Strategy evaluation for barclays - Essay Example

Strategy Evaluation for Barclays Barclays bank is a financial service provider that is headquartered in London. This organization specializes in operations relating to investment, retail and wholesale. The bank has its branches in 50 countries and therefore serves nearly 50 million customers. The bank is of the view that its values like respect, excellence and integrity because it will lead to sustainable returns. This bank was the first one that started the ATM. The strategy of Barclays bank is to achieve sustainable profitability by the year 2016. In order to achieve its targets, it has utilized the lean business model since it aims to leverage its international presence as well as strong retail operations in order to satisfy its customers (Lundahl, Vegholm, and Silver, 2009). In an attempt to fulfil its strategy, the bank launched ‘Transform programme’ in the year 2013 for generating sustainable returns for meeting the requirements of its stakeholders. This event had the aim of stabilizing the company as well as maintenance of momentum. This was the aim of the company in the first 9 months (Annual report of Barclays bank, 2013). However, the aim of improving its business returns was structured to cover in the coming 4 years. Moreover, the objectives of it for future 5 years were to emerge as the ‘Go-To’ bank only for its stakeholders (Refer to appendix 1). Evaluation of the strategy A look at the profitability trends of Barclays bank in the last 5 years reveals that its current strategy is not suitable, acceptable and feasible. This is evident from the profit level of the bank given in figure 2 (Refer to appendix 2). Therefore, the researcher evaluates the strategy of the bank and suggests a better plan for it in the last section. Suitability of the strategy The present strategy of Barclays bank was effective because it led to a statutory increase of its income to £11,461 in the year 2013 which is given in figure 3 (Refer to appendix 3). The profit of the bank also increased to £2868 in the same year compared to 2012 in which its gain was only £ 797 (Annual report of Barclays bank, 2013). The suitability of the strategy adopted by the bank by transforming its plan in order to convert it into ‘Go-To’ financial institution reaped huge benefits. The balance sheet of the company strengthened and its operations became efficient. Its core franchises like UK retail, Corporate and Investment banking witnessed sufficient growth. A look at the share price of Barclays bank in figure 4 highlights that the turnaround plan was successful in improving the performance of the company (Refer to appendix 4). However, the executive chairperson of the bank McFarlane opined that there are certain pitfalls in its strategy implementation that needs to be mitigated in order to accelerate its progress (Neilan, 2015). The strategic position of Barclays bank illustrated in figure 5 (Refer to appendix 5) reveals that in terms of leadership, it occupies the highest position but HSBC is far ahead in terms of status. Other banks like Standard Chartered and RBS have succeeded in engagement more than Barclays bank. However, Barclays need to move its position in the engagement quadrant in order to compete with its rivals (Larson, et al., 2011). In terms of strategic choices, Barclays have three options namely competitive, international and development plan as given in figure 6 (Refer to appendix 6). Out of all the alternatives, the bank has selected the second one by serving its products in different countries in order to create its presence internationally. However, there is a need to choose and implement the service development scheme in order to satisfy its customers and fulfil its current strategy of serving the clients in a better way (El-Bannany, 2008). An examination of the opportunities of Barclays bank highlights that the strategy of creating international presence fails to addresses the opportunities it encounters of expanding its business in new geographical areas like UAE and India. The threats that it faces like decline in loan demand from the UK people in future is also not addressed by the bank in its Transform programmes (Möckel and Abdallah, 2010). The current strategy of the bank also failed to mitigate the risks of fraudulent activities, which are increasing the countries. Moreover, it also faces a threat from financial services substitutes offered by banks like HSBC in UK. This was not given importance in its present strategy of maintaining sustainable profitability and international presence (Refer to SWOT, Porter 5 forces analysis in appendix 10, 11 and 12) Acceptability of the strategy This section of the paper will determine whether the present strategy of Barclays bank meets the expectations of its key stakeholders. The shareholders of the bank are interested in profit of the company whereas the customers are concerned with the effective service delivery of it. An analysis of the strategic position of the company highlights that its strategy was not able to raise its profit level. In the year 2008, its profit level declined to £2.7 billion whereas HSBC still had greater revenues compared to it. In the year 2009 as given in figure 7, Barclays bank’s gain increased slightly but it failed to cross the mark HSBC had maintained (Refer to appendix 7). Thus, its current strategy of maintaining profitability through consistent performance was hardly met. It also failed to compete with HSBC and its other rivals. Moreover, in terms of adjusted income it failed because its revenue in UK declined to £11,681 in the year 2013. This reduced the profit of its shareholders and failed to meet their expectations (Wu, 2011). In terms of customer requirements, Barclays bank adopted a lean business model of rounded value proposition by providing various products and high quality services to its customers. The steps taken by it include provision of loan and credit facilities. This was aimed in order to meet the daily requirements of its customers. It also funded the small as well as medium sized firms by providing mortgages and business loans (Lundahl, Vegholm and Silver, 2009). A review of the percentages given by the customers over the service of Barclays bank points out that 41% of its customers rated its services as poor. Only a lower percentage of 25% rated its services as great, which clearly reflects that present strategy of employing a leaner business model of satisfying its customers failed (McDonald and Rundle-Thiele, 2008). This figure 8 also reflects the strategic position of the bank compared to HSBC and Lloyds bank. The services provided by HSBC have a stronger influence on UK people rather than Barclays which is evident from the data where only 36% of the customers rated it poor. Therefore, in this regard it has to follow competitive and development strategy instead of international plan as a choice in order to deal with customer dissatisfaction (Refer to appendix 8). Feasibility of the strategy This section will determine whether the adopted strategy of Barclays bank regarding sustainable profitability, international presence and effective retail operations will work in practise. The practical possibility of the bank to undertake the chosen strategy in context to the constraints it faces will be analyzed in this section. The political situation of UK is such that the banks have to pay taxes to their government, which reduces their profitability in the long run (Möckel, C. and Abdallah, 2010). The implementation of other strategies like creation of international presence as well as satisfying the customer requirements faces constraints. One of these relates to reduced trading income of the bank from 17% to 6% in the year 2008 (Mohnen, et al., 2008). Another resource constraint that it faces relates to decrease in loan intake by its customers. Large investments required for technology development for preventing the fraudulent activities proves as a barrier to the company for achieving its strategy of maintaining sustainable profitability and better retail operations. The reason behind the barrier is that all of these activities require adequate capital, which is not possible to generate after spending on technological up gradation (Refer to appendix 12) Moreover, the strategic position of Barclays bank in face of competition reveals the fact that its market share is only 13% in 2010, which is less than that of HSBC (El-Bannany, 2008). The Lloyds bank occupied the topmost position which is evident from figure 9 (Refer to appendix 9). This clearly reflects that it is not possible for Barclays bank to achieve sustainable profitability in the year 2016 and thereby develop its presence in the international market. Additionally, improving the operations of its retail chain in order to satisfy its customers is also not possible with the little capital available. All these practically highlight the resource constraints that it faces and reveals the fact that the current strategy is not feasible. The bank has many strategic choices of which the selection of service developmental plans will help it to serve the clients better and thereby assist it in achieving sustainable profits in the year 2016. Potential alternative strategy Barclays bank in UK has been accused of practising unethical practises like rigging the interest rates in the year 2012. This accusation framed against the bank led to a huge fine of £60 million paid by Barclays. The Libor scandal in which the bank got associated affected its reputation in UK. Therefore, the present strategy of sustainable profitability along with building an international presence needs to be changed into an ethical one. Incorporation of ethical practises in Barclays bank will make its operations transparent and this lead to customers trusting the bank more in future. Barclays bank in UK should finance the projects of only those organizations that have minimal negative impact on the society (Relano, 2008). The implementation of such an ethical strategy will benefit Barclays bank in several other ways. It will allow the bank to take some ethical initiatives, which include allowing the customers to contribute only in those organizations that affect the local community positively. All these activities will lead to improvements in its reputation among all its stakeholders. Moreover, the participation of the bank in community events as well as involvement of the same in increasing the financial literacy of the people will affect its reputation building positively. Moreover, the fraudulent activities that are increasing in UK will also be prevented by it through applying the ethical policy which screens the business accounts while opening the bank accounts. The ethical banking strategy will also prevent it from employing unsuitable employee for skilled posts. This will allow the bank to employ qualified staff for the skilled roles and help it to achieve sustainable profitability in 2016. The ethical strategy is also expected to improve the customer services of Barclays bank in UK (De Clerck, 2009). Conclusion Barclays bank in UK adopted the strategy of achieving sustainable profitability in the year 2016. For this reason, it adopted the lean business model and it intended to leverage its international presence. However, an evaluation of the strategy highlights that it has problems relating to suitability, adaptability and feasibility. Consequently, it needs to change its strategy by incorporating ethical banking practises in order to achieve sustainable profitability in 2016. However, further research is necessary in order to determine the best plan that will help it to achieve its targets. Reference list Annual report of Barclays bank, 2013. Building the ‘Go-To’ bank. [online] Available at: [Accessed on 28 November 2015] Billings, M. and Capie, F., 2009. Transparency and financial reporting in mid-20th century British banking. Accounting Forum. 33(1), pp. 38-53. Blundell-Wignall, A., Wehinger, G. and Slovik, P., 2010. The elephant in the room: The need to deal with what banks do. OECD Journal: Financial Market Trends, 2009(2), pp. 1-27. De Clerck, F., 2009. Ethical Banking*. In Ethical Prospects (pp. 209-227). Berlin: Springer. El-Bannany, M., 2008. A study of determinants of intellectual capital performance in banks: the UK case. Journal of Intellectual Capital, 9(3), pp. 487-498. Engelen, E., 2011. After the great complacence: Financial crisis and the politics of reform. London: Oxford University Press. Hahm, J. H., Shin, H. S. and Shin, K., 2013. Noncore bank liabilities and financial vulnerability. Journal of Money, Credit and Banking, 45(1), pp. 3-36. Larson, M. J., Schnyder, G., Westerhuis, G. and Wilson, J., 2011. Strategic responses to global challenges: The case of European banking, 1973–2000.Business History, 53(1), pp. 40-62. Lundahl, N., Vegholm, F. and Silver, L., 2009. Technical and functional determinants of customer satisfaction in the bank-SME relationship. Managing Service Quality: An International Journal, 19(5), pp. 581-594. McDonald, L. M. and Rundle-Thiele, S., 2008. Corporate social responsibility and bank customer satisfaction: a research agenda. International Journal of Bank Marketing, 26(3), pp. 170-182. Möckel, C. and Abdallah, A. E., 2010. Threat modeling approaches and tools for securing architectural designs of an e-banking application. Information Assurance and Security (IAS), 2010 Sixth International Conference, 1(2), pp. 149-154. Mohnen, P., Palm, F. C., Van Der Loeff, S. S. and Tiwari, A., 2008. Financial constraints and other obstacles: are they a threat to innovation activity?. De Economist, 156(2), pp. 201-214. Neilan, C., 2015. Barclays profits beat expectations as executive chairman John McFarlane sets out new strategy. [online] Available at: [Accessed on 28 November 2015] Pietrobelli, C. and Saliola, F., 2008. Power relationships along the value chain: multinational firms, global buyers and performance of local suppliers. Cambridge Journal of Economics, 32(6), pp. 947-962. Relano, F., 2008. From Sustainable Finance to Ethical Banking. Transformation in Business & Economics, 7, pp. 61-88. Thomas, R., Hills, S. and Dimsdale, N., 2010. The UK recession in context—what do three centuries of data tell us?. Bank of England Quarterly Bulletin, 4, pp. 11-34. Turkes, M. C., 2010. The globalization of the banking and Financial crisis on international level. Annals of the University of Petroşani, Economics, 10(1), pp. 349-362. Wu, T., 2011. The us money market and the term auction facility in the financial crisis of 2007-2009. Review of Economics and Statistics, 93(2), pp. 617-631. Appendices Appendix 1 Figure 1: Transform programme of Barclays Bank (Source: Annual report of Barclays bank, 2013) Appendix 2 Figure 2: Last 5-year trends in profitability of Barclays bank (Source: Larson, et al., 2011) Appendix 3 Figure 3: Key performance indicator of Barclays bank in 2013 (Source: Annual report of Barclays bank, 2013) Appendix 4 Figure 4: Share price of Barclays bank in 2015 (Source: Neilan, 2015) Appendix 5 Figure 5: Strategic position of Barclays bank (Source: Larson, et al., 2011) Appendix 6 Figure 6: Strategic choices available for Barclays bank (Source: El-Bannany, 2008) Appendix 7 Figure 7: Profit of Barclays bank in time period 2007-2009 (Source: Wu, 2011) Appendix 8 Figure 8: Customer opinion about Barclays bank services (Source: McDonald and Rundle-Thiele, 2008) Appendix 9 Figure 9: Market share of Barclays bank (Source: El-Bannany, 2008) Appendix 10 SWOT Analysis Strength: The chief strength of the bank lies in the fact that it has a stronger franchise in UK and is the leading provider of global financial services. The importance given by it to cost optimization led to lower operating costs in the year 2009. In the global financial crises also the bank was able to maintain its high profit. The key strength of the bank is evident from its ability to lend even during prevailing resource constraints situation (Billings and Capie, 2009). Weakness: The bank faced a loss in the credit related businesses of it which is evident from its decline in income. A close look at the figures indicates that in the year 2008, the bank’s net trading revenue decreased to £1330 million from a high of £3760. A percentage of the net trading income highlights that it reduced to 6% in the year 2008 from 17% in 2007. The reason behind such a fall is poor trading operations (Turkes, 2010). Opportunities: There is a chance of Barclays overcoming its weaknesses by investing more on people as well as technology. The investments made by the bank in Barclays Wealth will result in increased revenue as well as profit. The retail banking industry in other countries like UAE and India is favourable for the bank, therefore setting up its commercial services in these markets. The expansion of the bank in new geographical areas has the power of changing its strategies from a profit focused one to customer based (Hahm, Shin and Shine, 2013). Threat: The threat, which Barclays bank faces in UK, is the decline in loan demand from its customers due to contracting lending activity. The IMF (International Monetary Fund) predicts that UK will shrink in terms of financial capabilities in future. This will pose a difficult situation for the bank since the demands of people will slow down. Moreover, the automation of financial services poses a threat to the bank because it will have to spend on technology in order to prevent fraudulent activities. It also faces a major threat from its competitors like Lloyds TSB Group plc and Allied Irish Banks plc that offer quality services to its customers. The profit of Barclays bank reduced from 4.1 to 2.7 billion from 2007 to 2008 compared to HSBC (Mohnen, et al., 2008). Barclays bank faces a tough competition from HSBC since the profit level of both the banks is similar in the year 2009. Appendix 11 Porter’s five forces For evaluating the strategy of the Barclays bank in UK, it is necessary to analyze the position of the company in UK by conducting Porter’s five forces. Supplier power- moderate The suppliers of this bank are its customers and these clients by depositing money increase the liquidity of it. Though Barclays faces lower threat from customers and clients, it still encounters the problem of forward integration since its customers are smaller companies (Pietrobelli and Saliola, 2008). Buyer power- moderate Though the customers of Barclays bank are highly dispersed, in areas of wealth management, it has numerous powerful buyers. Since there are closer substitutes to all the bank’s services in UK and the switching cost is medium, therefore the buying power is moderate. Moreover, buyers in UK are price sensitive and all this resulted in moderate buyer power. New entrants- Moderate Since the banking environment is risky and there are barriers to entry in the UK market, therefore the existing banks are safer. Although the banking sector in UK is hardly dependent on technology, there is still the chance of knowledgeable banks entering the market. Hence, the threat of entry of new banks is moderate (Möckel and Abdallah, 2010). Threat of substitutes- High Although there are loyal customers present in UK, there is still the possibility of clients switching over to other banks because of better services offered by them. This marks the reason behind high threat of substitutes in the UK market (Möckel and Abdallah, 2010). Rivalry- High The high concentration of banking sector in UK reduces the rivalry but the little differentiation of services as well as similar strategies adopted by all the banks raises the competition in the country. Appendix 12 PEST analysis Political: The UK political environment is unstable which has affects the growth of all the banks. Moreover, the banks are required to pay direct and indirect taxes to the government which reduces their capital required for serving the needs of its customers (Engelen, 2011). Economic: The Gross Domestic Product of UK has risen by 1% at present, which presents a favourable situation for the banks, but the loan taken by the customers has lowered because of the increased rate of interest (Thomas, Hills and Dimsdale, 2010). Social: The middle class section has expanded in UK and these individuals opt for more house and education loans. Therefore, the banks of UK need to aim them not only to increase their profit levels but also to fulfil their responsibility of providing better customer service (McDonald and Rundle-Thiele, 2008). Technological: The innovation in technology has resulted in introduction and use of online and mobile banking. Moreover, the use of financial kiosks for monetary as well as non-monetary transactions has forced all its banks in UK to invest in such techniques in order to attract the customers for choosing their services instead of their rivals (Lundahl, Vegholm and Silver, 2009) Read More