Introduction
It is important to note that gaining a competitive advantage is a complex and multifaceted endeavor, which requires a consideration of a multitude of factors. The latter can be primarily divided into two main domains, which include internal and external business aspects. The given assessment will primarily analyze SunTrust Banks’s competitiveness in the current market conditions by focusing on its internal capabilities solely. The bank has changed its name in recent years from SunTrust Banks to Truist, which will be used to refer to the organization as well.
Important Company Background
In order to properly analyze SunTrust Banks, it is useful to quickly summarize the current state of the organization. In 2019, SunTrust Banks merged with BB&T to form Truist Financial Corporation or Truist, which meant that, today, SunTrust Banks is a subsidiary and not a standalone organization (Truist Financial Corporation, 2019). Both banks operate as separate banks, but their operations are merged. Since SunTrust Banks’s latest annual report from 2018, Truist’s 2021 annual report would be more recent and useful for the given analysis. The bank provides a wide range of financial services, such as wealth management, mortgage, capital market services, investment banking, corporate banking, credit cards, lending, and deposits.
Competitive Advantage
The core and underlying competitive advantage of SunTrust Banks comes from differentiation. The main reason is the fact that the merger allowed it to focus on a certain market segment with a higher degree of intensity. The consumers it appeals to are drawn to the bank because it offers highly convenient, fast, and reliable financial services. The merger allowed the subsidiary to focus on customer satisfaction and experience as its core strengths. There are four major generic building blocks of competitive advantage, which include customer responsiveness, innovation, quality, and superior efficiency (David et al., 2019). Becoming a part of Truist provides the necessary conditions for SunTrust Banks to excel in all four domains by integrating high-end technology into its processes, making it more efficient, responsive, and reliable. The latter functional strategy defines the quality of the bank’s offerings since financial products and services are most valued for their reliability.
Competitive Position
The competitive position of SunTrust Banks is held firmly and strongly primarily due to the merger because it is a part of a larger enterprise. BB&T and SunTrust Banks are no longer competitors but rather mutually beneficial allies capable of targeting larger market segments. For example, it is reported that “BB&T and SunTrust invested in different yet complementary technology and business ecosystems, and therefore this was the right decision for our clients” (Truist, 2021, p. 7). In other words, Truist uses the ‘best-of-both approach,’ which means that each bank focuses on its core strength.
SunTrust Banks no longer loses profits from a high degree of specialization and excessive focus on certain market segments because BB&T covers other critical sectors. Thus, Truist, as a whole, is able to cover a wider range of financial services consumers. For instance, the report states that “our diverse business mix (which was significantly enhanced by the merger) proved advantageous in 2021, with fee income, excluding securities gains, up a very strong 10%” (Truist, 2021, p. 7). In other words, the competitive position held by Truist and its subsidiary SunTrust Banks is merger-related diverse business mix and subsequent resilience to market dynamics. Merger and internal operational cohesiveness of the bank are essential resources helpful in sustaining Suntrust’s competitive advantage.
Core Competencies, Resources, and Capabilities
The core competencies of SunTrust Banks and Truist as a whole include specialization, technological ecosystem, the best-of-both approach, operational efficiency, and the sheer scale of resources available. Firstly, for the technology, it is stated that “we are now positioned leaning forward with regard to our technology ecosystem, yielding long-term benefits for our clients, teammates, and shareholders” (Truist, 2021, p. 7). Thus, SunTrust Banks uses highly enhanced technology to improve customer satisfaction and operational efficiency due to the precision, accuracy, and automation brought by the tech ecosystem. Secondly, the best-of-both approach enables specialization competency, which allows being even more operationally efficient. SunTrust Banks targets and focuses on specific market segments different from BB&T to avoid cannibalization of clients (Wang & Wang, 2021). The result is a diverse business mix comprised of high fee income, superior investment and insurance banking, and greater securities gains.
The Durability of the Competitive Advantage
The information above identifies efficiency, innovation, reliability, and customer satisfaction through high responsiveness as core competitive advantage components of SunTrust Banks. However, these strengths would be questioned for their durability if the bank were a standalone organization since it would rely on a specific market segment, the merger allowed for its competitiveness to be more durable. One should note that SunTrust Banks is a subsidiary of Truist, which is a large enterprise with several other subsidiaries. The latter means that any financial failure can be easily mitigated by high levels of performance in other subsidiaries because Truist has a sufficient amount of resources to be resilient to market stressors and challenges.
Financial Performance Analysis
Since the latest annual reports for SunTrust Banks are from 2018, the most recent one comes from Truist itself. Therefore, considering the merger, it is critical to analyze the financial performance of Truist because SunTrust Banks is its subsidiary. The return on invested capital, or ROIC, is calculated by dividing net operating profit after taxes by average invested capital (David et al., 2019). The net operating profit after taxes for 2021 was $6.437 billion, whereas the invested capital is equal to the sum of net working capital (NWC) and fixed assets. The fixed assets for 2021 were equal to $541.241 billion, and net working capital was $318.636 billion (current assets) – $471.97 billion (current liabilities) = $153.334 billion. The invested capital was $387.907 billion for 2021, which means:
ROIC = $6.437 billion/$387.907 = 0.017 = 1.7%
In other words, the ROIC is below 2%, which means that the growth can become stalled and might be problematic. Truist net profit and profit margins as listed in Table 1 below, and they imply that the company’s strategy in recent years is successfully recovering from the pandemic and continuing its growth. As with ROIC, the return on total assets in the last three years implies that the investments’ returns were not ideal since they are lower than 2%. The current ratios are all less than 1.5, which means that the liquidity of the organization is low, whereas the debt-to-equity ratios are high. The latter indicates a higher risk of the financial state of Truist, but it is considered normal for large banking institutions. The financial strength of the company is the growth of its profitability after the pandemic, but the weakness is the poor return on invested capital.
Table 1. Financial Analysis
SWOT Analysis
On the basis of the information provided, Table 2 below shows the SWOT analysis focused on internal strengths and weaknesses only since OT comes from the external analysis.
Table 2. SWOT Analysis: Internal Analysis
References
David, F. R., David, F. R., & David, M. E. (2019). Strategic management: A competitive advantage approach, concepts (17th ed.). Pearson.
Truist Financial Corporation. (2019). BB&T and SunTrust complete merger of equals to become Truist. Truist.
Truist. (2021). 2021 annual report [PDF document].
Wang, X., & Wang, L. F. S. (2021). Corporate cannibalism in an oligopolistic market. International Journal of Economic Theory, 1, 1-12.