Barclays Bank PLC: Analysis of Business Strategy and SBUs - Essay Example

? Barclays Bank PLC: Analysis of Business Strategy and SBUs College Lecturer Table of Contents Table of Contents 2 Introduction 3 An Overview of Barclays Bank PLC 3 Current Barclays’ Business Strategy 5 Corporate Strategy 5 Unit Business Strategy 8 Conclusion 11 References 13 Introduction Business world has become increasingly competitive to the extent that entrepreneurs are forced to rethink the strategy for survival. This trend cuts across all industries including services service, agricultural, mining and manufacturing industry. On the other hand, customers have developed a trendy attitude for choice, preference and an unprecedented concern for superior customer services (Cornelissen 2004, p.138; Alessandrini et al. 2009, p.18). As a result, both customers and stakeholders are very sensitive to poor services from uncaring service providers especially when there are thousands of competitors who are willing to offer better services. It is on these grounds that bankers have resolved to re-strategize their operations with a view to increase profitability, expand their market share and keep up with the pressure of competition. This paper takes a critical look into the contemporary operations of Barclays Bank PLC and how the bank has survived the test of time. In particular, this essay examines the business strategy of Barclays in London especially as the bank strives to reconstruct its identity and positioning in the European continent. In conclusion, the paper culminates with a review of the insights derived from the case of Barclays and whether the strategies can deliver its performance targets in 5 years time. An Overview of Barclays Bank PLC The history of Barclays Bank dates back to the early 1690s when the bank was founded as a financial institution to assist ancient merchants in managing their business finances (Ackrill & Hannah 2001, p.62). The bank has since grown to become an icon in the UK and the world at large with four speciality areas. These comprise investment banking and investment management on one hand. On the other hand, the bank is well positioned in commercial banking and retail baking. These categories constitute the fundamental pillars of Barclays’ business operations as ascertained by Agius (2012, p.8). In terms of business objectives, the bank aspires to achieve a leading repute as the most dynamic and profitable bank in the world with outstanding benefits and quality service for all stakeholders (Barclays 2011, p.14). In that light, Barclays endeavours to offer financial advice, capital and investment support to its customers and shareholders with the aim to empower its stakeholders in the best way possible. The underlying philosophy to this concept of financial empowerment has seen Barclays amass an estimated customer base of 48 million clients (Diamond & Agius 2011, p.4). Owing to the fact that Barclays is among the top ranking banks in the Unites Kingdom, its operating income for the year 2011 was about ?26.7 billion with a total revenue of ?32.3 billion for the same period. Other financials of Barclays Bank PLC include an estimated total asset value of ?1.564 trillion, equity of ?55.6 billion and net income of ?3.95 billion for the year ended December 31, 2012 (Agius 2012, p.5; Barclays 2012a, p.7). These achievements are attributed to the premeditated organization structure and aggressiveness of Barclays in the UK market. In order to achieve the desired excellence in personalized service delivery, Barclays Bank PLC has refined its operations into three specific divisions. These include Barclaycard for retail services, Barclays Investment for corporate services and Barclays Wealth for shareholders as ascertained by Cleaves (2012). In it is line with the goals of these divisions that Barclays developed a comprehensive package of business strategy that have and will continue to guide its efforts far beyond the infringing economic hurdles of today. Current Barclays’ Business Strategy With the recent exit of Mr. Bob Diamond, the performance of Barclays bank became a little vulnerable to stiff competition and infringing global recession. However, the Chairman of Barclays Mr. Marcus Agius and the Finance Director Mr. Christopher Lucas remained optimistic that Barclays will bounce back to its accolades of success (Agius 2012, p.9). In the interim 2012 financial report, the chairman affirmed that the Barclays will continue to explore the heights of its four arms of business strategy. The strategy consists of ideologies that seek to enhance investment returns, capital funding, income growth and citizenship as discussed herein. Corporate Strategy Taking into consideration the perceived inelasticity of Barclays investment endeavours, the Bank seeks to improve its performance in various sectors such as equity and shareholding capital. These efforts will help in boosting prices of trading stocks as well as potential returns on equity. With that in mind the bank is committed to achieve and maintain strong ratios of leverage, capital and investment capital aimed to delivering a sustainable inflow of return over the projected fiver-year period. This is in line with the arguments of Cleaves (2012) suggesting that Barclays will still remain a major player in the UK’s baking industry. Further analysis indicates that Barclays Bank has also set an investment return target of 13% by the end of 2013FY. Despite the changes in regulatory policies and global economic trends, the management of Barclays believes that the bank is can surpass this target to about 21% by 2015 as highlighted by the former chairman (Barclays 2012a, p.7). The implementation of this strategy depends of several factors such as improving the quality of service delivery, customer care and corporate image of the bank. Cimilluca (2012) observed that Barclays bank has suffered numerous controversies with respect to its mode of sharing dividends and setting interest rate. The top management had been accused of instigating high rates for directors and other top officials which indirectly compromised the interest of external shareholders of the bank. Nevertheless, there is a renewed commitment to ensure that the profits of Barclays trickle down to every shareholders as ascertained by Gardner (2011). This will motivate more people to invest in Barclays and indulge in its products boosting returns. In so doing, Barclays aspire to maintain unparallel focus on delivering a balanced improvement in returns towards attaining the proposed 21% target by 2015 (Barclays 2012b). On a different note, Barclays Bank endeavours to concentrate on investment banking that is envisage to help the bank achieve Core Tier 1 ratio of about 11.4% by mid 2013FY (Agius 2012, p.5). With this strategy, Barclays looks forward to achieving a reliable state of organic system of capital generation which would in turn reduce the burden of soliciting additional capital from its existing shareholders. Another important component of this strategic business focus revolves around funding and liquidity. The bank is prepared to maintain a profile of flexible funding and an elastic liquidity over the next five years. If well implemented, the funding and liquidity strategy will create a sustainable environment with varied opportunities for funding. Besides, maintaining a flexible structure of liquidity will help the bank reduce the cost of capital funding and protection against economic fluctuations (Haaf & Bikker 2002, p.2206; Bikker 2004, p.93). The third rational of Barclays’ business strategy is income growth. According to Krugman (2009), the bank has developed improved potential in containing the negative forces of macroeconomic environment in the UK. This claim was vividly proven by Barclays when it acquired the US-based Lehman Brothers bank at a time when the Eurozone crisis had paralyzed most institutions in the region (Barclays 2011, p.16). In its efforts to improve income growth, Barclays Bank has continued to expand its market share both in the United Kingdom and the rest of the world. In second quarter of the current financial year, Barclay recorded a pre-tax profit of ?4.23 billion (Barclays 2012a, p.9). Categorically, the bank is working hard to ensure that all its branches are focused on improving the overall quality of Barclays’ assets amidst challenging trading conditions in Europe. Even with the present levels of low interest rates in the UK, Barclays is set to improve its retail and commercial banking performance by 15% in the coming fiscal year. The new CEO Mr. Antony Jenkins has also promised to consolidate available resources to enable the bank realize an estimated 14% increase in corporate banking and investment banking (Hay & Elliot 2012). In that light, it is worth noting that Barclays has marshalled top-notch brains to explore new markets and trade opportunities beyond the geographical boundaries of UK. Apart from the aforementioned components for income growth ventures, Barclays Bank PLC seeks to increase its network of business operation in the European region. It is argued that the bank has been working on the possibility of introducing new products targeting middle and low income earners (Morris 2010, p.386; Nanto 2010). These include but certainly not limited to customized loan services, personalized banking plan and capital funding for SMEs. Besides, Barclays is also ready to launch a wide scale campaign for mobile and agent banking services to expand its customer base by 18% before the end of 2013 (Barclays 2012a, p.11). While this remains a big challenge, the chief marketing officer of Barclays is positive that the bank will achieve this goal through innovation, technological advancements and improved reputation. The fourth and last rationale of Barclays’s corporate strategy is related to citizenship. According to the recently named Chairman Sir David Walker, Barclays Bank believes in the power of operational transparency and a close relationship with the community. As such, Barclays seek to establish high standard of openly reporting its economic contributions to the national GDP as well as its involvement in corporate social responsibility. That notwithstanding, Barclays will regularly publish its progress scorecard and operational summaries for public viewing (Goddard et al 2007; Smith, 2012). When customers, shareholders and the community understand the structure and business ideologies of an organization, they are likely to develop patience, trust and tolerance in support of the entity (Vasantha & Sheela 2006, p.301; Warren 2009, p.147). Furthermore, reputation can only be reconstructed through accountability and transparency. All these idea are envisioned to help Barclays rebuild its reputation and overcome the damage caused by the Libor scandal. Unit Business Strategy First and foremost, the management of Barclays Bank PLC seek to expand its market into mainland Europe. This is seen as an opportune time to increase the presence and positioning of Barclays in the European region. According to Hay and Elliot (2012), the SBU mechanism to achieve this objective is strongly founded in the new structure of a universally integrated business model. Secondly, it is argued that experience and performance constraints have shaped the current diligence of Barclays Bank. As a result, Barclays has learnt the importance of participative approach to customer focus. Diamond and Agius (2011) observed that Barclays Bank PLC was determined to achieve operational excellence across all its operational divisions. In addition, the recent trends in the operations of Barclays suggest that the bank has shifted its focus to business diversification. This approach seems to lead Barclays in the right direction in risk aversion and management strategies. The bank is prepared to ensure that it increases its operational scope, market mix and customer base (Cleaves 2012, p.1). This will be realized through introduction of fast moving banking products, inclusion of different investment ideas as well are reaching out to a diverse stratum of clientele. Similarly, it is notable that Barclays is eager to reduce its sovereign exposure in volatile economies of Spain, Portugal and Italy. Whereas this sounds unwarranted and a little off board, the idea is deemed useful in helping Barclays reduce the disparities in domestic funding contracts in these areas as argued by Hay and Elliot (2012). Just to mention, this strategy is also associated to the need to counter unfavourable completion from local banks and other financial institutions that are favoured by local business environment. Another key business unit strategy deployed by Barclays is that of financial discipline and equitable distribution of capital resources across all its divisions. This will ensure that Barclays keeps a track record of balanced operations, strategic market penetration and quality service delivery in all sectors. These are critical UBS that all financial institutions are willing to adopt especially when the global economy is depressive (Monteith 2009; Lepetit et al. 2011, p.2329). Considering the current changes in service industry, the banking environment is becoming very volatile to fiscal policies as such inflation and interest rates. At the same time, there is increased inflow of new entrants in the banking industry including microfinance institutions and other online baking service providers. These entrants have significantly impacted the business environment in the UK and across the continental boundaries (Fiordelisi et al 2010, p.13; Herington & Weaven 2009, p.1225). This is the cradle of unfathomed competition crisis that has set a new wave of market wars in the banking industry. In order to address the challenge and impact of stiff competition, Barclays Bank has redefined its operational business strategies to meet the best expectations of its customers and corporate clients. To begin with, Barclays apparently initiated a comprehensive plan for rebuilding its brand name in Europe. This encompassed a dynamic approach to corporate advertising, marketing and possible rebranding as noted by Idowu and Filho (2009). The idea seeks to assure customers and client that Barclays is ready to deliver a whole range of quality services and products in a sustainable manner for long-term benefits. The second business strategy is rooted in public relation docket of Barclays Bank. With the Libor scandal, resignation of former Chief Executive Bob Diamond and ultimate exit of Mr. Marcus Agius; competitors have maximized the fallen reputation to fight the high street position of Barclays Bank (Cimilluca 2012, p.3). Nonetheless, the Board of Directors has so far restructured the management and injected fresh blood in the executive management. The move that saw Antony Jenkins rise to the realm of Barclays’ leadership was strategic in nature. With relevant support, patience and commitment; Jenkins is strategically placed to restore trust and confidence of stakeholders amidst competitive market in the European market (Barnett 2012, p.2; Duane et al 2006). The other strategy deployed by Barclays to management competition dynamics is incorporated in the plans to retains and increase shareholders. In the recent past, the value of Barclays’ stocks has significantly dropped with several investors selling their shares for fear of further deterioration of Barclays. On the other hand, serious competitors such as the famous Hong Kong & Shanghai Banking Corporation and Lloyds Banking Group PLC have continued to register new shareholder suspected to have moved from Barclays (Ian 2012, pp.1-2). The aforementioned trend remains a major threat for which Barclays Bank PLC has developed a strategic framework to deliver total shareholder returns – TSR. In its strategic report, the Finance Director affirmed that Barclays Bank is committed to revamp its investment strategies geared towards improving returns on equity to about 12.5% by 2013 (Barclays 2012b, p.5). In the event that the strategy is successful within the given timeline, Barclay would be steering a new roadmap to achieve a steady delivery of TSR that will attract potential shareholders. Finally, Barclays is working on new possibilities of strengthening its liquidity pool to over ?250 billion in the next few years two to three years. It has also projected a remarkable improvement in loan to deposit ratio. The current ratio stands at 110.8%, but Barclay is optimistic to push this figure to 130% by 2015. Through diversification and integrated marketing, the bank targets a reduction of 10% in operational expenses so as to increase profit margin by an approximated 7% (Barclays 2012a, p.13). Otherwise, the dynamics of rigorous competition and increased customer mobility may continue to present a pressing challenge to the market prospects of Barclays Bank PLC. Conclusion Notwithstanding the challenges that have impacted the operations of Barclays Bank PLC in the last two years, the bank still reserves a significant market share in the UK. In addition, its profitability potential has also remained stable even with various scandals such as the Libor sage, tax-avoidance accusations and controversial acquisition of Absa Group. However, the biggest threat to Barclays lies in lost reputation and increased competition. It is for these very course that the bank defined a well-thought corporate and SBU strategies as stated by Hay and Elliot (2012). To that end, the fundamentals of Barclays Business Strategy endeavours to improve income growth and investment returns. On the other hand, the strategy aims at advancing liquidity and capital funding as well the bank’s scope of citizenship responsibility. References Ackrill, M & Hannah, L 2001, Barclays: The Business of banking from1690. Cambridge University Press, Cambridge. Agius, M 2012, Barclays 2012 Interim Results Announcement: Chairman’s statement, Barclays, London. Alessandrini, P, Fratianni, M & Zazzaro, ZA 2009, The Changing Geography of Banking and Finance, Springer Publishing, New York, NY. Barclays PLC 2011, Barclays Bank PLC Annual Report 2011, Barclays Publications, London. Barclays PLC 2012a, Barclays Strategic Report 2012, Barclays Publications, London. Barclays PLC 2012b, Barclay Bank Interim Financial Report 2012, Barclays, London. Barnett, M 2012, Barclays new boss must rebuild Customer Relationships, Centaur Media, London. 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