BBA-Strategic Analysis - Essay Example

Topic:  BBA-Strategic Analysis* refer to order instructions*   Appropriate tools and techniques of strategic analysis (Thomson & Strickland, 1999) are used to examine current trends and issues in the business environment of the banking industry (Holmes, 1998). In a related news in Redmond, Washington, Nov 6, 2002, it stated that although the US investment (Harrington & NieHaus, 1999) banks have been hit by mergers and consolidations due to the stock market downturn, the long period of low interest rates have assisted the commercial banks (Sussland, 2000) to more than recover the credit losses and generate record earnings according to Federal deposit insurance corporation in 2002. The trend in the banking sector is to provide financial services to the smaller companies and individuals. The information technology, especially the use of Microsoft programs, have helped much hasten the banking transactions by allowing clients to transact business thru the internet without even stepping into the bank premises. This is what Geurden, of Microsoft’s financial software programs. He was formerly connected with the JP Morgan bank. There are now relevant trends in the banking industry according to Geurden of Microsoft. According to Geurden, some banks are good at customer management or even in creating customer access points. The banks plan to focus on the customer service area and outsource the other banking functions like creation, running and operating technologies that implement new financial products. Most banks now days outsource of their technical jobs to data centers. Even bank of America is outsourcing its many parts in the banking infrastructure and this includes the automatic teller machines. Large banks such as the world well known Citibank go even further by putting into place a full range of financial services within each one stop shop bank location to service their clients’ banking needs (Rubin & McNeil, 1977). The banks are in much need of flexible information technology infrastructure to integrate and hasten the accurate reporting of banking services applications with the banks’ bank – end systems. Another trend that banks are happily engaged in is that the banks are convincing companies to outsource the financial services jobs to them. A big bank, Nordea of Scandinavia, even gives companies access to automated payment processing with Microsoft’s Biztalk accelerator for accounting services. According to Microsoft’s Geurden, investment is being made in the enterprise application integration or EAI program. It is the general consensus that most banks concentrate their marketing strategy to customer centric, multi channel middleware infrastructure to now give its clients smooth and prompt service experiences. Many big banks were originally smaller banks that consolidated and merged to form a big bank. The advantage of mergers and consolidations are that the formerly competitive banks can now share a common database of customers and to blaze the other combining partners’ uncharted territory t generate more sales and interest income. Insurance and brokerage is now a new marketing strategy that banks implement to get a bigger share of the customer market pie. Business combinations bring together the talents and expertise of different companies for an integrated approach to increasing its customer database and interest income increase. Several banks are presently implementing the EAI philosophy to computerize and eliminate human intervention in some mechanical processes such as least cost routing of payments or integration. The ultimate goal of all banks to increase its market share of the interest income is to completely automate the banking system. The automated banking system is used by clients to fill their immediate banking needs. The aim of EAI is that the banking process will be straight through processing (STP). The computerization of the banking systems hastens the time for paying and depositing with the banks. According to Geurden, Banks are aiming for the day when there will be a fast return on investment. Along with the fast internet and email services offered, security is also the utmost importance. Payments and deposits can now be collected from the bank. Datacenter of the United States says that it has served salary and other employee payment) thru it’s ATM card 7,000 students per second. JP Morgan bank has taken steps further by taking its electronic banking to its customers. There is a clear trend that private banks will now concentrate on customers who invest in the capital markets. Reuters is also a real time on time software programs so banks can be updated as well as the clients of the bank thru the internet connection. Biztalk financial services acceleration is currently in operation to provide the banks and the customers immediate answers to frequently asked business questions. Banks can easily see Web services developing in the banking sector? Outsourcing of jobs is now being implemented. Right now customers can ask thru the internet their bank balances or when they had contribution. Customers can now ask for their bank balances thru the internet. The customers can withdraw money anytime anywhere as long as there is an automatic teller machine in sight. Banks can now communicate confidential financial information between and among its other branches online thru the internet. The treasury department can communicate with the marketing department as well as the central management department thru the internet. Web services would be a more flexible solution. The standard communication protocols used will make it easier to reconfigure business processes. The internet makes the business agile. Many banks now outsource their banking services to the self service call centers. The withdrawal and deposit of money can be done thru the automatic teller machines and even thru the world wide web. But there are still other banking functions that are better done on a face to face personal basis. This includes the opening of a bank account and asking for asking for loans for investing in money market time deposit and other banking services. Banks now are not afraid to put up many branches in far away communities because of the online connection with the internet. Generally, commercial banks will have to put their big money investment in face to face customer transactions and the integration of many banking services and branches thru powerful intervention of the internet. Political – The government has set up rules and regulations that will protect first and foremost the customers. Because when the customers trust in one bank’s integrity, the ripple effect will encroach on the territory of other well meaning banks. Due to the strict government regulations such as the truth in lending act and the identity theft law among others, the customers are protected against fraud and other untoward banking unwarranted acts. Government also makes laws to protect the confidentiality and privacy of its customers. Banks are not allowed to divulge the bank account amounts and account numbers of its customers without the customers’ consents or unless the judges of the courts command the banks to divulge such information in pursuit of monetary cases. Economic – The banks acts as the depositary or “piggy bank” of the clients. Customers can pay using post dated checks or cashier’s or even manager’s checks. Customers feel secure that the money they deposited in the bank will still be there two or twenty years from the time of deposit. Transactions between customers, suppliers and companies are done thru the bank intermediaries. The customer deposits in a bank in New York and the company can withdraw the money in Alaska in short period of time. If there were no banks, then the customer will have to mail the money thru the post office or other mailing companies. This will result to the customers’ sleepless nights fearing the check or cash may be misrouted or lost along the way. Social – Banks will hire employees who live near the bank’s branches and offices. This will help the employees earn money and the employee can now feed his personal and family needs. The bank pays taxes to the location where the bank is located and helps the government defray its daily expenses. Technological – The internet has increased the speed of banking transactions. The customers’ trips to the bank will be reduced by three fourths of the previous time because the automatic teller machines and internet can satisfy the banking industry’s clients. Legal – by holding the cash deposited by the customers, the bank legally binds itself to watch that the money will not be stolen. When the customer issues a check and pays his or her payables, then the check will be replaced by cash when the company goes to the bank to withdraw the money. In case there is a insufficient fund situation to cover the check amount, then the company, in this case a creditor, can file a case in court to recover the amount stated in the check. Environmental – Banks help in the environmental cleanliness. Since the customers can now transact their business of deposits and withdrawals thru the internet and automated teller machines, the pollution generated by the customers’ cars traveling to the bank will be reduced. The use of checks in place of cash helps the business to move forward without the paper currency that the law recognizes as legal tender. Therefore the environmental pollution and money paper waste can be reduced. The cost of money paper is very high, thus the checks can be a very good replacement. Competitors - The banks, including the competitors, form an organization where they will police their ranks and come up banking procedures, practices and ethics that each and every bank employee must adhere and implement. By studying the services offered and the service fees implemented by the competing banks, the company can adjust by offering the same banking rates for the same services, by offering higher banking charges for the same services or for the even offer lower banking rates to entice more customers currently serviced by your competitors to transfer to your bank. OPTIMISTIC FUTURE Due to the increase in population, the banks in ten years, are expected to haul in big numbers in terms of new customer deposits every year. When the services offered and implemented keeps up to the discriminating taste of the customers, then the bank concerned will have a more clients to serve resulting to increase banking service income. Based on the increasing arithmetic population growth, the banks will have to increase its branches to far away districts and communities not yet bank served. The Automatic teller machine will be the machine that we can fondly call “man’s best friend in times of need”. The internet has helped double the number of transactions that the companies engage in because the timing difference between the sale or purchase and the actual payment has been lessened to a great extent. PERIOD ENDING 31-Dec-04 31-Dec-03 31-Dec-02 Total Revenue 7,144,000   6,336,000   5,874,000   Cost of Revenue 548,000   507,000   644,000   Gross Profit 6,596,000   5,829,000   5,230,000   Net Income 1,440,000   1,157,000   902,000   The income statement of Bank of New York ( Exhibit A) shows that the sales has increased from 5,874,000 in 2002 to 6,336,00 in 2003 and 7,144,000 in 2004. The Gross profit for 2002 is only 5,230,000. This has increased to 5,829,000 in 2003 and 7,144,000 in 2004. The net income in 2002 is 902,000. This has also increased to 1,157,000 in 2003 and to the higher net income of 1,440,000 in 2004. Therefore the trend in the banking industry, of which Bank of New York is a part, will increase within the ten years from today. The graph of Bank of New York shows that the price of each stock of the bank is increasing creating a trend that the stock price will also increase in the next ten years. PESSIMISTIC FUTURE If the government, in ten years, will not limit the number of banks(Lowenstein,1997) that will be opened in each location, then there will be a saturation of the customer base. This will result to a continuous decrease in the current customers of banks. The banks will result to lowering its bank charges to the extent that its service income will suffer. Banks are known thru history to merge because of the low customer turnout. When news spreads that one bank becomes insolvent, the customers then fill up a long line to get back their money which is, by law, insured by Federal Deposit and Insurance Corporation. When the bank service offered by the banks decreases in quality, then the customer will withdraw their hard earned money and deposit the amount in other banks that can offer better services and lower fees. The OPITIMISTIC scenario is the more likely scenario to occur. This is because the economist Malthus (Samuelson, 1973) stated that the population will increase arithmetically. When the population will increase, then the need for banking services will automatically increase. When the customers increase, then the banks will earn more banking interest and other fee charges. BIBLIOGRAPHY Samuelson, P., Economics, McGrawHill, USA, 1973 Rubin & McNeil, The Psychology of Being Human, Harper & Rowe, London, 1977 Thompson & Strickland, Strategic Management, McGrawHill, USA, 1999 Harrington & Niehaus, Risk Management and Insurance, Irwin, London,1999 Holmes, P., Investment Appraisal, Thomson, London, 1998 Sussland, W., Connected A global Approach to Managing Complexity, Thompson USA, 2000 Yahoo.com (finance.yahoo.com/q/is?s=BK&annual, Feb 14, 2005) Lowenstein, M., The Customer Loyalty Pyramid, Quorum Books, Westport, CT., 1997 Hunter et al.,Core Deposits and Physical Capital: A Reexamination of Bank Scale Economies and Efficiency with Quasi-Fixed Inputs, Journal Title: Journal of Money, Credit & Banking. Volume: 27. Issue: 1. Publication Year: 1995,Ohio State University Press EXHIBIT A Top of Form Income Statement Get Income Statement for: Bottom of Form View: Annual Data | Quarterly Data All numbers in thousands PERIOD ENDING 31-Dec-04 31-Dec-03 31-Dec-02 Total Revenue 7,144,000   6,336,000   5,874,000   Cost of Revenue 548,000   507,000   644,000   Gross Profit 6,596,000   5,829,000   5,230,000   Operating Expenses Research Development -   -   -   Selling General and Administrative 4,088,000   3,577,000   2,751,000   Non Recurring -   96,000   -   Others 49,000   180,000   803,000   Total Operating Expenses 4,137,000   3,853,000   3,554,000   Operating Income or Loss 2,459,000   1,976,000   1,676,000   Income from Continuing Operations Total Other Income/Expenses Net -   -   -   Earnings Before Interest And Taxes 2,459,000   1,976,000   1,676,000   Interest Expense 260,000   214,000   304,000   Income Before Tax 2,199,000   1,762,000   1,372,000   Income Tax Expense 759,000   605,000   470,000   Minority Interest -   -   -   Net Income From Continuing Ops 1,440,000   1,157,000   902,000   Non-recurring Events Discontinued Operations -   -   -   Extraordinary Items -   -   -   Effect Of Accounting Changes -   -   -   Other Items -   -   -   Net Income 1,440,000   1,157,000   902,000   (http://finance.yahoo.com/q/is?s=BK&annual) EXHIBIT B Graph (http://finance.yahoo.com/q/bc?s=BK) Read More