I.
Overview of Company Darby
Ally Bank is a subset of Ally Financial, a bank holding company. Ally Financial began
as General Motors Acceptance Corporation (GMAC); an auto financing and auto
insurance business in the 1920’s that has evolved over the years. They now offer auto
and corporate financing, insurance, mortgage services, and online banking. After the
economic crisis that occurred in 2008 and the following years, Ally (formerly GMAC)
rebranded as Ally Financial, and subsequently Ally Bank, with the mission to “be
obviously better”. Ally Bank offers the entirety of their banking services online. They
don’t have any physical branches for their customers to conduct business at, and that’s
what they believe makes them better. This allows them to keep their competitive rates
low and offer around the clock customer support. In 2012, Ally Bank reached a
milestone 1 million customer accounts, and they are continually growing.
2. Stakeholders Jesse
As of 9/23/15, Ally bank has 504 institutional shareholders and 19 insider shareholders,
the management and organizational shareholders that make up only .17% of shares
outstanding. From a Capital Market Standpoint, Ally bank’s largest shareholder is
Stephen A. Feinberg, hedge fund manager, followed by Blackrock and Vanguard Group
Inc. A majority of ownership is domestic with 91.63% ownership in the United States,
which is understandable because its banking and financial service activities are
ethnocentric for the most part. One past, notable shareholder used to be the US treasury,
however it sold off its final shares in Ally Bank in December 2014, following the
financial crisis and its failed stress test in 2012. In total, Ally is owned 51.87% by
Investment Advisors and 44.31% by hedge funds.
Product Stakeholders includes the Auto owners whom Ally bank offers its loan services
to, even extending to the Automotive manufacturers since Ally used to be GMAC. Their
Corporate Finance function aids in transactions to the business stakeholders in the
following target markets: Automotive, Business Services, Consumer Products,
Distribution, Healthcare, Industrials, Manufacturing, and Retail. Finally, Ally’s arguably
most important group of product stakeholders includes their retail banking customers that
receive all of Ally bank’s checking, saving, and other financial services online.
3. Analysis of External Environment Corinne
GENERAL ENVIRONMENT
Demographic changes in the external environment include an increase in personal income
levels of Americans, a rise in aggregate household debt, and the transition of a
technology-reliant generation into adulthood. These are factors that Ally Bank should be
aware of when creating corporate business strategies. For example, US personal income
has been on the rise (a change from previously) for the last couple of years. This typically
indicates an increase in consumer savings and investment. Also, aggregate household
debt is slowly rising which increases interest revenue for banks. As the younger
generations enter the job market and begin to make money, banks will be forced to adapt
to this demographic’s affinity for technology as well.
Another significant external environment factor for Ally Bank is the health of the
economy. Demand for banking services is closely tied to economic activity, especially
interest rates. When interest rates are low, banks like Ally are faced with increased
industry costs. When interest rates are high, there is a lower demand for services like
loans. Much of Ally Bank’s revenue comes from the “spread” between the rate at which
they can lend money and the rate they must pay to acquire money. Currently, the banking
industry is continuing to recover from the late 2000s financial crisis.
Following the global recession in 2008, there has been increase in government regulation
of the banking industry. Such regulations have increased cost of doing business and
therefore may slow growth/recovery for banks like Ally. The Dodd-Frank Wall Street
Reform & Consumer Protection Act (2010) and Basel Committee on Banking
Supervision (2013) expanded government power and influence within the industry.
Higher capital requirements have been instituted in order insure the security of banks in
the event of a downturn, which has influenced banks ability to issue loans. The
government has also encouraged separation of commercial and investment banking
functions. cap on interchange fees.
The political sphere also shapes Ally Bank’s strategy and success. Following the global
recession in 2008, there has been an increase in government regulation of the American
banking industry. While such regulations add a layer of economic security, they have
increased the cost of doing business for banks and, therefore, may slow growth and
recovery for companies like Ally. The Dodd-Frank Wall Street Reform & Consumer
Protection Act (2010) and Basel Committee on Banking Supervision (2013) expanded
government power and influence within the industry. Higher capital requirements have
also been instituted in order to ensure the security of banks in the event of another
economic downturn. However, this has influenced banks’ ability to issue loans. In
addition, the government has encouraged separation of commercial and investment
banking functions.
Changes in the technology environment are especially influential to Ally’s business. New
technology is allowing for increased automation in banking. For example, market leaders
are trading in their older ATM models for new ATMs with added mechanisms for
customer ease-of-use. Mobile banking is becoming more mainstream as consumers
become more and more dependent on their devices. However, this reliance on technology
brings an issue of hacking and information security into play. It is important for Ally to
maintain a sense of trustworthiness with their customers in spite of this.
FIVE FORCES
Industry rivalry is high in the banking industry. There are many competitors in the online
banking industry in which Ally bank operates. Competitors include: ING Direct, Charles
Schwab, Sallie Mae, and FNBO Direct. These competitors are constantly offering new
deals and specials on their services in order woo customers away from other banks. For
example, ING Direct is currently offering a $75 referral bonus for new customers. The
high degree of advertising in the banking industry also promotes such a strong rivalry.
Furthermore, customers face low switching costs when considering their banking options.
This means customers can switch relatively easily and cheaply from one banking
company to another. Low switching costs intensify the industry rivalry, because banks
like Ally are uncertain of the longevity of each customer’s accounts.
Barriers to entry in the commercial banking industry are of a medium to low severity and
not expected to change drastically soon. This means that Ally Bank’s threat of new
entrants is not of critical concern. One of the largest barriers for new entrants is gaining
approval from and complying with government institutions. Federal regulations and a
comprehensive government approval process prevent new banking companies from
entering the market quickly or easily. It takes a new bank a significant amount of time
and money to gain a charter from the United States government. Commercial banks
hoping to operate in the U.S. must first receive approval from the Board of Governors of
the Federal Reserve System. Following this, new entrants must pass regular inspections
to ensure they are upholding all government requirements. The Dodd-Frank Act (2010)
alone established 400 new regulations for banks to comply with. In addition to
complying with such strict entrance and compliance requirements, new entrants must
obtain huge amounts of capital to begin operations. The saturation of the market by
existing banking firms is another barrier to entry. Existing companies can leverage their
strong customer base and well-established operations to compete and push out new
entrants. The 50 largest U.S. commercial banks currently hold 75% of the industry
revenue. This leaves little to be made by smaller, new banks looking to enter the market.
Brick-and-mortar banks that already have a charter and capital still struggle to enter
Ally’s online banking industry due to other factors. Interest rates for savings and
checking accounts for these brick-and-mortar banks are usually lower than for online
banks. In general, it is also expensive to be successful concurrently in the brick-andmortar and online banking realm.
There is a high threat of substitute services for Ally Bank. Brick-and-mortar banks are a
common substitute for online banking companies like Ally. These brick-and-mortar banks
are able to offer similar banking services in addition to building strong, personal
relationships with customers. Customers may value this face-to-face relationship over the
ease-of-use of Ally’s banking operations. Brick-and-mortar banks also offer more peaceof-mind for customers worried about online security breaches. Another common
substitute is non-financial competitors such as investors, NBFCs, and small co-op banks.
Such institutions offer alternative borrowing and savings avenues rather than the
traditional bank account. Customers may also choose to purchase big ticket items like
electronics, cars, or jewelry instead of putting money in a bank.
Because Ally Bank’s major supplier is the United States government, there is a high
degree of bargaining power of suppliers. Specifically these suppliers include the FDIC,
Federal Reserve, and the Office of the Comptroller of Currency. These agencies have the
power to distribute and take away national bank charters as well as impose mandatory
business regulations. There is no replacement supplier for this so Ally is forced to
maintain a healthy relationship with them. Along with the government, Ally relies on IT
firms that supply its banking software and hardware. These technology suppliers are
critical to the company’s success. Any defect or breach of security in Ally’s banking
software would result in a massive loss of customer trust and ultimately business.
Lastly, bargaining power of buyers is relatively high for Ally Bank. Customers of the
company incur little to no costs when switching from Ally to another online bank. This
means Ally must meet customer demands completely in order to keep their business.
Furthermore, customers are able to open multiple accounts with multiple online banks.
This increases their knowledge and awareness of industry trends so that they can hold
Ally accountable to any service discrepancies. Buyers who deposit large sums of money
into an Ally Bank account are especially powerful. These high-profile customers have
significant bargaining power of the terms and conditions of their deposits because Ally
does not want to lose their business to a competitor.
C) Competitor Environment
-large economies of scale has encouraged industry consolidation (market share of largest
U.S. banks rose from 41% in 1992 to 75% in 2014)
-big banks are more dominant (smaller banks/credit unions are only successful where
local knowledge is beneficial)
-in each industry segment the 50 largest firms generate nearly 75% of revenues
4. Analysis of internal environment/organization (resources, capabilities, core
competencies) Elizabeth
The internal environment of an organization includes resources, capabilities, and core
competencies. When combined or employed effectively, these factors of the internal
environment can put firms in strong competitive positions. In the case of Ally Bank, the
firm possesses various value-adding tangible and intangible resources that make the bank
competitive in its industry. An intangible resource that Ally has is the Bank’s reputation
of excellent customer service. As stated on its website, the Bank promises to “Be an ally
to our customers.” Although Ally takes an entirely online approach to banking, they
strive to create meaningful relationships with their customers, as well as provide their
customers with personalized products and services. The above-average customer service
is enhanced by a 24/7 call center, which offers customers the opportunity to speak with a
real person at any hour of the day. Ally Bank’s reputation of putting their customers at
the heart of everything they do is evident to consumers, as well. In two quarters during
2015, Ally received the Forrester Award of Best in Class for Overall Customer
Experience. This is an outstanding recognition, as it is based on the opinions of 45,320
respondents in the US.
Ally realizes that customer satisfaction alone is not enough to generate and sustain
business; great customer experiences must be matched with great products. Therefore, in
addition to their reputational resource of high customer service at a low cost, Ally Bank
has strong technological and web design capabilities. These technological capabilities
allow the organization to create and maintain an intuitive and easy-to-use website for
online banking. As a direct bank, one of Ally’s top priorities is to ensure that their
website is the most convenient for customers to use and best serves customers’ needs. To
do this, Ally researches and examines numerous sources that reflect the preferences of
customers. The Bank is then able to tailor its online services exactly to consumer
opinions. Ally’s technological capabilities strive to offer an online experience that their
competitors do not. Customers of Ally Bank can use a computer or mobile device to
instantly check account balances, deposit and withdraw money, pay bills, or receive
account alerts 24 hours a day.
Ally Bank is also able to obtain a competitive advantage through capabilities that lead to
a core competency in cost savings for customers. The core competency in cost savings
clearly distinguishes Ally from its competitors. Ally returns savings to customers by
granting no minimum account balance, unlimited check writing, no monthly maintenance
fees, and no fees associated with any ATM. The Bank is able to pay higher interest rates
on interest bearing accounts, as well. The Bank is in the position to offer these cost
savings because of the absence of expenses traditionally connected with brick-and-mortar
locations. Therefore, these cost savings are relatively rare and would be expensive for
traditional banks to imitate. Ally largely utilizes its core competency in cost savings, and
consumers recognize and appreciate that Ally can give them the most bang for their buck.
5. Analysis of business level strategy and structure: Sophie
Ally Bank’s business level strategy has allowed them to exploit their core competencies
and gain a competitive advantage within the market. Ally Bank employs an integrated
cost leadership differentiated strategy. Ally provides low cost products through the low
interest rates they offer, but their products are tailored to the customers’ needs. Ally is
able to offer such low costs because they are entirely online, cutting the costs of operating
and running brick-and-mortar stores. The customers play an integral role in Ally’s
operations. They serve as suppliers of money but also as buyers of different products.
Ally offers checking and savings accounts, as well as IRAs, so customers are able to
choose different banking options for what best suits their individual needs. Ally’s use of
an integrated cost leadership differentiated strategy allows them to offer a variety of low
cost options that allow their customers to custom fit Ally to their banking needs.
The biggest threat in using an integrated cost leadership differentiated strategy is that a
company becomes stuck in the middle, not offering substantial value in either cost or
differentiated value. Ally has partially fallen victim to this. Their low cost products are
still a strength, however many other banks operate online and offer the same products.
Additionally, many large banks, like Bank of America and Wells Fargo, now offer
comprehensive online banking options, in addition to in-person services. These
platforms could threaten Ally’s position as a convenient online banking service. While
Ally still has an advantage in its low cost options, its competition is threatening its
differentiated position.
6. Analysis of corporate level strategy and structure Casey
The two key issues corporate level strategies deal with are which businesses do they
compete in, and how should headquarters manage the business? Ally Bank competes in
the banking industry. Although it originally stemmed from GMAC, the main provider or
auto financing to General Motors, Ally Bank expanded to insurance, direct banking,
mortgage, and commercial finance. GMAC headquarters eventually changed its name to
Ally Bank to distance itself from the automobile company, due to the approaching
bankruptcy of General Motors.
After the re-branding phase to Ally Bank, the bank developed a new philosophy. “Our
customers are at the heart of everything we do, including the three principles our
company is built on: We talk straight. We do right by our customers. We strive to be
obviously better.” The bank had to build a mission to accomplish the new goals set forth
by corporate.
Ally Bank offers three main financial products: checking, savings and CD’s, and IRA’s.
The bank relies on a small number of products to generate revenues and profits. In
relation to checking accounts, Ally Bank includes unlimited check writing, no monthly
maintenance fees, no ATM fees, and free balance alerts in order to provide cost savings to
their customers. Satisfaction, loyalty, and customer trust are transparent when the bank
provides these services. The bank offers competitive rates for its CD’s, no penalty CD’s,
and “raise your rate” CD’s. The bank also offers competitive rates for savings, and offers
options to individuals who cannot let their savings account accrue until the maturity date.
Regarding IRA’s, the bank provides its customers with the ability to raise their rates for
certain CD’s, daily interest compounding, and the option to choose the highest rate within
ten days of the CD renewal date.
With over 6,000 commercial banks in the United States, Ally Bank certainly feels the
pressure to outperform its competition. Ally’s corporate leaders are concerned with its
major rivals and how to compete with them. ING Direct, USAA, and Charles Schwab
bank are just a few of its many competitors. The strategic leaders of Ally Bank wonder
what strategies ING Direct might take to maintain its positive image with customer, while
also wondering how to compete with a Fortune 500 name such as USAA.
When determining Ally Bank’s placement in the Boston Consulting Group Matrix
(BCG), one must compare market share to business growth. Ally Bank has a much
smaller market share than its competition considering its $16 million loan from the
federal government that has yet to be paid back. Its competitors have all paid back their
bailout loans. In contrast, Ally Bank is in a rapidly expanding industry. Online banking is
experiencing explosive popularity and growth. In 2011, 62% of customers preferred
online banking rather than banking at a branch office. This small market share and
rapidly expanding industry would classify Ally Bank as a Question Mark in the Boston
Consulting Matrix. Investors hopefully will invest more money hoping to gain greater
market share to eventually become a Star.
Ally Bank operates under a related constrained diversification strategy. 65.7% of Ally
Financial Inc.’s revenues come from the dominant business, their global automotive
services. Their three product lines include checking, savings, and IRA’s which are all
products sharing technological and distribution linkages. All three are offered through the
Internet, and each product is committed to provide its customers with the highest level of
customer service with the lowest cost possible. Value is created with moderate to high
levels of diversification. One of Ally Bank’s core competencies is their design of
financial products to add value to customer investments. Ally shares its cost savings focus
with its customers, describing the bank’s economies of scope. The executives and key
managers at Ally Bank have over 183 years of banking experience and expertise, adding
considerable value to the corporate structure.
7. Analysis of international level strategy and structure: Carina and Fiona (as a domestic
company, may have to talk to me and do something else, like bullet point #9)
8. If applicable (it is), acquisitions, restructuring, cooperative Andy
Dating back to the late 1990’s, Ally bought The Bank of New York’s lending unit; which
created the Corporate Finance Division.
Some restructuring in the modern day, post-bailout period, includes the filing of Chapter
11 bankruptcy on some of its assets, including the mortgage assets, which was primarily
believed to pull the company back. In addition to the liquidation of their assets, Ally has
been active in some of its international ventures – recently, in 2013, agreeing to the
acquisition of their Canadian line “Ally Canada,” to the Royal Bank of Canada. After
accounting for closing adjustments, and excessive capital, the total paid was near $3.7
billion. Earlier in this year, a completed transaction with GMAC UK, agreed to acquire
Ally’s 40% equity interest. Also during this year, a successful completion of the of the
joint venture in China:
“The close of the joint venture in China completes our acquisition of Ally’s international
operations that began in November 2012. This is an important step in our evolution as
GM’s global captive finance company and in supporting its growth strategy. China is a
significant market for GM and we want to ensure the availability of competitive
financing for its customers and dealers,” said President and CEO Dan Berce.
9. Recommendations (Business level, corporate level, international) Together
for international corporate strategy:
Progressing internationally can be a struggle for many banking entities. Many companies
have chosen to work together in providing coverage abroad as opposed to expanding
directly overseas. Some such as Deutsche Bank limit their US offerings in order to limit
their international exposure and risk. Banks face large obstacles with overseas expansion
such as legal issues, brand recognition, and banking culture. For Ally Bank to improve its
standanding abroad it has 2 major options.
First, Ally Bank can engage in a cross-border alliance with companies in other countries
such as; Canada, Australia, and China. Historically, Ally Bank has participated in a
successful joint venture in China. Further ventures like this will increase bank name
recognition and give Ally Bank greater regional knowledge. Ally Bank should also work
with banks in culturally related banks. This means that the banking culture in these
countries is friendly to online banking and is related to already developed core
competencies. Canada and Australia tend to be closely related in banking culture thus
making them friendly to US banks such as Ally Bank. Ally Bank should participate in
cross-border alliances with online banks in these countries to gain more international
experience. Cross-border alliances are also another way for banks to improve coverage
internationally thus making them more friendly to customers. This way they have a bank
ally in these regions they can rely on.
Ally Bank should ultimately aim for a multidomestic strategy by entering a foreign
country through the development of an international subsidiary. The subsidiary would
offer a limited menu of options and would be tailored to the country. It would also remain
to a certain extent legally separate from its parent company, Ally, allowing to to expand
and adapt to the local environment. The location of this subsidiary would come down to
the mix of legal issues, banking culture and corporate knowledge. Some countries are
hostile towards online banking and rely on cash (example: Germany), and others have
direct competition from government supported banks (example: China). However a
country like Canada is more friendly to online banking and thus better for long term
growth. A subsidiary that is more for long term growth and value creation would be well
situated in Canada. First it has a similar percentage of internet users and demographic
make up. Also there are many similarities when it comes to the law codes. Struggles
could be there importance of developing a french website for Quebec, and higher tax
burdens. However, Ally Bank would find it in there best interest to follow the trend in
moving to Canada as it is a simple proving ground to American corporations looking to
expand internationally. By engaging in a multidomestic strategy through the
