Bank of America - A Management Case Study

Welcome to Bank of America!! This is a blog that would focus on BofA with respect to the various management criteria.

Company Profile

Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,250 ATMs and award winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange

HISTORY

1783 The treaty of Paris formally recognises American independence – ending the British prohibition against American-owned banks.

September 1783 A small group of Boston’s leaders, led by founder Moses Michael Hayes, quickly exercise their newly-won freedom and create the stepping stones of the Massachusetts Bank, Bank of America’s earliest predecessor.

1784 The bank opens for business.

1805 A branch in Maryland opens to serve the needs of farmers. It is believed to be the first to pay intetestr on deposits to customers

1958 The bank introduces BankAmericard, the first general use credit card and the first to be licensed to other banks across the country.

1998 Nationsbank acquires Bank of America – creating the first coast-to coast retail banking franchise. The group retains the Bank of America name.

2004 Bank of America buys FleetBoston Financial, extending the bank’s rach throughout the northeast

2006 Bank of America buys MBNA.

2008 Bank of America agrees a rescue deal to buy Countrywide in a $4bn deal. Losses: Bank of America’s mortgage business – some of which is Countrywide — lost $8.9 billion in 2010 and $3.8 billion in 2009.

2009 BoA buys Merrill Lynch for $50bn

STRATEGIC EVOLUTION

Critically reviewing the overall history of the Bank of America, it becomes evident that the organization accomplished in strategic evolution through intended expansion. When Amadeo Giannini began merger operations in the late 1920s his intent was clearly to expand the organization. Unfortunately, the Bank Holding Company Act of 1956 put an end to many of the developments that have taken place with respect to the Bank of America. After the legislation was passed Giannini was forced to relinquish both his insurance companies and as interstate banking operations. Once changes were made to the legislation in 1976, the Bank of America continued upon its path of expansion choosing to acquire some of the largest banks in the United States. What this effectively suggests is that the strategic evolution of the Bank of America was predicated upon the intended acquisition of other bank operations, with the purpose of increasing the organization's size of wealth.

In addition to the intentional nature of the acquisitions carried out by the Bank of America, the organization has also demonstrated its intentional strategic evolution through its consistent development of new banking services and technology for the banking industry. Throughout the course of the mid-twentieth century, Bank of America found new and innovative ways to expand the products and services that it offered to customers. Because of these initiatives, many of the modern banking techniques that are currently utilized in the industry began with the Bank of America. Credit cards, mortgages, and commercial loans are all representative of the efforts of the Bank of America to provide service to the general public.

MISSION/MAJOR GOALS

Bank of America does not have a centralized mission for the development of the entire organization, Bank of America has been able to focus on community development and the principal means for establishing its organization. Overall, Bank of America believes that the development of neighborhoods and communities is essential for the sustainability of the organization over the long-term. To this end, the organization undertakes a wide range of projects, which involve everything from environmental conservation to providing monies for the development of infrastructure into communities in which it operates. Thus, Bank of America has attempted, in recent years, to remain focused on the issue of community development as a means to grow its business.

VALUES

Bank Of America has a very high and efficient value system

• Doing the right thing : We have the responsibility to do the right thing for our customers, shareholders, communities and one another.
• Trusting & teamwork : We succeed together, taking responsibility for our customers' satisfaction.
• Inclusive meritocracy : We care about one another, value one another's differences, focus on results and strive to help all associates reach their full potential.
• Winning : We have a passion for achieving results and winning - for our customers, our shareholders, our communities and one another.
• Leadership : We will be decisive leaders at every level, communicating our vision and taking action to help build a better future.

THE CEO AT THE TOP

It is imperative for any organization as big as Bank of America to have a great leader in charge of the organization. Brian Moynihan, the current CEO of BofA has had mixed fortunes with BofA. He has faced his fair share of criticism along with appreciation. On one hand, he was ranked the worst big bank CEO based on stock performance in US. On the other hand, he has been lauded for his work from none other than Warren Buffet. Here is an excerpt of what Warren Buffet had to say about BofA CEO Brian Moynihan.

"“Brian has been doing exactly the right things in terms of correcting problems, exactly what I would be doing. He’s done a terrific job. He has gotten rid of one thing after another that was a problem. He’s getting it back to basic banking.”

On the basis of the above comments, BofA seems to be in very able and responsible hands

PRODUCTS AND SERVICES

Bank of America works provides a lot of financial services but they have very efficiently divided their entire operation into six major segments.

1) Deposits- includes products provided to consumers and small businesses. Bank’s deposit products include traditional savings accounts, money market savings accounts, commercial deposits, IRAs, checking accounts, as well as investment accounts and products.
2) Card Services- Card Services is one of the leading issuers of credit and debit cards in the U.S. to consumers and small businesses providing a broad offering of lending products including co-branded and affinity products.
3) Consumer Real Estate Services (CRES)- provides an extensive line of consumer real estate products and services to customers nationwide. CRES products include fixed- and adjustable-rate first lien mortgage loans for home purchase and refinancing needs, home equity lines of credit (HELOC) and home equity loans.
4) Global Commercial Banking- provides a wide range of lending related products and services, and integrated working capital management and treasury solutions Bank’s clients include business banking and middle-market companies, commercial real estate firms and governments. Bank’s lending products and services include commercial loans and commitment facilities, real estate lending, asset-based lending and indirect consumer loans. Capital management and treasury solutions include treasury management, foreign exchange and short-term investing options.
5) Global Banking & Markets (GBAM) provides advisory services, financing, securities clearing, settlement and custody services globally to Bank’s institutional investor clients in support of their investing and trading activities. Bank also works with commercial and corporate clients to provide debt and equity underwriting and distribution capabilities, merger-related and other advisory services, and risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products.
6) Global Wealth & Investment Management (GWIM)- GWIM consists of three primary businesses: Merrill Lynch Global Wealth Management (MLGWM); U.S. Trust, Bank of America Private Wealth Management (U.S. Trust); and Retirement Services. Through these three businesses, this segment provides brokerage, banking and retirement products in both domestic and international locations to wealthy and ultra wealthy clients (with investable assets of more than $5 million). Retirement Services provides comprehensive investment advisory services to individuals, small to large corporations and pension plans.

GEOGRAPHICAL SPREAD OF THE COMPANY

Bank of America operates in all 50 states of the U.S., the District of Columbia and more than 40 other countries. It has a retail banking footprint that covers approximately 80 percent of the U.S. population and serves approximately 57 million consumer and small business relationships at 5,700 banking centers and 17,750 ATMs.

So Clearly, BofA believes in the policy of increasing business by increasing accessibility

TOP MANAGEMENT

 CEO - Brian Moynihan

CHAIRMAN - Charles Holliday

VICE-CHAIRMAN - Charles Noski

CFO - Bruce Thompson

SWOT ANALYSIS

. CSR ACTIVITIES

Bank of America gives very high priority to CSR Actitvities: Some of these activities are"

}  Donated $207.9 mn towards charitable giving in 2010 – Beneficiaries include Feeding America and YouthBuild.

}  BofA charitable foundation – Annual giving of $200mn, BAC is the second largest cash giver in US.

}  $1.5tn Community development lending goal established in 2009.

}  Over last 10 yrs, BAC and its employees have donated more than 200,000 volunteer hours and $24mn in support of Habitat for Humanity’s mission.

}  Neighbourhood Excellence Initiative(NEI)

}  One of the leading supporters of art and culture

}  Has supported many disaster relief efforts around the world

}  Supports CDFIs - More than $48bn extended to not for profit organizations

ENVIRONMENTAL INITIATIVES

}  2007 – Embarked on a 10-year, $20bn initiative to address climate change. Already spent $11.6bn

}  Has increased investments and financing of advanced energy technologies to promote renewable energy sources.

}  Works with Duke University on energy and environmental issues, including foundation of CSI in 2007

}  Unique Coal Policy

}  2010, BofA Merill Lynch purchased from Nuru Energy several million Kyoto-compliant market carbon credits over 10 yrs.

}  Greenhouse Gas(GHG) Reductions – 7.5% reduction from 2009 to 2010

 CONCLUSION

 We see that Bank of America is built up on strong leadership, strategically sound principles. It is a huge organization with burgeoning acquisitions. They place high priority on CSR and Environmental Initiatives. Providing Value to the customer is of utmost importance in BofA's Culture. So we can say that BofA is a great organization built up on efficient principles of management!.

 

 

One, two, three of Management

The Video
In our last Principles of Management class, we were taught about Team and Group Dynamics but not through whats written in Stoner or Donelson but through a simple Chinese video. This was just a wonderful experience where we learnt the concepts given in all the great management books but totally without these books and this is what is unique about our POM class. Lets have a look at that video!

Three Monks No Water - Introduction

          Three Monks No Water is a Chinese animated feature film. The video is derived from a book authored by Ting-Xing Ye's. The name of the book or the video has a very interesting origin. Author Ting-Xing Ye’s mother used to say, “It’s typical! Three Monks, no water!”  whenever she or her brothers and sisters tried to get out of doing something.  Three Monks, No Water is the story behind that enigmatic expression. The film is based on the ancient Chinese proverb "One monk will shoulder two buckets of water, two monks will share the load, but add a third and no one will want to fetch water."

The Story

The above image would help me a great deal in narrating the story! There was a small temple on a hill that was the abode for a little monk. For the sake of simplicity, lets call him Monk1and he is there in the red clothing in the image above. The monk used to lead a simple life, meditating, tending to his vegetable garden and fetching water from a cold stream. Rain or shine, he never used to miss a day lugging this burden up the mountain to the temple. Shouldering two buckets of water, chanting sutras, adding water to the holy water bottle on the table honoring the Goddess of Mercy, and watching over the mice from stealing food at night had become his daily routine. His life was peaceful and smooth. Soon after, a tall monk came. Lets call him Monk2 (in blue clothing). The little monk gave him water to drink in a very courteous gesture. The tall monk consumed all the stored water but realised that now it was his responsibility to fetch water from the river downhill. He did exactly that and went alone to fetch water. He did this for a few days but then soon realised that the Monk1 was now taking advantage of him and was not fetching the water at all. Monk1 was actually finding comfort in this lifestyle but as soon as Monk2 realised this, he coerced Monk1 into coming with him to fetch water. But this time instead of taking 2 buckets, they took only 1 and shared the load of the bucket. But even here politics was involved and each tried to push the load towards the other along the stick as shown in bottom right image above. Even when they decided to do it fairly, the taller monk used his big hands to manipulate the centre of the stick but they eventually used a ruler and loaded the bucket at the centre of the stick. And they followed this routine for the next few days. Then, a fat monk came(Monk3 in Orange). As soon as he came, he drank all the water and there was no water left in the jar. The short monk and the tall one asked him to fetch water by himself. He carried a bucket of water, and drank it up immediately. From then on, nobody would fetch water, so they had no water. Everyone chanted his own sutras and knocked his own wooden fish. As nobody would add water to the holy water bottle, the plant in the bottle withered soon. At night, a mouse came out stealing, but everyone pretended not to see it. As a result, the mouse was so rampant that it knocked over the candleholder and caused a fire. Only thus did the three monks make a concerted effort to put out the fire, and finally awaken. After that, they started hanging together forgetting the animosity among them and came out with an ingenious idea to fetch water where one monk would fetch the water from the river into the bucket, the other would pull it up through a pulley arrangement and third monk would then recieve the water for storage and handover the second bucket. This greatly improved the productivity.

Lessons Learnt

I hope I have been successfully able to convey the story. Many might now be wondering, what's so great about this story and why is a management grad so interested in it. The reason is that in its simplicity lies the treasure of management lessons. The only thing we need is to explore it. So lets just look at some of the lessons that are there to be learnt from this story!

1. Responsibility - The Three monks allow personal pride to interfere with the performance of daily tasks, each believing that the other two should be the ones to go downhill to fetch water. When a fire breaks out, however, they understand how silly they’ve been and work together to save the temple. So from this we learn that in an organization and in a team, its important to take personal vanity out of the equation and to perform the duty at hand so that there is no regret later. A Manager has to take a note of this and check for any signs of work-delegation to others in his team.

2. Complex Problems, Simple Solutions - This is the motto of decision making for any manager or team member in an organization. When Monk1 and Monk2 were trying to push the weight of the bucket towards each other, we in the class were asked to give a possible solution to the problem. And well, quite disappointing, but none of us came up with the solution as shown in the video ie. to hang the bucket at the centre of the stick!! We were discussing work division on alternate days, 1 bucket each everday for both of them, but didn't think of the most obvious and simplest solution. So it's important to be aware of all possibilities and to come out with the simplest solution.

3.Productivity - This is the magical word which should drive all our decisions. When posed with a question from our professor, that whether the two monks should get 2 buckets on alternate days or a bucket shared by both of them, most of us answered "Alternate Days" and by now it's easy to guess that it was the wrong answer because it was driven by common sense and not Productivity analysis according to which getting 1 bucket shared by the two monks is a much better proposition. Just to make it more clear, here is a table illustrating the productivity statistics in either case. Assuming 1 Man uses 1 unit of energy to lift 1 bucket.
 

Event	Output (No. of buckets)	Input(Worker Energy units)	Productivity = Output/Input
1 Man – 2 buckets	2	2	1
2 Men – 1 bucket	1	0.5	2

4. Right Resources - When Monk1 and Monk2 were trying to divide the load of the bucket equally, the taller monk Monk2 used his bigger hands to show that the bucket should be hung closer to the Monk1, but the presence of a ruler(scale) helped them get the exact center and resolved the problem. Hence it is important for a team and a manger to have the right tools at his disposal.

5. Discourage selfish behaviour - When Monk3 went downhill to fetch water for the first time, he came back and drank water all by himself, exhibhiting a selfish tendency not aligned to the goals of the team ie. to have water stored at all times. This led to further animosity among the 3 monks and the task never got completed. Hence even in an organization, selfish motives should be discouraged. A team working towards a common goal is the best direction to be heading to!

6. Proactive Approach - The monks out of egoistic behaviour did not fill water till the fire broke out and they were left high and dry! Had they not waited for the fire to break out and had kept some water, they would not have been in a crisis. The management lesson here is to have a proactive approach! Do not wait for fire to break out in the organization (Fire is a metaphor for something ungainly in the organization)

7. Law of diminishing marginal Utility - Now I know this one is debatable, but I felt its worth a mention :) For a large organization, the change from 1 monk to 2 monks and then to three monks can be effectively considered as doubling and tripling of the team size respectively. So on the basis of the story, when the workforce doubled, the productivity increased after they started sharing the work but when the workforce tripled, the productivity dropped rapidly. So it is important to determine the apt team size!

8. Co-ordination and an amicable working environment - Only when this was provided, the 3 monks came up with the ingenious idea of a pulley. So it is important to keep a healthy relationship without any antagonism amongst the team members to come up with ingenious ideas.

9. Save for the rainy Day- There always used to be water in the vessel of Goddess of Mercy, but the monks finished that as well and had nothing when fire broke out! So its important to save resources for the bad times in an organization

Conclusion
 
                I know it's hard to believe that a video with 18 mins of run time can be replete with so many lessons in management but there are lessons to be learnt from every second in life. These are just some of them which I have learnt, there might be many more. So I leave it up to the readers of this blog to find out some more lessons that they could get from this video and I am sure if you try hard , you won't be disappointed and would definitely find many more. Signing off now and would return with my next blog...Bye!!
      

        

Tower building : The 4 intricate scenarios

Our last class in Principles of Management was about a tower building exercise, wherein each of us had to build a tower of small cubes stacked one above the other. The exercise was to teach us about goal setting done by managers. The following data was provided to us which presented 4 distinct scenarios and hence four distinct managers!

 

Index	Factors	I	II	III	IV
1	Lowest Tower height achieved	5	5	5	5
2	Highest Tower height achieved	18	20	21	23
3	Achievable Performance -(Estimate / Guess )	18+	20+	22+	25+
4	Goal proposed by the Manager	18	22	22	18
5	Goal proposed by the worker	12	12	12	20
6	Goal Mutually agreed for building the tower between worker and manager with the support of the manager	15	22	18	15
7	No. of cubes Tower manager and worker team could build at the end of the exercise	18	18	18	18
8.	The potential Tower Height	18	20	21	23

And here is my analysis of the 4 different scenarios after evaluating various parameters

Gaps	I	II	III	IV
Gap between Achieved performance and Achievable performance of tower	0	2	4	7
Gap between goal proposed by the manager and mutually agreed goal by team	3	0	4	3
Gap between goal proposed by the manager and the goal proposed by the worker	6	10	10	-2
Gap between goal proposed by the worker and mutually agreed goal by team	-3	-10	-6	5
Gap between achievable performance and potential	0	0	0	0
Gap between performance achieved and goal mutually agreed by manger and the worker	-3	4	0	-3
Gap between performance achieved and achievable goal	0	-2	-4	-7
Gap between the performance achieved and the potential	0	2	3	4

Let us analyse each of these 4 different situations in detail

Scenario 1- The manager proposes a goal equal to the highest height achieved in the past. i.e 18

The team though proposes a goal of 12, 6 cubes less than the one proposed by the manager. The manager gives heed to the workers and reduces the goal to 15, in order to reduce the pressure on the workers. The workers respond to the manager's initiative and surpass their initial goal of 15 and actually build a tower of 18 cubes, thereby achieving their potential. What we see here is that the manager is successful in achieving the goal initially set by him and co-ordinates effectively with his works. The manager is not a hard taskmaster, sets reasonable and achievable goals and gets his team motivated to achieve the goal.

Scenario 2- The manager proposes a goal of 22, which is greater than the height of any tower ever built

 Here we have an ambitious manager who likes to set high goals for his team. The workers propose a goal of 12 cubes, but the manager does not give heed to them and sets the target as 22! Here in this case, we have an highly ambitious manager who sets lofty goals and is unyielding to his workers' demands. He does not discuss with his workers and is adamant on the goal set by him. The outcome is that the team could only build a tower of 18 cubes, missing the manager's target as well as performing below potential.

Scenario 3- The manager proposes a goal of 22, which is greater than the height of any tower ever built

Here we have an ambitious manager who likes to set high goals for his team. The workers propose a goal of 12 cubes, but contrary to scenario 2, he gives heed to his team and reduces the goal to 18. Here we have a manager who does set lofty goals but consults with his team before going ahead with the final goal. The outcome is that the team meets the target set by the manager but still perform below potential.

Scenario 4- The manager here sets a reasonable and achivable goal of 20 cubes, which is quite less than the highest ever achieved

 The team here also considers itself to be good and set a goal of 18 for themselves. But the discussions between the manager and the workers lead them to concur at 15 cubes. This shows a possible lack of confidence in each other or communication gap. The outcome is that the team finally builds 18 cubes, surpassing the expectation but performing below potential.