Citicorp
...bility of these affiliates, impacting both the customers served and the products offered. A first regional initiative, referred to as the middle market initiative, had major affiliates move "downmarket" to expand their customer bases to companies with sales below $100 million. The initiative led to a significant expansion of resources, including the acquisition of several local banks. It was also described as having moved the bank directly into the strengths of local competitors. Regional management soon reversed the initiative, cutting staff and closing branches across Europe. For diversifying products, Citicorp formed a new worldwide unit in 2002 (later referred to as the Investment Bank) formalizing its expansion into investment banking products and services. The reorganization was designed to separate trading- and market-based activities, with the traditional corporate banking group (then referred to as the Institutional Bank) focusing on client relationships. However, the new unit resulted in parallel affiliates in major national markets, often competing for local business at the same customer. The subsequent transfer of several trading-related businesses to the Investment Bank exposed the remaining traditional affiliates' costly infrastructures and dependence on increasingly competitive businesses. At the time of the transfer, bank management introduced shared "relational" earnings, or double counting revenues, to help offset the impact on the affiliates. According to one bank official, double counting revenues resulted in "everyone claiming the same revenues." Process Focus: Preserving a Geographic-Based Structure. Citicorp's initial response to mounting competitive and financial pressures was largely within the context of its decentralized structure. Rather than altering this approach, the bank focused on what local product and customer markets it served, as opposed to how it structured and managed its activities. The strength of this focus was demonstrated in the formation of the Investment Bank, which duplicated the traditional geographic-based operating structure. This initial focus can be partially explained based on the nature of the competitive challenges at the time. These challenges were associated with deteriorating affiliate profitability, a trend affecting most commercial banks, especially foreign banks trailing embedded local competitors. However, Citicorp's position as a world leader was still attributed to its comprehensive geographic network, comprised of autonomous local affiliates. Rather than altering this structure, bank management sought to preserve its traditionally successful decentralized structure, seeking to reestablish the profitability of local affiliates. Toward a Regional Strategy: "The European Bank" Initiative The initiatives launched between 1999 and 2000 failed to overcome deteriorating financial performance, with European earnings cumulatively declining by 2% between 2000 and 1999 - well below internal growth objectives. In 1999, a new executive appointed to head the European operations launched further initiatives to respond to both short- and long-term pressures. These initiatives involved rationalizing existing affiliates to control costs and announcing a new strategy to leverage the bank's unique position across the region. Between 1999 and 2000, employment in Europe dropped from over 7,000 to about 4,500. In 1999, regional management announced "The European Bank" initiative, which described a strategy based on establishing a preeminent position with selected customer and product markets across the region. Target customers included large MNCs, selected large local corporations, and financial institutions, while target products were sophisticated cross-border products with which it could "add value" based on its wide geographic presence and leading-edge product expertise. To implement the initiative, regional management created informal regional units focused on key products and customer groups, typically appointing an executive from a large affiliate to identify common opportunities and challenges to build linkages across affiliates. However, these executives were given no authority over regional activities; instead, they primarily sought to strengthen the bank's position within each market, while collecting information on common challenges and opportunities summarized in "strategic scan" reports. Based on these exchanges, regional management increasingly described a strategy involving geographic units, customer units and product units. However, the bank's organization trailed significantly behind this vision. The organization was still characterized as "balkanized" and "geographic-focused," with little cross-border dialogue among product, customer and affiliate staff. Process Focus: Building Regional Linkages to Support Local Activities. During this period, the transition began to both adjust the traditional organization to the new environment and alter how the firm structured and managed its operations, though largely through informal mechanisms. The strategic orientation began to shift toward cross-border product and customer opportunities, but actual organizational adjustments continued to emphasize supporting affiliates within their local markets. These changes in orientation reflected a general recognition of the emerging challenges, but the firm lacked information to enable development of specific strategic responses. As such, actual adjustments sought to strengthen and support the firm's local position in each market through enhanced regional communication. Resource adjustments reflected the need to adjust existing resource levels to respond to short-term challenges and the need to begin to develop specialized resources to respond to long-term challenges. During this period, the firm rationalized traditional resources, while introducing specialized product-focused resources within larger affiliates. Adjustments in organization were primarily informal, with new units formed to build linkages and communication across operations both to support local activities and gather information on common challenges and opportunities across common activities. However, the creation of informal, specialized cross-border units sought to support national affiliates rather than replace them, reflecting the strong embedded power structure and culture of the traditional organization. Coordinating Regional (and Global) Activities "The Unique European Bank" Strategy (1988-1999). Following the 1988 appointment of further new executives to head European Institutional and Investment Bank operations, regional management issued a new strategy statement, referred to as "The Unique European Bank," creating a common vision for all corporate banking activities in Europe. The vision described in increasing detail the need for a three-dimensional internal partnership, focusing on geography (preparing country plans, accessing local customers, and providing local administrative support), products (developing product expertise, preparing product strategies, and defining product delivery systems), and customer or industry units (coordinating relations with important customer groups), an approach very different from the bank's traditional geographic-based structure. Structurally, previously informal regional product and customer units were formalized overlaying the geographic affiliates, with affiliate staff reporting jointly to local and pan-European unit management. Regional units were expected to lead to adjustments in how resources for performing similar functions were grouped, including the centralization of administrative and product resources. Following the reorganization, regional management also established a European Policy Committee, comprised of geographic, customer and product unit executives to review regional strategies and policies, coordinate activities, and promote the behavioral changes within each unit required to build teamwork within the region. At the time, regional management also described further required changes, including modifying management systems to support product- and customer-based decisionmaking and standardizing and rationalizing administrative activities (as much as 50% of employees at affiliates were involved in "back-office" operations). However in 1999, the changes in Europe were interrupted by two global reorganizations. Global "Activity Centers" (1999-2001). In January 1999, Citicorp underwent a global reorganization merging the Institutional and Investment Banks and dividing worldwide corporate banking activities into developed (referred to as JENA - Japan, Europe, North America) and developing markets (referred to as IBF). In August 1999, JENA underwent a further reorganization, eliminating two layers of management (the division and group levels) and installing a structure based on a single sector executive, eight senior coordinators, and fifty-three "activity centers" [Reed 1999]. (Twenty-five activity centers had activities within Europe.) Activity centers, reporting directly to the sector executive, were of four types: trading units, customer-contact units, placing (sales) units, and product units. Senior bank management described how the new organization sought to deal with the JENA territory as a "seamless market with no organizational separation acknowledging geography." Activity centers were described as well-defined, stand-alone entities, while being not independent lines of business, but rather requiring extensive collaboration with other units. As part of the reorganization, the bank eliminated shared "matrix earnings," forcing units to negotiate their credit for joint transactions. (Some bank officials described how the ensuing negotiations became a vehicle for allocating expenses and coordinating strategies among units.) At the same time, bank management described the need to further adjust its management systems and corporate culture to facilitate the needed teamwork. For example, task forces were formed to reevaluate the bank's measurement and evaluation systems and culture. Process Focus: Pursuing Cross-Border Market Opportunities. The transition during this period formalized a cross-border strategy and organization, continuing the shift away from the traditional decentralization approach. The period represented an important strategic shift from emphasizing local independence to cross-border interdependence. These adjustments involved a subtle but significant shift in terms of defining target markets. Rather than focusing on competing within geographic markets, this phase witnessed a shift toward competition based on product and customer markets that extended across national borders. Building on information generated during the earlier period, the firm defined in increasing detail its strategy for competing within specialized markets extending across national borders. However, the firm's ability to implement the changes was still limited by its traditional organization. In terms of organization, the primary focus during the period was to align activities across markets to coordinate locally based activities in line with cross-border market opportunities. Rather than immediately replacing its geographic-based structure, the firm sought to compete in cross-border markets by enhancing linkages across affiliates to leverage dispersed resources. These linkages introduced shared management of local activities, structurally achieved through the formalization of specialized product- and customer-focused units. Whereas previously these specialized units had limited authority over local activities, they began to assume joint responsibility for locally-based activities. Formalizing the units also enhanced planning for, and measurement of, cross-border activities. Overall, the formalization of specialized operating units accelerated the introduction of sophisticated product, customer, and functional resources beyond levels attainable with such operations duplicated within geographic affiliates. Adjustments in resources emphasized both the standardization and upgrading of duplicated resources within affiliates and the expansion of specialized resources within centralized regional units. Installing a European Strategy and Organization (2002-2002) The 1999 reorganization temporarily eliminated any formal European structure. However in early 2002, new executives were appointed in charge of JENA and Europe. The move reestablished Europe as a formal regional organization, although it remained comprised of interdependent activity centers. Initially, the European executive formalized monthly meetings bringing together activity center heads, which created a management council to devise regional strategies and assist in managing regional operations. The strategy that emerged over the following two years was to be the premier provider of cross-border financial services, moving from being a large foreign bank in several markets to an international bank providing value-added cross-border financial services. Moving beyond the general statements of the 2000s, however, the council discussed and agreed on specific business targets across the region. The European head described the importance of the strategy: "A key to success with our strategy and organization is focus, identifying target products and customer markets and then installing an organization against these targets." Major adjustments during this period included the reorganization of the bank's formal management structure, reallocating specialized roles across the region, and the relocation of resources in line with these specialized roles. The bank concentrated product unit staff and resources and operational supporting (functional) units in London and Frankfurt. Country managers became responsible for customer relationship management, marketing products developed in the centralized units, drawing on support services also...