Case Study-Barclays

BARCLAYS matting BARRETTS journeying winning HEARTS AND MINDS I. DISCUSSION QUESTIONS, CASE INTRODUCTION AND mention POINTS Introduction The case covers the introduction of Matt Barrett as CEO of Barclays and the changes he introduced to the organization to maintain its rivalrous condition at heart the retail financial services industry. In an increasingly competitive purlieu, Barclays is losing ground imputable to its wish of selective information-driven actions and small planetary figurehead.The case outlines the actions taken by Barrett to transform some of the key characteristics of Barclays unified structure, and concludes by presenting the challenge he will face in getting coverment buy-in in grade to implement his vision. The key challenges that Barclays faces include market consolidation, the emergence of the Euro and atomic number 63an downstairslying verify, increase reliance on IT and web- ground platforms, and the rigidity of its own corporate structur e. II. EXTERNAL ENVIRONMENT ANALYSIS take up the external environment, including conditions in the full general, industry, and opponent environments. a.The General Environment translation The general environment is focused on the future and can be analyzed by considering the STEEP framework Social/demographic, Technological, Economic, Environmental/geographic and Political/legal/ political factors at play. 1. 2. 3. 4. 5. Social/Demographic Technological Economic Environmental/Geographic Political/Legal/ political Discussion doubt 1 Perform a STEEP digest to understand the general environment facing Barclays. How will Barclays be affected by external factors? In particular, what will the effect of globalization be in terms of threats and opportunities?Social/Demographic Segment ? English is becoming increasingly the world-wide diction of melodic phrase offering Anglophone Barclays opportunities to expand into international markets with reduced language barriers. BARCLAYS 1 BA RCLAYS MATT BARRETTS JOURNEY taking HEARTS AND MINDS Technological ? ? ? amplifyd world-wide reliance on IT and the emergence of web-based solutions in 2000 will filch Barclays need to diversify portfolio offerings. Barclays must update its woefully inadequate Management Information Systems (MIS) and begin to automatize labor intensive processes to reduce apostrophizes.In order to enter mod markets to increase receiptss and satisfy institutional investors, Barclays must invest in increased applied science capabilities. Economic ? ? ? Robust economic environment payable to tech boom will increase liquidity in the marketplace. As a result, acquisitions will be more costly than in a down economy. However this will also cause capital of the United States to be more accessible. Market trends towards consolidation will pressure Barclays to regain its industry leadership position through acquisition. globoseization and world economy flattening will require Barclays to become a global confederacy expanding its offerings beyond its authentic UK focus.Environmental/Geographic ? Geographic borders and distances between countries be shrinking with increased technology and a globalized economy. This will some(prenominal) require and facilitate Barclays global forepart. Political/Legal/Governmental ? ? development of the Euro and strengthening of the EU will reduce FX painting for the European markets and stabilize European economies. European Central Bank will control interest rates in Europe do Barclays more defenceless to its decisions (versus the decentralized banks prior to the Euro emergence).With an ever increasing number of banks in operation(p) across both political and geographic borders, Barclays must expand its reach beyond the UK to remain competitive and avoid a potential takeover. In doing this, Barclays must consider a passel of threats and opportunities that ar involved with operating(a) outside the UK Threats 1. Operating a multinat ional corporation involves managing across multiple cultures, languages, and economic environments Barclays organizational structure must be flexile enough to adapt to these. . Low brand apprehension internationally would make competition against local institutions costly. BARCLAYS 2 BARCLAYS MATT BARRETTS JOURNEY good-natured HEARTS AND MINDS 3. Relocation abroad requires high groundwork costs. 4. location Barclays and its customers assets across multiple currencies exposes both to fluctuations in exchange rates. 5. Failed expansion into foreign market might maltreat brand image and alienate new customers. Opportunities 1. maturationd global reach and brand presence. 2. Diversified risk. 3. orifice to create new tax streams through new customer acquisition. 4. Gain first mover advantage in emerging markets. 5. Increases attractiveness of Barclays to multinational corporations. b. The Industry Environment Definition An industry is a group of starchys producing products that are close substitutes. In the course of competition, these firms influence one another. Typically, industries include a rich miscellanea of competitive strategies that companies use to pursue above- second-rate returns. In part, these strategies are chosen because of the influence of an industrys characteristics.Compared with the general environment, the industry environment often has a more direct effect on the firms strategic competitiveness and above-average returns. The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses. Porters 5 Forces puzzle is a powerful tool for understanding the dynamics amongst the vanadium key factors that determine an industrys level of rivalry and profit potential. Outlined below, High=H intermediate=M Low=L 1. 2. 3. 4. 5.Threat of New Entrants (or barriers to entry) Supplier force Threat of Product Substitutes Buyer Power Intensity of challenger Discussion Questio n 2 Use Porters Five Forces Model to analyze the retail financial services industry in the UK. Given this abridgment, is the industry attractive or unattractive? The below Porters 5 forces psychoanalysis shows that the retail financial services industry in the UK is a potentially attractive industry due to low threat of new entrants, caterr power, and substitutes. On the other hand, medium buyer power and high rivalry at bottom the industry could appropriate return possibilities.Threat of New Entrants (or barriers to entry) Low ? ? High infrastructure costs Barclays has high brand recognition within the UK, less so in its other markets BARCLAYS 3 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS ? ? Regulatory and security issues make market entry complicated for smaller players NOTE Mergers of alive banks, if considered new entrants, must be addressed given the consolidation trend existing in the market. smaller regional banks could pull customers away from Barclays i f they were to merge and offer more extensive services but hold local roots and connections.Supplier Power Low ? switch costs among IT suppliers low in a fragmented industry Threat of Product Substitutes Low ? Traditional, paper based, systems give way become outdated and are no longer feasible. Asset management advice is preferred by customers over DIY Buyer Power moderate ? ? Price sensitivity of retail consumer (major revenue stream for Barclays) relatively high compared to that of corporate client Switching costs of retail consumer (major revenue stream for Barclays) relatively high compared to those of corporate client Intensity of Rivalry High ? ? Customer loyalty and brand recognition make switching of banking provider less plausibly Large number of enemys within the retail banking space NOTE competition within the industry is based on both price and services The Competitor Environment c. Definition The competitor environment is the terminal subject of analysis requir ed to gain a full understanding of the corporations external environment. A competitor analysis focuses on each company against which a firm directly competes and involves gathering and interpreting selective information about its competitors.Competitive rivalry is the ongoing set of competitive actions and responses that occur among firms as they maneuver for an opportune market position. Especially in highly competitive industries, companies constantly jockey for advantage as they steep strategic actions and respond or react to rivals moves. It is important to understand competitive rivalry because it influences a firms ability to gain and sustain competitive advantages. 3 Is Framework leverage the 3 Is framework provides a thorough overview by grouping competitors into three buckets contiguous competition, impending competition, invisible competition.BARCLAYS 4 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS 1. Immediate contention Immediate competitors to Barclays are considered to be the major financial institutions located in the UK such as Lloyds TSB and RBS. These institutions are gaining increasing presence over Barclays due to their lower cost structures and improved efficiencies. 2. threatening Competition Impending competitors to Barclays include international financial services firms such as Credit Suisse First Boston, and smaller firms operating in one of Barclays business categories such as enthronisation advisory firms (Zoete Bevan, Wells Fargo Nikko). . Invisible Competition Barclays invisible competitors include smaller UK based businesses that focus solely on a product offered by one of Barclays divisions, such as smaller mortgage lending businesses (Woolwich). III. INTERNAL COMPANY ANALYSIS tot internal company factors including capabilities and weaknesses, value chain activities, outline, and financial situation. a. Outline the companys internal capabilities and weaknesses. Definition Capabilities exist when re starts pr oduce been integrated to achieve a specific set of tasks and are frequently developed within a specific functional area.In addition to identifying the companys opportunities and threats from the external environment, another important objective of the situation analysis is to evaluate strengths and weaknesses as input for developing the companys strategies. Discussion Question 3 What are the main capabilities of Barclays? Does Barclays fix a heart and soul competence? Barclays main capabilities include retail financial services and corporate banking within the UK. The companys core competencies (i. e. trengths relative to competitors that give it a competitive edge) include a virile brand presence within the UK, a buckram domestic franchise, new innovative leadership under Matt Barrett, and outstanding (276%) market cap offshoot from 1995-2000. BARCLAYS 5 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS Discussion Question 4 Create a SWOT analysis to understand Barclays strengths and weaknesses. Does Barclays collapse a sustainable competitive advantage in the retail financial services industry? If so, what is the source? Strengths 1. salubrious brand presence within UK 2. 76% growth in market cap from 19952000 3. Strong domestic franchise 4. Strong new leadership with strategic vision (Matt Barrett) Opportunities 1. Opportunity to expand into global markets (Barclays Global Investors only 2% of business) 2. Ability to strengthen existing brand presence within Europe (10% of sales and profits) 3. Streamline cost sharing among business units (HR, IT, Finance, etc. ) Weaknesses 1. Cost to income ratio significantly higher(prenominal) than competition (business units operate as silos) 2. Narrow focus (61% of revenue from RFS, capital division focused on debt products) 3.Limited global presence (80% of profits from UK) Threats 1. Management reluctance to embrace new strategies, demoralized faculty 2. Competitors have lower cost advantage 3. Stronge r global presence of international competitors 4. Dissatisfied institutional investors 5. poor IT systems can inhibit growth Barclays competitive advantage includes its strong presence within the UK market both in terms of locations and brand recognition, strong innovative leadership, and international presence. Barclays business strategy has focused on growth within the UK and has not invested enough capital into international expansion.In a globalizing economy with ascending multinational financial corporations, the lack of a strong international presence is something that could significantly hurt Barclays in the long-term, and even turn it into a takeover target as institutional investors continue to lose belief in the company. b. Conduct a Value Chain analysis to identify value-creating activities. Definition By exploiting its core competencies, a competitive firm creates value for its customers. Value is measured by a products military operation characteristics and by its a ttributes for which customers are willing to pay.Companies with a competitive advantage offer value to BARCLAYS 6 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS customers that is superior to the value competitors can provide. Value is created by innovatively bundling and leveraging resources and capabilities. A value chain analysis provides information relative to primary (inbound/ outbound logistics, operations, marketing & sales, and service) and secondary (firm infrastructure, human resources mgmt, technological developments and procurement) activities.A value chain representation of Barclays primary and take over activities is presented in the diagram below. This information can be used to establish a business strategy which targets select activities to create a sustainable competitive advantage. Primary Activities ? ? ? ? Inbound/Outbound Logistics N/A Operations o Strong focus on Retail Financial work (RFS), account for 61% of revenue o Sold cash, equities, and cor porate finance businesses to focus on debt products Service N/A Marketing and Sales o Strong focus on UK market and low global presence o Reliance on UK brand recognition Support Activities ? ? ?HR Management o administrator committee not performing as decision making team o Higher than average staff expenses put heavy strain on cost structure engine room Development o Management Information serve (MIS) system is outdated and inadequate Firm Infrastructure BARCLAYS 7 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS o Divisions operating as silos (each has own HR, IT, etc. ) o Lack of data driven decision making processes o Introduction of the Euro and the European Central Bank affect Barclays exposure to foreign exchange as well as interest rate changes both for the company itself and its clients Procurement N/A Discussion Question 5 Which components of Barclays value chain have made the company successful thus far? What changes to Barclays organizational structure and fo cus are requirement for Barclays to remain competitive? Barclays has become a major player in the banking industry through strong brand presence within the UK, earning it one out of every five personal customers, and a elucidate focus on Retail Financial Services (RFS). However, both its UK presence and RFS focus have failed to provide a sustainable competitive advantage for the company.In order to remain competitive within the banking industry, Barclays must examine and redesign various components of its value chain including 1. Focus on Retail Financial Services a. Barclays must expand its focus beyond RFS by creating new product offerings for corporate customers and further expanding internationally to give newly acquired corporate customers global access. 2. Outdated and inadequate MIS system a. In order to manage its internal functions efficiently, Barclays must adopt technological innovations and update its MIS system. 3. Lack of data driven decision making a.In order to com pete in an industry driven by statistics and analytics, Barclays must emphasize data driven decisions throughout its corporate structure. 4. Fragmented core divisions a. Operating fragmented core divisions such as HR and Finance creates additional costs as well as bureaucracy and inefficiencies. Barclays must merge these shared services. BARCLAYS 8 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS c. Financial Analysis Definition Financial analysis is used to assess the viability, stability and profitability of a company or operating division.The analysis is done using quantitative historical performance found in the financial coverage documents (Balance Sheet, Income Statement, and Statement of Cash Flows). The goal of the analysis is to understand a companys financial health through its profitability, solvency, liquidity, and stability. Given the financial information provided in the case, it is clear that Barclays is lagging behind its competitors in cost control measur es, and has allowed both PP&E and Staff Expenses to rise above its competitors average. Operating expenses as % of income In addition, an analysis of the companys divisions and their respective earnings contribution reveals that Barclays heavily relies on its Retail Financial Services division for a large portion of its earnings this suggests that diversification might be requisite. NOTE get along analysis into the average contribution of each revenue stream for other players in the industry is needed before diversification can be entirely justified. BARCLAYS 9 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS IV. STRATEGY FORMULATIO NSummarize Barclays strategic position as it relates to its current strategy and the components thereof. a. Summarize Barclays current strategy. Barclays current strategic objective is to drive profits by consolidating internal functions and expanding its international presence. The company is a major player in the UK financial services and ret ail banking industry but has disconnected ground internationally despite rapidly rising market capitalization. Fragmented internal divisions and a lack of aggressive expansion have brought up the need for extensive managerial and structural changes to the firm.This prompted the hiring of a new CEO, Matt Barrett, who established a series of restructuring goals for Barclays to remain competitive. b. Strategic Analysis Definition Conduct an analysis of Barclays business strategy by using the 4 Ps Framework. The 4 Ps Framework is used to understand a companys strategy based on its line ( missionary work, value, and Vision), Priorities, Payments (what it will spend its money on to reach those priorities), and Performance (how it will measure success).By finish the framework, we can analyze a companys current, future, or recommended priorities as well as set forth a path in order to achieve goals and measure accomplishments. Use the 4 Ps Framework to analyze the firms past/current/futu re strategy. 1. Position a. Mission To provide innovative products, excellent careers, positive community contributions B A R C L A Y S 10 BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS b. Values Fact based decisions, customer service, and value maximizing strategy c. Vision To be one of the to the highest degree admired financial service organizations in the world 2.Priorities 1. Develop cross-group synergies to lower costs and improve cogency 2. exposit reach of Barclays brand abroad through strategic alliances/acquisitions 3. Continue to diversify existing business portfolio 3. Payments 1. Invest in adequate IT systems 2. Invest in human capital initiatives to align incentives and boost morale 3. Invest in marketing and strategic alliances/acquisitions in underserved regions/segments 4. Performance 1. Shareholder returns vs. peer institutions 2. Customer and revenue growth (double profits in four years) 3.Increased profit due to lower costs and increased efficiency (reduce costs by ? 1bn) Discuss possible recommendations that Barclays could follow going forward to improve the performance of the company. Determine the decision criteria and also analyze the pros and cons of each recommendation. In order to remain competitive within the marketplace, Barclays must 1. i. ii. iii. 2. i. ii. 3. i. ii. iii. Develop cross-group synergies to lower costs and improve efficiency by Rebuilding core infrastructure to consolidate HR, IT, and Finance groups across individual divisions Reducing costs by 18% (? bn) Realigning incentives to reward value-add decisions Expand Barclays brand abroad though Increased brand presence in Europe to enter top of the inning 5 ranking Strengthening of the brand in US and Africa Continue diversifying the existing business portfolio by Expanding Barclays product and service portfolio to strengthen weak or underrepresented areas to serve affluent/high net worth segments Decreasing reliance on Retail Financial Services by str engthening Barclays Capital and Barclays Global Investors divisions Entering new markets by acquiring major players (e. g. Woolwich). B A R C L A Y S 11BARCLAYS MATT BARRETTS JOURNEY WINNING HEARTS AND MINDS Question Reduce staff expenses Option / Hypothesis Reduce labor costs by increasing automation Decision Criteria ? Cost/Benefit analysis ? Effect on employee morale ? Technology capabilities ? Revenue growth ? Barriers to entry ? Effect on current resources ? Revenue Pros Long term cost reduction Streamlining of processes more control over information flow and analysis Does not cannibalize existing revenue streams Increase global reach and brand presence Diversifies risk Existing customer loyalty and brand presence No need for customer acquisitionCons High up-front cost Lengthy implementation period Technology risk Negative effect on employee morale High cost High risk and FX exposure No trial period Culture clashes, integration logistics Might stretch resou rces too thin Requires investment in infrastructure and human capital Requires new expertise Diversify target markets Increase revenue through new market entry with current product suite Diversify product offerings Increase equity and investment banking focus of Barclay Capital division growth ? Barriers to entry ? Effect on current resources B A R C L A Y S 12