Royal_Bank_of_Scotland_Critical_Evaluation

\   Table of Contents Introduction 2 Organisational Structure of RBS Group 4 IT 7 HR Management 8 Managing NatWest Integration 13 Models of Change 15 Recent History 17 Conclusion 18 Appendix 1 18 Appendix 2 19 Appendix 3 22 Bibliography 24   INTRODUCTION Royal Bank of Scotland was founded in Edinburgh on 21 of May, 1727. The first branch opened was in Glasgow in 1783 and during 19th century the bank developed a network of offices throughout Scotland. After opening a branch office in London in 1874 the bank started to establish its position in England. After a long, turbulent history and many successful acquisitions, RBS officially became the fifth largest bank in the world in 2006. In 2006 ORGANISATIONAL STRUCTURE OF RBS GROUP Organisation structure-“The structure of an organisation is the total sum of the ways in which it divides its labour into distinct tasks and then achieves co-ordination among them”. (Mintzberg, H. 1989) In March 2000, the Royal Bank of Scotland acquired NatWest, three times the size of RBS at the time, in the biggest takeover in British banking. The merger created a huge group, with a diversified range of services for personal, business and corporate customers (British Broadcasting Organisation 2010). Centralised Versus Decentralised In Centralised organisational model, decision - making is taken by management at the top of organisation which means they have very strong central control. (Boddy, D. 2007) • Having a single IT platform for whole business, RBS is able to keep close control over products, margins, risk management etc. • In NatWest – RBS merger, central control remained at the top in order to set up a standard set of rules which would be implemented throughout the organisation Organisations with Decentralised model usually have staff with autonomous business units and decision – making authorities. (Boddy, D.2007) • Customer – facing branches are given more autonomy over decisions related to customers’ complaints and queries • After acquiring NatWest, parts of the initial program was given to local businesses to complete Conclusion: Nowadays, most organisations implement combination of both structures in order to achieve the maximum efficiency and to reach organizational goals. [Based on Appendix 1(Centralised vs. Decentralised) and Appendix 2(RBS Structure)] Organic Versus Mechanistic “An organic structure is where people are expected to work together and to use their initiative to solve problems; job description and rules are few and imprecise” (Boddy, D. 2007). “A mechanistic structure means there is a high degree of task specialisation, people’s responsibility and authority are closely defined and decision making is centralised” (Boddy, D. 2007). The Case Study shows that RBS is an ever-changing association, which means it is an organic organisation by definition. In order to decide whether it is true, the structural divisions should be distinguished. Two organisational divisions have been chosen: ‘Customer-facing’ factors shaping the structure: • The branches had been mechanistic, with staff working on strictly defined tasks, but now with staff trying to interest customers in other products within a more open physical layout. The bank tries to be organic at the customer-facing areas, with customer relationship managers trying to improve service quality. • Organisational network of persons or teams: Plan teams and Project teams were introduced in order to cope with change efficiently. Conclusion: RBS made its branches more organic rather than mechanistic ones and project members have been treated on the individual basis and they were highly valued. Manufacturing division factors shaping the structure: • The Manufacturing Division is a very mechanistic group structure, which means once it has been established (1999) it is hard to change. • Hierarchical level of control remained: “Monthly reports were presented to senior management, giving a clear view on progress being made against plans” (Boddy, D. 2007). Conclusion: Some divisions remained mechanistic; despite the fact the organisation shaped the dynamic structure within the whole group. It is hard to decide whether it is organic or mechanistic organisation, but the facts state that it is a mixture of both and this combination has been successfully implemented within the history of acquisitions. INFORMATION TECHNOLOGY As the RBS is a global business with its operations in Europe, North America and Asia (see the map below); the company needed a system which would allow successful coordination of all its branches. The RBS used IT to rationalise processes and deliver the best quality customer service, regardless of customer’s location and to cut costs. RBS has adopted IT strategy of “build once, use many times”. (Boddy, et al, 2005, p 377) The company has single IT platform to support many different financial brands and delivery channels across RBS. All acquired businesses are built into this platform. By developing IT system, branch based services are moved to E-commerce in terms of internet and telephone banking services. This advanced system with huge economies of scale allowed developing processes for the different brands successfully meeting different demands of the business. IT ensured good communication and control among the branches as well as with costumers. (Heap et al 2003) (The Times 100 2010)   HR MANAGEMENT “HRM is defined as a strategic and coherent approach to the management of organisation’s most valued assets- the people working there who individually and collectively contribute to the achievement of the objectives of the business”. (Armstrong, M. 2006) The Human Resource Management process consists of: • Human resource planning • Recruitment • Selection • Pay and benefits • Performance appraisal • Training and development RBS is a large company so it must ensure that all core activities of HRM listed above are addressed to. If all the core steps followed, it would guarantee that the employees are satisfied with the jobs they are doing and with the benefits they are getting. This way the satisfaction would outweigh the negative attitude towards the changes within the organization as new banks are acquired. However, there are 2 main HR Process areas to be focused on: • Human Resource planning • Performance appraisal Human resource planning is the essential activity in RBS as its objectives are: • to ensure that the company finds and retains the required quantity and quality of human resources • to ensure that the organisation makes best possible use of its human resources • to ensures that the organisation manages the human resource implications of employee surpluses and deficits (Boddy et.al 2007) Well organised planning allows HR management team to anticipate human resources needed for any situation. The prime example is the acquisition of NatWest where with taking over the company, extra employees were gained too. As the functions of two companies were duplicated the HR team had a difficult task to complete: • to decrease the number of employees • to reduce the costs by keeping correct amount of people Conclusion: As the planning was done with no errors, the company saved €1.1bn of annual costs. Performance Appraisal Specifically in RBS it is called PRP (Performance Related Pay) and is given in the form of bonuses depending on new accounts opened and credits given. The reward system improved performance of the employees significantly but as seen later on, this was the major cause of the banking system collapse (the credit was given to anyone not taking into account the client’s ability to pay it back). (McWilliams, D. 2009). Conclusion: “The Theatre of Change-RBS and HR: No way back'” book emphasises that mainly this HR activity was forming organisational culture and management behaviour, which was the wrong way to reward people as the whole system went out of hand.   LEADERSHIP “Leadership theory is the idea that people are born with certain character traits or qualities. Since certain traits are associated with proficient leadership, it assumes that if you could identify people with the correct traits, you will be able to identify leaders and people with leadership potential. (Shead, M. 2010) The five most important qualities identified by Kouzes and Posner’s are: • Honest • Forward looking • Competent • Inspiring • Intelligent This is ideal set of characteristics needed in any organisation and the banking is not an exception: Honesty- is important because this is the trait to build the trusting relationships with employees Looking forward- is very important as the vision of the future creates the desire in people to follow Competency- when the leader is competent, employees will never question why that person is in charge Inspiration- being inspiring means making people to believe the company will “change the world” and this quality makes people to follow even though the leader wouldn’t have any other traits Intelligence- needs a lot of time and effort to be developed but it is a great trait in order to make people to respect the leader Conclusion: In order to run successful organisation, being just a good leader is not enough, good management skills are also essential.   MOTIVATION For RBS as a first class-employer and the company which offers first – class financial services, it is essential to attract the most talented people. As they are offering variety of jobs in different sectors, every job has to have specific target. This way performance of each employee can be measured and rewarded accordingly. RBS employee and line manager will set up job objectives and targets at the beginning of each year. At the end of the year, performance is reviewed and awarded. Types of rewards in RBS: Financial rewards The company has set up the basic pay rate, but on top of the salary there are possibilities of earning additional bonuses. All employees get a profit-share and if company exceeds its profit targets, all employees will receive a bonus worth 10% of their salary. There is also the chance to earn bonus for individual performance if employee meets or exceeds personal target. Non-financial rewards RBS was wise enough to realize that the money is not the only motivator for the good performance. That is why they offer many non – financial rewards which can improve personal lifestyle. One of the biggest motivators is recognition – RBS encourages employees to grow and develop their skills through various trainings and courses. Development is brought up by employee at an annual performance review and is documented in a personal development plan. Improvement of personal abilities can lead to promotions and increase of Total Reward. RBS also believes in helping the communities – for every pound raised for charity by a member of staff, RBS will double – match the donation. The company contributes to various projects to improve communities and the lives of the people. All employees are given the right on work – life balance through a range of flexible working practices. The staff can choose part – time working, home working and flexible working hours. By implementing these flexible practices, RBS is able to attract talented people. Theory of Elton Mayo that contented people who are satisfied with their working environment are more likely to be productive, came to life in RBS. (The Times 100 2010) [Based on Appendix 2(Theories of Motivation)] MANAGING NatWest INTEGRATION The NatWest integration took place in 1999 by: The strategic elements were agreed and widely communicated in order to implement the integration programme (objectives): • RBS info systems used as a single platform across merged bank • Migration of credit cards, ATMs and Internet screens to RBS systems early • Transfer of NatWest customer and accounting Data to the RBS systems in a single weekend (Boddy, D. 2007) In order to successfully implement the strategic elements listed above, the decision about the structure of the programme teams has been made: Conclusion: The overall integration programme involved a switch from administrative and personnel advisory activity to more strategic added-value task (Reilly, P. et al 2003). The programme (moving all NatWest data on to the RBS computer systems and shutting down NatWest systems) was completed within three years of the acquisition date as originally planned and promised. MODELS OF CHANGE What is organisational change' Organisational change can be defined “as the structured approach to transitioning individuals, teams, and organizations from a current state to a desired future state” (Filicetti J. 2007). As the RBS Group faces the external change factors, it goes through the series of changes. The best model to describe the process is Kurt Lewin’s Process Model of Change: (Kennedy, J. 2010) And an example of Kurt Lewin- Driving & restraining Forces –‘Equilibrium’. New model available (NatWest Integration) Current State Firing people Customer demand Restraining force 2 Good rewarding system Restraining force 3 Driving forces Restraining forces (Kennedy, J. 2010) RBS Group change described in detail: The Change Object is: The NatWest Integration Programme. What does it affect' (Based on objectives of change, page 13) Organisational Structure: • RBS made its branches more organic rather than mechanistic ones (mechanistic vs. organic) • RBS became more centralised, because management maintained close central control of the change (decentralised vs. centralised) Formal Structure: • It formed eight ‘customer-facing’ divisions, which were supported by six Group divisions (2007). Conclusion: The Royal Bank of Scotland Group successfully implemented all the strategic plans and met its objectives within three years time. Both formal and organisational structures have been changed and they continued to expand and focus on growing organically, by building-up existing businesses (Boddy d., 2007). Note: The Royal Bank of Scotland Group has a defined hierarchical structure and top-down culture (Reilly P. et al 2003). The employees working before the acquisition of NatWest may have adapted the structural division and probably decided it was the best way of doing business the old way. In other words it was difficult to adapt to the undergoing changes. RECENT HISTORY OF RBS 2007-PRESENT • On 8 of October 2007 RBS took over the Dutch Bank ABN (the merger of two banks: Dutch Fortis and Spain’s Santander) for £49bn. Some critics argued that this was one takeover too much. • In April 2008 the bank was forced to raise £12bn in rights issue (CEO Fred Goodwin) and announced write-down of £5.9bn. • In August 2008 RBS announced a loss of £691m for the first half of the year (CEO Fred Goodwin). This was the second biggest loss in UK. • In October 2008 CEO Fred Goodwin resigned after £20bn government’s bailout. The condition was given that 70% of RBS profits are the governments take. • In November 2008 new RBS boss Stephen Hester announced anticipated loss in the year ending 2008. This was the first loss in 40 years. • In February 2009 the bank announced the job losses of 5300 jobs in its branches worldwide. • In February 2009 Chancellor Alistair Darling limited the bonuses paid to the RBS staff from £2.5bn to £340m. The bonuses also wouldn’t be paid in cash but in shares. • In February 2009 RBS revealed the loss of £24.1bn- the biggest in UK’s corporate history. The loss was linked into the purchase of the Dutch Bank ABN in 2007. It also was discovered that previous CEO of RBS Fred Goodwin was already drawing his pension of £650,000 a year (British Broadcasting Corporation 2010) CONCLUSION RBS started its remarkable history almost 300 years ago. The company started in Scotland and soon afterwards dispersed throughout the world. On its journey the company had a rollercoaster ride but always came out as a winner. It seemed like nothing could break the victorious organisation down, but the recent recession made it vulnerable and the question can’t be avoided – is this the end of the legendary RBS'  Appendix 1 Advantages • Highly responsive to dynamic external environments • Increases individual autonomy, thereby increasing morale • Able to meet client needs in a more customized fashion • Self-contained and controlled locations • High geographic visibility Disadvantages • Costlier than centralized operations • More difficult to control • Creates problems of coordination • Locations often in competition Organisations may also decide that a combination of centralisation and decentralisation is more effective. For example functions such as accounting and purchasing may be centralised to save costs. Whilst tasks such as recruitment may be decentralised as units away from head office may have staffing needs specific only to them. • Resources often duplicated • Lack of learning across locations • Lose critical mass, specialization by discipline or function# Advantages • Uniformity of command • Efficiencies created through economies of scale • Creates a predictable internal environment Disadvantages • Effective in static or highly regulated environments • Unresponsive to dynamic external environment • Ineffective at utilizing the creativity of lower level employees, thereby reducing morale • Favours a “command and control” style of leadership (Care Academy 2010) Appendix 2   Appendix 3 TAYLOR AND “SCIENTIFIC MANAGEMENT” Frederick W. Taylor (1911) is the father of “scientific management”. The principle of this theory is that every job could be measurable and timed. Employee would be paid for each produced unit, so they would work harder in order to get more money. Schemes like this are related to manufacturing industries and are not applicable to service industry such as RBS. HERZBERG AND “TWO – FACTOR THEORY” Frederick Herzberg (1959) developed “two – factor” theory of motivation. He named the first one “hygiene factor” and it refers to suitable working environment and a basic pay rate. The second factor he called “motivators” and they refer to recognition for good work and provision of challenging work. RBS implemented some of Herzberg’s “motivators”: - Recognition and rewards for good work - Performance reviews - When business doing well, feeling of collective achievement Maslow's Hierarchy of Needs According to Maslow, each level, starting with basic needs, has to be satisfied before moving to a next level. The higher levels are of a great importance but less achievable. RBS creates opportunities for its employees worldwide to contribute to the success of the company and awarding them for commitment and hard work. Level “esteem” can be achieved in RBS, as it offers opportunities of promotions or training and then recognizing achievement. Also, RBS provides”self- actualisation” by offering promotions, recognitions and an opportunity to develop. As Maslow describes, money is not the only motivator. RBS has a benefit package “Total Reward” to offer to its employees. Package includes not just money, but also flexible working hours and security. It also offers pension funding, health insurance, paid holidays (25 – 30 days) and even confidential advice service. Employees are offered a wide range of lifestyle benefits, childcare facilities and RBS financial products (mortgage, personal loans, banking at a discount rate etc.) (The Times 100 2010)   Bibliography: • Filicetti, J. (2007) Project Management Dictionary. PM Hut. Available at: http://www.pmhut.com/pmo-and-project-management-dictionary . [Accessed: 10th July 2010]. • Boddy, D. et al (2007) Management: An Introduction. Harlow: Prentice Hall. • Reilly, P.A. (2003) How to get best value from HR: the shared services option. Hants: Gower Publishing Ltd. • Zaltman, G., et al (1973) Innovations and Organizations. New York: Wiley. • Kennedy, J. (2010). The Management of Change, BMR 261. [Lecture notes] Leadership, Motivation and Change. Business Management. Dublin Business School, Aungier Street, Room 3.5, 27th July 2010. • McWilliams, D. (2009) Addicted to Money: Who killed the Economy' Australia: Electric Pictures and Screen Australia. • Stredwick, J. (2005) An Introduction to Human Resource Management. Burlington: Elsveir. • British Broadcasting Organisation (2010) History: Royal Bank of Scotland. Available at: http://news.bbc.co.uk/2/hi/uk_news/scotland/7708232.stm . [Accessed: 27th July 2010]. • Price Water House Coopers (2010) The Royal Bank of Scotland Group: Business Training for HR Professionals. Available at: http://www.pwc.com/gx/en/hr-management-services/case-studies-the-royal-bank-of-scotland-group-human-resources.jhtml . [Accessed: 20th July 2010]. • Heap, S. et al (2003) The hidden IT multiplier in merger. Available at: http://www.bain.com/bainweb/publications/publications_detail.asp'id=10668&menu_url=publications_results.asp . [Accessed: 27th July]. • The Times 100 (2010) RBS Case Study. Available at: http://www.thetimes100.co.uk/case-study--motivating-through-total-reward--106-258-1.php . [Accessed: 15th July]. • Care Academy (2010) Learning Resources. Available at: http://www.careacademy.org/learningresources/od_orgmodels.pdf . [Accessed: 18th July]. • Kouzes, J.M. and Posner, B.Z (2006) A Leader’s Legacy. San Francisco: Jossey-Bass. • Shead, M. (2010) Leadership Trait Theory. Available at: http://www.leadership501.com/leadership-trait-theory/22/ . [Accessed: 28th July 2010].