Strategic Plan for Bank of America

Bank of America

Vision and Mission Statement and Long-Term Objectives

The mission statement of Bank of America (BOA) is that the actions of individuals working in tandem build strong communities and businesses such as BOA are obligated to support the communities that it operates in and serves. The vision of the BOA Company is to become the finest financial corporation in the world. Thus, the Bank of America plans to use its proficiencies to generate economic value in the communities and regions where its customers live and work. The purpose of the company is to assist in improving the financial lives of its consumers and clients. The long-term objectives of the BOA include increasing its market share, increasing its consumer base, increasing its level of profitability, decreasing its overhead expenses, and decreasing the service fees that it incurs (Bank of America Website, 2015).

Bank of America's Background as an organization

Bank of America has the repute and status of being the best, as well as the largest, bank in the United States (U.S.). In addition, the financial institution is the largest bank in the United States with regards to market capitalization on the basis of assets. The head offices of the Bank of America are located in Charlotte, North Carolina. Presently, the organization offers its services in more than 150 nations, and has affiliations with most of the companies listed in the Fortune 500 as well as over 80% of the Fortune Global 500 companies (Wood, 2014). Having acquired Merrill Lynch in 2008, the bank became the world's biggest wealth manager; it manages over 2 trillion in wealth and is a forerunner in the investment banking sector (U.S. Securities and Exchange Commission, 2012). In accordance with the corporation's annual report, the banking and non-banking divisions offer a comprehensive portfolio of financial products and services through key business segments. These business segments include Consumer and Business Banking, Consumer Real Estate Services, Global Wealth and Investment Management, Global Markets, and Global Banking (Bank of America Corporation, 2015).

Industry Analysis

Bank of America is set in the banking industry and also the publicly traded financial institutional services. In terms of structure, the banking industry's structure is monopolistic competition. This is a kind of imperfect competition that is centered between monopoly and perfect competition. This is because every bank in the banking industry has a certain level of monopoly power over its own brand, because no other entity can produce the same brand, although the products and services are differentiated substitutes. In addition, there are numerous buyers and sellers in the banking industry; companies have the freedom to enter as well as exit from the banking industry (Mudida, 2003).

Figure 1 below illustrates the life cycle of the banking industry. As indicated, the industry is at its maturity in the present. The growth period of the banking industry took place in the 1800s, with several establishments coming up as banks. In the present, the banking industry has come to be a mature industry that encompasses banks, financial institutions, mortgage firms, and financial investment companies. In addition, the industry has embraced technologies and innovations such as mobile banking and also online banking, which shows that the industry is at its prime.

Maturity

(Present)

Development

(300 -- 400 AD)

Introduction

(Ancient times)

Growth

(1800s+)

Time Period

Figure 1. The Life-cycle of the Banking Industry.

In terms of Porter's Five Forces Analysis, Bank of America does not face any risk in terms of entry of new firms into the industry. This is because establishing a bank requires a high level of capital and experience, making it harder for firms to enter. In addition, the buyers have no bargaining power as they require loans and deposits from the bank. Therefore there is a low risk with respect to bargaining power of buyers. The same case applies to the risk for bargaining power of suppliers. However, Bank of America faces high risk in terms of the rivalry among established firms. The bank faces stiff and extensive competition from rival companies such as JP Morgan, Chase, and Wells Fargo Company. The bank also faces international competition from companies such as the Industrial and Commercial Bank of China Limited, and HSBC Holdings PLC. The Bank of America also faces high risk in terms of the potential threat of substitutes. There are a wide range of products and services offered in the banking and financial institution industry that can be easily substituted by the various companies in the industry (Bank of America Annual Report, 2014).

Competitive Analysis

The BOA faces competition from banks, investment companies, credit unions, insurance companies, mutual fund companies, investment advisory companies, investment banking corporations, credit card issuing firms, electronic commerce, internet-based corporations, and mortgage banking companies. The bank faces competition from these entities on both regional and global levels, as well as on a product basis. The competition that the bank faces is centered in different factors that consist of the quality and range of products that are offered, types of customer service rendered, interest rates on loans and deposits, the repute and status of the bank, credit and loan limits, and consumer convenience. The capability of the bank to continue competing in an effective manner is dependent on the ability of the bank to attract new personnel, retain and motivate its prevailing employees, and manage reimbursement and other expenses (Bank of America Website, 2015).

Bank of America operates in a highly competitive setting. The bank is registered as a publicly traded financial services institution. Some of the financial institutions that offer intense competition to the company in the same market and/or industry include Wells Fargo & Company (WFC), Citigroup and JP Morgan & Chase Company (JPM).

i. JP Morgan & Chase Company (JPM)

JP Morgan & Chase Company is one of the leading international financial services company; it is also one of the biggest banking institutions in the United States, and has business operations all over the world. The financial institution offers fierce competition to Bank of America, as it has the second biggest hedge fund in the United States. In addition, the financial institution offers competition as it offers financial services such as wealth management, asset management, private banking services, and treasury and securities services. The bank also offers retail banking and also commercial banking activities. Being one of the top four banks in the United States, the bank is one of the major competitors of Bank of America. In addition, it terms of assets and market capitalization, the bank is the second largest company in the world (JP Morgan & Chase Company Website, 2015).

ii. Wells Fargo & Company (WFC)

Wells Fargo & Company (WFC) is one of the four biggest banks and financial institutions in the United States and therefore one of the major competitors of Bank of America. The company is a global banking and financial services firm and it is ranked number four in terms of assets in the United States; it is also the biggest bank with regards to market capitalization. In addition, the company is a major rival as it is the second biggest bank in terms of deposits, debit cards issued, and services offered for home mortgaging (Wells Fargo Company Website, 2015). In the year 2014, the bank was mentioned and acknowledged as having the most valuable bank brand for the second year in a row (Haigh, 2014).

iii. Citigroup The bank is a global banking and financial services company whose headquarters are based in the state of New York. The company was created after two financial institutions, Citicorp and Travelers Group, merged in the year 1998. The bank offers stiff competition to Bank of America as it is the third biggest bank holding corporation in the United States with regards to assets. In addition, the bank offers competition in the global market as its major shareholders emanate from the Middle East as well as Singapore. More so, prior to the financial crisis that took place in the year 2008, Citicorp was ranked as the largest corporation in the world as well as the biggest bank globally. Despite the losses suffered, the company was helped by the government through emergency aid which the bank has since then repaid in full (Citigroup Website, 2015).

Financial Analysis

The financial performance of Bank of America in the past three years has not been a consistent one. According to the annual report of the company, the economy of the United States continued to grow in the year 2014, culminating the year in the middle of the nation's sixth successive year of recovery. The financial income of the company largely declined, due to the payments expected for the payments of charges that are linked to the settlements with the United States Department of Justice (DoJ). The deteriorations in the net interest income of the bank were largely as a result of lower net interest income from the assets, and also lower loan yields Bank of America Annual Report, 2014).

Financial Data of Bank of America for the years 2012, 2013 and 2014 (in Millions) as of December 31, of every year and the company's Earnings per share (EPS)

Bank of America

Year 2014

Year 2013

Year 2012

Net Income

4,833

11,431

4,188

Revenue

81,972

89,801

84,235

Assets

2,104,534

2,102,273

2,209,974

Equity

243,471

232,685

236,956

Dividends Paid

2,306

1,677

1,909

Share price as of December 31

18

16

12

Earnings per share

0.69

0.94

0.26

The financial position of Bank of America in the past three years has not been a consistent one. The net income of the company increased between the years 2012 and 2013 from $4,188 million, to $11,431 million. Thereafter it largely deteriorated to $4,833 million. The same case applies for the revenue generated by the company, which increased from $84,235 to $89,801 between 2012 and 2013, but declined to $81,972 in 2014. The asset level and equity level of the company has been fairly consistent throughout the three-year period. However, the performance of the stock of the company has been quite impressive and positive as the share price of the company rose from 12 cents to 16 cents in 2013 and in the past year rose to 18 cents. The earnings per share of the company has also been inconsistent in the three years. The earning per share of the company increased from 0.26 to 0.94 and thereafter deteriorated to 0.69 (Bank of America Annual Report, 2014).

Technique Analysis

The technique analysis in this particular discussion included brainstorming. The brainstorming session encompassed taking into considerations the different alternative strategies and also the manner in which the company would employ the strategies in attaining its long-term objectives.

Strategy Levels

Strategies can be defined as the determination of the long run objectives of a company or business, the adaptation of different courses of action and the apportionment of the resources which are necessary for undertaking these objectives. When it comes to corporations and companies, there are three different levels of strategy (Rugman, 2002).

i. Corporate Strategy

This level of strategy outlines the scope or the extent of the business with regards to the industries as well as the markets that the company competes in. This level of strategy consists of various and wide range decisions concerning vertical integration, diversification, acquisitions, mergers, new ventures, the apportioning of scarce resources between different business departments and divisions.

One of the corporate strategies that the company has largely employed over the years is mergers and acquisitions, vertical integration and horizontal integration. For instance, in the year 2004 the bank acquired Fleet Boston; in the following year the company acquired Work, Inc.; and in 2007 the company acquired LaSalle Bank. The most famous transaction Bank of America had is its merger with Merrill Lynch. This enables the bank to have greater and wider access to global markets. In addition, these mergers and acquisitions go hand in hand with the diversification strategy that is currently being taken into consideration. The advantage that the company has in vertical integration is that it generates increased revenues, and also has increased controls over its business operations not only internationally but domestically. In addition, in horizontal integration, such as the merger with Merrill Lynch, the company benefits by having reduced competition in the market and in the industry as a whole. However, there are a number of disadvantages that the business faces in the sense that it becomes subject to anti-trust legislation. For instance, Bank of America is still making payments for charges that are linked to the settlements ordered by the United States Department of Justice ((Bank of America Annual Report, 2014).

ii. Business Strategy

This level of strategy encompasses the manner in which the company competes within a certain market, sector or industry. In order to succeed and also win, a business division or department has to adopt and implement a strategy that establishes a competitive edge or competitive advantage over its main rivals (Galbraith, 2005).

A business level strategy that is successful is one that generated economic value. This covers the spread between the observed consumer value and the cost incurred for servicing that particular consumer. With regards to Bank of America, the company would have to offer a greater value to its consumers at a lower cost. However, in the developed and exceedingly competitive banking industry, this is quite a challenging task. This range that exists between the value and the cost is regarded to be the competitive advantage. Bank of America can employ two competitive strategies to increase this gap between value and cost; these are the differentiation strategy and the cost leadership strategy. In terms of differentiation, the bank employs innovation to come up with trailblazing products and services compared to its rivals. In addition, the company can strive to unveil future technologies such as mobile banking, predictive services, and also online banking. On the other hand, with regards to cost leadership, the bank ought to strive to have lower expenses and prices, and also have advancements and improvements in its business operations. Bank of America has the ability to leverage a large innovation proficiency to differentiate itself in a very advanced and competitive market. This in turn successfully raises the supposed service values among its clienteles and consumers and even decreases its own cost of service in the end (DePamphilis, 2012).

iii. Functional Strategy

This level of strategy encompasses the actions and activities which take place at the business operation level of the corporation. It encompasses the comprehensive and in depth deployment of capital and resources at the operational level of the business.

Alternative Strategy

The main strategy selected for the company in attaining its long-term objectives is to employ the differentiation approach. This implies that Bank of America ought to make use of innovation and advancements in technology to come up with pioneering products and services that are better than what the competitors have to offer. In addition, the bank ought to make use of future and advancing technologies, such as online banking and mobile banking to further this strategy. This particular strategy will enable the company to attain its long-term objectives, which include increasing the market share of the company, and also increasing and extending the consumer base of the company. This will in turn enable the bank to increase its level of productivity.

The alternative strategy that the bank can employ is to decrease the costs it incurs for the business operations.

SWOT Analysis

SWOT analysis is a useful method that is employed by a company for ascertaining its Strengths, Weaknesses, Opportunities, and Threats. The company can make use of this technique to ascertain the internal and external factors and how they have an impact on the company, not only in the present but also in the future as well (Warner, 2010). The SWOT analysis of Bank of America is detailed as follows:

SWOT Table

Strengths

i. Recognition in the local and global market

ii. Strong Network in the Banking Sector iii. Wide -- Ranging Portfolio of Products and Services

Weaknesses

i. Poor financial performance

ii. Overreliance on the United States market

Opportunities

i. New unveilings of products and services

ii. Strategic initiatives

Threats

i. Interest rate fluctuation

ii. Increase in compliance costs iii. Altering and changing rules and regulations

Analysis

Strengths

i. Recognition in the local and global market

Bank of America has strong recognition in the global market; this generates growth possibilities for the bank. The company is the largest bank in the United States and one of the biggest financial institutions in the world. Bank of America has a strong and resilient brand not only domestically but also internationally. In addition, the financial institution undertakes quality business operations. For example, in the past year, Bank of America was recognized by Bloomberg and Institutional Investor magazine as one of the top financial services companies and top international research firm. With such exceptional performance in the financial market compared to other financial institutions, this enables Bank of America to acquire new business relations in an easy way (Global Data, 2015).

ii. Strong Network in the Banking Sector

A strong network in the banking sector across the international market assists the bank to create operational proficiencies. Bank of America is one of the largest financial institutions in the world, serving a wide range of consumers, from individual customers to small, medium, and large companies. The bank offers asset management, investment, banking, and also risk management product and services. In the preceding year 2014, Bank of America served nearly fifty million affiliations in over forty nations. In addition, it has a robust online banking network that has more than thirty million users. Having such a robust network gives Bank of America a competitive advantage while rendering its services to its diversified consumer base (Global Data, 2015).

iii. Wide -- Ranging Portfolio of Products and Services

Bank of America has a wide ranging portfolio of products and services which enables it to offer services to a wide range of consumers. The bank provides a range of investment, banking, risk management, and asset management programs, as well as other financial products and services. The portfolio of the bank encompasses personal and business loans, savings and checking accounts, and also debt and credit cards. In addition, the financial institution also offers investment advice, treasury management, foreign exchange and also online banking. This comprehensive portfolio pushes the top level performance of the bank (Global Data, 2015).

Weaknesses

i. Poor financial performance

A weakness that Bank of America faces is its weak financial performance; this is an aspect of some concern to the company. In the period between the years 2009 to 2014, the revenue generated by the bank has declined at a compounding rate of 8% with a decline of about 6% per annum. This deterioration in the revenues of the company came about as a result of premium remuneration on debt securities that are market related, decreased interest income generated from assets, as well as liability management, and decreased yields from loans and consumer loan balances. In addition, Bank of America reported a decline in its operating income and net income levels. In the year 2014, the operating income level of the company was reported to be $6,855 million dollars which is a 57.6% decline from the preceding year of 2013. The same can be said of the net income of the company. These weak financial performances will have an adverse impact on the consumer confidence as well as its investors.

ii. Overreliance on the United States market

One of the major weaknesses that Bank of America faces is that it is over reliant on the United States market for the revenue that it generates. This in turn might adversely impact its business operations if by any chance the U.S. market faces any kind of political, monetary and economic change. Even though the bank is globally present and recognized in the Asian, Latin American and Caribbean markets, the majority of the revenue generated emanates from the United States. For instance, in the year 2014, Bank of America generated over eighty five percent of its revenues in the United States market. This over-dependence on the U.S. market increases the business risks that the bank faces (Global Data, 2015).

Opportunities

i. New unveilings of products and services

Launches for products and services made by Bank of America will assist the company in steering its performance by offering services to a bigger consumer base. For example, in the present year, the bank unveiled Bank of America Merrill Lynch Travel Pro, which is meant to serve as a transfer payment solution. In the preceding year, the bank unveiled Apple Pay, which is a mobile payment service for consumers and businesses. The introduction of these innovative products and services into the market assists the bank in catering to the constantly fluctuating and altering demands of the consumers, and also be able to be of service of the diverse markets in a more efficient manner (Global Data, 2015).

ii. Strategic initiatives

The strategic initiatives of the Bank of America will positively influence its performance on the top level in terms of advancing forward. For example, in the past year, the bank extended its operations in Canada. In addition, the company came to an agreement with Earthport to enlarge its low-value payment competencies. This initiative will assist the bank in enhancing the efficiency of its payments, which are of high volume and low payment, and in turn offer comprehensive payment dispensation solutions in more nations. Bank of America will largely benefit from these initiatives as it will be able to increase its consumer base and its reach to the target market which will increase its performance (Global Data, 2015).