Disclaimer: This is an example of a student written essay.
Click here for sample essays written by our professional writers.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UKEssays.com.

Transformation And Growth In The Uk Commerce Essay

Paper Type: Free Essay Subject: Commerce
Wordcount: 4381 words Published: 1st Jan 2015

Reference this

The emergence of Santander into the UK market with the acquisition of Abbey represents a big move across Europe in the banking industry. This report aims to evaluate the effect of the move across border while analysing various strategy and tools which were used in the process. This report shows the structure and dynamics of the industry in which Santander competes and the effect it has on the industry. It also analyses the industry in which Santander competes in using the Positioning school, Resource Based View and analytical tools such as the five forces framework, PEST, VRIN and Porter’s generic strategy to analysing the transformation and growth of Santander in the UK since its acquisition of Abbey in 2004.

Get Help With Your Essay

If you need assistance with writing your essay, our professional essay writing service is here to help!

Essay Writing Service

Introduction to strategy

Strategy is the direction and scope of an organisation over a long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008). They also explained that the word strategy is associated with different issues, one of which is the strategic fit with the business environment. Here, organisations need appropriate positioning in their environment i.e. the product or service should meet clearly identified market needs. While the Resource-Based View of strategy is about exploiting the strategic capability of an organisation, in terms of its resources and competences, to provide competitive advantage and/or yield new opportunities.

Mintzberg’s (1987) view of strategy as a Plan, Ploy, Pattern, Position and Perspective covers the various ways which strategy is defined. He stated that strategy is a plan used to carry out an objective. It is a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved (Glueck, 1980:9).

As a plan, a strategy can be a ploy; too, really just a specific “manoeuvre” intended to outwit an opponent or competitor.

Strategy is a pattern- specifically, a pattern in a stream of actions.

It is a position; a means of locating an organization in what theorists like to call an “environment”.

It is also a perspective, its content consisting not just of a chosen position, but of an ingrained way of perceiving the world.

Santander, the Spanish financial heavyweight in retail banking acquired Abbey, the British mortgage lender in late 2004. After stabilizing Abbey in 2005, it developed a three (3) year ambitious plan with the purpose of maintaining the performance of products with already high significant market value and share position, increasing its presence in other banking segments such as consumer finance, insurance and SME and Commercial lending in order to transform the institution into a full-service retail bank with a wide range of product and service offerings.

Santander initially embarked on its strategy largely by exploiting its internal resources through Integration of human resources, introduction of its Technology, revenue growth and efficiency, maintaining a prudent approach to risk management.

Industry and Market in which Santander competes

The industry consists of a group of firms producing products or services that are essentially the same (Gerry Johnson, Richard Whittington and Kevan Scholes, Exploring Strategy, 2011).

Santander competes in banking industry where it faces stiff competition from other major players in the industry like Barclays, Lloyds TSB, HSBC, HBOS and Royal Bank of Scotland (RBS) otherwise known as “the big 5” and its major line of business is the retail banking which accounts for over half of its net income.

Its core market in the UK is centred on Mortgages, Savings and protection while it also competes in Brazil and other parts of Europe

including Portugal where it is recognized as the fourth largest retail bank with a customer base of 1.7 million, 670 branches, 6000 employees, a mortgage market share of 16% and over 18% in mutual funds.

Structure and dynamics of the market in which Santander competes

As explained by (Porter 1985), the strength of each of the five competitive forces is a function of industry structure, or the underlying economic and technical characteristics of an industry (Competitive Advantage: Creating and Sustaining Superior Performance by Michael Porter, 1985).

To analyse the structure and dynamics of the market in which Santander operates, it is imperative to understand the major factors which affect the Industry in general which in this case includes other major banks, their products and services, structure and also their strengths and weaknesses as this forms the competitive forces in the market

4.1 The threat of entry

These are the barriers that need to be overcome by new entrants if they are to compete successfully (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008).

Entry barrier for competing in this area is high because it is a capital intensive industry.

Achieving economies of scale is a factor for competing in the banking industry as it would require new entrants to compete on the same level of the other major players in the industry if they are to survive.

As seen from the case, Santander was able to gain entrance with a £9 billion acquisition of Abbey in 2004 which was at the time, Europe’s biggest cross-border banking deal and it already had experience in European retail banking which at the time, accounted for over half of its net income before the acquisition of Abbey.

As it is a highly contested market for customer base, the level of difficulty in entry is quite high because the market is already controlled by the major banks with strong brands like Barclays, LTSB, HSBC, HBOS and Royal Bank of Scotland and It would be quite difficult for beginners to convince customers to move from these already known and established brands.

Santander was able to gain entrance into the market through the acquisition of Abbey which already had a strong customer base of 18 million and a well-known brand name.

It also had a competitive edge. Santander introduced Partenon, its successful core banking platform and this technology enabled Santander to perform a seamless integration, launch new products with minimal lead time.

Entry barrier into the corporate and SME sector is also high. Although Abbey achieved significant growth in that area, it was still largely controlled by the “Big 5” banks.

Abbey’s plan to successfully enter and compete in that segment will be dependent on the introduction of its Partenon system.

4.2. Bargaining power of Supplier

The bargaining power of suppliers is high. The “Big 5” banks (Barclays, HSBC, LTSB, RBS & HBOS) control almost the same amount of share in some areas like the Credit Card Market and SME Banking and offer similar services. A supplier group is powerful where it is dominated by a few companies and is more concentrated than the industry it sells to (Porter 1980).

4.3 Bargaining Power of Buyers

Buyers compete with the industry by forcing competition on prices, bargaining for higher quality or more services, and playing competition against each other- all at the expense of industry profitability (Porter 1980). With this being a highly competitive market, the bargaining power of buyers is also high and there is competition on price.

4.4 Threat of Substitutes

According to Porter 1980, the threat of substitute is high if it offers an attractive price performance trade-off to the industry’s product. In this area, the threat of substitutes is quite low.

4.5 Rivalry among existing competitors

The rivalry among existing competitors is high especially among the “Big 5” banks and this reflects in the close similarity in their market shares. As mention by Porter (1980), the intensity of rivalry is greatest if competitors are numerous or are roughly equal in size and power.

Critical success factors for competing in the industry

Critical success factors (CSF) are those factors that are particularly valued by a group of customers and, therefore, where the organisation must excel to outperform competition (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008).

To compete in its market, its new CEO Francisco Gomez- Roldan presented a three year ambitious plan for achieving success which was tagged “The Three Year Plan: A Blueprint for success” and this was a key factor to be implemented for them to compete in the financial market with the other major banks. This new plan was put in place in order to achieve the Group’s vision of becoming the best retail bank in the UK. To begin with, the plan was aimed at maintaining the performance of products like mortgages which already had a high market share position and increase its revenue in other banking segments such as finance, insurance, SME and commercial lending so as to transform the institution into a full service retail bank with a wide range of products. The plan focused on increasing its revenue, efficiency and maintaining a prudent approach to risk management. To achieve this, it further grouped its operation into three main divisions and this was centred on Retail, Insurance and Asset Management (IAM) and Abbey Financial Market (AFM).

In the retail section, its target to achieve 75% in revenue and 70% of pre-tax profit would be through increased sales, customer and savings retention, cross sales and exploitation of new growth opportunities.

The Insurance and asset management (IAM) section was to contribute 13% of its revenue before tax through its back book management. With a new regulation which allowed an individual considerable freedom in their pension contributions been put in place and becoming effective as of 6 April 2006 in the UK, it was envisaged that there would be increased demand for pension related products and advisory services and would lead to new opportunities for investment across sales. To key-in and compete in this section, Abbey will do so by developing its intermediary and end-customer focused retention programmes, introduce new stake-holder-focused communication strategies and remediation projects in order to reduce risks. Another area which would contribute 10% of Abbey’s revenue and 17% of profit after tax is its financial market (AFM) and this was to be achieved by increasing its product range, customer base and transaction flow.

In addition to the above, rebuilding Abbey’s sales capabilities in mortgages, savings and protection, increasing its presence in bank accounts, unsecured personal loans (UPL), investment and pensions through the implementation of retention and incentive schemes proposed to target higher-value segments, developing a sustainable strategy for its online business Cahoot, increasing its telephone sales capabilities and also creating new branch sales system with sophisticated pricing by customer segment and increased focus on existing clients and cross sales for the unsecured personal loan segment will play a major role in competing successfully in its market.

Its resources, competences, capabilities and how Santander differentiates itself from competitors

Resources are the assets that an organisation have or can call upon and competences are the ways those assets are used or deployed effectively (Gerry Johnson, Richard Whittington and Kevan Scholes, 2011) while capabilities refers to the ability to integrate, build, and configure internal and external competences to address rapidly changing environments. Thus, it reflect an organisation’s ability to achieve new and innovative form of competitive advantage given path dependencies and market positions (Leonard-Barton, 1992)

Santander’s competence and capability in retail banking in Spain which accounts for half of its income is a strong advantage for them in terms of competing in the UK.

They have an experienced and brilliant CEO in Antonio Horta-Osorio, who succeeded Francisco Gomez- Roldan after he passed away. His vision of making Santander the best commercial bank in the UK by focusing on efficiency, service quality, customer loyalty, teamwork and meritocracy showed his importance as a strong force which reflected on the growth of Santander since its entrance into the UK.

Another great resource which Santander holds is its technology. The introduction of Partenon, its biggest technological asset which helped in the seamless integration and enabled them launch new products with minimal lead time.

Their ability to outsource processes to Spain, Portugal and Poland in other to reduce the cost-to-income ratio while still maintaining physical interface with customers. With this resource, they were able to achieve economies of scale and offer reasonably priced products and services which meant higher income and increased customer loyalty.

The proper utilisation of these human and technological resources by its management team led Abbey to win the Euromoney award for best Bank in the UK in mid-2008.

Its sources of competitive advantage

Competitive advantage is how an SBU (Strategic business unit) creates value for its users both greater than the cost of supplying them and superior to that of rival SBUs (Gerry Johnson, Richard Whittington and Kevan Scholes, 2011). It is further explained that to have an advantage, they must be able to create greater value than competitors because in the absence of a competitive advantage, the SBU is always vulnerable to attack by competitors.

Barney’s (1991) VRIN framework is also used to determine if a resource is a source of sustainable competitive advantage. To serve as a basis for sustainable competitive advantage, resources must be valuable, rare, inimitable and non-substitutable (fig 2).

Competitive advantage is realised based on three factors (Sudarshan D, 1995): (1) the firm’s marketing strategy, (2) implementation of this strategy and (3) the industry context which refers to Porter’s generic strategy.

Previous study by Porter (1980) introduces generic competitive strategies for gaining competitive advantage as:

Overall cost leadership



The differentiation strategy is one of differentiating the product or service offering of a firm, creating something that is perceived industrywide as being unique (fig 1).

Santander’s main source of competitive advantage which is unique is its IT Partenon banking platform. They differentiated themselves and gained a competitive advantage over its competitors through the use of Partenon. With this advanced business mode of operation, they were able to operate from their German and Italian centre through their data centre in Madrid, gain the trust of their customers, introduce a more secure way of doing business and offer a higher quality of service compared to its major competitors.

In addition, it gave them a first mover advantage meaning they were able to eliminate duplicated processes, reduce the cost per transaction, and release new products into the market with minimal lead time before their competitors.

Santander also gained competitive advantage by being the cost leader. According to Porter (1980), Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sales force, advertising, and so on.

With Santander’s experienced management team coupled with their experience in retail banking, they were able to introduce best practices into the UK market at low cost and with an advantage in inputs in terms of its Partenon system, they were able to cut cost in operations while providing quality services for their customers.

The major Macro/Micro environmental strategic marketing issues facing Santander, its view as an opportunity or threat, time frame for which each issue will be most relevant and the level of priority to be assigned to them

The Macro/Micro environment consist of broad environmental factors that impact to a greater or lesser extent on almost all organisation and the PEST framework identifies how future trends in political, economic, social, technological, environmental and legal environments might impinge on organisations (Gerry Johnson, Kevan Scholes and Richard Whittington, 2008). The analysis below shows the various environmental marketing issues faced by Santander.

Find Out How UKEssays.com Can Help You!

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

View our services

8.1 Political issues

The new regulation in the UK which became effective as of 6th April, 2006 “A Day” afforded individuals considerable freedom in their contributions to the pension schemes and other investment assets. This development is an opportunity for Abbey as it will bring about an increase in demand in the pension schemes and investment area through new product and advisory services offering.

8.2 Economic issues

The British market for motor finance which was still fragmented with the three leading providers holding a combined market share of 30% presents an opportunity for Santander to increase its activities in consumer finance in the UK as it is a leading car finance provider in Continental Europe, its expertise, product range and economies of scale coupled with a joint with a joint venture with Abbey would develop the British market.

With the general business climate in the UK housing market slowing down, the mortgage lending and market share faced a downward slide and this represents a threat to Santander’s 10% market share in mortgages. Its counter-intuitive decision to cut down its market share from 10% to 6% prior to the downward change in the area due to its cautious and prudent approach to business was a timely and good decision made by Santander.

A repeat of economic recession which happened in the past could be a threat to Santander.

8.3 Sociological issues

Cultural differences

With the acquisition of Abbey and entrance into the British market without prior operations in the UK market, Santander could face a brick wall at the initial stages of it operation in the UK because of the differences in national culture and business organisational culture. It is assumed that with the introduction of experienced management running the operations, and with the gradual introduction of its other resources, the effect of change can be cushioned.

At the time of its acquisition, it was noted that Abbey had a total of 18 million customers, a strong brand which was built over time, but had weaknesses in customer relationship, poor sales productivity and sales culture. This was a weakness for Abbey because customer relationship and loyalty is a key factor for success in the industry.

In other words, they were poor in customer orientation. This issue should be apportioned top priority considering that Santander had just gained entrance into the UK market by acquiring Abbey. Further operation under those poor customer relationship circumstances would most likely lead to loss in customer base and have a negative effect on Santander’s total income.

8.4 Technological issues

Technology enhancement through Partenon remains one of Santander’s marketing assets which have helped to further strengthen the growth of the company since its introduction into Abbey’s operations. The timely introduction of Partenon afforded Santander an opportunity to reduce cost of operation and allowed them release new products into the market in lesser time. The introduction of Partenon could be a challenge and an opportunity for Abbey. As it was a new system introduced, it required a lot of time and training before it could be fully implemented but proper training and gradual implementation, it turned into a major source of competitive advantage for Santander.

The domination of the credit card section by the big clearing banks such as Barclays (16%), LTSB (11), RBS (16), HSBC (14), RBOS (6), and MBNA (9%) meant Abbey had little or no control in the market and this was as a result of its lack of experience in the area. Its plan to build a new credit business by target its existing customer base and prospects in the UK through strong product offerings will be a welcome development for Santander. However, this will be more relevant in the future after Santander must have cemented its position in the market along with the big banks.

To what extent can Santander’s strategy be described as being marketing oriented, what other strategic orientations could be considered

A firm characterised as market oriented might have: developed an appreciation that understanding present and potential customer needs is fundamental to providing superior customer value; encouraged systematic gathering and sharing of information regarding present and potential customers and competitors as well as other related constituencies; and installed the sine qua non of an integrated, organisation-wide priority to respond to changing customer needs and competitor activities in order to exploit opportunities and circumvent threats (Hunt and Morgan, 1995; Kohli and Jaworski, 190; Narver and Slater, 1990).

Considering Santander’s plan to build selected products areas on a stand- alone basis, both organically and by acquisitions for its Corporate and SME segment, it can be said that it is quite market oriented.

It can also be argued that Santander is not very market oriented because they mainly act and operate using their internal capabilities such as human, financial and technological resources to gain market presence and share without regarding the needs and wants of the customers. For instance, it acquired Abbey for its large customer base and geographical location and figured they could offer their services by mode of operation and technology (Partenon) to gain more customers and market shares even though they had no prior experience in the UK market.

Other strategic orientation that could be considered

Santander should consider a more aggressive oriented approach to compete in the market as against its prudent approach which it is currently known for. As explained by (Clark and Montgomery, 1996; Fombrum and Ginsberg, 1990), aggressiveness captures the facet of a firm’s strategic orientation that, in comparison with its competitors, rapidly deploys resources to improve market position.

High concentration on R&D in other to identify new services or products with high demand in other to create a first mover advantage while improving on its IT platform which remains one of its major sources of competitive advantage.

Strategy evaluation methods utilised

The strategy evaluation method utilised in section I & II was from the position school and the Resource Based perspective of strategy and the Porter’s five forces theory as they relate to the way in which Santander operate in the UK market and the forces which affect the market in general.

Similarities and differences of the different schools in analysing Santander

Findings show similarities and differences in the position school and RBV. While the RBV refer to the internal capabilities, some of which are intangible and mostly unique assets of an organisation which they apply to gain competitive advantage, the positioning school revolves around competing with unique resources based on the analysed competitive forces of the industry. As explained with Porter’s three generic strategies which are; cost leadership, differentiation, and focus strategy (fig 1), organisations compete using rare resources to position themselves in a profitable environment thereby gaining competitive advantage. Both of these strategies seek to exploit the organisation’s capabilities in other to achieve a sustainable competitive advantage.

Appropriate strategy approach

With this case and having applied both the positioning and resource-based view strategy, both strategies seem to work for Santander as they both revolve around capitalising on capabilities either by fitting into places of advantage revealed in the external environment by the five forces or by using internal capabilities or organisational resources/capabilities to create competitive advantage. In strategizing, whichever fits an organisation and allows it operate successfully should be used.

Other issues that would minimise the likelihood of implementing the option and ways of overcoming these challenges

As most organisations compete using their source of competitive advantage by applying it through positioning or RBV strategy, an issue that could minimise the likelihood of implement the options is the thought of a rare resource becoming available to competitors, this might cause it to lose its competitive edge over it competitors.

To overcome this change, continuous development and innovation is necessary for an organisation for it to continue to stay relevant and compete over time.


Santander has shown strong desire to compete and become one of the best banks in the UK since its entrance. However, for it to continue in its growth, high concentration on market orientation is very important in other to increase business performance across all areas of its operation.

Also, continuous development of its product range should be put into consideration while it continues further development on its technology system as this has shown to be one of its driving forces in competing with the other major banks.


Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: