Management Assignment: Business Functioning Of Commonwealth Bank Of Australia (CBA)

Question

Task:
Prepare an essay on management assignment commenting on the overall business functioning of Commonwealth Bank of Australia in today’s era.

Answer

Introduction
The current essay prepared in this management assignment discusses the organizational aspects related to Commonwealth Bank of Australia (CBA).

Scope:

• Identification of business structure and corporate governance practices of CBA
• Identification and analysis of forces impacting CBA’s performance
• Identification of key risks being faced by CBA
• Identification of key business practices of CBA
• Identification of functional departments of CBA

Purpose: The purpose of the essay is to comment on the overall business functioning of CBA in today’s era.

Case organization Synopsis:
The Commonwealth Bank of Australia (CBA Group) is one of the top four banks in Australia. It is operating its business in multiple countries such as Malta, New Zealand, South Africa and so on. The group is the provider of banking and other related financial services across the globe. CBA has a strong position in the market due to its strong financial position and wide customer base in the market. Hence, it has always been able to attract high number of investors from the world (Bloomberg, 2020).

Business Structure and Corporate Governance
CBA is operating as a public company listed on the Australian Securities Exchange. Functioning as a corporate body, CBA group has its own separate legal existence different from its owners. Also, the group has a solid corporate governance framework which is clearly defined and designed to ensure transparency of the business. As a part of corporate governance practices, CBA issues a corporate governance statement on yearly basis to allow its stakeholders to get to know about its corporate governance practices which ultimately helps in gaining their trust and confidence in the group. The statement majorly covers certain elements such as its risk management practices, code of conduct, its concept of stakeholder engagement, its board composition. The bank aims at improving further the well-being of its customers and the communities in which it operates its business. Also, as a part of corporate governance engagement practices the group has formulated its policies regarding whistleblower protection, anti-bribery and corruption, slavery and human trafficking, conflicts management, securities trading, diversity and inclusion, gender pay equity, flexibility of working, employee network etc. The board of CBA is comprised of 9 professional bodies with relevant skills and expertise such as its chief executive officer (CEO), non-executive officers and committees such as remuneration committee, nominations committee, audit committee and the risk committee to ensure sound functioning of the company (Commonwealth Bank of Australia (2020, 3). CBA aims at involving its stakeholders in its decision making so that they could be offered trust and belongingness sense towards the company. The risk management practices of CBA are designed to deal with all the key risks whether financial or non-financial in nature in an effective way so as to avoid any significant loss out of such risk factor. Another aim of CBA is to ensure transparency in all its business functioning and to serve this purpose it has created a culture that promotes the ethical and professional behavior by all the stakeholders of the group (Commonwealth Bank of Australia,2020, 2).

Factors that have impact on CBA’s performance
In order to identify the factors affecting CBA Group’s performance use of key strategic tools such as PESTLE Analysis or SWOT analysis. SWOT analysis is used to identify the factors that could be controlled by business itself such as its strengths, weaknesses, threats and opportunities (Helms & Nixon, 2010). Pestle Analysis is the framework that deals with identification of various macroeconomic factors that are impacting the business growth in both positive and negative ways. Such factors could be political technological, legal, social and environmental or economic (McWilliams & Siegel, 2011). The said factors affect an organization from its external business environment. As CBA is operating its business from various countries, the political stability among such countries is necessary for it grow and sustain. However in the current times the global trade disputes have contributed significantly to the disturbances in the global market. Further, as per a report by Financial Times, 2019, the Australian banks are currently experiencing the similar onslaught which was experienced at the time of financial crisis in 2008. The interest rates in the current times have been reported as lowest in the history with the expectations of future fall in these rates. The macroeconomic instability has also resulted in the slackening of credit growth. The confidence of consumers has reduced in banking which has affected their spending. Further, the housing market rates are also being impacted due to the economic factors and hence the banking industry in the economy is losing its major proportion of revenue out of house lending (Commonwealth Bank of Australia,2020, 2). Due to weak economic growth, the top four Australian banks had to maintain a capital reserve of substantial amount which in turn has lowered down its profitability and the return on investments to a significant level. The social factors like the social status of the people and their spending capacities and interests also impact the business performance of the banking corporation (Powell, Lovallo & Fox, 2011). The climatic changes also affect the banking operations as in severe climatic situations the demand of banking services varies accordingly. The technological factors such as introduction of internet banking has revolutionized the banking industry and rapidly occurring technological advancements in the banking industry are not only offering benefits to the corporations but also it is imposing the risk of information security breaches on such banks where data maintained by them is of highly sensitive nature as it involves huge financial information of the customers of banks (Von Krogh, 2012). The another force the impacts the business performance of CBA Group is the laws and regulations that are required to be to adhered to strictly while operating business. The bank has to comply with large number of regulations such as insider trading laws, anti-bribery and corruption law, money laundering laws and so on.

The microeconomic forces are those factors that impact the functioning of the business from within the internal environment. The CBA group is maintaining a strong brand portfolio which attracts more and more potential investors towards its business. Also, the workforce at CBA is highly skilled and productive which is contributing to its success over the long years. Further, the bank has achieved huge success in financial terms which has offered it a type of financial stability even in the economic downturns (Commonwealth Bank, 2020, 2). The rankings of CBA are also sound enough which creates confidence among its stakeholders. However, the attrition rate of CBA group is high which affects its smooth functioning as new hiring requires substantial recruitment and training cost along with extensive time. The competition in the banking industry is getting tough day by day causing it really difficult for the banking corporations to cope up with (Rouleau, & Balogun, 2011).

Top 3 Risks faced by CBA
Though, there are various risks that are being faced by Commonwealth Bank of Australia in the current times, yet risks are majorly classified in two categories: Financial risk and Non Financial risks. Financial risks could range from credit risk, exchange rate risk, liquidity risk market risk etc. (Commonwealth Bank of Australia, 2018). The non financial risk could be legal risk, operational risk and psychological risks. The top financial risks that are currently being faced by CBA are Credit Risk, Market Risk and the Legal Risk.

1. Credit Risk: It has been found that the due to lower wage growth as well has higher household debts, the consumption outlook is under high risk. The shift in the focus of customers from borrowing loans to paying down their existing debt due to lowest saving rates of the households in the decade has imposed high credit risk on the banks in Australia.
2. Market Risk: The trade disputes in the markets across the globe have caused instability of geo political conditions. The volatility in the markets has reported at the higher level in the current times coupled with lowest interest rates in the history has placed CBA in high market risk.
3. Legal Risk: The group is currently facing increased compliance risk related to regulatory actions due to introduction of new rules and banking regulations which are rigid to be followed. There are significant law reforms which are yet to be in force to improve the provision of financial services to the customers in better ways. These proposed reforms are: revision in the capital framework of banks, opening banking etc. (Commonwealth Bank of Australia, 2020, 1).

Key business practices of CBA
CBA is the service provider of wide gamut of banking and other related financial services covering retail and premium banking services, private and institutional banking, funds and wealth management, insurance, broking and other investment services. The retail banking division of the bank includes banking services for personal or small business customers covering home loans, maintaining superannuation funds, consumer financing, accepting retail deposits. The private banking involves special banking services and also the corporate services to the customers of agribusiness (Commonwealth Bank of Australia, 2020, 4). Apart from these basic business activities, CBA has adopted a practice of regularly amending its interest rates so as to account for the changes in macroeconomic conditions of the market. Also, to overcome the regulatory risk, various regulatory engagements have been adopted by the bank such as introduction of program of financial crime compliance to ensure transparency in business practices. Further, CBA had adopted various measures to deal with its operational risk.

Functional departments of CBA
Every bank has certain functional departments working with it in order to promote the effectiveness of the business. Alike other banks, CBA also has its operational excellence department, customer service department, marketing department, human resource department and the compliance department. The operational excellence department is entrusted with the responsibility for carrying out all the regular banking operations to carry on the business. The marketing department helps in marketing the banking products and services in the market among the targeted audience. Human resource department of CBA functions to bring in right human resources at the right place in the right time and then maintaining their values in the bank (Farndale, Scullion & Sparrow, 2010). The customer service department works to address the queries and complaints of the customers of the bank throughout the day.

Conclusion
As Commonwealth Bank of Australia is one among the top 4 banks of Australia it has a wide number of stakeholders such as customers, investors, employees and so on. In order to operate successfully the bank has to include its stakeholders while making important decisions of the business. The corporate governance statement of CBA clearly shows that it is working for its customers and communities in the transparent manner. However, due to poor economic conditions in the country it is facing various risks related to its core operations. But, though uncertain macro-environmental conditions are impacting its overall performance still the bank has been to manage its risks by continuously adopting necessary actions.

References
Bloomberg (2020). Commonwealth Bank of Australia. Retrieved from: https://www.bloomberg.com/profile/company/CBA:AU

Commonwealth Bank of Australia (2018). Risks associated with Global Market Products. Retrieved from https://www.commbank.com.au/content/dam/commbank-assets/about-us/2019-03/Risks-Associated-with-Global-Markets-Products-COBS-14.3A.5.pdf

Commonwealth Bank of Australia (2020) (1). Risk Report. Retrieved from: https://www.commbank.com.au/content/dam/commbank-assets/about-us/2019-08/CBA-2019-Annual-Report-Risk-management.pdf

Commonwealth Bank of Australia (2020) (2).Corporate Governance. Retrieved from: https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html

Commonwealth Bank of Australia (2020) (3).2019 Corporate Governance Statement. Retrieved from: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/corporate-profile/corporate-governance/corporate-governance-statement.pdf

Commonwealth Bank of Australia (2020)(4). Good Business Practice. Retrieved from:https://www.commbank.com.au/about-us/opportunity-initiatives/opportunity-from-good-business-practice.html

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Helms, M. M., & Nixon, J. (2010). Exploring SWOT analysis–where are we now?. Journal of strategy and management. DOI: https://doi.org/10.1108/17554251011064837

McWilliams, A., & Siegel, D. S. (2011). Creating and capturing value: Strategic corporate social responsibility, resource-based theory, and sustainable competitive advantage. Journal of Management, 37(5), 1480-1495. DOI: 10.1177/0149206310385696

Powell, T. C., Lovallo, D., & Fox, C. R. (2011).Behavioral strategy. Strategic Management Journal, 32(13), 1369-1386. DOI: 10.1002/smj.968

Rouleau, L., &Balogun, J. (2011).Middle managers, strategic sensemaking, and discursive competence. Journal of Management studies, 48(5), 953-983. DOI: https://doi.org/10.1111/j.1467-6486.2010.00941.x

Von Krogh, G. (2012). How does social software change knowledge management? Toward a strategic research agenda. The Journal of Strategic Information Systems, 21(2), 154-164.