HSBC in Oman - Organisational and Operational Problems, Stuff and Customer Satisfaction - Case Study Example

Name Class Unit Introduction HSBC in Oman is the largest international bank in the Middle East and located in Oman. Oman is a very important market in the region due to political, social and economic stability. The parent company for HSBC group have their headquarters in London and serves customers in more than 7,200 offices in different parts of the world. The merger of HSBC Bank in Middle East with Oman International Bank SAOG took place on 18th April 2012. This led to a combined entity named HSBC Bank Oman SAOG where HSBC owns 51% of the stake (HSBC, 2012). The merger was strategic as it led to a combined entity with the largest branch networks in the country and hence the ability to serve corporate, retail and institutional customers. The merger enabled both banks to enhance their presence and give their customers a wide range of goods and products (HSBC, 2012). As a consultant, I will examine the problems based on the merger between HSBC Bank in Middle East with Oman International Bank SAOG. The report utilises bank literature based on mergers, interviews on stakeholders and bank data to analyse the problems faced by the bank. This paper will start by examining the nature of organisational problems and then come with approaches to solve them. Nature of organisational problems faced Since the merger, HSBC Bank Oman SAOG has faced several problems. The problems faced by the bank are with stakeholders based on number of staff customer satisfaction and shareholders. As a consultant, facilitating change in an organisation is a role that I have to take with extreme care. The bank underwent major changes and the problems have to be tackled to facilitate smooth change process. Globally, mergers have been a way of corporate restructuring and helps in creating synergy and value through diversification. This also leads to improved management. The problems faced by the bank are both hard and soft problems. Some of the problems experienced in the bank can be solved using a single solution while others require one to examine a range of solutions. The bank underwent changes which mean that these issues were to arise (DePamphilis, 2007). The organisation culture was to be affected since both banks had different cultures. As the bank becomes large and more customers are to be served, issues related to quality of service arises. Merger induced change leads to human resource challenges that have to be addressed. Mergers in the banking lead to other issues such as change in work roles, culture change, compliance issues and human element. Some of the problems faced are bounded while others are not. This leads to varying approaches to problem solving (Rezaee & Rezaee, 2011). Operational problems Bank mergers lead to operational problems. The major operational issues faced after mergers are marketing capabilities, sales point establishment and organisation service capabilities. There are issues associated with negative effects on the bank revenue, loss of customers and management distractions from day to day bank operations. These are issues that HSBC Bank Oman SAOG faces. The operating revenue for the bank has also been affected after the merger (Davis, 2007). Differences in two cultures have led to great effect on the bank operations. The banks merger was based on collaborative merger where the operations were to be integrated under the new HSBC Bank Oman SAOG. This meant that both banks had to engage in shared marriage. The merger focused on integrating the two cultures and coming up with an all inclusive culture. This meant that the two banks were to have a win-win situation. Despite the well planned integration of both cultures, there have been obstacles. The cultures have not yet merged leading to poor operations in the bank (Davis, 2007). The process of acculturation has taken longer than expected exposing HSBC Bank Oman SAOG operations. The cultural integration is at the adaptation stage. The adaptation stage has been poor leading to employees’ dissatisfaction and increase in turnover rates. The results have been operational underperformance by the bank. The acquisition has also affected the employees leading to anxiety stress (DePamphilis, 2007). Some of the employees still grieve of the old corporate days which have affected their performance and subsequently bank operations. Negative work feeling is present at HSBC Bank Oman SAOG. Another issue is the fact that employees felt left out during the process of the merger. This led to most of them losing motivation in their services (Rezaee & Rezaee, 2011). When the employees have negative perceptions about merger, they contribute little to the organisation. The new job characteristics led to poor perception of the employees as most are not satisfied. This has also jeopardised the bank operations. There have also been claims of lack of improvement in the total market value after the merger. The operations has also been facing an increase in prices which are less favourable to the customers. The loan rates are high accompanied by low deposit rates. The operational efficiency has also been affected (Davis, 2007). It has been observed that there have been attempts to increase the merger efficiency at the expense of lowering prices. This has led to cases where the effect of merger on price has understated its power effects. The problems faced with merger of HSBC Bank in Middle East with Oman International Bank SAOG based on stakeholders are; Staff number Customer satisfaction Shareholders I will list each issue and give an in-depth analysis using credible information. Staff number Mergers involve making vital decisions on whether to displace or reengage employees. The decisions made by the organisations affect the behaviours and perceptions of the employees. Employees’ anxiety reaches to the highest level when the merger is affected. Mergers have repercussions on their careers and job satisfaction. This leads to the decision making of the remaining employees on whether to stay in merged organisations or leave. The subsequent merger may lead to reduction in staff numbers depending on the manner in which is handled (Kavanagh & Ashkanasy, 2006). The characteristics of the new job have a lot of impact on employee retention. If the employees perceive that their current jobs are worse than before, they are bound to leave the organisation. When the merger was effected, there were changes in the human resource. These changes have both positive and negative impacts. The stakeholders may perceive that the current number of employees is below the required. This is due to fact that both banks comes from different organisational culture. Each culture has its level of staff, which they feel are required to enable efficient running of the organisation. The result is a conflict of interest where the stakeholders have differing views (Kavanagh & Ashkanasy, 2006). The number of employees who left after the merger leads to inadequacy in some areas. When there is change in an organisation, employee turnover is affected. There are links between organisation change and employees’ decision to quit. A research done have been able to establish this link based on decision making theory. The shocks associated with change leads to employees leaving. Thus, the end results of all above effects are the reduction in staff number. This is a source of conflict which has been as a result of the listed factors associated with change (Kavanagh & Ashkanasy, 2006). Customer satisfaction Customer satisfaction is based on what is received and what was expected by the customer. The stakeholders and the bank are facing problem based on customer satisfaction. The major issue here is who benefits from the merger and are the customer satisfied with the services they are getting. As the banks merged, the customers were interested on outcomes based on lower banking charges, better service quality and service availability (Rezaee & Rezaee, 2011). When merger takes place the organisations gains better control of the market. They have a great control on the price and can lower it or raise it. The greater control of the market by mergers leads to fear. This is due to the fact that in most cases, mergers lead to price increase. This leads to consumers detesting mergers. This is an issue that needs to be examined by the bank. Mergers and acquisitions have been found to make consumers pay inefficient prices. This leads to reduction in consumer satisfaction (Davis, 2007). If merger is able to reduce competition in the Oman banking sector, there are high chances that service quality declines. Competition has been able to raise the quality of products. Competition in the banking sector has been a major cause for efficiency in the branches (Schmautzer, 2008). Customers become more wary of mergers as they perceive that they will lead to low product development. This is through making sure that the products are near to the customers as possible. For the banking sector, this involves ATMs, online sales, and network distributions. When the merger between HSBC Bank in Middle East with Oman International Bank SAOG took place, the distribution effect was affected. The falling competition leads to low improvements in the distribution channels. The distribution channels became more worsening as the bank became more concentrated and centralised. One has to understand that both banks had a large customer base and were in competition. They are both large banks and the moment they merge, competition between them ceases. This leads to deterioration of the three sectors which are price effect, product/service quality and distribution effect (DePamphilis, 2007). The difference of status between the employees could also be contributing to the problems. This may have led to poor cooperation between employees groups leading to poor customer satisfaction. When the merger took place, there was a combination of departments which may have introduced supervisory relationships (Rezaee & Rezaee, 2011). This may have led to poor cooperation and infighting among the employees. The resultant is poor employees’ perfoamcne which translates to reduction in customer satisfaction. Managing hybrid staff is a task that have been witnessed to be challenging after a merger. The employees productivity goes down and subsequently the customer satisfaction (Schmautzer, 2008). The communication strategy used when the merger was carried out could also be a major contributor to low customer satisfaction. The banks announced that they were having a merger on their website and also explained the benefits of the process to the customers. Despite this, it has been proved that how the merging partners communicate with customers affects the level of satisfaction. Successful mergers are based on active communication between the customers and the organisation over the process (Buono & Bowditch, 1989). The winning organisations during merger make a two way dialogue through ensuring that they look for active customer participation. In the case of HSBC Bank in Middle East with Oman International Bank SAOG, they lacked an interactive communication which was all inclusive. There was no effective closed loop communication system where feedback is collected and appreciated. Employees’ empowerments to enable customers accept change was also poor (Kavanagh & Ashkanasy, 2006). The employees are always stressed during mergers as they fear losing their jobs. Successful firms use the front line employees to pass message to the customers during change process. It’s important to know that through empowering employees, one is able to create a satisfied workforce which leads to satisfied customers. The way the organisation handled the problems in the time of stress is the resultant of the current problem in employee satisfaction. When an organisation handles the problems well during stress leads to enhanced customer loyalty. The time of merger presents the organisation with stress in handling employees as well as the customers. During this period, both banks failed in this aspect. The integration process during the merger is another area the problem of customer satisfaction could have arisen from. Both banks did not look for the best ways to improve customers experience as well as listening to their needs in an appropriate way (Kavanagh & Ashkanasy, 2006). Shareholders Shareholders wealth maximisation is a major influence on the management decisions made by firms. When HSBC Bank in Middle East merged with Oman International Bank SAOG, the shareholders expected maximum wealth from the merger. Managers engage on mergers when they are sure that the process would lead gain for the shareholders. The synergy resulting from the mergers is expected to help shareholders gain what they could not have on their own (Gillan & Starks, 2000). The bank and stakeholders are facing this problem since they have been not able to gain all synergy values. The managers make mistakes during mergers due to excessive self confidence. The management motives are what determine the outcome of the mergers to the shareholders. The bank management engaged in empire building instead of creating shareholders value. There has been an increase in personal utility rather than ensuring that the merger enhances consumer value. The management in some cases undertake mergers to reduce the risk of their unemployment. This is done at the expanse of shareholders since the risk involved cannot be diversified from their own portfolio. This has been seen in cases where the management accept a lower return on investment than what can benefit shareholders. This may also be the cause of problems based on shareholders (Gillan & Starks, 2000). It is also vital to know that managers’ ownership in the banks determines their engagement in mergers. Managers who have a large personal ownership in the organisation cannot take on a merger that will lead to reduced shareholders value. The management of the bank benefit irrespective of whether the stakeholders are gaining or not. This is due to fact that the management continues to utilise their utility at the expense of the shareholders value. This is a trend that has been observed in the bank after the merger and would have contributed highly to the current problems (Gillan & Starks, 2000). Another area that could have led to current problems in shareholders is whether their approval was sought during mergers. When the shareholders approval is not sought after the merger, there are lower synergetic needs. The organisation failed also to utilise shareholders voting rights. Shareholders voting rights are associated with better operating performance. There are poor regulations on shareholders voting rights after the banks merged which have encouraged managerial selectivity behaviour. The shareholders at both banks had limited voting powers which led to their input being merger being low (DePamphilis, 2007). This has contributed to managerial opportunistic behaviours and led to venerability of the shareholders interests. The shareholders are thus in a situation where they are left powerless in the merger process. This may have led to shareholders feeling left out during their process and also loss of control for their wealth. HSBC Bank Oman SAOG is a situation where they are in crisis with the shareholders who feels that they did not get the right deal. They may also feel that they have low control of their wealth since the merger was not done with proper consultation with them (Gillan & Starks, 2000). Recommended solutions After identifying the problems facing HSBC Bank Oman SAOG, there is need to have an appropriate way to approach them. The problems are of two types: soft and hard problems. Soft problems have no single solution while hard problems have a single solution. The problems also range from being bounded to unbounded. Addressing culture compatibility The success of merger is largely determined by compatibility of the two cultures. The nature of the culture between the two organisations determines the contract from the problems identified, it is clear that there are issues with culture compatibility (Buono & Bowditch, 1989). Despite the fact that the organisation engaged in collaborative merger where each culture was recognised, acculturation did not take place in a smooth manner. Culture change is a soft problem which implies that it has diverse solutions (DePamphilis, 2007). The organisation was involved in a collaborative merger. This is a merger in which they had to recognise and treat both cultures equally. They were supposed to work in integrating both cultures to come up with the best of the both. Unfortunately, this did not happen as the results have not been a win-win situation for both. The organisation is required to determine the stage of acculturation that they are in (Antila & Kakkonen, 2008). According to the analysis, the organisation is in the adaptation stage. The conflict of cultures which have led to poor performance should be looked at. Both banks have not been able to agree on the operational and cultural aspects that should be maintained and those which should not (Maynard, 2005). This has contributed to operational underperformance. There is need for the bank to communicate with the employees and guide them through the process. Integration should be encouraged at this stage. There is also need to understand that during this process, the level of conflict is high as both cultures negotiate and compete. Addressing Merger-emotions syndrome The banks have to look for the ways of dealing with merger emotions syndrome. This occurs to the employees as the organisation goes through a merger. At first, there is denial, fear, anger, sadness and acceptance. This is followed by relief, interest and liking (Cooper & Sydney, 2006). The bank management have to note these emotions among the employees and deal with them as soon as possible. The management have to ensure that they constantly give positive feedback to the employees. This would help to show them that their performance is great despite working under the merger situation. Through this, it becomes possible to reduce negative work feelings (Kavanagh & Ashkanasy, 2006). Another area to be looked at is employee stress. Irrespective of the way the merger is carried out, it is still threatening and stressful to some of the employees. The main stressors during mergers are uncertainty, insecurity, transfer, power status and job change. These are factors that eventually lead to absenteeism, poor performance and high employee turnover. The current problems associated with poor performance and low customer satisfaction has been partially contributed by this. The bank should carry out merger stress audit. This can start by giving realistic merger previews. This involves telling employees what to expect after the merger which aids in transitions. At this point, the banks have already merged hence the employees are already in transition. The bank should use media such as booklets to give the employees information on what to expect in the merger (Kavanagh & Ashkanasy, 2006). The bank should also work in identifying the stressed employees and offer individual counselling. This will help them in overcoming the merger stress and educate them on the career path in which they can focus their efforts. There should also be merger stress management training carried out on voluntary basis. Communication is always vital in such processes. During mergers, employees are kept in the darkness about the process in most cases and learn about the process in the dailies or company website. This contributes to the distorted information through grapevine. The bank has to evaluate the communication method they used during the merger. This would enable them to know where to rectify and how to enhance communication during the transition process. When the organisation has any information relating to merger which can help the employees, it should be disseminated. Lack of communication may contribute to lack of employees’ satisfaction contributing to quitting of the employees and poor service (Davis, 2007). Addressing job satisfaction After the merger, job satisfaction goes down. This is due to fact that there are cases of downsizing to avoid duplication of tasks. This lowers the employees’ morale. The organisation should always be open in their downsizing to avoid fear which can lower performance. If the bank is to undertake downsizing, they should be open about it. This will help to restore commitment among the employees and increase their performance (Davis, 2007). This will help the bank to reduce employees stress and ensure that employees adjust in a short time. The fear of unknown is a major contributor to poor employee performance (Davis, 2007). The employees may also be forced to look for work elsewhere due to fear of unknown leading to reduction in employees’ number. If the employees lives knowing that there is possibility of layoff, they may result to unproductive behaviour and lead to havoc in the workplace. The first step that the bank is supposed to carry before downsizing is talent audit. The organisation should ensure that they have the right talent after the merger to reduce the likelihood of high employee turnover. This will also help in determining the employees to retain and those it wishes to dismiss. The number of employees must be based on the tasks available and avoiding duplication of tasks (Kavanagh & Ashkanasy, 2006). The bank should also come up with avenues which employees can express their concerns. All the employees should have knowledge about the avenue and have equal access to it. Realistic merger preview should also be provided by the bank. This ensures that the employees are able to understand the logic behind any redesign and also about their new goals and new culture. This will help the bank to know its strengths and weakness in relation to customer satisfaction (Bruner, 2011). There is also need to come up with a strong complaint management system. This will ensure that the management are able to know the areas where they are weak. The complaints received should be taken into account to help in improving the services. The bank should carry out customer satisfaction measurement based on their services. This is supposed to be carried out by an external agency. This is because an external organisation has the knowhow and independence which makes sure there is no bias (Véry, 2004). Addressing shareholders’ problems To eliminate shareholders based problems, there is need to reconsider their rights. During mergers, the shareholders are supposed to exercise their right over control of the business. The limitation of shareholders’ rights during mergers leads to dissatisfaction. Any merger must be approved by the shareholders since the investment may later lead to sale (Davis, 2007). Recognising the shareholders voting rights enables them to avoid management to engage in value destroying merger (Anderson, Havila & Nilsson, 2012). The management ability to determine which merger can be voted by the shareholders makes voting ineffective. The management should desist in future to engage in determining the shareholders voting rights. Despite the fact that the shareholders voted, they could not exercise their voting rights in an effective manner. The shareholders rights are thus supposed to be revisited by the management (Gillan & Starks, 2000). Proactive strategy Finally, having a proactive strategy is required for the mergers and acquisitions (Bruner, 2011). The bank should re-evaluate their strategy and corporate culture as they are major determinants of merger success. Culture and human resource have to be revisited by the merged banks to avoid a failure. The commitment of the human resource has to be addressed so that the bank is able to synergise their potential and enable wealth creation. Arrogance in any of the personnel should be eliminated so that some of the employees may not feel inferior. The bank has to ensure that there is mutual respect and understanding among the employees. This makes it easier for the merger transition to take place (Véry, 2004). Conclusion The merger between HSBC Bank in Middle East with Oman International Bank SAOG has led to both positive and negative results. As a consultant, I have been able to identify problems the bank and stakeholders are facing. There are operational, number of employees, customer satisfaction and shareholders problems. Also identified is the nature of these problems and their source during the merger. During the merger, there were areas which were not well addressed. The areas which were not well addressed during the merger are; human resource impacts, organisation culture impacts, communication and measuring of employees’ satisfaction. These are the areas which the new formed bank has to address. They have to look the stage of acculturation the bank is on and enhance communication. The employees should always be informed on any decision made by the management and also get encouragement during transition. The bank has to give shareholders more rights especially during voting to ensure that they feel appreciated and part of the organisation. The bank has to assure the shareholders that the merger will give them maximum value. Downsizing has to be conducted in a way that will ensure there is no duplication of tasks and only the best talent is retained. Through following the recommended solutions, it is possible to eliminate the current problems facing the bank. References Anderson, H., Havila, V., & Nilsson, F. 2012, Mergers, Acquisitions, and Stakeholders. Hoboken, Taylor and Francis.  Antila, E. M & Kakkonen, A 2008. “Factors affecting the role of HR managers in international mergers and acquisitions: A multiple case study”. Personnel Review. Vol.37, no.3, p.280- 299. Bruner, R. F 2011, Applied Mergers and Acquisitions Workbook. Hoboken: John Wiley & Sons. Buono, A. F & Bowditch, J 1989. The human side of mergers and acquisitions: managing collisions between people, cultures, and organizations. San Francisco, Jossey-Bass Publishers. Cooper, Cary L and Sydney Finkelstein 2006, Advances in mergers and acquisitions. Bingley: Emerald Group Publishing Limited.  Davis, W. B 2007, Mergers & acquisitions: Cases and problems. Buffalo, NY: William S. Hein & Co., Inc. DePamphilis, D. M 2007, Mergers, acquisitions, and other restructuring activities. Amsterdam: Elservier/Academic Press. Gillan, S & Starks, L 2000, “Corporate governance proposals and shareholder activism: the role of institutional investors”, Journal of Financial Economics Vol.57, no.2, p.427-445. HSBC 2012, HSBC announces approval of merger of its Oman operations with Oman international bank, News Release 3rd June 2012. Kavanagh, M. H & Ashkanasy, N. M 2006, “The impact of leadership and change management strategy on organizational culture and individual acceptance of change during a merger”, British Journal of Management. Vol.17, no.1, p.81-103. Maynard, T. H 2005, Mergers and acquisitions: Cases, materials, and problems, New York, Aspen Publishers. 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