. For the strategy analysis, different concepts and models like SWOT analysis and value chain analysis will be used. It will help to cover the key elements of the strategies used by Prudential UK & Europe.
Business environment (pestle and portors 5 forces)
Prudential Plc is a UK based company engaged in the business of retailing financial services and thus capturing post and pre-retirement market providing products such as unit trusts, insurance, pension plans, annuities, bonds, mutual funds and such other related financial services. The macro environment analysis of the company is being done by using PESTLE model for evaluation.
Industry scenario of European Union is expected to be affected by the European Commission's Solvency II. The capital requirements of the insurance industry are going to change, according to which the insurance companies would be required to set apart the capital as per the risks they are exposed to. Hence the regulatory requirements are expected to change with the effect due to the political changes.
The financial crises and economic crunch of the industry in the year 2008, have increased the scrutiny requirements on the insurance and the financial service providers. Due to these financial crises the confidence of the investors have resulted in reduced confidence of the investors. This has resulted in the fall in the prices of the securities of the insurance companies. The recent disturbances in the industrial market has led to the increase in the market volatility and fallen interest rates. There is a decline in the overall performance of the insurance companies globally. As a result of which Prudential has set its annual bonus rates at 3 % for most of the profit bonds and personal pension policies and 2% for annuity customers, thereby suggesting its strong capital position to help it overcome the difficult economic times.
Population of both the countries that is UK & European are over the age of 45 years. This suggests that the current and the upcoming decade is going to face an ageing population. This suggests the increase in the market for the pension plans and other such products in these markets. Hence it is important for Prudential Plc to support the ageing population by providing specific products that meets the changing requirements of the customers. Also presently the market is reluctant to opt for these financial services due to the poor performance of the overall UK market along with the complexity and mis selling of the financial products in UK. Researches suggests that the estimated savings gap of £27 billion per year in UK as the whole. Moreover there are 10 million people in UK which falls in the group of the people which is not saving enough as per the income standard and 3 million people who are not saving at all despite the ability to save.
The increased importance of internet and digital marketing has revolutionized the marketing aspect of the products and services sold by the insurance companies. At present internet accounts for approximately 8 % of the global advertising which is further growing rapidly. As per recent studies suggests that the financial services industry is lagging behind in the area of digital marketing in contrast to other industries. In reference to the present challenges to which the Prudential Plc and other insurance companies are exposed, it is crucial for the them to use digital marketing concept and grab a larger market share. Also the technologies should be adopted by the companies which enhances the transparency in the system which will enable in retaining the customers and also attract new ones. Therefore the increased use of the digital marketing and technology in the business will help Prudential Plc in developing better relations with its customers.
Various international agreements like Johannesburg Summit 2002, Kyoto Protocol 1997, etc. have led to the nations and companies to take actions for the purpose of ensuring sustainable development. Thus there are increased efforts being made by the companies globally in this direction to ensure environmental protection. Prudential is one of the 38 companies from the financial services sector which endorses the Climate wise Principles in the year 2007. These principles are being developed by the leading global brokers, insurers, and asset managers promoting an action and thereby creating awareness on climate change. Thus the company encourages the other organizations to incorporate the concept of sustainable development into their business activities.
The UK government has introduced a new tax rate of 50% for anyone making earnings above £100 thousand (after certain adjustments). The increased in tax rate will negatively impact the UK market as the buyers might make profits by investing offshore securities and funds.
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Portor's Five Forces Analysis
1.Threats of substitutes
The few substitutes of the financial products and services are investment in jewellery, gold, antiques, etc. Also the investments being made in the property is also seen as the substitute to the investments in the financial products.
The financial service industry is facing immense competition in the present scenario despite the fact that there are only few available substitutes. Most of the companies in this industry are operating at large scales covering wide geographical area combined with the strong buying powers which fosters strong rivalry between the players. This competition is further fueled by liberalisation of these financial markets and the reduction in the barriers between different types of institutions. Companies which are operating already in the industry also try to maintain the competitive edge by diversification into the new ventures and thereby occupying a larger market share.
3.Threats of new entrants
The threat of new entrants for Prudential Plc is quite low. This is due to the strong market barriers and brand identity created by Prudential Plc. Moreover, the strategies of product differentiation and customer loyalty of the company further reduces this threat. Also high level of expertise and knowledge is required to enter into the business of financial products and services which creates an effective market entrant barrier.
4.Bargaining powers of buyers
The bargaining power of buyers is moderate due to the fact that the individual customers are many of the company and the impact of losing a single customer is very low or insignificant. However the buying power is higher for the corporate clients as they procure the products and services in bulk quantity. As the result there is high premium earnings by these clients which if lost has a significant impact on the on the revenues of the company. However, there are many other options available with the industry but the cost of switching cost over the investments is high which reduces the impact on the bargaining powers of the buyers.
5.Bargaining power of suppliers
The overall bargaining power of the suppliers is considered to be strong for the Prudential Plc. This due to the fact the companies operating in this industry requires a reliable and secure ICT infrastructure in order to conduct vital client facing and back office functions like online banking and equity trading (Shah and Sengupta ,2016). These specific types of services and security places the suppliers in a special position to enable them with a strong bargaining position. The key suppliers which provides such complex and specialized services are IBM, Microsoft etc.
Organisation strategy analysis
Prudential UK & Europe offers relentless financial services to the age cohort. Under these services, investment, pensions, funds, insurance (car and travel) etc are offered to the