The United Kingdom is the heart of international banking and also of Barclays Bank. Starting business in 1690's London, Barclays has undergone many changes over the centuries, to finally take its place on the international stage in the 1920s. In the late 1990s, Barclays boasted a total asset base of 443,361 million pounds sterling, with the business divided into seven separate business groups. It was at this stage that Barclays invited Matthew Barrett, formerly of the Bank of Montreal, to join them as the new CEO.
Barrett's main preoccupation was to restore Barclays to the number one position as the UK's leading banking institution, in the eyes and pockets of both shareholders and customers alike. Stiff competition came not only from the traditional banking sector, fuelled by huge merger and acquisition activities, but also from supermarkets, investment groups and financial services firms, all diversifying into areas such as mortgages and insurance, previously the bastion of banking institutions such as Barclays.
In this highly competitive climate, Barclays aimed to radically increase its rate of value creation to achieve top quartile total shareholder return (TSR) relative to its banking peers. The emerging practice of Value Based Management (VBM) - a business philosophy and set of management tools centred on shareholder value creation - was chosen to help achieve this objective. In this case study, Customer Profitability Analysis and Value Based Management at Barclays Bank, INSEAD's Adjunct Professor of Accounting and Control, Regine Slagmulder and Research Associate Jaeita Mukherjee map Barclay's implementation of VBM, the challenges involved and the successes made.
An important component of Barclay's VBM strategy was the implementation of customer value analysis, allowing them to gain insight into the value created by each customer and stimulate customer development based on value creation. This in turn provided a tool to measure customer relationship managers' performance and to set realistic and meaningful targets and objectives. Customers were also grouped according to business size and work was done to identify the real needs and wants for each sector, thus increasing Barclay's customer focus in a very visible way. This all took a certain amount of time and money to implement, including a shift in the company culture, but the results spoke for themselves.
At the end of the first four-year period of 1999-2003, Barclays Business Banking had reached its goal of achieving TSR and was looking to the next four-year period of 2004-2007 to further consolidate and fortify this position, taking its performance further upward.
The study traces the various stages of VBM's implementation at Barclays Business Banking: how and why they changed and implemented the organisational structure, performance and customer-value measurements, customer service, sales focus and product diversity In 2002 alone, pre-tax profit rose by 16% in the Business Banking business unit.
Questions are raised about how Barclays will proceed to adapt and further implement VBM across the other Barclays business units and the myriad challenges this will involve. An excellent study on how VBM is successfully applied within the finance domain, easily applicable to other competitive service industries.