So now that I have been overwhelmed with ‘alot’ of unique and first time visitors to my blog ( The Department Of Parliamentary Services and Facebook HQ just to mention two); I have been immersed in retrospect – thinking about alot of the work I did at university during my first year in Management and Organisational Studies at the University of New South Wales. My first core subject was tutored by Devorah Wainer (whom I continue my communications with today).
In light of all this, it is time to launch ‘thealphaswarmer critiques’ which are collection of essays rooted in Organisational Theories.
The essay below was done entirely by myself in which I referenced two significant organisations I have had indirect and direct experiences with. For starters, we should consider the ‘context’ of publication which was in Session 1: 2007.
This essay was in response to a rather simple question which required us students to draw on theories from the textbook. Naturally, as an embryonic alphaswarmer – I took it beyond that and disseminated it with vivid contrasts and references to TWO organisations (MLC and WESTPAC) ; where MLC is the wealth management arm of NAB (www.nab.com.au)
I must extend my deepest level of gratitude to my tutor at the time [ Devorah Wainer phD : www.devorahwainer.com ]
Here it is:
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In the Australian economic context, the financial services sector positions itself as an ensconced, core and market driven industry exposed to an ever-changing corporate landscape. The industry has progressively evolved over the last few decades and in the current age comprises of eight main sectors, those being accounting, banking, credit management, insurance, mercantile agents, retail financial services, stock brokering and personal trust administration. Incumbent enterprises within the industry such as MLC Investment Management Pty Ltd. and Westpac Banking Group have radically changed their strategic agendas and re-aligned their organisations altogether in response to challenges rising from the environmental, financial, market, technological, regulatory and the political realms. Most significantly, these tectonic shifts in emergent forces over the past decade have prompted management of these organisations to innovate the strategic planning process with an increased emphasis to influence the external environments in which it operates. In order to embed this into the organizational DNA – the “organization’s collective skills, abilities and behaviors”. (Govindarajan & Trimble 2005, p. 10), both organisations progressively adopted the balanced score card approach as a tool to control performance management and align the directives for the strategic planning process and organisational change.
In general, every enterprise improvement initiative needs to address three interlocking circles: People, Technology and Process. In addition, they need to cope with an “environment characterized by rapid and non linear change” (Prahalad and Oosterveld 1999, p. 32). On these grounds, influences from the external and internal environment tend to address one or more of these areas. In this respect, the financial services industry from a high level perspective has undergone significant paradigm shifts in the regulatory realm, of which the changes were influenced from ongoing political, market and financial distresses facing the industry in general. Such include financial services industry de-regulation, “large-scale industry consolidation, the proliferation of alternative delivery channels” labor market de-regulation, proliferation of internet technologies and enterprise 2.0 off shoring and outsourcing market trends in the industry, increased business competition and the need to ultimately deliver dynamic, value-laden services to the consumer whilst focusing on innovation-driven growth. Strategic and operational management responses to these challenges in both enterprises have concerned the use of process and product re-engineering initiatives using a range of change methodologies inspired from the classical management roots, the use of strategic innovations to leverage, develop and re-define emerging markets, reevaluation of the meaning of corporate governance and the focus on business technology optimization.
Firstly, one of the most substantial environmental challenges that faced every company in the industry came with the de-regulation of the financial system and the subsequent introduction of the Financial Services Reform Act in 2001 (ASFRA). Financial deregulation comprises of two important areas, one addressing the macroeconomic dimension through floating the exchange rate and implementing the tender system for selling debt to the public so that budget deficits were financed at market rates. The other part of the deregulation agenda was directed at financial intermediaries, mainly banks, with a view to increasing competition. Both MLC and Westpac had ensured their management was competent in developing supporting business processes and departments and boundary scanners to identify and devise operational strategies to deal with the new regulation. The contingency management can best explain what management should do to cater for these changes and the operational changes made at MLC and Westpac in response to this challenge complies with this. For instance, both organisations instituted the decentralization of their operations though modifying organisational designs by creating and integrating separate compliance business units in a unique hybrid matrix form. This also resonates with the behavioral model as there is initiative to use a wide array of communication, control and interaction processes to ensure compliance to the new laws(Kaplan, 2005). The Financial Services Reform Act that was enacted in 2001 also pushed for a strategic agenda to ensure transparency across compliance and risk operations in the two organisations and for this very reason, MLC enforced a vertical information system through their ‘group compliance and risk’ business units in that they mandated a major information system project which aimed to integrate Lotus Notes as a knowledge management platform, through their shared collaboration workspaces and project portals which updated senior level managers on progress across compliance projects (Wayne Marsh 2006, pers. comm., November 10.). One of the most practical uses of this new project was to ensure cross-functional compliance across every business unit against the universal guidelines set out by the newly elected and instituted bodies (APRA and ASIC). For example, new regulations under AFSRA included increased licensing requirements for what was defined as ‘financial product advisers’. The use of a behavioral approach at MLC(Kavanagh, 2002), and the facilitation of projects by the hybrid-matrix design ensured management of adequate support in developing new business processes and addressing any business case for forming ad-hoc project teams. At Westpac, the management response was similar as the new regulatory framework was universal and ASIC policies stipulated that any financial institution housing financial product advisors were to comply with the universal guidelines set out in ASIC Policy Statement 146 – for example, the necessary minimum attainment of the Diploma of Financial Planning to give financial product advice. This particular regulation had huge implications for the financial planning industry as both organisations had to ensure staffing policies and training structures to comply with these minimum requirements. Westpac now “operates as a Registered Training Organisation that gives employees opportunities for internal training and to gain recognition on the Australian Qualifications Training framework.” (Westpac Banking Incorporation, 2007) Hence, it is evident that both companies shared similar strategic and operational objectives in relation to the new regulations put forwards by the government. With regards to the outlook for the future, recent turbulent activity around the world in financial services (which channels through to financial market activity) has sparked political debate on the issues surrounding the regulatory framework for the industry. Recently, both state and federal officials involved in the Ministerial Council on Consumer affairs are devising a new national framework to regulate ‘finance brokers’ (as many institutions believe that they should be classified as financial product advisers). This will undoubtedly impact on the process dimension of organisations in the industry and give management serious strategic issues to consider. As a pre-emptive strategy, through the use of an integrated change methodology known as Six Sigma, MLC managed to tap into customer and front-line employee intelligence to engineer a unique new service known as the ‘Mortgage Brokers Alliances’ offer (MLC Press Release, 2006) . This operates just like their financial planning network and middle office functions as it endeavors to stipulate minimum mortgage broker licensing requirements (extending on ASIC PS 146) and education to sell related products for any firm under their dealer group. This can be seen as a classic example of utilizing Tayloristic and Fayol principals of scientific inquiry into the nature of work to devise a ‘supply and value chain’ process for product development. Furthermore, the Value Chain Evolution theory, outlined by Christensen, Anthony and Roth (2004, p. 281) can best explain management response to these types of challenges. They state that as ‘companies overshoot their customers’ needs; they no longer need the benefits that integration brings. Instead, they increasingly compete based on speed, flexibility or convenience”. This also brings the focus to standardize interfaces between various parts of the product or service and these standards eventually morph into industry-wide standards and allow product architecture to become modular. MLC effectively specified, verified and predicted the interfaces required for their new service offerings – which has had an impact in the public eye as the organisation highly integrated in the industry (Matt Lawler, pers. comm 2006 August). Nevertheless, regulatory changes will always be positioned in the non-linear change space and it is in the best interest for both organisations to consider integrating elements of theory-focused planning and emergent strategy to sense, mobilize and engage with upcoming challenges.
With this in mind, the idea of emergent strategy, according to Christensen, Anthony and Roth (2004, p.293) deals with a ‘‘bottom-up strategy that evolves and adapts based on signals that emerge from the marketplace’’. It directly resonates with the precepts of the ‘adapting organisation’ and also echoes ideas of a ‘virtual’ organisational design. It also bases itself deep in the behavioral school of thought. This is the dominating organisational code and paradigm at MLC and is extremely effective for driving innovation and is also more ‘organic’ in nature to deal and adapt to environmental change. A core challenge which required this approach was the dramatic trend towards delivering better customer service across the industry as incumbents were reaching a saturation point in their organisation’s life cycle and required to become differentiated in nature (Nunes and Cespdes, 2003). For example, in the financial planning sub-industry, there were huge structural shifts towards providing support and administrative services to financial advisors as the industry itself had a high turnover rate and retention rate’s of financial planners at organisation’s were very low. Various industry players were converging and collaborating towards a shared strategic view and forming diverse business networks or alliances to discover niches to target with disruptive innovations – or to stimulate consumption in a new context altogether. Further, the proliferation of alternate delivery channels meant that the two organisations in question had to seriously re-consider their customer value proposition with a strong view towards product innovation and techno-structural change to position the organisations on the same technology adoption trajectory as competitors in the industry(Kirby, 2001). Management response to this at MLC was to create a whole new business unit altogether, with Chris Tucker, CEO of MLC Australian Group announcing that the task be executed by the Group Managing Director of Financial Planning and Third Party.
This new business unit was called 360 Service Delivery and it was meant to be a back and middle office supporting business for Financial Planning and Third Party in general. It aggregated across two key divisions which included ‘revenue services’ such as business consulting, research solutions, technical solutions, training and education and trustee services and ‘business enablers’ such as Business Services business unit and Business Review – which symbiotically handled all adviser end-to-end client data and management functions such as back office administration, case management and licensee management. Due to the increase in outsourcing and off shoring trends for such services(Kumar, 2006), MLC decided to defend its customer value proposition and from a strict performance management point of view, enable new revenue streams as a buffer to the low retention rates of financial planners (since the idea was to ensure that planners kept their subscription for 360 Service Delivery administration services even if they decided to leave the planning firms under the dealer groups). It can be argued that they integrated various business and corporate level strategies to limit the extent of other organisaion’s strategic imitation, such as the Miles and Snow typology of the ‘reactor strategy’ which means that the organisation has no consistent approach to strategy. This makes it unpredictable in the competitor’s eye as it can use a multitude of strategies and hone on it strengths whilst capitalizing on opportunities. However, in hindsight, it can be said that the creation of 360 service delivery resonates perfectly with the ‘Analyser strategy’ and Porter’s ‘differentiation strategy’. However, over the last two years, there has been a strategic directive to advocate the ‘defender strategy’ for established businesses. This is evident through the National Australia Bank Group change mandate for a structured Six Sigma change management integration throughout all businesses it owns (which includes MLC Investment Management Pty Ltd). Every business in the group ecosystem was to implement Six Sigma projects and management’s changes to dates allowed the organisation to embrace the change mandate with ease. For example, with specific reference to 360 Service Delivery and the Financial Planning and Third Party businesses, a matrix project team was set-up to scope, communicate, disrupt and enable the transition towards re-engineering entire Business Services administrative processes (as a means to significantly cut costs and scale their delivery channels). Additionally, the Six Sigma approach was used to engineer the ‘Mortgage Broker Alliances’ offer as discussed previously due to its ability to tap into customer intelligence and use hardcore statistical modeling to define optimal efficiency points and metrics (Six Sigma, 2007). By doing so, MLC justified its investment in the 360 Service Delivery businesses due to its unique approach in quality management and adoption of a prospector perspective on strategy. They have also aligned their operational vision for the future in this domain of challenges through their iterative succession planning business division which gives strategic advice to all business units individually on strategy going forward.
In regards to Westpac, domain sources confirm that their response to changing customer needs and the increase in outsourcing trends and industry consolidation has been to manage strategic mergers and acquisitions (horizontal and vertical) of key boutique firms or leveraging its asset management businesses such as BT Finance Group. Again, this can be seen as an analyzer strategy fused with a differentiation and defender strategy. Since Westpac does not house an extensive financial planning network like MLC, they didn’t really engage in any strategic innovation to introduce a new business unit on its total offering. The major difference in organisational attitude between the two companies is their corporate governance discourse. MLC on one hand strictly enforces notions of transparency and acknowledging customer intelligence whilst Westpac enforces not only these principals but environmental sustainability as well by sponsoring programs such as ‘Green World’. Westpac has also created an advertising campaign regarding sustainability, Ms. Nixon from Westpac claims that “Never before has the importance of sustainability resonated so strongly with our stakeholders. The ‘Your Future is Our Future’ campaign clearly demonstrates Westpac’s unequivocal commitment to securing a brighter future for all of us.” Hence, through this campaign t the bank’s commitment has been highlighted to its customers, employees, the community and the environment. (Westpac Banking Corporation, 2007
Altogether, both organisations respond dynamically to market, financial and customer challenges through diversified portfolio management techniques and will need to continue to do so in an emerging knowledge economy.
It is evident that both organisations have positioned themselves uniquely in the industry. This, however, does not exclude them from the fast pace of information technology. With the trends in outsourcing and e-commerce compounding at an incredible pace, both organisations needed to ensure they sought strategic agendas to accurately and relevantly scope, develop and integrate IT infrastructure in a timely manner. Since IT requires a multi-disciplinary approach and intense technological forecasting against strategic visions, it is crucial that management devise effective screening processes for end-user needs. An empirical example of how MLC established an effective information system is evident through their integration of Web 2.0 tools such as blogs, wikis and application widgets internally and the use of social software such as Facebook as a knowledge management tool. In the emerging Web and Enterprise Enterprise
In conclusion, it is evident that industry incumbents MLC Investment Management Pty and Westpac Banking Group have faced significant challenges in the last decade. By comparing and contrasting the challenges facing management of these organisations, it can be said that the industry is highly standardized in nature yet individual organisational responses to these issues have varied. Further, the range of management theories evaluated implies that both organisations are effective at dealing with emergent forces. In this respect, it is obvious that their responses to these challenges can be maintained for the future along a sustainable trajectory.
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