DATE: May 20, 2007
SUBJECT: Strategic management for Charles Schwab Company
Charles Schwab & Company, Inc deals with brokerage business. The company started the business in 11975 when the Securities and Exchange Commission abolished mandatory fixed commission on stock trades. The company experienced tremendous growth in the next 25 years. This growth was fueled by customer centric focus, and investment in information technology. The company also engaged in products innovation that led to its growth. In 1996, the company engaged in online trading that contributed so much to its growth. This was a strategy that attracted customers who invested in the Company. By the year 200, the company had experience growth and revenues had risen to $7.1 billion. Online trading had grown and was recorded to be 84 percent of all stock trades. However, in the year 2000, the business was faced with challenges. The United States Economy was not doing quite well. Share prices had gone done. Technology was losing and most shares in Schwab Company were trading online. The revenues fell and also net income reduced at an alarming rate. For instance, the net income had fallen to $472 million from $803 million in 2000. The price of shares had decreased from $51.70 in 1999 o $ 6.30 in early 2003. All these changes require strategies that would help the company grow and make profits.
Decision to be made
The first decision that Schwab can make is to adjust the costs. Adjusting costs would make the company revitalize growth as well as give quality services to customers. This would be done by merging company’s electronic services into Schwab.com. This would help coordinate online and offline business. This is one way of cutting down the cost. The role of branches would change and will focus on customer support. When customers receive effective support, they will remain loyal to the business even when the economy is not stable. They will be advised on their financial investments and when to make sales of their shares. They will also be guided on the shares to invest in so that their money will yield profits. When costs are adjusted, the company can be in a capacity to manage finances effectively, and eliminate unwanted expenses. This is a sensitive strategy but it can work. This includes reducing the number of employees. I suggest that the company reduce the number of employees. Since the business is shaky and revenues are decreasing, it is important to cut down costs by reducing the number of workers. This decision will help the company have extra finances that can be used for investment.
Adjusting cost will leave the company with finances that can be invested in other business. The aim of investing is to ensure growth of investors’ money. This will help the business stand amidst of challenges in the economy. Investing in services that are offered by huge companies such as U.S trust can help maintain growth. Schwab should invest in this trust because it has good returns. U.S Trust offers services that include personal trusts, estate planning, tax services and private banking. These services are not offered by Schwab. Assessing the environment and knowing the services competitor offer can help the company implement strategies that can lead to growth. Schwab should invest in such services that will foster growth and trust of the customers. in doing this, the company should employ financial experts who are able to provide extensive advise to customers targeted for a new service to be launched. These consultants should not tell the customers what to buy and sell. The decision is left to the client. Customers will be having financial plans and consultations regarding the industry and market conditions. Schwab will also have a new stock rating system. This will help analyze stock and assign grades. This will ensure objectivity and know the type of services to be recommended to customers. Product differentiation is an important factor in ensuring growth. It helps the company have a competitive advantage. The customers will have quality products and variety of options to choose their products. This is an effective decision in ensuring the company does not lose its customers. Schwab will need to diversify its products. This will include personal trusts and estate planning among others. When customers know that all services can offered in the same company without going to invest in other companies, they will be loyal and ensure that they invest in the company and in variety of services.
Implementing these decisions will require effective leadership. Schwab and another leader will take the action of working on the decision. With effective leadership, it is easy to cause changes in the company. This will influence the stakeholders and convince them that the decision taken will be beneficial. Schwab will ensure that electronic services are working effectively in the implementation of these decisions. Strong leadership will help make changes effective. This is because the leaders will help solve problems as well as deal with technical problems that may take place in these changes.
A company will ensure growth if it implements different strategies. Such strategies include adjusting cost and differentiation. Once Schwab invest in such strategies, it will be assured of growth. This ensures competitive advantage. In this strategy, there is average cost, low cost, best cost and differentiation. There is also unit margin and unit cost. When the cost is adjusted, the unit margin will change. For instance, when Schwab reduces costs, it will invest in other services that were not offered before. There will be additional units of the products.
Adjusting costs will help the company invest in product differentiation. Adding others unique services in Schwab is a strategy of product differentiation.
Strategic management also involves analyzing the company’s mission, external and internal forces in order to come up with an effective strategy. The external forces will include having well trained work force that has experience in brokerage business. The staff will offer financial advice to customers. By doing so, the company will earn customer loyalty and attract more customers. The other internal factor includes financial strength of the company. When the company has finances, it will invest in strategic decisions that will enhance growth of the company. External factors include competitors. Schwab have competitor dealing with brokerage business. U.S Trust is one of the companies. Understanding competitors will help the company make strategic decisions that adds to the company’s strategic. The diagram below shows antecedents of strategy.