Expert answer:Strategic Analysis for Bank of Montreal (BMO)

  

Solved by verified expert:SWOT ANALYSIS , Compilation of the key external and internal strategic factors (SWOT) – this can be a
chart that summarizes your findings from the external (assignment # 1) and internal
analyses (assignment # 2)-Competitive Strengths (S)Compiles a comprehensive list of the key competitive strengths identified from the internal analysis (assignment # 2). -Competitive Weaknesses (W),Compiles a comprehensive list of the key competitive weaknesses identified from the internal analysis (assignment # 2). -External Opportunities (O),Compiles a comprehensive list of the key external opportunities identified from the external analysis (assignment # 1). -External Threats (T),Compiles a comprehensive list of the key external threats identified from the external analysis (assignment # 1).GENERIC STRATEGY (answers the questions – Where are we heading? Where would we
like to be?) What generic strategy does your company employ? Support your choice with evidence from the company’s organizational and strategic activities. -Identifies appropriate generic business strategy and provides a comprehensive analysis to support the choice of strategy.The analysis is inclusive of an extensive discussion of a minimum of 6 key distinguishing features of the strategy.DISCUSSION & RECOMMENDATIONS (answers the questions – Are we on course? How
do we get there?)Should the company stay the course and stick with their current strategy and
strategic objectives (is so, why)
OR
o Should they adopt a new course and if so what should it be (recommend a new
generic strategy and new strategic objectives).
Note: You must support your discussion and recommendations with evidence from your external
and internal analyses. -Comparative Analysis, Provides a comprehensive and detailed comparison of the current generic strategy to the SWOT analysis.-Alignment Analysis,Provides a comprehensive and detailed analysis of the current areas of strategic alignment and misalignment.-Strategic Recommendations,Provides comprehensive strategic recommendations that are congruent with the alignment analysis.
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BANK OF MONTREAL
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Assignment 1- External Analysis
Bank of Montreal
BANK OF MONTREAL
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Introduction
The Bank of Montreal (BMO) was incorporated in 1817. It is a financial services
provider. BMO is Canada’s fourth-largest bank and one of the top ten banks in North
America. Therefore, BMO offers a range of personal and commercial banking services in
addition to investment banking and wealth management products. The firm has three
operating segments, which include: Personal and Commercial Banking, Wealth
Management and BMO Capital Markets (Bank of Montreal (BMO) Company Profile,
n.d.).
Current Mission and Vision
BMO aims at being a diversified financial services provider. Provide the best service to
meet the needs of customers. They believe that your success is our success. On the other
hand, its vision is to be an institution that defines great customer experience. Notably, an
organization’s mission must be clear and represent a compelling goal that serves to unify
the effort of the company in achieving its strategic objectives. This means that an
efficient mission should be in a position to challenge the company and be achievable.
When it comes to a vision, it must be a realist and attractive future for an organization.
Mainly, a vision is not in the present. It is something that an organization expects to
achieve. Therefore, a vision must attract commitment amongst employees and create
meaning in the workplace. The core beliefs as well as the value of an organization form
an essential part of guiding philosophy and therefore vision. Core values normally relate
to customers, employees, organizational goals, how the staff conducts themselves and the
management.
The vision and mission of BMO inspire its operations. The employees usually lead the
way when it comes to defining what makes BMO unique and ethical conduct. Different
values embraced at BMO include integrity, empathy, diversity, and responsibility. The
management emphasizes engaging in what is right, making sure that everyone else comes
firm, embracing different cultures and learning from the different and taking the
responsibility of making tomorrow better. In addition, BMO has globally recognized
ethical standards, which ensure that everyone is accountable. The earned trust with
customers makes sure that there is the establishment of long-term relationships.
Current Strategic Objectives
BMO has currently refocused its strategic objectives to the following financial objectives
and those focused on enhancing its competitive edge and market standing;
Financial Objectives:
• Attain an EPS growth of 7% to 10%
• Achieve a return on equity of 15% and above
• Generate operating leverage of 2% and above
• Ensure that its capital ratios exceed the regulatory requirements (Bank of
Montreal, 2019).
Strategic Objectives:
BANK OF MONTREAL
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Enhance performance and growth in priority areas by ensuring the company
earns customer loyalty
• Improve on its productivity
• Take advantage of the power of digital and data to grow
• Be a leader in the management of risk and enhance the overall risk appetite
• Activate a high-performance culture
Strategic objectives are normally created using the SMART philosophy (Quezada et al.,
2009). The above strategic objectives are Specific, Measurable, Achievable, Relevant,
and Time-Oriented. Furthermore, BMO’s strategic objectives ensure that the company is
committed to building local opportunity, which matches the firm’s passion by giving
back. BMO is mobilized as well as accelerating. When the company takes on a new
opportunity, it is normally driven by a bold ambition and a clear purpose, which mirror
the strategic objectives. Besides, the company’s commitment to the achievement of its
objectives, transparency, and sustainability is embedded in its corporate strategy (Bank of
Montreal, 2018).
EXTERNAL ANALYSIS
Political Factors:
1. Canada has an excellent financial regulatory agency. In the 2018 Corruption
Perceptions Index, Canada is the cleanest country in the Americas and the world’s
ninth clean country (Transparency International, 2018).
2. Canada is one of the most stable countries in the world. According to the gross
national product, Canada is the eleventh largest economy in the world. However,
in the ranking of Political Stability and Absence of Violence, Canada ranks only
84. Besides, in the government efficiency ranking, Canada ranks only 97th
(Canadian economy, n.d.).
3. Active government intervention. In 2008, the US economic crisis broke out and
affected many countries. Canada is a neighbour of the United States and has much
economic cooperation with the United States. However, Canada has hardly been
affected by the US economic crisis. The Canadian government has established a
more stable and centralized financial system, and the US financial system is more
fragmented and fragile. The forceful intervention of the Canadian government
allowed Canada to avoid the outbreak of the economic crisis (The national bureau
of economics research, 2019).
Economic factors:
1. Unemployment rate. In April 2019, the employment rate in Canada was as low as
5.7%, lower than the 5.8% predicted by experts. In the first quarter of 2019, the
number of employed people increased by 116,000. During the period, an increase
of 106,500 jobs in April was the highest in Canada. According to experts,
Canada’s unemployment rate will reach 6.0% in December. However, experts
believe that the unemployment rate will drop to 5.6% in 2020.
2. Inflation rate. Canada’s inflation rate is in line with market expectations. In April
2019, Canada’s inflation rate was about 2%, up from 1.9% in March.
BANK OF MONTREAL
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3. Interest rate. On April 24, 2019, the Bank of Canada announced that they would
maintain the benchmark interest rate at 1.75%. They hope that through loose
monetary policy, more money will exist in the market, and the supply of payment
will be increased. And more money can promote economic development. Bank
interest rates and deposit rates also remained unchanged at 2% and 1.5%
respectively. (Trading Economics, 2019).
Social factors:
1. Demographics: There is currently an aging population in Canada. Fertility and
mortality rates in Canada continue to decline, and life expectancy is increasing. In
2006, the median age of Canada’s population was 39.5. According to forecasts,
this number will increase to 46.9 in 2056.
2. Social class: According to the government of Canada, the Canadian middle class
will have more money in 2019. The Canadian government has risen pension plans
to ease the burden on the middle class. Besides, the Canadian Child Welfare Fund
will provide approximately $2,000 in income for each family. (Demographic
change, 2016).
Environmental factor:
1. Carbon emissions are decreasing. With the development of technology, more
banking services can be handled on the Internet. Customers do not need to go to
the bank counter to do business; they can do it at home by mobile phone or
computer. Less travel allows people to reduce carbon emissions from going out.
2. Reduced use of wood. More and more banks offer customer’s electronic receipts
and other forms. Customers no longer have to use paper forms to complete
applications and get information. The reduction in the use of paper has allowed
people to retain more timber resources, and people can use wood resources to do
other vital tasks, such as construction.
Technology factors:
1. Development of the Mobile-banking APP: According to a study by the Canadian
Bankers Association, 56% of Canadian adults are using mobile banking in 2018.
This figure is much higher than 44% in 2016 and 31% in 2014. And 42% of
customers are delighted with the Mobile-banking APP. The innovation and
security of the Canadian banking industry have made more people trust the
Mobile-banking APP.
2. Mobile wallet and mobile payment development: According to Visa’s report, 12%
of Canadian smartphone users are using mobile payments, and more and more
Canadians are using mobile wallets. Also, mobile payments in Canada have been
developed for more than a decade, with 70% of Canadians using mobile payments
for sending and electronic transfers. Moreover, many companies, including Visa,
believe that mobile wallets and mobile payments will grow better in Canada.
(Wood, E, E., 2017).
Legal factors:
1. In 2017, TD Bank of Canada was accused of abuse. According to the website,
some of TD Bank’s staff have increased their credit lines and increased their credit
BANK OF MONTREAL
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ratings to complete the bank’s sales pressure. After the TD scandal, Canadian
financial regulators said they would review abuses in all banks in Canada (Mcclay,
R. 2017).
2. Online banking is safe and secure. Many banks now focus on the privacy of their
customers. Network supervision has become stricter.
Analysis:
Economic factors – the lower unemployment rate
As Canada’s unemployment rate declines, more and, more Canadians will get jobs. As a
result, Canadian citizens will have more income and disposable funds. Banks will also
have more potential customers and higher customer spending power. Banks will receive
more deposits and sell more investment wealth management products. As the economy
improves, more and more people will need to buy a house or a vehicle, and banks will
receive more loan applications. Overall, a reduction in the unemployment rate will
increase the development of the banking industry.
Political Factors – Effective government intervention
In political, Canadian banks have both risks and opportunities. Government intervention
and regulation have given Canadian banks a more stable and centralized financial system.
Canadian banks have a healthier and safer environment. However, Canadian banks face
more regulatory and government interference. Wrong government intervention may cause
the banking industry to develop slowly or even into a crisis. Too much government
intervention will also cause the banking industry to lose its vitality. Banks should
strengthen communication with the government to ensure they are effectively intervened.
Technology factors – the development of mobile wallets and mobile payments
The development of science and technology has brought more development opportunities
to the banking industry. Canada’s NFC (Near Field Communication) has been in
development for more than ten years, and more and more Canadians are beginning to use
and trust NFC payment technology. The development of this technology will provide
customers with faster payment methods and a safer payment environment, as well as
attracting more credit or debit card customers to banks. Banks will better achieve their
strategic goals when they are in a favourable development environment.
Three Key Industry Pressures
Performance pressure
For most Canadian banks, their performance was lower than expected, although their
profits improved in 2017. For example, BMO announced their third-quarter profit of $1.4
billion in 2017, an increase of 11% over last year. However, the six largest banks in
Canada did not perform as expected by shareholders. Among them, in addition to the
high expectations of shareholders, the high expense ratio and the labour productivity ratio
are the most critical; they have to pay extra fees, such as employee benefits.
BANK OF MONTREAL
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Competitive pressure
In May 2018, the Central Bank of Canada announced was raised to 5.34% the interest
rate for the home loan stress test. As the interest rate on home loan pressures increases,
banks must increase their loan requirements for customers to ensure that each customer
has sufficient repayment ability. Under such a policy, the potential customers of each
bank have decreased, so banks are facing higher competitive pressure. BMO used 2.45%
as their five-year floating loan rate in 2018, and their preferential policies were to help
them attract more customers and gain a more significant competitive advantage. Also,
Canadian corporate banks responded, and both RBC and TD adjusted their closed
variable mortgage rates to face a more challenging competitive environment.
Regulatory pressure
According to the requirements of the Banking Act and the requirements of the Office of
the Superintendent of Financial Institutions (OSFI), banks must submit a monthly balance
sheet and deposit liabilities to ensure the health of the bank. The Banking Act also
stipulates that OSFI must review each bank annually. Furthermore, Basel III is an
international regulatory agreement for the banking industry. He puts higher regulatory
requirements on banks, which require banks to have more reserves to deal with possible
risks. Besides, Basel III increases the proportion of liquidity assets in the banking
industry to ensure that banks can exchange assets for cash when they are at risk.
How strong the pressures comprising each of the five forces
• Industry Rivalry: Fierce
• Bargaining Power of Buyers: strong
• Bargaining Power of Suppliers: moderate to normal
• Threat of Substitutes: weak
• Threat of New Entrants: very weak
Competitive / Industry Analysis – Porter’s Five Forces
• Industry Rivalry
There is a lot of competition in Canada’s financial industry, and BMO has many strong
competitors, such as Toronto TD Trust and Royal Bank of Canada, Although BMO was
founded in 1817, it is the oldest bank in Canada. But in other respects, the Royal Bank of
Canada has the most significant number of outlets and the most robust profitability in
2014. Royal Bank of Canada’s daily turnover is close to 100 million Canadian dollars;
TD and Scotia bank are also higher than BMO in terms of profitability. Besides, Toronto
TD and Scotia bank have surpassed RBC in assets to become the two largest banks in
Canada. However, BMO has the most cooperative business and China.
• Bargaining Power of Buyers
The main buyers in the banking industry are lenders and investors. Buyers in the banking
industry have strong bargaining power. Although the bank’s investment products have
many alternatives, buyers have great choice and bargaining power. However, the main
BANK OF MONTREAL
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lending channels for lenders are still from banks because bank loans have the lowest
interest rates and the most lucrative financial strength. Compared to bank loans, financing
and other lending practices have higher interest rates and risks.
• Threat of Substitutes
The alternative has a small power. The primary function of the bank is to provide deposit
and withdrawal services, and its alternative products are mainly securities companies,
stock exchanges, and funds. But banks have the least risk and are the central place for
most people to make a living deposit. With the development of the banking industry,
banks such as BMO, TD, and RBC have also introduced more functions besides deposit
and withdrawal and wealth management products, such as insurance, stock trading
accounts, and pension funds. Banks are offering more features, and banks are becoming
more and more irreplaceable.
• Bargaining Power of Suppliers
Suppliers have medium rights. The leading supplier to the banking industry is a depositor.
Although suppliers have some other investment or deposit options. However, the function
of banks is increasing, and the banking industry has more lucrative funds than other
financial sectors. Therefore, while the banking industry is attracting more suppliers, it is
also squeezing the living space of other commercial companies.
• Threat of New Entrants
New entrants have very little power. The banking industry is different from other
financial sectors, and the banking industry has high capital requirements and operational
management capabilities. Also, Canada’s big banks have a long history, they have gained
the trust of most customers, and it is difficult for new entrants to snatch customers from
them. Finally, many of Canada’s largest banks are already in a substantial leading
position, and some banks have already had a monopoly. For example, the vehicle
insurance business in British Columbia has been monopolized by RBC. Such high
demand and highly competitive industries have low appeal to new entrants.
Conclusion
Based on the above analysis, BMO provides customers with the widest range of financial
services, as they have professional financial professionals who can help clients solve their
problems and give expert analysis. Help clients make the most accurate financial
decisions. For the Bank of Montreal, the firm has a culture where the goals of customers,
employees and the overall firm’s business go hand in hand. The company aims a ensuring
that it makes a positive impact on its stakeholders by exploring innovations and
embracing change.
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Reference
Bank of Montreal (BMO) Company Profile. (n.d.). Retrieved from https://www. reuters.
com/finance/stocks/companyProfile/BMO
Bank of Montreal. (2018). The Bank of Aiming Higher. 201st Annual Report 2018.
Retrieved from https://www.bmo.com/ir/files/F18%20Files/bmo_ar2018.pdf
Bank of Montreal. (2019). Investor Relations. Financial information. Retrieved from:
https://www.bmo.com/main/about-bmo/banking/investor-relations/financialinformation#2019
Canadian Economy & Political Stability. (2019). Retrieved from: https://studynova
scotia.ca/canadian-economy-political-stability/
Demographic change. (2016, September 28). Retrieved from:
https://www150.statcan.gc.ca/ n1/pub/82-229-x/2009001/demo/int1eng.htm#archived
Mcclay, R. (2017, March 13). TD Bank Accused of Wells Fargo-like Abuses (TD).
Investopedia. Retrieved from: https://www.investopedia.com/news/td-bankaccused-wells-fargolike-abuses-td/
Quezada, L. E., Cordova, F. M., Palominos, P., Godoy, K., & Ross, J. (2009). Method for
identifying strategic objectives in strategy maps. International Journal of
Production Economics, 122(1), 492-500.
Transparency International. (2018). Corruption Perecptions Index 2018. Retrieved from:
https://www.transparency.org/cpi2018
The national bureau of economics research. (2019,May). Why Canada Didn’t Have a
Banking Crisis in 2008. Retrieved from: https://www.nber.org/digest/dec11
/w17312.html
Trading Economics. (2019). Canada Inflation Rate. Retrieved from: https://trading
economics.com/canada/unemployment-rate
Wood, E, E., (2017,August 18). How popular are mobile payments in Canada, anyway?
IT World Canada. Retrieved from: https://www.itworldcanada.com/article/
canada-better-positioned-for-mobile-payment-adoption-than-u-s-industrysays/395873
BANK OF MONTREAL INTERNAL ANALYSIS
Assignment 2 – Internal Analysis
Bank of Montreal
1
BANK OF MONTREAL INTERNAL ANALYSIS
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Introduction
The Bank of Montreal is one of the most recognizable banking institutions in Canada,
and with such a wide reach, it would be important to understand some of the internal
factors that could have influenced the company’s success. In particular, the physical and
intangible resources from the company have been critical in helping the bank reach its
projected growth, and could even be more critical in ensuring that the bank manages to
achieve its vision. Other way, Value chain analysis helps a firm realize its competitive
advantage sources right from the acquisition of raw materials to the final product.
Resource-Based View Analysis
Resource endowment in any organizational setting is critical to the firm’s achievement of
its objectives. The capital and human resource departments help convert the ideas
developed by investors in the said firm into tangible outcomes, in the form of profits for
the company or observable impacts of the firm on the market. Therefore, conducting a
resource analysis of a particular organization would make a significant contribution to
understanding the internal capabilities of the business, in effect help in the development
of strategies that could ultimately determine the company’s future.
Tangible Resources
One of the primary resources necessary for any …
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