Welcome to a presentation on Positioning and Sustainable Advantage for Zions Bancorp.
This presentation will define and review the different types of business strategiesIt will then define competitive advantage andsustainability followed by a review of two companies, Mountain America Credit Union and Zions BancorporationFor Zions Bancorporation we will discuss business strategy, competitive advantage,sustainability and also provide recommendations onfuture strategy
First let’s define business strategies. Corporate level strategies are essentially decisions made about the allocation of resources in order to meet organizational goals. Business level strategies support corporate level strategies and they are concerning decisions around meeting consumer needs, identifying who the consumers are, and what competencies are needed to meet those needs. Business strategies are actions that help the company achieve competitive advantage.When formulating a business strategy, a company will decide which approach they will take to maintain their advantage. They will choose either a low cost producer or a differentiator. Low cost producers aim to keep costs low to gain revenue. Differentiators aim to set their product and or services apart from competitors to give themselves an edge. Additionally, along with their business level strategy a company can determine if it will target a broad or a focused/narrow market.
Next we have Competitive Advantage and Sustainability. What does that mean?There are 4 building blocks to being competitive and all good businesses focus on these:EfficiencyQualityCustomer ResponsivenessInnovationWhat makes your competitive advantage sustainable? Since price is not typically considered sustainable… a business must create value by creating products and processes or services that cannot be duplicated or imitated or if they can be, it will take your competitors a bit to do itAdditionally, business models must be designed to allow the business to innovate faster, operate efficiently and create powerful brands and these models must be part of a cycle that capitalize on the 4 building blocks.
Now, lets go to our company review. First we will start with Mountain America. Mountain America is a federally-chartered credit union, regulated by the National Credit Union Administration (NCUA), an agency of the federal government. The credit unions spans much of the Intermountain West, including Utah, Nevada, Arizona and New MexicoMountain America is not a publicly traded company because it is a credit union owned by its members. However, financial information can be obtained by accessing their annual report. Under their consolidated statement of financial condition, they posted net earnings as $16,302 million. Earnings are divided up as dividends for their members and also reinvested back into the credit union for growth. EPS were .43
Mountain America has the business strategy of a differentiator as they provide the same basic services as banks do; however the members that hold accounts are essentially owners of the credit union. Because members are the owners, they typically receive dividends and are rewarded for the size of their deposits. Basically, owners earn a bonus on the total interest earnings of the credit union. Additionally, the credit union receives rebates on the interest paid for loans. Because the members are crucial to the business model, customer service at credit unions tends to be much better. Credit Unions are more concerned about keeping the customer happy rather than the shareholders - as a bank would. Credit unions are for the customer rather than for profit like a bank is. Credit unions are considered not-for-profit organizations which gives them advantages over banks. Because they are usually exempt from state and federal taxes they can pass the savings to their members by way of reduced rates on loans and higher interest paid for savings type accounts.
Now, we will take a look at Zions Bancorporation.The Bancor is a multibank holding company that operates eight bank subsidiaries in 10 western and southwestern states. The banks operate under their own brands and leadership rather than sharing one corporate identity. They focus on commercial and retail banking and mortgage lending; their products and services include deposit accounts, home mortgages and home equity lines of credit, residential and commercial development loans, credit cards, and trust and wealth management services. The Bancorp posted net income for 2nd quarter at 14.8 million. The revenue growth is attributed to loan growth within certain segments and the decline of bad debt in their loan portfolio. This also contributed to an increase in earning per share with the stock price also gaining traction. One thing to note is that their peg ratio is not favorable but investor analyst opinion is to buy stock.
Zions Bank obtains its revenues by using a low cost producer business strategy. Zions consistently receives low cost funding and are one of the lowest in the industry. This gives the bank a competitive advantage. If getting money for your bank costs 1.5% vs 2.5%, on millions of dollars it adds up. By continuing to receive money at a low cost, they can sell services and retain spreads that ultimately make them profitable and shareholders happy.
Recently an external analysis and internal analysis of the company was completed. This was done to provide insight into factors that can impact the company in the future and help provide strategy recommendations.First we will review the external analysis which was done using the SLEPT analysis method. The SLEPT analysis highlights social, legal, economic, political and technological factors affecting the industry. We will discuss a few of these key factors. Social factors such as consumer hesitation about banking institutions and their reluctance to deposit money. Additionally, the social media movement is expanding rapidly and needs to be used as a marketing tool going forward. There are significant legal factors with the potential to impact the bank. Discussions of new, tighter federal regulations for the banking industry are taking place. Banking as an industry has the potential of becoming more costly depending on the outcome of these discussions and the decisions made. Finally, economic factors such as reducing household debt, unemployment and technological changes in banking with core systems will impact Zions Bancorp.
Next we will talk about the internal analysis of the company. This analysis was done using the SWOT method which stands for Strenghts, Weaknesses, Opportunities and Threats. Strengths:One of Zions key strengths is that it conducts its banking business with eight individual styled (and decentralized) banks.Because of their decentralized structure, they are able to target and market niche segments. This creates a strong deposit market share in key markets.Weakness:Because Zions is only in the U.S. market, the U.S. financial crisis has impacted them greatly. Additionally, as the U.S. government tightens regulations on financial institutions there will be more impact to infrastructure and costs to support the new regulations. Expanding to growth markets abroad could diversify the impact of the U.S. regulations and expand the company’s presence. Another weakness Zions is exposed to is the continued decline of net interest margin. The decline is attributed to the subprime lending issues. Until these assets are recovered in some fashion, there will continue to be a decline. Many of the Bancorp’s markets still have declining loan qualityOpportunities:One of Zions main business strategies is to expand their presence by acquisitions in the growth markets. Zions has repeatedly acquired banks and completed complex bank conversions and still has many opportunities to do this. As always, this will help increase market share and expand their footprint. Another opportunity is with commercial and industry loans. This area has steadily increased growth and generates a large portion of the banks assets today. As this market continues to grow, there is more opportunity for the bank to grow even further. Threats:Lower interest rates provided by the Federal Reserve Bank will lead to less net interest margin and will affect revenue growth. Lower rates mean less growth with lending and deposits. Furthermore, competition will reduce Zions net interest margin impacting revenues, which will create slow growth in deposits.
Based on the analysis done we will touch on the recommendations for Zions Bancorp to remain sustainable and competitiveFirst, it is recommended that zions do what is necessary to maintain its low cost sources of funding. This is one of the biggest keys to their success in the future and maintaining a sustainable competitive advantage. Additionally, once Zions has strengthened their capital position, they can capitalize on opportunities to expand their presence by acquisitions and Internet Banking. Internet Banking can be used as a key channel to move into the foreign markets. These changes mayrequire changes in staffing requirements and Infrastructure resources may also need enhancing to support Internet Banking. Finally, these growth opportunities and strategies will protect Zions net interest margin which will also increase their competitive advantage.
This concludes the presentation, thank you for your participation.
Colton k 4.f.1_positioning and sustainable advantage_v0_r0
Positioning and Sustainable Advantage for Zions Bancorp<br />Prepared by: Kriste Colton<br />4.F.1<br />July 2011<br />
Define different types of business strategies<br />Define competitive advantage and sustainability<br />Review two companies <br />Mountain America Credit Union<br />Zions Bancorporation<br />Discuss business strategy, sustainability and competitive advantage<br />Provide Recommendations<br />Introduction<br />
Discuss revenue and financials<br />Mountain America Credit Union<br />
Credit unions provide dividends to customers/members<br />High rate of customer service and customer satisfaction<br />Lower rates for loans and higher rates for savings accounts<br />Strategy - Differentiator<br />
Maintain low cost source of funding<br />Expand position by acquisitions and foreign market offering using Internet Banking<br />Reduce bad loan debt and increase capital to protect net interest margin<br />Recommendations<br />