Page 4: Strategies and stakeholders
For a strategy to be successful it needs to be:
- Feasible. Northern Rock needs to have the right resources, in particular the funds. We have already seen that the company has the resources to support growth.
- Acceptable for the stakeholders. Different stakeholders will have varying expectations, as shown in the table.
Northern Rock is the lowest cost producer in the banking industry in Europe. A key advantage over rivals is that its Head Office and key operational units are located in the north east of England where wages are, on average, lower than in the rest of the UK.
The cost of living is much lower in this area, so people are able to enjoy a high standard of living even though income may be lower. Northern Rock is then able to pass this advantage of low costs to its customers. It is one of the reasons customers are so loyal to the company. All of this leads to a virtuous cycle of benefits enjoyed by all the stakeholders.
Shareholders benefit in two ways from having shares in a company:
- In the form of dividends. For many people, these are an important source of income. For example, pensioners may invest a lump sum that they receive on retirement in shares. As Northern Rock is profitable, it has been able to pay out healthy dividends.
- When share prices rise. This is an example of a capital gain. Because Northern Rock is profitable and growing, the share price has risen.
Savers also benefit from the growth of Northern Rock. Because of its low cost base and high profits, it is able to pay savers a good rate of return. It is thus a competitive place to save money.
Employees benefit from the company's growth, as the success of the business makes their jobs secure. Growth provides more opportunities for promotion, coupled with good wage rates. Northern Rock employees are also able to enjoy and share in the success of the company through employee share schemes.
Customers - The Financial Services Authority is responsible for regulating the financial services industry. It is particularly concerned about making sure that customers' needs are looked after. For example, it is essential that customers are clear about the products and charges they are being offered. The FSA has set out that customers must be treated fairly and reasonably. This applies to all aspects of the relationship between firm and customer, including customer complaints. Northern Rock is committed to these principles and believes that 'customers must be fairly treated in all of our business' and undertakes customer research to establish this is happening.
Borrowers benefit from the efficiency of Northern Rock. For example, they are able to get a variety of low-cost, value-for-money mortgages. These are supported by a range of other services, such as good-quality household insurance and life assurance, if required. In addition, borrowers can take out loans for refurbishing and improving their property.