Financial Performance and Structure

Internal Environment Analysis

Strategic Plan Part 2: Internal Environmental Analysis

Strategic planning is informed by both the organization's external and internal environments. Internal factors are particularly important drivers of an organization's strategic direction. Among other internal factors, management and employee competencies, organizational culture and structure, product portfolio, and financial performance significantly influence the strategic decisions an organization makes (Hill & Jones, 2012). This text provides an internal environment analysis of WEX Inc., a payment processing and information management services firm with operations in the U.S. and beyond. The text particularly focuses on the most important strengths and weaknesses for the organization and its competitive position in the payment processing industry.

Important Strengths, Weaknesses, and Internal Environment Factors

WEX was established in 1983. More than three decades in operation means that the organization boasts fairly extensive operational experience in the payment processing industry, a major strength for the company. Over the years, the company has built its presence in the U.S. and other countries such as Canada, Brazil, UK, as well Australia and New Zealand. With attention to service quality and customer satisfaction, the company has attracted and retained an expansive customer base mainly in fleet, travel, and health industries as well as fuel retailing, media, and insurance industries. The company has excelled in corporate payment solutions, with simplicity, security, and affordability being the core strengths of its services. Other important strengths include competent leadership and personnel, valuable strategic partnerships, and strong financial performance. As of 2015, the company boasted revenues, net income, and assets in excess of $854 million, $110 million, and $3.8 billion, respectively (WEX Inc., 2015). With its impressive financial performance, WEX is one of the top firms in the Russell 2000 index. This adds to the strengths of the company.

Strategic management theory asserts that competitive advantage is created from valuable, rare, inimitable, and non-substitutable resources, capabilities, and competencies (Hill & Jones, 2012). For WEX, a relatively lengthy operational experience, fairly strong customer loyalty, simple and secure corporate payment processing services, multinational presence, and robust financial performance can be described as the organization's bundle of valuable and rare resources. These competencies are particularly important in the industry in which the organization operates. The payment processing industry essentially involves handling payment and purchasing transactions on behalf of clients. Therefore, the ability of a provider to offer convenient, secure, trustworthy, and customer-centered solutions is a vital source of competitive advantage in the marketplace, especially in terms of customer acquisition, customer retention, and financial performance at large.

In spite of its strengths, WEX has a number of weaknesses worthy of consideration. First, the organization primarily focuses on corporate clients mainly in the fleet, travel, and health industries. This is a significant disadvantage compared to most of its major competitors as they focus on not only corporate clients, but also individuals and institutions. They also facilitate payments for a broader range of clientele beyond fleet, travel, and health industries. Additionally, the organization is heavily dependent on the U.S. market. In 2015, for instance, only 19% of its revenues came from outside the U.S. (WEX Inc., 2015). This weakness is crucial as overreliance on the domestic market can be disastrous for an organization, particularly due to market saturation and maturation challenges (Hill & Jones, 2012).

Another important weakness for WEX relates to financial performance. Though revenues have grown consistently in the last three years, a closer look reveals weaknesses in the company's financial performance. For instance, net earnings declined substantially from $202 million in 2014 to $111 million in 2015 (WEX Inc., 2015). In the same period, assets declined from $4.1 billion to $3.8 billion. This could be a cause of concern for the company as it may hinder its ability to achieve its strategic goals and objectives in the near future.

Organizational Structure and Performance

Similar to most multinational organizations, WEX's organizational structure largely resembles the matrix structure. A matrix organizational structure is an organizational structure characterized by both functional and product divisions (Hill & Jones, 2012). Functionally, WEX has an executive team overseeing the various functions of the organization, mainly technology, shared services and information, corporate development, human resources, legal affairs, and finance (WEX Inc., 2015). Heads of the various functions report to the chief executive officer (CEO). At the same, WEX organizes its operations on the basis of products. The company's three product divisions include fleet solutions, travel and corporate solutions, and health and benefit solutions. Each product division has its own head. A matrix structure enhances resource utilization, task and process coordination across functions, as well as autonomy (Hill & Jones, 2012). This largely explains the impressive performance of the organization over the years. Nonetheless, the difficulty of establishing accountability is a major challenge associated with the matrix organizational structure.

Competitor Analysis and Competitive Position

WEX's weaknesses are further compounded by the threat of competition. Indeed, the payment processing industry is stiffly competitive. The market is dominated by Visa and MasterCard, which are the two top payment processors worldwide. More specifically, with more than 36 million merchants, a network of over 14,000 financial institutions and annual transaction volume exceeding $6 trillion, Visa is the largest payment processing firm in the world (King, 2015). Compared to Visa, WEX can actually be termed as a small fish. In addition to MasterCard, other dominant players include American Express and Discover Financial (DFS). These competitors enjoy significantly greater customer bases, transaction volumes, revenues, asset bases, networks, brand recognition, and global market presence compared to WEX. Further competition stems from Global Payments, Heartland Payment Systems, Citi Merchant Services, Flagship Merchant Services, as well as PayPal, Skrill, Payoneer, Stripe, Payline Data, Square, and BitPay.