Compliance and Choice Paradox

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Organisations face a variety of contradictory and competing approaches when deciding whether to comply with “industry norms”. With reference to empirical example, you are required to critically examine the strategic decisions to achieve (or not) industry leadership.

INTRODUCTION

Organisations face a variety of contradictory and competing approaches when deciding whether to comply with “industry norms”. De Wit and Meyer (2004)[i] refer to these scenarios as the “Paradox of Compliance and choice”. De Wit and Meyer (page 429, 2004) further state that where firms cannot influence the structure of their industry, compliance to the rules of the game is the strategic imperative. In such cases, the strategic demand is for managers to adapt the firm to the industry context. Where firms do have the ability to manipulate the industry structure, they should exercise their freedom of choice to break the industry rules. In such circumstances, the strategic demand is for managers to try to change the terms of competition in their own favour.

This paper presents two organisations, Mercury Bank and Everfresh Dairies that had to make key strategic decisions regarding either compliance or choice in an attempt to grow and attain industry leadership. Their respective industry, strategic frameworks for decision making and their actual results against their strategic intent have been analysed in light of their growth and industry leadership objectives.

MERCURY BANK

Mercury Bank is a commercial bank in Uganda. Uganda’s banking industry consists of 15 commercial banks, 7 credit institutions, and about 200 microfinance institutions. In 2004, Mercury had a total assets market share of 3% (see Appendix I). Commercial banks dominate the financial system, representing about 83% of the financial system. The commercial banks also account for 70% of the total assets.[ii]

Five factors based on Michael Porter’s five forces model of competition (Michael Porter 1979)[iii] are key factors that influence the banking industry’s performance. They are; Competitive rivalry, Power of suppliers, Power of customers, Threats of substitutes, and Threat of new entrants. These factors are analysed below:

Competitive rivalry in the banking industry is high because of the following identified factors (cited in Thompson et al, 2007, pages 56-60)[iv]:

There is little differentiation between the products sold to customers and competitors banks are approximately the same size of each other. There are 15 commercial banks in Uganda largely offering the same products and services. These products and services include the traditional current, savings and fixed deposit accounts, loans and overdrafts to customers. In an effort to gain competitive advantage and grow in the industry, banks have taken to product and service differentiation, network expansion, aggressive marketing, building product/service loyalty through branding and improving customer service in an effort to attract and retain customers.

Powerful suppliers are mostly international suppliers that provide copyright software for ATMs and banking solutions. Although software has substitutes, the switching cost of moving from one supplier to another is too high making the current software providers very powerful.

Bank customers exert significant influence and control over the banking industry because of the following identified factors (cited in Thompson et al, 2007, pages 69-71):

There is little differentiation over products and substitutes can be found easily. There are a number of substitute products in the industry that offer essentially the same features. These substitutes increase the power of customers in the industry.

Customers are sensitive to price. Customers are increasingly becoming informed about products and services being offered by banks. This includes information relating to: interest rates on time deposits, ruling foreign exchange rates, tariffs charged and benefits...
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