Resources, introspection, and insight: Occasionally firms detect crucial asymmet
ID: 365510 • Letter: R
Question
Resources, introspection, and insight: Occasionally firms detect crucial asymmetries just by reconceptualizing their non productive assets. They come to view a facility or system as a potential resource not because of new information from the market but because of a new way of thinking—a new insight. There is a reframing of the way they perceive the organization and its components.
This was the case of John Reed at Citicorp in the early 1990s. For several decades, Citi had been struggling with a global banking unit that was not only unpopular and losing ground to rivals such as Hong Kong Shanghai Bank Corp. (HSBC), but also alienating major domestic clients with poor international service. The Global Corporate Banking unit was in every respect a liability, and Reed and other managers had good reason to get rid of what was turning out to be a drain not only on reputation but also on human and financial resources. Reed, however, was not willing to give up. First, he was convinced that Citi’s extensive network with banks in over 100 countries was entirely unique—no rival could match it. The closest rival, HSBC, served fewer than 40 countries. It had taken Citi decades to establish its international banking network due to legal and political obstacles, and it would take potential rivals a long time as well. Reed knew he had an inimitable asymmetry he just might be able to turn into a resource. Second, Reed saw the trend to globalization as a long-term one, and a potential market for the network. Third, Reed believed that Citi had auxiliary talents—knowledge, contacts, and resources—that could be redirected to serve the Global Bank. Ultimately, Reed was right—he had detected an asymmetry with real potential. But as we will see, this required a great deal of ‘organizational embedding’ to become a capability.
Weakness, scarcity and problemistic search: Some asymmetries arise within and because of a context of weakness, and are detected or even created because of their tie to disadvantages or problems (Cyert and March, 1963). Disadvantages such as organizational newness, small size, inadequate capital, and a paucity of established clients can, paradoxically, drive firms into promising underserved markets and technologies of the future. The result is that firms leapfrog stronger, more established rivals
Recall that at Citicorp the international branch network at first was just an asymmetry, not a valuable resource. It could only become profitable within the context of a supportive organizational design. Specifically, the system of branches that had been set up in 100 countries over many decades did not at first appear to be a significant asset. Many branches were unprofitable, and margins were being squeezed in developed countries by competing local banks with better ties to customers and government. Meanwhile, in developing countries, market volatility and political instability were real and costly hazards. Also, local managers refused to give good service to multinationals who demanded bargain interest rates and service fees. CEO John Reed, however, realized that the international network could prove enormously valuable to MNCs with lots of cross-border business. But this value could only be achieved with a new organization design—one that leveraged the network to better serve multinationals.
At Citibank a multitude of design levers helped convert the network from an asymmetry to a capability. First, John Reed’s strong policy priorities directed that the international network be recognized by all as a potential core capability, and that markets be selected that would most value that capability. To that end he made the cross-border business of large MNC clients a top priority. This in turn determined how Citi’s international capabilities had to be developed. It became clear, for example, that structural mechanisms such as key account teams were needed to better serve each of the MNCs. High-status, influential managers were appointed to lead these teams, which were composed of members from all relevant functions, product units, and geographies. Such teams allowed Citi to integrate and adapt its international capabilities to make them especially attractive and useful to MNC clients. Reed obtained support from local managers by assessing them against their ability to serve MNC teams and clients. In fact, geographic profit centers were abolished to make sure local managers would not be penalized for doing low-margin business with MNCs. Information and planning systems were then redesigned to serve account teams by providing information for every large client on their business needs, deals, and revenues—broken down by product and by region. Moreover, a comprehensive planning system got members to commit to—and be evaluated against—specific objectives for each client. At the same time, HR training, recruitment, and job rotation programs supported global capability by stressing mobility and international experience. Reed also worked on the informal aspects of design. The corporate culture at Citi, which had been independent at the best of times, was prodded to become more collaborative to better integrate the bank network. Support for key account teams now became a top priority and a source of recognition and reputation for functional, product, and country managers alike. Informal norms evolved so that it was mandatory to reach out to people from other units, and a very good thing to help out with other people’s clients. As a result of all these changes, Citi’s Global Bank converted a multibillion dollar loss into a profit in excesses of a billion dollars, in a space of 2 years.
Outline this reverse process for Citibank. All of the info you will need is in the article. That is,
1. What is the "asymmetry" (weakness) John Reed "discovers" at Citibank? What makes it rare and inimitable?
(It's not valuable by definition as it is a weakness).
2. What is the "opportunity" in the environment to which John Reed is trying to match this resource, making it more valuable?
3. Finally, how does he make it more valuable by making combinations of resources - by embedding it (the asymmetry) in complementary resources - that match some of the eight Components of Strategy Execution in your book? In other words, tell me how some of the elements are arranged at Citibank to be complementary to the original asymmetry, thereby making it more valuable. Make sure to (1) use the categories proposed in the model in the book,(2) to link your examples from the article to these categories, and (3) to explain why or how the examples are complementary to the asymmetry .
Explanation / Answer
1. What is the "asymmetry" (weakness) John Reed "discovers" at Citibank? What makes it rare and inimitable?
(It's not valuable by definition as it is a weakness).
Many Citi bank branches were unprofitable
Margins were being squeezed in developed countries by competing local banks with better ties to customers and government.
Meanwhile, in developing countries, market volatility and political instability were real and costly hazards.
Also, local managers refused to give good service to multinationals who demanded bargain interest rates and service fees.
Rare:
Being a big success everywhere across the world with great competitive advantage, Citibank had to deal with this small branch which had a quite rare of political issues.
2.What is the "opportunity" in the environment to which John Reed is trying to match this resource, making it more valuable?
CEO John Reed realized that the international network could prove enormously valuable to MNCs with lots of cross-border business.
But this value could only be achieved ' with a new organization design—one that leveraged the network to better serve multinationals.
At Citibank a multitude of design levers helped convert the network from an asymmetry to a capability. First, John Reed’s strong policy priorities directed that the international network be recognized by all as a potential core capability, and that markets be selected that would most value that capability.
3.
Strategy execution:
8 components of strategy execution:
1. Communication
2. Build policies and processes around
3. Motivate employees to achieve it
4. Empower them
5. Change management
6. Measure the success or failure
7. Reward the best
8. Follow up and feedback
Below are the strategy execution which Reed followed:
Structural mechanisms such as key account teams were needed to better serve each of the MNCs.
High-status, influential managers were appointed to lead these teams, which were composed of members from all relevant functions, product units, and geographies.
Such teams allowed Citi to integrate and adapt its international capabilities to make them especially attractive and useful to MNC clients.
Reed obtained support from local managers by assessing them against their ability to serve MNC teams and clients.
In fact, geographic profit centers were abolished to make sure local managers would not be penalized for doing low-margin business with MNCs.
Information and planning systems were then redesigned to serve account teams by providing information for every large client on their business needs, deals, and revenues—broken down by product and by region.
Moreover, a comprehensive planning system got members to commit to—and be evaluated against—specific objectives for each client.
At the same time, HR training, recruitment, and job rotation programs supported global capability by stressing mobility and international experience.
Reed also worked on the informal aspects of design.
The corporate culture at Citi, which had been independent at the best of times, was prodded to become more collaborative to better integrate the bank network.
Support for key account teams now became a top priority and a source of recognition and reputation for functional, product, and country managers alike. Informal norms evolved so that it was mandatory to reach out to people from other units, and a very good thing to help out with other people’s clients.
As a result of all these changes, Citi’s Global Bank converted a multibillion dollar loss into a profit in excesses of a billion dollars, in a space of 2 years.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.