Corporate Strategy of Hong Kong and Shanghai Banking Corporation - Case Study Example

HSBC PLC “Never Underestimate the Power of Local Knowledge.” Overview of Hong Kong & Shanghai Banking Corporation (HSBC) The modern HSBC Group developed out of strategic mergers and acquisitions throughout the century. The Group started as a single bank, the Hong Kong and Shanghai Banking Corporation established in Hong Kong to facilitate trade between the region and Europe. Business operations expanded to Europe with the acquisition of banks in London and then to North America through mergers with Canadian and US banks. The company achieved its goal of international representation in different key regions by establishing itself as a stable banking and finance corporation with its main office in London and regional offices across Europe, Asia and the Americas. The modern HSBC Group has 9,800 offices in 77 countries. Despite the establishment of its main office the corporation still recognizes its roots in Hong Kong. In recognition of its historical beginnings the corporation invested in the modern building of the HSBC headquarters in Hong Kong servicing the Hong Kong Special Administrative Region with over 200 branches. The HSBC Bank in Hong Kong proved itself a stable bank when it still reported profit despite the 1997 Asian Economic Crisis that caused great loss and even bankruptcy to a significant number of businesses. In the aftermath of the Asian Economic Crisis, the HSBC Bank HK reported profit for the financial year 2000-2004. Although profit did not increase dramatically, the significant point is that the bank obtained profit while others may not have fared as well. However, in 2004 it reported a great increase in profit on ordinary activities from HK$34,797m in 2003 to HK$44,966m in 2004. In terms of the profit attributed to shareholders, the figure below shows that the bank also reported stable profit for the years 2000-2004. The financial year 2004 also reflects the greatest increase in profit increment compared to the previous years. Profit attributable to shareholders increased from HK$25,797m in 2003 to HK$33,565m in 2004. There are factors that may have caused the constant profit and the sudden increase in profit in 2004. This paper will look into the performance measurement and management of productivity of the HSBC Bank HK as factors affecting the productivity of the bank. Appraisal of Strategies and Performance Benchmarking Benchmarking is the process of evaluating business processes to identify the best practice for the achievement of the company’s goals. The process involves the continuous activity of evaluation, planning and challenging previous business practice. This is a logical process involving the scientific method of initially identifying business problems through an exploratory research of the internal operations of the company and external factors such as the practices of other companies, the market trends and the political-economic conditions. (Wikipedia, 2005) The business practice that the bank has tried and tested over the years is a consumer-based approach to business planning and program implementation. The main indicator for measuring consumer satisfaction is the increase in shareholdings of individual stockholders and the corresponding rate of reinvestment. The total amount of shareholder funds constantly increased from HK$83,129m in 2001 to HK$147,495m in 2004 although there was a decrease of HK$7,683m in comparing the value for 2000 and 2001. (HSBC Annual Review 2004) This means that either the number of shareholders increased or the rate of reinvestment increased or both. Either way this is an indicator for HSBC that there is a positive response from its customers of its business practices which draws them to invest in the bank by availing of the financial services that the bank offers. Based on this the company has improved its service by establishing 200 branches across Hong Kong and setting-up automated teller machines bringing its services closer to the people. (About HSBC) The company also has consistently shown its regard for the people that the company service by sponsoring charity works and diversifying its services from ordinary banking activities to insurance. The bank as part of the HSBC Group has developed a reputation as the bank of the people through its awareness and concern for social issues. The company has developed a retirement plan as a service from the expectation of the increase in retirees in the succeeding years. The company also has invested greatly in environmental causes. (Sustainability Leader 2003) The company also constantly conducts benchmarking in relation to other peer groups and the other finance and banking firms in Hong Kong. The result is a business strategy that incorporates the profitable business experiences of the bank and the other subsidiaries of the HSBC Group. The friendly competition in the business environment in Hong Kong, as influenced by the cultural context of the region, also provides a venue for the acquisition of business information on other similar businesses. Benchmarking serves as an effective method employed in assessing the competitiveness and efficacy of a business. Environment Analysis The success of the business organization entails detailed understanding and examination of political, social and economic factors that influence the growth and continuous operations of the company. Studying the important consideration relevant to the organization to serve the purpose and objectives of the company will determine its success. Consequently, decision-makers of the company should be sensitive of the general trends and changes that are taking place in their industry. This will include efforts to maximize the opportunities available while reducing the risks that confront the business organization. The PESTLE Analysis establishes a good analysis of the external effects on a company by breaking them into essential and obvious sorts. Political- the Japanese and Korean government’s policy Economic- the government’s policies in the banking industry. Sociological- HSBC’s adaptation to the patterns of banking of the Japanese and Korean clients and their culture. Technological-e-commerce impact on company’s distribution costs. Legal- the effect of the corporate activism in Japan and Korea. Environmental- climate change in Japan and Korea to the third world suppliers. One of the core characteristics of a successful organization is focus. Since the business environments are fast becoming more and more complex added to the fact that it changes rapidly and dynamically, businesses need to concentrate on a few key elements that are most important to their organizations survival. Thus, it is not surprising the critical success factors keep the organizations from straying too far with external issues not relevant to their company’s success. Eric Knight’s Campaign In lieu to the comments of Eric Knights regarding the entry of HSBC to Tokyo and Seoul, the business environment has long been characterized with complex interrelationships among and between companies belonging to the same industry. With the internationalization trend in the business community in different countries all over the world, the observing good ethical practices is paramount to every business transaction and deals in successfully operating in the global market. The trust, honesty, responsibility, integrity and accountability between transacting business firms and organizations are values which serve as the key foundation of gaining credibility and good position in the international arena. Hence, standardization of the code of ethics in the corporate world was realized and enacted through the legalization and enforcement of laws and policies that will protect the interests of business establishments. Such legal move resulted to the proper attitude and behavior among business organizations with business transactions thereby decreasing the number of business-related cases filed. . The concept of corporate governance enhances the confidence HSBC thus promoting competitive market play and improving economic conditions. It primarily deals with the roles and responsibilities shouldered by board members and directors in efficient and effective business management and accountability. The challenges that corporate governance presents deal with sustaining balanced relationship between transacting businesses, maintaining stability upon legislative and regulatory reforms while accounting its impact on the international business relationships in order to enhance business activity and competitiveness as well as stimulate investment flows. Japan and Korea’s system of corporate governance comprises the formal and informal rules, accepted practices and enforcement mechanisms, public and private, which together govern the relationships between people who effectively control corporations on one hand, and all other who may invest resources in companies located in the country, on the other. They emphasized that well-governed companies with actively traded shares should be able to raise funds from non-controlling investors at significantly lower cost than poorly governed companies; because of the greater risk premium such potential investors can be expected to demand for investing – if they accept to invest at all – in less governed companies. Much of the recent emphasis on corporate governance has arisen from high-profile corporate scandals, globalization and increased investor activism. Recent new legislative and self-regulatory corporate governance requirements have helped to instill global market confidence. This includes improved integrity and oversight of management, scrutiny over board composition and independence, effective use of internal and external audit functions, higher levels of disclosure and transparency and greater engagement with investors. Corporate Governance looks at the institutional and policy framework for corporations - from their very beginnings, in entrepreneurship, through their governance structures, company law, privatization, to market exit and insolvency. The integrity of corporations, financial institutions and markets is particularly central to the health of the economies and their stability. Forward Strategy for HSBC Business Process Re-Engineering Business process re-engineering is another process related to benchmarking with the thrust of improving competitiveness and the product or service offered through projects addressing the different aspects of the business operations. One aspect that a business should focus on is customer satisfaction greater than or at par with what the other companies offer. Increase in the number of new customers as well the continuous patronage of old customers reflects customer satisfaction. Ensuring customer satisfaction requires the implementation of a business practice where the employees of the business prioritize the needs of customers. (Wikipedia 2005) Another aspect of this process is the effectiveness of the product or service offered to the customer. The number of customers repeatedly availing of the product or service is the measure of effectiveness. A consistent increase in customer satisfaction proves that the product or service meets the demands of the customers. Another related aspect is the internal efficiency of the business offering a product or service. An efficient business practice emanates through the treatment of managers and employees of customers. Businesses that value their employees are likely to value customers as well. (Wikipedia 2005) The HSBC Bank HK has a diverse group of customers. Those who avail of the services of the bank range from private individuals, charities, companies and the government. The needs of the customers, which the company meets, also varies from the safekeeping of personal money, financial aid to establish a new business, funds for charitable purposes and insurance. As of 2004, the HSBC Bank HK has contributed to the total worldwide customer base of HSBC Group of 110 million customers, 200,000 shareholders and half million employees. (HSBC CSR 2004) The Hong Kong bank employs the corporate practice of keeping a tabulation of its customer base as measure of its effectiveness. The customer base of the bank translates to profits for the company. In 2004, Hong Kong accounted for 25% of the total profit prior to tax of the HSBC Group. (HSBC Holdings 2004) This means that the bank was able to draw a lot of customers or shareholders and maintain existing clients. Reporting constant profits is an indication of a consistent consumer base, an increase in profits translates to an increase in consumer base in terms of number, and the amount invested in the bank’s services. Changes in the measurement of consumer satisfaction, through the positive reaction to the services of the bank, is an effective mode of measuring the performance of the company and in identifying areas that need change. Human Resource Performance Human resource performance is an effective measure of business productivity. Performance management is important in three ways: 1) it is an important integrative process of connecting individual actions to the goals of the business and subsequently connecting this to the method of motivation particularly the reward system for employees; 2) performance management is also an important tool of directing and unifying employee actions towards the goal of the business and the facilitation of the communication of expectations of employees as well as the company; and 3) the process also facilitates the creation of physical and valuable output such as the loyalty of employees to the company. (Gratton et al. 1999) The HSBC Bank HK values its employees in recognition of the role they play as representatives of the company who deal directly with the customers. This is also in recognition of the business fact that committed and engaged employees perform better in customer service contributing to higher returns for shareholders. (Hacker ed. et al. 1990) In 2004, the bank conducted an audit of employee information that the company has acquired as well as issues in labor relations. The result covered the response of 90% of the employees of the company. It showed that the Hong Kong bank recognizes their employees’ rights to freedom of association and allows its employees to join unions according to their personal choice. It also shows that 70% recognize a trade union. Less than half of the employees experienced any form of union action, meaning the employees are more satisfied with the business practices of the company. (Corporate Social Responsibility: Our People 2004) The management strategy of auditing the information that the company has on its employees as well as inviting the response of a greater portion of the employee population is an effective means of developing loyalty and commitment by showing that the opinion of employees are significant to improving business practice. The bank also gives out awards and rewards to its employees through performance based promotion as well as pension plans for its retiring employees. A content bank workforce ensures the delivery of quality customer service to clients that in turn develops customer loyalty or patronage. Customer loyalty results to sustained or even increasing revenue. (Corporate Social Responsibility: Our People 2004) Financial and Non-Financial Indicators The most salient performance indicator of HSBC Bank in Hong Kong is the total shareholder return (TSR). This is a measure to calculate the total return on investment from the time of investment. The TSR has two components, which are growth on share price and increase in income on the shares. The bank uses the data on the two components as a point of comparison to determine whether there was an increase from last year’s productivity. The data also serves as the benchmark for identifying productivity targets for the succeeding year. (Total Shareholder Return 2004) This method is effective because the company always has an actual basis for determining its performance based on figures. The significance of the data on total shareholder return accounts for the view by the bank that this is the minimum value achievable in the succeeding financial year. The bank constantly challenges itself in setting goals of the progressive surpassing of the previous year’s TSR. The constant challenge keeps the company from being complacent in the business. A significant non-financial indicator of the performance of the company is the reputation that the bank has attained through its business goals and practices. This may not be quantifiable in monetary terms but this is a powerful factor accounting for the success of the company. This is important since Hong Kong is a place where honor and reputation count, thus people only engage the services of reliable establishments. The brand strategy of the HSBC Group of carrying a single logo for all its subsidiary companies is a management strategy that not only unifies the company but also provides a visual representation of what the company stands for. The result of having a single logo is that people recognize the red and white HSBC logo anywhere in the world. Workplace Reforms Productivity management of HSBC Bank Hong Kong is apparent from the changes established in the manner of reporting. As part of its developed business strategy, the bank is changing its internal and external reporting. Reporting based on the services offered such as commercial banking, corporate banking, investment banking and private banking classifications is the new productivity management technique. (HSBC Strategy 2004) The bank is also part of the HSBC Group’s goal of giving standardized skills training for its managers as well as employees and technology transfer to all its subsidiaries and branches to make sure that all its offices are up to date. This also ensures the uniformity in the resources of all branches and the manner of resource maximization to meet customer needs. (HSBC Strategy 2004) Conclusion HSBC Bank is one of the stable finance and banking corporations in the region. The bank attributes its productivity through an integration of management strategies and performance measurement that gives the company a more or less precise notion of its standing in the market. The company value information on its performance and conducts research and reports on its operations in developing the bank’s succeeding management strategies. The value it gives to its clients is the core of its business practice. It does not only value its clients but also its employees and the management team that transform the business from a financial structure into an organization of committed members. The measure of the success of the company is the extent to which it values the human aspect of the business. The motto of the company “The World’s Local Bank” signifies the importance that the bank gives to the people of the locality in serves. The performance measurement of the bank is customer satisfaction and its strategy of productivity management is heightening customer satisfaction. References Business Terms 2005, Wikipedia Encyclopedia, viewed 27 September 2005, . Corporate Social Responsibility: Our People 2004, viewed 27 September 2004, . Gratton, L, Hailey, V, Stiles, P & Truss, C (eds.) 1999, Strategic Human Resource Management: Corporate Rhetoric and Human Reality, Oxford University Press, Oxford. Hacker, H, Kleinbeck, U, Quast, H & Thierry, H (eds.) 1990, Work Motivation, Lawrence Erlbaum Associates, Hillsdale, NJ. HSBC Corporate Social Responsibility 2004, viewed 27 September 2005, . HSBC Holdings 2004, News Archive, viewed 27 September 2005, . HSBC Strategy 2004, viewed 27 September 2005, . Sustainability Leader 2003, Dow Jones Sustainability Index (DJSI), viewed 27 September 2005, . The Hong Kong and Shanghai Banking Limited: Annual Review 2000-2004, viewed 27 September 2005, . Total Shareholder Return (TSR) 2004, viewed 27 September 2005, . Read More