Management of financial institutions
The attitude of customers and their expectations regarding financial services have transformed in the recent years. In turn, financial institutions in the industry have responded to accommodate the demands of their clients. As consumers of financial services continue to seek financial products and services, their expectations regarding level of service delivery is highly affected by their attitudes. The financial services sector must meet the demands and preferences of their clients in order to remain relevant within the industry (Tiwari, Buse & Herstatt, 2006). This paper presents a review of the theoretical background of the financial service sector and this impact of the external and contextual business environment on the industry to develop a theoretical framework regarding how changes in business perception are likely to affect the customers. The first part of the paper presents the nature of competition within the financial industry and how understanding a businesses’ external environment can improve business outcome and sustain the organization. The subsequent part of the paper presents the theoretical framework on influences of the social environment affect the attitude and expectations of clients as well as how the financial sector and its consumers are inseparable entities. The final part of the paper presents examples to show how financial institutions have realized change and how they respond to change by customizing their products and services to deliver consumer satisfaction and attain competitive advantage.
Influences of the Business Environment and Competitiveness of the Financial Services Sector
The economic growth on the global front and the effects of globalization has led to the integration of financial institutions as well as diversification as competition within the financial sector increases. Within the financial sector, providers not only compete in terms of products delivery but also compete for consumer segments as they customize their services to deliver utmost satisfaction to clients (Schwert, 2012). Competition within the industry has not only had impact on the entire financial structure but has prompted players within their industry to enhance their service delivery in order to attain competitive advantage. As a result, the financial sector has become a knowledge-driven industry whereby innovativeness and the incorporation of latest technology in service delivery is inevitable in attaining competitive advantage as well as facilitating business growth.
The buying habits and attitudes of customers towards financial services undergo rapid transition. As a result, financial institutions have to adjust their products and services in order to accommodate their clients’ increasing demands. If the customers change and the organization does not, they will lose them. The financial markets sector has undergone rapid transition in the recent past and hence change has become an integral part of life. Within the financial services sector, there are a wide range in the choice in providers and products with many domestic and foreign banks operating in any country. Within the market, consumers enjoy a wide choice of banking services and account packages with over 96% of the UK and US population having access to financial institutions (Tiwari, Buse & Herstatt, 2006). The bottom line is that consumers have diverse platform of providers to choose and a wide range of financial services to access from the market.
As financial services providers seek to attract customers to use their products and services, competition within the banking industry is intense as large financial institutions compete to attract customers. The competitive banking system not only offers enhanced service delivery and access but also offers a wide range of products and services for businesses and individuals. Whether it is the provision of mortgage, insurance, credit or bank accounts, banks are competing among themselves as they seek to provide personalized services to their clients. As customers seek financial services that fulfill their demands, financial institutions are improving on service delivery to attain consumer loyalty and attract more clients. The high competition within the financial services sector has enhanced service delivery as banking institutions improve their products and services to conform to the needs of their clients (Tiwari, Buse & Herstatt, 2006).
The Influences of the External Environment and Impact on Organizational Success
The present financial services sector is not only affected by intense competition but also by external pressure, making these organizations to restructure their services delivery systems to cater for their customers. With a good understanding of the external environment within which the organization operates is the key to changing inputs to outputs in order to enhance profitability of the venture (Schwert, 2012). From a general outlook, the business’ external environment is composed of the contextual and operational environment. The success of the company depends on its adaptability of the external environment such as government compliance, factoring the economy, social variables, technology influence and the impact of competition on the business. With regards to the operational environment, the stakeholder approach is applied to show the relationship between the business and its major stakeholders. In the financial services sector setting, the major stakeholders for the business are its consumers, suppliers, human resource and the community they serve, which has a direct impact on the firm’s operations. The mutual relationship between the business and these entities implies that the stakeholders have a direct impact on the business’ operations and determines its activities. This implies that the business must maintain a good relationship with the stakeholder to remain viable.
To run their operations effectively, organizations must consider influences of the external environment the way in which developments in these influences can have a substantial impact on organizational success. The external business environment refers to the context in which the business operates. External forces within the business environment incorporate factors such as change in technology and political stability. Business strategists consider five major factors in assessing the external business environment. These factors are political, economic, social, technological and competition within the industry. Each factor can influence the banking institution either positively or negatively (Tiwari, Buse & Herstatt, 2006). As a result, the organization should put into place measures to anticipate effects of the external environment on the business. Financial institutions that fail to accommodate changes within the external environment miss business opportunities and lose customers to their competitors. The scope of external business environment analysis incorporates the evaluation of threats and opportunities that influence the financial sector.
The political environment affects the financial services sector since it determines the legal framework within which the business operates. The political context within which the firm operates is governed by legislation and hence the legal environment affects the industry and the nature of products and services offered to consumers. Financial institutions that are compliant to legal requirements have assurance to customers and have competitive advantage over non-compliant organizations. The economy situation whether globally or locally has a high impact on financial services sector. Businesses tend to prosper within a booming economy since demand for financial services also increases with development in economy. Economic changes not only enhance globalization but also aggravate the credit crisis that may have adverse effects on the banking sector (Birkinshaw & Raisch, 2008). Moreover, the technological transition has enhanced business opportunities within the banking sector. Growth in technology has led to development of new products and innovation, enhancing the competitiveness within the industry. Technology integration with financial services determines the nature of products and efficiency of service delivery within the industry. The social environment is however based on how consumer attitudes and behavior influence service delivery
Influence of the Social Environment on Customer Attitudes and Expectations
Customers have changed in recent years and this has influenced their interaction with the financial services sector. Consumer lifestyles and buying patterns are highly affected by their social environment with respect to transition within the society and changes in the social structure of the general population. From a general outlook, changes within the social environment have a large impact on employees and the way they conduct their activities. Moreover, managers of financial institutions have realized that they have to comply with the demands of their clients in order to attain success. The nature of within the financial services sector is an interaction process. This has the implication that is the demands or needs of consumers change and the financial institution fails to adjust to accommodate the needs of customers, they will seek services elsewhere. In this regards, the social environment determines the expectations and attitudes of customers.
With the extensive user education and brand awareness information catered for within the financial services sector, customers have high expectations regarding products and services and the integration of technology in delivery system in financial institutions. Based on consumer needs and specifications, customers want financial services to be provided in accordance with their expectations and meet their demands. Currently, there is widespread available information and products and services information meant to influence the buying decisions of customers. As a result, customers are well acquainted with information regarding product choices and have high expectations. Moreover, fashions and trends are in transition as well as the values, beliefs and opinion of consumers. As a result, customers in financial institutions have high expectations and demands regarding given the wide range of providers available, customers will not rely on one financial provider but sample the products of different financial institutions in order to select the best provider (Birkinshaw & Raisch, 2008). Currently, many businesses within the financial sector are realizing the importance of promptly responding to the needs of clients to attain competitive advantage. Financial institutions are using cutting-edge technology and diversification in products and services to enhance service delivery. However, the social environment is highly dynamic because it changes alongside the transition in attitudes and expectations of consumers.
Examples of the Ways in Which Organizations within the Sector Have Recognized These Changes
The ways in which organizations within the sector have recognized these changes and the manner in which they have responded in terms of products and services and the ways in which these are delivered in order to achieve customer satisfaction and maintain their competitive position can be demonstrated using examples. For instance, the implementation of mobile banking service in delivering financial services is a clear indication of how changes in consumer expectations and attitudes affect the financial services sector. The growth in communication technology especially in mobile telephony has reduced communication costs as well as enhanced the functionality of mobile devices enhancing convenience. In the recent past, financial institutions have launched the use of mobile services in facilitating personalized banking and have conducted widespread mass media campaigns to enhance positive perception of mobile banking among the user community (Schwert, 2012). For many people, accessibility to mobile services implies that they have access to banking services within their convenience. The younger generation considers technological trends in modern communication and mobile devices highly fascinating. In addition, mobile devices become more powerful in data transfer and have improved standards, creating a powerful platform for adoption of mobile banking services.
Remarkably, most financial institutions have recognized changes in communication technology and applied mobile banking in services such as mobile accounting, brokerage and provision of financial information. Unlike conventional backing, features that give it additional benefits are its convenience, immediacy, instant access and high functionality and authenticity, which are highly appealing to customers. The adoption of mobile banking not only meets the needs of time-conscious clients but also enhances the efficiency of banking services promoting the organization’s image and hence banks have ability to control remarkable market share. In a study conducted in 2009 in the UK banking system indicates that that the number of mobile banking transactions rose by 150% compared to the preceding two years with the number of new mobile banking users growing by 80% (Birkinshaw & Raisch, 2008). A similar study conducted by Schwert (2012), indicated that 98% of Germans survey participants showed high willingness to use mobile financial applications. This has the implication that mobile banking has attained remarkable success within the banking sector because of positive consumer perception.
Conclusion
The external context within which financial institutions has been highly influenced by the operational and contextual environments. Although the operational environment has a direct impact on the firm’s operations, the contextual environment has a larger impact on the banking business. The contextual environment has integrated factors regarding political, economic, technological and the social environment on its impact on the venture. The success of the financial institution is largely based on its adaptability to the environment, especially the social environment (Schwert, 2012). The social environment within the financial sector is highly dynamic since consumer expectations and attitudes are constantly changing. The typical example regarding the implementation of mobile banking within the financial sector is an indication that understanding consumer changing needs and responding to them accordingly is the key in enhancing consumer satisfaction and attaining competitive advantage.
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References
Birkinshaw, J. and Raisch, S. (2008). Organizational Ambidexterity: Antecedents,
Outcomes, and Moderators. Journal of Management 2008; 34; 375-407. DOI: 10.1177/0149206308316058
Schwert, W. (2012). Market institutions, financial market risks, and the financial crisis. Journal
of Financial Economics, 104(2), 421–424
Tiwari, R., Buse, S. and Herstatt, C. (2006), Strategic Implications of Mobile Banking for Banks
and Financial Enterprises. Social Sciences Research Network, Working paper no. 38.
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