ayThe banking industry currently is centered on evolving towards a more centered technology-based industry with operations and transformation in the core of its evolution. With a forecasted growth in the Gross Domestic Product (GDP), business lines are aiming to expand their clienteles by providing more banking solutions and easier access to topline technologies that increment the potential to make banking less cumbersome. There are key aspects that will determine the success or failure of banks across the globe as banks need to move towards development and center their goals on paths that will travel along with the world’s economy, clients expectations, political differences, and technology. Banks that do not plan according to the aforementioned are destined to crash amid the many challenges they’ll encounter.
Regulatory recalibration is a very liked term nowadays due to the pullback of various for some bankers hurtful regulations that would soften the ease with which banks perform business worldwide. This should not me translated into less compliance and more profit directed businesses but to an accountable bus less regulated road to closing deals and attracting clients. Technology as mentioned above will also play a huge role in the industry outlook as more banks and technology drive companies are focusing their efforts towards becoming more intelligent while also being cost efficient. It has been reported that the banking industry will spend 4.1% more in Information Technologies this year compared to 2017, this goes to reflect the level of compromise and assurance banks have in technology and its future.
The development in technology should undoubtedly arrive accompanied by an increment in the awareness and investment in cybersecurity. The potential risk for this type of challenge is elemental to the bank and although it becomes more complex by the day to fight it, transformative and evolutional ecosystems will be created in banks to make them more reliable to the public. With automation, new risks arise and here is when cyber risk must play an important role.
Bank of America is multinational banking and financial services company with assets totaling $2.28 trillion dollars. This giant of the world’s banking industry will be used as my selected company to analyze.
Performing a SWOT Analysis will allow me to clearly depict the company’s strengths, weaknesses, opportunities, and threats for the present and future. This is a way to complete a company’s internal and external analysis while strategically planning the steps to fortify the strengths and opportunities and lessen the impact or somehow avoid the weaknesses and threats. Bank of America’s strengths are mostly based on its scale of operations, the bank operates in more than 150 countries hence its branding and popularity is on the rise most of the times. This plus the positive strategic acquisition the bank portrays has given Bank of America a positive advantage against its competitors (Merrill Lynch acquisition in 2008). Now Bank of America receives little income from operating activities outside the United States, making this low globalization as weakness because despite of operating in more than 150 countries, the bank’s percentage of income produced outside the United States is only 10%. The company’s unjustified high interest rates plus the WikiLeaks Scandal back in 2010 have created doubts about the company’s credibility and the trust from people and stock price have plunged down.
As with many banks, the tech industry poses an ample opportunity for development as the rise in the internet based activities presents various options to clients that innovate their experiences and customer service. The expansion to countries outside the United States, referenced above as a weakness, can be converted into an opportunity. The company’s widespread presence globally can be used to its benefit, also keeping in mind to continue expanding its domestic market by acquiring and investing in positive cash flow investments. Threats are always many for banks, this first one is somehow obvious, Bank of America’s rivals Citi Bank, J.P. Morgan and Wells Fargo are always on the look to diminish its rivals fortes and hurt its plans for expansion. The change in the global financial scenario plus the stringent rules and regulations in the banking sector always present threats to the banking industry, any minor issue, political or economical related, can damage the company forever.
Now, there is another method called Porter’s 5 Forces, that analyzes the industry and tries to underlie the levels of profitability of every company. These five forces are Industry Rivalry, Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of New Entrants, and Threat of Substitutes, now I shall describe each of these related to Bank of America.
New entrants in the banking industry can mean more pressure placed on Bank of America to safeguard its competitive edge against its rivals. Not all rivalry needs to labeled as negative as this threats may bring innovation to the field by creating new products to attract new customers and provide a reason to stay to old clients. Bank of America can also tackle this threat by building economies of scale and capacities on research and development, this will set up the bar high enough for new entrants by defining standards regularly. Bank of America can defeat the bargaining power of suppliers by building and enforcing the supply chain with several suppliers, by reducing the cost in product designs in a way that if the price of one raw material increases, there is availability to buy an equivalent at a lesser price. Bank of America can also foster the creation of dedicated suppliers that will depend on the company to also develop their businesses, this bond or relationship will ensure a scenario where these suppliers have less probabilities to conclude their contracts with Bank of America.
The Power of buyers is also significant and is part of the Porter’s 5 Forces, buyers are at the top level of profitability in the long run hence the require an extreme sense of care and service. Bank of America can tackle the bargaining power of buyers by increasing its clientele, building a large customer’s base, creating and innovating new products and services. Customers are always on the look for new deals, discounts, new credit cards with benefits and coming to a well-established bank is the first options new and existing client have a mind. Now, how can Bank of America win the battle against the threat of substitute products or services? By shifting to amore service oriented stance rather than product oriented, by understanding the real and principal need of the customer and provide with best in class service, and by reducing and increasing the costs depending on different cases and situations. This threat is somehow positive for the industry because although it reduces the industry’s profitability, it also proposes new values to the companies to better enhance their services to go along with their client’s needs.
The rivalry among existing competitors will always exist taking a tremendous toll on the overall long term profitability of any organization. This is the reason why Bank of America can tackle this intense rivalry by differentiating its products and services form its rivals, building scales so competition can be tougher and at the same time working closely with competitors to increase market size as a whole. Bank of America must take into account all the prior mentioned forces and apply the recommendations to better emerge from the competitions and continuous changing environment where the banking industry is currently living.
External factors are key influencers in a company path to success or failure. Bank of America is no different in this aspect. The primary external factor than affects Bank of America’s strategy is the growing competition among banks and other financial institutions like insurance companies, pension funds, and broker-dealers, the latter group being one of the competitors to whom Bank of America has lost the biggest market share. This continuous loss of market share affects both the assets and liabilities of the company, without deposits being taken away from banks, these cannot fund and work profitably. Another external factor that influences the company’s strategy is banking regulation. Banks nowadays operate under constant and various layers of supervision and regulation, this complicates a bank’s production as well as the ease with which it can do business making profitability and productivity decrease and affect long term goal plans and strategies. It is crucial to understand a bank external environment and match these conditions to where the bank will produce at its best. Cultural, socio-political, technological, and economical factors will impact a bank productivity and will pose a threat to its success.
Bank of America value chain is characterized for being a Type-C Merger which is led by 3 main features: the regulatory issues, demand-side issues (market structure and customer needs), and characteristics of service that involve acquisitions and marketability that provide a competitive advantage over its rivals. Bank of America’s value chain is the best competitive advantage the company has against its competitors, this plus its mobile banking and the strategically closure of branches will favor the company’s road to success. Bank of America’s key resources are its financial resources, huge and well developed infrastructures , partnerships and great personnel. The company is currently located in second place in the country based on assets size ($2.28 trillion), this goes to show the power and rentability of doing business with Bank of America. The company operates around 4,700 financial centers with four times the amount of automated teller machines showing how its network of branches is well diversified over the world. The company could increase its market share in the industry by expanding and globalizing its business even more, this way its revenue stream will not only be based on domestic profit but also more on foreign opportunities that may arise. The key features as we can see are deployed in areas such as the financial services and acquisitions, making Bank of America a serious contender in the banking world.
The company’s resources are valuable, not rare, imitable and organized. They are valuable because even though all financial institutions can grow its business and growth towards success, only a few are able to demonstrate such a good and stable positions as Bank of America, this is way its value is somehow invaluable. The features are not rare but imitable, ever bank is in constant competition and imitability is a weapon that many use to steal the success of other companies and in some way reduce its market share. Again, this is difficult to complete against banks such as Bank of America but indeed the features are not something rare but somehow imitable. VRIO analysis identifies the four main characteristics which helps the organization to acquire a competitive advantages. This theory suggests that firm must be valuable, rare, imperfectly imitable and perfectly non sustainable, hence the company should have some resources and capabilities to help gain the competitive advantage to the company.
For a firm to be valuable the company must have some resources or strategies that can create and enforce opportunities while diminishing the existence of threats to the company. Resources are also valuable if they provide satisfaction to the client while increasing the company’s market share . This value may be achieved by accepting that differentiation in current products and services may decrease its price and therefore it rentability and profitability. The resources of the Bank Of America that are not utilized by any other company or financial institution in the industry are better known as rare. These type of resources provide a greater competitive advantages to the firm. However, being rare is not always a positive thing as clients may prefer to provide value to other products and services that go along with the current markets. Imitation is completed in two ways: one is duplicating what it is a direct imitation and the other one is shifting or changing what is indirect imitation.
Any firm who has valuable and rare resources also have resources that are hard to imitate and these resources are costly. However, resources should also be perfectly non sustainable.
Resources by itself cannot provide advantages to organization until it is organized and is working to the best of its skills and power. A company like Bank of America must organize its management systems, processes, policies and strategies to fully utilize the resource’s potential to be valuable, rare and costly to imitate.
Financial ratios and metrics are key to learn about the position of any company financially and the forecasts of future trends affecting the market. Bank of America is positioned among one of the first three best banks in the United States, JP Morgan Chase is placed in position number one based on its vast large-cap followed by Wells Fargo. Operating capital is another important metric that determines which bank uses its capital in the most efficient way, Bank of America was well positioned among its competitors falling to place number two relegated only by JP Morgan Chase. Bank of America fell behind its closer competitor in metrics such as the earnings per share ratio (0.46 cents compared to $1.82). Both stocks have been performing nicely with a little disparity in the return on equity displayed by JP Morgan compared to Bank of America. Non-financial metrics are measures than describe the quality of a company’s products and services without having to monetize it. A company’s reputation, customer’s influence, value, competitiveness, market share, and innovation are examples of non-financial metrics. Bank of America reputation has been damaged in the past for the wrongful misuse of customer funds and the negative and misleading work of disclosure statements for securities. The footprint of Bank of America goes beyond any boundaries and its market share grows bigger by the day, its rightful decisions in the last years have shed another ray of light in the company’s future.
Bank of America serves three groups of clients — people, companies, and institutional investors. The strategies are then divided to work closely with these groups and make a profitable and sustainable business. Bank of America must grow with a customer-focused strategy based on first its footprint around the globe (85% of the US population is served by Bank of America with around 47 million consumer and small business relationships) and its reputation among other companies being Bank of America an institution that virtually works with every other existing company in the S&P 500. It is crucial that the company provides its clients with best in class service by bringing them everything they’d need to live financially speaking.
Another key strategy is set to grow within the risk framework. As a financial institutions, risk is inherent in all of the business activities. Managing it well is crucial to the business, and it must be a primary goal to maintain the risk levels as low and minimum as profitably possible.
It is the responsibility of all employees the keep this strategy well-kept and polished as it is pretty easy to diverge from the goal. The bank’s framework is aimed at the foundation of keeping risk at a minimum and invest in the best talent and technology to keep growing at a pace that won’t be translated into extra risks. It is also key to grow in a sustainable manner. Building a sustainable company is difficult and its main goal should be to grow at a steady pace that will remain loyal to the core principles of the organization. It’s important to keep a focus on operational excellence, and on the expenses sheet, becoming disciplined in this area will improve the efficacy and growth of the company.
The company can start planning on make another acquisition that would strategically mean a betterment or improvements in the financial condition of the bank, to make it a more fierce opponent of its rivals JP Morgan and Well Fargo. The advantages of a merger or acquisition are several, a bigger market share, footprint, asset growth and brand. On the other hand, the disadvantages if a merger is performed with the wrong company can be translated in a complete failure for both companies as one can inherit the problems of the other and both decay. Another path to success might be to better adjust to the changing environments in technology and reduce its retail space by half while decreasing the staff, increase automated teller machines, and reducing overhead costs. This can result in a reduction of operating expenses while a bigger footprint could be achieved by decreasing the retail space in existing areas and increasing it in areas where the Bank of America brand is no accessible.
The company going forward should continue setting up the continuous development of the digitalized world, if successful this will reduce the constant traffic in branches while investing in a world that is set to command the future in technology and digitalization. This investment will come accompanied by a reduction is risks overhauls and improvement in cybersecurity, a key measure of excellence in our current regulated financial world. Managers can improve their trainings and skills while sustaining the company’s performance in the future. Attending trainings and communicating the new and remodeled technologies to existing client, employees and shareholders increases the success of the institution.
As a conclusion to this project I would like to reaffirm the statement that every bank is different in its core however, its essence shall remain in the flawless customer service.
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