Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence in Europe, the Americas, Africa and Asia. (Barclays 2011)
1.1 BACKGROUND
Barclays bank Plc, is a major global financial services provider, with a strong long-term credit rating and over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 156,000 people. Barclays moves, lends, invests and protects money for 48 million customers and clients worldwide. Barclays is made up of two 'Clusters': Global Retail Banking, and Corporate & Investment Banking and Wealth Management, each of which has a number of Business Units. (Barclays Bank PLC Annual Report 2008 p.2)
The third major area of the business is Group Centre, which handles matters ranging from human resources to corporate affairs. This comprises all the essential Head Office support functions that help Barclays maintain strategic momentum. (Barclays 2011)
AIM OF THE REPORT
This report critically evaluates the key factors (external and internal) that impact on the performance of Barclays bank. To carry out this evaluation, some business analytical tools would be used; these are the PORTERS 5 FORCES and SWOT analytical tools, and make recommendations to the bank's senior managers to help improve overall performance.
2.0 CONTEXTUAL REVIEW
This section will be evaluating the external and internal environmental factors affecting performance of Barclays bank plc.
2.1 EXTERNAL FACTORS
In this section, the Porters Five Forces would be used as an analytical tool to show the strength of its competitive advantage of the Barclays bank in its operational environment.
The Barclays bank operates in a sector with four major competitors, who are identified as HSBC, Royal Bank of Scotland, Lloyds banking group and Standard chartered.
According to (Richard lynch 2003. Pg103) porter's five forces are used "to develop the competitive advantage of an organization to defeat its rival companies." He also stated the works of Professor Michael Porter of Harvard university business school. His contribution to the understanding of the forces that shape the direction of organisations competition is illustrated in Appendix 1. In this model he identifies five basic forces that can act on the organization:
The bargaining power of the suppliers;
The bargaining power of the buyers;
The threats of potential new entrants;
The threat of substitutes;
The extent of competitive rivalry.
The Bargaining power of suppliers
Every organization has suppliers of services which are used to produce the final services and porter suggested that the suppliers are more powerful when; there are only a few suppliers, there are no substitute for the products supplied, when suppliers price form a great part of the total cost of the organization, (Richard lynch 2003.). The major suppliers of fund to Barclays bank are the depositors. The customers' deposit form a huge part of the banks working capital, however the bank has investment in overseas countries with a competitive advantage of sourcing for funds from overseas. In order to increase its customers deposit and maintain its sustainability there is a need to offer higher interest rate to its customers, and maintain its tenacity in the corporate world.
The Bargaining power of buyers
Buyers' bargaining power increases in situations where; there are higher concentration of buyers than suppliers, there is ability to easily switch to undifferentiated substitute products, availability of market information to the buyer.(Bob de Wit and Ron Meyer 1998 pg346). The customers have more bargaining power due to higher concentration and market knowledge, however Barclays bank has an advantage in term of product offered; free credit cards along with e-banking and insurance services, which are different form what is offered by its competitors making it uneasy for buyers to switch.
The threat of potential new entrants
According to (John L Thompson 2002) "where barriers to entry are high new entrants are likely to be deterred", however he also stated that, "if there is an attempted entry there are likely to be reaction from existing competitors." Barriers to entry can be caused by the following factors; economies of scale, product differentiation, capital requirement, switching cost. There are statutory capital requirement to entry into the banking sector which stands as barrier to new firm entering the industry, also over the years the Barclays bank has invested huge funds from its years of operation to build a huge capital base, which new entrants would find very difficult to meet. However microfinance banks pose a threat to Barclays bank by targeting the low income earners and the small business owners which Barclays could not reach due to high transaction cost.
The Threats of Substitute
If there are close substitutes, demand for a particular brand will increase or decrease as its price move upwards and downwards relative to competitors, (John L Thompson 2002). Furthermore, (Richard lynch 2003), is of the opinion that substitutes do not entirely replace existing products, but may limit the profit in an industry by keeping prices down. Key issues analysed are; the possible threat of obsolescence, the ability of customers to switch to the substitute, the cost of providing some added services to prevent customers switching. Barclays bank operates in an environment where competitors offer identical products, for Barclays to be ahead of its competitors it offers different products, which ranges from; insurance, mutual funds or fixed income securities. However the presence of non-banking financial institution providing the same services poses a great threat to the sustainability of Barclays bank.
The extent of competitive rivalry
Competition among companies may take the form of price competition, innovations, advertising and promotions, or value added services. However before deciding upon competitive actions firms must attempt to predict how their competitors will react. (John L Thompson 2002). The intensity of competition, according to (John L Thompson 2002), depends on; the number of competitors and degree of concentration, the rate of growth in the industry, degree of differentiation, the extent of which competitors are aware of the strategies of their rivals and exit barriers.
The analysis of the competitive advantage of Barclays bank shows that;
The bargaining power of the suppliers is high;
The bargaining power of the buyers is high;
The threats of potential new entrants are medium;
The threat of substitutes is high;
The extent of competitive rivalry is high.
PEST ANALYSIS
There are other external factors which affect Barclay's financial group's ability to reach its set goals and objectives. These factors are Political, Economic, Social and Technological. The political factors which can affect Barclays are the fact that there are wars within the country. The business operation that will most likely get affected by this is its offshore banking. Barclays can be affected. Global investors may not longer want to take part in their dealings or what they have to offer.
The Government particular countries may raise taxes which will now affect the company's profits. At the end of the Budget this year, in London tax has risen for almost everything. Increased taxes mean more money to pay to the government and less money for you as profits. Barclays revenues and profits can suffer as a result of the extra tax it has to pay for just running its business.
The Economic factors which can affect Barclays is mainly the changes in currencies, not just the pound but also the US dollar etc. In order to be very effective, this company needs to be up to date as much as possible with the fluctuations of the currencies or the exchange rates as it is a bank and as it needs to be able to provide for its customers.
Every Season customers may require different things, whether it is money for a holiday, money for a house or they just want to save. These reflect the social factors, which affects Barclays business operations. Based on what customers prefer at a specific point in time is their, Barclays, duty to ensure that they provide for it. This company does this by having various promotions and special offers given to customers to make it easier for them. Take for example, for a family looking to go on holiday in the summer; they can borrow money with little interest etc. This sort of offers attracts customers and so ensures the enhancement of Barclays operation.
The final external factor which can affect Barclays business is technology. In these modern times, the technology is blooming. With thee use of it, things can be done much quicker and easier and it can be less costly. Using the latest gadgets within the company would usually mean they have time and energy to deal with issues, whether it is customer complaints or otherwise, effectively. More of these technology used means that Barclays is a growing company and it is up to date with what is going on; making things easier. The downfall to this, however, is the fact that it can be very costly to get it started. Firstly there has to be proper training for effective use and then there is the maintenance of it both of which can be a very risky endeavour. In the end though, it will be worth it.
Barclays cannot only look externally to analyse if these goals are achievable, but they can also look internally. The difference is that the external analysis deals with outside the company as was discussed, Competitors, Customers, Political, Environmental, Social, Technological etc. Internal analysis, however, is the opposite - it comes from within the company itself, sails figures to see how it is performing, past promotions strengths and weaknesses. Therefore, Barclays can look at itself in order to pin point exactly where they get their most operations and try to gain as much as the can from it. On the other hand, their company can see where they make their losses and try to develop strategies in order to strengthen these. Some of these can be the company's sales sheet or its balance sheet at the end of the previous years; by taking these into consideration, the strategies they are using can either be good or bad, in terms of they can keep using them or try to figure out other means and ways to make profits.
2.2 INTERNAL FACTORS.
SWOT ANALYSIS OF BARCLAYS BANK.
Swot analysis is a an essential tool to review an organizations major internal strengths, weaknesses, together with an assessment of those opportunities and threats in the external environment which are likely to make impact on strategic decision making. (Cole G.A 2004). This model is used to highlight strategic issues of distinctive competencies and relative strength which can be used to create competitive advantage.
The Strength, weakness, opportunity, and threats of Barclays bank are:
STRENGTH
• Barclays has a widespread global presence, allowing it to spread risk and enjoy economies of scale.
• The Barclays brand is well-established historically and continually promoted, for example through sponsorship of Premier League football.
• Barclays is particularly associated with innovation. It brought out the first credit card in 1966, and has continued to develop cards, most recently the OnePulse card combing Oyster, cashless and credit functions for London-based customers.
• The opening of several new flagship branches along with a refurbishment programme can be seen as an attempt to refocus on customer demands for a strong presence on the high street (see threats)
WEAKNESS
• Services provided in Zimbabwe to individuals connected with Zanu PF have generated controversy and raised questions about Barclays ethical position: investors are increasingly concerned about ethics.
• Large bonuses for Directors have attracted unwanted attention from commentators, and it has been speculated that the bank's reluctance to take financing from the UK government is because that would end its autonomy with regard to bonuses.
• Plans to expand in Asia were limited when Barclays were outbid for ABN Amro in 2006, and alternative expansion plans have had to be adopted.
• The bank does not plan to pay dividends on its shares until the second half of 2009, making them less attractive to investors
OPPORTUNITIES
• Barclays was keen to acquire some of Lehman's assets prior to its collapse: after the collapse, they have been able to negotiate a better deal with liquidators which also allowed them to be very selective in which parts of the business they acquired
• The bank's strategy is to offer a full portfolio of services worldwide, providing a wide range of cross-selling opportunities.
• Asia is still considered an opportunity for Barclay's expansion and operations are being set up in a number of locations.
• Welfare provision has decreased in many countries because of the cost to governments, and Barclays sees self-provision as an increasing trend that it can utilise.
• The court recently found that Barclays banking charges, which had been challenged legally, were enforceable, thus repayment is not necessary and charges can continue to be enforced.
THREATS
• If the economic downturn is prolonged, acquisition of Lehman's assets could prove to be a mistake.
• Barclays has been accused of moving loss-making investments associated with the sub-prime market from its accounts to those of other investors, and there is a risk it may be sued.
• While offering a wide range of services provides opportunities, there is also the threat that customers may prefer to go to suppliers who present a more specialised approach.
• Barclays acquired a reputation for closing branches because of a high incidence of this in 2000,and competitors have been able to position themselves as more consumer-friendly through a strategy of keeping branches open.
• The Asia expansion is seen as risky given that Barclays are in a less strong position than banking industry leaders regarding capitalisation, and this may detract investors.
The illustration above is presented in a tabular form in appendix 2
RECOMENDATIONS
Barclays bank has a pole advantage in the banking sector as a result of years of experience. However the growth rate of the global economy, advancement in technology, shift in life style and taste of consumers, and stratification in age groupings means that Barclays need to put in place products services and after services to retain customers. The following highlighted point serves as steps that could be taken to retain old customers and gain new ones.
By offering attractive and competitive interest rate to woo customers to make more deposit and keep their deposit in the bank rather than in other alternatives.
By creating a stronger presence of the bank in the low income areas, by deploying mobile banking vehicles.
Also by concentrating on core banking operations rather than cash teller, would attract bigger corporations with huge funds to the bank.
Another step is for the bank to be up to date with the advancing technology and strategize on how to take advantage of modern and electronic means of transacting business
Investment in staff welfare packages will buy the bank the loyalty of its employee and their commitment to work
By expanding into other territorial location the bank will have the advantage of size over its regional competitors.
CONCLUSION
Barclays bank has the opportunity to be a leader in the banking sector, but there are factors which affect the performance of the bank, these factors are not entirely within the control of the bank. The factors are both internal and external, and can be combined in various dynamics to evaluate the effect on the performance of the bank, these factors are
