Corporate Strategy of HSBC Bank
Question:
Discuss about the Impact of Strategic Changes on Corporate Strategy.
Due to the growing government legislations and regulation mechanism, rapid technological advancements and innovation, changing customers’ needs, globalization of the businesses, and growing environmental risks, it is essential for an organization to make changes in its corporate strategy for the sustainable business operations in the highly competitive industry. This report will describe the corporate strategy of HSBC Bank which is one of the largest financial and banking service providers in the world (Olson and Simerson, 2015). This assessment will describe the two strategic changes of HSBC by using the strategy models of Porter, Pestle, and Mintzberg, and strategic change models (Lewin’s force field analysis model). The second task will critically evaluate the leadership role in the organizational changes.
HSBC (Hong Kong Shanghai Banking Corporation) is a British Financial Holding Company with its origins in Shanghai and Hong Kong and has been operating its businesses since 1865 across the world. HSBC is the sixth largest bank in the world by assets and the largest in the Europe with total assets of US$ 2.364 trillion. HSBC has more than 9500 offices in 76 countries from Asia, Africa, Europe, Oceania, Middle East, and North and South America with around 37 million customers across the world. HSBC is continually revolving its businesses to respond to the customers’ needs. HSBC is aimed at satisfying the shareholders and customers by maximizing the values through providing them the maximum return on their investment in the shares, stocks, bonds, capital investment, mutual funds, and profits on their fixed deposits or recruiting deposits in the company (Yaeger and Sorenson, 2009).
The disruption from the social forces, globalization of the businesses, growing environmental flexibilities, pressure from the stakeholders, the high level of competition from the financial and Banking Corporations, economic recession, market liquidation and saturation risks, and entry of new entrants or substitutes are such growing aspects that enforce the leader or CEO to embrace the significant changes in the organizational corporate strategy for running the sustainable banking and financial operations in different countries across the world.
In the growing global economy, the HSBC banking corporation face rapid and irreversible changes in technology, increasing country regulations and changing customer behaviors that will enforce HSBC to make significant strategic changes in the corporate strategy of HSBC in order to enhance the adaptability, suitability, effectiveness, efficiency, and sustainability of the banking and financial investment operations to respond to the external forces and market drivers.
Gulliver, the CEO of HSBC incorporates strategic changes in the corporate strategy in the form of organizational structure, operational process, infrastructure, global network, products, financial and banking services, distribution networks, supply chain operations, pricing, and promotional strategy of the company to maintain its sustainable position in the global markets. for this two strategic changes, such as changes in supply chain networks through opening of new HSBC branches at new locations of the high-growth potential markets (e.g. the U.S. the UK, China, Russia, Japan, India) and closing the unprofitable branches, (e.g. shutting down its branches in Brazil, Turkey and other non-profitable or declining growth markets). Another strategic change is related to corporate structural change through the restructuring of the processes, activities, corporate governance, and ventures of HDFC. These strategic changes could be identified with the help of strategic models and theories, such as Pestle analysis, Porter model, Mintzberg strategic model, and Lewin’s Force Field analysis model of changes will be used to put significant changes in the corporate strategy of HSBC (The Standard, 2017).
Corporate Structural Change
The corporate strategy of HSBC is to ensure the business growth by enabling businesses to thrive and economies to prosper for ultimately helping people to fulfill their needs and ambitions. HSBC has more than 250,000 employees to provide a broad range of products and services across the countries related to the financial and banking sector. The corporate strategy of HSBC includes sustainable business operations through two major strategic changes including the transformation through reshaping or restructuring the organizational structure and business processes. The complex organizational structure and large geographical access of HSBC to the internet markets have caused for increasing number of terrorist attacks, criminal activities, and insecurity issues for HSBC branches and ATMs (Sunn and John, 2017). To avoid the complexities of the businesses and insecurity issues, Gulliver decided to reshape or restructuring the business processes, operational procedures, and technological changes to improve the global business networks, operational efficiency, and supply chain operations.
Pestle analysis is a strategic tool that will provide a framework for the firm to make changes in HSBC’s corporate strategy after analyzing the macro environmental impact on the business operations of HSBC. This will analyze the impact of external environmental factors including political, legal, socio-cultural, economic, environmental, and technological impact on the sustainable business operations and corporate strategy of HSBC. The restructuring of HSBC was an example of strategic changes in the corporate strategy of HSBC to respond to the growing influence of the external environmental forces. This strategic change was placed to anticipate, adapt, and understand the social, cultural, economic, and technological trends that HSBC are changing with the operative environment in order to fulfill the customers’ needs, interests, and expectations. This was the first biggest strategic change since after its establishment in 1865 to facilitate more flexibility and improve the global service networks by having more control on the performances of the branch managers of its offices at different locations (HSBC Bank, 2013). The company is aimed at maximizing the shareholders’ share or return with change in the corporate strategy for delivering value to the customers. The political factors will comprise of the political instabilities and terrorist attacks, government regulation policies, intervention and spending pattern, country risks, foreign trade risks, taxation changes, changes in the trade blocks of the foreign markets. While, the economic factors will include change in inflation rates, exchange rates, interest rates, GDP trends, change in business cycle, and disposable income of the people are such economic constraints that will put pressure on the firm to make changes in its strategy (Samson and Bevington, 2012).
The legal factors, such as IPR laws, foreign trade laws, competition regulations, employment laws, health and safety legislations and customer protection laws are such legal provisions that confront the organization to make strategic changes. The socio-cultural factors include different life styles, demographic differences, distinct buying behaviors, population changes, consumerism, and changes in culture and demand pattern are such risks that will enforce the leader to make significant changes in the corporate strategy of HSBC after anticipating and analyzing the socio-cultural trends.
Supply Chain Networks
The technological factors, such as rapid technological advancements and innovation trends, information and communication technologies, digitalization of the operations, increasing investment on R&D, new discoveries and inventions, and rate of obsolescence are such as technological trends that put the organization to make the technological changes to keep up the businesses with the modern business requirements (Sarao, 2015). The environmental protection legislations and community laws, global warming, waste disposals, energy consumption and recycling of the unused material are such environmental constraints that confront the organization of HSBC bank to ensure the environmental sustainable operations. All these six external environmental forces will enforce the leader of HSBC to bring changes in the corporate strategy of the firm for running the sustainable business operations despite of lots of risks, uncertainties, and threats in the global trade.
Porter’s five forces model will be executed to analyze the impact of five forces, including the threat of new entrants, the threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and intensity of rivalry of the industry on its operations that will put the organization for further changes. All these forces will confront HSBC to make major strategic changes in order to analyze the external environmental impact. As a result, the strategic change was carried-out to boost profits by saving up the annual costs of $ 5.0 billion (4.4 billion Euros). Gulliver announced that HSBC has decided to lay-off 120 staffs in information technology department in Hong Kong for reducing its global headcount by 25,000 and slash costs. The latest job cuts are parts of corporate strategy of HSBC ongoing cost cutting drive. Gulliver announced in 2015 to cut 25,000 jobs worldwide by the end of 2017 with the aim of slashing US$ 5 billion in costs (Saro, 2015). Along with this, HSBC decided to cut profits by 12% to $ 3 million in 2016 compared to 2015 because the annual profits for HSBC fell down by 62% in 2016 while compared to 2015 profits.
The global banking and financial service industry is highly competitive due to several established private and non-private financial companies and emergence of new corporations that will put the organization to make changes in the corporate strategy in order to maintain the leadership position in the market. The entry of new entrants, such as Tesco, Sainsbury, Aldi, and other new firms have started to invest in banking and finance sector that threatens the sustainable business operations of HSBC (HSBC, 2015).
The competitors are coming with the substitute products in the form of new financial products and services to threat the profits and sustainable operations of HSBC. The Buyer power is more important for HSBC to manage the customized operations for creating the brand awareness and loyalty among the customers to maintain their trust into HSBC financial and banking services. The suppliers’ power depends upon two factors- size and concentration of suppliers and differentiation of the services delivered to its customers. For ex-HSBC puts changes in its strategy of changing markets with differentiating prices as per differences of price of each customer (Livemint, 2017).
Strategic Models and Theories
Mintzberg’ theory of strategic management advocates for putting the change in the organizational strategy through changing the roles, responsibilities, tasks, and projects of the branch managers for improving the global business performance to assist in the maintaining the leading positioning of HSBC in the marketplace. According to this theory, the managers’ role is importance in determining the success of HSBC in the corporate world as HSBC provides training and skills development programs for the managers for enhancing their skills, knowledge, capabilities, and experiences of the managers for performing their roles in the organization effectively and responsibly (Samson and Bevington, 2012).
This strategic theory determined the tasks and projects of new managerial staffs by adding their roles and responsibilities. This strategic change was tended to dismissing or terminating the managers giving poor outcomes from their own branches. On the basis of analysis of the branch performance analysis, HSBC decided to continue with the potential managers giving good financial outcomes for HSBC and terminating the irresponsible or discontent managers performing with poor financial outcomes for the branch. This was structural change in its corporate governance structure that could be identified from Mintzberg’s theoretical model of the managerial roles.
This theory advocates the managerial roles in the organization of HSBC that are divided into three categories. The first category is informational that describes three managerial roles, such as spokeperson, monitor, and disseminator to work as a role model for controlling the business operations of the branch offices of HSBC. The second category is Interpersonal that includes three managerial roles including figurehead, leader, and liason for performing their tasks and duties effectively. The third category is Decisional that emphasizes the managerial roles of resource allocator, entrepreneur, disturbance handler, and negotiator that are important to deal with complex problems, develop new ideas, utilizing and managing resources, and negotiating the business contracts to defend the business interests (Bloomberg, 2017). So, this theoretical model will be applied in the organization of HSBC to make strategic changes by developing strategy for managing the roles, duties, tasks, and responsibilities of the managers in the organization for achieving the good performance results.
Lewis’ Force Field analysis is a strategic change model that will assist in decision-making by strengthening the forces for supporting organizational changes and weakening the forces against the strategic changes. This model could be applied to the organization of HSBC bank for making changes in the corporate strategy to respond to the external environment. There are several factors that will support and drive for strategic change while some others will resist and restrain the changes. This model could be used to identify the opponents and allies, key stakeholders on issue, balance of power involved in an issue, and influence the target markets (Titcomb, 2015).
Another strategic change was announced by Gulliver in 2015 to cut more than 50,000 workforces by shutting-down its business operation in non-profitable markets of Brazil, Turkey, and other non-profitable markets that shows strategic change as per Lewin’s model because of restraining forces, such as unprofitable markets of Turkey and Brazil enforced to shut down its financial operations/banking ventures at these locations. Gulliver announced through a teleconference in Britain to close its 117 branches with job cuts of 8000 staffs and 380 roles (200 jobs in information technology and 180 jobs in the branch networks) in order to reduce the costs. Gulliver decided to relocate its headquarter in Asia back from London because Asia is the largest market for the banking and financial sector with the high-growth potential countries. Shifting of head office from the UK to Asia will have more control on its operations.
Evaluation of Strategic Changes
The internal forces for change in strategy of HSBC will include ageing workforce, corrupted employees, necessity for greater flexibility in the organizational structure, profitability issues and performance measures, reshaping and reorganization for increasing operational efficiency, concerns, like demotivation, ineffective communication, and poor business relations, and organizational conflicts and disputes that will confront the organization for strategic changes (Financial Times, 2007). While, on the other hand, the external forces for changes will include greater competition, increasing legislations and taxes, political interests, terrorism attacks and criminal activities, growing customers’ demands and expectations, uncertain economic conditions, higher costs of inputs, globalization, technological advancement and innovation, ethical and social value, stakeholder satisfaction, and changing composition and nature of the employees are such external forces that will drive for changes in the corporate strategy of HSBC bank. The restraining forces for HSBC include inadequate information, communication problems, self-interests, sense of insecurity, and disagreement over changes, economic implications, fear and anxiety, and introduction of new technology are such factors that resist to changes within the organizational strategy.
The complexities of the political barriers and regulations, taxation, rapid technological changes, socio-cultural risks and regulatory changes are such drivers that confront the leader to make radical strategic changes within the organization of HSBC. The leader of CEO, Stuart Gulliver undergoes several strategic changes to respond to the external environmental forces and market drivers. Stuart Gulliver is highly committed to the customized services operations for making change in the corporate strategy of HSBC after anticipating and analyzing the current and future customers’ needs and interests (Kohler, 2014). HSBC is aimed at maximizing return for the investment of shareholders in bonds, shares, mutual funds, RDs or FDs, and insurance investment by making significant changes in the banking and financial services.
The economic fluctuations, like economic downturns, high inflation, exchange and interest rates, growth patterns and unemployment are such factors identified from Pestle analysis that will confront the leader to make changes in the corporate strategy of HSBC for reducing the impact of unfavorable economic conditions or recession on its banking and financial operations.
From the pestle analysis, it was identified that the political barriers, country irregularities, terrorist attacks and government legislations are some external risks that enhance the roles and responsibilities of Gulliver to make changes in the organizational strategies and policies (Taborda, 2011).
For example, the organizational structural change of HSBC was the biggest structural change in HSBC corporate history. Gulliver played an important leadership role in the restructuring of the business processes, financial and banking corporations for the security of HSBC branches to avoid from any criminal or terrorism activities. Gulliver realized that because of the large geographical access and HSBC’s complex organizational structure made it attractive for the criminals to carry-out the criminal activities, such as thefts, stealing or frauds (Thompson and Martin, 2010). For avoiding such fraudulent activities or criminal procedures, Gulliver played his leadership role in restructuring the organizational processes, activities, and systems. After taking the position of HSBC leadership, Gulliver centralized the control for the global business operations taking much of his own control out of the hands of the country managers.
Conclusion
Gulliver and his executive directors felt that the organizational change was the biggest since 1865 of the incorporation of HSBC for having more control on its global business operations by having strong supervision and control on the performances of its branches or offices in different countries. HBSC faced problem in Maxico stemmed from the purchasing of the group Financiero Bital in 2002, then Gulliver realized that the bank process of HSBC is too slow and required to improve the system and control of HSBC (Hitt, Ireland, and Hoskisson, 2008).
Gulliver plays its role with sense of responsibility and active involvement with the aim of becoming HSBC the world’s largest banking and financial corporation. The strategic vision, focused leadership, creativity, deep sense of understanding, long working experience of accounting and financial sector, innovativeness, mentoring and motivation skills, good representation, and financial analysis capability are such traits of the leadership of Gulliver that made him a great leader to lead one of the world’s largest financial and banking corporations.
Gulliver leadership role was also signified in capturing the high quality opportunities by HSBC bank by increasing the distinctive international networks of HSBC and diversified business model for opening more branches of HSBC at different locations (HSBC, 2016). Gulliver has been making constant changes in the corporate strategy for improving the economies, global market share, sales volumes, and clientele of HSBC. Gulliver showed his commitment to implement significant strategic changes for meeting the global standards, managing the increased capital discipline, and addressing regulatory changes to drive changes for fundamental reviewing of all aspects of businesses of HSBC.
Gulliver implemented strategic changes to attain the competitive advantage from its stable funding base, its meaningful presence in international markets and long-term commitment to key strategic markets of HSBC, interconnectivity to the global business network with 90% of international trade and capital flows, enhancing its capability in the most relevant financial hubs. Gulliver made corporate changes to capture opportunities from the social mobility and wealth creation in the global markets where it has currently its operations.
Gulliver played its significant role in transformation of HSBC through refining the operational processes, implementing consistent business models and streamlining IT processes to facilitate self-funded growth by reducing or eliminating the complexities, inefficiencies, and unnecessary activities. Gulliver made strategic changes by implementing the operational effectiveness programs after contracting the key strategic elements including the organizational people and structure, software development, process optimization, and corporate real estate. Gulliver showed the HSBC’s commitment to develop the global standards shaped by the highest or most effective standards in its value propositions, products, financial and banking services, operational processes and service channels including multi-channel servicing, and infrastructure including real estates, technology, and supplier management (Fatma, Rahman, and Khan, 2014).
The geography strategy of Gulliver is aimed at making changes in the corporate strategy of HSBC by focusing on its operations in those countries where HSBC can seize or maintain the leadership position as the perception of operating in each country will not be best way to maintain its leading position. For example, Exit from Brazil and Turkey with 50,000 jobs cuts was an important part of the corporate strategy of HSBC to avoid $5 billion costs for the company. Gulliver announced to cut more than 25,000 jobs worldwide including 8000 in the UK as well as by the end of 2017 for saving the costs of the company (Crossan, Vera, and Nanjad, 2008).
The main focus of Gulliver is on four businesses including commercial banking, wealth management (retail banking), global banking and markets (GBM), and private banking. Gulliver provided the grades for the business units of HSBC after screening through Gulliver’s screening tools or five filters that will determine the future direction of the business units to be retailed, revived or sold. Gulliver showed an appropriate strategic direction to HSBC by having the reviews and control on the performance of the business units in different countries for bringing the further improvements accordingly. Gulliver reflected that HSBC needs to have strong network to power the business units like commercial banking and global banking and markets that are most profitable rather than more focusing on networks for retail banking (Beamish and Lupton, 2016). Gulliver gave strategic directions for each manager to have eight direct reports in which everyone reporting the business performance of their business units. Gulliver promoted cohesive culture promoting the necessity of the cultural values.
Conclusion
The rapid technological advancements, increasing high-level of competition from other banking and financial corporations, changing customers’ needs, pressures from the business innovation models, the changing market drivers, and changing environmental conditions, and loss of profits are such forces that enforce the CEO or leader of HSBC bank to make effective strategic changes for maintaining its positioning in the global financial and banking service industry. The strategic models of Pestle, Porter, and Mintzberg as well as strategic change model of Lewin were used for implementing strategic changes in the organization in response to the market drivers. The leadership role of Stuart Gulliver was evaluated for incorporating change in the corporate strategy of HSBC bank.
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