Study of the Operations Management in Barclays Bank Finance Essay

Operations managementA is an area of business concerned with the production of goods and services, and involves the responsibility of ensuring thatA business operationsA areA efficientA in terms of using as little resource as needed, andA effectiveA in terms of meeting customer requirements. It is concerned with managing the process that converts inputs (in the forms of materials, labor and energy) into outputs (in the form of goods and services). Operations traditionally refers to the production of goods and services separately, although the distinction between these two main types of operations is increasingly difficult to make as manufacturers tend to merge product and service offerings. More generally, Operations Management aims to increase the content of value-added activities in any given process. Fundamentally, these value-adding creative activities should be aligned with market opportunity (seeA Marketing) for optimal enterprise performance. According to the U.S. Department of Education, Operations Management [is the field concerned with managing and directing] the physical and/or technical functions of a firm or organization, particularly those relating to development, production, and manufacturing. [Operations Management programs typically include] instruction in principles of general management, manufacturing and production systems, plant management, equipment maintenance management, production control, industrial labor relations and skilled trades supervision, strategic manufacturing policy, systems analysis, productivity analysis and cost control, and materials planning. Company Overview Barclays is one of the leading financial services providers globally.The company is engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. The company's operations are spread across 50 countries spanning over the Europe, the US, and Africa. It is headquartered in London, United Kingdom and employs about 123,000 people. The company recorded revenues of £23,492 million in the fiscal year ended December 2007, an increase of 6% over 2006. Operating income in the fiscal year ended December 2007 amounted to £7,006 million, an increase of 3.5% over 2006. Its revenue growth was due to strong performance from Barclays Capital, Barclays Global Investors, and Barclays wealth. During the fiscal year 2007, its net interest income grew by 5.1% while its net fee and commission income increased by 6.6%. Barclays cost to income ratio favorably declined from 59.8% in 2006 to 58.3% in 2007. However, the net profit fell to £4,417 million in the fiscal year 2007, a decrease of 3.4% over 2006. The company's total assets registerd double-digit growth of 23.1% to reach £1,227.36 billion at the end of fiscal year 2007. Barclays Strategy

Our strategy

Barclays strategy is to achieve good growth through time by diversifying its business base and increasing its presence in markets and segments that are growing rapidly. Build the best bank in the UK Accelerate the growth of global businesses Develop retail and commercial banking activities in selected countries outside the UK Enhance operational excellence. Winning togetherA - achieving collective and individual success Best peopleA - developing talented colleagues to reach their full potential, to ensure Barclays retains a leading position in the global financial services industry Customer and client focusA - understanding customers and serving them brilliantly PioneeringA - driving new ideas, adding diverse skills and improving operational excellence TrustedA - acting with the highest integrity to retain the trust of customers, external stakeholders and colleagues. Barclays Group Chief Executive John Varley said in an opinion piece published on Saturday, 26 June 2010 in the UK'sA Daily TelegraphA newspaper: "Banks have an obligation to extend credit to households and businesses, enabling them to create growth and jobs - it is their prime social purpose." Marketing strategy Barclays Marketing strategy is focused on the customer,their main aim is to attract customer which help the company to grow their market share in quick time with such a fast rate. Their marketing strategy is -Buy to let mortgages are designed for people who invest in the property market by purchasing one or more houses and letting them out to tenants. The importance of this market increased sharply over the last few years. Since 1997, buy-to-let has accounted for four-fifths of the total increase in the number of mortgages outstanding and has seen an 11.1% increase in gross mortgage advances in 2006. Buy-to-let accounted for 9% of the total new loans in 2006 up from 9% in 2003. This market continues to be strong, representing approximately 10% of UK gross residential lending in 2006. While the wider mortgage market faltered in 2005, the buy-to-let mortgage market has continued to deliver a resilient performance and reached an impressive £38.4 billion ($55.6 billion) in gross lending in 2006. Buy-to-let gross advances are expected to reach £69.1 billion by 2011. While a sound macro-economic environment has contributed to the expansion of the buy-to-let mortgage sector, a number of factors specific to this sector have further boosted supply of and demand for buy-to-let properties. Buy-to-let ranks high in the popularity stakes for investors. Immigration, greater job mobility, growth in the number of households and the rise in the student population has been driving the growth in the buy-to-let market.The company has presence in this segment through Its Woolwich subsidiary. Barclays could leverage its market position, brand strength and distribution capacity to further grow in this market. Corporate strategy Extensive network in Europe provides business sustenance Barclays (Barclays) is a leading global financial services provider operating in over 50 countries in Europe, the US, the Middle East, Latin America, Australia, Asia and Africa. Barclays has one of the largest branch networks in the UK with 1,733 branches and an extensive network of cash machines. Barclays' customer base exceeds 30 million. Out of this customer base, UK accounts for 15 million retail customers and more than 724,000 business customers in the UK. This platform helped it become one of the leading credit card providers in Europe. Out of the total 19 million card customers, 8.8 million are non-UK customers. Barclays' strong UK franchise and network in Europe enable it to become one of the leading global financial services providers.Focus on cost efficiencies ensuring relatively higher profitability Over the past few years, Barclays remained focus on cost optimization and was able to contain its operating costs. The company's productivity as measured by its cost to income ratio improved from 62.1% in 2005 to 58% in 2009. A major part of the productivity gain can be attributed to control of underlying costs within GRCB and a reduction in the compensation to income ratio within Barclays Capital to 38% (2008: 44%). In the previous years, the improvement in cost to income ratio at Barclays' UK banking helped the company to reduce operating costs. As a result, the company was able to increase its operating income and net income by high double digit margins in 2009. Focused control over costs enables the company to continually post reasonably higher profits relative to its peers even in difficult global financial conditions. Ability to lend amidst reduced balance sheet size At the end of 2009 Barclays' balance sheet was reduced to one third of its size at the end of 2008. The majority of this came from a decrease in derivative assets. The reduction in loans and advances was largely in Barclays Capital, especially in relation to financial institutions. Adjusted gross leverage improved from 28 times in FY2008 to 20 times in FY2009. At the end of 2009, risk weighted assets at Barclays were reduced by 12% to £383 billion ($610 billion), with the bulk of that reduction coming from Barclays Capital. Core Tier 1 Ratio almost doubled to 10% and Tier 1 ratio reached 13% as the company retained earnings of £9.6 billion. Despite reduction in the size of the balance sheet, Barclays was still able to extend £35 billion ($55.7 billion) of new loans in the UK during 2009. The company's ability to lend amidst resource constraints helps it to maintain a profitable business run-rate. Internation Business Machine(IBM)

COMPANY OVERVIEW

International Business Machines Corporation (IBM) is the world's largest information technology company, engaged in providing business, technology and consulting services. It offers a variety of services ranging from business transformation consulting to software, hardware, fundamental research, financing and the component technologies.The company operates in 170 countries across the world.The company is headquartered in Armonk, New York, and employs about 398,460 people. The company recorded revenues of $103,630 million during the financial year ended December 2008 (FY2008), an increase of 4.9% over 2007. The operating profit of the company was $17,091 million in FY2008, an increase of 18.1% over 2007. Its net profit was $12,334 million in FY2008, an increase of 18.4% over 2007. IBM strategy Marketing Startegy Growing demand for cloud services The worldwide demand for cloud computing services is forecast to record strong growth in coming years. Cloud computing is a computing infrastructure model which enables delivery of software as a service (SaaS). This reduces the upfront royalty or licensing payments, investment in hardware and other operating expenses. As result of its benefits, the cloud services market is forecast to grow by over 20% in 2009 to cross a value of $55 billion. Further, this market is forecast to record a CAGR of 22% to reach value of $150 billion by 2013. IBM has been expanding its presence in this market in recent years. In October 2008, the company introduced cloud computing services for businesses of all sizes in November 2008. Through these services, IBM applies its industry-specific consulting expertise and technology to offer services to companies in public, private and hybrid cloud models. Subsequently, in December 2008, IBM introduced its cloud service for Web conferencing, Lotus Sametime Unyte 8.2 (www.sametimeunyte.com). In January 2009, it introduced LotusLive, a cloud-based portfolio of social networking and collaboration services designed for business. In April 2009, it introduced two new products that allow customers extend their investment in service-oriented architecture (SOA) into a cloud services environment. These new offerings enable creation of application environments that can be deployed and managed in a private cloud. Subsequently, in May 2009, Hubspan, a provider of business integration solutions, and IBM introduced WebSpan, a new SaaS integration platform.WebSpan combined the Hubspan on-demand integration platform and IBM WebSphere integration software into a single platform. It also entered into an agreement with Intuit to deliver Intuit's accounting software through cloud services. Growing demand for cloud services will facilitate the company's revenue and market share growth in coming years. Positive outlook for healthcare IT spending The worldwide healthcare IT spending is forecast to grow in coming years. The healthcare industry is forecast to record over 2% growth in 2009. The increase is driven by healthcare public funding. For instance, in the US, the new government under the leadership of Mr. Obama passed a legislation to spend more than $170 billion in federal healthcare for children's health coverage, public insurance programs for the poor, health IT and disease research. Further, the US national healthcare expenditures, which are the highest in the world, are expected to grow an average of 6.2% every year from 2008 to 2018, according to the Centers for Medicare and Medicaid Services. Additionally, China also announced its intention to spend about $123 billion by 2011 on universal health care for its people. IBM is one of the leading providers of IT solutions. Further, the company has been positioning itself to take advantage of the growing healthcare spending. In April 2009, IBM announced its intention to add a significant financing component to its extensive efforts towards the development of technology solutions related to the US economic stimulus. IBM Global Financing intends contribute up to $2 billion to finance IT initiatives in economic stimulus areas. In February 2009, IBM launched a new suite of healthcare information sharing and analytics technologies at the Guang Dong Hospital of International Business Machines Corporation Page 8 A© Datamonitor

International Business Machines Corporation

SWOT Analysis Traditional Chinese Medicine (TCM), combining the strengths of TCM and Modern Western Medicine (MWM). IBM offers CHAS (Clinical and Health Records Analytics and Sharing), which was designed to enable the sharing of electronic medical records that incorporates TCM and MWM data across the hospital network. Subsequently, in May 2009, IBM opened a Healthcare Industry Solution Lab in Beijing, China to work with hospitals and rural medical cooperatives to address the Chinese government's healthcare reform. The company's constant efforts in a growing health care IT market would ensure steady revenues for its healthcare practice in coming years. Steady growth in IT outsourcing The outsourcing market is forecast to growth despite the economic slowdown in near term. The demand for IT outsourcing would grow in 2009, as organizations try to outsource their non-core operations, and existing players try to find better deals. For instance, in 2008, over 75% of the outsourcing deals announced where new, while remaining were expansions and renewals. IBM is one of the leading providers of outsourcing services. The company will be benefitted from the growth in IT outsourcing in near term. The worldwide demand for various IT products of the company are forecast to contract in near term. The recession in developed economies in North American and Europe, as well as Japan and worldwide slowdown in economy, has resulted in slowdown in demand for IT market. In the US, turmoil in the financial markets, very weak housing market indicators and negative consumer sentiments, has resulted in its real GDP growth to decline from 2% in 2007 to 1.1% in 2008. Further, the GDP of the US is forecast to contract by 2% in 2009. Additionally, the GDP growth rate of the UK, which declined from 3% in 2007 to 0.7% in 2008, is forecast to contract by 2.8% in 2009. The Japanese economy, which entered recession in 2008 by reporting GDP contraction of 0.3%, is forecast to report a decline of 2.6% in its GDP for 2009. This condition created challenging business environment, resulting in contraction of IT spending. For instance, the worldwide IT spending in 2009 is forecast to decline by approximately 4% from 2008. More importantly, IT hardware segment is forecast to report highest decline of all the segments. The IT hardware market is forecast to contract by approximately 15% in 2009 over 2008. IBM is one of the leading providers of IT solutions in the world. The economic uncertainties also affected the company's revenues in the first quarter of FY2009 were. IBM's total revenues reached a value of $21.7 billion in the first quarter of 2009, a decrease of 11% over first quarter of 2008. International Business Machines Corporation Page 9 A© Datamonitor

International Business Machines Corporation

SWOT Analysis Contraction in end markets will continue to affect the company, as customers postpone their capital and replacement decisions. Intense competition IBM is facing intense competition from several large players. In the consulting and outsourcing industry, the company faces stiff competition from Accenture, Computer Sciences Corporation (CSC) and Hewlett Packard (HP). Further, it also competes with the Indian IT services companies, such as Wipro Technologies, Infosys and Satyam Computer Services. In the application infrastructure software business, IBM faces competition from Oracle, Sun Microsystems and Microsoft. In the market for servers, IBM's position is challenged by HP, Sun Microsystems and Dell. Further, consolidation in the IT industry further intensified the competition. Significant consolidations in recent times, include Oracle's acquisition of BEA Systems; SAP acquisition of Business Objects; and HP's acquisition of EDS. Moreover, Oracle entered into definitive acquisition agreement to acquire Sun Microsystems in April 2009. Further, most of these acquisitions extended the capabilities of acquirers into new areas as well as enhanced their scale. Intense competition may affect the operating performance and market share of the company Corporate strategy Leading provider of IT services IBM is one of the leading providers of IT services. IBM is the world leader in middleware and the second-largest software company overall. IBM is the market leader in information management software, all application integration and middleware categories, instant messaging software for corporations, portal software, and systems management and systems operations software. IBM is a major IT operations management software provider. The company is one of the leading players in consulting services market segment. With approximately 398,455 employees globally, the company's offerings include business transformation services, consulting, systems integration, application management services, infrastructure, outsourcing, system maintenance and web hosting, among others. IBM is among the prominent players in the server and storage devices market, as well as leads in supercomputers market. Moreover, the company also has strong brand recognition. Its was ranked second on the list of top 100 Best Global Brands ranking in 2008, by Interbrand, a brand consultancy. International Business Machines Corporation Page 5 A© Datamonitor

International Business Machines Corporation

SWOT Analysis Leading position in the industry enhances the company's brand image and competitive position. Strong R&D capabilities IBM has developed strong research, development and engineering (R&D) capabilities.The company annually spends approximately $6 billion on R&D, focusing its investments on high-growth, high-value opportunities. The company's investments in R&D were over 15% of its combined hardware and software revenue in FY2008, 2007 and 2006. Its investments in R&D also result in intellectual property (IP) income of approximately $1 billion annually.The company's R&D expenditure was $6,337 million, $6,153 million and $6,107 million, respectively, in FYs 2008, 2007 and 2006. Its R&D investments in 2008 were in scientific research and the application of scientific advances to the development of new and improved products and their uses, as well as services and their application. Moreover, its R&D has enabled it to receive more US patents than any other company in 2008, for the 16th consecutive year. In 2008, it also became the first company to achieve over 4,000 patents in a year. The company's R&D investments has also resulted in major product launches including next-generation System z mainframe; virtualization, could computing and energy efficient solutions. Additionally, the company complemented its organic investment with strategic acquisitions. For instance, its strategic acquisitions of Cognos and Telelogic have extended its middleware capabilities. Further, the acquisition of ILOG in December 2008 added significant capability across IBM's entire software platform and its existing rules management offerings. Strong R&D capabilities provide a competitive advantage to the company. Continuous improvement in profitability IBM continues to improve its profitability over the years.The company has been strategically focusing on increasing its profitability in recent years by focusing on highly value businesses, while divesting commoditized businesses such as personal computers and printing solutions. As a result, its operating and net profit margins improved from 11.2% and 7.8%, respectively, in 2004 to 16.5% and 11.9%, respectively, in 2008. This also allowed the company to improve its Return on Equity (RoE), Return on Capital Employed (RoCE), and Return on Assets (RoA) from 23.6%, 15.1% and 6.7%, respectively, in 2004 to 58.8%, 25.5% and 10.7%, respectively, in 2008. By contrast, the company's major competitors reported either lower margins or lower returns. For example, HP reported operating and net profit margins of 8.9% and 7%, respectively, in 2008; Dell reported operating and net profit margins in FY ended February 2009 of 5.2% and 4.1%, respectively; EMC (10.6% and 9.4%); and Accenture (11.6% and 8%). The RoE, RoCE and RoA of HP stood at 21.5%, 17.3% and 8.3%, respectively; EMC stood at 10.5%, 8.4% and 5.8%, respectively. IBM's continuing improvement in profitability enhances its investors' confidence, as well as allows it to invest in growth avenues.

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