Derivatives transactions; risk assessment tools and financial information management systems were some of the areas of growth that State Street Bank could pursue because they could add value in these segments by providing IT and Service capabilities. Moreover, opportunities exist beyond its current client base and one the processes are integrated, it will enable high cross-selling of services between functional divisions. Competition/Threats to Diversification The company faces threats from both internal and external competition.
Outside threat came from competitors such as Chase Manhattan, Mellon Bank, Banker Trust and JP Morgan, who were working hard to differentiate their services in the marketplace. Price competition was intense and some of these banks made the custody services free. Further, rising cost of providing services, the slowing rate of growth of institutional assets and the complex pricing structure, caused erosion in custodial fees by almost 50%. As noted above, the divisions were caught up with internal strife’s due to organizational misalignment.
The decentralized operations led to new initiatives being stifled delaying the launch of new products. Further, it makes the process of integration (IT and operating procedures) much more difficult. Recommendations: State Street Bank, thus has some capabilities that it can utilize to create a competitive market position in the financial information services market. These include IT infrastructure, highly skilled labor, and good relationship building capabilities. Risk Management is another excellent opportunity for growth.
Since the risk assessment needs varied widely, and the number of different types of financial instruments were aplenty, the company should in the short run, focus on developing customized products for its clientele. This would ensure that the new products are relatively simpler to develop. These combined would mean a faster time-to-market product, ensuring the clients continued loyalty. Diversification based on just integrating technology is not sustainable because the technology platform might itself change in the future.
Hence in the long run, a more generic solution should be developed, which would however require that they first invest sufficient resources to build an integrated organization with standardized practices. It should exploit the economies of scope by sharing these resources across divisions. It should also invest on training employees on the financial processes/instruments like derivatives. Another way they could diversify by buying these capabilities; ie acquiring a financial services company and integrating their IT systems with them.