Northern bank in the USA changed their strategy which merger his competitor Southern bank also in the USA. We are fully responsible for making strategic plan and ensure the implementation successful.
Chapter 1 is analysis the internal resource and external environment to find out the key driver of this project who is pushing ahead with this strategy.
Chapter 2 is describing the goal of this project and the requirement of strategic management for successful implementation.
Chapter 3 identifying and evaluate the stakeholders' interests and power who can influence the strategy.
Chapter 4 is according the existing information to analysis the key risk during the process and how do they impact the resource and culture in the organization.
Index
65535
1. Introduction
Facing the external threat from Eastern bank merge with Western bank, and Northern bank its own growth; Southern bank also think about its own benefit and accepted the acquisition plan from Northern bank. So Northern bank and Southern bank start execute this plan.
2. Key drivers of strategic change
The key drivers of this project are Northern bank's motivations to achieving the goal of merger and acquisition with Southern bank. According to the profiles which offered by the due diligence of Northern bank and Southern bank. We can make an analysis of internal resource, external environment of both banks in order to help the strategy making and implement of merger activity of Northern bank and Southern bank.
2.1 Analysis the situation
SWOT analysis of Northern Bank:
Strength:
High level of financial resource
Focus on the commercial lending
Good facilities
Low expense
Weakness:
Manager and employee's skill level is not good enough
Products not differentiated
Opportunities:
New cooperation opportunity
Geographical extension
Revenue growth
Threats:
Competition in market is increased
Other competitor extend their scale and geographic cover
SWOT analysis of Southern bank:
Strength:
Lots of branch in different area
Good customer base
Focus on customer lending
High manager and employee's skill level
Weakness:
High expense
Low effective of loan approval processes
Opportunities:
New cooperation opportunity
Geographical extension
Revenue growth
Threats:
Competition in market is increased
Other competitor extend their scale and geographic cover
2.2 Key factor of success
"Key factors for success in an industry are those resources, skills and attributes of the organizations in an industry that are essential to deliver success in the market place". (Richard, 2009) Key factor of success analysis can provide important information of banks.
Customers: Banking is the service industry; increasing the service level, creating a strong and reliability brand is the most important factor to success.
Competition: the competition in the banking market is very drastic, in the same state, there are four banks, and until the Eastern and Western bank merged, they will be the market dominance in the state.
Corporation: Northern bank and Southern bank also have a good performance in the market, high level of employee's skill, good quality operations; provide the good service to the customers.
2.3 Key driver
According to the above mentioned analysis, following internal and external key drivers were found out:
Internal key driver:
From the pre-acquisition document there can be seen that the Northern bank's main objective is: "Leverage synergy opportunities from complementary branch networks and customer base" - to fill the large gap of planned and achieved growth.
CEOs of the Northern and Southern banks are the key persons to decide and be responsible of their new strategy, and they are also the main persons to implement and push on this strategy. Every manager in the enterprise plays a role in the strategy decision and strategy implementation, the duty of strategic management is not only for the senior managers.
External key driver:
The merger of Eastern and Western banks are the biggest threat to the Northern and Southern banks, to reduce the threat, Northern bank initiated the acquisition of the Southern bank.
Strategic Management Disciplines
Mission
The mission of Northern Bank is: to provide high quality banking services and to meet the requirements and expectations of its stakeholders.
The objectives of the Northern Bank are:
To leverage synergy opportunities from complementary branch networks and customer bases, and strengthen our defenses to the threat from Eastern Bank, which has recently announces its merger with Western.
Team of project management:
After the pre-acquisition documents analysis, the following steps are going to be taken to implement the project:
Southern Bank's branches will be rationalized:
The best branches are going to be retained in each town. According to their performance and location, 11 branches will be closed: (See the table)
Northern Bank: 5 branches
Southern Bank: 6 branches
Southern Bank's Human Resource practices will be replaced with Northern's:
Bonus Scheme only for management
No Low Interest Loan
No Corporate Expense Card
18 days holidays (20 days in Northern Bank)
Southern Bank's loan approval processes will be replaced:
Complicated loan approval process
No evaluation of the total customer profitability
Southern Bank's IT systems will be replaced
Number of server is only one
No custom software programs
Less Automated Teller Machines
Low performance rating
There is not major replacement among the senior managers:
Lorenzo Stanio - Head of Retail Banking
Tonia Yoshiro - Assistant of Head of Retail Banking
Hector Rice - Human Resource Director
Elaine Bolta - Assistant of Human Resource Director
Personnel shake-up approximately 22 % (Northern and Southern Banks):
20% employees from Northern Bank
24% employees from Southern Bank
Southern Bank's Product Portfolio will be retained:
All products retained as part of bank's offering
The announcement of replacement decisions will be in a week after the 1st January.
The Start Date of implementation of Integration Decisions will be in 2 weeks after the 1st January.
The Period for Implementation of Integration Decisions will be 16 weeks.
HR will give some training for the new employees from the Southern bank, and it usually takes 100 days
3. Stakeholder analysis
"Stakeholders are the individuals and groups who have an interest in the organization and therefore, may wish to influence aspects of its mission, objectives and strategies." (Richard, 2009)
The stakeholders are the main concern of every organization. As they are the key people in an organization, it is essential to identify them at an early stage of the project. To resolve which stakeholder has what kind of interest, influence and power develops the cooperation between the stakeholder and the organization. It is crucial to remember that the success or the failure of the project depends on the stakeholders.
Timely informing the stakeholders about the forthcoming changes in the organization, knowing their requirements and expectations may help to identify the early strategies of the organization. In this stage, the stakeholder analysis is a must.
The acquisition of Southern Bank by Northern Bank requires the stakeholder analysis to clarify the consequences of the organizational changes. In this report the following stakeholders are being analyzed:
Shareholders
Customers
Employees
Management
Community
Competitors
Government
3.1 Analysis of Shareholders (Pre-acquisition Stage)
According to the pre-acquisition documents, Northern Bank's biggest shareholder is the Sunrise Pension Fund. It holds 12% of Northern Bank shares and has the team of internal investment analysts who can interpret the impact on the share price of different strategic movements. Hank Johnson preference: not to duplication of the Northern Banks' branches.
3.2 Analysis of Customers (Pre-Acquisition Stage)
Southern Bank's important customer is the Dott Manufacturing. Several customized products developed for this company by Southern bank. And the CEO of the Dott Manufacturing Patrick Green is interested in keeping those bank product lines and does not want any disruption due to the acquisition.
3.3 Analysis of Employees (Pre-Acquisition Stage)
The main concerns of the employees are usually the salary rate, compensation and a job security. If the organization creates the positive environment for its employees, it can stimulate the better performance and job quality.
In this sense, Northern Bank gives greater value to the motivation of its employees to assist them to perform better and aims at motivating employees through the bonus scheme. But Southern Bank applies bank level profit-related bonus only for management.
The employees of Northern and Southern Banks are the members of Bank Employees Union. Northern Banks' employees have a fixed salary for each 17 grades, whereas the Southern Bank employees' salaries are individually negotiated.
3.4 Analysis of Management
Northern Bank - (Pre-Acquisition):
Jon Pettinger - Chief Executive Officer
As the CEO has a huge impat on the future organization and its strategy, key person in acquisition process.
Lorenzo Stanio - Head of Retail Banking
Focus on the profitability of the division and how to simplify the loan approval process. But there are some branches he had never visited.
Hector Rice - Human Resource Director
Skilled, pro-active, focus in keep the same level bank's and employees' interest, and launched a training program to raise the skills of branch employees. But the project management style is not his concern.
Ivan Taylor - IT Director
Exploring the possibility of corporate intranet, but focus on the narrow range of issues.
Carl Feinberg - Chief Financial Officer
Managing investor relationships, good at finance and accounting, he has much weight assessing business decision
Southern Bank - Pre-Acquisition:
Steve Beckerman - Chief Executive Officer
Steve Beckerman is the main person in the Southern Bank. The acquisition of Southern Bank was his suggestion and the shareholders' satisfaction is his main interest.
Tonia Yoshiro - Head of Retail Banking
She has an important position in Southern bank and visited branches very often. But she did not focus on communication style.
Elaine Bolta - Human Resource Director
She is new and working hard on improve the image of HR. But low skilled manager and cannot involve the discussion.
3.5 Analysis of Community
The community is interested in keeping as many job places as possible after the acquisition.
3.6 Analysis of Competitors
Western and Eastern Banks which is twice bigger than Northern bank or Southern bank
3.7 Analysis of Government
The Government's main concern is the taxation, legislation and low unemployment level after the acquisition.
The Northern and Southern Banks are private sector organizations and they have paid the taxes of $54m and $23m respectively.
3.8 Power/Interest grid
Power/Interest grid is widely used tool in stakeholder analysis and it is used in assessing stakeholders. (Thompson, n.d.) (Babou, 2008)
CEOs of Northern & Southern
Directors
Shareholder (Sunrise Pension Fund)
Managers
Employees
Media
Society
Government
Customers(Dott Manufacturing)
High power/interested people:
High power, interested people are those who are fully engaged to the project implementation process and make the greatest efforts to satisfy.
According to the Power/Interest Grid, both CEOs of the Northern and Southern Banks are highly interested in the acquisition of the Southern Bank and have high power to influence to the effectiveness of the project implementation. They are fully engaged during the acquisition process and expect to expand the business revenue of the banks, expand geographically, and secure them from their rivals, such as the Eastern and Western Banks.
Another stakeholder with a high interest and power is the Sunrise Pension Fund, which holds 12% of Northern shares.
High power/less interested people:
Put enough work in with these people to keep them satisfied, but not so much that they become bored with your message.
Dott Manufacturing CEO Patrick Green is the most important customer of the Southern Bank. There were developed several customized products for this company by the Southern Bank and Dott Manufacturing wants to avoid any kind of disruption to the bank's product lines.
Low power/interested people:
Keep these people adequately informed, and talk to them to ensure that no major issues are arising. These people can often be very helpful with the detail of your project.
Employees of Northern and Southern Banks
Low power/less interested people:
Low power, less interested people: again monitor these people, but do not bore them with excessive project.
Media: The Daily Post - editor Pattie Mehrer
4. Risk estimate and its impact
Merger & acquisition between enterprises is a highly risky, challenging activity. According to the information from KPMG, Accenture and McKinsey (Transcultural Synergy Ltd, n.d.): 6-8 months after merger and acquisition, the enterprise's productivity declined 50%; after one year of M&A, 47% of senior manager from the merged company will be leaving the company; three year later of M&A, 62% of enterprise appear zero growth. And also on the basis of KPMG's survey (KPMG, 1999), 83% of M&A activities didn't produce any profit for their shareholder, only 17% of activities has bring the profit for the company. This means that the success rate of merger and acquisition is very low.
The main reason of the merger and acquisition can't bring the profit for the enterprise is that there are a lot of risks in the merger and acquisition activity. These risks include predictable risk and potential unknown risk. For instance, strategic risk, legal risk, integration risk, operation risk and financial risk etc. it is very clearly to find out those problems from the failure M&A samples which like Deutsche bank acquisition case and Citibank acquisition case.
4.1 Key risk
Northern bank and Southern bank merger project is indeterminate. The risks are existed during the pre-merger phase, operation phase and post-integration phase. According to the dates which are provided by Northern bank and Southern bank, and the experiences from many merger cases, we can analyze the following key risks in this project (MBA, 2011):
Pre-merger phase
Motivation of merger and acquisition
There is a good sample, Korean Daewoo (Wikipedia, 2011) blind expansion and then move towards to the bankrupt. Some enterprise does not analysis their internal resource, external environment and base on their advantage and disadvantage to establish their strategy, but influenced by rumors or their competitors implement the merger activity, and these irrational reason make them start blind merger. The main reason of Northern bank wants to merge with Southern bank is the rumors of merger between Eastern bank and Western bank. So it could be the big risk in the beginning.
Operation phase
Ethic risk
Some merged companies want to gain more benefit from other companies, they might hide the important information like liabilities, quality of assets. In the case of Chinese electrical company TCL merger with French company Thomson (Pengcheng, 2011), this risk is particularly significant. And this complex information is hard to find out in the short time, especially some unlisted companies; their liabilities are not easy to check. If the Southern bank hid some information, like big liability, quality of equipment, these problems will give Northern bank big problem in the future.
Post-integration phase
Manage & employee risk
Operation and employees issues are always the big problem for the company after merger. Some employees from merged company have contradiction psychology, how to manage the employee or team; is there consistency of manager method; how is the manager level; these questions have big relationship with how enterprise developing.
Culture risk
Culture risk is inevitable, even in the same country. A lot of failure case show that culture risk can collapse the combination. Team spirit, work style, operation concept, cultural fusion, are the important part of the integration.
4.2 Impact on the resource and culture
After the merger and acquisition, how to integrate Southern bank's resource with the Northern bank's resource will be the decisive factor for the M&A strategy. No doubt, these risks impact the Northern bank, especially the human resource.
Human resource is the most important resource for the enterprise. After the M&A activity, accompany by restructuring the organization, new changes in culture, leadership, work style, these will bring a great effect to the human resource. Especially for the employees from the Southern bank, they have to adapt to a new environment. Because of the new position, new culture, new leadership, some employees feel negative and try to find their new position and new orientation in the new company, also if the communication of leader and new employee is not unobstructed, the employee's confidence level will be declined. So these negative behaviors will impact the productivity and initiative, and then it will impact the consequence of M&A activity.
Ethic risk can bring the big trouble to the acquiring company, also for the physical resource. After the acquisition, some of the branch of Southern bank will be closed; remainder facilities will be reorganized like computers, server, and other machines. If Southern bank did not report the right information of quality of their facilities, Northern bank use a high price to pay these bad quality facilities, it will cause a huge losses. When northern bank find out this problem, they also have to spend a lot of money to replace these families.
In so many success or failure M&A cases, culture problem cannot be avoided. Frequently, in the success cases, how they can successfully addressing cultural conflict is the key factor of successfully implement the activity. Northern bank and Southern bank is in the same country, they have the same national culture, but the organizational culture is different, because culture is embedded. And culture always has the relationship with human resource (LiDeng, 2005). Different value, organizational culture, leadership and behaviors are the core of cultural conflict. But conflict doesn't mean negative, it is also the positive culture blend. Good communication and good due diligence are the best way to solve cultural issue, if the Northern bank's managers make a research of Southern bank's organizational culture, value and behavior, and then have a good communication with Southern bank's employee. These will help to hold-back cultural conflict. If the manager from Northern bank can solve contradictions, cultural risk will give a great help to the development of enterprise.
5. Conclusion
Analysis the profile of Northern and Southern bank, the strength, weakness, opportunity, threat are obviously clear. KFS analysis also provides the important information about the main factor to be success in the competition.
So the motivations of Northern bank establish its strategy is clearly to identify. The internal key drivers are the complementary brand, increase the customer. CEOs of Northern and Southern bank and other managers are the key person to push on this strategy.
The external key driver is to defend the threat from the merger of Easter and Western banks.
The risk in the merger & acquisition is very high, 83% of M&A strategy does not success. And the risks are distributed in every phase of activity (pre-merger phase, operation phase, post-integration phase). The key risks in the process of Northern and Southern bank merger are:
Motivation of M&A risk
Ethic risk
Manage & employee risk
Culture risk
And there are also some potential unknown risks during the process, the project manager and other team leader have to prepare to distinguish and supervise the unknown risk.
Key risks in the project can impact the resource and culture of the organization.
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