Organizational Structure, Culture, and Business Functions of Credit Risk Management Department - Case Study Example

Chantal Norbi-Scott Number: M00435349 Module The Business Environment Module HRM 1400 Word count: 3000 : Michael Deadline: /0/2013 Table of Contents Student Name: Chantal Norbi-Scott 1 Student Number: M00435349 1 Module Name: The Business Environment 1 Module code: HRM 1400 1 Word count: 3000 1 Tutors name: Michael 1 Deadline: /0/2013 1 Table of Contents 2 References 12 Introduction An organization is defined as a goal-directed social entity with premeditated practices and system (Griffin and Moorhead, 2011). According to Needham (1999), organization is the system that has a conventional structure and cognizant planning, in which people deal and work with one another in a supportive and synchronized manner for the achievement of common and recognized goal. Barclays is a major financial service provider in UK , engaged in retail banking, investment banking, credit cards, corporate banking and wealth management (Plunkett, 2005). They have marked their presence in other countries of the world like Europe, Asia, Africa and United States. The company is operating in more than 50 countries and has employed 147000 people (Great Britain: Parliament: House of Commons: Treasury Committee, 2011). Barclays looks towards investing and protecting the money of their clients and customers from all over the world. Organizational Structure Organizational structure is the hierarchy of the organization that shows how the elements within the organization works together to accomplish the common organizational goals. The organizational structure encompasses employees, departments, responsibilities of the employees, resources they require as well as the relation between the department and the employees working within the organization (Abramowicz, 2009). The three key aspects of organizational structure are firstly the structure that shows the formal reporting relationship, which includes the number of levels present in the hierarchy of the organization and the extent of control of the supervisor and the managers. Secondly it identifies the grouping of the individuals into the department and that of the various departments into the organization. And thirdly it also includes the blueprint of the system that ensures efficient and effective synchronization, communication and amalgamation of the various efforts across the departments (Daft, Murphy and Willmott, 2009). Barclays believes in an organizational structure that encourages continuity of the firm in investment processes. The organizational structure of Barclays is divided into several work groups and units according to their knowledge, expertise, resources and skill. Barclays is headed by the Chairman Sir David Walker. The Group Chief Executive Antony Jenkins is responsible for the strategic planning and direction of all the operations taking place in Barclays (Jenkins, 2013). He reports directly to the Chairman of the organization. The operations of Barclays are divided into two broad categories: Global Retail and Commercial Banking and Investment Banking and Management (Barclays Bank PLC, 2006). The Retail Banking business encompasses the retail banking, business banking, international retail and commercial banking (including and excluding Absa) and Barclays cards (Barclays, 2010). The Chief Executive who looks after all the operations of the Global retail and Commercial banking is also responsible for taking strategic decisions. The president of Barclays PLC and the Chief Executive is responsible for looking after the Investment Banking and Management section. Investment Banking and Management encompasses area like Barclays Capital, Barclays Global Investors and Barclays Wealth. All the decisions related to this branch are taken by the Chief Executive. All the Chief executives, Group finance Director, Group Vice Chairman and Chief Operating Officer of Barclays reports directly to the Group Chief Executive (Barclays Bank PLC, 2006). All the departments like finance, marketing, human resource, audit, risk, investment banking, retail and commercial banking, corporate banking, liability sales have their own heads who reports to the country head. The managers working in a particular department reports to their heads who in turn report the Country head. In this context the working of the credit risk department has been elaborated on below. Organizational Structure of Credit Risk Management Department When any of the client or market counterpart fails to meet the contractual obligation of the bank then the firm suffers financial loss, this is termed as Credit Risk (Caouette, Altman and Narayanan, 1998). Granting credit to the customers is one of the major sources of the banks income and at the same time most of the risk is also associated with this part. So Barclays dedicates a significant amount of resources to this part of the organization. The responsibility of the credit risk management is designed in a manner that decisions taken are closely related to the business and at the same time ensures proper reviewing of the challenges involved in performance, strategic procedure and risk. The team of credit risk management involved in every business is accountable to the business risk directors who in turn reports to the business head and the chief risk officer. The Group Risk function is responsible for providing the group with direction, supervision and challenges in taking credit risk. The ‘Credit Risk Control Framework is set by the ‘Group risk’. This framework provides a structure that helps in managing credit risk together with the support from Group Credit Risk Policies. The Group Risk is also responsible for providing the necessary review, validation and technical support to the credit risk measuring models incorporated across the Group. The credit committee managed by the Group Risk is responsible for approving the largest credit exposures. Group Risk is also responsible for managing and approving the mandates and scale limits. This helps in risk mitigation and defines the risk appetite of the sensitive areas in the portfolio like commercial property finance (Barclays Bank PLC, 2010). “The Board Risk Committee, the Financial Risk Committee, the Wholesale Credit Risk Management Committee and the Retail Credit Risk Management Committee” (Barclays Bank PLC, 2010) are the principal committees that are responsible for reviewing the techniques of managing credit risk, approving the Group credit policy and resolving all the significant issues related to the credit policy (Barclays Bank PLC, 2010). Organizational Culture Culture is regarded to be the central aspect of organizational life (Alvesson, 2012). Barclays follows the culture that emphasizes on collaborative approach and teamwork. Innovation and talent is always recognized and rewarded by Barclays. They encourage continuous training and development of the staff. Barclays rigorously checks each and every strategy and puts the day-to-day management decisions related to the value of the shareholders and the clients under the microscopic view. They follow the five guiding principles in order to maintain the cultural framework of the firm (Barclays Bank PLC, 2012). Teamwork: Teamwork is defined as transformation and magnification of individual task expertise that is synergically combined to yield superior performance outcomes and collective wisdom (Salas, Goodwin and Burke, 2008). Barclays operates beyond the geographical boundaries but acts as one single firm. They look towards helping each other in accomplishing organizational goals and proactively contributing to the success of the firm. The organization has very low tolerance for government and politics, and encourages open discussion (Barclays Bank PLC, 2012). Focus on Client: Customer satisfaction is a significant issue for an organization, which is justified by the philosophy of customer orientation and the driving principle for the growth of the organization (Grigoroudis and Siskos, 2010). The interest of the clients is given first priority. The bank is committed to flawless delivery of their services and would not mind in walking few extra miles in order to gain the confidence and appreciation of the client. Barclays emphasizes on the ingenuity, quality, innovation and perseverance. They always meet their commitment but they never commit those which they cannot deliver (Barclays Bank PLC, 2012). Best People: The more an organization understands that right workforce is important for building competitive advantage; more demand for the employee with right work skill increases (Dibble, 1999). Barclays aims to hire, retain and develop the best professional in their business from all over the world. They encourage development and training to enhance the professional expertise and skill of the employees. Merit is acknowledged, encouraged and rewarded to motivate the employees. Barclays is committed to heighten and value diversity among their people. Their commitment towards diversity is further enhanced and supported by the firm wide network of employees. The network of employees working in Barclays also supports this diversity and thus creates awareness about the same. The senior managers are also committed to ensure the diversity is the integral part of Barclay’s business. They support the strategic plan in the diversified actions through their membership of regional and global committees (Barclays Bank PLC, 2012). Trusted: Business ethics acts as a structure of values related to the business objectives and practices to meet specific human ends (Fernando, 2009). Barclays maintains high ethical standards by seeking compliance to the laws, rules and regulations. Mistakes are acknowledged and learning from these mistakes is encouraged. Whatever process, strategic plan or control they follow the main motto and aim is to protect the brand name of the company and to value the shareholders (Barclays Bank PLC, 2012). Pioneering: The pioneering spirit of Barclays helps in delivering advanced solutions to their clients. The widespread pride and awareness about Barclays provides the evidence that they are already delivering their best. Individually the employees have diversified knowledge, which makes them feel that they have lot of ideas, which can make significant contribution. Hence Barclays stands as an idea centric, vigorous and creative organization (Barclays Bank PLC, 2012). Other Business Functions Barclays maintains a very strong ethical standard. Barclays boss Antony Jenkins, who has replaced Bob Diamond after the organization was caught in the Libor scandal, has asked the employees to act as per the new code of conduct of the organization. Barclays while providing bonus to their employees assesses not just what they have delivered but how they have delivered. As per the new rule the employees have to work with the values of “respect, integrity, service, excellence and stewardship” (BBC News, 2013). A study done on the Barclays Bank of Kenya found that ‘Knowledge management’ is highly encouraged by the bank in order to remain as the best bank in the region who handles the information of the customers in a proficient way so that they may continue to invest more and more. Having a vision to sustain as a market leader in the banking industry, Barclays maintains and develops its knowledge management by implementing procedures and processes that preserves a rich knowledge base. The bank not only leverages but also retains implicit knowledge of the employees while they are exiting the firm (Miringu, 2010). The rich knowledge base of the bank and the effective mechanism of learning are the key components that are responsible for the increased competency of the bank (Miringu, 2010). Operation management is incorporated efficiently and effectively in all the branches of the bank. Barclays believes that operation is the foundation pillar for their success and growth in whatever they do. The bank has employed diverse group of professionals who provides strategic and specialist support to the back and middle office potential. The specialist professionals keep on improving the ‘machinery’ that keeps the system and the process at the bank running smoothly. Thus allowing the bank to deliver optimum results to their clients and live up to their expectations (Barclays Bank Plc., 2012). The image of a brand is based on the experience of brand use and the feedback of the brand based on other exposures of the brand and the marketing communication (Dahlen, Lange and Smith, 2010). In creating the public perception about Barclays, marketing and communication plays an important role, which is a perfect blend of commercial role with creativity. The marketing team works in partnership with various client facing parts of the company in order to build a successful and long lasting relationship with the client (Barclays Bank PLC., 2012). Challenges Payment Protection Insurance (PPI) is a non-compulsory insurance policy taken with “loans, mortgages, overdrafts, credit cards or store cards” that would save the individual in case of failing to repay due to any time of disability, unemployment, illness or accident (Barclaycards, 2013). Around 294,891 complaints were logged with Financial Service Authority (FSA) regarding the service of PPI provided by Barclays in the second half of 2011. This issue led to the recognition of Barclays as a financial institution that generated maximum complaints in the country (PPI Claim Company, n.d.). Due to this mis-selling scandal of Barclays, FSA was forced to change and review their guidelines regarding the PPI. These guidelines compelled Barclay and other financial institutions to undertake swift actions (PPI Claim Company, n.d.). However the bank pays compensation to every customer to whom the PPI were sold and those who have launched the complaint before April 2011. The customers were reimbursed the total amount of premium they have paid along with an interest of 8%. The bank has shown its concern for the customers since they were waiting long for the judicial review and decide to pay the compensation in a “no-quibble basis” (BBC News, 2011). As a strategic plan the company also declares to set aside an amount of$1.6 billion pounds in order to meet the compensation to the customers (Mustoe, 2013; Steger, 2013; Slater and Scuffham, 2013; BBC News, 2013). Recommendations Barclays bank though had a strong cultural and structural framework but the recent mis-selling scandal and previously the Libor scandal has hampered the reputation of the bank. Barclays puts culture as the heart of the organization but the scandal clearly shows that there was something wrong. Their customers may start losing their confidence in the bank. After these two scandals the bank is under strict scrutiny and any further mistake will push the bank in the danger zone. The compensation to the customers should be cleared as fast and as smoothly as possible. The mis-selling scandal is quite costly and apart from setting some amount aside the bank should also implement some cost cutting strategy in order to compensate this loss. The record says that in the year 2000 the capital market division of Barclays contributed about 110% to the investment banking profit. So this division of Barclays should be given more attention since it may be a resource from where the organization can meet the losses. Moreover the company also requires a complete restructuring of its behavior. References Abramowicz, W. (2009). Business Information Systems: 12Th International Conference, BIS 2009, Poznanด, Poland, April 27-29, 2009: Proceedings. New York: Springer. 4-5. Alvesson, M. (2012). Understanding Organizational Culture. London: SAGE. 1. Barclaycards. (2013). Payment Protection Insurance FAQs. Available: http://www.barclays.co.uk/Generalinformation/PaymentProtectionInsuranceinformation/P1242592293882. Last accessed 6th March 2013. Barclays Bank PLC.. (2012). Marketing and Communications. Available: http://graduate.barclayscorporate.com/business-areas/marketing-and-communications/. Last accessed 6th March 2013. Barclays Bank PLC. (2010). Consolidated Basel II Pillar 3 Disclosure. Available http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadervalue1=attachment%3Bfilename%3DBarclays+Pillar+3+Disclosures.PDF&blobkey=id&blobtable=MungoBlobs&blobwhere=1330686337008&ssbinary=true. Last accessed 6th March 2013. Barclays Bank PLC. (2010). Global Retail Banking Fact Pack 2010. Available: http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadervalue1=attachment%3Bfilename%3D30_06_10_GRB_Investor_Day_Fact_Pack.PDF&blobkey=id&blobtable=MungoBlobs&blobwhere=1330686338569&ssbinary=true. Last accessed 2nd March 2013. Barclays Bank PLC.. (2006). Annual Report. Available: http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3D2006-Barclays-Bank-PLC-Annual-Report-PDF.pdf&blobheadervalue2=abinary%3B+charset%3DUTF-8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330686565041&ssbinary=true Last accesssed 6th March 2013. Barclays Bank PLC.. (2012). Operations. Available: http://graduate.barclayscapital.com/business-areas/operations. Last accessed 6th March 2013. Barclays Bank PLC.. (2012). Our Culture. Available http://graduate.barclayscapital.com/about-barclays/our-culture. Last accessed 6 March 2013. BBC News. (2011). Barclays to settle payment protection insurance claims. Available: http://www.bbc.co.uk/news/business-13746227. Last accessed 6th March 2013. BBC News. (2013). Barclays boss tells staff sign up to ethics or leave. Available: http://www.bbc.co.uk/news/business-21064590. Last accessed 6th March 2013. BBC News. (2013). Barclays increases PPI and swaps mis-selling provisions. Available: http://www.bbc.co.uk/news/business-21334145. Last accessed 6th March 2013. Caouette, J.B., Altman, E.I. and Narayanan, P. (1998). Managing Credit Risk: The Next Great Financial Challenge. New York: John Wiley & Sons. 1. Daft, R.L.,Murphy, J. and Willmott, H. (2009). Organization Theory and Design. Connecticut: Cengage Learning. 94-95. Dahlen, M, Lange, F. and Smith, T. (2010). Marketing Communications: A Brand Narrative Approach. New York: John Wiley & Sons. 217. Dibble, S. 1999. Keeping Your Valuable Employees: Retention Strategies for Your Organizations Most Important Resource. New York: John Wiley & Sons. 3. Fernando, A.C. 2009. Business Ethics: An Indian Perspective. Noida: Pearson Education India. 11. Great Britain: Parliament: House of Commons: Treasury Committee. (2011). Independent Commission on Banking: nineteenth report of session 2010-12, report, together with formal minutes, oral and written evidence. Norwich: The Stationery Office. 61. Griffin, R.W. and Moorhead, G. (2011). Organizational Behavior: Managing People and Organizations. Connecticut: Cengage Learning. 433-434. Grigoroudis, E. and Siskos, Y. 2010. Customer Satisfaction Evaluation: Methods for Measuring and Implementing Service Quality. New York: Springer. 1. Jenkins, A. (2013). Barclays PLC Strategic Review. Available: http://group.barclays.com/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobheadername1=Content-Disposition&blobheadername2=MDT-Type&blobheadervalue1=inline%3B+filename%3DAntony-Jenkins-speech-12-February-2013-PDF-1230.pdf&blobheadervalue2=abinary%3B+charset%3DUTF-8&blobkey=id&blobtable=MungoBlobs&blobwhere=1330696275986&ssbinary=true. Last Accessed 6th March 2013. Miringu, L. W. (2010). Knowledge management as a strategic tool in Barclays Bank of Kenya. Available: http://erepository.uonbi.ac.ke/handle/123456789/5712. Last accessed 6th March 2013. Mustoe, H. (2013). Barclays Sets Aside Additional $1.6 Billion on Misselling. Bloomberg. Available: http://www.bloomberg.com/news/2013-02-05/barclays-sets-aside-944-million-more-for-ppi-compensation.html. Last accessed 6th March 2013. Needham, D. (1999). Business for Higher Awards. London: Heinemann. 219-220. Plunkett, J.W. (2005). Plunketts Banking, Mortgages and Credit Industry Almanac 2006 (E-Book): The Only Complete Guide to the Business of Banking, Lending, Mortgages and Credit Cards. Houstaon: Plunkett Research. Ltd. Barclays Plc. PPI Claims Company. (n.d.). Barclays PPI Complaints. Available: http://www.ppiclaimcompany.co.uk/barclays-ppi-complaints. Last accessed 6th March 2013. Salas, E., Goodwin, G.F. and Burke, C.S., 2008. Team Effectiveness In Complex Organizations: Cross-Disciplinary Perspectives and Approaches. London: Taylor and Francis. 42. Slater, S. and Scuffham, M. (2013). Barclays ducks Qatar questions, takes $1.6 billion mis-selling hit. Reuters. Available: http://www.reuters.com/article/2013/02/05/us-barclays-idUSBRE91408O20130205. Last accessed 6th March 2013. Steger, A. (2013). Barclays sets aside another £1bn for mis-selling redress. Citywire. Available: http://citywire.co.uk/new-model-adviser/barclays-sets-aside-another-1bn-for-mis-selling-redress/a656016. Last accessed 6th March 2013. Read More