Development of Hong Kong and Shanghai Banking Corporation - Case Study Example

Introduction: The HSBC is one of the largest and oldest modern banking corporations in the world. Though current group holdings and its present structure was formed only in the 1990s, the financial institutions and the original Hong Kong and Shanghai Banking Corporation and the Mercantile Bank that it took over has over a generation of experience in the banking and financial sector. The company prides itself as the "World's Local Bank" and uses the words in all its sites. Throughout its long history, it can be seen that it was one of growth through banking strategy, innovation and acquisitions and only the major setback to the bank happened during World War II. This paper is a review of its strategic planning and resulting growth along with a brief history of the company. Brief history of the HSBC: The original Hong Kong and Shanghai Banking Corporation was started in 1865 by a visionary Scottish businessman called Thomas Sutherland to facilitate growing trade between China and India and the Europe. The company began rapid expansion in Europe and USA even though the main focus was expansion in Asian countries. The company at that time grew large enough even to fund government projects in many developing countries in Asia. World War II saw many of its operations in Asia being closed down. The bank realised that focusing only on Asia was risky and began a expansion program mainly through acquisitions in Europe, Asia and the formation of a organization in the USA. The prominent acquisitions include the Hand Seng Bank, the Mercantile Bank and the British Bank of the Middle East (all in the Asia-Pacific region), the Marine Midland Bank (USA) and the Midland Bank (UK). "The formation of HSBC Holdings plc in 1991, creating a holding company for the entire Group with its shares quoted in London and Hong Kong, showed that the Group viewed Europe and the London market in particular, as a vital part of its future development." (Group History 1980-1999. 2009). The Bank continues its growth strategies and is a very profitable organization even today. The organisational structure of HSBC: The HSBC bank follows a strategic organizational structure with regard to both group companies and its departments. Organisational structure: A typical departmental structure is explained here. It should be noted that the structure is based on its policies of customer service policies and other strategies. The head of the structure is the CEO followed by nine departments. They are legal and financial control, Operations, Human resources, Commercial Banking, Internal Audit, Marketing, Treasury and Personal Financial Services. There is an administrative department under the financial control department. Under the Operations section, there are seven departments, namely IT, Support services, Property and security, Credit operations, Credit cards, Projects and Cash. The ATM department comes under Cash section. Under Commercial Banking, there are the Trade Services and Credit departments. Under the Personal Financial Services Department there are Customer Service, Teller Area, Consumer Finance and Loan Approving Department (for personal financial services). (Organization Chart. 2008). Group structure of HSBC Holdings Plc: Considering the size of the company, the organisational structure of the bank is extremely complex with seven major division and many other divisions formed under each of the seven ones mentioned above. The seven major divisions are HSBC Latin American Holdings (UK) Ltd, Grupo Financiero HSBC SA de CV, HSBC Investment Holdings Plc, HSBC Finance (Netherlands), HSBC Overseas Holding (UK) Ltd, and HSBC Bank Plc. As the name suggests, HSBC Latin America bases its operations in those countries while Grupo Financiero operates in Mexico. HSBC Investment Holding operates in UK and Taiwan. HSBC Finance headquartered in the Netherlands has operations in several countries (mainly in Asia) like Malaysia, Panama, Middle East, Hong Kong, China, Bermuda and Japan. It has control over the original Hong Kong and Shanghai Banking Corporation in Hong Kong also has an insurance division under it. The HSBC Holding (UK) Ltd operates mainly in the USA and Canada. HSBC Bank Plc bases its operations in Europe and also has an insurance division under it. (Simplified Structure Chart of HSBC Holding plc. 2007). The group organizational chart that can be viewed from its website clearly indicates the complexity of operations. The strategy mentioned below is based on the two structure mentioned above. Strategies: General strategies: The overall strategy, whether it is with regard to lending or acquisition can succinctly put by the sentence created by Bankers Magazine in 2002 when the HSBC won the Global Bank of the Year award in 2002. According to the magazine "HSBC never pays too much for any acquisition, has a better track record than most in not lending excessively to troubled corporate giants and is less dependent than rivals on investment banking revenues. That's why HSBC is deservedly The Banker's Global Bank of the Year." (HSBC Global Bank of the Year. 2002). The press release in which the sentence appeared also says that the magazine as had qualified the bank as "one of the best run organizations in the world". This is high praise for any organization. Information Technology management: It is quite clear that the organization needs a strong IT infrastructure for maintaining its complex operations and diverse financial dealings. For this purpose the company has a subsidiary called HSBC Global Technology (HSBC GLT). "The HSBC GLobal Technology Centre - GLT was set up in April 2002 in Pune, India with a mandate to develop software for the HSBC group." (Welcome to HSBC GLT. 2005). The Company is based in India since it is a cheap and efficient destination for information technology and software development. International Trade: "The organisational structure of international trade at HSBC is split into two distinct segments. Short-end deals (under one year) are handled by trade services, while project and export finance is managed within the corporate, investment banking and markets division (CIBM) and includes a forfaiting and risk distribution unit." (Regular: HSBC: Access all Areas. 2002). Due to the wide and diverse nature of its international operations, HSBC has an system named HSBC Universal Banking System (HUB) to facilitate as a common platform for performing all banking functions, basic transactions and other banking and financial services. This facility which is now being used through the internet will gradually replace the existing Electronic Data Interface in place, according to Derek Lunt, head of trade services in Europe. It should be noted that the banking division of the organisation had been given the title of Global Bank of the Year by Banker Magazine in 2002. Complex documentation usually found in banking transactions has also been made easier through implementation of IT. Specific Strategies: The banking and finance industry is characterised by two contrasting factors, namely strict governmental regulations and innovation in lending and deposits. It is also a sector characterised by heavy competition and low margins. In such an environment, the policy as explained by the Bankers Magazine is the correct policy to follow. As per the 2007 annual report of HSBC Plc, the bank will strictly comply with the Basel II capital adequacy framework so that there will be a match between its capital and risk positions. The Bank continues to think in terms of being "The World's Local Bank". "HSBC's strategy reflects its position as 'The World's Local Bank' and is focused on delivering superior growth and earnings over time by building on the Group's heritage, skills and investment." (Report of the Directors: Strategy. 2008, P. 8). The annual report adds that the bank will leverage the brand and existing network to add more value and efficiency to its existing services. This will focus on its existing customers as well as adding new ones. The bank is also trying to portray itself as the "Best Place to Bank" as part of its strategy. To quote another sentence from the report, the bank will "Make Better Products, Sell Them Properly, and Keep Them Sold." (Report of the Directors: Strategy. 2008, P. 8). It is also trying to portray itself as a "Best Place to Work" in an effort to retain and attract the best talent possible in all the markets it operates. The Bank also conducts employee and customer survey in order to rate itself as an employee and brand. Nearly 87% of employees participated in the employee engagement survey. In the case of brand perception, it was conducted by professional external agencies and the score received by the bank was five to seven points ahead of competitor banks. The group also conducts regular customer satisfaction surveys and consistently outperforms rest of the major players in the market. The bank provides a wide range of products and services continues its efforts to change them for the better and also create new ones. The bank is also actively engaged in expanding its market and is looking for opportunities to open its branches in new countries and markets. Another strategy is strong cost control measures to improve profitability. Its private banking division is also very active and tries its best to keep customers happy with a wide range of products including tax and investment advice, estate planning, stock and share management, mutual funds and currency exchange/ transactions. The world of finance is a high risk business and the bank has a strong risk management system in place with the highest priority given to reputation management. Under its 'best place to work' initiative, fifteen new areas were identified as per employee feedback and 13 of them have already been implemented. Regular reviews of reward systems, compensation, pension schemes and even organizational culture are conducted and necessary changes and improvements made where necessary. The bank has very rich and diverse cultural mix in its employees and hence a strong diversity policy in place along with one for employing people with disabilities. Community involvement is also taken seriously and the bank has donated to various charities and other non-profit organisations. Environmental issues are also an area of strong focus and regular support to groups like Earthwatch Group, WWF etc are also given. The bank also practices environment friendly activities like reducing carbon emissions is also done. Support for school education in the UK is also a regular feature. All these non-profit activities and expenditures will provide a good public relations image to the bank thereby indirectly helping it to gain business. Three lenses strategy: The three lenses strategy is a concept used to view three perceptions of corporate strategy. They are strategy as design, strategy as experience, and strategy as ideas. The strategy as design is a "logical, analytical, and planned one. (Scholes 2005, Slide no 5). In this concept, strategy is systematically developed by the top management of an organization taking into view, its vision, its external and internal environment, and the future. This is usually done to handle and control complex situations and in most cases, analytical tools are used in design and implementation of the strategy. The strategy as experience simply means those that are evolved through individual and collective experience of top management and employees, what has been learnt from past history, and the organisational culture of a firm. The human mind is very agile and dynamic and it is only natural that new ideas and suggestions that can be converted to ideas emerge from time to time. This is the concept of strategy as ideas. An environment that nurtures innovation and ideas is important for ideas to develop. It can be said that all three lenses are present in HSBC. The strategies mentioned in earlier sections can be said to be designed for competitiveness. They have evolved by careful and elaborate planning. An example would be the employee and customer satisfaction surveys (tools) conducted by the bank. This would satisfy the features of strategy as design. The bank has an experience of nearly one hundred and twenty years in the baking and financial field. There is no doubt that experience and knowledge gained though time has played a part in formulating strategy as experience. As to strategy as idea, a study had been conducted about the bank and the results published in a paper titled "Strategising routines in HSBC (UK)". The concept under study was the generation of ideas and the eventual transformation of some of them into strategies. The base model theory used was H L Hart's model of strategic development. The stages mentioned by the authors were idea generation, concept development, and project implementation. (Menuhin and McGee, P. 15). The study mentions that idea generation in the bank came mostly from the senior managers of the company. For example, the company has implemented a total customer centric strategy referred to as Clearwater. The strategy required re-engineering "every single process and policy to be customer-centric and to aim to provide added value to customer in all tasks." (Quader 2005). The idea was first put forward by a lady senior manager is the Public Affairs Department. It was rejected at first then accepted six months later by the General Manger of Marketing, developed and implemented as strategy in the bank. Strategic Planning system and strategic leadership in HSBC: As mentioned in the three lenses strategy, most of the strategic ideas come from senior managers of the organizations. According to the research study (titled "Strategising routines in HSBC (UK))" conducted on the strategic planning system inside the bank, it takes three steps for an initiative, whether it is through idea, experience or design for it to be implemented as a strategy. "These initiatives met two criteria: first, the firm's members identified them as important, and secondly, they changed, or aimed to change, the firm's positioning." (Menuhin and Mcgee, p.12). The top management would view an initiative under two contexts, namely traditional banking and non-traditional banking. The strategy for traditional banking was referred to as exploitation and for non-traditional banking was referred to as exploration. Under traditional banking, three further classifications would be made, namely technology, the organization and products (and services). In the case of traditional banking they would see whether the strategy if implemented would help in cost reduction and centralisation/decentralisation (technology). In the case of organisation, the focus would be whether the strategy would improve the branch network. In the case of products and services, the focus would be whether the strategy can improve or innovate both of these factors. In non-traditional banking, (with regard to technology), the focus would be on implementation of IT and new electronic delivery channels to improve customer service and experience. For the organization, the focus will be whether the strategy will improve the delivery channels. For products (and services) the focus will be whether the strategy will enable the bank to introduce new products and services. For example, the study says that HSBC was the first to bring in the concept of TV banking in the UK. As for strategic leadership, it should be noted that the bank is one of the oldest and largest financial institutions in the world. They also have been praised as one of the best run corporations in the world by Bankers Magazine. The leadership takes three steps in the evolution of initiatives and the ultimate implementation of that strategy. The first step is the generation of initiatives. It can include all the three lenses classifications of strategy, although the focus of the above mentioned study was on idea generation. It is obvious that the leadership of the bank has the foresight and vision to allow initiatives to develop. The leadership will also encourage initiatives to come from outside as in the case of TV banking. In this case, the initiative had come from SKY TV and British Telecom. The second stage is the development of the concept. There is a top team for initial approval which will be developed into a concrete plan at this stage. The basic concept is formed and then the roles of each department in the implementation is finalised. If the strategy involves capital expenditure, there are clear limits already set in each case as to how much can be spent on each item. The next stage is the actual implementation of the project. A steering committee and a working committee exist for this purpose. The former has the responsibility of general supervision, development and controlling expenditure. The working committee is responsible for the actual implementation of the project with the support of the steering committee. It is clear that the bank has a well developed strategic leadership setup which helps it be competitive and efficient. Conclusion: The HSBC Holding Plc and its various subsidiaries is a strong and soundly managed organisation. As qualified by Bankers Magazine, it is one of the best run corporations in the world. This requires proper development implementation of strategies. It is seen that the bank is quite capable of doing so and has strategies that are design base, experience based and ideas based. Bibliography Group History 1980-1999. (2009). [online]. HSBC - The Worlds Local Bank. Last accessed 13 January 2009 at: http://www.hsbc.com/1/2/about-hsbc/group-history/group-history-1980-1999 HSBC Global Bank of the Year. (2002). [online]. HSBC Private Bank. Last accessed 13 January 2009 at: http://www.hsbcprivatebank.com/aboutus/hsbc_global_bank_of_the_year_2002.html MENUHIN, Jonathan., and McGEE, John. Strategizing Routines in HSBC (UK): The Research Finding. [online]. P.15. Last accessed 13 January 2009 at: http://www.druid.dk/uploads/tx_picturedb/ds2001-244.pdf MENUHIN, Jonathan., and MCGEE, John. Strategizing Routines in HSBC (UK). [online]. P.12. Last accessed 13 January 2009 at: http://www.druid.dk/uploads/tx_picturedb/ds2001-244.pdf Organization Chart. (2008). [online]. Last accessed 13 January 2009 at: http://www.hsbc.am/pdf/organisation_chart_eng.pdf QUADER, Mohammed Shahedul. (2005). Local and Global CRM in Practise by HSBC Bank PLC in The Era of E-Commerce. Pakistan Journal of Social Science. [online]. Grace. Last accessed 13 January 2009 at: http://www.scialert.net/pdfs/pjss/2005/418-427.pdf Report of the Directors: Strategy. (2008). [online]. P. 8. Last accessed 13 January 2009 at: http://www.hsbc.co.uk/1/PA_1_5_S5/content/uk/pdfs/en/annual_results2007_report_dir_24.pdf;jsessionid=00007Y29E-JMYE3IjL6FjVx3k6-:11j74lc1v Regular: HSBC: Access all Areas. (2002). [online]. NLB InterFinanz. Last accessed 13 January 2009 at: http://www.tfreview.com/xq/asp/sid.0/articleid.5D495562-1F81-4039-B0F2-469DA34A4AE7/eTitle.Company_profile_HSBC/qx/display.htm SCHOLES, Kevan. (2005). Looking Through the Lenses - Resolving Dilemmas in Strategy: The Three Strategy Lenses. [online]. Slide 5. Last accessed 13 January 2009 at: http://www.lmu.ac.uk/lbs/events/2005/kevan_scholes/kevan_scholes_slides.ppt Simplified Structure Chart of HSBC Holding plc. (2007). [online]. Last accessed 13 January 2009 at: http://www.hsbc.com/1/PA_1_1_S5/content/assets/about_hsbc/hsbc_group_structure_chart_dec07.pdf Welcome to HSBC GLT. (2005). [online]. HSBC. Last accessed 13 January 2009 at: http://www.hsbcglt.com/ Read More