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Essay: Analysis of HSBC’s ‘Impact Invest’

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  • Analysis of HSBC's 'Impact Invest'
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Sector overview Performance

The largest global business: RBWM ( Supports approximately 37 million customers worldwide) outperforming all other business sections.

Retail Banking and Wealth Management financial performance

Adjusted profit before tax increased by 24% than theist year, indicating a strong revenue growth from deposits and wealth management (includes investments)

Retail Banking and Wealth management is HSBC The largest global business and showed a strong performance the past year, benefiting from growing customer saving appetite, strong product sales across all categories and the impact rising disposable income. Revenue increased by £1.7bn or 9%,

Major segment driven by growth in Retail Banking from current accounts, savings and deposits. Growth in revenue from current accounts, savings and deposits (up by £1.1bn)

significantly higher revenue in wealth management ( up £0.9bn or 18%)

higher investment revenue, boosted by increased demand for ISA investments

1.1.2 HSBC’s challenge addressed with the new product

The world is changing and HSBC must keep up. Investing is no longer attractive to evolved customer needs and desires are not fulfilled. HSBC must align the offering with the evolved values and aspirations of consumers (HSBC, 2018).

Companies and public investors interests are significantly shifting to increasing environmental credentials and becoming more sustainable and climate-conscious. Firms are adopting a new approach to invest, weighing their social impacts. 91% of current investors agree that it is central to their mission to pursue impact through investments (GIIN, 2019).

However, private customer savings add up to more than £401 bn in the UK this year, yet only 1% of which is invested. The low willingness to invest the available capital can be ascribed to multiple factors such as individuals feeling inferior to bankers; findings show that over 70% of customers feel afraid of investing perceiving themselves as lacking in knowledge to take the sophisticated decision. Also, the actual process associated with investing is perceived as laborious and time-consuming (Bugg-Levinde and Emerson, 2011). Underlining these factors is the still noticeable mistrust in banks and other institutions after the 2007 financial crisis (Hebb, 2012).

Both companies willing and actively seeking greener investment opportunities and private individuals marked by skepticism postulate innovation in banking product offerings. The solution is an Impact Investment opportunity to match the way people live their lives with the way their money is acting in the world (Brest and Born, 2019)

Importance of innovation for the organisation and the competitiveness in the marketplace

Innovation definitions: Looking at the definitions, which are offered in different information sources, one can see that in all of them there is one common feature – as innovations are defined every- thing that is offered as new, regardless of whether an equivalent product has been found on the market before (Stols, 2015).

1.2 External and Internal Audit

1.2.1 Macro environment analysis based on PESTEL

Close analysis of the present situation in the market is fundamental, alongside analysis of factors likely to affect the future operations (Richards et al., 2017). External auditing is displayed in the PESTEL analysis on the following page which enables a clear understanding of the expected situation by looking at major risks which are likely to impact HSBC and the launch of new products.

1.2.2. HSBC 3C Analysis

1.2.2.1 Competitors analysis

The industry landscape offering continue to evolve, as there are significant changes in the operating environment to be seen. More than half of the biggest retail banks are recognising that being sustainable gives them a competitive edge (Aguinis, 2019).
The banking market is highly competitive, with globally established banks. HSBC primary competition are retail and Investment banks. In addition to this, new competitors are emerging rapidly including internet based banks. The Uk market has yet low penetration of Impact Investment offers,but combination of low penetration with high competitive intensity (and rivalry is expected to continue to place significant pressure for innovation in product portfolios. HSBC Primary Competitors can be seen in figure 5.

It is important to take a closer look at Banks in the UK competing with HSBC in regards to success of the investment business. Here is a fundamental difference in position, indicating unfulfilled potential od HSBC. Although most baks seen is figure .. are investment focused banks, even a competitor like Barclays has established larger revenue through investments, which is partly due to newly launched SRI marketing campaign for the UK. HSBC superiority in assets can, if done right be used as advantage to step foot in the investment landscape if a distinct differentiation is propound.

Important for product innovation design is also the aspect of reputation comparison to competitors. HSCN shows less positive reputation in the UK than all other major banks, indicating a need for improvement and a product that can facilitate this disadvantage.

One of the most widely used methods for the concept development is the use of a product positioning map (Kotler, 2006). The major purpose of the positioning map is to reflect current product prod offerings on the market and the optimal positioning and differentiation point for the potential product. Based on the results below, a most suitable product concepts is created.

Investments currently require consumers to be confident in making your own investment All though HSBC has an online platform, the Online Fund Platform, the touchpoint for customers, the Global Investment Centre doesn’t offer sufficient investment education.
Morgan Stanly for example offers their ultra high worth individuals Impact Investment opportunities and their offers are therefor very exclusive. All current SRI products require stable knowledge and the minimum investment required for small funds at HSBC are 100 pounds. Positioning of the product in the market needs to be built upon, and needs to be consistent with, the differentiation strategy. Positioning strategy for is repositioning of the bank for longterm success

HSBC must position itself with a product, unlike other competition no expertise about investing is required,as consumers have the I-Invest app to educate, inspire and guide you to make right decisions. These advantage are Significant and noticeably differ from the current product offering.and is high in accessibility because a very low ( 20 pounds) starting investment capital is required. A consideration is that as market grows and matures it may need to consider repositioning itself.

Looking at Impact Investments account as a new product from the corporate perspective, it can be perceived as HSBC’s bank’s investment products’ portfolio extension supplementing the already existing investment products. While looking from the market perspective, it is a completely new and original product.

1.2.3.2 Customers analysis

Customers for Impact Investment an be parted in two categories as mentioned in part 1.0. There are corporate institutions and private individuals. There is an overall drastic increase in demand of Impact Investments due to general change in organisations perceptions and practice of investing in the last year (GIIN, 2014).

91% of current corporate investors agree It is central to their mission to intentionally pursue impact through investments, 40% primarily target social objectives when choosing an investment(Global Impact Investing Network, 2019). Nearly three-quarters (72%) seek to address climate change through their investments, most commonly by targeting investments that reduce greenhouse gas emissions, seeking investments that prevent future greenhouse gas emissions, and seeking investments that support climate change adaptation. Further, UK’s top 50 investors described different approaches to mitigate the risks of ‘impact washing’ as the industry mainstreams. Eighty percent agree that ‘greater transparency would help mitigate risks of industry mission drift. Others pointed to third-party certification of impact investments, voluntary principles to govern investor behaviour, and a code of conduct for investors.

Young customers are searching the internet for answers, meaning and connection on the go. People are looking for a sense of purpose while lack of prosperity has lead to enormous problems on the other side of the world. Current society asked by transparent technology, empowered self belief and an entrepreneurial spirit.Finance is seen as as a vehicle though which they can ensure that prosperity continues (Balkin, 2015). Goals have changed to goal as making money by doing good rather than making moneybag doing whatever it takes. Financial crisis repercussion is lingering perceptional issues of financial institutions which are being rather questioned than trusted. 41% of UK millennials lack of confidence in the banking industry.

1.2.3.3. Company analysis

Figure 10: HSBC SWOT analysis

Star category is RBWM (S3), repeatedly showing significant revenue increase of 9% from last year . On this strength should be built upon by grabbing the best opportunities which involve the expanding to impact investments (O3). A support for this move are strong organisational characteristics facilitating innovation (S5)

Furthermore, a clear need for digital transformation can be seen (W2) as customers are using branches less often. Nevertheless, HSBC is stronger, more secure and capital efficient than ever, able to connect customers to meaningful opportunities which is the optimal precondition for introducing new products (HSBC, 2017).

Section 2.0 Proposed New Product and Rationale

2.1 Product Introduction

Impact Investments offer a new category of investments to be included within the existing product portfolio of the Retail Banking and Wealth Management (“RBWM”) category, enabling millions of people across the world to transform how they make money while making a difference.

The I-Invest app for IOS ad Android will play a crucial role in providing a place for consumers to get educated, involved and connected with the brand and other customers, making investments transparent, fast, affordable and disruptive.

An overview of the exact construction and requirements of the potential HSBC Impact Portfolio can be seen in appendix 2.

Value proposition: “Making money more”. The new Impact Investment offering provides people the opportunity to make the world a better place while making money, offering both financial and positive social or environmental outcomes with no trade offs, on the go, wherever they are.

Product Objectives:

  • To grow investments revenue in the UK by 8% within one year of releasing “HSBC Impact Investment”
  • To gain 30,000 new UK customers (signed up to the I-Investment app) by the end of 2021
  • To improve HSBCs trust and value perception index by 17%
  • To establish an Impact Investment portfolio worth £100 bn in active investments by 2030

Further expected outcomes:

  • Increase access to customer data and information aiding the management of complex customer relationships (Nesta, 2012).
  • Position HSBC strategically for the future and reduce trust related issues which could drastically influence the firms operations (Eccles, Ioannou and Serafeim, 2019)
  • Increase of revenue generated by investments by 6% by 2022 (paired wth long term growth of the Investments sector)
  • Increase in customer loyalty and brand interaction through relationship building on platform and ongoing education
  • Achieving a decrease in adjusted risk-weighted assets (currently £121.5 bn) (HSBC, 2019).
  • Achieving of a meaningful double bottom line
  • Increase in bank brand value to position 4 in the world (Montgomery, 2008)
  • Cost reduction for HSBC (as mobile investment costs are under 1p vs. paper made with £5 per transaction)

2.2 Identification of the product opportunity of HSBC Impact investment based on SET factors

The product opportunity was found based on a scan of factors in the major areas: social trends (S), economic forces (E) and Technological advances (T). A product opportunity exists, when there is a gap between what is currently on the market and the possibility for new or significantly improved products that result from the emerging trends. Impact Investments is a breakthrough product and market based innovation. a market disruption and truly innovative product changing the investment landscape for good (Cagan and Vogel, 2001).

Rationale 1: Global Situation

Despite the goodwill of philanthropy and government, economists agree that the combined efforts of these sectors are not sufficient to solve social problems. However, including the private sector could majorly improve this situation. Furthermore, companies are pressured by stakeholders to be environmentally friendly and simultaneously shareholders are demanding financial performances to increase. Following, as companies now are expected to have a positive social impact and be profitable, they are developing an understanding about the social and environmental challenges. Some see these, as risks for their businesses while others identify them as large opportunities, as significant problems need scalable solutions that can be profitable.

Rationale 2: Industry Trends

Impact Investment is an emerging industry, in the US, £228 billion went to SRI (socially responsible investing), and a substantial volume came from private and public capital creating essential networks. Estimations show that these networks will cover 30 largest trade corridors by 2030 and their compounded annual growth will exceed GDP growth. The UK alone will receive over £100 billion in revenue. Impact Investor Survey (2018) stated that banks are becoming more involved and emphasised the importance of greater transparency to mitigate the risk. Additionally, new players are entering the market, resulting in the rapid growth of the industry. Following, surveys show that 91% of CEOs report that corporate social responsibility management creates shareholder value, and 80% agree that non-financial indicators (environmental/social performance) are essential in characterising future financial performance (S. L. Friedman, 2003).

Rationale 3: Company

For HSBC to contain its obdurate competitiveness and ensure growth, it has to innovate its offerings. Considering customers attention to the social environment, adapting SRI is crucial as it adds extra value to current offerings without replacing products (Stols, 2015). This would support long-term goals as engaging in sustainability-related activities results in marketing benefits (improved reputation/image) (McKinsey 2011), increase consumer purchase intentions (Sen and Bhattacharya 2001), lessen consumer backlash following a product crisis (Klein and Dawar 2004), and improve brand loyalty/advocacy (Du et al. 2007).

Considering these facts, HSBC should implement “Impact Invest” as it would lead to technological, operational, marketing and resources synergies and would be uncomplicated to create (Lee, Graves and Waddock, 2017). Furthermore, it would provide access to unique and meaningful Impact Investment portfolio focusing on large, fast-growing economies (Chabowski et al. 2011).
Section 3.0 New Product Development Process

A rigorous new product process is important to success. Institutions with better processes have higher success rates. REF Without a well-thought-out process that is rigorously applied to development projects, the probability is high that errors and omissions will occur in the critical stages of development (Edgett, 1996). The 8 step model for new product creation is used a as a tool to help the bank navigate to releasing a successful product which corresponds to the constantly changing needs of the clients (Zikmund and d’Amico, 1993). As an agile NPD strategy is followed, specific stages can be redesigned or changes made if needed. As there are some regards to how the model stands alone for financial services, additional considerations are added tailored to the organisation and nature of the product.

Figure12: Step NPD Process for HSBC Impact Invest

Section 4.0 Implementation Plan

Figure 13:

Figure 14: Budgeting

The risk of failure must also be taken into account. However, despite the risks a new product introduction is necessary for HSBC in order to progress and gain profit (Trott, 2017). Therefore the major risks most likely to occur have been identified and recommended actions to take in order to minimise the risk and extra costs, but also in case of assurance highlighted in the following.

Figure 14: Contingency Plan and risk mitigating

Section 5.0 Conclusions and Recommendations

The product proposal was designed to align with long-term stakeholder interests and is based on the company remuneration principles focussing on the core mission sustainability.

The product proposal aims to ensure a positioning of the company which offers the most values in a authentic and transparent way. As brand trust will have an affect on future performance, CSR is in business’s long‐term self‐interest to strive in the future, and should therefore be regarded as a strategic activity to build and maintain acceptance with broader societal expectations but also gain competitive advantage amongst others in their sector or markets. Prime motive for organisations to communicate or report on issues of CSR is a desire to minimise risks to reputation (Bartlett and Devin, 2011).

Lastly, going forward trust is increasingly going to be what is driving decisions whether people do business with you or not and the thing that’s driving people and therefor incredibly important (Urbonavicius et al., 2019).. If trust isn’t there with technology solutions, users won’t use it. This means for the company, that Consumers must know that HSBC is taking care of their information.

7.3.2019

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