Lloyds Banking Group - Case Study Example

 Lloyds Banking Group – Integration Introduction Though the financial pundits did not expect much, so far as the task of altering the dire straits of banking industry was concerned, still much has changed in the last two years. It is a fact that a number of the leading global banks have reverted back to profitability and have paid or do intend to repay the so infamous government bailouts. Banking industry, though far from being in the pink of health, is in a much better shape then what it was just a year ago. One of the outcomes of the Housing Bubble Bust and the concomitant recession was the recognition of a pressing need for industry self-regulation bolstered by commensurate statutory and institutional reforms (Global Finance 2009). Especially, the financial markets in Europe today are governed by a general agreement and consensus as to the inevitability of internal and external monitoring of the banks and financial institutions (Global Finance 2009). The banks in Europe are increasingly under the state and stakeholder driven pressure to affect structural and remuneration reforms that positively discourage and restrain extreme risk taking and promote productivity and efficiency. Lloyds Banking Group, which performed miserably during the subprime mortgage debacle, is no way different from any other bank, as far as the requirement for restructuring and going lean is concerned (Fleming and West 2010). This essay intends to analyze as to varied organizational structures that the Lloyds Banking Group could resort to and the accompanying managerial, cultural and performance related aspects associated with the proposed options. Lloyds Banking Group It goes without saying that Lloyds Banking Group is indeed a prominent and important British Financial Institution. Lloyds Banking Group came into existence, after Lloyds TSB acquired HBOS in 2009. The British Government commands near to a 41 percent stake in the organization’s shareholding. Lloyds Banking Group comprises of four business divisions that are Retail Banking, Wealth & International, Wholesale and Insurance (Lloyds Banking Group 2010). The bank has business interests and operations scattered around a significant part of the world, including Asia, Middle East, US and Europe (Lloyds Banking Group 2010). Until now, to sell, promote and manage its highly diversified range of financial services and products, the group has predominantly relied on a divisional model, which is primarily a vertical structure, with its advantages and the accompanying bureaucratic arrangements, organizational hassles and inflexibility. Lloyd Banking Group’s behemoth size is what worries the regulatory bodies, organizational management and the common and institutional investors (The Economist 2010). Even as per some of the conservative estimates, Lloyds Banking Group has a hold over say 1/5th to 1/4th of the overall UK market for mortgages, small business loans, personal loans, retail accounts and credit cards (The Economist 2010). Added to this, when one takes into consideration the Groups constrained borrowing options, Lloyd Banking Group qualifies to be called a task, which is still far from being over (The Economist 2010). No wonder, the Group is definitely in the need of a desperate restructuring job that boosts its organizational efficiency and profitability, thereby enabling it to assure sustenance with its limited deposits and dried up borrowing sources. Need of Adopting the Right Structure It goes without saying that organizations and especially the financial institutions like banks are not static entities, but organic structures that imbibe sustenance, support and nourishment from the external micro and macroeconomic environment and do react and respond to external and internal changes and stimuli (Earley 1997). It is this very ability of a financial institution to be sensitive to the economic and regulatory changes that ensure its success and viability in the long run. The busting of the Housing Bubble, the subprime mortgage debacle and the onset of recession was the clarion call for Lloyds to opt for change (Bhaskar & Gopalan 2009). In that context, the adoption of the right organizational structure is the pivotal question before Lloyds Banking Group. Though the Lloyds Banking Group has returned back to profitability, one of the major stakeholders that are the Her Majesty’s Treasury and European regulatory bodies expect a lot from it. Not to mention the expectations of the investors and shareholders. Survival and sustainability over the next decade pose many new questions before Lloyds’, which call for offbeat and untried for decisions. The management’s decision as to the selection of the apt organizational structure is bound to have crucial repercussions for the survival and profitability of the group in the times to come. There are varied options available to the Group. The organization can both modify and continue with the existing divisional model. It can decide on a new structure and proceed with its implementation and fine tuning over a long term period. It can also opt for a suitable structure that is more conducive to achieve short term goals and challenges and replace it with a more appropriate structure at a later stage. Analysis of the Existing Divisional Model The product/service based divisional structure that Lloyds Banking Group has carried on with till now, though has its varied advantages, it is not in consonance with the current integration policy, altered economic scenario and the intensely competitive environment. Most of the large banks like Lloyds Banking Group had been more comfortable with a ‘product structure’ mentality, catered to by a traditional structure where each division being self sufficient in the requisite resources and the fulfilment of the expected functions (McManus & Botten 2006). It allowed the large financial institutions to well manage customers as per the specific products, functions and geographical areas. Such a structure offered many advantages as it allowed for a clear allocation of responsibility and accountability across varied divisions and assured a simple and straightforward mode of communication and coordination (Riahi-Belakoui 1994). The experts allocated to varied divisions focused on the division specific products and functions. The divisional model also afforded a somewhat flexible approach towards environmental changes by simply adding or dropping more divisions. However, the current circumstances require the Lloyds Banking Group to go lean and make optimal utilization of its scarce resources and manpower. Hence, the existing divisional structure not only does not allow for the achievement of economies of scale, but also gives way to a counterproductive scattering of scarce technical expertise, resources and capital (McManus & Botten 2006). It is also giving way to the futile repetition and duplication of processes and procedures in the varied divisions (McManus & Botten 2006). Besides, one of the reasons for the fall of Lloyds Group during the subprime crisis was that its varied divisions focused on achieving the divisional goals, rather than owing allegiance to the organizational goals. Thus, there is no doubt that the divisional model being pursued by Lloyds is not cost effective and not in tandem with the current realities. A Combination of Divisional Model and Functional Model No doubt, a transition from divisional model being currently pursued by the Lloyds Banking Group to some alternate organizational structure is bound to be a difficult, time consuming and complex process spanning across organizational goals and objectives, organizational culture and the existing resources and expertise (Kotter 1996). Organizational change is always a complex process (Kotter 1996). The regulatory bodies and the impending resource crunch necessitate for Lloyds Banking Group to drop down the less viable products and focus on more profitable and demanded products. So one thing that Lloyds can do is to simplify the product and service menus in varied divisions so as to make each division less complex and cumbersome. This downsizing of divisional complexity and the resultant surplus of expertise and resources will usher in an environment of stability within the respective divisions. This will make way for the introduction of a functional structure within each division. It is bound to give way to the introduction of economies of scale owing to the better utilization of resources and expertise (Fritz 1996). Simplification of product portfolio will allow the managers to manage the tasks associated with each product and service, in consonance with their technical expertise. Surplus professionals within each division could be dropped and professionals having the required expertise could be hired. This will give way to a technology driven problem solving culture within each division leading to identification and simplification of correlations existing between organizational goals and divisional goals (Fritz 1996). Still the proposed structure will tend to be deficient in the sense that there will continue to remain a communication gap between varied divisions (Fritz 1996). Besides, the employees allocated to varied divisions are bound to overspecialize in the specific functions and will develop narrow viewpoints and perspectives, which will not be in harmony with the global aspirations of the Group (Galbraith 2001). Besides, the employees may still prefer to place divisional goals over organizational goals. To some extent this problem could be solved by methodically transferring professionals from one division to other, from time to time (Galbraith 2001). Before a transition to further evolved organizational structures, a combination of divisional and functional structure will certainly be a step in the right direction. While doing so, the Group can recognize and group the respective products it intends to sell and continue with and the specific functional sets common to all these products. So, the incorporation of a functional structure in the existing divisional structure will certainly prove to be a viable and efficient transition strategy. Matrix Structure- The Eventual Choice Incorporation of a matrix structure within Lloyds Banking Group will enable a segmentation of the employee and managerial base in terms of products and functions (Gottlieb 2007). This will allow for the exploitation of the human resources in the organization with respect to their functional and managerial capabilities. This will be a decentralized organizational structure that will allow for the fabrication of spontaneous teams as per the pressing challenges that will exploit the strengths of a functional model, while ameliorating its weaknesses (Gottlieb 2007). As per the requirements of a specific situation, the Group can opt for a weak, balanced or a strong matrix team (Gottlieb 2007). This will to a great extent do away with the bulky divisional model, and make the Group more horizontal, bringing focus back to the broader organizational goals. This structure will also give way to vertical and horizontal channels of communication within the organization (Martin 2005). A matrix structure will make the Group more cooperative, customer driven, strategic and accountability oriented (Martin 2005). The organizational culture will get more informal, with varied managers administrating and leading any specific product and the functions associated with it (Martin 2005). The Group can bring in an element of networking by contracting the low expertise and regular functions to the ancillary companies, leading to efficiency and cost reduction. Recommendation It is but obvious that the organizational shift to a different structure is always a complex process and if possible ought to be carried out in wieldy and manageable phases, while taking cognizance of the organizational culture and the short term and long term organizational goals. Hence, considering the statutory obligations, resource kitty and the long term objectives of Lloyds Banking Group, it is recommended that the Group should go for a functional structure to begin with. After identifying and grouping the viable products and functions and after developing the requisite expertise and employee base, the Group should eventually culminate this transition into a matrix structure. This stands to be a viable and apt transition strategy for Lloyds Banking Group. Conclusion Though the worst in the banking sector is almost over, still the future trends portend an environment marked by resource crunch and competitiveness, not to mention the ever present state obligations and regulatory bodies. In such a scenario, a matrix structure is most suitable for the Lloyds Banking Group as it allows for a leaner organization, capable of exploiting its resources and expertise to the maximum. It will also shift the power to the employees deft at using information to further individual aspirations and organizational objectives in a transparent way. Word Count: 2,010 Reference List Bhaskar, Rajeev & Gopalan, Yadav 2009, ‘The Financial Crisis in S, M & L’, Regional Economist, Federal Reserve Bank of St. Louis, pp. 13. Earley, P. Christopher 1997, Face, Harmony and Social Structure, Oxford University Press, Oxford. Fleming, Sam & Karl, West 2010, ‘Lloyds Losses Fail to Halt Gravy Train’, The Daily Mail, 27 March, pp. 109. Fritz, Robert 1996, Corporate Tides: The Inescapable Laws of Organizational Structure , Berrett-Koehler Publishers, New York. Galbraith, Jay R 2001, Designing Organizations: An Executive Guide to Strategy, Structure and Process, Pfeiffer, New York. Global Finance 2009, ‘World’s Best Banks 2009’, Global Finance, October, pp. 24. Gottlieb, Marvin R 2007, The Matrix Organization Reloaded: Adventures in Team & Project Management, Praeger, New York. Kotter, John P 1996, Leading Change, Harvard Business Press, New York. Lloyds Banking Group 2010, Lloyds Banking Group, Lloyds Banking Group, viewed 25 January 2011, . Martin, Paula K 2005, The New Matrix Management, Martin Training Associates, Toronto. McManus, John & Botten, Neil 2006, ‘Competitive Analysis: Thinking Beyond Stage One’, Management Services, Vol. 52, no. 2, pp. 10-16. Riahi-Belakoui, Ahmed 1994, Organizational and Budgetary Slack, Quorum Books, Westport, CT. 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