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someTitle In 2017, Bendigo and Adelaide Bank (‘Bendigo’) was implementing the findings of a strategic review of its Community Bank® franchise operations, which had been operating since 1998. Bendigo now had more than 300 Community Bank® branches, representing more than 60 per cent of its total number of branches. These branches had contributed more than $165 million back into their communities. However, Bendigo was concerned that the model hadn’t changed since 1998 despite many changes in the banking industry and banking practice. Individual communities were not collaborating with each other and the bank felt the model was not delivering to its potential. Meanwhile, franchises were concerned about Bendigo’s centralised control, opaque systems, slow speed of response and lack of recognition of franchise capabilities. The review, Project Horizon, began in September 2013 and the report was delivered in February 2015, after being approved by the Bendigo Board and the Community Bank® Strategic Advisory Board (CBSAB). Significant changes had been made to the franchise operations, but there was much to do. Robert Musgrove, the bank’s Executive of Engagement Innovation, who was involved from the start and a direct report to CEO Mike Hirst, was enthusiastic at the model’s prospects for the future:2 The challenge—and the opportunity—for Bendigo and its community partners is to evolve the Community Bank® model to ensure its relevance to customers’ and communities’ changing requirements and also to the generational shifts occurring around us daily. CASE 4 Bendigo Bank: growing through community partnerships1 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2019— 9781488617348 — Hubbard/Strategic Management 6e Hubbard, G., Rice, J., & Galvin, P. (2018). Strategic management ebook. ProQuest Ebook Central
http://ebookcentral.proquest.comCreated from swin on 2020-10-05 21:38:21. C op yr ig ht © 2 01 8. P ea rs on E du ca tio n A us tr al ia . A ll rig ht s re se rv ed . C A S E S466 But interest rates were at all-time lows while the fixed costs of banking were rising. Competitors were now aware of Bendigo’s model and were improving their service levels and their focus on community. New banks were emerging from customer-service-focused credit unions. Banking was now being done online, not face to face in branches. There were concerns that the Australian property market was in a ‘bubble’. Would Bendigo’s Community Bank® model continue to be successful in the face of these challenges? Bendigo Bank’s history In 1858, the Bendigo Mutual Permanent Land and Building Society was formed in the gold- mining country town of Bendigo, Victoria, at the height of the gold rush. Its purpose was to collect local savings to be loaned to society members to help them buy and build housing. The organisation remained largely unchanged for more than 100 years. The beginnings of financial deregulation began in Australia in the early 1980s. This led Bendigo to acquire a variety of local and other Victorian financial institutions in the 1980s and 1990s. The Australian property market crash in 1990 and the crash of Victoria’s largest building society—Pyramid Building Society—in 1992 forced building societies, which were not guaranteed by the Reserve Bank, to become banks and come under more stringent banking legislation. In 1993 the Bendigo Mutual Permanent Land and Building Society listed on the Australian Stock Exchange and in 1995 it changed its name to Bendigo Bank. By 1997, the major banks began withdrawing branch banking from small country towns. In 1998, Bendigo launched a Community Bank® proposition for these small towns, particularly those that were left without any banking facilities. In 2000, Bendigo took advantage of the merger wave in the industry to acquire First Australian Building Society, a Queensland building society with 47 branches—its first significant interstate expansion. Further joint ventures with Elders Rural Bank, Tasmanian Perpetual Trustees and Community 21 (a collaborative of not-for-profit organisations working collectively) in that year provided it with a skeleton national framework, a huge achievement for a country-based building society! By 2003, it had 240 branches nationally (including approximately 50 in Queensland and more than 60 in the other states combined) and 100 Community Bank® branches. Further expansion continued into the twenty-first century. By 2017, Bendigo had a wide range of brands and major products, achieved through both acquisition and innovation. These included: • Bendigo Bank and Bendigo Community Bank® branches—600 service outlets, including 187 company branches and 314 Community Bank® branches • Adelaide Bank (merged in 2007)—provider of third-party wholesale mortgages and wealth deposits • Rural Bank (originally a joint venture with Elders, acquired in 1999)—the only Australian- owned dedicated agribusiness bank in Australia • Rural Finance—a specialist rural lender in Victoria • Leveraged (acquired in 2009)—a margin lending wealth financier • Delphi Bank (acquired in 2011 and previously known as Bank of Cyprus Australia) – servicing Australia’s Hellenic community • Sandhurst Trustees—providing wealth products and services, including superannuation • Alliance Bank—a partnership with four credit unions to provide their backend service Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2019— 9781488617348 — Hubbard/Strategic Management 6e Hubbard, G., Rice, J., & Galvin, P. (2018). Strategic management ebook. ProQuest Ebook Central
http://ebookcentral.proquest.comCreated from swin on 2020-10-05 21:38:21. C op yr ig ht © 2 01 8. P ea rs on E du ca tio n A us tr al ia . A ll rig ht s re se rv ed . 467C A S E 4 Bendigo Bank: growing through community partnerships • Community Sector Banking—a partnership with Century 21, providing specialist banking for not-for-profit organisations • Community Enterprise Foundation™—providing an efficient method, with good governance, for community franchises to contribute to projects within their communities • Homesafe Solutions—providing an equity-release option for senior Australians looking to access equity in their home. Bendigo was one of only a few banks in the world whose credit rating was upgraded through the post-GFC period and Bendigo Bank and Rural Bank were the only Australian banks not to utilise the Federal Government guarantee to borrow from the wholesale market. By 2017, Bendigo had risen to be the fifth-largest retail bank in Australia, behind the Big Four (Commonwealth, ANZ, NAB and Westpac). Around 70 per cent of its business came through partnership arrangements with other organisations. Its vision was to be Australia’s most customer-connected bank. Its strategy was to focus on the success of its customers, people, partners and communities. Philosophically, many within the bank believed that a successful regional bank could only be achieved by first focusing on the success of its customers and the communities within which they lived. Bendigo saw the creation of mutually beneficial partnerships as being core to its strategy. It sought partners who were connected to and trusted by customers. It was willing to share responsibilities and rewards and was comfortable not being in total control. It sought equal commitment from its partners to creating long-term sustainable prosperity for communities and customers, not just focusing on the current ‘deal’. Through its experience of creating Community Bank® branches and working with other partners, it felt it had a very large experience and advantage in creating and nurturing business partnerships. Table 1 shows the recent financial performance of Bendigo. However, despite being a listed company, Bendigo did not see financial performance as its key performance indicator. Instead, it Year ended June 2012 2013 2014 2015 2016 Net interest income ($m) 950 1 027 1 118 1 177 1 167 Profit after tax ($m) 195 352 372 423 415 Total assets ($m) 57 237 60 272 65 062 66 028 68 580 Total equity ($m) 4 217 4 434 4 966 4 941 5 116 EPS (cents) 48.6 84.9 87.7 92.5 90.4 DPS (cents) 60 61 64 66 68 Share price year end ($) 7.41 10.07 12.20 12.26 9.60 Cost/income (%) 59.1 57.0 55.6 55.1 56.0 ROE (after tax) (%) 4.8 8.5 6.6 8.8 8.5 Tier 1 capital (%) 8.4 9.3 10.0 10.6 10.4 Sources: Annual Reports 2012–2016. TABLE 1 Financial performance of Bendigo Bank 2012–2016 Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2019— 9781488617348 — Hubbard/Strategic Management 6e Hubbard, G., Rice, J., & Galvin, P. (2018). Strategic management ebook. ProQuest Ebook Central
http://ebookcentral.proquest.comCreated from swin on 2020-10-05 21:38:21. C op yr ig ht © 2 01 8. P ea rs on E du ca tio n A us tr al ia . A ll rig ht s re se rv ed . C A S E S468 saw the need to strike an appropriate balance of outcomes for all stakeholder groups. Table 2 shows some non-financial indicators of performance. Year ended June 2012 2013 2014 2015 2016 Total customers (million) 1.383 1.363 1.381 1.555 1.565 Community Bank® customers (million) 0.598 0.619 0.642 0.668 0.693 Total staff (incl. Community Bank® staff) 5 481 5 711 7 039 7 206 7 379 Community Bank® staff 1 292 1 460 1 532 1 527 1 520 Community Bank® directors 1 905 1 916 1 911 1 946 1 941 Community Bank® shareholders 71 000 72 000 73 000 74 000 75 000 Employee engagement score (%) 54 53 51 Turnover (%) 12.0 12.4 12.8 13.2 Women in senior management roles (%) 27.0 23.2 28.0 28.5 Working flexibly (%) 4.1 4.6 6.5 9.2 Sources: Bendigo Bank internal document supplied to author for purposes of case. TABLE 2 Non-financial performance of Bendigo Bank 2012–2016 Bendigo also had the following results to support its highly valued customer proposition: • No. 1 in Forrester’s Australian Customer Experience index • Best rated Australian financial institution on the Corporate Reputation index for 2015 and 2016 (AMR Research) • No. 1 in bank customer satisfaction (Roy Morgan: 88% compared with 78–81% for the majors) • No. 2 in credit-card satisfaction (JD Power) • Most likely bank to be recommended (Roy Morgan: 69% compared with 50–55% for the Big Four). In addition, Bendigo