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03/19/2012

Strategic Management - HSBC


Image:Hsbc.png

 

Abstract

As more and more bank services and financial institutions battle in the global market, there are numerous strategies needed by any business unit for dealing with fierce competition. HSBC have already recognized that every business dealings tell a story and they have to appreciate that story through analysis and action to strengthen customer relationships and innovate their business strategies. Consequently, that contact can be managed and have the clients tell the firm how they would like to be communicated to. In answer to the new claims of the tumultuous environment, which include blurring boundaries between markets or industries and an increasing fragmentation of markets, armed with the necessary knowledge that a good relationship management indeed, appeals to the customers, HSBC has taken and is continuously taking steps to gain a larger portion of the market and maintain their market leadership. In HSBC, even though this organization had a very strong market competition in the industry where entrants have little or no threat will earn low returns on their profits if it has to face a superior quality and lower-cost alternative. For competitiveness, HSBC uses strong branding and a tailored approach to give customers an individual service, whether they want investment banking services for their company, or a personal mortgage. With high personal contact or a range of electronic access points, they can provide their customers with accessibility to their services anywhere in the world. Each product produced is tailored to the customer's needs but follows very precise processes. The global development strategies of HSBC would not be appreciated without the concrete examples of their projects, which indicate the changes and success in the market. All in all, HSBC has made wise use of their business strategies.

Background History

Businesses are continuously evolving to respond in every customer’s needs. To be specific, the Hong Kong Shanghai Banking Corporation (HSBC), one of the best financial institution developed different marketing strategies to maintain competitiveness. Actually, HSBC Holdings, a British financial holding company with origins in Hong Kong and Shanghai, where offices were opened in 1865 under a special charter which allowed Hong Kong rather than London as a headquarter location (Johnson 2000). Yao (1998) related that the bank remained an eastern force until the 1950s, when overexposure to the crown colony and its textile industry pointed to a need for geographical diversification. HSBC was established to finance the growing trade between China and Europe, and is one of the largest banking and financial services organizations in the world. Its international network comprises over 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East, and Africa (‘Who is HSBC?’ 2010).

HSBC was in intense competition all over Asia with Chase Manhattan which showed interest in a small bank in India and Malaysia. HSBC pre-empted by purchasing the bank in 1959 (Huat 2000). In the same year another defensive acquisition became necessary, when an investor group tried to buy the British Bank of the Middle East, strip its assets and sell the branches to HSBC, which did the bulk of its Middle East business through the bank (Ji 2003). A few years later a banking crisis erupted in Hong Kong. HSBC was not seriously affected but Hang Seng Bank, the colony's second largest, was about to flounder in a run. Chase offered help but Hang Seng preferred HSBC, because of its local roots, and sold it a majority stake in 1965 (Jones 2001). These three deals illuminate the difference between corporate strategy and the realities of the marketplace (King 1991).

Faure & Pui-Tak (2004) stated that HSBC occupies a unique position in the Hong Kong banking sphere. Besides being responsible for the bulk of note-issue, HSBC has some other attributes, which are now associated with a ‘central bank’ in where it acts as a banker to the government, although not exclusively. With this consideration, this paper will be discussing the strategic practices of HSBC.

 

Current Strategic Plan and Key Factors

·         HSBC’s Strategic Intent     

HSBC’s aspiration is to assist and supporting in achieving the Groups Strategic Intent as its vision. According to Hamel & Prahalad (1994) ‘strategic intent’ is

“as ambitious and compelling... dream that energizes... that provides the emotional and intellectual energy for the journey... to the future.”

From HSBC’s perspective its Sense of direction implies by conveying a unifying and personalizing sense of direction to be the world's most valuable banking brand. It’s Sense of Discovery. Differentiated; by implies a competitively unique point of view about the future to explore the competitive territory in the world. At the same of time give in emotional edge in being world's most valuable banking brand as its Sense of Destiny where it is a goal that employees perceive as inherently worthwhile.

 

·         Mission/Brand Promises

Corporate Character: “The HSBC corporate character defines the values and principles inherent in all our everyday dealings.”(Source: www.hsbc.com)

Mission Statement: “We aspire to be one of the world's great specialist banking groups, driven by commitment to our core philosophies and values”.(Source: www.hsbc.com)

 

Base on Strategic Management course, “a strategic intent is the clarity of the future, to give purpose and focus from the vision and mission statement.” From the brand promises it indicates on what we want to deliver and communicate to the groups and stakeholder[1]. It’s been transcend in the groups people brand thru its 5 core value, which is much valuable in how the groups and the stakeholder perceived and expected.

Responsive w Trustworthy w Creative w International w Courageous

 

·         Strategy Approach and Objective

  1. Participation- The right partner in delivering depth of expertise to drive market presence – creating centres of excellence.
  2. Competitive Positioning- The right partner in providing competitive advantage through cost leadership, process discipline, scalability & extraordinary talent.
  3. Management Discipline- The right partner in delivering best in class, compliant and risk controlled operating capability, continuously improves the way they work and balancing the pursuit of growth with firm control of cost and risk making scope the right partner to HSBC’s groups and its stakeholder.

This 3 approach is critical not just in driving the success but also sustaining the business in this rapid changing environment.   

 

HSBC’s Financial Performance[2]

In 2009, HSBC acquired great compliments and awards, released solid financial results, provided honest assessments of the economic landscape, supported victims of natural disasters in the developing world, and reaffirmed its spot as the world's top international emerging markets bank.  But before this expressive success in 2009, HSBC also suffers from devastating loss in 2008. As seen in the following table, HSBC’s net income fell 2.16% from 127,009 HK$m to 124,264 HK$m despite relatively flat revenues. In 2008, cost efficiency ratio at HSBC increased by 5%. Aside from this, the profit attributable to shareholders also declined about 7,722 HK$m in 2007. And this due to the global financial crisis experienced not only by the banking industry but also by different businesses around the globe.  But despite of this, the strategic intent of the company remains intact and from this effort the capital structure of HSBC uses little or no debt.

 

Table 1. The Hong Kong and Shanghai Banking Corporation Limited Financial Performance

Source:  http://www.hsbc.com.hk/1/2/about/financial-information

HSBC’s PEST Analysis

The need of change is important to ensuring HSBC achieves the strategic intent and objective. Base on PEST analysis on the environmental influence to Scope. Its Political and Economic factors are the most important, with countries stable political and economic it’s had bring in more investment opportunity and business growth opportunity. Actually, the political aspect of the external environment affects the company in the same way that the legal aspect affects it. Laws effected within the banking industry are dependent on the political environment which formulates such laws (Strategy, 2010). Governmental laws affect where and how HSBC may choose to compete, and deregulation and local government changes, affect not only the general competitive environment, but also the strategic decisions made by firms competing globally.  With regards to the economic aspect, the growth of banking industry was brought about mainly by the globalisation of businesses (Strategy, 2008). As businesses expanded beyond national boundaries and extended their global reach to take advantage of new markets and cheaper resources, so the transactions of goods created new demands for the bank industry. Rising inflation and global competition gave rise to greater pressures on businesses to minimise the costs of operation, including implementation of just-in-time inventory management systems, etc., and also created demands for speed and accuracy in all aspects of business.

From Social factor also with the region high population growth rate, batter career attitudes had affect customer needs and the size of potential markets. This where, HSBC needs to cope with the demands and attract potential market.  Apparently, the ever-changing market demand for value-added services affects HSBC’s corporate level strategies tremendously in that most of the business tactics that the firm employs centre on bringing about value-added services to their customers. After all, HSBC relies largely on their customers’ loyalty to sustain their leadership in the industry that they are in (Strategy, 2010). As part of their corporate social responsibilities, HSBC is practising corporate philanthropy and employee volunteerism and is constantly developing relationships with charitable institutions that share the same values as HSBC.

Technology today had created an open door opportunity with it high speed online connectivity and capability, automation and its rapid change of technology. HSBC needs to rise up to follow the trend and blend in with the change and use that advantage to further improve their capability and business. Moreover, the advances in IT to generate process efficiencies also served as impetus for the growth of bank industry (Strategy, 2010). The ability to share information between operations/departments within HSBC and between organisations to generate operational efficiencies, reduce cost and improve customer service was a major breakthrough for the express banking industry. With the advent of IT, express banking became an aggregation of two main function: the online banking, and the management and utilisation of the flow of information pertaining to bank transactions.

 

HSBC’s Five Forces

Figure 1. Porter’s Five Forces Model[3]

Industry Competitors. In the banking industry in which HSBC belongs, regulatory and technological transformations are the major catalysts, making entrenched competitive structures obsolete and mandating the development of new products, new processes, new strategies, and new public policies toward the business under examination (Bond & Green, 2003). Financial centres, in dynamic competition with each other, have undergone further regulatory change in their efforts to capture a greater share of international trade in financial services, even as common efforts at the regional and global level have tried to support safety and soundness and a reasonably level competitive playing field. Banks and securities firms have had to devise and implement new strategies--sometimes leading events or (perhaps more often) responding to them--and the financial services industry has seen a wave of mergers, acquisitions, and strategic alliances in virtually all parts of the world. There are numerous major banking players in the industry, included in the list is HSBC, who strive for market leadership in all their business aspects. As such, the level of industry competition is very stiff and very aggressive.

Potential Entrants. Natural barriers to entry in the banking industry contain the need for capital investment, human resources, and technology and the significance of economies of scale. It also comprises the function of contracting costs avoided by a close relationship between the vendor and its client, which in turn is related to the avoidance of opportunistic behavior by either party (Bond & Green, 2003). The competitive structure of the industry therefore depends on the degree of potential competition. This represents an application of the ‘contestable markets’ concept, which suggests that the existence of potential entrants causes existing players to act as if those entrants were already active in the market. Consequently, pricing margins, product quality, and the degree of innovation in this industry exhibits characteristics of intense competition even though the degree of market concentration is in fact quite high.

Buyers. Banks have a extensive history--a history loaded in product mixture, international range, and, above all, incessant transformations and revision. These competitive changes have forced alterations, and in general have improved the level and competence of services banks offer to clientele, thereby escalating transactional degree (Bond & Green, 2003). Coupled with these, the customers have become informed and savvy users of financial services that banks offer. They have required that service providers meet their very specific individual needs, therefore showing that clients to this industry have shaped what it is right now. This means, on an overall note, that buyers have a high influence on the workings of the global banking industry, as they have the ability to affect it.

Suppliers. The suppliers to this industry are mostly the providers of technology that banking firms use in the manner of their businesses (Bond & Green, 2003). There is an massive variety of new ‘hard’ and ‘soft’ technologies at work within the banking industry (Bond & Green, 2003). Hard technologies consist of advances in telecommunications, computers, analytics, software tools, and video communications, which are enabling participants to have better information at lower cost; to integrate this information with thinking, communication, and analysis; and, finally, to use the resulting knowledge along with other technologies to distribute services to clients more efficiently, effectively, and economically. Soft technologies, or financial innovation - things like, say, the use of derivative instruments such as interest rate and currency swaps - often use these hard technologies to rethink the delivery of services. Out of these hard and soft technologies have come the securitization and globalization movements so often talked about in the press. From the above enumeration, it could be said that suppliers significantly affect the banking industry through their tools of trade.

Substitutes. There is a high level of substitutes for the banking industry, evidenced by the numerous numbers of major players in the market (Bond & Green, 2003). The cost to transfer to another banking firm is also relatively low, so the substitution rate is pretty high.

The Key Success Factors for the Change to Strategy

·         Internal Condition

The most important will be the human factor as it is the heart that’s drive the company. Having the right culture and people to create conducive environment, and be lead by strong visionary leaders and champion management that capable to manage its people and process.

 

·         External Condition

The external condition will be on the PEST analysis that been done. With strong and stable external environment will contribute for the need to change strategic option. Furthermore, the full support from our Group and re-alignment with our other Hub is important without it it’s impossible to achieve the vision and mission.

 

Feasibility of Criteria to Evaluate Options

·         Financial

From the Financial aspect all strategic option will involving financial investment that in term will bring cost benefit and growth. Especially in its market development by acquisition potential bank BPO that is more desirable and can bring in capital and value to HSBC. 

·         Organizational

In order to cope with the change the organization structure also need to realign and change. Especially in its organic growth, where having the right type of people and culture is the key to success. It structure management is important to execute the strategic option.  

·         Market

External market trend is more into technology with faster and reliable system. With high speed connectivity the market had been more competing and broaden it market widely.

·         Risk

Each strategic option has very own risk but with stern control and better risk management can mitigate any potential risk and minimize the impact.

·         Potential Barriers to Be Overcome

Change management will be the potential barrier since HSBC is still in it comfort zone. By doing an organisational development and learning it can identify the risk and overcome the barrier of change.

 

Recommendations

HSBC is passionate with customer importance and makes every effort to be an "all-weather umbrella" to its clients, by considering diverse strategies for varying situations. It had to branch out in order to equate revenue and expenditure, reduce risk and stay profitable, with an equal importance in its ability to anticipate change. The investment banking business of HSBC has begun a strategy of major expansion and growth with one clear objective, which is to establish themselves as one of the world’s top three investment banks, and these strategies are based around a philosophy of organic growth and a transition towards becoming a client-oriented investment bank.

            With this detail, the business must go on to find innovative software programs and relate effectively to other companies that produce these software programs to become updated with the latest improvement in the World Wide Web. The business must economically and efficiently generate a good connection with their clientele and shareholders, to incessantly operate. HSBC must constantly conceptualize and execute good projects to be able to set trends in the banking industry. Apart from developing business strategies, the business have to focus on building employee and customer associations, in harmony to strategic management concepts, for it is necessary to establish and focus on the needs of the clientele, as clientele are the motive for being alive in the business.

 

Actions to Be Taken

  • Internally

a.       Build up human talent development

b.      Setting up project task force to initiate strategic alliance and potential acquisition.

c.       Involving top management to play a part and collectively sponsor the agenda.

  • Interactively

a.       Setup feedback and effective two way communication

  • Externally

a.       Get buy in support from Group top management

b.      Setup communication and build good relation with alliances

·         Resourcing

a.       Human resource and allocation

b.      Talent pool talent development

c.       Training centre to accommodate new resources

·         Monitoring Review & Control

To ensure the successful of the plan, enrolment of Top Level Management is critical by having quarterly review on the current plan progress and development. Risk and Compliance also need to play a part in identify and mitigate risk and control.      

·         Performance Assessment & Evaluation

Identify the Key Result Area (KRA), and setup Key Performance Indicator (KPI) is important to review and check the deliverables outcomes. Then by reviewing and checking the performance periodically then can a process of revolution review can be take place.

·         Budget

A dedicated budgetary allocation is required to implement the desire change, and it wise to have allowance for any contingency to avoid any short budget.

·         Cost / Benefit Analysis

In term will create cost leadership value from optimize it resource structure and balance the staff work hour. From department and company perspective will generate growth in its business and at the same time mitigate cost saving thru retention.

 

Assessment of the Usefulness of Strategic Management Models

 

According to Andrews, (1980) in his book entitled “The Concept of Corporate Strategy,

“Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities. (pp.18-19).”

 

With this, the models help in identifying the complex web of thought, ideas, goals, and expectations that provides general guidance for specific actions in pursuit of a particular ends. Strategy also is at once the course chart and the journey imagine, and the voyage that has purpose, and an end to be kept in view.  Actually, Bowman (1994) quote on Strategic Management:

“Strategic management is the process of making and implementing strategic decisions... (it) is about the process of strategic change”

 

With respect to the usefulness of the strategic models, it enables this paper consider the process that involves planning and operationalizing the strategy of an organization. The involvement of teams in the strategic management process greatly facilitates its successful implementation. Moreover, the nature of strategic management for an organization is to be successful, and it is very important to chalk out a sound strategic system. Strategic management helps in the formulation of effective organizational goals. The effective formulation and implementation of strategic management techniques can lead an organization to the path of success.

From the discussion of the strategic practices of HSBC which are outlined by different strategic models such as PEST and Porter’s Five Forces Model, it is evidently to say that technology can actually contribute in an industry or it is possibly the cause of burden. The strategic practice of HSBC shows effectiveness but still it has drawbacks to consider. The strategic practices of HSBC g shows can provide value to customers. This can be done by offering a service or product line that is attractive to potential customers.  However, in the case of HSBC, it is not advisable to rely so much in technology when giving services to the customers in order to maintain a good banking experience.

In the end, businesses engaged so much in technology has its share of good and bad impacts, socially, economically and even environmentally. In addition, it has to be noted that banking is not one industry but many. Hence, the achievement of sustainable special intention business or its continual development for the collective benefits of the world, may therefore depend on a change in strategy and planning of the industry in order to identify common ground more easily, and to exploit further returns without sacrificing the one that lays the golden egg, in manner of speaking. All said, future research may have to focus on participatory planning involving business, governments, host communities and campaigners with a greater view to common ground.

REFERENCES:

 

Andrew, K. (1980). The Concept of Corporate Strategy 2nd Edition, Dow-Jones Irwin.

 

Bond, J. & Green, G. (2003). ‘Welcome HSBC Strategic Overview’, Managing for Growth 2004-2008, viewed 22 February, 2010, <http://www.hsbc.com/hsbc/investor_centre/presentations-webcasts/managing-for-growth-2004-2008>.

 

Bowman, C. (1994). The Essence of Strategic Management, Prentice Hall.

 

Faure, D. & Pui-Tak, L. (2004). A Documentary History of the Hong Kong Economy, Hong Kong University Press, Hong Kong.

 

Hamel G. & Prahalad, C.K. (1994). Competing for the future.

 

HSBC Global Site (2010). viewed 22 February, 2010, <http://www.hsbc.com/>.

 

Huat, T. (2000). Financial Sourcebook for Southeast Asia and Hong Kong, World Scientific Publishing, Singapore.

 

Ji, Z. (2003). A History of Modern Shanghai Banking: The Rise and Decline of China’s Financial Capitalism, M.E. Sharper, Inc., New York.

 

Johnson, H. (2000). Banking Alliances, World Scientific Publishing, Massachusetts.

 

Jones, G. (2001). British Multinational Banking: 1830-1990, Oxford University Press, New York.

 

King, F. (1991). The Hong Kong Bank in the Period of Development and Nationalism, 1941-1984, Cambridge University Press, Cambridge, UK.

 

Strategy (2010). HSBC Global Site, viewed 22 February, 2010, <http://www.hsbc.com/hsbc/investor_centre/strategy>.

 

Who is HSBC? (2010). HSBC Global Site, viewed 22 February, 2010, <http://www.hsbc.com/hsbc/about_hsbc>.

 

Yao, Y. (1998). Money & Finance in Hong Kong: Retrospect and Prospect, World Scientific Publishing, Singapore.

 

 


 

[1] Stakeholder; compromise of our Customer, Our People, Communities, Investor and Regulator

[2] All Information are from :  http://www.hsbc.com.hk/1/2/about/financial-information

[3] Adapted from Porter (1998).

 

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