Systemic Management - External and Internal Levels of Acquisition of a Company - Coursework Example

Systemic Management As a result of the financial downturn together with constant competition in the financial institution market, many banking and financial institutions have moved to alter their initial business strategies in order to cope with the new challenges. For instance, Acquisitions and Mergers have become among the most popular strategies meant to enhance the value for the shareholders despite the difficulties involved in their implementation. It is for the same reason that HSBC Bank Middle East Ltd and Oman International Bank moved into consolidating their business in order to create more opportunities in the competitive market. This paper seeks to analyze the resultant value addition from the combination of two institutions with a major focus on the financial situations of the parties involved. A critical comparison between the two companies is done in terms of their external and internal levels of acquisition, as after which the resulting benefits and dangers for both firms as a result of the acquisition process are evaluated. Introduction As the major goal for all companies pursuing negotiations in the market, creating value for organizational shareholders is the most prominent practice among corporations, and has resulted in many companies developing other methods of creating and increasing the value of their organization simultaneously (Matthews and Marzec, 2012). The most common strategies in this have been the mergers and acquisitions, which have since been considered as sophisticated and coherent strategies that allow the creation of value for both the acquiring company and the company on target. On the other hand, there is little clarity regarding the specific outcomes of the expected results from the proposed mergers (Akdere, 2011). There is tendency by the players in the project takeover to undermine the possible benefits from the acquisition practice. In this case, therefore, there is scarcity in additional value as accrued from the combined entity, due to inaccurate approximation. As a consequence of this, there is ultimate destruction of the value for shareholders as opposed to increasing it (Handley and Benton, 2009). Acquisition is thus defined as the extra value to be generated from combination of two entities, and is meant to result in creation of opportunities that would have otherwise not achieved if the two organizations operated as separate entities. The HSBC is the biggest as well as the most represented international financial institution within the Northern African and the Middle East, and it has as many as 14 countries in which it has its branches all over the region. Additionally, the HSBC operates within the United Arabs Emirates, Qatar, Egypt, Oman, Jordan, Bahrain, Lebanon, Algeria, Pakistan, Kuwait, as well as the autonomous region of Palestine (Khan, Amine, Uddin and Zaman, 2011). In Saudi Arabia, for instance, the institution is a holder of 40 percent shares in the Saudi British Bank (SABB), as well as 49 percent shares of the Kingdom’s investment banking of HSBC Saudi Arabia. HSBC is equally a majority shareholder in Iraq, within the Dar Es Salaam Investment Bank, as well as maintaining a representative occupation office in Libya. With this, the institution represents the widest reach within the region for any individual bank, and it has at least 273 offices, together with more than 12000 employees within its operations (Kamarudin, Amin, Bany and Nasir, 2013). In the year preceding the merging of the two institutions, HSBC, within the MENA region, recorded a pre-tax profit amounting to US$1,492m (Matthews and Marzec, 2012). As the largest bank internationally within the Middles East region, the HSBC relies on Oman, which is an important regional market for the institution. For instance, the institution enjoys the ample business environment within Oman, which has exceptionally stable social, political, and economic business climate within the region (Akdere, 2011). In addition to this, the economy of Oman is growing drastically and is majorly supported by the young population together with the great investments in the infrastructure sector. Oman has equally been marked as a major hub of access to the trading corridors that are growing as an exceptionally high rate, and provide connection between Asia and the MENA region (De Haas and Van Horen, 2013). The economy of MENA is forecasted to grow at an annual combined growth of 4 percent between 2011 and 2016 (Matthews and Marzec, 2012). Ideally, the IOB, which is ranked fifth biggest banking institution, and boasting of the second largest network branches in the country has all its activities divided evenly between wholesale and retail banking. On the other hand, the HSBC has 9 branches with assets worth $2.5 billion in Oman (De Haas and Van Horen, 2013). The HSBC Holdings plc is the HSBC’s parent company with its headquarters situated in London. The group provides its services globally with at least 72000 offices located in more than 80 countries and European territories, the Latin and Northern America regions, Asia-pacific, Africa, as well as the Middle East (Kamarudin, Amin, Bany and Nasir, 2013). The group boasted of a total asset amounting to US$2,556bn by December 2011, and it is ranked among the largest financial and banking service organizations in the world (Matthews and Marzec, 2012). The Acquisition Process The consolidation and acquisition deal herein involves Oman International Bank being acquired by HSBC. It is no doubt that HSBC boasts of a bigger dimension compared to that of Oman International Banking together with the equity availability (Golden, 2013). In addition to this, the potential for growth for the HSBC is high allowing a stronger and more competitive institution, with representations in all segments. However, it must be understood that both institutions continue to be leaders in the market as far as their respective segments are concerned, and therefore, an unprecedented new ecosystem can possibly burst, posing threats to the current market power (Kamarudin, Amin, Bany and Nasir, 2013). HSBC Bank Middle East Ltd (‘HSBC’) is a HSBC Holdings plc subsidiary, which is wholly but indirectly owned. This bank recently came to terms with the Oman International Bank (‘OIB’), in which the former agreed to merge its branch located in Oman (‘HSBC Oman’) with that of the OIB (Matthews and Marzec, 2012). In line with this agreement, the HSBC is entitled to 51 percent holdings of the total entity, eventually renamed HSBC Bank Oman SAOG. On the other hand, the OIB that is the fifth biggest bank and also having the second biggest network branch within the country boasted of US$3.2bn gross assets in the year ending in December 2011 (Holton and Naquin, 2005). This merge is not intended to have any impacts on the listings of the IOB within the Muscat Securities Market. Within the merging terms, HSBC was expected to inject extra cash capital amounting to US$97.4m to the HSBC Oman, accrued from the institution’s internal sources to facilitate the HSBC business’s incorporation into the OIB (Mahfoudh and Ku, 2012). By the 31 December 2011, a gross asset amounting to US$2.5bn had been recorded by the HSBC Oman, with the OIB expected to issue shares worth 51% shareholding of the total entity combined, the HSBC Bank Oman SAOG, to the HSBC. In addition, the HSBC group was expected to offer support services to the umbrella merge created, and this was dictated under the service agreement that had an initial 10 year term (Kamarudin, Amin, Bany and Nasir, 2013). In response to this proposed merger between the two financial institutions, the HSBC’s Deputy Chairman and Chief Executive Officer in North Africa and Middle East demonstrated his delight at the transaction, believing it would in return give great opportunities to his institution as far as the investment in the growth of Gulf economy was concerned (Freeman and Sudarsanan, 2012). He believed the more than 6 decade of existence by the institution within the country had enabled the institution identify the numerous opportunities in business that lay untapped in the region. However, the merger between the two was subject to other approvals and regulatory, among which is the IOB shareholder approvals prior to ascension in 2012. Additionally, the HSBC Bank in Oman commands among the largest networks within the country, providing services to the retailers’ needs, institutional and corporate customers. Following the merger, the board of directors created is thus tasked with spearheading the objectives of the institution, most importantly to ensure that there is least threat from the incoming players to the financial industry (Fritzsche and Oz, 2007). As expected, the merger provides an opportunity by which the team members can pursue development of their skills through training courses in line with the standards set globally, and this will most likely facilitate the growth of the customer service level. The merger terms will also see HSBC acquire both board and management control for the entire entity combined. System Methodologies in Management System analysis is an important aspect of business, and its major purpose is to assist both the private and the public policy and decision making bodies to find solutions to the arising issues from their policies together with other challenges they come across. To facilitate the effective running of the new entity formed following the merger, the institution has to adopt the management practices that will best promote the interests of the institutions, especially in attaining the objectives set for success. In this case, therefore, hard system thinking would be one of the ideal systems for use in management (Mahfoudh and Ku, 2012). In this case, for instance, the analysis of the system in place will improve the judgment basis for the HSBC Bank Oman SAOG, through generation of information, together with evidence marshalling in line with the arising problems (De Haas and Van Horen, 2013). In response, the institution is able to find the possible solutions to the problems. In essence, therefore, the system analysis concentrates on the arising problems from the sociotechnical system operation, as well as considering numerous responses that could best solve the arising problems. The hard system thinking encompasses various components, among which is the interdisciplinary approach together with the means by which a sound concept system can be established (De Haas and Van Horen, 2013). Methodology The variants within the hard system thinking are ideally similar in terms of their characteristics, as proved by the methodological examination. There are several specific methodologies within this system and they include the SA, OR, and the SE (Buchanan and O’Connell, 2006). the OR application is among the most advanced techniques in science that can be used by the interdisciplinary teams in handling the general problems arising within a complex organization like that of HSBC Bank Oman SAOG. Within this application, the institution management could use the six-stage methodology within this system in ensuring the organization handles its practices effectively (Holton and Naquin, 2005). For instance, the system provides the method of problem formulation, and this is important in ensuring the problem solving procedure starts well. The methodologies within this system have a similar form (Choong, 2014). For instance, within these methodologies, it is assumed that the objective of the system in question can be well defined. In this case, therefore, the HSBC Bank Oman SAOG would use the system in defining the objectives of the new entity, which would significantly influence their quest to improve their operations, as well as viewing their tasks as being ideal in as far as the systematic pursuit of exceptional and most efficient ways of objective achievement are concerned (Ali, Krishnan and Camp, 2005). In addition, the system constructs mathematical models that are a representative of the organization’s system, as well as providing the solutions from within the formulated models (Levesque and Walker, 2007). The system also provides the means of testing the applied model together with the resultant solutions. The use of the system enables the institution to establish controls on the solution as well as overseeing the implementation of the resultant solution (Choo, Linderman and Schroeder, 2007). Among the notable problems that can be effectively solved within the hard system thinking methodologies is the queuing problems, which are aimed at establishing a trade-off between the service provision cost and maintenance of customer happiness (Buchanan and O’Connell, 2006). Another model within this system is the inventory model, where there is need for establishment of optimum points of reorder for resource stocks to enable maintenance of low production costs while minimizing the excessive inventory costs (Rausch, 2007). The allocation model, on the other hand, is aimed at apportioning the scarce resources in a manner perceived more efficient, with maximum output while minimizing the costs for achievement of overall objectives (Holton and Naquin, 2005). The replacement model, on the other hand, is important in reducing the costs incurred in the identification of the instances of new assert acquisition and their justifications (Levesque and Walker, 2007). The co-ordination techniques, among which are the Programme Evaluation and Review Technique, together with the critical path analysis, asses the manner in which tasked ought to be sequenced within a project when ensuring the completion of such tasked within the least time period and minimal costs (Wegge and Haslam, 2005). The routing model goal is essentially the determination of the rout viewed as the most efficient among the different network frameworks in place. There is the conceptualization of the terms for the game, whose course is aimed at maximizing the outcomes for the participants involved (Ali, Krishnan and Camp, 2005). The search models, on the other hand, are tasked with maximizing the efficiency of searching through minimization of the error risks and the costs involved. Critique of hard systems thinking This system has sought to provide scientific solutions to the various problems within management. It is aimed at providing objective results that are not affected by the personality taints and other vested interests (Bruijin, 2005). The system advocates for an interdisciplinary approach to the organization management (Fritzsche and Oz, 2007). The language and the concepts employed in this system, together with the subsystem hierarchy, control and boundaries, were a perfect use in organization management. The assumptions and calculation of data within the system are clear with the intention of making the management process simple and straight forward. This justifies the notion that the research involved is meant for the interests of the decision makers, clients, as well as the owners of the problems. In this case, therefore, the value for knowledge is seen to have direct relevance to its application. The hard system thinking exhibits several weaknesses. For instance, the use of the system is likely to overlook some factors which are literally not quantifiable (Choong, 2014). On the other hand, the system demands that the goals of the concerned system be established prior to analysis, thus making it very hard to even start working on some forms of problems especially where the many stakeholders have varied perceptions in line with the nature of the objectives (Matthews and Marzec, 2012). Similarly, the tendency to treat humans as part of the engineered components as opposed to being actors that must see their commitments won, if any solutions are to be realized or planned, makes the system controversial. Complex environment faced by Leaders and Managers The management and leadership within the institution go through change from the initially independent entities, where every party had its independent and unique managerial practices, to the current new styles that must comply with the new strategies of the institution (Bruijin, 2005). Similarly, the managers and leaders strive to comply with the growing competition in the global business market. This means change is inevitable for any organization, and the leaders must emphasize action in order to facilitate smooth and quick transition. Another complexity within the management of this merger is the formulation of new management structures befitting the new entity (Craighead, Hult and Ketchen, 2009. In this case, there are tendencies to retain all managers from the acquired institution, meaning there are possibilities of duplicated or vacuum of duties, which may result in more complex scenarios for the managers and leaders involved (Holton and Naquin, 2005). Strategic Analysis of HSBC Bank Oman SAOG Porter’s five forces Following the merger, the new entity is faced with different challenges, both internally and externally, all of which must be addressed effectively. It is inevitable that the institution will need a little longer time to adjust and adopt the new objectives and management strategies for promotion of the ultimate goal of success for the institution (Handley and Benton, 2009). In addition to these, there come other forces which should be overcome by the management both as immediate and ling-term. Threats of new entrance: it is relates to difficulties encountered while entering the industry. HSBC has been operating as among the leading financial institutions for many years with a with an exceptionally high market share (Selart, 2005). The entry of other financial institution is, however, limited by the relatively high capital needed to setup the business, together with the tough regulations set by the government and other cultural and religious institutions in the regions. Threats of substitute goods: the profitability of the institution is greatly threatened by the intrusion of other entities into the market, which offer similar or better financial services than the HSBC Bank Oman SAOG (Wegge and Haslam, 2005). For instance, the emergence of other banking instructions with relatively low interest rates and more convenient service transactions would compromise the customer loyalty. Intensity of rivalry competitors: Firms are becoming innovative and creative to distinguish themselves in the market because of presence of competitors. 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