Introduction
The Bank of America is on the verge of substantial changes, as during the 2007-2008 crisis, the organization made inadequate investments and acquisitions. The recent estimations show that the Bank lost almost $40 billion, which negatively affected the growth margins and caused loss of stakeholders’ trust. In this case, the immediate changes are needed to improve financial performance and relations with stakeholders.
Problems and Issues
Loss of Capital on Acquisitions
The primary issue is that the Bank lost a significant amount of capital during the crisis. The problem is primarily connected to the acquisition strategies and collaborations with other financial institutions (Rothaermel & Burt, 2012). The Bank of America made weak analyses and projections on how the market will be developing during and after the crisis.
Unfair CEOs’ Payments
Another issue is that the senior management received substantial paychecks even during the crisis. In some cases, generous bonuses and salaries were not supported by accurate and beneficial decisions so that stakeholders became concerned why CEOs’ paychecks are continuously growing without evident enhancement of the Bank’s financial performance (Rothaermel & Burt, 2012). As a result, the changes within management was made; however, the current Bank’s capital is still declining.
Company Analysis
Internal Analysis
The internal analysis shows that the Bank’s strength is based on its competencies to make advanced strategic decisions. Such a reputation was built before the crisis, as the institution made several successful collaborations, investments, and acquisitions. This tactic assisted the Bank of America to lead the market and show an upward trend on growth margins and share prices. On the contrary, the primary weakness of the Bank is that it does not have adequate tools to manage performance and decisions made by CEOs (Rothaermel & Burt, 2012). The Bank does not accurately analyze and audit solutions and their outcomes so that during the crisis, the financial devastation has happened.
External Analysis
While other banks and financial institutions collapsed during the crisis, the Bank of America saved most of its subsidiaries, assets, and partnerships. Such a situation opens new opportunities for the Bank. It can acquire more market share if the ongoing years are profitable and increase the Bank’s capital. The organization can re-invest funds into new services, client bases, and markets so that the sales margins start to grow (Rothaermel & Burt, 2012). Nonetheless, the Bank’s primary threat is the risk of being under fees and investigations from the market regulators. In the case of inadequate decisions, the Bank risks collapsing and losing most of its capital.
Recommendations
Banks seek to improve operational efficiency while maintaining or improving customer service. The Bank should complete the transition from the transformation in response to changes in the regulatory environment to changes through innovation to reduce the impact of a potential downturn on financial performance and increase business resilience (Rothaermel & Burt, 2012). Considerable investment in process and infrastructure optimization is needed to ensure real efficiency across the organization. The following priorities for development and investment in new technologies should be noted:
- Increased competitive positioning and increased market share;
- Expanding customer engagement and retention methods;
- Reduce costs and increase operational efficiency;
- Decreasing cyber-risks on increasing accounting activities;
- Getting access to new business models.
Banks’ investment in customer-centric technology is primarily focused on user interfaces. The bank should also continue to invest in in-depth data analysis projects to improve efficiency and find ways to increase revenue. The bank needs to understand how current technologies can improve operations efficiency. In the future, primarily due to increased competition, the bank will need to keep its costs 30% lower than today (Rothaermel & Burt, 2012). As the case study shows, the bank needs to focus on expanding its market share by meeting customer needs, including by offering innovative products and services, as well as optimizing tariff policy.
Besides, the Bank should enhance its accounting cycles to regain sales and profitability. The significance and importance of the accounting cycles are based on their capability to navigate the company through its financial activities. There is no clear standard in the distribution of finances, and each financial balance is guided by its priorities (Kehoe et al., 2018). If the Bank wishes to satisfy the needs of its customers as much as possible, it should increase the stock of products in the warehouse. Such action means that resource utilization will also increase.
Expensive fixed assets against capital are also inefficient. For example, the bank should withhold acquisitions if risks or uncertainty is high and spend capital on more profitable and risk-free projects. It is better to utilize money to improve the quality of products or services (Kehoe et al., 2018). If the company invests less in its business activities by taking more investment risks, the profitability will be higher.
It is essential to find the right balance between the desire to improve the growth margins and the risk of losing everything through bankruptcy to profit and raise capital. As a result, the Bank of America can consider these recommendations to enhance financial operations, decision-making processes, and relations with stakeholders. In return, the well-balanced actions and strategic moves should assist the Bank in regaining capital and reputation.
References
Kehoe, P. J., Midrigan, V., & Pastorino, E. (2018). Evolution of modern business cycle models: Accounting for the great recession. Journal of Economic Perspectives, 32(3), 141-66.
Rothaermel, F. T., & Burt, C. (2012). Bank of America (in 2010) and the New Financial Landscape. Harvard Business Review, 1–26. McGraw-Hill Education. Web.