Bird on a Wire

The Barclays’ eagle came one wing beat closer to crash landing last week when Which? magazine awarded it the wooden spoon for “the consistent mediocrity of its products”.

But with a new chief executive, Matthew Barrett, starting today (Wednesday) and a new head of marketing services, Belinda Furneaux-Harris, to follow shortly, this week could prove to be a turning point in Barclays’ fortunes.

Both are likely to be taking the Which? criticism very seriously, despite assurances from colleagues that it is based on out-of-date and selective information. If they don’t, then the future of one of the world’s oldest, largest and strongest financial brands looks bleak.

Which? found Barclays offered low interest rates on savings accounts, high interest rates on personal loans and high premiums on its insurance, although it pointed out that the other high street banks were not much better.

Barrett was formerly chief executive of the Bank of Montreal and has enjoyed a spell in retirement between the two roles. He will complete a two-week induction before taking up the chief executive’s chair on October 1.

Furneaux-Harris joins from HSBC (formerly Midland Bank), where she was head of marketing communications (MW September 9). She will be responsible for the implementation of marketing strategy and the procurement of services across Barclays’ retail division.

Barrett and Furneaux-Harris’ performance will be crucial to Barclays, which has just experienced a dire year.

The bank has been the subject of repeated takeover speculation – mainly concerning a reverse-takeover by the Royal Bank of Scotland – ever since the sudden departure of reform-minded chief executive Martin Taylor last November.

The rumours were compounded last April when Taylor’s replacement, Michael O’Neill, quit on his first day in the job, for health reasons.

Meanwhile, the launch of Barclays’ long-term savings arm, B2, has been widely viewed by analysts as a disappointment and Barclaycard, while still the market leader, continues to lose share.

B2 claims to have 100,000 customers and recently decided to reposition as a cost-cutting brand, while Barclaycard’s market share has fallen from 37 per cent in 1991 to 26 per cent now.

In such an annus horribilis, it is hardly surprising that Barclays reported a 21 per cent fall in pre-tax profits to &£970m for the six months ending June 30 1999 – although much of this can be put down to one-off costs, such as bad debt in Russia.

Yet the problems run much deeper. They stem from a change in Barclays’ strategy, brought on by heavy losses in the early Nineties’ recession and an inflexible, Captain Mainwaring-style approach to banking.

Most observers agree Barrett has his work cut out. If he is to succeed, he must overcome major strategic, structural, political and cultural barriers.

One former insider says: “It won’t be easy. Barrett will need tremendous strength of character to sell radical change to the rest of the board and institutional shareholders, who are more interested in short-term share price gains.

Most difficult of all, will be changing the structure and culture of the company to ensure his strategy finds its way to the bottom level of operations.” Today’s problems have largely arisen from bad debts of about &£2.5bn in 1992, caused by small businesses and Third World countries defaulting on loans.

Insiders say these debts pushed the Barclays board to pressurise its business units to do everything they could to increase profits and boost its flagging share price.

The short-term fix was to cut marketing budgets and raise prices, but this has done little to improve the bank’s brand prestige.

Barclays Life, for example, raised its annual fund management charge from one per cent to 1.25 per cent in 1993. This brought in an extra &£75m, but analysts say the operation is now so weak that unless it can acquire a life assurer soon it could sink into oblivion. Norwich Union is regarded as the most suitable partner, in the wake of NatWest and Lloyds TSB’s acquisitions of Legal & General and Scottish Widows, respectively.

One insider comments: “The [life insurance] charge increase is appalling in marketing terms because the majority of customers can do nothing about it. It goes against the ethos of long-term customer care and added value.”

To Barclays credit, it has created by far the largest UK Internet banking operation, with 400,000 customers. It devoted its last ad campaign through J Walter Thompson to promoting the service.

But it has yet to pass on the full benefit of the Net to its customers in the form of cheaper prices. Although it has recently dropped additional charges for its personal customers, businesses must still pay a &£20 set-up charge and &£15 a month. And although its new range of Net unit trusts only charge an upfront fee of 1.5 per cent, compared with about five per cent for a traditional provider, Egg, the Prudential online subsidiary, will not charge anything when it launches its unit trusts later this year.

One analyst warns: “Barclays may be the largest Net operation because it was the first on the market and it has a huge customer base, but online bankers are very disloyal. Only time will tell if Barclays can withstand increased pressure from the likes of Egg and Standard Life Bank.”

And Barclays appears to be persisting with its short-term approach to marketing and pricing. The company is understood to have postponed its next ad campaign – the first from its new agency Leagas Delaney – from this summer until next year, to shore up its financial performance.

Insiders say it has also been slow in rolling out its new corporate identity and branch interiors, created by Interbrand Newell & Sorrell, which was unveiled in April. So far, the redesign, its first in 30 years, has only been introduced to a handful of branches.

Ironically, the new ID and ad campaign are intended to reposition the bank as a customer friendly brand. Their tardy implementation could make the message ring hollow.

One insider says: “Lloyds TSB recently changed the signage on its 2,400 branches overnight, while Midland converted to HSBC over just a few months. Barclays seems more concerned about its share price than giving its branches the refurbishment they badly need.”

Another adds: “HSBC has been courageous in writing off the goodwill of the Midland name and only time will tell if it’s made the right decision. But most stuffy English banks wouldn’t dream of doing it.”

Furneaux-Harris would not talk to Marketing Week before starting at the bank. But if her time at HSBC is anything to go by she appears to favour a break from the 19th century approach of traditional banks, which could be good for Barclays.

In 1997, while head of sponsorship, advertising and promotions at Midland, she axed its long-term arts sponsorship – which included the Royal Opera, the Birmingham Royal Ballet, the Proms and the Royal Academy of Arts – to set up Mid-Land, an 18-day music festival at Battersea Power Station.

At the time she said: “The changes in financial services have been so phenomenal, that we’re not really competing with other banks, but with the likes of Virgin, Tesco, and Marks & Spencer.”

But fundamental change can only be brought about by Barrett.

Observers believe he must reverse the bank’s short-term business strategy and look to increase marketing spend and to lower prices.

One City analyst says: “The Barclays business is in good shape but, like all the banks, it will have to provide cheaper, better products, or the bottom line will be significantly affected. Barrett could well have a problem with the board which is fairly stuffy, although it is becoming a little more sympathetic to the need for change.”

Barclays is famous for its old-school approach to business. This has manifested itself in a strictly hierarchical bureaucracy that does not appear to value marketing.

Taylor is understood to have left because chairman Andrew Buxton would not entertain his proposals to radically change the structure of the bank.

Buxton has since retired and Sir Peter Middleton is now chairman. Despite his reputation as a mandarin, most observers agree Middleton is more receptive to change than Buxton.

One insider says: “The biggest problem Barclays faces is its structure. There is no unified marketing department to ensure a coherent identity and not even a group marketing director to oversee the individual departments.”

Barclays is divided into four business units: retail financial services; corporate banking; Barclays Capital (investment banking); and Barclays Global Solutions (asset management).

Another source says: “If Barclays is really serious about marketing – and about its future – it needs a group marketing director who sits on the board.

“A charismatic director can not only put marketing higher on the company’s agenda, but get the other executives to think in marketing terms. The really successful companies like Tesco and Boots have marketers on their board.”

Allan Silverman, Barclays managing director for personal customers, says: “There are no plans to introduce a group marketing director because our businesses are too big and diverse. Any marketing director is unlikely to sit on the executive board because that is only for the very top people. I am not on it.”

Silverman adds: “The Which? report doesn’t ring true. I don’t accept there is a problem with our products. But I do admit our marketing operation has not been as efficient as it might have been.

“In the past we had 14 separate marketing departments within the retail financial services division alone and a lot of customers were being approached over and over again by different departments.”

But Barclays is about to complete a restructure of its marketing department as part of a broader programme which will lead to the loss of 7,000 jobs. It also plans to ensure each customer is looked after by one marketing department.

The retail financial services division is the biggest within Barclays and has by far the biggest marketing spend.

The division has been cut from 14 sub-divisions to six – small business; personal banking; direct long-term savings arm B2; wealth management; customer segmentation; and Barclaycard.

Each division has a marketing head, but there is still no strategic marketing director to work across the six retail financial services divisions, let alone the four units that make up the Barclays business.

While Furneaux-Harris will work across the six retail divisions, she is not primarily concerned with strategy.

Observers say the changes at Barclays are taking it in the right direction, they believe it will not do much to help bring the different marketing activities together or to change the culture of the organisation at the top level.

The bank could have found a saviour in Barrett, not least because he appears to recognise it has a problem. Shortly after his appointment, he hinted at a major restructure of the operation, which Silverman admits could supersede the one currently being finalised.

Barrett said: “We will have an open mind. I am not inheriting any taboos or exclusions. Sir Peter [Middleton] has made clear to me that there is nothing on the table and nothing off it.”

Barrett will deliver his chosen strategy to 250 top Barclays executives at a conference in December. He has a record of innovation, launching mbanx, the US’ first Internet bank and subsidiary of Bank of Montreal.

He also posted nine years of record profits in his former role as chief executive of the Bank of Montreal and increased its marketing capitalisation fourfold to &£6bn.

Some observers question whether Barrett will be able to make the leap from a relatively small bank to a &£26bn giant.

But, as analysts point out, Barclays still has tremendous customer awareness and goodwill, an enormous customer base, a strong brand, and a highly efficient administration system.

The fact remains, however, that Barclays must take risks. Otherwise the eagle will certainly crash-land.