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This paper aims to explain the operational management of the HSBC and how to develop and apply the concept of operational management, which refers to the operational routines that shape the way the firm's strategic path is developed over time. There are total four task of analysis in this paper. The first task is to analysis the orientation of it organization and how this orientation affects the ability to deliver the key operational components for its survival such as speed, quality and flexibility. The second task is to identify the key changes within the organization. The third task, is to argue the case for or against to maintaining its orientation in the organization. At the last task is to discuss the important of new product development and how the operation can input in the development hence to reduce the risk of failure of products and services in the market.
Outside the stakeholders are taking an increasing interest in the activity of the organization. Mainly look to the outer circle - what the organizations has actually done such as: good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or how it treats and develops its workforce. Out of the various stakeholders, the financial analysts who are predominantly focused as well as past financial performance on quality of management as an indicator of likely future performance.
Flexibility- HSBC continues to enhance certain products development which the core to the company's customer group offering and some products will be managed or coordinated globally. These products include the HSBC cards, which exploits the experience and platforms provided by the Insurance, Cash Management, Household, for scale and international reach, Asset Management, Custody and Funds Administration, and Retirement Benefits.
Quality- Besides that, improving the products, HSBC will ensure the customers that the company has the best capabilities, and will be able to offer a comprehensive service to their product expertise globally. Developing and improving their product is important because always aside from the trust of the consumers of the bank, this is also a good source of their profit for with good products and services, the HSBC can attract more customers and maintain old ones, and in turn, determine their success in the market, and maintain their reputation being 'the world's local bank'.
Dependability- Through improving and developing their products and their services, the HSBC can deliver growth by enhancing their revenue generation culture, and this involves four aspects. These aspects including strengthening use of marketing as a key management tool of the business lines, rewarding revenue performance and penalizing mediocrity, focusing investment on businesses and geographies with largest growth potential, and benchmarking growth targets and achievement rigorously against peer group. Growth can continuously be achieved if these aspects will be implemented effectively and efficiency in the market.
HSBC launch the 'managing for growth' program, which is a strategic plan that provides the company with a blueprint for growth and development the company business. The strategy builds on the company's strengths and addresses the areas where further improvement is considered both attractive and attainable.
Its core values are integral to its strategy, and communicating them to their customers, shareholders and staffs is deemed as intrinsic to the plan. These values comprise an emphasis on long-term, high productivity through teamwork, ethical client relationship, a confident and ambitious sense of excellence, being international in outlook and character; prudence; creativity and customer focused marketing.
The key marketing and business strategy for HSBC is as follows:
Brand: make HSBC and its hexagon symbol one of the world's leading brands for customer experience and corporate social responsibility.
Personal Financial Services: drive growth in key markets and through appropriate channels to make HSBC the strongest global player in personal financial services.
Consumer Finance: extend the reach of this business to existing customers through a wider product range and penetrate new markets Commercial Banking: make the most of HSBC's international customer base through effective relationship management and improved product offerings in all the Group's markets.
Corporate, Investment Banking and Markets: accelerate growth by enhancing capital markets and advisory capabilities focused on client service in defined sectors where HSBC has critical relevance and strength.
Private Banking: serve the Group's highest value personal clients around the world.
People: attract, develop and motivate HSBC's people, rewarding success and rejecting mediocrity.
TSR: fulfil HSBC's TSR target by achieving strong competitive performances in earnings per share growth and efficiency.
1.3.3 The marketing strategic perspective of HSBC
The basis for HSBC to develop their strategies is aim to maintain their global competitiveness and reputation. The marketing strategic of HSBC delivery the following key operational components of:
Speed- In order to effectiveness the fast product or service delivery and client relationships, the HR team would retain their individual specialist responsibilities and knowledge base on each business area would have a specific individual in the team to act as their client relationship manager (CRM). This is a simple change given that each team member based on their expertise, developed deeper relationships with certain business areas than others. The CRM give the team an up to date overview of all activities in several business area, the businesses challenges, needs and wishes at any point in time. This created a situation that often occurs in small HR teams with competent and enthusiastic members, namely over utilization by specific business areas and a focus on operational delivery. This is again a product of the way the business and team have grown. Team members' keen to deliver good quality development to the business have jump at the opportunity to create a positive relationship where a need have to identify.
Quality- HSBC is to maintain their position as the world's local bank, which enables them to approach each country uniquely, blending local knowledge with a worldwide operation platform. This is a good approach for each of these regions are distinct from each other, having different culture and beliefs, making it difficult to implement a single project for all client around the world. The difference in this approach is to addressing the different needs of their customers, which is a good basis from the improvement of customer service at the business organization, and their aim is to find good solutions and techniques in the development and improvement of their rendered products and services.
Dependability- Different geographies will provide different products or services to different customers. HSBC will concentrate activities on geographies where growth and critical mass and located. Such activities include global outsourcing strategy, which was also implemented by the company in several countries including in Philippines. The company was able to establish itself in call centers to provide their services in relation to sales and checking of accounts. Outsourcing contributes is to aim of HSBC to focus on the needs of their customers, for these all call centres are responsible for providing their customers with an information regarding their accounts. Call centres agents are also take responsible for answering the queries of customers regarding the company.
Flexibility- Usually design or innovate new products or services to their customers, provide various products or flexibility services to fit different customers' needs and ability to change the timing of delivery of its product and services to customers.
1.3.4 Comparison of orientation affect operational performance objective in HSBC
Operational performance objectives
Quality is consistent conformance to customer' expectation.
By providing high quality product and error free transaction of services to customers.
Finding what customers want and expect by using research such as: survey, focus group for interview and other techniques that integrated customers' voice. And research must reveal what the customers' view of quality and whether customers are getting it.
The elapsed time between customers requesting products and services and their receiving them.
Provide fast delivering products or fast transaction services to customers.
Fast decision to change to improve customers' satisfaction.
Delivery or making available, products or services when they were promised to the customers.
Different part of countries might deliver different type products or services.
Different part of countries might have their own marketing strategy to its customers' needs.
The degree to which an operation's process can change what it does, how it is doing it or when it is doing it.
Ability to introduce new or modified products and services to customers.
-Ability to produce a wide range or mix of products and services.
-Ability to change the level of output or activity to produce different quantities or volume of products and services over time.
- Ability to change the timing of delivery of its product and services.
One major operations objective, especially where companies compete with prices is 'cost'. Low price is a universal attractive objective to customers, which can be achieved by producing goods at lower costs.
Offer a reasonable price for a product and services that customers can afford to paid.
In order to gain competitive advantage, the cost will be identifying through market condition and competitors performance.
2.0 Market Orientation
Market orientation is generally regarded as the implementation of the 'marketing concept'. The marketing concept is a philosophy of doing business, which puts the customer's needs at the central of the organisation. In terms of the HSBC bank, the marketing concept starts with the customer's needs as the top function of banking purpose. The HSBC must identify these needs and then decide which ones it should try to satisfy. The opportunity to meet bank objectives will occur through the bank's efforts to determine customer's satisfaction.
2.1 Key features of market Orientation
According to Narver and Slater (1990) market orientation composed of three behavioral characteristics:
Customer Orientation: understanding the potential customer needs in order to create an added value for him on a continuance basis.
Competitor Orientation: knowing the strength and weaknesses as well as capabilities and strategies of key competitors.
Inter Functional Coordination: coordinating use of the firm resources for creating high added value to target customers.
Figure 1: Narver and Slater's view on market orientation. Source: Narver and Slater (1990).
2.1.1 Customer orientation
The vital of this characteristic is to demonstration the understanding and commitment that results in enhanced value to the clients. The key behaviours of a customer approach include such as: providing services of values, researching customer needs, concentrating on needs, committing to customers, focusing on customers' satisfaction; reporting and measuring satisfaction, and augmenting existing services.
In order to focus customer orientation, HSBC should analyse the behaviour of their customers and using research such as survey, group focus interview and other technique that integrated customers' voice to their expectation.
2.1.2 Competitor orientation
This characteristic meets with the most resistance, who believe that competition amongst banks is unhealthy and counterproductive. But competition needs to be defined more broadly to include generic competition. Competition, from the viewpoint of the customer, is whatever will directly or indirectly satisfy a need. To understand the market, the HSBC must recognise that there is competition and that it is advantageous to 'benchmark' the bank against other quantity programs and facilities that are offered by other banks as well evaluate the offerings from other generic competition. Key behaviours are open discussion of competitors; evaluating competitor behaviour; assessing competitor strategies; and examining opportunities for improvement.
2.1.3 Inter-functional Coordination
The key indicator of this characteristic is the total commitment of all members to a marketing philosophy and the integration of marketing activities to provide value to the customer. Typical behaviours in HSBC should include those aspects: teams and departments working together to meet up customers needs, teams and departments sharing market information, teams and departments are integrating strategies, all sections working together to offer great value to customers, and the teams willing to share the resources.
2.1.4 Long-term Growth Focus
HSBC normally regard a five year cycle as long term, claiming that the environment is too uncertain to plan beyond this time frame. Despite this, research indicates that organisations should develop a strategic plans, or strategic intentions, that go well beyond a five year cycle. Behaviours associated with this aspect include: adopting a long term focus in matters of expansion or survival, attempting to service all customers (shareholders, suppliers, staff and so on)in the long run, aiming for effective organisational performance in the marketplace, implementing and identify new value added services, and identifying the overcoming deficiencies in banking services.
3.0 Where Industry Life Cycle comes from?
The industry life cycle imitates the human life cycle. The stages of industry lifecycle include fragmentation, shake out, maturity and decline. (Kotler, 2003)
3.1 Current industry life cycle in UK retail banking
Figure 2: the banking industry life cycle (Source: from FSA website)
Growth in UK bank has increased dramatically, and the rate of return on equity substantially exceeds the cost capital. UK banking has been a high growth, high return business and leading UK banks show some of the highest market capitalization in the EU.
In the past twenty years the proportion of UK households with a bank account has risen dramatically (from 60% in 1980 to 94% in 2009). The number of service that a bank sells to a typical customer has also increased dramatically. In 2009, a bank typically cross-sells the current-account customer to a variety of other services, including likes mortgage, credit cards, personal loans, life and general insurance, car insurance and investment product such as mutual trust and unit trust.
Besides that, technology has enabled banks to perform their retail business more efficiency. Advances in communication and information technology have driven down the cost of processing and made it feasible to perform this processing remotely from the bank's branches. The introduction of cash machine, internet and phone banking has driven the cost per transaction. So did the consolidation of banking enterprises via merger and acquisition. Together, the expansion in revenue and the reduction in unit cost have lead to dramatic increase in profits from UK retail banking.
3.3 The reason to maintain its orientation in HSBC
It enables continuous learning and knowledge accumulation through continuous collection of information about customers and competitors and using information to create superior customer value and competitive advantage.
Will confuse customers if bank keep changing its orientation.
High risk to change its orientation most of them might face failure in changing a new orientation.
Changing may be costly and wasteful of resources such as time to re-training staff into new orientations, R&D costs, switching costs, increase advertisement cost and marketing cost.
Changing orientation will affect the organization in culture, management, leadership and operational.
The operational efficiency and effectiveness is improved if orientation maintained.
3.3.1 The important of maintain marketing orientation and product orientation in HSBC
Is an 'organizational culture that most effectively and efficiency creates the necessary behaviours for the creation of superior value for buyer and thus, continuous superior performance business' (Narver and Slater, 1990).
The important to maintain marketing orientation because it usually focus the following advantages aspects:
Increased profit through improved customer satisfaction.
New opportunities occur due to greater understanding of markets, customers and competitors.
Tapping into the knowledge of employees and directors more effectively.
Improved understanding of customer requirement.
Product and service development strategies greatly improved.
Increase level of employee satisfaction
Systems to raise both customer retention and customer acquisition.
Development of a learning culture.
Besides that, marketing orientation can facilitate the HSBC to compete by following sustainable competitive advantage:
Creating a link between customer wants and organizational strengths
Consider the competition from the customer perspective
Creating and maintaining superior value through effective application of the marketing mix.
A product orientation leads to "marketing myopia" (Levitt 1960), by focusing on the product rather than the customer's needs.
The advantages to maintain product orientation are as follows:
Quality should be guaranteed.
The product is consistent (any changes are progressive).
Future activities are more predictable.
3.4 The reasons against maintaining its orientation in HSBC
The environment (such as technologies) keeps changing, and maintaining the orientation may keep the bank off-track with competition. Operations need adjustment to keep with the changes.
To attract new customers and sustainable competitive advantage. Where, organization will faced lost confidence or lost attractive by customers with current orientation.
Customers have become more demanding to improved services such as: Shorter waiting time, 24/7 services, reduced lending rates, shorter loan approval period, etc. Bank may have to adjust its operations to take note of the changes.
To improve reputation- by changing new orientation might help organization to improve well known reputation.
To keep growth of product or services in its all market.
4.0 The new product development process
The new product development process (NPD process) can be defined as a disciplined and unambiguous set of tasks and steps that describe the normal means by which an organization repetitively converts embryonic into saleable products or services.
Two commonly used NPD process models are described as follows:
A five-stage framework linking new product development opportunity to design, testing, information, and profit management.
The stage-gate system that recognize the importance of cross-functional teams, parallel processing in activities, and up-front predevelopment activities in the NPD process.
Business case preparation
Full Production/ market launch
Testing and validation
Figure3: Two commonly used NPD process Models Primarily (Source: World Class Theory and Practice (International Edition)
4.1 The importance of new product development
NPD is typically important for an organization. The importance for ongoing innovation is discussed by Lancaster and Massingham (1993,p. 128) is "today, most organizations must either innovate or go out of business. Clearly, then, innovation and the new product development which such innovation gives rise to is not just desirable but is essential to long-term market and competitive success".
4.1.1 Sources of Competitive Advantage
HSBC innovate and develop new products or services are because the new products or services offer them unique opportunities for competitive advantage. For example: HSBC was the first bank to launch TV banking and has returned to profitability. The early movers also have the advantage of taking a leading role in setting HSBC's standards for the emerging product categories.
4.1.2 Market Share Gain
New product introduced in the marketplace provide additional "first mover advantages" to the organizations. By developing new products, HSBC can quickly capture a big share of the market before competitive products are introduced. For example HSBC creation of a joint-venture with Merrill-Lynch to create a new Internet based global banking service.
4.1.3 Higher profitability
During the early stages, a new product faces less competition than a product in a mature; therefore, its profitability tends to be higher. As the market becomes saturated with several competitive products, prices start falling and profit margin decrease. This general trend is observed in HSBC.
4.1.4 Enhancement corporate image and Brand Name
The development of innovative and creative new products will create HSBC in very powerful source of goodwill and creates a positive of corporate image. It is not easy to assign a monetary value to the goodwill associated with enhance corporate image results from new product development. At the same time, brand equity measures used in marketing show that organizations with more successful new product development efforts command higher respect from customers, which leads to enhanced long-term profitability.
4.1.5 Operating Cost and Capacity Utilization
HSBC constantly innovate also identify better approaches for producing products. The product development effort is often closely linked with process development. Therefore, over a period of time, production cost is reduced, leading to enhance profitability. Furthermore, new products provide the opportunity for enhance sales, as the demand or older products decreases over time. Therefore, HSBC can continue to operate at a similar capacity id it continues to innovate and introduce new products.
4.2 The operational input into the development of TV banking in HSBC
Research found that different development presents different strategic and operations types of actions in HSBC. An example to development TV banking in HSBC, this project involved the development of a new technological capability to manage transactions by TV remote control.
Figure 4: The initiative development characteristics
Exploration vs. exploitation
The major issue of the initiative
Decision making style
Life span (years)
The operational inputs into the development are base on 3 stages such as follows:
4.2.1 The First Stage - Idea Generation
Primarily focus on the initial stage of the initiative and examine the factors that shape the idea as it emerges. This section has two main themes. The first themes is focuses on the origin of each of the initiatives; and the second themes is focuses on the way in which the initiative gains initial approval.
In HSBC the major source of initiatives came from senior managers who were following an idea of their departmental mission. The other factors in Hart's (1992) categorization were not found to be significant. They are the ways in which the initiatives initials ideas were "spark":
The investment in TV banking: The first contact came when the other party in the venture approached the bank. At primary, the decision was not to invest in the firm, since the project did not fit the bank's requirements. Six months later SKY and BT approached the Head of Strategy, who took the lead. Since the other party changed their requirement for a bank partner, it was possible for the bank to accept the offer.
According to Burgelman (1983) the ideas for initiatives in his research cases came from the line managers and was based on technological development possibilities. But my opinion reveals different sources. In my opinion the idea for each initiative emerged from the senior level of management, based on a view of the departmental mission.
In order to development TV banking in HSBC, the first step was to organise an informal meeting between a senior member of the top team and the initiator. Without this initial approval, the initiator cannot continue with this project. The development of TV banking projects was presented to the GM of Marketing, who decided to adopt the idea, and the department will began to plan the project in detail. The beginning of the working project involved collaboration with different departments. After finished the concept creation part of the project the marketing department started to think about implementation. And the next steps, the marketing department will took it to implementation planning.
4.2.2 The second stage- Concept development
In the second stage, the initiative's basic concept that was permitted by one of the top team is developed into a concrete plan. This plan will be executed in the third stage of development- the implementation stage. This section is discussing two main issues:
The development of the concept
The preparation for implementation
During this stage the bank forms two-layer management style for concept development and implementation. In this management structure, each project has a steering committee and an operational committee that collaborate on the concept's development of the concept and implementation.
Looking to the concept development, the process is separated into two parts:
Focuses on forming the concept-The initial work on the initiative's concept the study is done by the initiator by using external and internal sources. In the TV banking project the project manager began to form organizational support for the project only after the investment decision and a six-month period of planning and studying the project's needs in the SDU offices. Then, the whole implementation's design was conducted by the Marketing Department.
Focuses on extending the concept and developing the role of each department in the development of the initiative- By explore the implications for the perceived success of initiatives. In the TV banking project, the planners included more scope for benefits then were initially thought possible.
4.2.3 The Third Stage-Implementation
In the third stage of the development is implemented. The main concern of this section is to look at the administrative system through which implementation is achieved. The bank has to develop a particular system through which it conducts its projects. This involves two-layer management structure.
The first layer of the management structure is the steering committee, which is headed by the project sponsor, who is usually a senior general manager in the department responsible for the project. The other members of the steering committee are managers from project-related departments. The second management body is the working committee. Figure 4 portrays the structure of development TV banking. The solid line arrow represents the chain of command for the project, and the black down arrow indicates that the steering committee consists of the managers or their department representatives in the working group.
When the project is particularly complex, as in the TV banking project, the project itself is divided into many sub-projects, and each may having its own operations committee. However, the whole project has one coordinating operations committee. The project manager, who heads the co-ordination committee, reports to the project sponsor on the development of this committee. Thus, the whole project has one steering committee and one coordinating operations committee. Normally, the steering committee meets once a month (but this can vary according to need) and the operation committee meets once a week.
The banking environment of today is rapidly changing and growth saturated. In order to continually growth in banking industry, HSBC should consider expanding their business through market oriented. The market oriented helps the HSBC business more dictated by the market, it will at all times attempt to meet the needs of the market with little reference to internal strengths of the HSBC business. An organization with a market orientation will thinks that its most important asset is its customers. They believe that, as long as it is able to identify potential customers, find out what they want and then produce that for them, it will remain successful. Besides that, the advantages of applying market oriented in HSBC are firstly, HSBC business can be flexibility to changes in demand patterns. Secondly, the business through market research will have a strong understanding of the needs of the customers. Thirdly, new products should have a greater chance of success.
The HSBC Group is named after its founding member, The Hongkong and Shanghai Banking Corporation Limited, which was established in 1865 to finance the growing trade between Europe, India and China. The inspiration behind the founding of the bank was Thomas Sutherland, a Scot who was then working for the Peninsular and Oriental Steam Navigation Company. He realized that there was considerable demand for local banking facilities in Hong Kong and on the China coast and he helped to establish the bank, which opened in Hong Kong in March 1865 and in Shanghai a month later. Soon after its formation the bank opened agencies and branches around the world. Although that network reached as far as Europe and North America, the emphasis was on building up representation in China and the rest of the Asia-Pacific region. HSBC was a pioneer of modern banking practices in a number of countries. In Japan, where a branch was established in 1866, the bank acted as adviser to the government on banking and currency. In 1888, it was the first bank to be established in Thailand, where it printed the country's first banknotes.
From the outset trade finance was a strong feature of the local and international business of the bank, an expertise that has been recognized throughout its history. Bullion, exchange, merchant banking and note issuing also played an important part. By the 1880s, the bank was acting as banker to the Hong Kong government and also participated in the management of British government accounts in China, Japan, Penang and Singapore. In 1874 the bank handled China's first public loan and thereafter issued most of China's public loans.
As of April 2, 2008, according to Forbes magazine, HSBC was the fourth largest bank in the world in terms of assets $2,348.98 billion, the second largest in terms of sales $146.50 billion, the largest in terms of market value $180.81 billion. It was also the most profitable bank in the world with $19.13 billion in net income in 2007 compared to Citigroup's $3.62 billion and Bank of America's $14.98 billion in the same period.