Macquarie Bank Group- Business System Analysis
1. Business Profile
General Overview
Founded in 1969, Macquarie Group Limited is a public Australian multinational that operates in the financial sector, offering a variety of products and services including asset management, investment banking, corporate banking, consumer banking, wealth management, and a variety of trading options (https://www.macquarie.com/au, 2019). Macquarie employs over 14,000 staff in 25 countries and has a market cap of over $A40 billion, as of August 2019 (https://www.asx.com.au). The corporation exists as a non-hierarchical structure consisting of the 4 groups listed in figure 1.1: Macquarie Asset Management (MAM), Corporate and Asset Finance (CAF) Group, Commodities and Global Markets (CGM), Macquarie Capital (MC), and the Banking and Finance Services Group. (https://www.macquarie.com/au, 2019).
Banking and Finance Services Group (BFS)
Operating predominately in Australia, Macquarie’s BFS employs over 2700 staff and accounted for 12 percent of the corporation’s profit during the last fiscal year. BFS offers products targeted toward retail clients, advisers, brokers and business clients, primarily in the markets of personal banking, wealth management, business banking and vehicle finance. The BFS group’s operations in the Australian retail banking market will be the focus of the remainder of the paper.
1. Effect of Porter’s Five Forces on Macquarie Bank Group
Threat of New Entrants
Upon analysing the seven barriers to entry used by Michael E. Porter (2008) in his evaluation of the threat of new entrants, and their application to Macquarie’s Banking and Finance Services Group and its involvement in the personal banking market, it becomes apparent that this threat exhibits a weak force on the corporation. The personal banking sector is dominated by supply-side economies of scale, as significant infrastructure and capital requirements are required to facilitate both traditional and e-commerce at the majority of the points within the value chain. In addition to the staff required to communicate and work with customers in the service and sales activities, the operations stage of the value chain requires important software and hardware investment in addition to technical roles that need to be filled in order to facilitate the appropriate handling of these processes in the actual operations of the business. Macquarie also enjoys demand-side benefits of scale, as customers in the personal banking market are more willing to consider institutions with an already large customer base, as this is relied on as an indicator of reputability.
This effect is compounded by Macquarie’s brand identity, in which it presents itself as high end banking service for those who like to “Go fishing in a bigger pond” (3C Creative Agency, 2019, Figure 2.1) through its marketing and company operations outside of personal banking, thus providing an advantage to Macquarie that is not available to potentially unknown entrants. Macquarie is also protected from competition with new entrants via restrictive government policy, as an Australian banking license and a certification as an Authorised Deposit-taking Institution, issued from the Australian Prudential Regulation Authority, are required in order to compete in the personal banking market. As such, the pool of potential new entrants is reduced, decreasing the force of this threat on Macquarie’s profit.
Supplier Power
Maverick (2018) asserts that the two main suppliers to retail banks are depositors, who supply the majority of their capital, and employees, who supply the labour required for the group to operate. Apart from high net worth clients, individual depositors have relatively low supplier power due to the lack of Macquarie being more concentrated than their estimated one million depositors (Macquarie Group Limited, 2019), who lack organized force that specifically represents and is able to lobby for them. However, collectively Macquarie’s depositors enact a relatively strong force on the corporation, as they are imperative to the operation of their business model. This is addressed through Macquarie’s willingness to sacrifice some profit in their employment of a robust marketing and sales team, and offer attractive offers to new and existing clients, thereby decreasing the possibility of a significant reduction in depositors impacting the company’s ability to make operate. Macquarie’s second major supplier, employees, similarly apply a low level of force individually, but are able to increase the effect of their united power through organisations such as the Finance Sector Union (https://www.fsunion.org.au, 2019), who enable employees to enjoy a level of concentration equal to that of Macquarie’s for the purpose of bargaining agreements. As a result of this force, Macquarie Bank pays its employees an average annual salary of A$94,323 (https://www.payscale.com/, 2019), roughly $20,000 more than the average Australian wage (https://www.abs.gov.au/, 2019), illustrating their eagerness to sacrifice short term profits toretain important staff and maintain the success of the business in the long term.
Buyer Power
As summarised by Maverick (2018), the predominant buyers in the retail banking market are consumers. Similarly, to depositors, consumers have little individual bargaining power, due to the fact that each customer deals in relatively low volumes and as such as little effect on Macquarie’s bottom line. Other factors that weaken the buyer power consumers have include significant switching costs involved in changing vendors, their inability to effectively produce the industry’s product themselves (Porter, 2008) and Macquarie’s ability to somewhat differentiate their product from the market via its reputation and marketing. Despite this, the bargaining power of consumers becomes greater in the aggregate, as the risk of a substantial loss of consumers impacts on the corporations profit (Porter, 2008) as they are inclined to disregard the idea of maximising profits to maintain and attract new customers by offering alluring deals and cultivating a distinction from competing products through targeted and effective marketing.
Threat of Substitute
Maverick (2018) argues that with the advent of technological advancement, the threat of substitute products has increased in the personal banking industry as services traditionally only available from banking institutions is now being offered by companies outside of the finance industry. Examples of such substitute products include payment processing and transfer services such as PayPal and ApplePay, forcing traditional banks such as Macquarie to offer more competitive offers in order to maintain their share of digital transactions, thereby reducing the associated profit that can be made in such areas. Additionally, the rise of digital peer-to-peer lending services has forced traditional banks to sacrifice profits to offer competitive interest rates, particularly on personal loans and credit cards. Other credit products, such as home and car loans, face no real threat of substitute, as traditional banks are usually the only companies capable of offering such products.
Existing Competitors
In terms of its effect on Macquarie, competition among existing industry members is the strongest of the five forces and thus has the most significant effect on the corporation’s profits. Whilst the company attempts to differentiate its product through higher quality service, a superior brand identity, and effective marketing, ultimately it offers the same products as the other major Australian banks. Additionally, Macquarie faces international competition, as the rise of digital banking has allowed foreign institutions to enter the industry (Maverick, 2018) and thus erode Macquarie’s market share. Another contributing factor is the exit barriers of the industry being relatively high, meaning competitors are unlikely to vacate the market even if they are performing poorly (Porter, 2008), thereby limiting Macquarie’s ability to dominate the market.
2. Porter’s Competitive Strategy
In observing Macquarie’s wide range of products available, it is clear that they operate in a broad market as part of their competitive scope, attempting to operate in all facets of the personal banking sector. By offering a range of bank accounts, credit/debit cards, home and car loans, (https://www.macquarie.com/au, 2019) the corporation attempts to create a consumer environment in which customers can conduct all of their personal banking requirements in one place, thus increasing Macquarie’s ability to profit from a broad section of the market. One area where this is especially prevalent is Macquarie’s range of retail investment products. Compared to other major banks, the corporation offers a more breadth and depth in terms of investment products, enabling it to capture a larger section of the market.
In terms of cost strategy, Macquarie uses their superior level of service and higher quality product to differentiate their product from the rest of the market, evident in Canstar’s 5/5 star rating of Macquarie’s most popular home loan product, the “Basic Variable Owner Occupied PI 70” (Smith, 2018). Upon analysing Macquarie’s interest rates on a number of their products, and comparing them to the rest of the market, it is clear that while the company’s products are not the most expensive on the market, they have no interest in competing on the basis of price, and would rather offer a higher quality product at a slight premium than engage in pricing competition with the other major banks. The main area where Macquarie differentiates its product is through its higher quality of financial advice. By providing a deeper and more engaged advisory service, Macquarie is able to attract and maintain clients that are more willing to display brand loyalty than search the market for the lowest possible price. Combining this competitive scope and cost strategy it becomes apparent that the corporation’s competitive strategy involves offering higher quality products that cover a broad range of the personal banking market, thus maximising potential profit through attempting to create lifetime customers that perform all of their banking, day-to-day and long term finances with Macquarie.
3. Information System and Users
Macquarie group utilizes cloud-based Apptio Technology Business Management (TBM) software as the basis for its technology information system (Crozier, 2018). This business intelligence, cross functional system allows appropriate technological services and labour to be distributed appropriately throughout Macquarie’s 300 business (Macquarie Group Limited, 2019).
Users
Data engineers
According to Associate director Ashley Cox, the Apptio TBM system provides “improved data quality” (Crozier, 2018), allowing Macquarie’s data engineers to extract more meaningful information regarding the use of IT in certain areas of the business. In particular, information extracted includes cost averages, scheduling, forecasts and broad activity reports. This in turn allows this group of users to derive relevant knowledge that is used in the strategic and middle levels of management. Additionally, data engineers may be required to enter data into the system, including IT bills/tickets, IT and business reporting, and financing/costs. The information gleamed by Data engineers relies on many data points, including that entered by technicians, accountants and even themselves.
Accountants
Accountants may also be required to enter cost data consistent with generally accepted accounting principles (GAAP), however there main interaction with the Apptio TBM system involves extracting forecasting information and preparing relevant reports that inform subsequent management decisions. The information obtained by accountants relies on the data entered by data engineers and/or the IT technicians responsible for the tickets.
IT technicians
Responsible for majority of the data entry, IT technicians enter data surrounding IT bills/tickets, service reports, expansion reports, and costs and other finances. Information extracted from this group includes forecasting and scheduling, which is reliant upon data entered by managers and accountants.
4. How do Information Systems Provide Competitive Advantages?
As a consequence of conducting its activities in a broad market as part of its competitive strategy, Macquarie’s Banking and Finance services group operates as a wide range of business units. Due to this, the cross-functionality of TBM makes it an optimal system for managing the group’s IT activities. Furthermore, out of all the available TBM frameworks, Apptio’s software’s proven track record elevates it as the clear industry. Used by “over a third of Fortune 100 companies” (https://www.apptio.com, 2019), the system aims to transition the IT department from a vertical system to an integral, central component with linkages that span the entire business.
In terms of product differentiation, the TBM system enables Macquarie to efficiently and effectively distribute “the $1 billion that [Macquarie] invest annually in technology” (Crozier 2018), empowering the corporation to develop their front and back end technologies, thus improving their overall customer experience and therefore supporting the company’s competition advantage.
5. Examples of Decision-Making
Executive level- Decision to use TBM (real example)
Prior to enacting the TBM system, Macquarie employed a chargeback system that was deemed less than optimal as it promoted excessive cost cutting rather than innovation. The transformation occurred between April 2016- April 2017, through the use of “four agile releases over one year” (Crozier, 2018).
Middle level- Allocating technology resources using TBM (hypothetical)
In Macquarie’s TBM system, middle managers may be required use the TBM system to allocate resources such as increased cloud storage/computing, or IT support, to be utilized by lower level management in day to day operations, under the directives of executive management.
Reference List
Macquarie Group company website (2019). Retrieved from
ASX website. (August, 2019). Macquarie Group company profile. Retrieved from https://www.asx.com.au.
Porter, M. (January, 2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 78–93.
3C Creative Agency. (2019). Macquarie marketing campaign. Retrieved from https://3c.com.au/showcase/project-5/.
Maverick, J.B. (October, 2018). Analyzing Porter’s Five Forces on JPMorgan (JPM). Retrieved from https://www.investopedia.com/articles/markets/020916/analyzingportersfivef orces-jpmorgan-chase-jpm.asp.
Payscale. (2019). Company report on Macquarie Bank. Retrieved from https://www.payscale.com/.
Australian Bureau of Statistics. (May, 2019). Employment and Unemployment Report. Retrieved from https://www.abs.gov.au.
Macquarie Group Limited. (2019). 2019 annual report. Retrieved from
https://static.macquarie.com/dafiles/Internet/mgl/global/shared/about/investors/r esults/2019/Macquarie-Group-FY19-Annual-Report.pdf?v=9.
Smith, Tim. (May, 2018). Macquarie Bank Home Loans. Retrived from
https://www.canstar.com.au/providers/macquarie-bank-home-loans/
Crozier, Ry. (November, 2018). Macquarie Group restructures its IT chargeback. Itnews. Retrieved from https://www.itnews.com.au/news/macquarie-group-restructures- its-it-chargeback-515446
Apptio company website. (2019). Retrived from https://www.apptio.com
