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Analyze the organization design of RBS becoming. Comment as to wheather it is more centralized or more decentralized. Justify your answer. What form(s) of structure has the bank used to divide the business? Since it is also necessarily a geographically dispersed organization, what methods of coordinations is it likely to use? Does RBS have a mechanistic or an organic structure? Explain. What are the main issues of a HRM nature that are likely to be topical within RBS? The isue of bank bonuses are still highly topical and contentious in early 2010. Explain the dilemma that Stephen Hester faces, and comment on any recent developments in this area. Identify the biases abd the decision - making style in RBS. Use them to analyze possible explanations for the troubles at RBS. Why do you think the Board was unable to influence Fred Goodwin and the senior team? what sources of power did (a) Goodwin and (b) the board, possess?

Analyze the organization design of RBS becoming. Comment as to wheather it is more centralized or more decentralized. Justify your answer. What form(s) of structure has the bank used to divide the business? Since it is also necessarily a geographically dispersed organization, what methods of coordinations is it likely to use? Does RBS have a mechanistic or an organic structure? Explain. What are the main issues of a HRM nature that are likely to be topical within RBS? The isue of bank bonuses are still highly topical and contentious in early 2010. Explain the dilemma that Stephen Hester faces, and comment on any recent developments in this area. Identify the biases abd the decision - making style in RBS. Use them to analyze possible explanations for the troubles at RBS. Why do you think the Board was unable to influence Fred Goodwin and the senior team? what sources of power did (a) Goodwin and (b) the board, possess?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
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  1. Analyze the organization design of RBS becoming. Comment as to wheather it is more centralized or more decentralized. Justify your answer.
  2. What form(s) of structure has the bank used to divide the business?
  3. Since it is also necessarily a geographically dispersed organization, what methods of coordinations is it likely to use?
  4. Does RBS have a mechanistic or an organic structure? Explain.
  5. What are the main issues of a HRM nature that are likely to be topical within RBS?
  6. The isue of bank bonuses are still highly topical and contentious in early 2010. Explain the dilemma that Stephen Hester faces, and comment on any recent developments in this area.
  7. Identify the biases abd the decision - making style in RBS. Use them to analyze possible explanations for the troubles at RBS.
  8. Why do you think the Board was unable to influence Fred Goodwin and the senior team? what sources of power did (a) Goodwin and (b) the board, possess?
412 PART 4 CASE package for Ite staff-although some seniormanagere declined to take a salary increa8e. Where next? Staphen Haster replaced Goodwin as chief axAcutiva and has been trying to rebuild the bank. He aims to focus on its traditional strengthe such as UK retail banking, wealth management, and global paymente and insurance. The investment banking business will be halved in size. It will try to disposa of other parts of the business, such as other foreign ratail assets, and weak parts of the investment bank. In 2009 Mt Hester reached a new pay daal which was agreed by UK Financial Investmenta, which man- ages the state's shareholding in RBS. While the head- line figure of £9.6 million attracted wide criticism, defenders pointed out that most of It depended on the share price rising from 35p to 70p - which would bring big benefits to the taxpayer. Others pointed out that it was such short-term Incentives that cauaadmany of the problems at the bank in thefirst place. A related issue was to reconsider the structure of bank pay, such as awarding more bonuses In shares ratherthan cash, and paying tham over longer periods - 80 that those which had been arned by taking excessive risks could be clawed back. Rewarde should be more tightly dependent on exceptional per- formance, not the rising tide of the markets. But whether such policies worked would depend on how they were applied. This is a matter of governance. Shareholders auf- feced In the crash, but they had not tried to restrain thelt Boarde during the good times. RBS had all.of the for- mal mechaniems of corporate governance in place - Independent non-executive diractors, audit and risk committees, and a remuneration committee. Nons of the people on these boarda and committees appears to have been able and willing to stand up to the chief executive as he created a culture which encouraged bankers to take great risks (such as investing in the It is alao targeting the world's wealthiest people through the Coutts subsidiary. These are mainly entre- BraRBurA, media and entertainment stars. It has a joint troubled US housing market, and In many new and complex financial instruments) with shareholders money. Whatever misgivings they may have had in pri: vata, they continuad to support the management tam venture with Bank of China which offers services to the rapidly growing number of Chinese people with more than $1 million to invest. in public - 90 par cent of shareholders approved the ABN AMRO deal. SOASA: Kennedyet al. (2006); Economist, 14 Ecbolas 2009, 805oGiak Times, 6 May 2009, 23 June 2009; company website.
Transcribed Image Text:412 PART 4 CASE package for Ite staff-although some seniormanagere declined to take a salary increa8e. Where next? Staphen Haster replaced Goodwin as chief axAcutiva and has been trying to rebuild the bank. He aims to focus on its traditional strengthe such as UK retail banking, wealth management, and global paymente and insurance. The investment banking business will be halved in size. It will try to disposa of other parts of the business, such as other foreign ratail assets, and weak parts of the investment bank. In 2009 Mt Hester reached a new pay daal which was agreed by UK Financial Investmenta, which man- ages the state's shareholding in RBS. While the head- line figure of £9.6 million attracted wide criticism, defenders pointed out that most of It depended on the share price rising from 35p to 70p - which would bring big benefits to the taxpayer. Others pointed out that it was such short-term Incentives that cauaadmany of the problems at the bank in thefirst place. A related issue was to reconsider the structure of bank pay, such as awarding more bonuses In shares ratherthan cash, and paying tham over longer periods - 80 that those which had been arned by taking excessive risks could be clawed back. Rewarde should be more tightly dependent on exceptional per- formance, not the rising tide of the markets. But whether such policies worked would depend on how they were applied. This is a matter of governance. Shareholders auf- feced In the crash, but they had not tried to restrain thelt Boarde during the good times. RBS had all.of the for- mal mechaniems of corporate governance in place - Independent non-executive diractors, audit and risk committees, and a remuneration committee. Nons of the people on these boarda and committees appears to have been able and willing to stand up to the chief executive as he created a culture which encouraged bankers to take great risks (such as investing in the It is alao targeting the world's wealthiest people through the Coutts subsidiary. These are mainly entre- BraRBurA, media and entertainment stars. It has a joint troubled US housing market, and In many new and complex financial instruments) with shareholders money. Whatever misgivings they may have had in pri: vata, they continuad to support the management tam venture with Bank of China which offers services to the rapidly growing number of Chinese people with more than $1 million to invest. in public - 90 par cent of shareholders approved the ABN AMRO deal. SOASA: Kennedyet al. (2006); Economist, 14 Ecbolas 2009, 805oGiak Times, 6 May 2009, 23 June 2009; company website.
worth £158 billion and with huge daily transaction vol- launched Direct Line as one of the first examples of de- livering financial services by telephone, and now one of umes. Planning for this took over two years, and paid the UK's largest private motor insurers. An online bank complements the services offered by the bank weekend in October 2002. branches. off when all the accounts were transferred over one The Integration Programme was completed in early THE ROYAL BANK OF SCOTLAND The formal structure in early 2010 was that it had six 2003, and was widely seen as a successful strategic 'customer-facing' divisions: move by Fred Goodwin and his team (Kennedy et al., 2006). Having made 23 acquisitions since 2000, and although not ruling out further ones if the opportunity arose, the group claimed to be focusing on growing 'organically', by building up existing businesses. www.rbs.co.uk • UK Personal (retail and wealth management); • UK Corporate (larger UK companies); • RBS Insurance; • US Retail and Commercial; • Europe and Middle East Retail and Commercial; • Global Banking and Markets. In 2007 manysaw Ihe Royal Bankof Scotland (RBS) as ing oand various other paper processes, is a very mech- one of the most innovative and best-performing banks gnisticstructure. Thebankcreatedthe division in 1999 in the United Kingdom. By 2008 it was on the point of by transferring most administrative tasks from the collapse, and only survived because the UKgovern- ment invested £45.5 billion in the bank (at about 50 pence a share), in refurnfor an 84 percentstakeinthe business. In2010it was beginningto recover and was developing a plan to buy backthe government stake, so that it would return to private However, Fred Goodwin, the chief executive who had led the bank's ambitious acquisition programme, completed a deal (in partnership with Fortis, a Belgo- Dutch lender, and Santander of Spain) another deal in late 2008 - which was to prove disastrous. In the biggest deal in banking history the consortium ac- quired ABN AMRO, a Dutch bank. Many had doubted the wisdom of the deal, since RBS would need to raise branches to a central location. To select staff for the These were supported by seven Group divisions - Restructuring and Risk, Finance, Manufacturing, Legal, Strategy, Communications and Human Resources. A culture of acquisition RBS had developed a reputation for acquiring other fi- nancial institutions and integrating them profitably. win denied this would be necessary, but his reputation Most notable was the acquisition of NatWest Bank in suffered when he asked shareholders to contribute more capital to complete the purchase. At first Good- ownership. What happened to bring about this change? Before 2007 manage- ment made many internal changes followed by some successful ggaui- sitions. The internal changes took place between 1992 and 1997 during what was called Project Columbus. This made radical changes Ihrough- out theretail division, including: 2000, not least because NatWest was three times the £12 billion in a rights issue. Many believe that RBS size of RBS at the time. To win the bank, RBS had to picked the wrong time and paid the wrong price for demonstrate its ability to extract major cost savings the ABN AMRO business. from the combined operations, and drive greater in- come from the combination of brands, customers, products and skills. The RBS bid promised to deliver a Worse was to come as, when the 2008 financial crisis 'new force in banking' with the scale and strength to exploit new opportunities in the UK, Europe and the its operations. In October 2008 the UK government USA, Some industry analysts doubted the ability of unveiled an historic bail-out - including a capital injec- RBS to deliver on its bid promises, so the company tion of state money that amounts to partial nationalis- was under pressure to complete the integration ation. This led shareholders to press for management process on time and meet the cost savings and income benefits quoted during the bid. The Integration Programme was quickly established following the takeover, dividing the task into 154 inte- gration initiatives to be completed in three years. These were expected to yield £1.1 billion in annual cost sav- only 50. The bank's remuneration committee agreed ings and reduce staff by 18,000. Programme Manage- A failure of governance? e of developed, the bank found that it was unable to fund * eg segmenting customers into three newstreams - retail, commercial OThe Royal Bank ofscotland Group pie and corporate: • creating new management roles and graanisation structures • new human resource policies to base appointment and promotionon achievement and ability. changes, and especially for the dismissal of Sir Fred Goodwin. Despite having had to seek a government bail-out, and to the fury of public and politicians alike, Sir Fred insisted that he was entitled to his full pension of over £700,000 a year, due at once, although he is new division they used personality tests to identify those more comfortable with processes and systems. Those who were more interested in people remained in to Sir Fred's massive payoff as part of the negotiations to get rid of him, and the government did not try to the branches. ment teams were established in each affected business This transformed the bank's hiusiness and provided With many brands, RBS uses different sales and marketing channels to reach its customers. However, it aimsto makethe underlying processes of banking as and technology area, and control and reporting proce- reduce it when it rescued the bank. Sir Fred had a dures were set up. The key elements of the integration contract. strategy were agreed and widely communicated: the base for growth and acquisitions. An evolving structure Others pointed out that bankers' pay during the uniform as possible, whether for customers of NatWest, the retail bank, or a corporate client. bubble was too high, but that it would be a mistake for Overthe yearsthe bank had become more centralised. as developments in IT during the 1960s enabled it to sentralise administrative functions. Control brings more gentralised decisions over products, margios and risk management. Against 1hat, the customerrelation- ship managers press for more localflexibility to over- ride the system to meet the needs of a valuable • To use RBS information systems as the single plat- form for operations across the merged bank. • To migrate customer-facing systems such as credit cards, ATMS and internet screens to RBS systems. • To transfer the NatWest customer and accounting the state to impose pay limits. Finance relies on individ- uals, and employers compete for their skills. If tax- payers were to get their money back, RBS would need to become profitable, and it was unlikely to do so if it could not attract good staff by paying competitive salaries. This view appeared to prevail, as in early 2010 the bank (with government acquiescence) approved what appeared to many to be a generous bonus The branches themselves had been mechanistic, with staff working on strictly defined tasks. Now the branches are more organic, with stafftryingtointerest customers in other products within a more open phesi- callayout. The bank tries to be organic atthe customer- facing areas, with customer relationship managers trying to improve service quality. The bank was quick to exploit the opportunities that new technology offers. It was an early Innovator when It data to the RBS systems in a single weekend. This last was the largest of the integration tasks, in- volving the migration of 18 million customer accounts customer. The Manufacthuring Division, which deals with ros tine functions suchasclearing cheques, accountopen-
Transcribed Image Text:worth £158 billion and with huge daily transaction vol- launched Direct Line as one of the first examples of de- livering financial services by telephone, and now one of umes. Planning for this took over two years, and paid the UK's largest private motor insurers. An online bank complements the services offered by the bank weekend in October 2002. branches. off when all the accounts were transferred over one The Integration Programme was completed in early THE ROYAL BANK OF SCOTLAND The formal structure in early 2010 was that it had six 2003, and was widely seen as a successful strategic 'customer-facing' divisions: move by Fred Goodwin and his team (Kennedy et al., 2006). Having made 23 acquisitions since 2000, and although not ruling out further ones if the opportunity arose, the group claimed to be focusing on growing 'organically', by building up existing businesses. www.rbs.co.uk • UK Personal (retail and wealth management); • UK Corporate (larger UK companies); • RBS Insurance; • US Retail and Commercial; • Europe and Middle East Retail and Commercial; • Global Banking and Markets. In 2007 manysaw Ihe Royal Bankof Scotland (RBS) as ing oand various other paper processes, is a very mech- one of the most innovative and best-performing banks gnisticstructure. Thebankcreatedthe division in 1999 in the United Kingdom. By 2008 it was on the point of by transferring most administrative tasks from the collapse, and only survived because the UKgovern- ment invested £45.5 billion in the bank (at about 50 pence a share), in refurnfor an 84 percentstakeinthe business. In2010it was beginningto recover and was developing a plan to buy backthe government stake, so that it would return to private However, Fred Goodwin, the chief executive who had led the bank's ambitious acquisition programme, completed a deal (in partnership with Fortis, a Belgo- Dutch lender, and Santander of Spain) another deal in late 2008 - which was to prove disastrous. In the biggest deal in banking history the consortium ac- quired ABN AMRO, a Dutch bank. Many had doubted the wisdom of the deal, since RBS would need to raise branches to a central location. To select staff for the These were supported by seven Group divisions - Restructuring and Risk, Finance, Manufacturing, Legal, Strategy, Communications and Human Resources. A culture of acquisition RBS had developed a reputation for acquiring other fi- nancial institutions and integrating them profitably. win denied this would be necessary, but his reputation Most notable was the acquisition of NatWest Bank in suffered when he asked shareholders to contribute more capital to complete the purchase. At first Good- ownership. What happened to bring about this change? Before 2007 manage- ment made many internal changes followed by some successful ggaui- sitions. The internal changes took place between 1992 and 1997 during what was called Project Columbus. This made radical changes Ihrough- out theretail division, including: 2000, not least because NatWest was three times the £12 billion in a rights issue. Many believe that RBS size of RBS at the time. To win the bank, RBS had to picked the wrong time and paid the wrong price for demonstrate its ability to extract major cost savings the ABN AMRO business. from the combined operations, and drive greater in- come from the combination of brands, customers, products and skills. The RBS bid promised to deliver a Worse was to come as, when the 2008 financial crisis 'new force in banking' with the scale and strength to exploit new opportunities in the UK, Europe and the its operations. In October 2008 the UK government USA, Some industry analysts doubted the ability of unveiled an historic bail-out - including a capital injec- RBS to deliver on its bid promises, so the company tion of state money that amounts to partial nationalis- was under pressure to complete the integration ation. This led shareholders to press for management process on time and meet the cost savings and income benefits quoted during the bid. The Integration Programme was quickly established following the takeover, dividing the task into 154 inte- gration initiatives to be completed in three years. These were expected to yield £1.1 billion in annual cost sav- only 50. The bank's remuneration committee agreed ings and reduce staff by 18,000. Programme Manage- A failure of governance? e of developed, the bank found that it was unable to fund * eg segmenting customers into three newstreams - retail, commercial OThe Royal Bank ofscotland Group pie and corporate: • creating new management roles and graanisation structures • new human resource policies to base appointment and promotionon achievement and ability. changes, and especially for the dismissal of Sir Fred Goodwin. Despite having had to seek a government bail-out, and to the fury of public and politicians alike, Sir Fred insisted that he was entitled to his full pension of over £700,000 a year, due at once, although he is new division they used personality tests to identify those more comfortable with processes and systems. Those who were more interested in people remained in to Sir Fred's massive payoff as part of the negotiations to get rid of him, and the government did not try to the branches. ment teams were established in each affected business This transformed the bank's hiusiness and provided With many brands, RBS uses different sales and marketing channels to reach its customers. However, it aimsto makethe underlying processes of banking as and technology area, and control and reporting proce- reduce it when it rescued the bank. Sir Fred had a dures were set up. The key elements of the integration contract. strategy were agreed and widely communicated: the base for growth and acquisitions. An evolving structure Others pointed out that bankers' pay during the uniform as possible, whether for customers of NatWest, the retail bank, or a corporate client. bubble was too high, but that it would be a mistake for Overthe yearsthe bank had become more centralised. as developments in IT during the 1960s enabled it to sentralise administrative functions. Control brings more gentralised decisions over products, margios and risk management. Against 1hat, the customerrelation- ship managers press for more localflexibility to over- ride the system to meet the needs of a valuable • To use RBS information systems as the single plat- form for operations across the merged bank. • To migrate customer-facing systems such as credit cards, ATMS and internet screens to RBS systems. • To transfer the NatWest customer and accounting the state to impose pay limits. Finance relies on individ- uals, and employers compete for their skills. If tax- payers were to get their money back, RBS would need to become profitable, and it was unlikely to do so if it could not attract good staff by paying competitive salaries. This view appeared to prevail, as in early 2010 the bank (with government acquiescence) approved what appeared to many to be a generous bonus The branches themselves had been mechanistic, with staff working on strictly defined tasks. Now the branches are more organic, with stafftryingtointerest customers in other products within a more open phesi- callayout. The bank tries to be organic atthe customer- facing areas, with customer relationship managers trying to improve service quality. The bank was quick to exploit the opportunities that new technology offers. It was an early Innovator when It data to the RBS systems in a single weekend. This last was the largest of the integration tasks, in- volving the migration of 18 million customer accounts customer. The Manufacthuring Division, which deals with ros tine functions suchasclearing cheques, accountopen-
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