Strategic Analysis free essay sample

School of management University of Bradford Model code: MAN0208M A Strategic Analysis of AXA Industries: Insurance/Financial Services Word Count: 2314 (not including Tables or Executive Summary) Executive Summary This report has to do with the investigation into AXA insurance company including internal analysis, external strategic analysis and strategy formulation. It is designed to analyse the whole organisation and make recommendations related to the problems. AXA is a French global investment, retirement and insurance group. The AXA Group involves five operating business segments: Life Savings, Property Casualty, International Insurance (including reinsurance), Asset Management and Other Financial Services. This report is focused on AXA insurance. The main investigation approach is to use the text book as a secondary resource to analyze the specific theory about PESTLE analysis and Porters Five Forces analysis. At the same time, some useful sources as secondary information are researched from the Internet and some professional theory about external and internal analysis and strategy formulation come from library books. Through the investigation, there are four main parts related, but each part has detailed contents around different topics. The first part will introduce the company summary. PESTLE analysis, industry life cycle, Porters Five Forces analysis and key competitors will be introduced in the second part. After that, the report will show internal analysis including value chain and SWOT analysis. Finally, the part will focus on strategy formulation and making recommendations respectively. After a full strategic analysis of both the external and internal factors affecting the business, it is clear that there are key drivers in the markets. These drivers are customers need, differentiated products and quick response to new technology. Consumers are becoming more price sensitive and eager to locate the best deals on the market. These are the areas that the business needs to focus on and develop in the future. Based on the findings of this report, it is clear that AXA has a dominant position in the market. However there are a few points could be improved, and profits could be potentially increased if the business implemented a number of recommendations. The recommendations are to continue the expansion into international markets, improve and develop its products, develop more complete marketing systems and take new technology into consideration. Carrying out these recommendations would result in having a larger consumer base and an increase in profits. Key words: External and Internal Analysis, Strategy Formulation, Recommendations Contents Executive Summary 2 1 Company Summary 4 1. 1 Company Background 4 1. 2 Current Market Position 4 1. 3 Current Financials 4 2 External Strategic Analysis 4 2. 1 PESTLE Analysis PESTLE Analysis Conclusion 5 2. 2 Industry Growth/Life Cycle 6 2. 3 Porters Five Forces Analysis 7 2. 3. 1 Porters Five Forces Analysis Conclusion 8 2. 4 Key Competitors 9 2. 4. 1 Pricing Decision 9 3 Internal Analysis 9 3. 1 Value Chain Analysis 9 3. 1. 1 Value Chain Analysis Conclusion 10 3. 2 SWOT Analysis 10 4 Trends 11 5 Strategy Formulation 11 5. 1 The BCG growth-share matrix 12 5. 2 Corporate strategies 12 6 Conclusions 13 7 Recommendations 13 8 References 14 9 Appendices 16 List of Tables and Figures Fig. 1 Current Financials 4 Fig. 2 PESTLE Analysis of AXA 5 Fig. 3 The Industry Life Cycle Model 6 Fig. 4 Porters 5 Forces Model 7 Fig. 5 Pricing Decision 9 Fig. 6 Value Chain Analysis 9 Fig. 7 SWOT Analysis 11 Fig. 8 The BCG growth-share matrix 11 Fig. 9 Statistics about average insurance spend 16 Fig. 10 Key Competitors 17 Fig. 11 Pricing Analysis 20 Fig. 12 AXA financial statement 21 1. Company Summary Company Name: AXA Industry: Financial services Type of Business: Societe Anonyme Owner: Henri de Castries Number of countries AXA presented: 57 Number of Employees: 160,000 1. 1 Background AXA insurance, a French organisation is owned and operated by the AXA Group, whose currently served area is worldwide. According to the annual report, the main operational activities involve five different business segments namely Life Savings, Property Casualty, International Insurance (including reinsurance), Asset Management and other Financial Services (including banks). AXA is one of the most famous brands being a multinational company focusing mainly on insurance. Their services have also expanded, with a range of insurance available to buy. The main aspects are personal and business insurance. To be more specific, personal insurance involves car, pet, home, travel insurance and business insurance includes Employers’ liability insurance, Public liability, Commercial landlord insurance and so on. Besides, there are other types of insurance which are shop insurance, Fleet and haulage insurance etc. 1. 2 Current Market Position AXA Group Market Capital: ? 43. 46 billion. (Yahoo, 2013) Investments from insurance activities: â‚ ¬605,823 million. (AXA, 2013) Average insurance spend per Head in UK: 4475 US dollar per capital (OECD, 2012). Please see Appendix 1 for the statistics about different countries’ average insurance spend. 1. 3 Current Financials Figure 1: Current Financials of AXA. AXA Insurance ( in euro million) AXA Group ( in euro million) Total Revenue 84926 90,126 Total Asset 51298 761,849 2. External Strategic Analysis The environment is what gives organizations their means of survival. In the private sector, satisfied customers are what keep an organization in business; in the public sector, it is government, clients, patients or students that typically play the same role. However, the environment is also the source of threats. Environment change can be fatal for organizations. ( Johnson, Scholes, Whittington, 2008) The PESTEL model can be used to help us identify these issues and understand how they may affect AXA’s success. 2. 1. PESTEL Analysis Figure 2: PESTEL Analysis of AXA Political Economic Social -Legislation (on taxation and employment law) -Relations between government and the organisation Government is increasing its funding to the industry and easing regulations for employment. -Foreign Trade regulations Economic conditions have the highest impact on a business, regardless of what trade it is in. Total GDP and GDP per head -Customer expenditure and disposable incomes level -Unemployment -Currency fluctuations and exchange rates -Cyclicality (stage of business cycle) -Stock market trends -Shift in values and culture (Buying habits) -Change in attitude to lifestyle More and more people are buying insurance. Their attitudes toward work, leisure, career and retirement have changed. -Education and Healthcare People are paying an increasing attention to their health. -Family size and structure -Age distribution and life expectancy rates Technology Environment Legal -Social Media The social media explosion has offered the opportunity for increasing interaction with the consumers. -New patents and products Due to the new age in technology, companies have completely developed new products. -Identify research initiatives These factors can affect AXA, but not thoroughly change its trade and profit pattern. The reason is that these factors affect agricultural business much more directly. -Competition law -Employment and safety law -Government policy (trade control, tariffs) 2. 1. 1 PESTEL Analysis Conclusion PESTEL is a fundamental tool of making market plan and strategy. PESTEL analysis has two basic functions for a company. The first is that it allows identification of the environment within which the company operates. The second basic function is that it provides data and information that will enable the company to predict situations and circumstances that it might encounter in future. (Yuksel, 2012) The key factors that influence the company are: The attitude towards insurance. Despite the changes that have taken place since 2005 the weakness of sterling and the financial crisis that destroyed so much of the value of the UK financial services industry the UK insurance market remains the largest In Europe and the third largest in the world. In 2005, 2007 and 2009, survey respondents were most interested in convenient insurance cover in 2009, 72. 4% of respondents agreed that they will use the most convenient means to get insurance cover, up from 70. 8% of respondents in 2005, but down from 83. 7% in 2007. The survey reveals that consumers remain strongly influenced by the reputation of insurers, while the role of brokers remains important to them. New entrants to the market for direct insurance have been accepted by consumers but only to a limited extent. (Keynote,2013) Disposable incomes level If people have more disposable income, they have more tendencies to spend more to live comfortably and purchasing expensive products which ultimately lead them insured safer. Disposable incomes level changes the way people live. In conclusion, AXA is a very well-established company. By doing PESTEL analysis, the company can customise its strategies in various market from various segments point of view. In this way, AXA can cover all bases and will always be a leader in financial services. 2. 2 Industry Growth/Life Cycle The nature of corporate strategy will change as industries move along the life cycle. To explore the strategic implication, it is useful to start by identifying what stage an industry has reached in terms of its development. For each stage in the cycle, there are some commonly accepted strategies. (Lynch, 2006) Figure 3: The Industry Life Cycle model (Lynch, 2006) Traditionally, insurance companies, whether they focus on life, health, or property and casualty, have not demonstrated a significant degree of creativity or originality in their product offerings, and have been relatively slow to respond to new market opportunities. Customized, niche products in life, health and property are the next phase in insurance. Capitalizing on that trend will require dynamic product life cycle models designed to quickly take advantage of fluctuating market and customer demands, as well as information systems and data to help identify, predict and manage to those demands. ( Duffy, 2013) 2. 3 Porter’s Five Forces Analysis Michael Porters (1980) five forces framework is a rich, in-depth assessment of the underpinnings of competition and profitability in an industry. (Dobbs, 2012) The five forces are the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between competitors. People consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. (Research and Markets Adds Report, 2013) Figure 4: The framework of Porter’s Five Forces Analysis. (Lynch, 2006) Bargaining power of Suppliers: Number of suppliers High competition among suppliers results in reducing the price to producers. Switching Costs The easier it is to switch suppliers, the less bargaining power they have. The degree of substitutability between the products of various suppliers and the amount of product differentiation Unique service makes it hard for producers to find a substitute. Bargaining Powers of Buyers: Number of Customers Buying Volumes Incentives (for example, promotions) Brand identity (reputation) Switching costs. Limited buyer information availability When buyers have limited information, they are at a disadvantage in negotiations with sellers. Threat of New Entrants: Time and cost of entry (Financial requirements) Brand loyalty Technological requirements Government policy Products quality and differentiation Threat of Substitute Products: Low cost of switching to a substitute product Brand loyalty Competitive Rivalry within an Industry: Very competitive and rapidly expanding industry Many similar ideas within the products Companies such as Allianz and MetLife 2. 3. 1 Porters Five Forces Analysis Conclusion Looking at the five forces for AXA, the following conclusions can be made: 1) Threat of Substitution – The threat of substitution becomes high when there are more insurance companies available in the world. Customers are more likely to buy the product when there are some incentives such as promotions. As European two biggest insurance companies, Allianz is the biggest threat. 2) Threat of New Entry – This threat is low as the barrier costs of entering the market at such a scale as AXA would be extremely high. AXA is one of the biggest financial service company in the world. 3) The Power of Buyers – This threat is high due to the reason that consumers are very price sensitive and very likely to switch brands if cheaper. It is difficult to differentiate products or services, then competition is essentially price-based, and it is difficult to ensure customer loyalty. (Lynch, 2006) 4) The Power of Suppliers – This threat is low because there are a large number of suppliers in the market that can provide what they need. 5) Competitor Rivalry – This threat is high due to the considerable number of competitors in the industry that AXA operates in. The most important issue that need to be considered is: Reduce the threat of substitution and keeping customer loyalty, AXA must consider continuous incentives and keep its high-level service quality to beat the competitors. 2. 4 Key Competitors Please see Appendix 2 (Figure 8) for an analysis of the key competitors in the market. Due to the awareness, perceived value about the benefits of insurance and influence form the government for the certain reasons more and more insurance organizations have come up in the market and hence resulted in more rather intense competition is prevailing with the insurance sector. ( UKESSAYS, 2013) 2. 4. 1 Pricing decision Figure 5: Value Chain Analysis based on Porter’s Value Chain. (Lynch, 2006) The basic considerations: cost and competition. Beyond this basic structure, the factors that will influence pricing include price elasticity, stage in the product cycle and strategic role of price. (Lynch, 2006) Please see Appendix 3 (Figure 9) for details of pricing analysis. 3. Internal Analysis 3. 1 Value Chain Analysis The value chain is a series of interrelated set of value creation activities. Michael Porter has raised this important concept and established the enterprise value chain model. Value chain analysis can help companies learn where to build and play their strengths and create higher valued-added. (Liu, 2013) The goal is to identify which activities do and do not create value for the business. Figure 6: Value Chain Analysis based on Porter’s Value Chain. (Lynch, 2006) 3. 1. 1 Value Chain Analysis – Conclusion AXA has placed all the right resources in the right places. Besides, the value of a firm is no longer solely based on a traditional financial analysis of the asset base and profit margin. The added-value chain converts the definition of value from profit margin alone to the sum of net margin plus brand equity and other intangible assets. (McPhee, 2006) Value chain emphasises on the operation flow. By integrating business process, company can minimise the impact factors and uncontrollable costs, making budgeting goals more scientific and reasonable, more effective budget control, which is good for companys future competitiveness. These critical factors are: Customer Satisfaction – offer high quality products and service to ensure customer loyalty. Innovation – The chain must make sure that their products are developed continuously, and moving with trends and technology. Effective operation –To allocate resources reasonably, resulting in a comprehensive budget management. 3. 2 SWOT Analysis A SWOT analysis focuses on the strengths, weaknesses, opportunities and threats to a business. SWOT is used to identify cultural impediments and advantages and external governmental roles as well as internal company issues. (Helms Nixon, 2010) The purpose of SWOT analysis is to offer an opportunity to the company to balance its strengths against its competitors weaknesses, and optimise its opportunities within the market. Figure 7: SWOT Analysis of AXA. Strengths Opportunities Strong brand name and good financial position Major leaders in casualty and property sectors Worldwide branches Quick response to new technology Good reputation Expansion in more countries More choices for customers Change in politics or economy Weaknesses Threats Stiff competition from other insurance companies Less profits compared to its competitors Products not differentiated Changing government’s regulations Financial crisis like recessions Legal issues Too many insurance companies to choose from 4. Trends From a less scientific perspective, trends can represent the direction an industry is taking. AXA is a company with good reputation around the world. Although there are a lot of competition in the financial service industry, good reputation is the core competitiveness. Besides, there are a variety of products offered by AXA to meet customers need. The most important is that the assets of AXA is continuously increasing according to the annual report. Please see Appendix 4 for the AXA financial statement. 5. Strategy Formulation 5. 1 The BCG growth-share matrix The BCG growth-share matrix analyses the range of products possessed by an organisation (its portfolio) against two criteria: relative market share and market growth. (Lynch, 2006) Figure 8. The BCG growth-share matrix Portfolio analysis is used for making future strategic investment decisions for diversified streams of business for a firm. This analysis will help the corporate firms to do efficient resource allocation for securing future competitive positions. (Srivastava Prakash, 2011) Based on the matrix, AXA could decide which portfolio they should promote. Overall, the general strategy is to take cash from cow to fund stars and invest in future new products that do not even appear on the matrix. Typically in many organisations, the dogs form the largest category and often represent the most difficult strategic decisions. (Lynch, 2006) 5. 2 Corporate strategies There are new and increasing demands on todays organization. Organsations need to have instant access to customers, to colleagues and to highly sophisticated information about their performance. Organisations are required to create increasingly sophisticated products, delivered to increasingly demanding customers, across continually re-forming boundaries. Besides, managers must stay alert for the technological changes that will make products obsolete, service substandard, or prices noncompetitive. Everyone now faces a speed requirement created by a dizzying rate of unpredictable, discontinuous change. (Beyerlein, Freedman, McGee, Moran, 2003) By now, you have a detailed understanding of your business and its operating environment. You can have fun devising a strategy, setting objectives, turning them into an operating plan and documenting it. (Stutely, 2012) It is important to understand the customer, and respond to customer needs Establish the reputation of a product Focus on the companys position in the market. (Return on investment and Risk of losing the investment) New product development Pay attention to the role of government 6. Conclusions AXA is one of the market leaders in the financial service sector. It is performing well despite economic pressure, and it is expanding its portfolio annually. Now customers are very price sensitive, and the products are prone to the threat of substitution. To be more specific, Consumers ultimately hold the power in this market and can very quickly switch the brand without any costs or inconvenience. The key drivers are customers needs and competitive products. Both of these drivers are important to consider when devising future strategies. The critical factors that may influence the performance of AXA are customer satisfaction, new differentiated products and adoption of new technology, along with excellent service and quality of insurance at a competitive price will ensure the good performance. AXA has a bright future, and the brand has a good reputation. After carrying out these strategies, the company could cement its market position and make more profits. 7. Recommendations 1) Continue the expansion into international markets. Continue with the expansion into foreign markets and ensure the business is aware of different cultural market needs. 2) Continue improve and develop its products. New differentiated products are the competitive advantages for the company, which can boost customer loyalty. Develop more complete marketing systems. Company should communicate with customers on a more frequent and tailored basis. To be more specific, to increase personal connection with customers to make them feel respected and cared for. In that way, it can improve customer loyalty and build on existing brand. Besides, companies need some marketing techniques to capture new customer data and analyse it. 4) Take new technology into consideration. Offer relevant product to satisfy customers needs.