JPMorgan Chase's External and Internal Environments

With a legacy as old as more than 200 years, JPMorgan Chase is considered one of the oldest and recognized banks not only in the United States but also internationally. The bank operates in more than 60 countries and serves millions of customers ( Morrison, 2010 ). The company’s customers consist of individuals, prominent corporate houses, government establishments, small businesses, and institutions. The bank trade on the New York Stock Exchange under the ticker JPM and is also one of the constituents of the Dow Jones Industrial Average. As of 2016, JPMorgan Chase had a market capitalization of $224 billion. The company quotes in their annual report that “our mix of businesses leads to effective cross-sell and significant competitive advantages. We are not a business of isolated, unrelated companies- we are an operating firm offering financial services to customers, companies, and communities” ( Focarelli and Pozzolo, 2016 ). This paper presents an analysis of different aspects of the company including strengths, weaknesses, opportunities, and threats. The paper also provides a brief discussion of the company’s resources, capabilities, and core competencies. 

Key Environmental Factors 

Regulatory Environment 

Throughout the world, the banking has been affected in many instances by the regulatory environment in which they exist. For the purpose of this paper, the regulatory environment is considered to be the most influential of all the segments of the general environment. JPMorgan Chase, like any other bank, is affected by the regulatory conditions of the individual countries and regions in which it operates. In the United States, for example, the executive branch and Congress are likely to be open to legislative propositions that tend to advance national security goals, prevent grave misconduct by bank personnel, and protect consumers ( Glasserman and Loudis, 2015 ). In most advanced countries, the endowment of a bank safety net and the establishment of one or more regulatory agencies to ensure compliance makes the banking industry a politically attractive carrier for advancing such objectives. 

In the case of JPMorgan Chase, the bank has had to put up substantial reporting and other regulatory requirements imposed on financial institutions ( Glasserman and Loudis, 2015 ). There may be an argument that regulatory burdens tend to be heavier on smaller banks than larger ones like JPMorgan Chase. Regardless, such regulations tend to have the most significant impact on larger banks and the overall industry. 

Economic Environment 

Many studies argue that a period marked by moderate economic growth, with no long-term or severe recessions would be conducive to the high profitability and strong growth of the banking industry. Given that the banking industry primarily involves monetary transactions, significant changes in the nature of these transactions is likely to affect the banking industry ( Glasserman and Loudis, 2015 ). Moderate economic growth creates a climate whereby there are very few bank failures. Most of the failures in such a climate are less likely to be caused by the economic environment. Rather, they are likely to be brought about by managerial and internal control challenges, fraud, or necessarily high risk-taking. 

Even though geographical diversification has lowered the susceptibility of larger banks like JPMorgan Chase to local economic disturbances, these banks are still affected by speculative bubbles ( Glasserman and Loudis, 2015 ). In the case of JPMorgan Chase, the speculative bubbles that affect the bank mostly occur in agricultural, commercial real estate, and energy sectors. 

Forces of Competition 

Competition from Industry Rivals 

The competition JPMorgan Chase face from industry rivals is the strongest of the five forces of competition for the firm. The company is facing intense competition domestically from Citigroup, Bank of America, and Wells Fargo ( Glasserman and Loudis, 2015 ). Internationally, competition comes mostly from Barclays and HSBC. These companies tend to compete fiercely in the market. Like the major global cell phone companies, the big banks often extend offers to ‘steal’ customers from each other. 

To address the competition from industry rivals, JPMorgan Chase uses two strategies. First, the company tries to distinguish itself in the marketplace mainly on the premise of its long, well-known experience and heritage. Second, the bank endeavors to offer its customers convenience and high quality and low-cost goods and services ( Glasserman and Loudis, 2015 ). In the future, it is expected that JPMorgan Chase will acquire smaller banks, thereby eliminating potential competition. This is a strategy that the company has used I the past several decades, and one that has proved to be effective. Employing this strategy will enable the company to eliminate competition from upcoming companies and therefore, allow it to concentrate on its closest competition. 

The threat of Substitute products 

This force is becoming increasingly significant in the banking industry, with several firms outside the industry beginning to provide specialized financial services that were previously associated only with banks. For instance, online peer-to-peer lenders like LendingClub.com and Prosper.com, Apple Pay, PayPal, and prepaid debit cards provide payment processing and transfer services ( Glasserman and Loudis, 2015 ). The emergence of such companies has cost JPMorgan Chase as well as the other big banks a lot of revenue. 

To address the threat of substitute products, particularly transfer services and payment processing, the company has set up initiatives that include a department that handles small business lending ( Glasserman and Loudis, 2015 ). In the future, it is expected that the company will introduce its own digital wallet service in order to match the products and services of such companies as PayPal. 

Strengths and Weaknesses 

Strength 

JPMorgan Chase prides itself in being one of the most successful corporate service companies in the United States. Currently, the company’s greatest strength is its capacity regarding assets and revenues. The firm has more than $1 trillion in assets and an estimated $106 billion in shareholders’ equity, demonstrating its strength in the banking industry ( Glasserman and Loudis, 2015 ). With such volume in assets, the firm is able to venture in several other lines of business without affecting its position in the market. In fact, the company is one of the oldest service corporations and operates banking as well as various non-banking subsidiaries. 

The company generates annual revenues of more than $50 billion and has employed more than 200,000 employees to provide sufficient labor for its many subsidiaries ( Glasserman and Loudis, 2015 ). The capacity of the firm has also allowed it to operate internationally, which expands its market share beyond a particular country or region, unlike many financial institutions. 

The company should, therefore, use these strengths to attract and keep its personnel. With such resources, JPMorgan can attract the best talents in the industry and stay ahead of the competition. 

Weakness 

The main weakness of JPMorgan Chase is linked to its IT system. The IT infrastructure of the firm has been found in several instances to be ineffective in maintaining their systems. For instance, when the company abandoned its outsourcing agreement with IBM, many of its JPMorgan Chase’s employees were transferred to IBM’s payroll ( Glasserman and Loudis, 2015 ). As a result, these employees were left frustrated with some of them even leaving the company. 

Additionally, IT problems the company is facing have occasionally led to a drop in productiveness because of heavy workload for existing workers. While IT issues may have insignificant issues on smaller companies, even in the banking industry, they present adverse impacts on such a big company ( Glasserman and Loudis, 2015 ). The company should consider finding a new consultant to help in executing the major IT-related operations of the bank. 

Threats and Opportunities 

Opportunities 

Global expansion. Global expansion would allow JPMorgan Chase to offer better banking and investments in other countries since expansion tends to increase a bank’s potential for greater innovation ( Glasserman and Loudis, 2015 ). As a result, JPMorgan can obtain transitory monopolist earnings drawn from some successful innovation. 

The most important aspects of innovation associated with global expansion are technological innovation and financial innovation. Technological innovations would be very significant for the purpose of driving expansion strategies of the bank ( Glasserman and Loudis, 2015 ). Financial innovations, on the other hand, would be crucial in gaining increases in both market share and revenue because they would enable the bank to increase the customers’ deposits to cater for its assets operations. 

To carry out global expansion, JPMorgan has two options. The bank can either expand through new entry or acquisition. Domestically, the latter has been their main strategy. For the purpose of global expansion, the choice of strategy will depend on various factors, for example, the start-up costs involved regarding distribution requirements, technology platform, and initial capital ( Glasserman and Loudis, 2015 ). Also, the bank would need to consider the nature of the new business. For JPMorgan, acquisition would be the better fit mainly because the firm has shown success in doing so in the past. The start-up costs involved in acquisition are generally low given that the target corporation has already made infrastructural investments. Additionally, it is very likely that the target corporation has a valuable asset, especially brand recognition that goes beyond JPMorgan Chase’s existing customers. In such a case, the acquired company would provide instant access to the market as well as credibility. Also, the acquired company’s customer base may be leveraged at that cross-selling of other services, and products is carried out and using the same distribution channel. 

Develop innovative online banking. With the current volume of the bank’s resources and capabilities, it has the opportunity to venture in e-banking. The company is well-equipped to provide internet-based financial services. The firm has already started venturing in such services, but they are mostly simple deposit account services ( Wilson et al., 2010 ). The bank can consider branching out with online offerings into personal financial management and social media. The bank can also expand the breadth and depth of online services within the traditional online banking service. Online banking presents JPMorgan Chase with an opportunity to earn more revenue and allows the bank to retain many of its customers to a relatively low delivery cost. 

To be more innovative in online banking, JPMorgan and Chase can consider introducing new payment features beyond the basic bill payment methods like peer-to-peer payments. A viable path would be expedited payments. The use of this method has increased dramatically over the past decade, meaning it is profitable and there is a great demand for it in the market ( Wilson et al., 2010 ). Rather than offer the conventional forms of expedited payments, JPMorgan Chase should consider utilizing its large capacity of resources and capabilities to develop payment features that are accelerated. Such a step would ensure the bank would be ahead of its competitors since it already has a good reputation in the industry. 

Threats 

Cybercrime. Like any other financial institution, one of JPMorgan Chase’s main threats is cybercrime. The banking industry was one of the first to be targeted by cybercrime, and the fact that JPMorgan Chase is such a big bank raises the potential for such attacks. There are always uncertainties regarding the possibility of a cyber-attack on the bank ( Wilson et al., 2010 ). As a result, the bank has to invest a lot of financial resources to procure the services of technology companies who are then tasked to protect the company against such attacks. 

There is barely anything financial institutions can do to reduce the motivation behind cybercrime, and there is no way a tech company can guarantee total security against cyber-attacks. However, banks have to put in place measures that make it as hard as possible for cybercrime to take place ( Wilson et al., 2010 ). JPMorgan Chase can do so by ensuring that they are up to date with the current forms of cybercrime and anticipate them by employing the latest and most effective techniques used to protect against such attacks. There are various companies in the United States as well as other regions that have the capabilities of addressing cybercrime. 

Fraud. For a firm operating in every continent in the world, fraud will always be a threat, and 47% of the JPMorgan branches exist in a market with a considerably high corruption risk. Additionally, for any associated economic crime including money laundering, corruption, and bribery inside the organization, about 40% of the respondents are not able to provide an accurate account of financial loss suffered by the bank as a result ( Wilson et al., 2010 ). In most cases, the risk of fraud remains difficult to compute in terms of financial losses. Even today, it can be inferred that JPMorgan has not yet fully understood the risks of conducting business in these territories. 

To curb this threat, a viable strategy would be for the bank to cooperate with several peer organizations to benchmark their fraud, corruption, and anti-bribery management ( Wilson et al., 2010 ). Such standardization would give JPMorgan Chase an external, objective perspective of the organizational structure and the manner in which roles, areas of responsibility, and resources are geared towards addressing the risk and incidents of fraud. 

Resources, Capabilities and Core Competencies 

From the onset of the company, JPMorgan has always had a plan to develop and effectively utilize the needed competencies in the firm. This has translated to the economic optimization of the organization’s goals through most periods of the bank’s existence ( Wilson et al., 2010 ). The company always strives to develop a sustainable competitive advantage by hiring highly skilled labor that is also highly competent. One may describe JPMorgan Chase’s human resource as customer-centric, agile, flexible, highly qualified, technology-savvy, and with behavioral skill sets that are currently more comprehensive than the previous decades. Overall, the quality of the bank’s human capital has become increasingly important for its competitiveness. 

The company’s resources mostly revolve around assets and human labor. It is the largest financial institution in the United States with assets of up to $2.5 trillion as of 2016 ( Focarelli and Pozzolo, 2016 ). The bank has more than 250,000 employees spread all over the world. 

Conclusions 

JPMorgan Chase is the largest bank in the United States with more than 250,000 employees. From the discussion, the two elements of the business environment that have the greatest impact on the banking industry are the regulatory environment and the economic environment. JPMorgan Chase, like any other bank, is affected by the regulatory conditions of the individual countries and regions in which it operates. Moderate economic growth creates a climate whereby there are very few bank failures, with most failures in such circumstances resulting from managerial and internal control challenges, fraud, or necessarily high risk-taking. 

The two main forces of competition for JPMorgan are competition from industry rivals and the threat of substitute products. The company’s main competitors include Citigroup, Bank of America, Wells Fargo, Barclays, and HSBC. Some company’s outside the industry today to provide specialized financial services that were previously associated only with banks and, therefore, act as substitute products. 

Today, the firm’s greatest strength is its capacity regarding assets and revenues. On the other hand, its greatest weakness is its frequently faulty and unreliable IT system. Given the current state of the company, it has opportunities for global expansion and the development of innovative online banking. The main threats facing the firm are cybercrime and fraud. 

References 

Focarelli, D., & Pozzolo, A. F. (2016). Banking industry In   Banking Crises   (pp. 25-27) Palgrave Macmillan UK 

Glasserman, P., & Loudis, B. (2015). A Comparison of US and International Global Systemically Important Banks.   Office of Financial Research Brief Series , 15-07. 

Morrison, A. D. (2010).   Universal banking   (pp. 171-94). New York: Oxford University Press. 

Wilson, J. O., Casu, B., Girardone, C., & Molyneux, P. (2010). Emerging themes in banking: recent literature and directions for future research.   The British Accounting Review ,   42 (3), 153-169.