Step 2 - Understand the Markets

As part of any strategic planning exercise, it is important to gain a good understanding of the markets in which you operate and the factors which will affect those markets both now and in the future. This is sometimes called Environmental Scanning.

An understanding of the markets or environments in which the organisation operates should include an understanding of the:

  • economic factors
  • regulatory changes
  • political effects
  • market characteristics
  • social trends
  • technological change.

Each of these factors will have an impact on the organisation and will affect the strategic direction.

The growth of the European Community; the development of Eastern Europe and China, the increasing speed of advancement in India, South Africa and South America; the de-regulation of financial markets in the United States; and increasing competition across international boundaries: all these provide threats and challenges for financial institutions which must be understood in the context of the current position of the organisation.

The regulations in retail financial services vary by geographic area, whereas those controlling securities trading tend to require international control to reflect the global nature of the business. Changing or converging regulation may also have significant impact on internal activities as the impact of increasing reporting requirements and capital controls affects the core businesses of the organisation.

Political changes should also be understood. The political environment will affect the demand for and regulate the supply of financial services and these factors will impact the market in each area.

Market characteristics (size, growth rates, distribution, mix etc.) will change as well, partially because of the increasing competition for business and partially through the globalisation of information which means that rumours and facts flow through the markets more quickly.

Social trends will also affect the demand for financial services. Changes in working practices and savings habits will affect demand for services. Changes in demographics will change demand for retail services and will impact corporate business in different ways.

Technological change is a factor that must be considered, through its impact both on distribution channels used by financial institutions and also on the way in which services can be processed both within the organisation and by the competitors.

Each of these factors will affect the strategic direction of the organisation and should be understood before the strategic plan can be developed.

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