Organisational Management In Financial Services Commerce Essay

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With regards to my appointment as new Director of the Human Resource Management Department, I have been approached by the Board of Directors of the newly merged organisation, to draw up this report in order to develop a new identity and culture of the organisation. It is of utmost importance that the core values are maintained, however, a strong statement that "there is a new way of doing things" is to be sent to all of our stakeholders. The newly constructed organisation will emphasise its beliefs on three key aspects, these being: the importance of cultural change, supported by a balanced style of leadership, well planned and effective financial and risk management and a clear marketing strategy, centred on innovation, and producing solutions to customer issues.

Findings

"In an ideal merger, the newly created entity pools the best features of the two merging organisations. A well planned process built on the foundations of an open, honest and consistent communication strategy can pave the way." (Pande and Krishnan)

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It is very important that the newly merged organisation adapts a very well matured discipline throughout its first stages of operation. The first assumptions of organisational design during mergers are quite straightforward. Merger integrations are different in detail, however, there exist predictable stages and decisions that every organisation in such situation must addressed through shared best practices. Secondly, such practices need to be applied in the best way possible to create high value in a fast way, without losing any resources which will obliterate such value creation. (Shill, 2005)

The exposure to a new culture during a merger activity directly influences the values and systems of the old organisation, creating a feeling of discomfort and stress amongst the employees.

One of the major problems that newly merged organisations faced was that Executives did not give the necessary importance to the new culture and design, but focussed all of their attention to financial and operational factors only.

"In order to achieve the benefits from a merger, some very hard decisions have to be taken"

Peter Ellwood - Deputy Chief Executive, Llloyds TSB

Up to 500 jobs were lost in one of Lloyds administration offices in the wake of the group's merger of back-office functions.

The bank's warning of mass job cuts among Lloyds TSB's 87,000 staff follows a wave of redundancies within the entire banking sector. Up to 60,000 jobs have been lost in the financial industry in the past five years. Bifu (UK Banking Union) claims up to 500,000 more may go in the next few years. (Cicutti, 1996)Another problem that newly merged organisations may encounter is the fact that supervisors or people in charge may ignore their own staff members. From time to time, during personal appraisal reports, supervisors tend to write the same points, most of the time, positive ones about their people that they manage. Such appraisal reports may be seen as time consuming for supervisors, and usually, they are not given their importance. If this is the case, a problem will arise, since the Human Resources Department will end up with a blurred image about the staff employed within the same organisation. Such problem will cause further problems in the future, since the organisation will end up in a very uncomfortable position to take new decisions.

Another major aspect during mergers is redundancy. Such factor is very hard to get by, but it is almost inevitable in any kind of organisational integration. The Human Resources Department has a great responsibility in reducing such redundancies, mainly because; those persons made redundant will be ready, and often succeed in damaging the organisation's image and reputation.

Mergers often prove to have severe impact on the employees. They usually result in stress on the employees, which is usually caused by the new, uncertain environment, different human resources practices, cultural and organisational differences and changes in new leadership styles. It is proven that divergent cultures can generate a certain level of discomfort and a general feeling of aggression which will lower the commitment and willingness to participate on the part of the employees. In situations where cultures tend to clash, the dominant culture may get preference over the other organisation, causing frustration and loss for the members of the other entity. In such situations, an attitude of "us against them" can be developed, an attitude which is surely threatening to the growth of the newly merged organisation.

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A very important issue that employees fear about during mergers is job security. Since merger activity will eventually create duplicated departments and roles, the access manpower will ultimately need to be downsized. This will also lead to changes in future career paths and opportunities beyond the new organisation. Some employees may also find themselves doing new tasks or assigned new rules. In such cases, the performance of the mentioned employees will surely be affected in a bad way. Research has found that due to merger activity, at least two hours of fruitful work per employee per man day is lost.

Compensation and pay related issues also depend on the organisational design and culture and will vary accordingly. Such problems create more discrimination between the employees of the two organisations, which will then result in prolonging the process of merging. Such pay differential will act as a de-motivator for the employees with less pay and other benefits such as leave. Certain organisations may adopt a performance related pay, whilst other prefer a fixed pay. These differences will create even more discrimination and clashes between both organisations. Different pay leads to differences in grading and organisational structures. Even these differences in designations will cause more problems amongst the employees now working together. (Pande and Krishnan)

Risk Management plays a very important part in integrations, especially mergers. A deal can be considered as a success or failure only if both of the organisations have constructed good insurance programs prior to the deal. Organisations, willing to merge should identify and solve problem areas. Failing to do so will result in a devastating financial result.

Another issue related with risk management is that of marketing. Since prior to the integration, the organisations were using different types of marketing, prospective customers will be confused. Loyal customers to a particular organisation will find it difficult to adapt to the fact that now, the organisation has merged with another organisation, which the customer may not have been ready to thrust. Customers will become irritated when they start receiving different marketing material, or possibly invoices pertaining to the same merged organisation. Due to this reason, customers may default, resulting in reduced profitability. People now belonging to a newly merged organisation may take advantage from confusion resulting due to distinct billing or payment methods (Nestler, 1999).

HypoVereinsbank emerged in 1997/1998 from a not very successful deal between Bavaria's Bayerischen Vereinsbank and Bayerische Hypo-Bank. This created Germany's second largest financial institution. Size, however, did not particularly help and in November 1997, it was found out that the merged bank had to take out $2.1m charge to cover for losses, mainly on property loans. However, in November 2005, HypoVereinsbank was taken over by UniCredit Group, after an offer of five new UniCredit shares for one Hypo- und Vereinsbank share was accepted by shareholders representing 93.93% of the company. To date, the banking group employs more than 25,000 employees in approximately 750 branches. It is estimated that the banking group now has around 8.5m Clients. (Chorafas, 2006)It is of utmost importance for organisations to seek help from expert sources immediately as soon as the merger is made public. Organisations may prefer to take opportunities first rather than consult; however, it has shown that insufficient planning is far worse. This consultancy issue applies for both large and small organisations. Agreements have to be drafted prior to the actual signing of contracts. It is very important that problems regarding company liabilities, tax consequences and regulatory issues should be cleared beforehand. Moreover, the newly merged organisation must have a clear image of what is happening with regards to financial issues. It should have in possession well kept accounting books, financial statements that give a clear image to all of the stakeholders. Such statements are to be well interpreted especially if the new organisation is entering a totally new market.

Risk management within the context of mergers should also take into consideration that adequate reports and analysis is made about both of the merged organisations and about the actual market. For instance, an organisation might request another organisation to merge in order for the first organisation to benefit from the high market share generated by a special product offered by the second organisation. However, the first organisation might not know that such product will have to be withdrawn from the market due to an expired patent or amendment in law (Walther et al).

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O'Connor (2009) states that at its core, products development is purely risk management. Most new products fail and many others are delayed for arrangements in the product attributes so that they match with the market needs.

Product development highly focuses on extensive market research in order to offer new or enhanced products or services that customers want. Further than research, new product development implies secondary expenses such as customised software development, hardware applications and extensive training to support the product (Leithhead, 2000).

The development and successful launch of new products basically depends on investment and project management. The risk related with investment involves any assumptions that could be made. Such assumptions will ultimately blur the real situation of the merged organisation. Another issue is the fact that the source of the primary data could also be incorrect, giving misleading information to the organisation when developing new products or services. Such data may be created from secondary or old sources, thus making it unsafe to rely on.

Project management also poses high risk to the merged organisation when trying to develop new services. This area needs to be tackled in an ideal way in order for the organisation to win new customers by satisfying their changing needs, gain market share and take competitive advantage over the competitors. Project management mainly depends on 3 main constraints which are: time, budget and quality.

"Unless an organisation's product appeal to the market, there is a serious risk of decline and obsolescence" (Leithhead, 2000). Maturity and obsolescence are surely the greatest hazard to a product line since their effects are slow and deliberate, meaning they are hard to detect. Moreover, once a product starts to reduce in popularity, the cycle will be quite difficult to start over again.

Recommendations

The following are some points that the newly established human resources management department should take control of when dealing with the culture, structure and design of the new organisation:

Train managers on the nature of the change

Technical retraining

Family assistance programs

Stress reduction programs

Meeting between the counter parts

Orientation programs

Explaining new roles

Helping people who lost jobs

Post merger team building

Anonymous feedback helpline for employeesOrganisational practices, managerial styles and structures are all determined by the organisational culture of the organisation. Each and every organisation has its own set of values systems and viewpoints, which may create a conflict when these organisations decide to merge. When an organisation is exposed to a totally new culture during a merger activity, it may lead to a psychological state called "culture shock". It is essential that employees abandon their own culture, values and beliefs and start to live the entirely different culture created by the merged organisations. (Pande and Krishnan).

One of the most important factors that eliminate most of the problems generated by mergers is the fact that organisations have to establish strategies that classify the level of communication amongst the two entities. In this way, any fears or rumours that might be circulating amongst such employees are eliminated, creating a sounder environment. The organisation must ensure that it informs its employees beforehand, rather than having such people getting to know about any activities from the press. In this way, staff members will not have feelings of getting cheated. In order to obtain an excellent communication strategy, it is important that the organisation involves every staff member. Pande and Krishnan state that communication strategy that involves senior managers of the merged organisations works well. Apart from senior managers, using employees who are trusted by others or even Trade Union leaders are also supportive.

When communication with employees, the organisation must ensure that the information delivered is precise and free from defects and should not involve false promises as such inaccuracies can back fire in the form of rumours. However, it is important not to deliver more than the employees should know. The first issues that should be tackled in such communication material is about their future jobs, lessening worries about job security.

When dealing with supervisors and staff appraisal assessments, the Human Resources Department interviews all the employees, from all levels from time to time. They should be asked questions about their direct awareness of their job, their supervisors, their department and the whole merger. Such answers are usually really valid, and could be used in order to change certain functions within the organisation. Such interviews will also help the organisation in deciding on which staff members to keep and which to leave, in the case of redundancies.

In any mergers, there will be terminations (Winning, 2005). The major responsibilities of HR are to establish the redundancies, then it must decide whom to retain. It is important to keep in mind that gaps exist in both organisations, gaps which could be filled by employees of the other organisation. For this reason, the organisation is to agree on which staff to keep, transfer or let go.

When dealing with information technology and human resources, each organisation uses different methods in calculating payroll, leave balances and other related issues. When dealing with mergers, the Human Resources Department should directly consult with the IT Department in order to choose or develop from scratch the system that will be used for Human Resources purposes in order to avoid any conflicts. Moreover, organisations may have large databases filled with vital information about their customers. It is therefore a vital role for the HR Department, together with the IT Department to relate together, in order to find the ideal way in order to take the best out of such information, without having any significant loss (Winning, 2005).

Winning (2005) advises that no commitments or promises are to be made. Once the merger is official, and the actual integration starts, it is almost guaranteed that perspective, personnel and data have changed drastically. The vast majority of changes take place between the beginning and completion. In reality, true integration can take three or more years to happen, sometimes, it can never take place.

The primary objective of risk management is to define the context in terms of strategic, organisational or purely risk management. Strategic risk is about the connection between the newly merged organisation and its parameters in terms of financial, operational, competitive and social context. At this level, the organisation should identify its stakeholders and has to be fully committed and accountable in order to satisfy their needs accordingly. Organisational part takes into consideration the strategies and objectives of the company as a whole. At this level, key performance indicators and critical success factors are used in order to measure the performance of the organisation in general.

Every department should use a unique set of tools to identify risk, tools which are mostly convenient according to the day to day running of the department.

The newly set Finance Department should develop a quarterly checklist based on different risks involved including for example the tax issues such as tax incurred or tax credits, receivables product updates and how efficient their respective sales results are.

Other departments such as Marketing and Operations should adopt weekly meetings where brainstorming sessions and systems analysis are used to determine possible risks with regards to competition, changes in prices, changes in trends and tastes of customers.

The Products Department has the responsibility to ensure the synergy in the product lines of both organisations. Such department has to analyse the key elements of the product portfolio such as pricing, the level of service given and the strategy behind every product on a regular basis in order to ensure that the products offered are still in line with what the customers want.

On the other hand, the Marketing department must ensure a single marketing plan for the newly merged organisation, in order to avoid having different promotional material pertaining to the old organisations distributed to the customers. The marketing department is to develop integrated segmentation strategies, together with diversifying the product range and target market rather than depending on a specialised niche in order to spread the risk of market collapse.(Nestler, 1999)

The Information Technology Department also has an important role in risk management. Since nowadays, most information is digitally stored; the IT Department must ensure that when the merger actually takes place, the new organisation does not suffer from a significant loss of information stored. An agreement has to be achieved on what system to keep, or should the new organisation develop a new one from scratch. New databases containing customer information should be developed in order to keep the data up to date and free from any errors or duplications.

Retail branches should collectively discuss product plans, ranking priorities of such risks, investigating inputs, processes and outputs in greater depth. Without any doubt, the Risk Department should focus all the attention on analysing customer credit risk and their affordability. Risk officials should look at recent documents such as bank statements and pay slips to determine such affordability of new credit facilities, together with the help of expert systems such as credit scoring in order to reach to a clear answer. (Loh, 2008)

The risk from liquidity should be managed directly by the Treasury Department. Such department has the role to invest customer funds in the appropriate investment products, which guarantee u good rate of return but still ensuring a certain degree of liquidity. Such department is also responsible for keeping enough capital to safeguard deposits. Interest rates are also established by the Treasury. The department is to ensure that the rates promoted on the bank's services are coherent with the return that the bank is getting from the investment products that the bank is investing in.

Risk should be managed on an active basis. The aim of risk management is to establish areas of high risk well ahead of time, interpret such events in depth, and having such problems solved as quickly as possible. Since a newly merged organisation is more exposed to risk, it should definitely consider having a well designed contingency plan, preferably, with more than one plan in case something cannot be resolved (loh, 2008)

Creating or updating product lines is vital for the success of every organisation, especially a newly merged one. Sales could possibly decline if the organisation does not change by time, leaving more room to the competitors to broaden.

The first stage in developing new products is called the idea generation. During this stage, the organisation, mainly the Products and Marketing departments need to start to gather information in order to start to develop new products or services. One valid source would be directly from customers as they know exactly what they actually need and want. The organisation might also analyse what the competitors are doing. Since the organisation has recently merged, it is also a good point to hold brainstorming sessions consisting of a mixture of employees. During these sessions, customers will mention what went wrong with previous developments of new products. Moreover, they will mention those things that they have wished that the previous organisation should have done during the development of new services but have for some reason, left out.

The organisation should then gather all of the ideas generated and evaluate them. During this evaluation period, non feasible ideas should be eliminated instantly as trying to develop such ideas will end up increasing the costs for the organisation. The merged organisation must stick to its mission statement and vision and should only keep those ideas which are coherent which such statements. In addition, ideas should be derived from innovativeness, and should not be the result of previous work, or product development previously performed by the competitors.

The ideas are then developed and tested. The correct segments should be selected accordingly. Once the target market has been selected, the organisation must answer some important questions such as: "what does the target market thinks about the idea?", "will it be practical and feasible?", and "will it offer the benefit that the organisation promises?"

The organisation is then to decide on how the service will be launched to the market. During this stage, a detailed marketing strategy should be drawn up, explaining everything in detail. Such marketing strategy should include the marketing mix strategy of the product, a detailed SWOT analysis of the organisation, the segment that the product is aimed at, from where the product is to be sold, what the marketing material will be and even a projection of the sales and profits expected.

A business Analysis is also to be drawn up. This document evaluates whether the new product developed will be financially worthwhile or not. During this stage, the organisation should study deeply into the financial aspect of the product, discussing issues such as the cash flow that the product could generate, the costs(visible or hidden) that are incurred when selling such product, what market share the product is expected to reach and the expected life span of the product. The main reason for developing such business analysis is that because such article will help the organisation in listing all the benefits and costs of developing such product or service.

If the organisation decides to continue with the development, a sample product is made. This prototype must clearly run all tests and then is to be presented to the target audience to see if any changes are needed. When firstly launching credit cards, debit cards and ATM's the bank I work for firstly decided that there should be a period when these services are to be used solely by the staff members. During this phase, the employees were to report any problems with the usage of such services in order for the appropriate department, mostly the IT and the Strategy and Image Department to tackle such issues.

As soon as the service is running smooth, the organisation will decide to launch it on a national scale, meaning that the offering will be available for all of its customers. At this point, the organisation should set up a customer service unit, were customers can phone when problems with such services arise. The main reason for this is so that the organisation ensures a great level of quality throughout the whole life cycle of the product. (learnmarketing.net)

Leithhead (2000) states that organisations need to continuously develop and modify products in order to meet the changing needs and expectations of their customers and the challenges of their competitors. Getting product development right means that the organisation will be in a better position to improve its competitive stance in the market, avoiding the pitfalls that could lead to disaster.

Conclusion

From this report, the problems that the organisation faces in terms of organisational design, structure, culture, risk management and new product development were drawn up. These problems were matched with the ideal solutions which the organisation should consider to avoid any difficulties when starting operation as a new merger.

Merger decisions are by far, very though and risky. If accomplished successfully, they can boost competitiveness and profitability in remarkable ways. However, if poorly performed, they will end up destroying both firms. The organisation has the role to find out the right path. This is done by setting up an excellent Risk Management team, which with the correct tools and techniques, a complete understanding of the quality of the whole merger portfolio can be achieved.