HR Strategy for HSBC - Essay Example

HR Strategy for HSBC 1.1. Introduction HSBC Holdings plc is the UK-based company, operating in the banking industry. Nowadays, the company is one of the most globalised UK banks as it serves more than 60 million customers across the world. Its market share is estimated to be 7.2% (Uvais, 2015). Nowadays, HSBC operates in four major business segments: private banking global banking and markets, continental Europe retail banking and UK retail banking (Uvais, 2015). After the global financial crisis, the company was forced to adjust its business strategy to market conditions and began to dispose its private equity business in order to concentrate on its core banking operations (Uvais, 2015). This paper aims to provide an overview of the business strategy of HSBC Holdings plc and to develop the HR strategy that will fit the new company’s strategy. 1.2. Business strategy of HSBC Holdings plc HSBC retail banking segment targets premium market, focusing on customers with medium to high incomes. Thus, the company is capable to earn good profits and to minimise risks associated with high-risk borrowings (Uvais, 2015). Recently, the company has updated its business strategy aiming to be “where the growth is, connecting customers to opportunities” (Hsbc.com, 2015). HSBC introduced a two-part strategy comprised of the following two elements: (1) a network of businesses connecting the world, and (2) wealth management and retail with local scale (Hsbc.com, 2015). Therefore, on the one hand, the company aims to achieve global reach and develop its business operations in international arena, achieving thus economies of scales, and on the other hand, it aims to capture opportunities in wealth management and retail markets with a focus made on growth markets (Hsbc.com, 2015). Strategically, the company aims to expand its business in Asia, North Africa and the Middle East as the markets with huge potential. Currently, the HSBC is restructuring its operations worldwide and in the UK. The company aims to improve its profitability and to reduce costs. In order to achieve this goal, the management is planning to cut the number of jobs significantly in the UK and across the globe. According to the most recent information the company has introduced a cost-cutting strategy whereas its management aims to cut costs by $4.5 billion (£3 billion) to $5 billion (£3.3 billion) a year by 2017 (ITV News, 2015). However, in order to dampen the overall effect of this cost-cutting strategy, the company also has a plan to create more than 2000 new positions (Uvais, 2015). Thus, HSBC aims to make its operations more effective and productive. Currently, the company employs more than 45,000 employees in the UK and more than 2600, 000 full-time and part-time employees (MarketLine Advantage, 2015; Uvais, 2015). As part of its cost-cutting strategy, HSBC also plans to sell operations in Brazil and Turkey, to increase investment in Asia and to set up a UK ring-fenced bank (ITV News, 2015). 1.3. HSBC and the generic strategic framework For a company to be successful in implementing its business strategy it is critical to ensure that the business strategy is linked with the HRM function. There were introduced several theoretical developments for linking corporate strategies with strategic human resource management (HRM). Thus, for example, one of the established models that can be applied in HSBC case is Porter’s generic business strategies. Michael Porter (1985) offered four three major generic strategies for business entities: cost leadership, quality and innovation. Cost leadership strategy implies that the company focuses on cost reduction in order to offer the lowest price possible on the market and thus to beat its competitors based on price factor. Even though HSBC company aims to reduce the costs it does not mean that the company pursues cost reduction generic strategy. The company targets premium segment and therefore it charges premium price for its value-added services. Focus on quality strategy implies that the company aims to deliver high-quality services and products to its customers (Porter, 1985). HCBC is the company that aims to ensure high-quality service to its customers and it has positive reputation across the globe. In HSBC case, quality is associated also with excellent customer service and speed of service. For achieving this purpose the company needs to ensure that it employs highly professional specialists that are motivated and trained to provide services at highest level possible (Budhwar and Aryee, n.d.). Innovation strategy implies that the company focuses on innovation in business processes, products, services, etc. (Porter, 1985). Taking into consideration the company’ strategic orientation on innovation of business processes and international expansion it is possible to say that HSBC pursues more innovation generic strategy. In order to pursue this strategy, the company needs to reduce the staff, to retain the existing staff and on the same time to use the maximum potential of its highly-skilled professionals (Budhwar and Aryee, n.d.). For achieving this purpose, HSBC needs to ensure that there are introduced effective HR practices that fit with the corporate business strategy. According to Miles and Snow (1978), HSBC can be classified as a “prospector” - an organisation that is performing well and is continuously looking for new market opportunities and new products. This generic strategy predetermines the HR strategies and procedures that should be adopted within a specific organisation. Prospectors are the companies focused on growth, and therefore, they need to recruit new employees and retain the existing professionals in order to ensure sustainable business development (Budhwar and Aryee, n.d.). 1.4. Generic Human Resource Management Strategies Budhwar and Sparrow (2002) have developed four generic HR strategies that can be pursued by companies pursuing different business strategies. These strategies include the following: (1) Effective resource allocation strategy This strategy implies that the company is focused on maximisation of the use of existing human resources by introducing effective resource allocation practices and smoothing business processes (Budhwar and Sparrow, 2002). (2) Talent acquisition strategy This strategy implies that the company is focused on attracting the best specialists, professionals and talents to the company (Budhwar and Sparrow, 2002). Human resource are viewed to be an important element of the company’s competitive advantage. (3) Cost reduction strategy This strategy implies that the company is focused on reduction of personnel costs. This strategy is definitely pursued by HSBC as part of its business strategy (Budhwar and Aryee, n.d.). (4) Talent improvement strategy This strategy implies that the company is focused on maximisation of potential and talent of its existing employees. For this purpose the company provides training and development programs to its employees and cultivates career development within a company (Budhwar and Sparrow, 2002; Budhwar and Aryee, n.d.). 1.4. HSBC HR strategy As it has been already identified, the HSBC Company pursues cost-reduction strategy, aiming thus to reduce costs on personnel and make its operations more effective. In order to implement this strategy it is important to implement effective HR policies that fit the HSBC business strategy (Guest, 1987). For this purpose, the company needs to adopt a soft variant of HRM, which allows the company to utilise effectively its employee’s potential in order to meet corporate goals and needs (Budhwar and Aryee, n.d.). HSBC is planning to reduce a significant number of employees by 2017. In order to ensure that this strategy is effectively implemented the company needs to undertake several major initiatives. First of all, it is important to adjust organizational structure, whereas the functions and job duties of all employees are clearly defined and allocated. Secondly, the company needs to ensure that the existing employees have received sufficient training and support. Reduced number of employees means that other employees will have to take over some of the new/additional duties and it might be quite challenging for them to cope with increased workload. Employees need to have consistent access and communication with their managers. Thirdly, reduction of staff is a stressful and nervous change within any organisation. Employees are nervous about their own future, about the future of the company and they are more likely to resist to this change. Therefore, it is critical to ensure that the company has set up effective communication whereas the employees are informed about the company’s strategic initiatives and plans for the future. It is important to explain to the employees why does the senior management undertakes these decisions and what are the company’s expectations in relation to its employees. For achieving this goal, the company needs to set up regular meetings at different levels of organisation, whereas employees will meet with their managers, communicate and share their ideas, concerns, etc. Finally, there should be introduced effective HR practices in terms of recruitment, motivation, and remuneration, as these aspects are crucial for ensuring high quality services provided by the HSBC bank. The company provides services to its final consumers and human resource is one of the critical factors to the overall business success. By focusing on the proposed HR strategic elements the HSBC company will be able to implement smoothly its cost-reduction strategy overcoming major challenges associated with this type of corporate change. Moreover, with effective leadership and HR practices the company will be capable to utilise the potential of its workforce more productively and cost-efficiently, enabling the company to expand its business in Asian and other emerging markets. 2. Appropriate leadership through change As it follows from the above discussed business strategy of HSBC, the company is planning to develop its network of global operations and focus on wealth management and retail with global scale. For achieving its corporate strategies, the company is planning to reduce staff costs and to improve its operational efficiency by restructuring operations worldwide and in the UK (ITV News, 2015; Uvais, 2015). All these plans imply significant internal organizational changes for the company. Success of implementing company’s strategies is closely correlated with effective change strategy. The significance and importance of “change leaders” has become a research topic among many researchers and academics. More detailed of the importance of leadership through change and analysis of change management in HSBC and importance of leadership through this change is presented below. 2.1. Stages in reaction to change As it has been already stated, leading change is very important, responsible but difficult thing. Lack of appropriate change management strategy and effective leadership will more likely result in company’s failure. However, before deciding what leadership is appropriate for HSBC changes, it is helpful to understand first the stages in reaction to change. There is developed a common pattern of reactions to changes, which is comprised of four major stages: (1) denial, (2) anger; (3) resistance; and (4) adaptation. The initial reaction among employees who work in the company undergoing changes is to deny the necessity of the changes (Yukl, 2012). The next stage is anger – people experience negative emotions, and try to find somebody to blame. At this stage, people resist to changes and continue doing things in habitual accustomed way. The third stage is the stage when people understand that change is inevitable and they tend to mourn this change. Finally, people accept the change and adapt to changing environment or conditions. While there are only four simple stages, duration of each stage depends on effectiveness of managing this change. For example, the stage of resistance can take few days in one company, and months or years in another company. Therefore, change leaders need to understand clearly these stages and to develop a plan of overcoming these reactions (Yukl, 2012). 2.2. Types of changes in HSBC As it has been already mentioned, change management is very important process as its effectiveness is closely interrelated with success of the strategy implementation. Therefore, leading change is very important and the difficult responsibility for managers and executives (Yukl, 2012). HSBC’ strategy implies different types of changes, including: strategy change, economics or people change, and technology change. 2.2.1. Strategy change Strategy change is a major type of change, which is often a response of company to changing external environment. In case of HSBC, examples of strategy changes include entering and development of new markets, development of product/service portfolio, acquisitions of other players, and sale of operations in Turkey and Brazil. The company aims to improve its operations, making it more profitable and to maintain high quality of its service and products. In order to be successful, HSBC while undertaking changes in its business strategy will more likely need consistent changes in organization structure, people, work roles and technology (Yukl, 2012). 2.2.2. Economics or people change The decision of HSBC to make operations more efficient and to reduce staff undoubtedly leads to changes in economics and people. The company aims to improve financial performance with such changes as downsizing and restructuring (Yukl, 2013). Also, the company aims to improve human capability and performance by restructuring organisation and reallocating roles and responsibilities. Thus, the company faces with significant trade-offs (reduced staff versus improved operation’s efficiency), and these trade-offs need to be dealt with through significant change processes (Yukl, 2012). 2.2.3. Technology strategy Nowadays, technology is critical for all companies, especially those that operate globally and provide services. HSBC operates in the banking sector, which means that the company needs to improve continuously its technology. As the company is planning to expand its business, to improve operations and to reduce staff, it is logical to assume that there will be undertaken some substantial technological changes necessary for implementing these changes (Yukl, 2012). Implementation of new information systems and programs often fails because of lack of effective leadership through changes in work roles, skills, and attitudes (Yukl, 2012). Therefore, the company needs to ensure that there are taken necessary measures enabling the company to effectively integrate new technologies to the business processes. 2. 3. Recommendations to HSBC change management process In order to introduce necessary changes and ensure effective implementation of all three types of changes it is critical to ensure that there is well-developed change management plan, which will be supplemented with strong leadership within a company. Below are presented more detailed recommendations to some of the key change management initiatives planned by HSBC. 2.3.1. Strategy change HSBC aims to undertake several strategic changes in order to improve its business performance, reduce costs and gain more opportunities. These strategies include the following: entry of new markets and global business expansion, development of new products/services; and sale of operations in some countries (Turkey and Brazil). It is clear that implementation of these corporate business strategies are impossible without a well-developed HR strategy. 2.3.2. Economics or people change 2.3.2.1. Downsizing Downsizing is unavoidable accompaniment of economic trends and global business (Drew, 1994, 4). This activity is often very complicated and difficult, as the manager who leads this change needs to take into consideration many different factors. Staff reduction is closely associated with instability and recession. While implementing this change, HSBC leaders should ensure not only “smooth” cutting jobs, but also to monitor internal environment. When the company will reduce staff, other employees and managers will more likely feel disappointed and extremely stressed (Drew, 1994). They will be worried about their jobs and this fear can cause apathy, and reduce morale and optimism among the employees (Drew, 1994). People may resist to this change and quit their jobs. Thus, the company faces with a risk of losing highly-qualified, talented employees. Therefore, it is critical to ensure that HSBC has developed an integrated communication strategy, which informs all employees about the company’s strategic plans and explains the major reasoning of doing so. It is important to communicate with people, listen to their concerns, and address major issues. Undoubtedly, HSBC, being such an effective financial institution has already some effective communication strategies. Responsible downsizing strategy will also require HSBC to introduce employee-care HRM practices in order to provide organizational support to employees and thus, manage their resistance (Tsai and Yen, 2008). 2.3.2.2. Restructuring and re-engineering of business processes The need to reduce costs through downsizing is only one element of the HSBC strategy. The company is aiming to introduce changes to its structure and re-engineer some business processes, making it more effective. More likely that the company strives thus to reduce redundancies, disconnects, and duplications in processes and tasks (Drew, 1994). It means that HSBC’s needs to adjust its organizational structure and reallocate roles and responsibilities among employees. As some researchers note “workforce does often not support structural-technical changes” (Waldrsee and Griffiths, 2003: 428). Therefore, this type of change also will more likely face a strong resistance from those employees who will need to change their habitual ways of work, their duties and responsibilities may change. In order to effective manage and lead this change and other changes associated with restructuring and re-engineering process the HR department needs to ensure that everybody is informed about introduced changes, and that all the changes to job responsibilities are clearly identified and introduced. Also, it is possible to suggest that these organizational changes will require employees to learn additional skills or undergo some training. It is also critical to develop effective induction plans, supported with plans for learning and training programs for all employees who need it. Effective communication is also critical for implementing these changes. 2.3.3. Technology strategy Technology strategy is a logical step for a company which strives to be leader in the market in terms of different characteristics. While it may seem that there is not much common between technology innovations and HR strategic management, these two areas are closely interrelated. When the company introduces new technology it aims to increase efficiency of business process and operations. However, as technologies are new, employees will more likely find it challenging to cope with new programs or systems. HR department needs to develop a training session or program whereas each employee who needs training will get necessary knowledge and acquire necessary skills. References: Budhwar, P. and Sparrow, P. (2002) An Integrative Framework for Determining Cross-national Human Resource Management Practices. Human Resource Management Review, 12: 377–403. Budhwar, P. and Aryee, S. (n.d.), An introduction to strategic human resource management. Drew, S. (1994), Downsizing to improve strategic position, Management decision, vol. 32 (1), pp. 4-11. Guest, D.E (1987), Human Resource Management and Industrial Relations. Journal of Management Studies, 24: 503–521. Hsbc.com, (2015). Our strategy | HSBC Holdings plc. [online] Available at: http://www.hsbc.com/about-hsbc/our-strategy [Accessed 20 Jun. 2015]. MarketLine Advantage, (2015), Company Profile: HSBC Holdings plc. [online] Retrieved from www.marketline.com Miles, R.E. and Snow, S.S. (1978) Organizational Strategy, Structure, and Process. New York: McGraw-Hill. Porter, M.E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press. Tsai, C. and Yen, Y. (2008), A model to explore the mystery between organizations’ downsizing strategies and firm performance, Journal of organizational change management, vol. 21 (3), pp. 367-384. Uvais, I. (2015), Cashing in: The industry expands despite pressure from increasing regulation, Banks in the UK, IBISWorld Industry Report K64.191, pp.25-28. Waldersee, R and Griffiths, A. (2003), Implementing change: matching implementation methods and change type, Leadership & Organization Development Journal, 25(5), pp. 424-434. Yukl, G. (2013). Leadership in organizations. 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