MEMORANDUM

MNG3701
May/June 2022

INVESTEC
Investec is a distinctive bank and wealth manager. We provide financial products and services, instilled with a personal approach, to a select client base in two principal
markets: South Africa and the UK, as well as certain other countries. Investec was founded in South Africa in 1974 and entered the UK in 1992. It has managed to achieve
and sustain growth over the years. This has been driven primarily by a high level of client service enabled by comprehensive digital platforms. In 2002, the group
implemented a dual listed company structure with listings on the London and Johannesburg Stock Exchanges.

WHAT WE DO
(Southern Africa)
Private client offering Corporate client offering
Wealth & Investment Private Banking Corporate and Investment Banking
o Lending o Specialised lending
o Portfolio management o Private Capital o Import and trade finance lending
o Wealth management o Transactional banking o Treasury and trading solutions
o Stockbroking o Savings o Institutional research, sales and trading
o Foreign exchange o Debt and equity capital markets
o Property Finance o Life assurance products
TARGET MARKERT
- Narrow focus
o High net worth individuals, with an income of o High net worth individuals o Mid to large size corporates
R800k pa o Institutions
o Charities and trusts o Intermediaries
o Financial advisers and intermediaries o Government bodies

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OUR DISTINCTION
The Investec distinction is embodied in our entrepreneurial culture, supported by a strong risk management discipline, client-centric approach and an ability to be nimble,
flexible and innovative. We do not seek to be all things to all people. Our aim is to build well-defined, value-adding businesses focused on serving the needs of select
market niches where we can compete effectively and build scale and relevance.

Our unique positioning is reflected in our iconic brand, our high-tech and high-touch approach and our positive contribution to society, macro-economic stability and the
environment. Ours is a culture that values innovative thinking and stimulates extraordinary performance. We take pride in the strength of our leadership team and we
employ passionate, talented people who are empowered and committed to our mission and values.
Alongside our client ecosystem, our digitalisation capabilities sit at the foundation of our strategy. We have long understood that world-class digital client channels and
efficient back-end systems are essential to our competitiveness. Extensive investment in this aspect of our business has enabled us to differentiate our service offering
with a client experience that is both high-touch and high-tech.

OUR MISSION
2021: “Investec is a distinctive bank and wealth manager, driven by commitment to our core philosophies and values. We deliver exceptional service to our clients in the
areas of banking and wealth management, striving to create long-term value for all of our stakeholders and contributing meaningfully to our people, communities and
planet”.
1999: “We aspire to be one of the world’s great specialist banking groups, driven by commitment to our core philosophies and values”.

THE ENVIRONMENT
The South African banking industry is characterised by fierce competition for low-cost or zero-fee accounts, aiming to rope in the country’s unbanked market. On the other

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end of the spectrum is the high-income bracket, which is a lucrative pool. Top retail banks in South Africa all offer a top-tier account, earmarked exclusively for the country’s
wealthiest individuals. This is the market in which Investec competes. Unlike most banks in the industry, Investec predominantly targets high net worth individuals. But
with Discovery Bank creeping into some of Investec's target market, one might think that Investec has a reason to worry. However, according to Fani Titi Investec Group CEO
“Investec has been in this game for quite a long time" to be displaced by new entrants. "We obviously understand the private banking industry we are a leading provider.
I think everyone who comes into the space compares themselves to us as a standard,"
Titi also reckoned that Investec Bank has its own niche market. While other banks' private banking operations have hundreds of thousands of customers, Investec only
has approximately 90 000 private banking clients. He said the group's integration of its wealth business with private banking makes its offering even more competitive.
Also, because Investec has a private bank and a wealth business in the UK, it has "an ecosystem" for high-end clients that is unmatched by any local competitor.

The table below provides a summary of some of the top-tier accounts in the banking industry.
Bank Discovery FNB private RMB private Standard bank Investec Absa private
purple wealth banking signature private bank banking
Annual salary R2 500 000 R1 500 000 R1 500 000 R1 100 000 R800 000 R750 000
required
Monthly R550 R470 R470 R469 R535 R460
account fee

The group is subject to inherent challenges arising from general macro-economic and geopolitical conditions in the countries in which it operates, including in particular
the UK and South Africa. These challenges are now intensified by the advent of COVID-19. In both countries the economic environment remains challenging which is
constraining consumer spending. The previous year has seen an increase in highly coordinated and advanced cyber-crime. There continues to be significant uncertainty
resulting from the COVID-19 pandemic, it remains difficult to predict the full impact that the pandemic will have on the group. South Africa has the most diversified and
industrialized economy in Africa. However, it faces key socioeconomic challenges such as high rates of poverty, social inequality, unemployment, and public service
access.

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 Sources adapted from:

https://www.investec.com/content/dam/investor-relations/financial-information/group-financial-results/2021/DLC-Volume-1-Annual-Report-2021-Online.pdf
https://www.investec.com/content/dam/investor-relations/financial-information/group-financial-results/2021/DLC-Volume-2-Annual-Report-2021-Online.pdf
https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2021/05/19/A-Proposal-to-End-the-COVID-19-Pandemic-460263
https://businesstech.co.za/news/business/521106/south-african-finance-minister-recoils-from-r73-5-billion-anc-spree/
https://businesstech.co.za/news/banking/488743/south-africas-most-exclusive-bank-accounts-for-the-super-rich-what-they-cost-and-what-they-offer/
https://www.news24.com/fin24/companies/investecs-profit-to-get-back-to-2019-levels-thanks-to-resilience-of-its-well-heeled-clients-20210923

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QUESTION 1 [20]

1.1 a) Use an example related to the Investec case study to explain the concept of ‘transient competitive advantage. (2 marks)

Note to marker,
• No marks for theory
• Examples provided by students may vary, follow the answer below as a guide.
• Allocate marks as indicated below
• Cheating detection -Please look out for similar/identical answers. This an application type question that required originality. Therefore, answers SHOULD NOT
be similar or identical

ANSWER:
Transient competitive Advantage is temporary and short-lived. It focuses on innovation strategies that continually build new advantages. Example
related to Investec would be the use of Biometric technology when performing ATM transactions to ensure that only authorised customers can use
the ATM services. This would give Investec an edge because however, it would be short-lived since other banks/financial institutions can also
implement the same innovation. 

b) ‘According to the information provided in the case study, Investec has a transient competitive advantage’. Do you agree or disagree with this
statement? Justify your answer. (3 marks)

Note to marker,
• Justification provided by students may vary, follow the answer below as a guide.

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• Allocate marks as indicated below
ANSWER:
Disagree, according to the case study Investec has a sustainable competitive advantage. 
The group's integration of its wealth business with private banking makes its offering even more competitive. Also, because Investec has a private bank and a
wealth business in the UK, it has "an ecosystem" for high-end clients that is unmatched by any local competitor. Given that Investec was founded in South Africa
in 1974 and entered the UK in 1992. It has managed to achieve and sustain growth over the years, therefore it has a sustainable competitive advantage.

1.2. a) Evaluate the 1999 mission statement of Investec to determine whether it meets the requirements of a good mission statement. (3 marks)
Hint: When evaluating the mission statement use a table with the following headings; components, yes/no, excerpts from the statement.

Note to marker:
• Please follow the answer below as a guide.
• Students DO NOT have to use a table when answering this question. But all 3 components should be covered to earn full marks.
• Award 1 mark for each point, with a maximum of 3 marks.

ANSWER:
“We aspire to be one of the world’s great specialist banking groups, driven by commitment to our core philosophies and values”

COMPONENTS Yes/No EXCERPT FROM THE MISSION STATEMENT

What does the mission statement of Investec tell you
about the following?

The product and/or service Yes specialist banking 

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 The market No 

The method (technology) used to deliver this product or No 

service to the market

b) Compare the 1999 and the 2021 mission statements and comment on how it has changed over the years. (7 marks)

2021: Investec is a distinctive bank and wealth manager, driven by commitment to our core philosophies and values. We deliver exceptional service to our clients
in the areas of banking and wealth management, striving to create long-term value for all of our stakeholders and contributing meaningfully to our people,
communities and planet.
1999: “We aspire to be one of the world’s great specialist banking groups, driven by commitment to our core philosophies and values”
Note to marker:
• Comments provided by students will vary, please follow the answer below as a guide.
• Award a maximum of 7 marks.
• Please use your discretion when allocating marks.

ANSWER:

Comment: The three core components of a mission statement are product and/or service, market and technology. Both the 1999 and 2021 mission statements
only meet one core component i.e., product and/or service – in both statements it is clear that Investec is in the business of banking.  However, the other two
core components i.e., market and technology used are not mentioned.  It is noted that over the years the statement has improved to include other components
such as commitment to stakeholders and organisational philosophy. 

It is recommended that the mission statement of Investec should indicate the market which they serve and specify the method used to deliver the products and

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services. 

QUESTION 2 [20]

a) Use the case study to identify five threats from the external environment. (5 marks)
Note to marker:
• Award 1 mark for each point, with a maximum of 5 marks.

ANSWER:
1) Threat of new entrants, Discovery Bank is creeping into some of Investec's target market. 
2) The economic environment remains challenging which is constraining consumer spending. 
3) There is significant uncertainty resulting from the COVID-19 pandemic. 
4) Socioeconomic challenges such as high rates of poverty and unemployment. 
5) An increase in highly coordinated and advanced cyber-crime. 

b) Give detailed recommendations on how Investec can counter threats identified in a) above. (15 marks)
Note to marker:
• Recommendations provided by students will vary. Please follow the answer below as a guide.
• Students should write at least 2 sentences to earn full marks.
• Award 3 marks for each recommendation, with a maximum of 15 marks.

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 • Cheating detection -Please look out for similar/identical answers. This an application type question that required originality. Therefore, answers SHOULD
NOT be similar or identical

ANSWER:

1) According to Investec Group CEO “Investec has been in this game for quite a long time" to be displaced by new entrants. The CEO seem to be undermining this threat.
However, no matter how small new entrants are, they should never be underestimated as they have potential to reduce Investec’s market share over time. Instead, it is
recommended that the group should invest in innovations and core competencies that will continue to differentiate its offering from the competition. 

2) Given that there is a threat of low consumer confidence and constrained consumer spending due to COVID-19. Consumers are likely to reduce purchases, especially for
expensive and non-essential goods. It is recommended that Investec should provide payment holidays and other forms of relief measures such as interest-only payment
options. Investec should structure different types of support to suit both individual and corporate client needs. 

3) There is significant uncertainty resulting from the COVID-19 pandemic, it remains difficult to predict the full impact that the pandemic will have on the group. However, it is
recommended that the top management of Investec should plan for uncertainty by considering different scenarios that may result due to the pandemic and other future
pandemics. One of the universal principles of strategic management is that strategy is both deliberate and emergent. In times of uncertainty, it is more emergent than deliberate.
Therefore, it is further recommended that middle managers should be empowered to take strategic initiatives since they are more involved with the operations of the
organisation and are able to make changes to the strategies when required. 

4) Socioeconomic challenges such as high rates of poverty, inequality and unemployment pose a threat to organisations such as Investec by increasing the cost of social
responsibility, civil unrest which affect business operations, high crime rates etc. It is recommended that Investec should increase its budget for social responsibility and
partner with communities to help address some of the socioeconomic challenges. This can be done through Micro-finance initiatives such as small loans aimed at assisting
grassroots entrepreneurs. 

5) The threat of cybercrime should not be underestimated since it can result in data compromise, interruption to business activities, financial losses, or reputational damage. It
is recommended that Investec should channel its resources towards robust control measures aimed at detection and preventing cybercrime. It is also recommended that
Investec should obtain a cyber insurance cover which will assist in the event of cyber-attacks resulting in business disruption of financial loss. 

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 QUESTION 3 [15]

3.1 ‘Investec uses the differentiation strategy’. Do you agree or disagree with this statement? Justify your answer. (7)

ANSWER:

Disagree.  (award 1 mark for ‘disagree’ or ‘No’)

Any six points for justifying

Award 1 mark per point, with a maximum of 6 points.

• Investec uses the Focus differentiation strategy because it targets a niche market. 
• According to the CEO, the group only has about 90 000 clients. 
• Focused differentiation involves targeting a niche market and offering products and services to that particular market while excluding others. 
• Therefore, the main differentiator between a broad and a focused strategy is that a focused strategy is aimed at serving the needs of a limited group of customers, while a broad
strategy focuses on serving a broad section of the market 
• This strategy is suitable when customers are not price-sensitive and willing to pay a premium price for the ‘uniqueness’ they value in a product or service. 
• This strategy is characterised by the following features; it targets a narrow section of the market, it sustains its competitive advantage by offering customers products or services that
are attractive and unique from those offered by competitors, 
• The emphasis is on uniqueness of product or service features and it charges a premium price for products or services offered
• Investec provides private banking to High-net-worth individuals, with an income of R800 p.a. 

3.2 Although still not implemented, it was proposed during a strategic planning session that Investec should introduce affordable business banking in their corporate client
offering. This would be done through a low-cost business account that would target small businesses with a turnover of R250 000 per year.
a) Identify the business level strategy for the proposed business account. (2)

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• NO marks for if the answer provided is ‘low-cost provider strategy’ or ‘cost leadership strategy’
• Award marks as indicated below

ANSWER:

Focused low-cost strategy / Focused cost leadership strategy

b). Use the suitability and feasibility key evaluation criteria to evaluate the proposed strategic choice identified in a) above. (6)
(Hint: indicate whether the business level strategy meets the criteria and provide a reason)

• NO marks for theory discussion

• Award marks as indicated below
• marks for each criteria, with a maximum of 6 marks

ANSWER:

Suitability
A suitable strategy does what the organisation wants it to do, while considering its context. Suitability, also referred to as appropriateness, considers whether the proposed
strategies are suitable for the context of the organisation (Louw & Venter, 2010). Suitable strategies need to exploit external opportunities and internal strengths whilst, also
overcoming external threats and internal weaknesses (Jansen van Rensburg, 2019). For example, if an organisation has identified its financial resources to be a weakness, a
differentiation strategy would not be suitable because such a strategy requires a huge capital investment. Such an organisation would rather go with a cost leadership strategy
since it gains a competitive advantage by maintaining a lower overall cost base.

Does it meet criteria? NO 

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Reason: Investec has positioned itself as a distinctive bank that does not try to be everything to everyone. It provides top-tier accounts to individuals and businesses. Its focus is
on mid to large corporates, the inclusion of small businesses or affordable business accounts – focused low-cost strategy, would not be appropriate for its business context as it
would mean a complete change of business level strategy. 

Feasibility
This criterion answers the question, ‘will the organisation be capable of carrying out the proposed strategy’. A proposed strategy option is feasible when the organisation has, or
is in a position to obtain, the necessary resources and capabilities required to implement it (Jansen van Rensburg, 2019).

Does it meet criteria? YES 

Reason:
Investec is doing well, it has the necessary resources and capabilities to implement a focused low cost strategy. 

PART B
Write a one-page essay whereby you discuss the concepts of resources, capabilities and core competencies. Illustrate each concept with examples from the Investec Case study.
Note to marker
This question discusses 3 concepts i.e. Resources, Capabilities and Core-competencies.

Allocate marks as follows for each one of the three concepts:

- 3 marks for providing a theory discussion
- 2 marks for providing relevant examples
Allocate 5 marks for technical requirements:
- 1 mark for introduction.
- 1 mark for intext-references.
- 1 mark for using at least 3 sources.
- 1 mark for list of references.
- 1 conclusion.

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Answer below should be used as a guide; student’s discussions may differ.
ANSWER

INTRODUCTION

This essay focuses specifically on the discussion of resources, capabilities and core competencies. Brief examples are provided from the Investec
Case study. Investec is a distinctive bank and wealth manager. It provides financial products and services, instilled with a personal approach, to
a select client base in two principal markets namely; South Africa and the UK, as well as certain other countries. 

RESOURCES

Resources are the productive assets owned by organisations used to transform inputs to marketable outputs. Resources can be grouped into five
primary categories namely; financial resources, physical resources, human resources, organisational resources and technological resources.
Resources are further categorised as is either tangible or intangible (Nieuwenhuizen, 2019). Table 1 below differentiates between tangible and
intangible resources. 

Table 1: tangible and intangible resources

Tangible resources Intangible resources

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 Tangible resources are physical, observable and quantifiable Intangible resources are a subset of an organisation’s
assets of the organisation and include physical things such as strategic resources and can be categorised into three types,
equipment, money, structures, the sophistication and location of namely, human resources, innovation resources and
a plant, formal reporting structures, technology used and patents. reputational resources. 

The case study provides the following example of intangible resources; leadership team, organisational culture. 

Resources can be used as a basis for the formulation and implementation of strategies, but not all are strategically relevant. Some have little or
even a negative impact on the performance of an organisation. Resources that can contribute positively to an organisation’s strategy and lead to
sustained competitive advantage need to be identified. 

CAPABILITIES AND CORE COMPETENCIES

Capabilities are the capacity of an organisation to deploy resources for a unique result (Nieuwenhuizen, 2019).  Capabilities are organisation-
specific clusters of activities such as business processes, routines and systems developed through complex interactions between tangible and
intangible resources over time. Capabilities are usually found in a particular functional For example, there are marketing capabilities production
capabilities, distribution and logistics capabilities and human resource management capabilities.  Example: Investec has digitalisation capabilities,
that provides a foundation for its strategy. 

Core competencies (also referred to as distinctive capabilities) are those capabilities or competencies that distinguish an organisation from others
in an industry and form the basis of its competitive advantage, strategy and performance (Nieuwenhuizen, 2019) . In other words, those

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capabilities or competencies that are unique to an organisation therefore, these competencies differentiate an organisation from its competitors
(Hall, 1992).  Deploying the resources of an organisation through the use of certain capabilities could result in core competencies that provide
the organisation with a competitive advantage.  Example: Extensive investment in digitalisation capabilities has enabled Investec to differentiate
its service offering with a client experience that is both high-touch and high-tech. furthermore, the group's integration of its wealth business with
private banking makes its offering even more competitive. Also, because Investec has a private bank and a wealth business in the UK, it has "an
ecosystem" for high-end clients that is unmatched by any local competitor. 

CONCLUSION

The Essay discussed the three concepts of resources, capabilities and core-competencies. It was established that resources and capabilities are
the primary source of competitive advantage as it enable the organisation to differentiate itself from competitors. It therefore forms the basis of
strategy formulation. Investec uses digitalisation to differentiate itself from competitors offering clients an experience that is both high-touch and
high-tech. 

TOTAL MARKS: 70

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