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Posted on June 16th, 2012, by

An environment is everything that surrounds and influences the system. Organization is also a system, therefore it’s important to take environment in which any organization operates into consideration.   Depending on the industry and the organization itself, the forces of environment may vary, but usually they are divided into micro environmental and macro environmental groups.

The analysis of factors of macro and micro environment of any financial organization will help shareholders, investors, regulators and policy makers to estimate the possible risks and opportunities, to avoid the failure and to create the reliable forecast for this organization.

In this paper I intend to research the micro environmental and macro environmental forces that influence financial organization.

Another interesting issue that will be analyzed here is the importance of building relationships with key market domains, using the six markets framework’. The six markets framework recognizes six key market domains; on the opposite to traditional marketing approach, this framework focuses not only on customer market, but also referral markets, influence markets, recruitments markets, supplier markets and internal markets.


The key components of the micro and macro environments of a major financial services organization



As it was indicated initially in the task, there are three groups of the marketing environments that influence FSO effectiveness.

Let’s start with the factors of macro environment. First of all, I need to emphasize that FSO can’t influence the macro environment directly, because these elements are too general.

General factors of macro environment are: political, legal, economic, socio cultural, and technological.

The following factors of macro environment are specifically important for financial organizations: GDP growth, unemployment, exchange rate, interest rates and the level of competition.

Higher domestic interest rates or a weaker nominal exchange rate are significant determinants of FSO’s performance. Banks income and expenditures are related to the changes in interest rates. Aggregate demand and interest rates influence the changes in FSO’s stability.  (Khambata, 1996)

Among the various macro environment elements, a number of macro variables can be also considered substantial.

For example, a sum of macro variables as high interest rate, increasing inflation, output downturns, adverse terms of trade shocks, decline in asset prices, credit expansion, market pressure and losses of foreign exchange reserves influence the functioning of financial and economic systems in general. (Gonzalez-Hermosillo, 1999)

Another crucial element that needs to be mentioned is a governmental policy. Recently political factors become very influential upon the financial industry and spending power of the FSO’s client. The following factors are to be researched within the frames of political element:

  • Political environment in the certain country and the future political trends,
  • The influence of laws and regulations on financial services industry (this factor is substantial, as this sector of economic is usually very regulated),
  • Economic policy,
  • International financial agreements, international governmental loans and credits, etc.
  • Government social programs that involve FSO (for example, such as social construction

FSO usually react very cautiously to attempts of the government to legislate on their external side and are unwilling to become the enforcers of government policies. (Heffernan, 1996)

Economic factors include interest rates, the level of inflation, employment level per capita, long -term prospects for the economy Gross Domestic Product (GDP) per capita, etc. (Marques, 2006)

Socio-cultural factors have an overall impact on the whole business of the country as well, and they usually vary depending on region. The following socio-cultural factors should be considered: dominant religion, attitudes to foreign services and foreign FSO, language, life style, priorities and common habits towards finances, the life length and of course an average level of wealth.

Another group of macro environment elements is technological factors. It needs to be said that in the globalized world and with the current level of technological progress, any organization can’t survive without paying its attention to the aspect of technologies.

It is an important competitive advantage for any company, and for FSO as well. New technologies usage means better quality of financial services. Banking services become more innovative (as an example we can mention internet banking).


On the opposite of macro environment elements, micro environment forces can be influenced by the organization under condition that FSO’s leaders are capable of developing and implementing appropriate strategy to manage the influences of the micro environment.

General micro environment elements include intermediaries, competitors, publics, customers, other financial institutions (National or Central Bank of the country, rating agencies, The World Bank, etc.), media, and different non-governmental organizations.

Specific micro environment elements for financial services sector include individual risk exposure, operating strategies and the degree of management’s expertise.

In my opinion, one the most important micro environment forces is FSO customers. There are different types of clients depending on the certain FSO product, but we can define two basic customers groups, such as legal entities (companies, organizations) and individual persons.

Another driving force is the competitors from FSO sector. This group consists of the companies with similar offerings for financial services.  In order to keep its strategic competitive advantage, the FSO should have an idea of their competitors and compare them to its own size and position in the financial services industry.

Currently, after the financial crisis, many FSOs plan to come to the market with new offerings, maybe with the belief that customers will be prepared to accept any alternative to those established players who have been subject to the negative feelings of their stakeholders.


We also can’t forget about publics. In the context of FSO, publics may be viewed as general citizens, media, government, and the special group – financial analysts.

Media publics include newspapers and magazines that can publish articles of interest regarding the company and editorials that may influence customers’ opinions. (Gonzalez-Hermosillo, 1999)

Government publics can affect the company by passing legislation and laws that put restrictions on the company’s actions. (Gonzalez-Hermosillo, 1999)

Citizen-action publics include environmental groups and minority groups and can question the actions of a company and put them in the public spotlight. Local publics are neighborhood and community organizations and will also question a company’s impact on the local area and the level of responsibility of their actions.

The general public can greatly affect the company as any change in their attitude, whether positive or negative, can cause sales to go up or down because the general public is often the company’s customer base.

And finally those who are employed within the organization (Gonzalez-Hermosillo, 1999)


The third group of elements that influence FSO (internal environment) includes the company itself and its departments (plus employees and shareholders).

The internal factor is the most manageable group of the environment elements and the FSO’s management is able to gain a close control over it.


The importance of building relationships with key market domains, using the six markets framework’, indentified by Christopher, Payne and Ballantyne (2006), as a basis

  According to Payne and Ballantyne (2006) and their six markets framework’, organization addresses six market domains and not just a traditional customer market. All these markets should be researched and paid attention to.

All of them are important.

They indicate that the development and implementation of relationship plans for the key stakeholder markets generates valuable new knowledge and insights into stakeholder conditions, constraints and opportunities.

First market is a customers’ market which features existing and potential customers and intermediaries.

Sutherland (2002) says that Customer Relationship Management is the major condition of successful client-oriented organization.

For example, it may consist of the following elements:

  • Legal and regulatory issues: focusing on how to make it happen vs. why we can’t,
  • Organizational structure: aligning the company’s infrastructure to support meeting customer needs,
  •  Performance measures: redefining them to support revised business models focused on relationship management,
  • Capturing customer information from banking, investment and insurance product groups: you can’t effectively crosssell if you don’t know what your customers already have and what they need,
  • Solving the sales versus service arguments: understanding how they can be integrated, and
  • Skill set development: integrating sales, marketing, financial planning and customer service. Most institutions have only begun to understand the amount of change that is required to shift the paradigm and become true relationship managers. (Sutherland, 2002)

Among the challenges of insurance companies are: distribution of their services, the consumer’s focus on retirement income. As a result, client-oriented insurance companies design products like universal life and annuities that provide retirement income as well as death benefits. (Sutherland, 2002)

For instance, the leading US brokerage firm TradeKing Trading Commissions has made a reorganization of their customer approach. Their major principles of new customer approach are:

–  Our company is the fulfiller of the customers’ financial  dreams;

–   Deep understanding of the profitability drivers of the US brokerage business.

Its values clients and divide them into different segments, suggests an easy information system and continues to provide a good selection of financial services and access methods targeted to meet different customer’s requirements.

Another company of this sector that operates in the US and is called Scottrade Trading Commissions has decided to follow an alternative strategy and paid their efforts to improving distribution channels, investment credibility, etc.

The useful method is cooperation with banks, because banks can supply the new customers for the brokerage companies they couldn’t reach before. Besides, this cooperation helps to minimize the training, administration, and servicing expenditures.

In regards to the banking sector, the huge driver for improving customer relations on this market is a competition.

Historically, banks have not had a uniform approach to customer definition. The operations side of the business defined a customer in one manner, following strict procedural boundaries. The marketing side of the business sought to define a customer in terms of a relationship: household, business owner, affiliation, etc. This made it impossible for operations areas (Customer Service) and sales areas (Branches, Private Bankers and Call Centers) and marketing areas (Direct Marketing and Advertising) to define and execute consistent strategies. (Sutherland, 2002)

Banks and brokerage firms are facing different challenges.

Facing customers is unprecedentedly tough. Only high-quality customer service will attract good-quality borrowers to lenders and, equally, only first-rate customer service will bring success for savings providers. (Heffernan, 1996)

As I’ve noted in the first part of this paper, technology is very important in the financial services industry, as it helps to provide timely information uniformly sourced, integrated and made readily accessible to the customer.

Institutions dealing with third parties may not have negotiated these details up-front as part of their contracts. Data collection and manipulation is often neglected as it isn’t a priority for the third-party. That isn’t to say that some institutions haven’t been successful in making it happen. First Commerce Corporation in Louisiana (now part of BancOne) received a great deal of press by successfully incorporating their investment product set into their customer profitability valuation. (Sutherland, 2002)

The second market in accordance to Payne and Ballantyne (2006) is referral market. It includes existing clients that are satisfied and recommend the products and services to the potential client.

Any marketing professional knows that it’s more cost-effective for the company to keep the existing customer than attract the new one. And again, the satisfaction of the clients depends on the customer’s relationship policy.

The third market for any organization is influence market which consists of government, consumer groups, business press and financial analysts (Payne and Ballantyne, 2006).

This market helps to builds the brand awareness and company reputation, but also may cause some troubles, if the company doesn’t behave itself respectfully towards its partners.

The fourth market is a recruitment market. Companies should pay attention to this aspect as it allows them to attract the best employees.

As an example of a strong recruitment policy in the financial services sector I can suggest KPMG, a company which specializes in audit, tax and advisory that is famous for its recruitment requirements and procedures. It equals the recruitment of appropriate candidates to the acquiring of a distinguished asset.

Next market according to the six market framework is a suppliers market. I think that suppliers market is not a substantial factor for this industry, as it doesn’t require any raw material, etc.

And finally, the sixth market is internal market, employees, management, shareholders of FSO and of course the corporate culture that forms employees’ behavior.

For example, the leadership style in organization influences all its employees. Corporate governance has a direct relationship with the learning and growth of employees as it encourages participative behaviors by building awareness about the company’s overall direction. Researchers and practitioners have also linked good governance to the design of appropriate incentives and compensation.  (Chalhoub, 2009)

The communication process in organization is really important, because it ties together all parts of the company.

The communication network is important because it not only transmits information but also interprets the significance of the information for employees.

The communication network is powerful thing, because it can reinforce the basic beliefs of the organization, set a new climate for change, and provide a tight structure of influence for the CEO.  Top managers need to recognize and tap into this cultural network to accomplish their goals. Especially in a large corporation, working the network can be the only way to get a job done. (Chalhoub, 2009)

An interesting internal issue for UK banks is a bonus culture.  There is a strong public believe that the practice of giving bonuses to employees, without linking them to the long-term health of the firms, created a culture of risk taking – now widely acknowledged to have contributed to the bank catastrophe. (N.a., Banks Bow to Pressure to End the Big Bonus Culture, 2009)


  In the first part of this paper, an analysis of macro and micro environment components for FSO was provided.

To sum up, the majority macro and micro environment factors are important for any financial organization, as they form general market conditions and specific for the certain organization, depending on the type of the services it provides.

The internal environment factor (that includes the corporate culture and communications) is also a crucial element that has to be considered by any FSO in order to become a successful player on it target market.

Six market domains for any FOS were examined in the second part. We can conclude, that the only market within this framework that has not got the strong influence over FSO is suppliers market.

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