Individual Case Complete: Bank of America
Executive summary
Mission and Vision Evaluation: The Company has maintained a plausible vision and mission statement that focuses on ensuring that it develops customer centric financial products and services that are innovatively based. Thus, through the company vision and mission statement, it has managed to ensure growth and market capture.
Milestones: Among the most fundamental milestones, the organization has sustained a top position in the banking industry despite the prospect of financial crisis across US. The plausible performance has been as a result of effective policy statement that is centered on operational Excellency. With millions of customers across US, the operational success has been as a result of plausible emphasis on the effective financial strength that is evident in the business.
External Assessment:
The organizational success of bank of America has been as a result of plausible analysis of the environment. Through the analysis of the company, the two main external factors that have ensured its success include the growth of online banking and the evident emerging markets. Through capitalizing on the two external factors, the organization is bound to catapult its performance mandate.
Internal Assessment:
Financial strength and extensive investment into acquisitions and mergers have been internal factors that have ensured success of the organization. Through capitalizing on the evident internal factors, successful outcomes have been evident at Bank of America. Ensuring further financial performance should be reliant on the internal strengths.
Introduction
The Bank of America is a large bank holding company that within the recent years has been ascending within the banking industry with a top position. As such, the organization has been steadfast towards the provision of diverse financial services that encompass commercial, wholesale banking, wealth management, treasury services and so forth. However, the prospect of credit crisis had a significant and adverse impact on the banking industry resulting to the notion of collapse of numerous regional banks and the prospect of rise in mergers and acquisitions within the industry. As such, Bank of America was no exception to the evident industry situation. However, in comparison to the organizational competitors, the bank managed to perform better thus resulting into a plausible image and reputation among its clientele. The plausible performance, as compared to the rivals played a pivotal role towards the increase in market share dyeing the market down turn through acquisition of poorly capitalized banks. Through the evident investment into strategic approaches, Bank of America managed to catapult its operations and sustain performance as the years progressed. Thus, this paper will examine Bank of America and the environment of operation through an in-depth analysis of the diverse factors that impact on the operational mandate.
Industry Analysis
In diverse industries, there are operational strategies that are highly evident. As such, from the evaluation of the banking industry, mergers and consolidation have become the operational approaches among the diverse sector players. Through the investment into mergers and consolidation, it has become highly daunting to make a precise definition of the industry due to the conglomerate banks. Bank of America currently functions in the national commercial banks sector which is within the commercial banking industry (Ackoff 2009). Despite the notion that Bank of America concentrates on commercial banking, it has undertaken diversification of financial services. As such the industry comprises of organizations that specialize on the provision of numerous services such as international banking, insurance, securities and investment banking. Though it is highly daunting towards quantifying the size and scope of the diversified financial services industry, it is simpler to comprehend the magnitude of the banking industry due to the extensive supervision and regulation of the latter. Since the recession, the regulation of the financial services has become highly close and within a plausible scrutiny. On the other hand, the US commercial banking industry is extensively fragmented and competitive. In accordance to the data published in 2010, there exist 8091 banks (Bradley 2011). Among the diverse banks, there are 6911 commercial banks and 1180 saving institutions. The companies that prevail within both the diversified financial industry and the commercial banking sector include JP Morgan chase, Bank of America, Wells Fargo, SunTrust banks, capital one financial and so forth (Bradley 2011). Hence, from the evaluation of the industry overview, the inculcation of the Porter five forces analysis is a plausible approach towards comprehension of the competition within the banking industry within an in-depth mandate.
Porter Five Forces Analysis of the Banking Industry
Competitive Rivalry
As aforementioned, the banking industry is vastly fragmented and competitive. As such, the financial services industry has been in existence for over a hundred years and consumers requiring the evident banking services are already using banks. Thus, towards expansion of the market share, a bank has to ensure that it can convince is clients to switch to their bank. Furthermore, the commodity-like nature of the financial services products has become an imperative aspect towards the increase in competition. Copyright infringement is non evident within the financial products thus it is impossible for banks to develop highly differentiated products from their rivals. Hence, even if a commercial bank introduces a novel product, the prospect of competition is always there. Additionally, non-financial companies can provide services that are preferable substitutes hence the intensification of competition within the industry. In reference to Bradley (2011) the Gramm-Leach act 1999 is one of the vital factors that have led to the heightening of the degree in competition within the industry. Through the act, the concept of banks taking advantage of entering into other business lines such as insurance, investment banking and commercial bank. Furthermore, the act enabled banks to consolidate their operations through the investment into the diverse sectors. As a clear example, the recent financial crises led to the numerous mergers and acquisitions thus resulting into financial conglomerate. Thus, as per diverse pundits, the industry is bound to consolidate further. The evident regulations and the prospect of non-differentiation of operations is bound to further catapult the competition within the industry. Additionally, there are new options for the organizations towards maintaining competency in the online environment. The online business approach generates opportunities for investing on e-lending, social media marketing and so forth. Social media marketing denotes capturing new customers through the use of Facebook, twitter and other social sites for effective marketing by the bank.
New Entrants
Within a holistic mandate, the banking sector is highly difficult for an individual to commence or start a bank or a financial service company. First and foremost, the special banking license issued by the government is mandatory prior to commencement of operations. Additionally, after the commencement of operations, organizations are subjected to diverse regulations. Moreover, economies of scale prevail to the larger companies thus favoring the large firms (Gluck 2012). According to analysts, the larger the company is the more the diversification of products. Thus, the larger firms accrue competitive advantage from the broad distribution channels. Furthermore, it is easier to the large banks to advertise and strengthen their brand image. Start-ups which are smaller than the evident large organizations such as Bank of America are at a disadvantage in competing with the existent players. The high barriers of entry pose a daunting environment for the prospective entrants.
Bargaining Power of Suppliers
Within the commercial banking sector, banks grapple with three kinds of suppliers. Depositors, credit market and central bank are deemed as the most fundamental suppliers. The three evident stakeholders provide the bank with funds. As the first group, the depositors do not exude high bargaining power. Within a general mandate, banks offer a given interest rate and prices. Depositors can opt to either accept or decline the prices. Additionally commercial banks pay nothing for the evident demand deposits. Larger clients such as wealthy individuals exude a higher level of bargaining power. Nonetheless, the bank is still the dominant party comparative to the type of client (Ackoff 2009). Despite the evident aspects, the bank’s bargaining powers may be threatened by the large clients that hold a huge amount of deposits through switching to other banks. As the second supplier, the credit market is highly open to banks. The openness of the credit market entails that banks are not threatened by the market as the source of funding. Finally, the central bank denotes the lender of last resort. As the lender of last resort, the bank continues to supply liquidity to the banking industry within a reasonable cost. However, the recent crisis exudes the shift in regards to regulations with the central bank imposing stricter regulations to ensure plausible operations of the central banks.
Bargaining Power of the Buyers
Retail customers do not exude any bargaining power to the diverse banks. Additionally, in the instance that the buyer has diverse financial services within one bank, the prospect of switching to other banks is highly daunting. The concept of cross selling coupled with resultant switching costs is high from switching from one bank to another (McGee & Wilson 2012). Due to the evident high switching costs, buyers do not exude substantial threats to the organizations. Despite the large bargaining power of the corporate clients as compared to the retail clients, the evident authority that the corporate clients can exude is highly limited (Ackoff 2009). The evident negotiation of terms of conditions between the corporate client and the bank should be within a win-win mandate. The deals are structured within a manner that ensures mutually construed benefits to the parties. Hence, even though the huge clients have the power to negotiate or bargaining, it does not pose an extensive threat to the bank.
Threat of Substitutes
Competitive Strategies
SWOT Matrix
The SWOT matrix denotes an evaluation of the organizational strengths, weaknesses, opportunities and threats. As such, the SWOT matrix is highly viable since it generates a plausible avenue for the organization to evaluate both its internal and external operational aspects. Hence, through an analysis of the strengths and weaknesses an effective analysis of the internal environment while the latter’s provide proper evaluation of the external environment at Bank of America (McGee & Wilson 2012). Thus, a SWOT analysis in an in-depth mandate of the matrix in regards to Bank of America is as follows:
(WO) Product differentiation: product differentiation entails the main strategy towards handling the over emphasis on business lending at bank of America. Through the diversification of their products and services, the company can sustain effective performance and profitability. Through capitalization on product capitalization the company can mitigate concentration on the evident sector.
(WT) constantly is reporting on ethical standards: reporting on the ethical standards of operation is imperative to any organization since it depicts the performance standards and regulations that it has to align itself. Through the implementation of constant or perpetual reporting, the company can sustain plausible performance and revenue yield.
(SO) website optimization: a more comprehensive website denotes that an easier mandate towards accessibility to the products and services in the organization. A focus on investing into website optimization will ensure a more plausible communication between the organization and the potential customers.
Expansionary approach: investment into emergent markets is fundamental towards successful outcomes. Emerging markets are inclusive of developing countries such as Brazil and India offer new markets for profitable outcomes. Through investment into the markets, the company can capitalize on profitability and revenue yield in new markets.
(ST) effective policy statement: an organization that clearly dictates the operational regulatory and policy statement focuses on ensuring that it conforms to the government regulations. Though organizations focus on the performance mandate stipulated by the government, bank of America can perform within a plausible mandate.
Strengths
Formidable Growth through Acquisitions and Mergers: The Company has been growing formidably with a top notch ranking in the banking industry. In the past 5 years the company has added over $ 3 billion in assets through acquisitions of low risk banks.
Prudent Risk Management: Analysts affirm that Bank of America is one of the most conservative organizations in underwriting and loan lending. The aforesaid approach has enabled the company to maintain high credit quality as compared to its rivals.
Weaknesses
Over Emphasis on Business Lending: Over 50% of the lending within Bank of America entails businesses (Baker 2011). The evident emphasis on the commercial lending has led to a higher vulnerability to risk mainly from the street economy.
Opportunities
Emerging markets: Regions such as Brazil, India and china have become plausible markets in which the company can further catapult its market reach (Baker 2011). As such, the investment into the aforesaid market is bound to ensure profitable returns due to the softening regulations within their financial sectors.
Growth of online banking: Online or internet use has been growing at a tremendous rate. As a clear example, US market has over 80% internet users (Baker 2011). The evident internet use is posing a plausible market for Bank of America to further enhance its reach.
Threats
Heightened Competitive Rivalry: Competition is highly extensive within the banking industry. The evident over 8000 banks pose an avenue for competitive rivalry that banks such as Bank of America need to mitigate to further heighten their performance.
Stricter Government Regulations: Regulatory reform in US has been highly evident. As a clear example, the Wall Street reform and consumer protection act has highly restructured the operations of the sector players. Size and scope of operations have been impeded by new restrictions for the organizations.
Thus, from the above analysis, a summarized SWOT matrix is as follows:
Conclusion
Business operations are dependent on effective evaluation of the environment of operation. Through thorough evaluation of the environment, proper strategy formulation and implementation is bound to prevail. Thus, Bank of America should extensively evaluate the internal and external environment through the use of the porter five forces and the SWOT matrix to ensure proper strategies towards tackling the highly cutthroat market.
Implementation plan
Maintaining a successful expansionary approach at Bank of America in the international market should depend highly on effective marketing and financial analysis. Through the incorporation of marketing, the company will brand itself effectively across the international market. Maintenance of the effective marketing approach is dependent on the analysis and implementation of the following aspects:
Marketing plan
Effective analysis of the relevancy of the selection to marketing plan
In the analysis of the various marketing strategies that businesses undertake, it is imperative for one to consider the elements in the marketing process coupled with segmentation strategy that the company undertakes. The concepts of segmentation and marketing elements have been a core basis in the principles of marketing which have been incorporated by the various businesses worldwide (Kotler, 2006). Thus, in the analysis of the relevancy of the marketing play by Bank of America, the issues of marketing in terms of segmentation and elements of the marketing process were highly relevant in the choice of the marketing play by Bank of America.
Review Market Segmentation
First and foremost Sheehan, (2010) asserts that for fruitful marketing strategy, businesses must analyses and comprehend the various market segments in which they can carry out their operations. Sheehan, (2010), states that market segmentation entails the aggregation of prospective consumers into various groups that are characteristic in terms of needs and similar response to the marketing action undertaken by a business. Thus, from the analysis of the marketing strategy by Bank of America, it is clear that demographic characteristics should play a huge role in their segmentation strategy. Their business launch strategy to commence their operations in regions such as china should depend on effective market segmentation strategy to woo the upper class or working class consumers in the emerging markets. As aforementioned, the diverse financial products and services offered by Bank of America are highly diverse and aimed for both the upper and lower class individual. Moreover, through the launch of their products in markets such as china, majority of the population would be willing to invest and become Bank of America’s loyal customers. Sheehan, (2010) asserts that through the incorporation of the effective segmentation in strategic locations such as major town centers and business districts, Bank of America will be on the front step in wooing the upper and middle class consumer segment that do not know highly of the bank.
Plausible analysis of the elements of the marketing process
Burrow, (2011) asserts that a formidable marketing process entails four major elements; analysis, planning, implementation and control. Hence, I will look at the four elements of the marketing process and how they were relevant in the choice of marketing by Bank of America in their implementation plan.
Analysis
As an imperative part of the marketing process, Bank of America should take a situational analysis of the emergent markets prior to incorporation of the acquisition or foreign direct investment into the emerging or developed economies. From the marketing strategy, it is evident that Bank of America had a clear analysis of the strengths of the banking sector in USA and the world. Case in point, from the marketing strategy, Bank of America reveals that over 80% of Americans subscribe to banking services. As such, the percentage reveals that the company has a deeper and analytical view of the market in which it wants to venture into (Kotler, 2006). Further, it is evidenced that financial services and products have become highly popular in the world which is bound to rake in profits for the company in the near future.
Planning
Burrow, (2011), states that the planning process in marketing is a dynamic and procedural aspect that requires proper analysis. Through planning, a company may come up with its mission, objectives and marketing strategies that will be internalized. Thus, from the analysis of marketing by Bank of America, the company has a well strategized plan for its marketing and business operations. The company through its CEO states that purchase or acquisition of banks in emerging markets has already been planned at a price of over $600 million and the initial launch will be in BRIC nations. From the analysis, it is clear that the company has already planned its marketing play through selling and providing its products at a mass market based price.
Implementation
Through planning, Bank of America has to develop the marketing, production, development and many more aspects that are required in the successful market ventures of a business (Kotler, 2006). Admittedly, the company should have early stated that they will include the Bank of America brands in their product and service portfolio. Through the inclusion of effective product and service disparity, product development which is an aspect of implementation is bound to ensue. Bank of America as a multibillion dollar company will manage to grow its brands through the implementation of various strategies that they have laid out in terms of location, price points, branding and so forth.
Control
Through the implementation of the various marketing strategies, the need for control becomes surmount for any business. Vargo & Lusch (2004), states that control is inclusive of aspects such as timing, forecasting and evaluation of the market trends of the various consumers. Bank of America should have to inculcate elements of control through their timing of the launch of its operations in different countries. Further, control as an element of marketing is also evidenced by Bank of America’s strategy to first test out their product launch in one area as opposed to mass launch in the numerous locations across the world (Kotler, 2006).
Individuals involved
In the marketing media selection, there are various individuals or parties that should be involved in the marketing strategy at Bank of America. Firstly, Bank of America clearly stated of the millions of dollars that it may incur in the acquisition and merger strategy. Hence, the company should capitalize on the effective partnership between:
Board of directors
Line managers
Human resource managers
Lessons to be learnt from the marketing media selection at Bank of America
In respect to Vargo & Lusch (2004), mass marketing has been a strategy incorporated by businesses across the world in the marketing campaigns. Mass marketing ensures efficiency in reference to minimum tailoring in terms of what may be done to suit a given market. However, Bank of America, from the analysis has not incorporated mass marketing in its marketing strategy. Admittedly, through specialization onto the high end clientele, the company may miss out on the majority middle income earners who play a huge role in revenue yield. From the analysis of other banking companies in the sector such as the highly successful Fargo has incorporated a multi segment marketing strategy which has been ever successful (Russell, 2010). Admittedly, many pundits assert that the incorporation of a multi-segmented marketing strategy enhances the prospects of wooing more consumers as opposed to a segmented strategy as incorporated by Bank of America.
Further, through the analysis of the marketing by Bank of America, it is evident that the incorporation of behavioral aspects in their market positioning and segmentation should have played an imperative role. Vargo & Lusch (2004) asserts that behavioral based segmentation should play an imperative role in the analysis of the banking sector most importantly in the emerging markets. The prospect of individuals ever preferring online banking as compared to the traditional approach should have played an integral role in the marketing information relay by Bank of America. Through relaying of information on the banking consumer tendencies, the company could have stated their plans in meeting the preferences of the many Americans and the emerging markets (Russell, 2010).
Effective financial analysis
Financial analysis of a business is ever important for the successful operation and sustenance of business relationships with the various stakeholders. However, the recent notion among the various pundits is the need for a more comprehensive look into the relationship between financial analysis and risk assessment in decision making. Admittedly, through financial analysis, risk assessment is enhanced. Damodaran (2005), states that financial analysis plays a paramount role in laying out the strategies in which businesses may handle the various risks that may ensue. Case in point, financial risks such as interest risks, inflation risks and so forth have ever been prevalent in the business circles. However, through financial analysis emanating from the various financial statements, businesses manage to come up with maneuvers in tackling the various mentioned risks.
On the other hand, current turbulence in the business or economic sectors has made the need for the internalization of risk assessment or management into the decision making process ever important for businesses. As such, an integrated approach into risk management has become a pivotal aspect in enabling organizations in consolidation of exposures, measurement of risks and performance of stress tests in all the lines of their businesses. Nevertheless, the ability in measuring or assessing risk has become a less comprehensive approach in the comprehensive decision making aspects of a business. Damodaran (2005) asserts that a significant step in decision making is the inclusion of policies based on the comprehensive risk management and measurement in the various business processes. Efficient policies in risk assessment have been an aspect of concern in management in ensuring a long term success of the business. As such, transparency of value focused processes and risk have become an important player in ensuring viable relationships among the various regulators and stakeholders of the business. Recent distress or shockwaves in the economic sectors placed greater emphasis on the business’s ability in the approach and analysis of the various risks that they face. McLaney (2006), stresses that for businesses to face a sustainable decision making program, various aspects of risk assessment need to be incorporated. For risk assessment to be incorporated in decision making, McLaney (2006) asserts that the following steps require incorporation to ensure success and sustenance of Bank of America include;
Definition of the risks and objectives
The manager and other decision makers should be clear in the analysis of the risk. Through an analytical approach, objectives of the business will be laid out which will play an integral role in identification of the path to take.
Identification of the course of action for the risk
Considerations should be made by the various decision makers in terms of the various risks and other aspects that the business may face. Through a clear analysis of the cases available, rules and guidelines and the various principles that may be undertaken, a proper course of action may be laid out.
Data acquisition of relevant aspects into the decision making
Through risk assessment, proper data may be laid out that is relevant for the decision making process (Sclosser 2002).
Pro-forma analysis for the expansionary strategy
A pro-forma denotes a projection of the operational costs and revenues that the company may need towards a given operational strategy. Thus, from the analysis of Bank of America, a Pro-forma balance sheet and income statement for its expansionary strategy for year 1 and 2 is as follows:
Conclusion
It is quite essential that businesses research into the various marketing aspects that ensure the successful information relay to the various prospective customers. Accordingly, for the product development, advertisement launch and so forth, it is crucial for businesses to nurture and inculcate marketing strategies. From the analysis of the prospective launch by Bank of America into the banking industry, it is evident that the company has incorporated various principles of marketing in their marketing campaign. Market segmentation and elements of the marketing process are some of the principles that the company has incorporated. Nonetheless, it is imperative that the company incorporates other strategies in targeting and marketing to ensure success in the banking sector. Multi-segmented marketing coupled with behavioral segmentation are some of the aspect of marketing that Bank of America can incorporate to ensure further operational success in the new banking sector that it plans to venture into.
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Appendix
Income statement
Summary Income Statement
(Dollars in millions) 2012 2011
Net interest income (FTE basis) (1) $ 41,557 $ 45,588
Noninterest income 42,678 48,838
Total revenue, net of interest expense (FTE basis) (1) 84,235 94,426
Provision for credit losses 8,169 13,410
Goodwill impairment — 3,184
All other noninterest expense 72,093 77,090
Income before income taxes 3,973 742
Income tax benefit (FTE basis) (1) (215) (704)
Net income 4,188 1,446
Preferred stock dividends 1,428 1,361
Net income applicable to common shareholders $ 2,760 $ 85
Per common share information
Earnings $ 0.26 $ 0.01
Diluted earnings 0.25 0.01
Balance sheet
(Dollars in millions) 2012 2011 2012 2011
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell $ 219,924 $ 211,183 $ 236,042 $ 245,069
Trading account assets 237,226 169,319 182,359 187,340
Debt securities 336,387 311,416 337,653 337,120
Loans and leases 907,819 926,200 898,768 938,096
Allowance for loan and lease losses (24,179) (33,783) (29,843) (37,623)
All other assets 532,797 544,711 566,377 626,320
Total assets $ 2,209,974 $ 2,129,046 $ 2,191,356 $ 2,296,322
Liabilities
Deposits $ 1,105,261 $ 1,033,041 $ 1,047,782 $ 1,035,802
Federal funds purchased and securities loaned or sold under agreements to repurchase 293,259 214,864 281,899 272,375
Trading account liabilities 73,587 60,508 78,554 84,689
Commercial paper and other short-term borrowings 30,731 35,698 36,501 51,894
Long-term debt 275,585 372,265 316,393 421,229
All other liabilities 194,595 182,569 194,550 201,238
Total liabilities 1,973,018 1,898,945 1,955,679 2,067,227
Shareholders’ equity 236,956 230,101 235,677 229,095
Total liabilities and shareholders’ equity $ 2,209,974 $ 2,129,046 $ 2,191,356 $ 2,296,322
Financial ratios
Performance ratios
Return on average assets 0.19% 0.06% n/m 0.26% 0.22%
Return on average common shareholders’ equity 1.27 0.04 n/m n/m 1.80
Return on average tangible common shareholders’ equity (3) 1.94 0.06 n/m n/m 4.72
Return on average tangible shareholders’ equity (3) 2.60 0.96 n/m 4.18 5.19
Total ending equity to total ending assets 10.72 10.81 10.08% 10.38 9.74
Total average equity to total average assets 10.75 9.98 9.56 10.01 8.94
Dividend payout 15.86 n/m n/m n/m n/m
