During the onset of hard economic situation, businesses and organizations normally adopt various strategic initiatives in an attempt to arrive at cute organizational and operational adaptations. These are vital, as they enhance conformity within the evidently changing markets. History records subtle instances of proneness to fluctuations of the market economies (Akan, Allen, Helms & Spralls, 2006, p.32). Despite the fact that many scholars strike a common agreement that fluctuations occur, they do not always agree on the causes of the fluctuations. Some are for the opinion that these fluctuations happen because of influxes of innovations.
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Others believe that the fluctuations are proceeds of collapsed aggregate demands, dwindled levels of investments, and or negative attitudes concerning investments among business people. Whatever the cause, or the nature of the fluctuation, be it in terms of the customer base, amount of investment per customer, or any other nature, fluctuations affect businesses differently posing substantial impacts towards the performance and forecasted targets of the businesses in question. While bearing in mind that economic fluctuation has the capacity to bring a change of markets, this paper addresses the strategic initiatives taken by the Bank of America relative to organizational and operational adaptation to these changing markets.
Influence of the recent economic trends to the business of Bank of America
There is always a warranty of a precise introspection of what economics mean before attempting to scrutinize this topic. According to Nickels, McHugh and McHugh (2010), economics refers to “how the society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals” (p.30). Those nations that have the capacity to produce certain goods do so by exporting to those that do not have a similar ability. Policies governing the rules of importing and exporting are by a bigger part dependent on the existing economic systems in a given country. There are three main distinguishable economic systems globally: socialism, capitalism, and communalism.
In a capitalistic economy, individuals own the largest percentage of businesses. The forces of demand and supply principally determine the setting of the prices. It is, therefore, not a surprise for the business owners to take advantage of the shortages especially during times of economic crisis to make abnormal profits at the expense of the citizens. In a socialistic economy, individual, and the government own business, but the government has the noble role and the mandate to control essential freedoms of the citizens in an endeavor to ensure equality and fairness to all.
In a communistic economy, the government owns the better part of the instruments of nation’s economic propagation and the government through its established instruments of governance dictates the manner and the protocol of the resources allocation. Many nations including the United States and Germany are shifting towards attempts to strike a compromise between the three types of economies. With reference to the Encyclopedia of Business (2010), the United States of America bears mixed economies where the government owns the key business, with the Americans owning the better part of businesses (Para.6). American people, in addition, enjoy all rights to their freedom with the government exercising no dictation of the manner of allocating the available resources.
Bank of America, with its headquarters in North Carolina, consequently, feels the weight of the nature of the American economy: essentially capitalism coupled with some elements of socialism (Nickels, McHugh & McHugh, 2010, p.279). The 2009, period of economic recession saw the bank of America disadvantaged significantly. As Akan, Allen, Helms and Spralls Reckon, homeowners would not keep up with the mortgage payments (2006, p.31). As a repercussion, the bank of America lost an ample amount of revenue. Bank of America (2010) points it out that it “…had to pay goodwill impairment charges of $12.4 billion to mitigate losses to the clients” (p.29).
The current trends in businesses management call for incorporation of technologies in management: something collectively agreed upon by many scholars as to constitute one significant milestone in costs reduction. As a way of example, according to the Encyclopedia of Business (2010), “As of early 2005, the cost of a bank transaction conducted by a human teller was approximately $2, compared to $1 for a telephone banking transaction, $.50-1.00 for an ATM transaction, and about ten cents for banking over the Internet” (Para.11).
As a way of ensuring that the bank of America remains competitive, it has thus incorporated technological innovations into management and offering banking services to its clients. This way, the Bank of America has taken advantage of the economic boom attributable to advents of innovation in information and technology. Perhaps another substantial issue that has profoundly affected the bank of America business is the escalated world oil prices. With Green sources of power being widely advocated for, the Bank of America had to respond to such calls to increase green financing.
With more emphasis placed on the need to conserve the environment, a bigger call of social corporate responsibility lies on the businesses to aid in the realization of conservation of the environment: Bank of America being part of such establishments. The American demographics over the recent years have significantly changed. Consequently, demography being one way of markets segregation, bank of America has to consider looking at the way it conducts businesses from a different dimension along demographic lines.
Strategies for adapting to changing markets
Strategies that aim at combating the forces of changing markets are crucial if business need to remain in operation and profitable especially during these challenging economic times. To this end, two strategies are essential: “focus with cost leadership strategy, and focus with differentiation strategy” (Akan, Allen, Helms & Spralls, 2006, p.35).
Differentiation strategy entangles customer’s value provisions. For instance, a myriad of customers could prove comfortable and contented while charged higher prices for a product, in as much as some corresponding additional features, which they value, add up on the product. The intent of focusing on differentiation is to channel all the marketing efforts to a particular initially segregated group of persons. This concept is crucial for the bank of America since it deploys it in green financing businesses.
As voiced by Bank of America (2011), the bank categorically stated that “As part of our 10-year, $20 billion business initiative to address climate change, we promote an environmentally sustainable economy through strategic investments and financing for “Green” construction and renewable energy” (p.6). This statement may have been fueled by the recognition of the fact that those businesses establishments committed to their cause of coming up with environmentally friendly sources of power (green energy) would not mind paying for the noble endeavor regardless of the cost.
By focusing on such clientele, the Bank of America was sure to have confronted the emerging changes in markets more pragmatically. In such a situation, what stands out crucial is to know what the new market demands, thus, evaluating the economic impacts of the new desired products in terms of the bank’s performance in both the short run and the end before providing them. The concepts of focused differentiation would also perhaps proof applicable when it comes to building accounts for retirees. Those individuals, especially the people who are over 65 years would evidently emerge as minding the value of retirement benefits. They would thus arguably not care much on paying more for such products. This way, the bank would remain profitable through compliance with the changing markets in term of demographics.
The strategy of focus with cost leadership considers a myriad of costs associated with the product in an attempt to make a company remain profitable and competitive. As a way of example, a bank can sacrifice some costs such as delivery costs, and instead make the customer collect the product from the company premises but with the reduced price. In this regard, Akan, Allen, Helms and Spralls (2006) add, “cost leaders work to have the lowest product or service unit costs and can withstand competition with their lower cost structure” (pp 48-49).
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The Bank deploys the focus with cost leadership strategy by ensuring the provision of the best rates of interest to the owners of the small business. As the Bank of America (2011) claims, recently, the bank reduced interest rates changed on credit cards owned by small business owners (p.19). This is yet another exemplification of employment of the strategy of focus with cost leadership with the intent of making a firm or a company remains competitive.
Tactics bank of America has implemented or could implement to achieve their strategic goals
Tactics that stand out necessary for the Bank of America to implement or rather has implemented in pursuits of arriving at their strategic goals lie within the umbrella of the need to focus on products differentiation and focus with cost leadership strategies. One of the tactics of fostering the strategy of focus differentiation reveals itself in the bank of America’s educational grant amounting to $ 500, 000 distributed through community colleges.
This is indicative of the need for corporate to invest in the education of the workforce. An area that bank of America may pose critical consideration entails financing research in the area of green innovations since this field has a lot of potential to bring in new additional revenues as the entire universe endeavors to go all green. This way, bank of America would provide more realism of its lamentation that “Builders will seek LEED Silver certification for design elements such as solar energy, water conservation and reduced energy consumption” (2011, p. 6).
With the chief intention of becoming the lowest cost leader, the bank of America launched its biggest community focused development project worth $1.5 trillion scheduled for implementation within a span of 10 years starting from year 2009. According to the Bank of America (2011), this project addresses four chief areas: “affordable housing, small businesses and small business ownership, consumer loans and economic development” (p.12).
Some tactics are worth noting when it comes to the realization of the low cost leadership endeavors. One of the tactics would entail investing by assuming capitalistic venture to the small business that have highest potentialities of growth coupled with long run profitability. These stakeholders can through the network exchange ideas and are acquainted with new technological innovation deemed vital for their growth. This forms the necessary effective and efficient platform through which the bank, of America educates its clientele; something that facilitates its endeavors to offer loans credit cards at relatively affordable interest rates.
The role of human resource in ensuring bank of America achieves its business goals
Human resource management refers to “the process of determining human resource needs and entails recruiting, selecting, developing, motivating, evaluating, compensating and scheduling employees to achieve organizational goals” (Nickels, McHugh & McHugh, 2010, p.284). The bank is to the opinion that is success, predominantly lies on the hands of its human resource base. The bank puts enormous interests in driving this force of success. According to the Bank of America (2010) the Global Human Resource: (GHR), “aligns Human Resources strategy to the business strategy, enabling the company to drive revenue growth through attracting, developing and retaining a world-class workforce” (p.9). GHR enables the bank of America to achieve satisfaction of a pool of nearly 280, 000 associates. Just like any other business establishment, workers’ training also falls within the mandates of the GHR in the bank of America.
Decision to invest at bank of America
Tactics adopted by the bank of America aim at making it more profitable. As discussed in the earlier sections of the analysis of the bank of America, the year 2010 saw the bank of America record losses. The efficiency ratios of the fiscal years 2008 and 2009 were not quite appealing to the investor’s eyes. The returns on shareholders’ investment were not either satisfactory within the priory mentioned fiscal years and in 2010. One may view this as transpiring from the recession state of the economy.
However, my decision to invest in the bank of America would be dependent on the whether I have made investment commitment with a bank in the portfolio of the mutual fund. According to Fitzvillafuerte (2009), I would not expect the short-term hardships to affect the mutual funds (para.7). I would also not direct hefty investments to the bank of America since, doing so would mean increased financial risks. The decision on whether to increase my investments with the bank in the future would rely on my analysis and monitoring results based on the bank’s endeavors to revive and increase its profitability as time progresses.
Changing markets compels businesses to change their strategic organizational and operational initiatives in an attempt to orient themselves with the demands of the evolved markets. This paper has discussed the net effect of economic trends on the manner in which Bank of America conducts business. It has explored the necessary strategies that the bank deserves to adapt in an endeavor to meet the demand of the changing markets. The role of human resource in the Bank of America coupled with the vital tactics that bank deploys to implement its strategic goals has also been given an introspection. The author would only invest in mutual funds at the Bank of America since this presents lower risk levels in the short run.
Akan, O., Allen, S., Helms, M., & Spralls, A. (2006). Business strategies for profitability. The Journal of Business Strategy, 27 (1), 31-53.
Bank of America. (2010). Interactive Annual Report for 2010. Web.
Bank of America. (2011). Bank of America Report Quarterly Impact Report- First Quarter 2011. Web.
Encyclopedia of Business. (2010). Technology management. Web.
Fitzvillafuerte. (2009). Ready to be Rich Investing in Mutual Funds. Web.
Nickels, G., McHugh, M., & McHugh, M. (2010). Understanding Business. Web.