Thursday, July 12, 2012


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Various Absa strategies are in the process of being deployed in order to restore the balance of power the home loan industry. This initiative is aimed at the development of a strategy to restore and safeguard Absa Home Loans through competitive sourcing and delivery strategies

The vision To be a customer focused provider of residential related ownership. Solutions by having available highly specialised and unique product related skills.


The Purpose To offer innovative residential property solutions on a profitable basis to target market segments.

The Strategic Goal To maintain the desired market share. The target has been set at ,8%.


The 5 forces model is used to provide insight in the home loan industry operate.


Home Loans operate in a competitive environment where the main focus for the client is on the cost advantages offered by the Financial Service Product. The Absa brand is well established in the market, competing with other brand names resulting in no brand loyalty from clients to these brands

Economies of scale has proven that should a Financial Service Institution (bank) offer more than one product, the client will most probably use other products from the same Financial Institution providing the home loan, thus making this a targeted product.

The risk of global players entering the home loan market exist in terms of investment for developments and/or financing housing projects as this is not governed.


Suppliers are out-numbered by the buyers giving them better bargaining power. This is further supported by the government request and possible enforcement on Financial Service Institutions to finance the previously disadvantaged communities.


Home loans are a very generic product and therefore cannot be substituted by another product. The only alternative to this product will be to include it into a financial package deal to potential clients in order to provide them with a cost advantage benefit.


Product/Service provided by all Financial Service Institutions is similar and the pricing advantage is limited due to the governance of the Repo Rate by the South African Reserve Bank.


Rivalry is low as the Repo Rate is dictated by the South African Reserve Bank enforcing a fixed costs/rates on the various Financial Service Institutions. It seems if a gentleman’s agreement exists. This could also be due to the current high demand for housing in the market, flooding the Financial Services Institutions with application for finance.


Positive economic sentiments, including favourable interest rate forecasts stimulated the market early in 00. The lag effect hereof is registration targets being met in the middle of the year. It is envisaged that the benefits of this positive economic sentiment will continue. This expectation is supported by the CPIX inflation index, excluding mortgage costs, increasing by 0,4% from July to August compared to an increase of 1,1% from June to July. Inflation targets being met will in all likelihood trigger a further 100 basis point rate cut in October. Accordingly the net sales and gross advances targets are being exceeded thus far and are expected to continue to be exceeded.

To capitalise on the favourable economic conditions ABSA will have to revisit the registration targets in an endeavour to increase their share of South African Property Growth registrations, contributing to an increase in the DI00 Housing Finance. Manage of pricing especially in the downward interest rate cycle. Review credit risk in view of the declining interest rate cycle. ABSA will also have to review and address any service and efficiency challenges with all sources of business.


Core competencies defined A distinctive competency is a unique strength that allows a company to achieve superior efficiency, quality, innovation, or customer responsiveness and thereby creating superior value thus attaining a competitive advantage. The distinctive competencies of an organisation arise from two complementary sources its resources and capabilities. The financial, physical, human, technological, and organisational resources of the company can be divided into tangible resources (land, buildings and equipment) and intangible resources (brand names, reputation, patents and technological or marketing know-how.)

A Company with a competitive advantage can earn higher-than-average profits. Naturally, its competitors will try to identify and imitate this competency. It is important to stress at the outset that, ultimately almost any distinctive competency can be imitated by a competitor. The critical issue is time. The longer it takes competitors to imitate a distinctive competency, the greater the opportunity the company has to build a strong market position and reputation with customers, which is then more difficult for competitors to attack.


One of the strategic change themes in home loans is a focused approach to target marked segments with customer centricity. There are 4 different customer centric target markets.

- Mass market (“My Home” product launched 1//00)

- Middle market

- Pension back lending

- PFS platinum home

By segmenting markets and providing customer centric products and services ABSA is able to create more value to it’s customers than any rival and subsequently earn profits above the industry’s average.

Marketing know-how is relatively easy to imitate by the movement of skilled marketing personnel between companies. More generally, successful marketing strategies are relatively easy to imitate because they are so visible to our competitors.


ABSA capitalised with the focus on 100% on-line business in South Africa and launched Electronic submittance of home loan applications with an answer of terms and conditions within seconds.

However ABSA must minimise operational problems to gain the full benefit of the product and focus must be kept on shortening the final grant process as this process takes as long as manual process. With regard to technological know-how, in theory, the patent system should make technological know-how relatively immune to imitation. But, in electrical and computer engineering it is often possible to “invent around” patents. This suggests that, in general, distinctive short-lived.competencies based on technological know-how can be relatively

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