Transition of Team Management to Department Management in the Banking Sector - Research Proposal Example

Transition of Team Management to Department Management in the Banking Sector and its impact on the “P” dimensions in increasing priority. Introduction to Organizational Context The specific organizational context centres about the successful merging and acquisition (M&A) and transition of teams into departments in the bank sector with the post merger impact on the “P” dimensions in increasing priority: prioritization, people, productivity, performance, policy, politics, power, process and practice. Impact on Prioritization A leader should first and foremost focus on socio-cultural integration. To create a new structure, manage the change process, retain and motivate key employees, communicating with the diverse stakeholders are among the key tasks to engage in (Schuler and Jackson, 2001). The argument forwarded by Rowe et al (2005), the positive correlation with post-merger performance only occurs after a reasonable amount of time has elapsed. From organizational learning literature (Crossan et al., 1999) the leader and the organizational members need time to develop and learn skills that are specific to the new organization. In the context of the generally short honeymoon period new CEO’s get to prove themselves (Greiner et al., 2003), this finding has interesting managerial implications. The findings furthermore indicate that the leader should work on improving the internal working environment. However, before that a significant positive relationship with performance emerges. The time effect as suggested by Rowe et al. (2005) is present here. Another implication arising from our results is that the leader should pay attention to both, socio-cultural integration and the internal working environment and not assume that managing one automatically leads to the other. Our results indicate that that is not the case. Surprisingly, socio-cultural integration was only associated with improved employee productivity and not with any of the other components of the internal working environment. Although the finding with respect to the relationship between employee productivity and socio-cultural integration is consistent with previous studies (Schuler and Jackson, 2001), the lack of significant correlations with the other components is still surprising. As socio-cultural integration was not further specified in this study, future research should address this issue to be able to translate our findings into operational suggestions for newly appointed leaders in recently merged firms. Finally as to the question who should manage post-merger process, our results show that it makes no difference whether an insider or outsider CEO performs the job. These findings yield support for the view that the choice of successor type is more a political process than a serious performance issue (Lin and Li, 2004). Although the appointment of an outsider might signal a certain strategic direction to the diverse stakeholders in the merger or might bypass internal political processes, there is no significant post-merger performance difference compared to insider CEO’s. The managerial implications for the leader selection process are that post-merger performance benefits when people skills are valued over politics. If the leader subsequently also gets enough time to work on successful socio-cultural integration along with improvements in the internal working environment, changes increase to indeed beat the high merger failure rate statistics. Impact on People With such a merger, comes a decrease in the employment of less specialized categories. There will be important changes in the role of enterprise senior staff transforming into duties of complexities and more flexibility. It is also seen to have a relative increase in the employment of specialized and younger staff. Companies are relieved of less specialized or/and older excess staff through early or voluntary retirement programs. There exist serious incorporation and compatibility problems among the various management systems, industrial relations and organization of work arises. These factors require careful preparation and may become crucial for a successful merger when deriving from different negotiation systems, collective regulation and definition of payment and labor terms (Georgakopoulou, 2000). Yet new technologies as well as the M&A wave will not reduce the number of jobs in the financial services sector; they will redistribute these jobs among the new duties (Uni-Europa Finance, 2001). Indeed, a decrease in staff employed in bank central offices has been observed, however this decrease is accompanied with employment increase as far as jobs involving executive duties are concerned. With the introduction of new technologies former duties have been dispensed and, at the same time, new jobs are created, requiring high-skilled and qualified people. Internet banking provides new jobs to computer engineers, a skill that was not traditionally needed in this sector. The increasing importance of strategic decisions made in today’s economic environment of continuous M&A leads to the transfer of highly specialized tasks, such as legal and financial services, system design, publicity, consultation, asset management (e.g. bricks and mortar) (ILO, 2000). Impact on Productivity Staff effectiveness or productivity is usually measured based on the revenues that correspond to this staff and derive from the bank’s operational activity. The “Operating revenue per employee”, “Personnel expenses per employee” and “Pre-tax profits to personnel expenses” constitutes the most well-known indicators for the evaluation of staff efficiency in banking (Berger et. al. 1996, Noulas 1999, Kamberoglou 2004). Staff employed in the financial sector is expected to increase production and productivity, and become more qualified and flexible during work. The demand for more skills mainly involves a very good knowledge and use of computers as well as general professional knowledge, which allow for multi-tasking (engagement of employed staff in various tasks) Prager and Hannan (1998) found that banks mergers and acquisitions have resulted in higher banks concentration, which in turn leads to significantly lower rates on deposits. Some evidence also suggested that U.S. banks that involved in M & As improved the quality of their outputs in the 1990s in ways that increased costs, but still improved profit productivity by increasing revenues than costs (Berger and Mester, 2003). Impact on Performance Ramaswamy (1997) analyzed the impact of M&As in the US banking sector on performance according to the similarities between target and bidder. In the case of cross-border mergers, the goal of the bidders cannot be generally identified with rapidly achieved cost economies but with other benefits derived from synergies with firms abroad. As a consequence, for cross-border mergers, the larger the target compared to the bidders the better is expected to be a firm’s performance. For strategically closer institutions tend to improve performance to a greater extent than dissimilar institutions, although results differ markedly for domestic and cross-border mergers and across some of the strategic variables. Impact on Priority, Politics and Power (Control) The effects have one common dimension: the regulatory adaptation to globalization reshapes the national market coordination. Globalization alters the strategic calculation of national firms and will require them to restructure through mergers or acquisitions. National regulations recognize the changed market environment and, in order to assist national firms, adapt national regulatory structures to permit participation in the market for corporate control (MCC). This in turn will require adaptation in national models of corporate governance. Institutions offer firms a particular set of business opportunities. MCC refers to the market for acquisitions and mergers where there is competition for control rights in the national models of corporate governance. MCC creates strong incentives for managers to further develop and pursue shareholder interests in the national political economy. There are many ownership structures that facilitate the operation of the market for corporate control. Profitability and shareholder value are heavily dependent on the differences in national market economies. Managers have become concerned with the market for corporate control through the following internal and external dimensions: 1) accessibility to capital market through managerial functions characterized ownership structure, 2) managerial monitoring, and 3) efficiency in business performance and shareholder value based on equity market, 4) accessibility to capital market from social context. The political coalition between managers and workers in the ownership structure operates to the disadvantage of numerous minority shareholders and institutional investors as non-family enterprises. Hall and Soskice (2001) suggest that managerial incentives tend to reinforce the operation of business network. Managers and stakeholders are a corporatist compromise of a manager-worker alliance of ‘concentration without owners’ (Gourevitch and Shinn, 2005) or ‘a coalition of interests.’ Therefore, managers are supervised by insiders (Gourevitch and Shinn, 2005). On the other hand, Dore (2005) considers the changes in management priorities and strategies as a result of legal reforms focusing on power of managers in financial matters. ‘Employee sovereignty’ has shifted to shareholder sovereignty’ Managers have come to focus more on share price or be more proud of how tough they have been on their employees than on how large an increase they gave them in wages and bonuses. Standard business doctrine has come to include focus on core competence, corporate restructuring, de-conglomeration, ending cross-subsidization of unprofitable divisions, and surveyors the sell-off or closure of unprofitable branches (Dore, 2005: 43) Kaplan and Minton (1994), Kang and Shivdasani (1997), Mcmillan and Schaede (1997) conclude the reason is that managerial monitoring is handled by main banks. Kaplan and Minton (1994) argue that the external monitoring by main bank makes poor business performance with stock price, and brings earning losses. Main banks improve corporate performance of family firms. Main banks have constraints effects of corporate restructuring in respect of financial performance of firms. Banks define competitiveness of firms within bank-centred societies as the same as the concept of Hall and Soskice: institutions offer business opportunities and limit a range of corporate strategies to take advantages of the market coordination. Dore also explores the insider system that boards of directors are exclusively stuffed by life-time employees and not subject to any effective monitoring (Dore, 1999:77). Main banks also send their members to leading positions in their family companies. Hall and Soskice (2001) describe how main banks handle the family companies through the basic concept of coordinated market economies: (bank-centred) network-monitoring based on the exchanges of private information inside networks and more reliance on collaborative, as opposed to competitive relations to build the competencies of the firm. In this network, banks and family enterprises exchange human and financial capital, information, and the other resources. Weinstein and Yafeh (1998) argue that capital accessibility of borrowing firms is increased by closer relationships with the main bank. Their argument is that this mechanism does not ensure profitability or growth. It concludes that banking monitoring has no aim to follow high returns for outside shareholders. Regulators can partially handle the banking M&A activities through the institutional characteristics of the local capitalist model with banking M&A strategy. The regulatory changes in banking M&A seem to re-structure the models of ownership structure in dimension of regulation, in organizational form and in corporate strategy to follow profitability and shareholder value. By seeking maximization of profitability and shareholder value, banking stakeholders would require banks to take short-term benefits in this market environment. Hall and Soskice ensure that these institutions offer firms a particular set of opportunities and companies can be expected to gravitate toward strategies that and take advantage of these opportunities (Hall and Soskice, 2001:15). The regulators adapt to globalization, but they support banks to maximize profitability and shareholders’ benefits. ‘Acquisition’ is the economic rational method only for choosing advantages on market principle. To the contrary, merger method respects core institutional structures of market coordination, which bring up opportunities and advantages for corporate outcomes. Globalization forces stakeholders to make structural adjustments in the capitalist system or reforms which change the conditions or constraints under which domestic competition policies are implemented. The essence of MCC relates to corporate structuring and shows, how managers are hired and fired, how ownership is re-allocated, and what the link is between corporate control and shareholder-value. corporate compromises of the system disturb managers to depend heavily on competitive market arrangements before and after a series of the reforms. As a result, the regulatory changes reinforce a ‘coalition of interests’ and emphasize the existing institutional characteristics which coordinate M&A strategies. Banking managers often take the same method of M&A strategies, merger of absorption’ in the recent decade. Impact on Process The success of the post merger integration project is based on detailed analysis of the underlying processes of both banks/entities. In all phases of the transformation, teams comprising both banks/entities to deliver a full and comprehensive solution of all necessary activities. By creating a transparent project management process, employees from both entities are successfully aligned without disrupting daily business operations. The project is structured into a preparation phase (where both banks will be analyzed) and an integration phase (where the two are brought together). Both phases are based on three major streams: Business Transformation, Operations Transformation and IT Integration. During the first phase, strategic objectives as well as the future business and branch network model were defined. In parallel, several IT architecture scenarios were evaluated to correspond to the future business model of the merged entity. As part of this phase, the requisite legal and business requirements will be defined. Based on the vision of the bank, a new regional organizational and steering structure is developed to reflect the strength of the merged entity while substantial portions of the old legacy system are retained. Synergies are exploited to place the new merged entity in a redefined and stronger competitive position and prepare it for future growth. In the second phase, the future of the merged entity is implemented within each of the three major streams of focus. Ensure transparent and instant communication between local teams from both entities to create awareness of the importance of creating a joint understanding of the merged entity. Keep the momentum, focus, and overview of the integration to guarantee a timely and seamless integration and derive sustainable added value. Impact on Practice To become and remain fast and effective acquirers, it is a must to make immediate improvements to the M&A processes to keep pace with leading practices. And they must set their sights on achieving a new level of M&A capability for the best practices that include: Firstly, focusing on value creation, not just integration. Next prioritize integration activities according to the value they create followed by the defining synergies around value levers and activity-based cost efficiencies such as reducing supply chain costs by two percent. For example, if the greatest value in a merger is cross-selling opportunities to the new base of common customers as is often the case the integration process needs to enable and ensure the rapid transfer of customer information and the development of integrated account plans. Lower-value activities can be postponed. This value-creating approach is more akin to business transformation in its emphasis on unlocking value through meticulous planning and proactively designing a new organization. Secondly, create overlap in the teams responsible for transaction valuation and synergy capture. Nothing results in more accurate estimates of merger performance than having them prepared by the people who will have to achieve them. Thirdly, incorporate time-delay calculations into the valuation process, placing a premium on the anticipation and preemption of delays during the pre-approval process. Fourthly, use selective redundancy, doubling up or retaining executives in interim integration teams or as coaches to avoid unsustainable workloads. Fifthly, be consistently and actively “re-recruiting” the best of both organizations to minimize the loss of key personnel during the tough integration work and painful organizational decisions. Conclusion By prioritizing the “P” Dimensions in the sequence as stated above, we are ascertain that the team be merged to department For such a move is justified by the strategically planned prioritization by shrewd leadership management, the increase of employment and transfer of skills in highly skilled positions, the increase of productivity of employees in general, the increase of the performance of merged banks, the increase of power in the banking market alongside its healthy political support and supporting policies, its effective M & A practice and transparent project managing process. The merger or transition is definitely a necessary move for the banking team if future is to be secured for succession of corporate development. . References: Schuler, R., and Jackson, S. (2001), HR issues and activities in mergers and acquisitions, European Management Journal, 19.3, 239-253. Rowe, W.G., Cannella, A.A., Rankin, D., and Gorman, D. 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