Lloyds Banking Group Integration - Essay Example

?Lloyds Bank plc: Issues of Structural and Cultural Integration Introduction This essay considers the issues faced by Lloyds Group in integrating itsvarious divisions and organisations to create a coherent organisation with a single brand name and ethos. It begins with an assessment of the different structural possibilities available to the Group, including the effect of the structures on organisational culture. It then evaluates how these structures would affect the group’s organisational mission, values and objectives, management approach and how these might affect future business performance. Finally, a recommendation is made, based on the analysis, as to which structure appears to provide the best solution for the Group and why. Organisational Structures Special Issues for Banks Martin and Fellenz (2010, p.592) define organisation structure as “the formal arrangement of task, communication and authority relationships that influence and control how people co-ordinate and conduct their work”. It is assumed that organisations can choose their structures and change them through what Brunsson and Olsen (1993, p.211) refer to as “administrative reforms”, which they define as “expert attempts at changing organisational forms” (ibid). They claim the belief that formal organisations can be changed originates in “a rational, instrumental tradition” which assumes a hierarchical approach to leadership and power with an unequal distribution of work and working conditions, among other things (ibid, p.212). They question how much choice, in reality, organisational leaders have when they decide to change the organisational structure. For Lloyds Group, this is a particularly pertinent issue as consideration is being given to breaking up the larger banks to avoid the “too big to fail” belief following the global economic crisis of 2007-2008 (Treanor, 2011). The USA had, until 1999, regulations in place imposed by the Glass-Steagall Act 1934, which required different banking functions to be kept separate. Following the crisis, several commentators suggested the UK might consider such an approach (Goddard et al, 2009, p.374), although some believe it is unlikely to be implemented (Hindle, 2009, p.422). For Lloyds, such a break-up would be change imposed by the environment rather than a choice for senior management, something that Brunsson and Olsen see as a key issue for those who look to change organisational structures. They believe any organisational change is affected to a greater or lesser extent by the context within which that change takes place and organisational structure can simply be the result of a series of unconnected events that were not originated by the organisation (1993, p.219). As the banking industry is currently subject to heavy scrutiny by both government and the public, any changes Lloyds Group decide to make will be affected by that scrutiny and the prevailing culture of risk avoidance. In addition to the possibility of an imposed break-up, Lloyds must also consider the current regulatory requirements that insist on divisions, whether real or virtual, between different functions within the Group (“Chinese walls”) to avoid issues such as insider trading and dealing with privileged information, something the USA have recently reconsidered within the Dodd-Frank Wall Street Reform and Consumer Protection Act (Hay and Goebel 2010). This analysis must therefore be considered in the light of the specific requirements of the banking industry currently in place and the likelihood that further changes will be required in the immediate short term. Possible Organisational Structures The structure of an organisation should be determined by the strategy the organisation pursues and the business undertaken to deliver products and services to customers (Mullins 2010). Lloyds Group needs to determine what business it is in and how it intends doing that business, before it can decide how to integrate the different parts of the Group. On the assumption that the purpose of the integration is simply to combine the different organisations and create a single Group, the choice of structure is likely to be similar to the one that the current Lloyds senior management team had created with Lloyds before the merger with Halifax Bank of Scotland (HBOS). This structure had elements of functional and geographical structures, as well as separate divisions for different aspects of the business that, for various reasons, needed to be kept separate from other banking activities (e.g. keeping corporate banking separate from any part of the organisation dealing with the Stock Market to avoid insider dealing/trading – see above). Stacey (2011, p.77) describes organisational structures as “a hierarchy of managers and is the source of authority, as well as of the legitimacy of decisions and actions”. Structure, he says, is only required if an organisation intends to, or is, growing as specialisation becomes an issue. The first approach tends to be based on specialised functions, such as marketing, human resources and finance. This functional structure allows functional specialists to work together on their particular aspect of the organisation, with their work covering the whole of the organisation: Figure 1: A Functional Structure (Source: Johnson et al 2011 p.434) Johnson et al (2011, p.434) identify certain advantages and disadvantages of this structure. It allows the chief executive officer (CEO) to keep in touch with all operations, reduces and/or simplifies control mechanisms, provides clear definitions of responsibilities and provides specialists at middle and senior levels of management. Unfortunately, it also means that senior managers can neglect strategic issues because they have too much routine work to do, coping with diversity is difficult and co-ordination between functions difficult, and as the organisation becomes larger and more complex, adaptation becomes difficult. Lloyds Group is already a complex national organisation, thus reorganising on the basis of function would not serve the needs of the organisation or the customers. Figure 2: A Multidivisional Structure (Source: Johnson et al 2011 p.435) The advantages of this structure, according to Johnson et al (2011) are that it is flexible and can be controlled by performance; strategy is owned by everyone; there is competence specialisation; and it provides training in taking a strategic view. The disadvantages are the duplication of central and divisional functions, a high degree of fragmentation and non-cooperation and there is a danger of the centre losing control of the divisions. Lloyds Group are likely to have something like this already. It is interesting that Johnson et al identify the lack of co-operation between divisions as a disadvantage as, for Lloyds, such non-cooperation can be an advantage where separating functions is required by law. A matrix structure can be found within project organisations, where several projects are managed concurrently by the organisation’s staff, with specialists having input to each project based on their expertise and the needs of the project (Clements and Gido, 2010, pp.409-413). It is unusual to find such a structure within a commercial organisation as it can cause problems for staff having more than one line manager. Johnson et al (2011, p.436) identify the advantages of the matrix structure as the opportunity to integrate knowledge across the organisation, the structure is flexible and it allows dual dimensions of structure (see diagram next page). Figure 3: A Matrix Structure (Source: Johnson et al 2011 p.436) The disadvantages are the length of time it takes to make decisions, the lack of clarity regarding job, task, cost and profit responsibilities and the potential for a high degree of conflict (Johnson et al 2010 p.436). This type of structure is unlikely to suit the needs of Lloyds Group as a high degree of control and accountability will be required for a bank. Figure 4: Multinational Structures (Source: Johnson et al 2011 p.439) The final structure to be considered is that relating to multinational or transnational organisations. This is not currently an issue for Lloyds Group as the focus is on the UK, but will be relevant when overseas operations are considered for integration. Implications of Structure for the Business Stacey (2011, p.459) states that “organisational life is both sustained and changed in the ongoing interplay between generalised/idealised institutions and the legitimacy they provide, on the one hand, and the particularising effect of local interactions”. For Lloyds, any new structure will only fully take effect if the staff and management change their actions to work within it, otherwise, the change will not take place. This is one of the main reasons that attempts to change organisational culture tend to fail: staff and management do not change their behaviour, nor do they see any reason to change their behaviour. Changing the structure has implications for several aspects of the organisation that are important to its business. Included within these are Lloyds’ mission, values and objectives, approach to management and how everything works together to deliver customer products and services both now and in the future. These will now be considered. Organisational Culture As it is possible that distinct brand names might be lost in the integration, the effect on organisational culture is likely to be significant. Lynch (2009, p.805) defines organisational culture as “the set of beliefs, values and learned ways of managing in an individual organisation”. Each organisation represented within Lloyds Group will have its own unique identity and way of doing things, and that is likely to be completely overhauled by the integration. Individuals are going to feel afraid of losing their jobs which will hamper any changes. Each of the structures that is suitable for Lloyds Group is based on a hierarchical structure, although several management layers will probably disappear as roles are consolidated across the Group. For the culture, the future is uncertain. Organisational Mission, Values and Objectives As these provide the direction for the organisation, getting them right is essential. An organisational mission is “the broad general directions that the organisation should and will follow and briefly summarises the reasoning and values that lie behind it” (Lynch, 2009, p.804). Involving the staff across the Group in defining the new mission, values and objectives would be one way of gaining the commitment of the staff to making the mission happen and achieving the objectives. Lynch (ibid, p.805) states an objective (or goal) “take[s] the generalities of the mission and turn[s] them into more specific commitments. They state more precisely than a mission statement what is to be achieved and when the results are to be accomplished. They may be quantified”. If these are also agreed with the staff then the prospects for achieving them will be good. However, the mission, values and objectives need to reflect the unique nature of each organisation within the Group, making drafting something that is not totally anodyne very difficult. It is probable that the changes will take some time to achieve, including arriving at a definitive mission statement, associated values and objectives. Management Approach The usual approach within a bank where management is command and control, which requires staff to carry out their tasks according to strict procedural guidelines, with punishment if these are not done correctly. Within a bank, there are many tasks with deadlines and time commitments, meaning things must be done promptly and accurately. Although empowerment is seen as the way forward when managing staff, Nielsen and Pedersen (2003) discovered that there are limits to the effectiveness of empowerment within financial services. As much of the bank’s activity is subject to regulation and will be subject to increasing scrutiny over the coming years, it is probable that the existing management approach will continue, as a high degree of control is required to ensure that activities are completed as they should be. Future Business Customers may not be happy to lose their part of the Group if the different brand names are lost and may take their business elsewhere. It is therefore essential that any change is managed properly so that staff can reassure their customers that business will continue as normal regardless of the change of name. Some parts of the business may retain their names, such as Scottish Widows, to maintain continuity of long term insurance policies for customers, with a new division set up to process new applications. Conclusion Although Lloyds appear to have a large range of options, in practice their options are limited by the existing systems and structures. It may be some years before full integration is achieved and any change process towards that end must be managed carefully to ensure that staff are supportive of the changes proposed. Recommendation The multidivisional structure appears to be the best option at this time, allowing the various parts of the organisation to merge into single divisions and departments that complete the same function for the whole Group. It is likely that this will be a first step towards total integration, rather than a single change from the current state to total integration. Word Count: 2,091 words excluding diagrams and reference list References Brunsson, N. and Olsen, J. P. (1993) ‘Organisational Forms: Can we Choose them’ in Salaman, G. (ed.) Decision Making for Business: A Reader The Open University/Sage, London Clements, J. P. and Gido, J. (2009) Effective Project Management (International Student Edition) (4th edn.) Cengage Learning South-Western, Mason OH. Goddard, J., Molyneux, P. and Wilson, J. O. S. (2009) ‘The Financial Crisis in Europe: Evolution, Policy Responses and Lessons for the Future’ Journal of Financial Regulation and Compliance Vol. 17 No. 4 pp.362.380 Hay, J. and Goebel, M. (2010) ‘Volcker-lite and Lincoln-lite: Chinese Walls or Swiss Cheese?’ Future and Options Intelligence 24 June Issue 1526 p.16 Hindle, J. (2009) ‘The Future of Regulation’ Journal of Financial Regulation and Compliance Vol. 17 No. 4 pp.415-416 Johnson, G., Whittington, R. and Scholes, K. (2011) Exploring Strategy (9th edn.) FT Prentice Hall, Harlow Lynch, R. (2009) Strategic Management (5th edn.) FT Prentice Hall, Harlow Martin, J. and Fellenz, J. (2010) Organisational Behaviour and Management (4th edn.) Cengage Learning South-Western, Andover Mullins, L. J. (2010) Management and Organisational Behaviour (9th edn.) FT Prentice Hall, Harlow Nielsen, J. F. and Pedersen, C. P. (2003) ‘The Consequences and Limits of Empowerment in Financial Services’ Scandinavian Journal of Management Vol 19 pp.63-83 Stacey, R. D. (2011) Strategic Management and Organisational Dynamics: The Challenge of Complexity (6th edn.) FT Prentice Hall, Harlow Treanor, J. (2011) ‘Banking commission will consider breaking up biggest banks’ The Guardian 22 January available online at http://www.guardian.co.uk/business/2011/jan/22/banking-commission-will-consider-breaking-up-biggest-banks [accessed 23rd January 2011] Read More