Strategic Position of Barclaycard - Report Example

Strategic Financial Management - Strategic Position of Barclaycard This report examines the strategic position of Barclaycard by utilizing SWOT, PESTL and porters five force. It is based on the case study of Barclaycard which is present in the book by Johnson and Scholes "Exploring Corporate Strategy text and cases. Introduction Barclays is a financial services group which is based in UK, it provides its services mostly in banking, in both sectors investment banking as well as investment management. If we consider the assets employed, then Barclays is one of the leading financial services groups in the United Kingdom. It is also a primary supplier of coordinated global services to Multinational companies and financial institutions all over the world. Barclays has been in the field of banking since three hundred years and provides its services in over sixty countries with over seventy four thousand eight hundred employees. For 2003, the Barclays gained a pre-tax profit of £3,845 million. Funds of the Shareholders added up to £16.7 billion and the Tier 1 capital ratio was 7.9%. Barclays consists of 7 business grouping Barclays Africa, Barclaycard, Barclays Capital, Barclays Global Investors, Barclays Private Clients, and UK Banking. There objective to generate value by means of building a virtuous circle of content stakeholders. They gain benefit by handling a changing global market as well as brand development. On the other hand, its control style is a calm relationship and has less control over the businesses as well as its strategy is the decisions of the Executives Barclaycard is a wholly owned subsidiary of Barclays PLC, set up in 1966 and is the UK leading and first credit card business. It offers a full range of credit cards to customers and can be used to pay for goods and services together with card payment facilities to retailers and other businesses. Barclaycard provides more than 11 million credit cards in Europe, Africa and the Caribbean. The business has four divisions Barclaycard UK -provides credit cards for 9.7 million customers in the UK Barclaycard International - provides credit cards in Germany, France, Spain, Italy, Greece, African & the Caribbean Company Barclaycard - provides corporate charge cards to 135,000 businesses. Barclaycard Merchant Services - provides payment facilities to 131,000 retailers Barclaycard has been a brand in the UK. It was synonymous to the term credit and also with VISA which was its first franchisee. It faced earlier threats from MasterCard affiliated Amex cards and Diners club cards which it successfully competed. It also added MasterCard affiliation in due course to reduce the level of competition. The aim of this report is to select an organization to use as a focus and thereby enrich my knowledge on its performances, strategy and the challenges that it is facing in this competitive world. And also by using strategy analysis and techniques is to develop the key recommendations and challenges that the organization is facing. Therefore the chosen organization is Barclaycard Product and services where the strategic situation they face is the competition, and the challenge is to overcome and maintain as UK leading and first credit card business. Barclaycards Current Competitive Strategy It’s important to identify Barclaycards current strategy and identify their core competitive strategy, before getting into strategy recommendation analysis. Knowing their current strategy and whether it is the best option or not, would help me identify other strategy they may have missed. Reading through the case, and using the strategy clock as an aid Figure (A) shown in appendix. At the beginning I thought to place it between hybrid and differentiation, but after finding out that they don’t compete on price as their interest charges were not the lowest, it came clear to me that Barclaycards competitive strategy is “differentiation” as it seeks to provide its products along with its services uniquely and differently from its competitors. Also its application of information based customer management gives insight into the behaviour of customers and enables the brand to reach more customers and serves them profitably (Lawrie p 34). Its strong brand helps create awareness, confidence and loyalty. Strategic planning process given the pivotal role of competitive advantage in superior role (Porter p25). Environmental Analysis Macro Environment Influences It is important to be clear about the market Barclaycard’s operate in before getting into the PESTEL analysis. This is very clear as Barclaycard operates in a monopolistic competition and that due to many banks having similar products and the major strategic customers are the individuals and corporate. A quick analysis been performed from my side to see the credit card market trend on supply and demand, figure (1) shown in appendix , revealed that the market is in equilibrium, however, due to new entrants and substitutes entering such as SMART cards, the demand for Barclaycards may decrease. Barclaycard strategy is to remain differentiated from the others by using comprehensive benefits package and it also capitalized in its strong information based customer management. The customers are attracted to Barclaycard due to the way it is being marketed as a unique service instead of another feature of the Bank’s service. All though this strategy has proven to work successfully so far, I feel other measures they need to address as well, especially in this fast moving and competitive industry. They should for instance focus to change customer’s perception of its value, also more on advertising their brand and they should be clear of which various options it should pursue. Political The creation of the European Union bloc has broken down many barriers to cross border banking and therefore the card services, also the influence of government every now and than maybe a factor. Economical There is high potential economical growth in credit card business and the inflation rates are low Social The cultural and religious differences can have a major impact on the credit card business. For instance, infiltrating an Islamic country would not be the same as in with western country due to interest concept, where is forbidden in Islamic religion, this could lead large number of Muslim customers to be within the free interest settlement and easily incline into choosing other form of card that don’t charge interest such as debit cards. Technological On the technological front cyber fraud is a major threat. Environment and Legal No much threat in Environment and Legal front were found Structural Analysis Market Segmentation Barclaycard operates in the electronic card market. Though Barclaycard had been initiated in the UK, its primary focus for the last few years has been to extend its services in Germany and Spain among other European countries. Their decisions must be tentative ones. And change as you move through the planning process. (Adrian etal p14) Analysis of Industry Structure – Industry Forces (External) The Porter Five Forces analysis, figure (2) shown in appendix provides a detailed analysis of Barclaycard competitive environment Power of Suppliers The power of suppliers is weak as there are large numbers of suppliers and intense competition amongst them. Threat of New Entrants The barriers to entry into this sector are high, Barclaycard have overcome them as they normally face a monopolistic competition and plan to differentiate it from the competitors by investing in advertising its product (up to 12 m compared with Natwest 1.5 m and American Express 3 m). It also capitalized in its strong customer base (IBCM) by relationship marketing alliances with leading organizations, not to mention the capital investment to get into this business is very large Power of Buyers The power of buyers in this industry is very low. Latest statistics indicates over 9 million customers and increasing. Threat of Substitute Products The threat of substitutes is high, such as Smart cards Rivalry amongst Existing Firms The market is characterized by several major players and rivalry amongst them is strong. This has in recent times led to heavy price competition. And most of the competitors have low interest rate while Barclaycards still maintains higher rates. Although they differentiate themselves through extensive advertisement and IBCM. At the end they will need to revise their strategy to reduce the interest rate as the competitors may catch up with them with what makes them leaders with their core competitive advantages Managers of Barclaycard can influence competitive forces that both capture the market and protect the organization by possible opportunities e.g. Barriers for new entries to be built Maintaining the powers over suppliers or buyers increasing To find ways to diminish competitive rivalry. Quick action plan to react if such substitutes take place (Roger & John p 15) Identified Strategic Spaces Strategic group analysis was conducted (figure 3, 4 and 5 see appendix) to identify the strategic space that may differentiate Barclaycard or provide opportunities for growth. The major characteristics that differentiate the groups were in terms the comprehensive benefits package offered, customer perception by all the cards in the market and the interest rates offered Analysis shown, Barclaycards stands above them all in terms of benefits and customer focus through their IBCM, and also analysis shows that competitors would face a mobility barrier of Barclaycards brand power, they would need to invest large sums of money to strengthen their brand image, this include advertising, more customer focus, where Barclaycards have obtained it by being their presence and early entry in the market However Barclaycards should focus on reducing their interest rates and the same time maintains their competitive advantages. They can do that by training their staff to be more cost consciousness, concentrate on customers who lie within the interest period and infiltrate larger and international audience. Internal Environment Analysis Resources and Competencies The resources available to Barclaycard have helped it reach to its current position and strength. Similarly, Barclaycards competencies have a way edge over its competitors. Its competencies record for operational reliability in strained environmental conditions confirms the capability of the organization to be a leading operator. Cost Consciousness As the strategic group analysis suggests above, Barclaycard should lay extra stress to maintain the cost advantage over its competitors by adopting suitable cost control techniques and measures and by building cost consciousness among its employees and this will be with the help of training and educating them. It should also focus on economies of scale and synergies to outperform its rivals especially in cost terms. It should also focus on using latest technological advancements and reduce its operational cost to boost up its profits. Encouraging Settlement outside Free Interest Period One of the strategic space Barclaycards can use to get into the reduced interest rate competition is to monitor the credit risk using Barclaycards in-house skills, it can increase the average value of balances settled outside the free interest period and thereby enhance its profits. It must aim at having at least 70% of its customers with interest earning balances outside the free interest period (Bátiz-Lazo pp925-940). Strategic Options/Scenarios In considering the long-term direction of Barclaycard, I used a variety of tools. One such tool was the SWOT analysis shown below. The Internal Strengths & Weaknesses of the company, and the External Opportunities & Threats it faces, can be summarized as follows STRENGTHS OPPORTUNITIES Brand Status Knowledge and skill of employees Well Established, hence low production being 1st credit card issuer Superior customer focus (IBCM) High IT capabilities Scope for further development Increased market penetration Technological development Expansion of credit card industry WEAKNESSES THREATS Annual transaction value per card was low in comparison with NatWests Annual Percentage was twice compare to that being offered by the competitors High interest rates Similar product offered Low annual percentage rates (APR) were offered Card Fraud Reliance on electronic communications Barclaycards Strengths Will Allow To Exploit the Opportunities in the Market Through aiming to maximize its market share and continue developing customer loyalty (Kees p40). And they should aim to overcome their weakness by reducing high interest rates and increase market penetration as only 50% who own credit cards. They had to make explicit choices who to target? What to sell and how to do it (Markides p 4). Barclaycards Could Mitigate Against Weaknesses and Threats Through dealing with competitors, risk and fraud, aim to use its strength i.e. IT capabilities to minimize risk and frauds. And they should also aim to minimize both weakness and threats by lowering its APR and providing barriers for new entrants and not to heavily rely on electronic communication which will provide platform for Barclaycards to successfully implement its strategy Financial Assessment Financial assessments of the options were considered difficult without having operational data in hand (Samuel p16). However alternatively, I felt sensitivity analysis would be the suitable approach to assess the financial risk considering all the options and scenarios. Financial Risk Profitability in credit card business was threatened by regulatory changes. This called fro a new strategy to sustain product offering in friendly environment the only way the managers can deal with this is if their development might result in return to cash – only transaction and thus, would they be beheading the king of plastic? The potential for growth in continental European market as shown in the credit card research report of 1997 in the UK. This is will be a useful template for forecasting new areas of business development. This will result in something positive like Total cards holder in the UK =11million.Barclaycard market share=27%iii.Nearest competitor’s market share=5%.Official merchant/ Business retailers=90,000.Possessions of Multiple card=2 cards to every 50 card holders. The Emergence of transparency in credit card industry as facilitated by the introduction of “white paper” on credit card burrowing in 2003.The criticism of Barclaycard by the office of fair trading, after advertising a “ zero percent forever “ card deal. Evaluation of the Alternative Strategic Directions Further development to other parts of the world besides Europe and should concentrate on those countries which are most profitable. They should also revise their strategy when getting into Islamic countries where interest rate is considered a sin; they can for example follow the Islamic Banks way of doing business, where interest rates are applicable but are charged in-directly. Introduction of technologically savvy SMART cards would be one such option and penetration into Germany with Debit/charge cards would be another. They should utilize their competencies of information based customer management to get a wider audience wherever they go along with their brand name, which will result in profitability and further growth. It should aim at having at least 70% of its customers with interest earning balances outside the free interest period (Bátiz-Lazo 925-940). They can do that by continuing using software that uses their huge historical database to assist them in identifying optimal account management strategy. One software they used was the FairIsaac, where it proved its successfulness’ and managed to obtain an increase of up to 8% net interest per account (after bad debt) and positive results. Suitability In terms of sustainability the above mentioned the above mentioned alternative plan is quite strong as Barclaycards has a vast experience in this kind of banking and it is about time it expands it’s realm. It has a lot of loyal customers when it comes to interest earning balances and using software like FairIsaac will further strengthen their clientele. And as they have sued this kind of software before and proved it to be successful they can manage to develop a stronger one. Accessibility When we consider the accessibility criteria the alternative should be very successful as Barclaycards as fair chance increase in their profitability with Introduction of technologically savvy SMART cards and penetration into Germany with Debit/charge cards would be another. As The fact expansion and an increase in market share looks certain to be achieved should persuade stakeholders to accept this proposal. An added bonus is that it will enhance the chances of Barclaycards new idea becoming a success. Feasibility The feasibility of this alternative is a really good one as mentioned before using software’s and expansion would definitely result in up to 8% net interest per account (after bad debt) and positive results. Conclusion and Recommendations After thorough analysis and the outcomes from it, I resolved the key issues and constraints, which I think will have the most important influences that may have impacts on future business of Barclaycards: Maintaining and strengthen their core competitive advantage Human resources satisfaction Penetration and expansion to other parts of the world beside Europe Increase Interest Bearing Balance Reduce their Annual Price Rates Price competition Reduction on advertising campaign. Barclaycards should continue to strengthen what makes them leaders i.e. their core competitive advantage. They should continue maintain their application of information based customer management (IBCM) which gives insight into the behaviour of customers and enables, this together with increasing advertising of their brand in order to reach more customers and serves them profitably. Employees are the main drivers of any business, for this I felt employees should be treated well. Barclaycard must place priority on its investment in people. It should develop employees by training and educating them, which will result in knowledgeable people who care, think and act in their customer’s interest. Customer satisfaction will in turn generate more profit to retain and reward people Barclaycards should reduce their APR just like those offered by the competitors. With core competences they possess of brand status, their experience, IBCM, co-branding, alliances and partnership Barclaycard will be able to have cost base that permits low price, and they should so cut down their operating costs and on advertising as they have invested heavily in an energetic and advertising campaign, and they have actually exceeded that of all other companies in the industry. Barclaycard should consider competition on price, one option they can use is training their staff to be more cost consciousness, another option reduce investing on advertising campaigns and concentrate on brand awareness, it is understood that the public are not so much interested in watching the long-running television advertisements Low prices means customers can get good products and services at a low price, which can increase market shares and also it will be easy to target new different base of segmentation which can result in increase in profit, good dividend, government tax and good pay for employees. Work Cited Adrian B. Ryans Roger More, Don Barclay, Terry Deutscher ; Winning Market Leadership Strategic Market Planning for Technology-Driven Businesses John Wiley & Sons 1994 p14 Bátiz-Lazo, B. Barclaycard (2002) in Exploring corporate strategy text and cases, G. Johnson and K. Scholes (eds), 7th edition, London Prentice Hall, (2006) pp. 925-940. Kees Van Der Heijden; Scenarios – The Art of Strategic Conversation Wiley; 1st edition 1996 p 40 Lawrie Alan; The Complete Guide to Business and Strategic Planning; Directory of Social Change; 3Rev Ed edition 2007 p34 Markides, Constantinos; All the Right Moves a Guide to Crafting Breakthrough Strategy Mcgraw-Hill Professional 2000 p4 Porter E. Michael; Competitive Advantage Creating and Sustaining Superior Performance Free Press 1 edition 1998 p25 Roger Perman & John Scouller. ; Business Economics Oxford University Press, USA, 1999 p15 Samuel C. Weaver Fred Weston; Strategic Financial Management Application of Corporate Finance South-Western College Pub; 1 edition, 2007 p16 Appendix Figure (1), Supply and demand Analysis Read More