Wells Fargo competitive advantage and financial performance analysis

¶ … Fargo & Co. In detail. It puts light on the financial performance of the organization. The core products and competitive advantage of the organization have also been analyzed by the preceding paper. In addition to that this paper also highlights the SWOT analysis and the Porter's five forces model of Wells Fargo & Co.

Wells Fargo & Co.

Wells Fargo & Co. is a stable and renowned name in the banking industry. This organization has a commendable history of growth and success. Its mission and vision has enabled it to navigate successfully through the complicated and critical times of recession and economic downturn. It has been in the business since last many years and has gained a stable and prominent share in the financial and banking industry of the United States of America. (Amundson, 2011)

Company Background

Wells Fargo & Co. started operating officially in the year 1852. They opened their first office in San Francisco. This office was established during the gold rush. After that the organization started expanding from California to the rest of the United States of America. In the year 1910, the organization was operating at 6000 locations around the nation. After the First World War the government over took all the locations of the organization and it was left only with its San Francisco location. Wells Fargo & Co. remained resilient and started expanding once again. In the year 1980, Wells Fargo & Co. was the eighth largest bank of the United States of America and by the year 1990 the organization gained all its previous locations back. (Amundson, 2011)

Wells Fargo & Co. had a merger with First Interstate Bankcorp in the year 1996. In the year 1998, it again had a merger with Norwest. In addition to that, it also merged with Wachovia in the year 2009. Apart from that, Wells Fargo had a merger with a number of other companies and it also made various commendable achievements. (Amundson, 2011)

Resources, Capabilities, Core Competencies and Value Chain

Wells Fargo operates in a number of product lines. All these lines and the services associated with them are listed below;

Banking: In this line the organization offers the services of; online banking, ATM banking, business banking, wholesale banking and government and institutional banking. (Amundson, 2011)

Mortgage: In this sector the organization offers the service of home banking and mortgage. (Amundson, 2011)

Credit: The services provided in this line include, debit and consumer credit cards, personal credit management, auto dealer services and education financial services. (Amundson, 2011)

Insurance: This product line includes two services, namely Wells Fargo insurance and rural community insurance services. (Amundson, 2011)

Investments: The products included in this line are; retail brokerage, wealth management, retirement, Norwest equity partners, Norwest venture partners, Lowry Hill and capital markets. (Amundson, 2011)

Value Creation

With the help of its core competencies, resources, including a diversified product and service line, the organization can create value for all its stake holders. The organization can cater all the needs of its customers in an effective manner. In addition to that, the organization can also strengthen its stand in the market and banking and financial industry and can create value for its share holders and creditors. By using its resources for the training and development of its employees the organization can create value for its employees. (Amundson, 2011)

If the organization uses all its resources effectively then it can create sufficient value for all its stake holders and can further stabilize its share in the industry of banking and finance. (Amundson, 2011)

Analysis of General Environment

The two factors of the general environment that can have an influential impact on the operations of the Wells Fargo organization and the industry in which it operates are the political and economic trends. These trends and their impacts on the concerned organization are listed below; (Amundson, 2011)

Political Trends:

The political environment of the organization includes all the important legislations that are implemented by the government in relation to the financial matters. These legislations include new consumer watchdog, breakup authority, financial early warning system, tighter leash for financial firms, mortgage reform and fiscal and monetary policies of the government. (Amundson, 2011)

The company and its business are greatly affected by the fiscal and monetary policies of the government. Especially, the policies that govern the supply of money and credit in the United States of America have an influential impact on the organization and the industry in which it operates. This is because these policies determine the availability or non-availability of the bank loans in the economy and they also identify the rates of interest that are being paid and charged on the loans. (SMIF, 2007)

Wells Fargo operates in a very competitive banking and financial industry and the implementation of rules, laws and policies make this industry more competitive. In this industry various banks, security firms and insurance companies can merge together to form a 'financial holding company'. Such mergers can elevate the level of the competition to higher levels. (SMIF, 2007)

In addition to that, a number of regulations regarding the regulatory system of the financial institutions are being introduced in the congress. These regulations can the change the ways in which the organization operates in an unpredictable manner. If these legislations are implemented then they can increase or decrease the cost of doing business. They can also have an influential impact on the competitive balance that the organization maintains between the banks, savings associations, and other financial institutions that it holds. (SMIF, 2007)

The organization cannot predict that whether any of these legislations would be implemented or not. In addition to that, it is very difficult for the organization to analyze the potential impact that these legislation would have on it costs, earnings and operations, if they are being implemented. (SMIF, 2007)

Economic Trends

The current economy of the United States of America is in crucial conditions. The interest rates in the economy are at a low level but the rates of employment are very high and same is the case with foreclosures. During the financial crunch of 2007 and 2008, the organization stayed out of the subprime market and hence performed well than its competitors. In addition to that, the organization also paid back the bailout funds that were being provided by the government and still made sufficient earnings in the year 2010. (Amundson, 2011)

The banking and financial industry as well as the earnings and business operations of Wells Fargo & Co. are impacted by the economic conditions in an influential manner. These economic factors include, interest rates, both short-term and long-term, credit risk, liquidity risk, foreign exchange risk, risks of equity prices, commodity price risk, risk of inflation, risk related to the supply of money, fluctuations in the equity capital market, fluctuations in the debt market and the strength and the condition of the economy of the United States of America and the other local economies in which Wells Fargo & Co. conducts its various business operations. (SMIF, 2007)

For example, a downturn in the economy or an increase in the rate of unemployment or any other economic factors that might have a negative impact on the overall economy and on the economic conditions of the households would lead towards a reduction in demand of the loans and they can also reduce the demand for the non-loan products and services. In addition to that such economic factors can also lead towards an increase in the number of people who would fail to pay back the loans that they have previously acquired. The people may go bankrupt due to the negative economic conditions and hence they might not be able to pay back the principle amount that they have borrowed and the interest that is being charged on the principle amount by the financial institutions. (SMIF, 2007)

The economic environment can, therefore, have both negative and positive impacts on the income and other financial variables of the Wells Fargo organization. In addition to that, these conditions also have the potential to alter the ways in which Wells Fargo & Co. conducts its business operations. (SMIF, 2007)

Porter's Five Forces Model

The two forces out the Porter's five forces that have the most influential impacts on the organization are threats of new entrants and rivalry.

Threats of New Entrants

In the industry of finance and banking it is very important for the organizations to run their business on the basis of the existing customers and to make thriving relationships with the new customers as well. Out of the entire business of Wells Fargo about 80% is being operated on the basis of the existing customer line, therefore, it is important for Wells Fargo to have good relations with its customers. If the customers are not satisfied with their existing banks there is a large array of banks ready to replace them. Wells Fargo has been doing well against these new entrants by putting up tough barriers to entry, such as economies of scale, so that the new organizations may find it difficult to attract the organization's clientele. (SMIF, 2007)

Wells Fargo can manage these threats well by taking over small companies so that it may become a very dominant player in the market and can decrease the competition. In addition to that, the customer loyalty can also be gained through the provision of prompt and high quality services and for this purpose Wells Fargo & Co. shall aim for improving its distribution channels so the customers can be provided with high quality services. (SMIF, 2007)

Rivalry

Rivalry is also an important threat that prevails in the banking and finance industry. All of the banks keep a strong watch at what their competitors are doing so that they can perform better than the competitor. Wells Fargo & Co. is a strong player in this industry and it has used a number of innovative strategies to tackle this threat, such as issuing a diversified product line. (SMIF, 2007)

The organization can tackle this threat in a more effective manner by spreading their branches in remote areas to gain a new array of customers, which can result in a more stable and stronger position in the industry. (SMIF, 2007)

SWOT Analysis

Strengths

The most significant strength of the organization is that it leads the market in which it operates. The organization can exploit this strength by analyzing the trends of the market in an effective manner as it can have an edge in obtaining the information and then by planning it strategies according to the future trends of the market. (Amundson, 2011)

Weaknesses

The significant weakness of the organization is that it has limited international presence. In this era of globalization the organizations must operate globally to earn maximum profit. The organization shall extend its branches to the areas outside the United States of America so that it can emerge as a global entity. (Amundson, 2011)

Opportunities

The organization's most influential opportunity is that it expands its products and services frequently. The organization shall introduce a product or service line that caters the requirements of lower middle class so that it may extend its clientele further. (Amundson, 2011)

Threats

The major threat that the organization confronts is high rate of competition. The organization can address threat in effective manner by providing high quality services to its customer so that it can gain customer loyalty and its customers may not deviate to any other organization. (Amundson, 2011)

Conclusion

Wells Fargo & Co. has a strong share in the banking and financial industry. By using innovative techniques and effective strategies the organization can best exploit its opportunities and strengths and can effectively manage its weaknesses and threats. In addition to that, by employing its resources, capabilities and core competencies in an appropriate manner the organization can create extensive value for its stake holders.