Contemporary Business

Issues facing Nationwide

Building Society
Contemporary Business Issues Assignment 1
5/23/2014

Word Count 3298

Contents
1.

Introduction .................................................................................................................................... 3

2.

Methodology................................................................................................................................... 3

3.

Findings ........................................................................................................................................... 4
3.1 Overview of Financial Sector......................................................................................................... 4
3.2 Overview of Nationwide ............................................................................................................... 6
3.3 External Environment Analysis ..................................................................................................... 7
3.3.1 PESTLE Analysis ...................................................................................................................... 7
3.3.2 Competitor Analysis Porters five forces framework. ...........................................................12
3.3.2.1 An overview ......................................................................................................................12
3.4 Threats and Opportunities..........................................................................................................13
3.5 Internal Environment Analysis ....................................................................................................14
3.5.1 VRIN analysis ........................................................................................................................16
3.5.2 The McKinsey 7s Framework ...............................................................................................18
3.5.3 Financial position .................................................................................................................22
3.5.4 Strengths and Weaknesses ..................................................................................................23
3.5.5 Conclusion to cover SWOT to identify strategic position ....................................................24

4.

Identification of the key contemporary business issue ................................................................24

4.1 Decision Matrix ...........................................................................................................................25

4.2 Rational for choice of key contemporary business issue................................................................26

. .........................................................................................................................................................26
5.

The impact of digital technology strategy on The Nationwide.....................................................27

5.1 Change management ..................................................................................................................27
5.2 Business Level Strategy...............................................................................................................29
5.3 Operational level strategy...........................................................................................................30
5.4 Individual level ...........................................................................................................................31

Success of the overall strategy in relation to technology .............................................................31

6.1 Financial results ..........................................................................................................................33
6.2 Ansoffs Matrix.............................................................................................................................33
6.3 Nationwides Change Management process. .............................................................................34

Conclusion.....................................................................................................................................35

Recommendations ........................................................................................................................36

References ....................................................................................................................................36

Appendices....................................................................................................................................41
1

List of Figures and Tables and Appendices

Figures
Figure 3.1 The Industry life cycle

Page 5

Figure 3.2 Bank market share

Page 5

Figure 3.3 Value chain analysis

Page 15

Figure 3.4 VRIN Model

Page 15

Figure 5.1 Digital objectives

Page 30

Figure 6.2 Ansoffs Matrix

Page 33

Tables
Table 3.1 The Nationwides Strategic Goals

Page 6

Table 3.2 PESTEL Analysis

Page 8

Table 3.3 Opportunities and threats

Page 13

Table 3.4 VRIN Analysis

Page 16

Table 3.5 McKinsey 7s Framework analysis

Page 18

Table 3.6 Strengths and Weaknesses

Page 23

Table 4.1 Key contemporary business issues

Page 24

Table 4.2 Decision Matrix

Page 25

Table 5.1 Excerpts from Posci ADKAR model of change

Page 28

Table 6.1 SAFe

Page 32

Appendices
Appendix 1 Porters Five Forces Analysis

Page 40

Appendix 2 SWOT Analysis

Page 41

Appendix 3 Posci ADKAR elements

Page 43

1. Introduction
This report will focus on the effect contemporary business issues have on the financial sector
and in particular how they impact on the strategy and operations of Nationwide Building Society.
A range of analytical tools and concepts will be used to identify a specific issue that is affecting
the Nationwide. Furthermore, the report will evaluate Nationwides response to the issue and
the resulting changes made to their strategy and operations.
A contemporary business issue can be described as a business issue that has particular
relevance to the present time (Mullins, 2010).

2. Methodology
The methodology is referred to as the research design or the plan for your research (Thomas,
2011). The research methods used during this research were chosen in response to the following
objectives

To identify a contemporary business issue that is affecting the Nationwide Building

Society.

To discuss in depth the impact this issue has had on the Nationwides strategy and
operations

To evaluate changes that Nationwide have made in response to the contemporary

business issue in respect of strategy and operations.

To evaluate the results of the changes made by Nationwide.

This research will be made using only secondary data as the author is restricted by access and
time issues that prevent the conducting of primary research (Denscombe, 2011). Secondary
research will be conducted by carrying out a rigorous literature review to gain an insight into the
theory of strategic and change management. The Nationwide Annual report 2013, databases
3

such as Mintel and Industry reports will be used and a search of academic databases will be
conducted. However, due to the contemporary nature of this report the Internet was used to
gain up to date information from reputable sources.

3. Findings

Strategy is about the key issues for the future of organisations (Johnson, Whittington and
Scholes, 2011 p 3). It is the long term direction of an organisation. The strategic position of an
organisation is concerned with the impact of the external environment on strategy, the strategic
capability and the goals and culture of an organisation (ibid). Therefore to establish the strategic
position of Nationwide Building Society, an analysis of the financial sector and The Nationwide
took place. Furthermore a competitor analysis was conducted using Porters five forces
framework and a PESTLE analysis examined the external environmental factors that could impact
on the organisation. The findings identified the strategic opportunities and threats facing the
organisation.

3.1 Overview of Financial Sector

The financial industry can be classified as a highly competitive oligopoly. Customers have high
bargaining power with low switching costs because the range of products is similar and prices are
easily compared via the internet there is little threat of substitutes. The characteristics identified
show that the financial sector can be classed as a mature market (Johnson et al, 2011) as
illustrated below (Table 3.1). The Financial Conduct Authority (FCA) defines the term financial
sector as businesses operating within banking, insurance or investment services, for the
purposes of this report the term financial sector will only refer to Banks and Building societies.

Figure 3.1 The industry life cycle

Source: Value Based Management. Net, 2014

In a mature market, an increase in market share is often difficult to achieve (Johnson et al, 2011).
Although there are currently 21 banks and 46 building societies operating in the United Kingdom
(UK) (Business directory UK, 2014), the top five banks hold the majority market share as
demonstrated in Figure 3.2.

Figure 3.2 Bank market share

Source: Office of Fair Trading, 2014

3.2 Overview of Nationwide

Nationwide Building Society is a British mutual financial institution and is the largest building
society in the UK, formed in 1846 to provide finance for home ownership (Nationwide Annual
Report, 2013).
The definition of a mutual is that it is owned by its members and run for their benefit (Building
Societies Association, 2014).
There are 46 building societies in the UK and Nationwides assets, numbers of members and
number of branches are larger than the other 45 combined (Building Societies Association (BSA),
2014). The Nationwide is the third largest supplier of mortgages in the UK and the second largest
supplier of current accounts with a six percent market share (Gittens and Padgett, 2014).
The vision for Nationwide is to be the Number 1 choice for financial services (Nationwide
Annual Report, 2013)
This is supported by a number of strategic goals as outlined in the table below (Table 3.1,

Table 3.1 Nationwides Strategic goals

Source: Nationwide Annual Report 2013

Nationwide offer a wide range of services including, Mortgages, Current Accounts, Home Insurance,
Personal Loans, e-Savings, e-bonds, Online ISA accounts.
Despite the economic climate and the turbulence in the banking sector that has ensued since the
financial crisis in 2009, Nationwide has continued to grow and last year against the trend announced
record profits of 420 million (Nationwide, 2013) and increased its Market share in both the
mortgage (2013, 19.5%, 2012, 14.8%) and current account (2013, 5.7%, 2012, 5.1%)

3.3 External Environment Analysis

3.3.1 PESTLE Analysis
Although it is not possible to predict the future, the PESTEL (Political, economic, social,
technological, environmental and legal) framework can be used to identify how future issues might
affect an organisation and identify key drivers of change (Johnson et al, 2011). Important because
failure to recognise the impact of technology on their businesses led to the collapse of Jessops who
failed to realise the impact of smartphones would have on their camera business (Saunders, 2008)
and Blockbuster who failed to reform their business model and suffered as a result of companies like
Amazon (Bhalla, 2013). The full PESTLE analysis is contained in Table, 3.2

POLITICAL
Regulatory reform

There have been significant regulatory changes

for financial services providers with the
introduction of Basel lll, CRD IV and ICB which
could impose additional capital requirements.
There has also been a reorganisation of the
regulatory landscape in the UK with The
Financial Services Authority being replaced by
the Financial Conduct Authority (FCA) and the
Prudential Regulation Authority (PRA) and the
overall authority for financial stability the
Financial Policy Committee has been created
(FPC) (Nationwide, 2014)

Political Instability

In September 2014 Scotland will vote on

independence, furthermore in May 2015 there is
to be a general election in the UK in whatever
forms that maybe after the Scottish vote.

HM Treasury

The Government is linked to the financial

services sector through HM Treasury which
controls public spending and sets the direction
for the UKs economic policy. It works to achieve
strong and sustainable economic growth. The
priorities for 2013 for example were to create
stronger and safer banks, improve regulation of
the financial sector to protect customers and the
economy and to make it easier for people to
access and use financial services (HM Treasury,
2014)

ECONOMIC
Low inflation

Inflation remains lower than the Bank of

Englands 2% target rate for the third
consecutive month and the Institute for Fiscal
Studies predict wage growth will start to outpace
inflation this year (BBC News, 2014)

House prices

The regional house price gap has reached its

highest level ever there is a 68.3% difference
between the highest and lowest regions (ONS,
2014). The UK house price growth is at a seven
year high with prices across the country rising at
more than 10% per year. The Governor of the
bank of England Mark Carney has said that this
boom in house prices is the biggest threat to the
UK economy. The reason given for this rise is
that demand outstrips supply (Sawer, 2014)

Base rate remains low

The Bank of Englands base rate remains at

0.5O% whilst not pleasing for creditors,
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financiers and savers a NMG Consulting survey

shows that households with loan-to-income
ratios greater than 5 account for about a fifth of
total UK mortgage debt and a rise in interest
rates would affect their ability to repay (Pettifor,
2014)
Retail sales increased by 4.2% in March 2014
compared with 2013, which indicates consumer
confidence is improving (ONS, 2014)
The Eurozone debt crisis is yet to be resolved
and some risk of break up, there is also a nonnegligible risk of hard default which could have a
serious effect on Eurozone members and hence
the value of treasury assets (Nationwide, 2013)
The growth in the UK economy is expected to
remain low in the short to medium term.
Interest rates are not expected to change and
the continuance of austerity measures and
business failures could challenge the labour
market (Nationwide, 2013)

Retail sales
Uncertainty in Eurozone

Slow growth in the UK economy

SOCIOLOGICAL
Ageing population

The demographics of the population in the UK is

changing with proportion of 65+ growing by 4%
in the last 30 years and the percentage of 16 -18
year olds decreasing by 6% in the same period.
(ONS, 2014). Life expectancy is also increasing as
is the retirement age (ibid). Financial products
that have lending policies that limit lending
beyond a certain age will need to be
reconsidered.

Trends in use of technology

How we use technology is changing the way

consumers interact with financial institutions.
Online banking is the most frequent point of
contact that a customers have with their bank or
building society. However the Branch network
remains highly relevant and is the second most
commonly used channel (Mintel, 2013).

Customer trust levels

The banking crisis of 2008 and the subsequent

fall out as well as the level of bonus payments
for bankers have led to trust in banks being at an
all- time low (Knowles, 2014). The solution
suggests four generic approaches, structural,
regulatory, compliance and incentives all rooted
in either economic or legal perspectives (Green,
2010).

Customer loyalty

With the increase in digital technology

consumers are now able to access information
that was once only available to a few this has led
9

to a decrease in customer loyalty as they are

now able to shop around for the best deals
(Evans, 2010).
Buyer behaviour

TECHNOLOGICAL
Competitive advantage

The increase in the use of digital technology has

also affected buyer behaviour, Although the PC
is still the most used device to access the
internet mobile devices are catching up quickly
as smartphone and tablet ownership continues
to rise (Mintel, 2013). However face to face
remains the preferred channel for arranging
financial products (ibid).
Technological innovation is now becoming vital
to creating and achieving competitive advantage.
In an industry where the range of products is
similar amongst all competitors one of the only
ways to differentiate is to introduce new
technology that sets organisations apart from
their competitors Competitive opportunities ..
are opening up, as mobile apps move ahead of
web browsers in the battle for digital banking
(Mintel, 2014)

Technological pace of change

The speed in which technology is changing is

increasing year on year the introduction of the
Paym mobile payment technology which, allows
people to pay or receive money using a phone
number is just the latest innovation (BBC News,
2014) as well as the introduction of Apps that
can be accessed through Smart TVs.

Technology as an aid to meet regulatory changes

With the advent of the regulatory changes,

technology can help organisations meet the
challenges that they face (Computerworlduk,
2013)

Increased power of suppliers

With the need to keep pace with technological

changes the power of suppliers is increasing as
financial institutions fiercely compete to gain the
initiative in terms of technological innovations
(BBC News, 2013)

LEGAL
Regulatory Changes

As stated before the government have

introduced significant regulatory changes for
financial services providers which could impose
additional capital requirements. There has also
10

Financial reporting

Long Term investment finance

ENVIRONMENTAL
Corporate social responsibility

Carbon Footprint

been a reorganisation of the regulatory

landscape in the UK with The Financial Services
Authority being replaced by the Financial
Conduct Authority (FCA) and the Prudential
Regulation Authority (PRA) and the overall
authority for financial stability the Financial
Policy Committee has been created (FPC)
(Nationwide, 2014). This is expected to impact
risk management budgets and bolstering of
governance programmes (Deloitte, 2012).
Furthermore changes in business strategy with
adjustments to product lines and/or business
activities (ibid). Basel III will require banks and
building societies to hold more capital with a
target of 7% of risk weighted assets (Treanor,
2012)
All UK organisations are required to produce
financial statements in compliance with the
Accounting Standards Board (ASB) and the
International Accounting Standards Board (IASB)
which are audited, the checks of these are more
rigorous as KPMG gave both Bradford and
Bingley and HBOS clean bills of health just before
they collapsed in 2007(Sikka, 2008)
The financial regulatory reforms will also impact
on long term (LT) investment finance as they are
designed to promote a safer, sounder and more
resilient financial system (Financial Stability
Board, 2013)
It is essential in todays environment that
organisations show corporate social
responsibility as society demands it;
furthermore, it can provide competitive
advantage(Porter and Kramer, 2006)
With the government bound by the agreement,
organisations have to satisfy multiple objectives
such as quality, safety and overall environmental
impact. Which are regulatory requirements
(Sullivan and Gouldson, 2011)

Table 3.2 PESTEL Analysis

11

3.3.2 Competitor Analysis Porters five forces framework.

Using the five forces framework provides a useful starting point for strategy analysis and can aid
setting an agenda for action on the various critical issues that are identified (Johnson,
Whittington and Scholes, 2011). However, it does have some limitations for example; it is
important to define the right industry; most industries can be analysed at many levels and there
are also converging industries in the financial sector, these could be identified as the retail
sector that are now offering banking services and could be seen as direct competitors. Although
created in the 70s Porters five forces it is still the most extensively used strategy framework in
management practice (Stewart, 2008) and therefore will be used for the purpose of this report.
3.3.2.1 An overview
As mentioned previously the financial industry can be classified as a highly competitive
oligopoly. Customers have high bargaining power with low switching costs because the range of
products is similar and prices are easily compared via the internet there is little threat of
substitutes. The ease of switching has also increased with the introduction of new rules which
came into effect in September 2013 which require banks and building societies to complete
switching (transfer of accounts from one institution to another) within 7 days. Due to the power
of buyers the competitive rivalry in the industry is intense, a small percentage increase or
decrease in interest rates can have a significant impact on the volumes of business secured (HM
Treasury, 2014). There is also a significant competition to differentiate in terms of technology
(BBC News, 2013)
Due to the complexity of the regulatory framework and the significant amount of capital
required to secure a credit rating and banking licence there is only a moderate risk of new
entrants into the market (Mintel, 2013). However, the risk has increased in recent years as nonstandard financial institutions that have vast resources are moving into the sector, such as Tesco
12

and Sainsbury PLC (Mintel, 2013. This is occurring at the same time as politicians, aware of the
lack of trust in the financial sector ask if there is enough competition (Peston, 2014). The power
of suppliers remains relatively low, however; with financial institutions seeking the most up to
date technology solutions, the power of information technology providers is increasing (Roe,
2013). A full competitor analysis is contained at Appendix 1 Porters Five Forces (Analysis of the
financial sector)

3.4 Threats and Opportunities

The following threats and opportunities have been identified following the external analysis,
these will be discussed at a later point when all four quadrants of SWOT have been analysed.
Threats
Competitive Rivalry

Opportunities
Increase in consumer confidence

Less customer loyalty

Technological advancement

Pace of technological changes

Meeting Basel III requirements

Bargaining power of suppliers has increased

Low threat of substitute products

Legislation

Increase in retirement age and ageing population

Slow growth of UK economy

Low consumer trust in retail banking sector

Eurozone uncertainty

Online banking

Bargaining power of buyers has increased

Increase in threat of new entrants
Table 3.3 Opportunities and Threats

13

3.5 Internal Environment Analysis

In order to assess the strategic capabilities of an organisation an internal analysis needs to
take place, the implications are that there is a need to understand how one organisation
differs from another (Johnson et al, 2011). For example in the financial industry Lloyds
Banking group, Barclays, HSBC and Nationwide have all competed in the same market for
years with varying degrees of success. It is widely understood that resources and capabilities
enable organisations to create and implement strategies that can create competitive
advantage (Barney and Mackey, 2005). The resource based view is based in the belief that
companies can build competitive advantage through examining all of your assets,
proprietary information and abilities to discover the sources of your value to customers. The
most commonly listed company resources are financial capital, physical capital and
organisational capital. Examples of resources that can distinguish companies are brand
reputation, organisational culture and skilled employees (Kokemuller, 2013). However,
Porter, 1991 contends that it is the activities of an organisation which provide competitive
advantage and that it is the firms ability to perform activities at a lower cost than their rivals
or in a unique way that creates buyer value. These activities include inbound and outbound
logistics, operations, marketing, sales and service. The value chain analysis (Figure3.3)
identifies primary and support activities that add value to the final product then analyses the
activities to reduce costs or increase differentiation (ibid). However, for the purpose of this
report Barneys, 1991 resource based view will be adopted as this appears more conducive
with the Nationwides strategic objectives. Therefore to assess the Nationwides strategic
capabilities McKinseys 7s Model was used to analyse the internal abilities to change and the
VRIN (value, rarity, imitability and non-substitutability) model will also be used (Figure 3.4).
The financial performance was also investigated. The findings will inform the strengths and
weakness quadrants of the SWOT analysis.

14

Figure 3.3 Value chain analysis.

Source: Strategic management insight, 2014

VRIN Model

Figure 3.4 VRIN Model

Source: Johnson Whittington and Scholes, 2011 p. 94

15

3.5.1 VRIN analysis

Value of Strategic Capabilities
The most valuable strategic capability that the Nationwide has is its status as a mutual.
Although this may not be viewed as a traditional strategic capability this is a strategic choice
that has been made by its members and the board and allows the Nationwide to
differentiate itself from the retail banking sector. Due to their status they are able to make
strategic decision not available to retail banks that are at the mercy of their shareholders
who demand return on investment (Dyson, 2007). Through this they are able to take
advantage of the opportunities and neutralise some of the threats that have been identified.
For example, with the trust issues surrounding the retail banking sector, the Nationwide are
able to take advantage of this by continuing advertising of the On your side campaign and
reinforce their commitment to their customers. The increase in retirement age and the
ageing population provide further opportunity for Nationwide as the majority of their
customers are in the older population (Gittens and Padgett, 2014). Nationwides philosophy
is also focused on retaining existing customer through life (Nationwide, 2013). Their
customers also appear to be more loyal as they did not experience the amount of switching
that their competitors did (BBC News, 2014) and even benefitted by gaining 123,000
customers (Nationwide, 2013).
This trust in the organisation created by the principles of its mutuality which creates loyal
customers, who are also in the older age bracket and slow adopters of technology has meant
that Nationwide have not had to keep pace with technological changes. This has allowed
them to watch how new technologies have been received when implemented by other
financial organisations so that they have not wasted resources.
Even though there is slow growth in the economy and Eurozone uncertainty, the fact that
Nationwide do not operate in the commercial sector of banking and operate a risk adverse
strategy conducive to their mutual status has also provided competitive advantage.
The costs of remaining a mutual are not detrimental to the Nationwide instead by doing so
they provide a service that is valued by their customers.

Rarity
If competitors have similar capabilities they may be able to respond to the strategic
initiatives of the Nationwide (Johnson et al, 2011). However, even though there are 45 other
building societies in the UK the Nationwide are bigger than all of them combined (BSA,
2014). This allows them to make strategic decisions that the others are not financially able to
do, such as the sustained On your side campaign, the costs of which are prohibitive to the
others (cite marketing) thus providing competitive advantage. They are also able to meet
their customers needs by providing products which provide superior value such as their
promise to keep their base rate mortgage at 2% above the Bank of Englands base rate
which has not been repeated by any of their competitors (Gittens and Padgett, 2014). As
well as this and due to their low risk strategy they are able to provide an assurance to their
members of security unlike other mutuals such as the Cooperative Bank whose more high
risk strategy has made their business vulnerable (Aldrick, 2013). Which shows that even
other mutual do not have the same capabilities as the Nationwide.
Imitability

16

Sustainable competitive advantage includes recognising capabilities that are difficult to

imitate or obtain (Johnson et al, 2013).
The special value of mutuality rests in its capacity to establish and sustain relational
contract structures. These are exemplified in the most successful mutual
organisations, which have built a culture and an ethos among their employees and
customers, which even the best of plc structures find difficult to emulate. (Kay,
1991, p. 317)
Although this was written in the 90s the sentiment is even stronger post the financial crisis
of 2007. Even though some retail banks recently have tried to create the appearance of
being customer focused and on their side for example Lloyds banks For the journey
campaign and Barclays banks Youre better off talking to Barclays. The trust in banks still
remains at an all-time low (cite) and the continued payment of exorbitant bonuses for failing
and state owned banks does nothing to alleviate this (BBC News, 2014). The ethos amongst
Nationwides employees have seen them voted No3 in a Which survey for customer service
(Which, 2014). Furthermore they were voted No 11 in the Sunday Times Best Employer to
work for in 2014 (The Times, 2014).
Non-substitutability
Just as it would be difficult for other financial institutions to imitate the Nationwides
strategic capabilities so it may be for substitutability. As has been established in the Porters
five forces analysis the threat of substitute products remains low as there is little
differentiation in the products and services offered by financial institutions. Porters also
revealed that online only banking represents only 3% of the market for main current account
holders (Mintel, 2013). They are also not mutual and therefore are subject to the same
pressures from their shareholders as high street banks although they do not have the same
overheads. However, it is the high street branches themselves that give financial institutions
their identities (Gittens and Padgett, 2014) and the majority of people still prefer discuss
financial services face to face (Mintel, 2013). Therefore at this point in time online banks
represent no threat of substitution.
Table 3.4 VRIN analysis.

17

3.5.2 The McKinsey 7s Framework

Style

Leadership Style
The leadership style is participative which involves consulting with
subordinates and the evaluation of their opinions and suggestions before
the management makes a decision (Mullins, 2010).
The investigations regarding long term objectives and commercial
strategic decisions are carried out at business and operational level and
then reported back to the CEO and the Board for final decisions to be
made.
The views of the membership, employees, suppliers, government think
tanks are also taken into account when making strategic decisions for
example due to the feedback they launched the Living on your side five
year strategy.
The major decisions regarding the status of the organisation and election
of members of the board are made by the members of the society
themselves, however the election of board members is rarely contested
due to the criteria required to be elected (Building Societies Members
Association, 2014). The decision making process which sets the boards
salaries, bonuses and golden handshakes as well as the low interest rates
given to savers has been viewed as being autocratic (ibid).

Skills

Skills gaps in line with strategy

The lack of leaders and managers in the UK could impact on the successful
implementation and achievement of the strategy (CIPD, 2014)
Skills gaps in line with operations
The lack of Cyber security experts may impact on operations (National
Audit Office, 2013). A sustained attack on the Nationwides technology
platform could result in a major impact on operations.
The Strongest skill
Customer service rated 3rd in a Which survey for providing customer
service in March 2014 (Which, 2014)

18

Systems

Systems that support and drive the business

Financial recording and reporting
Risk management
Resource planning
Information technology
Marketing and Communications
HR Systems
Controls of systems
There are robust controls in place in regard of the financial recording and
reporting and risk management which are demonstrated in the Annual
report, 2013, which must prove accountability in these areas as per the
Companies Act of 2006. It is also regulated by the Prudential Regulation
Authority, The Financial Conduct Authority. As well as the new regulations
brought in by Basel 111
Resource planning the final decision on how resources are allocated is
with the Board who in turn are accountable to the members.
Controls of the Information Technology are within the technology itself
and can be subject to human error for example, in 2012 an error hit
700,000 of its customers (Lythe and Hyde, 2012) leading to major chaos
and frustration. Furthermore in 2013 customers were unable to access
account information for almost 24 hours (BBC News, 2013)
The other systems are controlled internally.

Structure

Hierarchical structure
See Appendix 1
Matrix or Functional
The Society describe themselves as having a matrix structure (Beale,
2013). However, the hierarchal structure indicates that Nationwide have a
functional organisation design.
Co-ordination of activities
Decision making Centralised or De-centralised
Decision making is centralised the board make the long term strategic
decisions and the CEO makes the decisions regarding day to day
operations of the building society. However, this is impacted by the
principles of mutuality and the customer preferences.
Vacancies
There are currently 215 vacancies across all areas of the business, with
the major area being the retail branches with 59 vacancies
What types of people skills are needed to support the other 7 elements
Listening
Conflict resolution
Persuading
Negotiating
Coaching
Training
Managing
Delegating
Motivating
Leading/directing
Developing others, working in a team

Staff

19

Strategy

The Mission/purpose
Our purpose is safeguarding our members financial interests, helping
them to save, helping them to buy their own homes and helping them to
make the most of their money (Nationwide Annual report, 2013).
The vision
To be peoples first choice for financial services (ibid)
5 year Strategic goals

Shared Values

Be the first choice for financial services

Be the clear number 1 for customer satisfaction, with a
demonstrable lead (>6%) over the next best competitor
Grow our base of valuable customer relationships to
over 7.5 million
Establish a Core Tier 1 ratio 15% and be in the top quartile
of our peer group
Become self -sufficient in capital with an underlying profit
of 1 billion
Run an efficient business with a cost income ratio
of between 45% and 50%
Achieve the external high performance benchmark of 73%
for employee enablement and 75% for employee engagement

The strategy for achieving this purpose, vision and goals is to continue to
invest in the Society and their people. To develop and expand their
presence in the personal current account market and continue to invest in
technology.
The strategy is also based on three interdependent themes:
Our members, On your side, Our people, Pride, Our business, Safe and
sustainable
Competition and competitor analysis
The Nationwide have many competitors as there are 46 Building Societies
in the United Kingdom and 21 Banks. However the main competitors are
the top 5 banks. There is also a threat of online only financial institutions
such as First Direct as well as the non-standard financial institutions
entering the market such as Sainsbury, Tesco and Marks and Spencer
(Mintel, 2013).
However, the online only institutions only represent 3% of the main
current account holders (ibid). Furthermore the Nationwide is bigger than
the other 45 and the Banks cannot compete with the differentiation of
being a mutual society.
Environmental factors affecting the business
There are many environmental factors that affect Nationwide a detailed
explanation of these can be found in the PESTLE and SWOT analysis found
in this report.
Corporate Values
The corporate values at Nationwide are very strong and endemic of its
position as a mutual , their principles are,
20

We offer consistent long term value

We reward members with the deepest relationships
Our pricing is transparent and fair, with differential pricing used
only when justified by product features, service, cost of
deployment or risk
We help customers to make the best choice for their finances
We never knowingly mislead
We run our business efficiently to ensure we maximise member
benefit
Our service is demonstrably better than that of our competitors
We are a responsible corporate citizen, focusing our efforts on
enabling home ownership, promoting a savings culture and
supporting the community

Alignment with competitive pressures

These values have served Nationwide well in the last few years as public
trust with the banking system has been at an all-time low (Knowles, 2013)
and other financial institutions have recorded record losses the
Nationwide has continued to grow and announced record profits in
financial year 2013. When competitor institutions have been seeing
revenue fall they have increased interest rates in areas such as mortgages.
The Nationwides stance has been to keep their standard mortgage rate at
2% above the Bank of Englands base rate, in the best interests of their
members (Gittens and Padgett, 2014). This has seen an increase in the
mortgage market share of 3 %
Alignment with strategy
The corporate values of Nationwide are fully aligned with the
interdependent themes as both promote the Society as being for the
members.
Internal culture
Nationwide were awarded a Gold standard in the Opportunity Now and
Race Awards in 2012 (Nationwide Annual report, 2013) a government
recognised body that work with employers to create amongst other things
a healthier, happier and more productive employees and to tackle
inequality (Business in the community, 2014). They were also placed in
the top 100 employers by Stonewall in 2014 but only came in at No 86
which shows room for improvement (Stonewall, 2014) and came 11th in
the Sunday times 25 Best big companies to work for (The Sunday Times,
2014) a vast improvement as they did not feature in 2013. This culture is
conducive to progressive improvements.
Table 3.5 McKinsey 7s framework Analysis

21

3.5.3 Financial position

It has been said that one of the financial weaknesses of building societies is their inability to
raise capital through share allocations; however, in the financial crisis no building societies
received bail outs from the government. On the contrary the building societies that had
decided to change to banks in the 1990s were worst affected such as Northern Rock and
Bradford and Bingley that despite huge inputs from taxpayers were forced to close (Michie
and Llewellyn, 2010). This indicates that building societies are in a far more robust position
that the retail banking sector. The Nationwide has led the way to introduce a new form of
raising capital whilst still maintaining their mutual principles that is issuing an external
capital instrument, core capital differed shares, which was hailed as a saviour for mutual
societies. However, it may be argued that the society may remain in a stronger position
without using this option. The Nationwide has also seen year on year increase in profits
since 2010 (Figure 3.3), and although not in the same league as banks such as Lloyds (Figure
3.4) they did not experience the significant losses in 2008 and 2009, which Lloyds are
recouping.

Figure 3.3 Nationwide Building Society Underlying profit before tax

Source: Nationwide Building Society Annual Report, 2013

22

Figure 3.4 Lloyds TSB Underlying profit before tax

Source: Lloyds Bank Annual report, 2013 and 2010
3.5.4 Strengths and Weaknesses
The strengths and weakness of Nationwide have been produced following the internal
analysis and will be discussed along with the other two quadrants Opportunities and threats
in the next section.
Strengths

Weaknesses

Nationwide Brand

Regulatory conditions

High barriers to entry

IT failures

Customer Service

Cyber attacks

Employer

Branch network

Financial position

Unable to raise funds through shares

Online Banking
Table 3.6 Strengths and Weaknesses

23

3.5.5 Conclusion to cover SWOT to identify strategic position

By listing the internal and external advantageous and disadvantageous issues in the quadrants of
the SWOT analysis it is easier to understand how strengths can be used to realise opportunities.
Furthermore, it provides a chance to understand how weaknesses can slow progress or intensify
threats. It is also possible to identify ways to overcome threats and weaknesses (Helms and
Nixon, 2010). The four quadrants were informed by the findings of the PESTLE analysis, Porters
five forces, McKinsey 7s framework and VRIN analysis. The full explanation of the SWOT analysis
can be found at (Appendix 2).

4. Identification of the key contemporary business issue

There are several key issues affecting The Nationwide these are identified in the Table 4.1
below, then discussed in the next section

Regulatory issues
Regulatory changes that are to take place in the financial industry will have an impact on
business strategy, The impact of increased regulation has had a significant effect on
business strategy and the bottom line, with 48% of firms confirming that they have adjusted
product lines and/or business activities, a percentage that has doubled from 24% (Deloitte,
2012). The Nationwide themselves have invested heavily to meet the requirements of the
regulatory changes but assure members that they are ready and that the financial outlay
should be reduced in 2014 (Nationwide, 2013).
Low Customer Trust
Low customer trust still appears to be impacting on the industry with a recent report stating
that it was still at its lowest for years (Knowles, 2014). IBM (2012) identified that as a result of
poor customer trust consumers are spreading their finances among a number of financial
institutions. Furthermore, it is suggested that this trust will take time to rebuild. However
building societies do have the edge over banks and their customer satisfaction are far greater
(Which, 2013).

24

Slow growth in the UK economy and the Eurozone crisis

The slow growth in the UK economy and the continued Eurozone crisis are also still impacting
on the lending and mortgage markets. However Nationwide has increased its lending and
mortgage approvals (Nationwide, 2013). Furthermore, building societies in general have
increased their mortgage lending market since the financial crisis and have increased their
share of the market by nearly 10%. They also have 83% of the best deals on the market
(Mintel, 2013). Mutuals were least affected by the financial crisis and they avoided the worst
effects because the business model employed is fundamentally different to the capitalist
banking model (Griffiths, 2012).
Digital Technology
The pace of new digital technologies that are entering the financial sector are enormous, one
banking CEO says that the industry is in the midst of transition that occurs once every 100
years (McKinsey, 2014). It is further argued that digital capabilities will increasingly impact on
which organisations create or lose value (ibid). Those who are not early adopters of new
technology will run the risk of becoming the next Blockbusters or Jessops which has been
identified previously. There has also been an increase in the uptake in online banking by
older people who are out pacing that of younger customers as their needs are simpler
(Mintel, 2014). The older population represent the majority of The Nationwide customers
(Gittens and Padgett, 2014). However digital technologies also present a risk to
organisations with cyber- crime and technical glitches representing the biggest threat.
However, there are two ways to solve these issues, by ever increasing technology that fights
fraud and protects the consumer as well as maintaining the platforms in use and by better
informing the customer about phishing and password scams (Computerworlduk, 2014). The
impact of either of these two risks can have a severe impact on the reputation of an
organisation (Nationwide, 2013)

Table 4.1 Key contemporary business issues

4.1 Decision Matrix

The decision matrix was used to assess the weighting of each contemporary issue identified
against a set of criteria relevant to the success of Nationwide (Table 4.2)
Factors

Financial
Implications

Immediate
relevance

Regulatory
implications

Competitive
Advantage

Impact on
customer

Total

25
17

Impact on
business
reputation
20
17

WEIGHTING
Regulatory
reforms
Eurozone
uncertainty
Customer trust
levels
Digital
Technology
Slow growth in
the UK economy

15
09

25
23

20
20

15
08

06

17

06

06

06

06

47

10

20

14

12

20

15

81

14

22

18

13

20

12

99

09

17

04

04

20

04

58

25

94

Table 4.2 Decision Matrix

4.2 Rational for choice of key contemporary business issue

.
Critical success factors are those product features that are particularly valued by customers or
which provide significant advantage in terms of cost.
(Johnson et al, 2011 p 73)
The critical success factors for the financial industry are:

Branding and Reputation

Technological capabilities
Secure finances
Compliance with regulatory frameworks
Relationship with customers

With less customer loyalty and increased power of buyers who are influenced by the ability to access
information that was previously known only to a few, consumers are more likely to select web based
resources than any other source to access information about financial products (Mintel, 2013).
Online banking is also the most frequent point of contact a customers have with their bank or
building society (ibid). Furthermore, the older demographic are outpacing younger customers in
their uptake of online banking, it is suggested that this is due to their simpler banking needs (Mintel,
2014). As the majority of Nationwides customer demographic falls within this area it is vital that
they respond to this (Gittens and Padgett, 2014). Additionally, customers want access to their
financial information 24/7 and to complete their banking in their time not the opening hours of the
branches (Beale, 2013).
The trust issues in the banks although not directly related to technology, can be helped by making
the operations of the organisations more transparent to the consumer. There is also an issue of trust
in online banking with 21 million people in the UK using online banking (Which, 2014) the security of
the platforms is essential. There have been several glitches in the digital banking platform in recent
years (BBC News, 2013) which has led consumers to question the robustness of these platforms.
26

Furthermore, one CEO in the banking industry says that the industry is in the midst of a transition
that occurs once in every 100 years, due to the rise of digital technologies (McKinsey, 2014).
McKinsey also warn that digital technologies will increasingly determine which companies create or
lose value and unprepared incumbents will run the risk of becoming the next Blockbuster (ibid). The
potential of cyber- attacks also represent a risk and it is only by improving the technology that
protects the digital platform and individual accounts, more rapidly than the perpetrators can
improve theirs that the risk can be reduced (IBM, 2014).
It could be argued that adhering to regulatory change is the major issues facing the financial sector
as non-conformity could lead to major consequences for banks and building societies. However,
technology can help organisations meet the needs of the new regulatory framework
(Computerworlduk, 2014).
Therefore, taking into account the critical success factors, this analysis and the results of the decision
matrix the author proposes that technology and how it is implemented and updated is the key
contemporary business issue facing The Nationwide.

5. The impact of digital technology strategy on The Nationwide

5.1 Change management

It can be argued that the successful management of change is vital for any organisation in a
highly competitive and continuously changing business environment. Therefore, the Prosci
ADKAR Model of change management was applied to examine the change management process
of The Nationwide the elements of which are:

27

Awareness of the need for change

Desire to participate and support change

Knowledge on how to change

Ability to implement required skills and behaviours

Reinforcement to sustain change

Table 5.1 Excerpts from Prosci ADKAR model of change

The full explanations of these can be found at Appendix 3
The Nationwide are aware of the need to change (Beale, 2013); however, they have been both
proactive and reactive in terms of their digital strategy and relationship with technology. They were
the first to launch an online banking platform in 1997 (Nationwide, 2014). However, they were the
last of the big financial institutions to launch their App (BBC News, 2014) and have not fully
implemented the new Paym technology which allows users to pay or receive money using their
mobile phone (BBC News, 2014).
The organisation has a strong ability to change as demonstrated in the Mckinsey 7s model they have
strong internal capabilities and react to changes in the external environment, for example, being
ready for the regulatory changes even though they are not due to be implemented as yet
(Nationwide, 2013). They also have a strong relationship with their members and their functional
hierarchy works well with both the membership and the business and operational levels within the
organisation. The decision to work in partnership with companies such as IBM and SAP, provides
specialist knowledge that the organisation did not possess before which provides support for their
chosen strategy (Mullins, 2010). Furthermore, the decision to form the specialist Digital
development team improves the intellectual capability of the organisation as all the digital specialist
knowledge of the organisation are now working in one direction. Moreover, the strong financial
position demonstrates their ability to support the new developments. Gittens, 2014 contends that
28

the organisation manage the changes through a series of briefings to enforce the need for change
and the impacts that the change will have, which reflects the education method of leading change
(Johnson et al, 2011). The aim of which is to gain support for change and to ensure a wide base of
understanding, however this is also time consuming (ibid). However, Noyes and Powell, 2014
contend that the missing link in the implementation of new strategies is the translation to all
elements of the workforce. Furthermore, the CIPD, 2014 contend that most change initiatives fail
due to lack of communication. Therefore, this decision remains valid.
These elements of change have been decided at corporate level albeit influenced by the impact of
listening to their customers and the research collected at business and operational level. Corporate
level strategy makes the decisions such as what types of business the group wants to be in, where it
wants to operate and the allocations of financial resources are decisions that form corporate
strategy (Slack, Chambers and Johnston, 2004). However, strategic change affects all levels of an
organisation (ibid) so, how have they impacted on the business, operational and individual levels of
the organisation?

5.2 Business Level Strategy

The business level strategy is The business strategy in relation to its customers, markets and
competitors and also the corporate group of which it is part (Slack et al 2004). It is important
that each business unit has its own business strategy and objectives (ibid). The Digital
development team was created in response to the increasing reliance of the Nationwides
customers on digital technology and the influence that technology is having on businesses
overall. The impact of this was to draw all of the departments operating separately in different
departments dealing with technology together which was proposed to offer a more efficient, cost
effective, focused and productive digital strategy (Gittens and Padgett, 2014). The objectives of
the department are in line with the Nationwides purpose to support and deliver value for its
members (Figure 5.1).
29

Figure 5.1 Digital Objectives

Source: The Nationwide Presentation, Gittens, 2014.
Although there is no evidence that social media has a significant impact on financial decisions
(Mintel, 2013). The rise of social media is impacting on other business areas as consumers are
now talking amongst themselves about products and services (Weber, 2009) and it is further
suggested that organisations should be talking to their customers and not at them (ibid).
Customers are also demanding immediate responses to complaints and enquiries and those that
dont receive an immediate response will often Tweet their displeasure and the complaints can
soon go viral (Chaffey and Smith, 2013). The impact on the Nationwide has been to make the
strategic decision to introduce the first 24/7 Twitter platform in the financial services (Gittens
and Padgett, 2014). The team have also updated the website which now includes interactive chat
features.

5.3 Operational level strategy

The operational level strategy involves making decisions which shape the long term capabilities of
operations and how they contribute to overall strategy through the two most important
perspectives of market requirement and operational resources (Slack et al, 2004). The impact
of the overall strategy that was felt by operations was the delivery of the new SAP banking
30

infrastructure and the handling of the operational disruptions caused by glitches in the system.
Furthermore, operations had to support the delivery and installation of the new ATM, s and
training of staff to operate them. A dedicated new E-contacts team had to be developed and new
premises found for them to operate in, in response to the demand from customers using the new
improved platforms and the Twitter page (Gittens and Padgett, 2014).

5.4 Individual level

At individual level, the impact could be the fear of reduction of overtime due to increased
automation. The employees could become de-motivated due to the focus being on the digital
strategy and customer needs which could lead to loss of efficiency and low productivity (CIPD,
2014). Furthermore, they could be worried about branch closures and job losses. However, as
The Nationwide remains one of the best employers in the sector (The Sunday Times, 2014) and
that Graeme Beale the CEO has publicly stated that there will no branch closures. Moreover,
Gittens and Padgett, 2014 suggests that in the near future there may be a need to employ more
staff and the way change is communicated should overcome these issues.

5 Success of the overall strategy in relation to technology

Strategy involves making choices such as which customer to focus on, which products to offer and
which activities to perform. Organisations are successful if they can choose a distinctive strategic
position which makes it different from its competitors (Mintzberg, 1994). However, it is the
implementation of the strategy that makes the difference between success or failure (Neilson,
Martin, Powers, 2008).
To evaluate the strategy employed by Nationwide the three evaluation criteria, Suitability,
Acceptability and Feasibility (SAFe) will be used.
31

Suitability
It is important to assess the at the most basic level whether a strategy exploits the opportunities in
the environment and avoids the threats, furthermore whether it capitalises on strengths and
capabilities and avoids or supports weaknesses (Johnson et al, 2011)
The Strategic position of the Nationwide was identified using the PESTEL analysis and Porters five
forces framework. This identified that major environmental changes were occurring in technology.
There was also indication of industry convergence with non-standard financial institutions entering
the market. Moreover, mobile channels are predicted to generate most growth in payments and
banking which may provide a route for new competitors. The pace of technological changes was also
identified as a threat along with the bargaining power of suppliers and less customer loyalty due to
the freedom of information. The strategy employed by the Nationwide would avoid these threats
due to the engagement with its customers through the Twitter and interactive platforms and by
listening to its customers to inform their strategy. Moreover it exploits the opportunities presented
by low customer trust in the retail banking sector. Furthermore, its ability to keep pace with the
technological changes with the new Digital Development strategy is supported. The opportunities
presented by an aging demographic and their uptake in online banking also makes the Nationwides
strategy suitable. The strengths of the organisation of being the best online banking provider and
the financial position of the organisation also demonstrate suitability. The new Twitter and
interactive platforms further enhance the customer service reputation. The implementation of the
strong technology platform enables the organisation to meet the regulatory requirements in the
industry and a strong platform minimises the potential of IT failures and cyber- attacks.
This strategy has also presented opportunities for product development.
Acceptability
The acceptability of a strategy is concerned with meeting the expectations of stakeholders; however,
in the case of the Nationwide it is meeting the expectations of its members. Furthermore the level of
risk, the likely return and the acceptance of the members must be considered (Johnson et al, 2011)
As the strategy is driven by the members/customers it follows that it should be acceptable to the
members. The level of risk is higher if the strategy is not implemented as it has been identified that
those who are not early adopters of new technology could go the way of organisations such as
Blockbusters and Jessops. The creation of the Digital Development team also reduces the risk of
technologies that are more risky being implemented is minimalized as they canvass the views of
their customers.
Feasibility
The feasibility of the strategy is concerned with whether it will work in practice, can it be financed
and do the people skills exist or can they be obtained. Furthermore, can the resources be obtained
and integrated (Johnson et al, 2011 p 363).
There are no indications that the strategy will not work, the finances have been allocated and
although not as much as would be preferred by the Digital Development Team, (Gittens and Padgett,
2014). They are sufficient to implement the strategy. The skills are one area where it may be difficult
to sustain the strategy the lack of good leaders and managers in the UK who are needed to
implement strategies (CIPD, 2014) and the lack of cyber security experts (National Audit Office,
2013) may also impact on delivery. There has also been a large rise in job adverts for positions in
digital departments which may present a risk of key -staff leaving or not being able to recruit.
32

However, Nationwides strong performance as an employer in the top 25 best large employers to
work for according to The Sunday Times, 2014 may negate this issue.

Table 6.1 SAFe

Further to this the financial results and Ansoffs Matrix will assess the success of The Nationwides
overall digital strategy.

6.1 Financial results

As has been shown earlier in this report, the financial results of the Nationwide continue to improve
with record results being announced in 2013 (Nationwide, 2013). Although most of its competitors
have also returned to profit in the last few years the fact that Nationwide did not report any losses
due to the financial crisis shows the strength of the organisation (ibid).

6.2 Ansoffs Matrix

Ansoffs Matrix (Figure 6.2) provides a simplistic framework for generating four directions for
corporate strategy (Johnson et al, 2011). Despite the economic climate Nationwide have been able
to grow their share of the mortgage market share to 19.5% in 2013 from 14.8% in 2012 and became
the 2nd biggest provider (BBC News, 2013). Their share of current account holders also increased
(Nationwide, 2013) and became the 3rd biggest current account provider (Gittens, 2014). They have
also increased their market share in online banking and are rated number one for online banking
security (Which, 2011) Although not all directly related to the digital strategy it does support the
overall strategy of The Nationwide of which it is a part. This also indicates market penetration in
relation to Ansoffs Matrix which is extremely hard to achieve in a mature market (Johnson, 2008).
The decision the board made to enter the online banking market and the increase in the ATM
network also indicate product development.

33

Figure 6.2 Ansoffs Matrix

Source: Zenworkz, 2014.

Market penetration and product development indicate a successful strategy has been adopted,
although this success has been replicated by Lloyds bank who also increased their market share
(Lloyds, 2013) of the mortgage market and the most other financial institutions have adopted similar
product development. The success of The Nationwide Building Society sets it apart from its
competitors in the mutual sector.

6.3 Nationwides Change Management process.

Change management is important as management need to ensure the organisational objectives of
change are met. Furthermore, they need to gain the commitment of their workforce before, during
and after implementation currently they need to ensure the business operates as normal (CIPD,
2014). Nationwide have managed the implementation of the digital strategy so well that they have
suffered no significant disruption to operations. However, they have had some minor disruptions to
the online banking platform (BBC News, 2013). They have been voted as one of the best employers
in 2014 (The Sunday times, 2014) which indicates continued engagement with their workforce, who
continue to give exceptional service (Which, 2013). Their innovative processes in online banking
have continued to receive acclaim (Which, 2012). However, they do exhibit caution concerning some

34

of the innovations in technology such as the App market and Paym. However, this has been
explained as a wait and see tactic to ensure their product is fit for purpose and meets the needs of
their customers (Gittens, 2014).

6 Conclusion
The Nationwide have approached the contemporary business issue in both a proactive and
reactive methodology. The reasons given for his are that they need to act in the best interests of
the customer which is in the spirit of their mutuality status. However, the decision to mainly
maintain pace with competitors is supported by the evidence that late adopters of technology
and those slow to adapt their business are replaced in the market. Furthermore up to date
technology can positively impact on other issues in both the internal and external environment,
for example the regulatory changes and changing customer wants and needs. The change was
managed in an educational way with all departments being kept informed of changes and the
need for them. Although this is a time consuming process it engages the workforce in the change
process. This is supported by the fact that they have been voted one of the best employers in
The Sunday Times best 25 big companies to work for the only company in the financial sector to
do so. There is no evidence to suggest that the digital strategy directly impacted on any of the
increases in market share or the financial position of the organisation. However, as part of the
overall strategy it has contributed to the success that the organisation is currently experiencing.
The following recommendations are included to assist The Nationwide in maintaining and
perhaps improving its current market position.

35

7 Recommendations

The Nationwide should continue to maintain pace with competitors in terms of

technological advancements.

The Nationwide should invest in unique technological products which could provide
competitive advantage.

The Nationwide should continue to invest in the Digital Development team and strengthen
the team with some key employees with digital and cyber- crime expertise which would
provide competitive advantage.

The Nationwide should continue to invest and strengthen the digital platform against cyberattacks and IT failures.

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9 Appendices
Appendix 1 Porters five forces analysis of the financial industry.
Threat of New Entrants
There is little possibility of an individual starting a new building society. However, in September
2011 a minibus supplier David Fishwick successfully set up Burnley Savings and Loans Ltd
(Burnley Savings and Loans Ltd, 2014). Although they can only act as matchmaker, taking money
from one person and lending it to another, it has been reported that there is a year- long waiting
list to access these services (Bounds, 2014). There are also the plans by the Labour leader Ed
Milliband to ask the Competition and Markets Authority to investigate if there is enough
competition between the UKs biggest banks (Peston, 2014) and to make it easier for
competitors to enter the market (ibid). However, the banks themselves have ownership of the
payment systems (the infrastructure necessary to transmit payments) which represents perhaps
the biggest barrier to new entrants (Schanz, 2006, Peston, 2014).
A further threat could come from other companies starting to offer financial services. The rise in
non-standard financial institutions has increased recently with the likes of Virgin Money, Marks
and Spencers, Sainsbury Bank and Tesco now entering the industry (Mintel, 2013). However, the
top 10 UK banks still have the majority market share which demonstrates that this does not pose
a significant threat as yet (BBC News, 2014).
Moreover, mobile channels are predicted to generate most growth in payments and banking
which may provide a route for new competitors to establish market positions (Roe, 2013). Yet
direct-only brands play only a small role in the market with only 3% of internet users holding
their main account with these providers (Mintel, 2013).
Power of Suppliers
The power of suppliers is relatively low. However, with the increase in the reliance of technology
in the financial sector the power of suppliers is increasing as financial institutions seek
information technology (IT) solutions to provide competitive advantage (Roe, 2013). However,
Nationwide has kept tight control over the intellectual property rights for its mobile banking
technology and has built it with future developments in mind (Twentyman, 2013). There is a
threat of suppliers head hunting human capital, talented individuals may be enticed by bigger
banks or other financial institutions who may offer better remuneration packages. However, the
Nationwide is committed to employee engagement and empowerment and their scores in this
area are in excess of the financial services benchmark (Nationwide, 2013)

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Power of buyers
The bargaining power of buyers has increased in the past few years as consumers are now better
informed (Evans, 2010) due to the digital revolution, social media websites. The Financial
Services Authority (FSA) has also promoted transparency which aids consumers to make more
informed decisions (FSA, 2013). There is little differentiation in the products and services
offered by financial this increases the bargaining power of buyers.
Threat of substitutes
There is little threat of substitute products as the product and services offered in the financial
industry display little differentiation (cite). However, the threat of switching has increased with
the introduction of the 7 day switching rules (Banking Technology, 2014) and that products and
services can easily be compared via the internet (Chaffey and Smith, 2013). The retail sector are
now entering the financial sector and offering financial products. Marks and Spencer, Tesco and
Sainsbury all now offer banking services (cite). There are also companies that offer nought
percent finance to buy products such as car companies and furniture retailers, an increase in this
area could result in a reduction of people seeking loans from banks and building societies who
have much higher interest rates.
Competitive rivalry
The financial industry is an intensely competitive environment due to the high bargaining power
of buyers. Interest rates offered by organisations can have a significant impact on the volumes of
business (cite). The competition to differentiate in terms of technology has also increased (BBC
News, 2013). Branding is also important as and technology has a role to play here too, customers
want to able to trust the technology used by their banks and building societies the technical
faults experienced by some financial institutions have added to the trust issues consumers
already have with this sector (BBC News, 2013). However, it is less likely that customers would
opt for products offered by new entrants unless there was a significant difference in interest
rates.
Appendix 2 SWOT analysis
Using the previous analysis the following threats and opportunities have been identified in
respect of the Nationwide. Porters five forces revealed that competitive rivalry amongst the
financial institutions is intense with only small changes in interest rates potentially having a
significant effect on business. With the access to the internet there is less customer loyalty as
customers can shop around for the best deals which also increases their buying power. A threat
of increase in new entrants was revealed as non-standard financial institutions enter the sector
(Mintel, 2013) and politicians call for more competition in the industry (Peston, 2014).
The PESTEL analysis revealed that the pace of technological changes is impacting on institutions.
Digitalization lowers entry barriers and unprepared incumbents run the risk of following the likes
of Blockbuster and Jessops (Mckinsey, 2014. The UK economys slow growth could also impact
the labour market and Nationwides profitability (Nationwide, 2013). Similarly the uncertainty in
the Eurozone, continues to impact as the risk of break up and unilateral exit remains and if
realised could result in increased costs and availability of wholesale funding (Nationwide, 2013).
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The collapse of some financial institutions and the ensuing financial crisis has led to the
government increasing regulation in the sector and the costs involved and the need to conform
remains presents a threat to Nationwides finances and reputation.
However, the analysis also highlighted that there are several opportunities presented to the
Nationwide an increase in consumer confidence could indicate that technological advancement
presents an opportunity to meet the growing customer need to access their financial
information 24/7 (Mintel, 2013). The increase in the use of online banking and ATMs also mean
that the branch network although not being reduced can become more focused on other areas
of the business. Meeting the Basel III requirements could present an opportunity to increase
Nationwides credit rating (Nationwide, 2013). Furthermore, meeting the new regulatory
requirements could increase trust in the industry and the low customer trust in the retail
banking sector presents an opportunity for Nationwide to differentiate itself as the one of the
only financial institutions that put their members first (ibid). The low threat of substitute
products identified in Porters five forces indicates that there is no need for huge investment in
this area.
The strengths and weaknesses were identified using the McKinsey 7s framework and a VRIN
analysis along with an analysis of the financial position.
This showed that The Nationwides brand is one of their strengths as their position as a mutual
sets them apart from the negative rhetoric surrounding the retail banking sector (BBC News,
2014). There were also high barriers of entry identified in the Porters five forces analysis. The
strength of The Nationwides customer service is borne out in the fact that they were voted No 3
for customer service by Which (Which, 2013). They were also voted No 11 in the Sunday Times
best 25 big companies to work for the only financial institution to appear in the list (The Sunday
Times, 2014).
Their financial position continues to grow and they announced record profits in
2013(Nationwide, 2013). Furthermore the Online banking platform was voted the most secure in
a Which survey (Which, 2012) and continues to attract new customers especially the older
demographic (Mintel, 2014) The Nationwides biggest market sector (Gittens, 2014).
However, there are still some weaknesses in the operational area the need to remain compliant
with the regulatory requirements and the risk of IT failures and cyber- attacks still remains high.
Although they have recently introduced a new method of raising funds this does not give them
the degree of fund raising that the Banks enjoy.

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Appendix 3 PosciADKAR elements

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