Case Study - Bank of
By Nicolas CAMBUZAT, Kévin CECILE, Antoine KAUFFMANN and Nicolas LEFEVRE
1. The impact of the general environment on the industry. What
factors have contributed to the growths of the sector and
probably to competition? What could become a constraint in
To start with, one should be aware about the History of Banks. First real bank institutions were
created in wealthy merchant cities in Italy like Florence, Venice or Genoa. It took place by the end of
the Middle Age (around the 16th
century). Most of the consumers of Bank services were retailers or
Cities. Then, Great Britain has played a great role in the bank expansion in the 17th
But the real take off of the banking sector took place during the industrialization process, with the
invention of the steam machine in 1790. With the establishment of new firms and plants, often
controlled by rich families, the need of cash increased significantly. The need of money helped to invest
in new machines and in research & development. By the same time, States had to invest in
infrastructures in order to support the economic and social development, like roads or cities
Moreover, people tended to be wealthier and were looking for a way to secure their money. Banks
seemed to be a good compromise as they needed money to loan.
That was the beginning of what we call Capitalism. Banks are both a cause and a consequence of
this phenomenon. Since the industrialization, Banks’ influence on the global world economy has
continually grown, and was accelerated by the Globalization in the late 20th
We could notice through this historic sum up that banks are closely linked to the industrial
development. The factors which have contributed to the growth of this sector are various:
Industrialization, Merchandising, Globalization, States involvement in Economy, Saving money…
To contrast the powerful position of bank sector, we know that by the time of turmoil, like
since 2007, banks are facing some bankrupt risks. And it shed light on the fact that banking system is
based on confidence. If States are not here to support banks during crisis, all the Capitalistic system
could be hit.
As a consequence of these weaknesses, Governments or supranational organizations (like IMF,
WTO…) should take some actions to restraint the freedom of action of banks, to control them even
2. Past and actual competitive situation of the industry. Is it worth
to invest? And if how should the investment look like?
To analyze the competitive environment of the banking sector, it is worth to split the range of
study into 2 parts: before and after the 1980’s. Before the decade of 1980, the competition level of
the sector was quite low: huge major companies were controlling the market with the support of
Governments. But with the end of the Cold War and the beginning of the Globalization, new comers
have chosen to enter the banking sector as it was made easier.
Since 1990, in this high-competitive environment, Banks tried to gain productivity in order to
overpass their competitors. They were also looking for new products or services to offer to their
customers. Among these, there were offering some dangerous and risky investments, the most
notorious one are those based on subprime. This kind of products have certainly triggered the
economic crisis that the world is currently facing.
Investing is one of the opportunity given by our economic system, thanks to investment banks. It
is a best way to make money easily, but demands a good beginning amount. There are various ways
to save money: the riskier one is a joint venture capital mutual fund, but could raise a nice amount of
money. In the opposite, there are a lot of safety placements like for instance home loan plan, or saving
accounts. Even if these solutions are very safe, the interest rates have decreased a lot these previous
I. What are the resources and capabilities the bank of your
choice owns and can rely on? What is their competitive
advantage and how is it developed and protected?
For the industry, we would have spoken of productivity, machines and so on. Here, it is quite
obvious that money is not the main item that
banks sell: they sell technology, mainly for
data processing and safety. Recently, Bank of
America invested in state of the art
information and data processing systems. It
has now strong databases and computing platforms. But in addition, Bank of America knew how
to use new technologies to serve its customers with Mobile Banking: Indeed, it gives a huge
competitive advantage to BoA and its chiefs know it and will increase the impact that it has on the
way people use their money every day! Now, we can say that all of the banks, and especially Bank
of America, are technology companies.
In 2013, the turnover of BoA reached 85 billion dollars. It is also the second non-
oil company after the big Wal-Mart Stores, by revenue, and one of the first companies
of the world in terms of capitalization.
“Bank of America is well managed”, said famous Warren Buffet. And we will not make
him an enemy! It actually seems to be true: In 2013, the turnover of BoA reached 85
billion dollars. It is also the second non-oil company by revenue after the big Wal-Mart
Stores, and one of the first companies of the world in terms of market capitalization.
The general and administrative expenditures reached $50 billion, and the net income was $11
billion, so we can notice that BoA found a good balance between their expenditures and resources.
Year over year, BoA succeeded in increasing revenues, + $4B, and the most impressive is that they
have been able to cut in the expenditures devoted to selling. BoA has a good financial health, even
if the economic situation and some lawsuits led them to be in difficulties.
Bank of America is a major employer with more than 200 000 people working for it.
Analyzing the working conditions of Bank of America’s employees, we cannot but see the
importance of the Big Data. This new software has been implemented first to select the best
candidates among all the applications, so that it optimizes the human resources within the
company, but once people have been recruited, the Big Data can detect the reasons why
employees want to resign and helps the HR Managers anticipate and take the best solutions.
Now that we have seen the resources owned by Bank of America, we will study how they are
used, mainly through a SWOT analysis
a. SWOT Analysis
First, despite the highly competitive banking sector, BoA is leading the market position in
the US with a strong growth in core banking activities. It has an outstanding capital management
and dividend policy. And they show a very good innovation capability in their services of course
(enabled people to pay with their phone for instance), but also in products (application for a patent
for a new biometric ATM). Finally, it had a lot of success in providing retail banking and wealth
In spite of its good financial health, BoA shows a net interest margin which is going down
slowly, quarters after quarters. Then, its assets quality is deteriorating and its endeavor to cut in
expenses is rarely successful.
With the new technologies of information and data processing, Bank of America can
continue developing new means of payment and bet on wealth management and sales of
consumer banking operations. It can also develop acquisitions of financial corporation in the
country like they have been doing so far.
The subprime issues has reinforced the general distrust which can represent a huge threat
against all the banks and Bank of America, also because of increasing regulatory pressures and
volatility on the markets.
So far, we can say that physical resources are well used and it gives a strong competitive advantage
to Bank of American against its competitors, especially with its large innovation capability. And a
good financial management warranties the health of the firm, even if some threats inherent to
the current economic downturn and the market appeared.
But the real competitive advantage of Bank of America is the value chain organization that follows:
b. Bank of America’s value chain
Bank of America, contrary to almost all American companies which use Type-D, use the Type-
C Merger which is led by 3 main features: the regulatory issues, demand-side issues which is the
structure of the market and customers desires, but above all, characteristics of services involved:
Bank of America is one of the world’s biggest financial company and Merrill Lynch, one of the
leading in the capital market so they can get the best of both companies and the huge economies
of scale they make give them an exceptional competitive advantage.
We can conclude saying that Bank of America’s strategy of diversification and its value
chain is the most powerful competitive advantage of the firm. In addition, a good (financial)
management and state of the art computing systems make Bank of America able to keep this asset
with a considerable edge on most of its competitors. The second advantage, the Mobile Banking
system, will grow scope in the years to come: Bank of America plans to close some other branches
of the firm in order to favor Mobile Banking and save money.
Bank Of America
II. Draft a value chain for the bank of your choice as well as a
value system for the banking industry?
First of all, let’s take into account that the banking value chain has to be taken apart from
the others. Indeed, this one being completely different from other firms, we have to keep in mind
that two different ways of defining a value chain in the bank industry exists: the one based on
customer needs and the one based on services. We could assimilate “raw materials” as being the
lenders and borrowers (individuals as well as corporations) which both of them will appear at the
beginning and the end of the value chain. As we have said just before, we won’t speak about
products but services which can be divided between financial intermediaries and credit
As a consequence, the question remains the following for each type of banks: Do people
need checking accounts or do they need financial services like checking accounts? Now, let’s have
a look on the way Bank of America chose to organize their chain value.
Marketing: First of all, Bank of America spreads a very good image of itself by integrating
a social dimension. By giving an environmental sustainability (for instance, bank of America
committed $70 million over 16 years in order to help transition to a low-carbon economy) or by
supporting and expertizing nonprofit organizations (which helps local economies) made their
customers to trust their bank so that they remain faithful to Bank of America.
On top of that, the employees also significantly impact the image of the bank by volunteering their
time and making donations to local organizations. This is a double impact strategy: first, it helps
to bring the employees to work together and more efficiently, then, it provides a sense of
community. People working in Bank of America are led to work like a team and brings the company
to act like a community in which employees feel good to work for.
Acquisition: Bank of America paved its way since 1998 to come up now as being one of
the leading bank in America thanks to a lot of acquisition processes. It results that each acquisition
from the Bank of America went strategic since it brings additional services or/and products to the
The purchase of Countrywide Financial helped them to provide a return on investment and the
option to purchase common stock.
The acquisition of MBNA importantly expanded their size and range of services as well as it
increased their revenue. Since then, Bank of America became a leading domestic and foreign card
Merrill Lynch was acquired and saved from bankruptcy. This acquisition granted Bank of America
to be the largest financial services company in the world.
Eventually, thanks to the purchase of Lasalle bank Corporation, Bank of America possessed in 2007
$1.7 trillion in assets.
Products and services: They are the main focus of the organizations. It allows the bank to
makes its profits and, by choosing a strategy of proposing a wide variety and diversity of products
and services they are able to target a lot of segments. As a consequence, everybody may be
interested about what suggests Bank of America.
Value system: organizations are part of a wider system of adding value, including the supply and
distribution value chains and the value chains of the customers. The value system for the banking
industry could be simplify as follow:
Marketing Acquisition Products Services
-finance and insurance
Loans from public
III. What strategic options exist for the Bank of America to grow
in the market?
First of all, strategy options are vital for Bank of America which is the biggest American
bank in the United States of America in terms of market capitalization.
As of 2010, Bank of America is the fifth largest company in the United States in term of total
revenue and the third largest non-oil company in the U.S.
Thereby, its long-term objectives is to grow by providing "annual earnings per share growth in
excess of 10 percent." And they "expect to grow revenue by 6 to 9 percent, creating positive
operating leverage," in order to achieve those goals Bank of America has some strategic options.
To increase their power, the market Bank of America has 2 main business strategy options:
on the one hand, a strategy of diversification and on the other hand, a strategy of
To begin with, the strategy of diversification: this option is an environment-based option
which means that this option derives from the environment organizations.
By using the matrix Ansoff (it is a matrix which allows us to classify company strategies and
facilitate the decision-maker), we can see that the first option for Bank of America is
diversification. That is to say that Bank of America can acquire new activities and offer new
products or services to their customers in order to differentiate from competitors and earn new
Indeed, in the environment, more precisely, in the banking industry nowadays and
especially by Bank of America this option is hugely used to grow in the market enhancing its
available products and services.
Another strategic option to grow in the market is acquisition. Bank of America had done
several acquisitions, thus they had already take advantages of their environment for expansion by
this strategic option as we previously said in the second question. They used acquisition for
diversification, therefore a possibility could be to go further into this strategic option.
Then Internationalization, this option is a resource-based option in other words option
derived from the resources organizations.
According to their resources, in 2013, the turnover of Bank of America reached 85 billion dollars.
Bank of America can easily spread their activity outside the USA and grow in the market. They can
develop their products and services in foreign countries such as emerging countries. There are
opportunities, we know that banks makes better margin in emerging countries than in their own
thanks to the economy of scale, there are less competitors and taxes and lower than in western
countries and on top of that, the demand from potential customers is important, it is increasing
proportionally to the demography and a young population is interesting for a bank, they are more
sensitive to a new service and product and their goal is to get people more faithful.
To conclude, we can say that Bank of America has good opportunities to grow on the
market thanks to strategic options which can use the critical key factor of Bank of America.
What option would you choose based on which criteria?
To choose a right and successful option, Bank of America’s strategy must be consistent
with the environment of Banking industry, and their own competitive advantages and resources.
Nowadays, Bank of America has a powerful strategy of diversification, which is efficient
thanks to our analysis we would choose another option that is internationalization because based
on critical success factor, Bank of America knows a great success in marketing, they have an
effective communication. And in addition to that, they have the financial resources to grow up
abroad and settle their company.
Eventually, one of the competitive advantage of Bank of America is that they are very good
in mobile banking. Indeed it comes up to be more and more practical to use bank service on a
mobile phone, portable devices. Mobile banking is very popular and successful in emerging
countries for example in Kenya people using mobile banking had increased by 200% between 2010
In emerging countries people have trouble to access to a bank agency because it is only in big
cities, so mobile banking such as Bank of America is very desired by customers.
1/ Bank of America – Essay on Mobile Banking, Ashlee Blair, 2011.
2/ Research on the Merger and Acquisition between Bank of America and Merrill Lynch & Barclays
and Lehman Brothers, Badal N. Bharatia, 2008.
3/ The Story of Bank of America by Bessie R. James and Marquis James, 2002.
3/ Buffett Invests $5 Billion in Bank of America, BEN PROTESS & SUSANNE CRAIG, New York Times
AUGUST 25, 2011.
5/ http://www.forbes.com/lists/2010/18/global-200010_TheGlobal2000_ Rank.html