Markets and Channels
3. Financial risk management Exchange risk management services
3.2 The Level of Divisionalization of Corporate Banking Structures
Market segmentation, organizational differentiation of structures and proc- esses, separation of decision-making responsibilities for different prod- uct/market combinations are common strategic choices among major and big banks. The analysis of panel banks shows a common tendency towards organizational solutions that contain elements of divisionalization by mar- ket segment. This goal is based on strategic choices considering the corpo- rate banking area, which is identified with the mix "small and medium en- terprises in phase of development" segment and corporate lending and finance integrated products, as an autonomous business unit in the value- creating process.1
The need to manage a bank according to a portfolio approach, in the search of maximal expected return on invested capital, leads to the creation of corporate centers endowed with the necessary instruments for risk man-
1 As regards the borders of the segment and the segment-related range (variety) of products, see Caselli, the previous chapter.
agement, strategic planning and for non-specific resource management.
With the intention of controlling the strategy implementation process, the corporate center keeps the control over the whole business.
Significant insights can be gained from the empirical study of the panel banks. In the implementation of the model they show relevant differences in terms of the basic requirements of the divisional structures. The litera- ture identifies three fundamental characteristics of such structures (Mintz- bergl979;Pilati 1997):
a) Organizational design. In divisional structures organizational units are grouped at the first organizational layer under the CEO according to the relative market or business segment (mix of geographical market, cus- tomer segment and products).
b) Operational autonomy. Each division manages (on the basis of organ- izational or functional links that guarantee an efficient control of produc- tion relations) operational and distribution functions which support the supply of products and services to the relative market in order to minimize interdependencies, and thus co-ordination costs, between divisions.
c) Profit responsibility. The divisional structure is a profit center. Planning and control systems are based on "management by objective" (MBO). The main co-ordination mechanism is output standardization. Division manag- ers are evaluated according to the performance results of their business units.
In the Italian panel banks divisional structures are prevailingly impure;
they probably reflect the remains of functional forms and mark the stage of evolution from the former to the really divisional solution. In many cases corporate banking units, even though already defined as "divisions", still establish themselves as functional organisms, if analyzed in terms of inter- nal microstructures as well as of vertical and horizontal co-ordination mechanisms with other bank areas. The main differences from the "pure"
form concern:
• unit positioning within the organization chart (not subordinated to the CEO but to the commercial or other functions);
• responsibility (profit objectives not assigned to division managers but only to regional or branch network managers);
• autonomy in managing operational levers (weak impact on the overall supply co-ordination to the customer segment);
• consistency of the model, in presence of divisional solutions in some cases limited to the level of head office or branch network.
Apart from the interpretational differences, all the panel banks adopt di- visional or "almost divisional" organizational forms characterized by mar- ket-specialized branches or at least by differentiated relationship roles in- side the branch network.
In order to define the adopted divisional solutions, apparently heteroge- neous and different from the basic model, evidence of divisionalization has been specifically searched in the following areas:
a) head office {strategic divisionalization); the division can autonomously formulate the choice of products, pricing, distribution policies, etc;
b) regional offices {regional divisionalization); area managers are special- ized by market segment and co-ordinate a totally dedicated distribution network;
c) branch network {branch divisionalization); branch offices are special- ized by customer segment;
d) relationship roles {professional divisionalization); corporate bankers are present in branches.
Consequently, in the evaluation of single cases we adopted the follow- ing criteria (Table 3.1):
- presence of divisional units at head office level;
- presence of customer segment specialized regional offices and/or branches;
- presence of roles (and, thus, of competencies) specialized in relation management with customers from different segments. In such a context, the presence of roles or units with special competencies for enterprises with different dimensions or characteristics (large corporate, SMEs, small business) has been pointed out as well.
Table 3.1 confirms fairly marked differences between the Italian and the other European banks in our panel. The latter show more pronounced stra- tegic divisionalization, with autonomous divisional units at head office level and, generally, with regional offices and branches dedicated to single customer segments controlled by head office divisions. Such cases bear evidence of composite and heterogeneous organizational structures, refer- able to a longer lasting "organizational experience" and to market segmen- tation choices of greater incisiveness. This does not avoid the fact that some of them (Deutsche Bank, for example) are directing their organiza- tion innovation process towards solutions that re-propose market integra- tion (as opposed to divisionalization) as an element of competitive advan- tage.
Table 3.1. The level of divisionalization: an empirical analysis Divisionalization
levels and banks
Organization model characteristics 1. Strategic divisionalization
Dresdner Bank Yes, includes two units: Corporates and Markets (for medium- size enterprises); Private and Business Clients (for small busi- ness)
Commerzbank Yes, head office structure consists of 4 divisions ("Corporate divisions"): Group management; Retail banking and asset man- agement; Corporate and Investment Banking; Services.a Fortis Bank Yes, the activity includes 6 business areas, which correspond to
as many divisions: three insurance divisions and three bank di- visions (Network Banking, Merchant Banking, Private Bank- ing, Asset Management and Information Banking); the three in- surance businesses are divided by geographical area; the three banking businesses are organized according to the principle of specialized competencies and are therefore transversal in rela- tion to the different geographical areas. The enterprises are as- sisted by teams of consultant managers operating within the Corporate & Investment Banking division. This division is in- ternally divided by industrial sector and product groups (skills).
HSBC HSBC Holdings has 5 business lines: Personal Financial Ser- vices; Commercial Banking; Corporate; Investment Banking and Markets; Private Banking. HSBC Bank controls three seg- ment banks respectively active in: personal banking, business banking, corporate and institutional banking.
Barclays Yes. Business divisions (partly by segment, partly by product).
HVB (HypoVer- Yes. In January 2002, a structure of 5 market/business divisions einsbank) was introduced: two geographical market segments (Germany and Austria/EU), defined as "Bank of the Regions" and three business segments ("Global Business Segments"): HVB Real Estate, HVB Corporates and Markets, HVB Wealth Manage- ment.
Credit Agricole Yes, but not in its pure form. Top management is represented by the president and the CEO and by 5 Deputy Chief Executive managers within the group leader CA S.A. Group Management, and they are the true division managers. The 5 macro divisions are: Development and Markets (covering the overall domestic network, retail and corporate); Asset Management; Finance and Risks; Technology, Logistics and Banking Services; Cor- porate and Investment Banking and International Business (which in fact coincides with CA Indosuez, as well as with one internal section of "Equity Investment and International Affili-
Divisionalization levels and banks
Organization model characteristics ates"). Macro divisions are subdivided into:
a) Divisions (despite the name, such units are not divisional structures, but business departments or administrations);
b) Departments (subordinate to divisions);
c) Subsidiaries (group external companies).
The corporate segment (SME) actually depends on the Retail Banking France division, which shows the prevalence of cus- tomers in the small business segment.b
ABN Ambro Its divisional structure is based on three "Global Strategic Business Units (SBUs)": Consumer & Commercial Clients (C&CC), Wholesale Clients (WCS) and Private Clients & As- set Management (PCAM).
The three SBUs are replicated in the four reference geographi- cal areas, even though each of them is subordinate to Amster- dam head office. SBUs are the heart and the reason for exis- tence of the organizational structure: as a result, production centers are subject to the action of SBUs.
The organizational structure develops according to matrix logic, so that there are three SBUs and four geographical mar- ket areas. SBUs contain the production centers for the whole bank: production centers sometimes belong to only one SBU and sometimes are shared.
The four geographical areas carry out SBUs' commercial ac- tion on the territory and develop according to pyramid logic:
from the geographical area manager to the macro area manager (e.g. Russia and Baltic countries in Eastern Europe) and to the country manager. In major countries, the country manager has three SBUs replicated at domestic level (e.g. in Brazil).
Banco Santander Divisionalization is developed integrally and refers to three business areas: "Corporate Market", "Retail Banking Market",
"Private Banking Market". There is the other maybe stronger division of the three geographical areas which, in fact, divide the bank into three.
BNP Paribas Yes. Divisionalization is developed integrally and refers to three business areas: "Corporate & Investment Banking", "Re- tail Banking", "Private Banking, Asset Management, Securities Services and Insurance".
The three areas are assigned to three division managers, who are part of bank head office.
Deutsche Bank Yes with three units: Corporate and Investment Banking (CIB), Private Clients and Asset Management (PCAM), Corporate In- vestments (CI).
Unicredito Yes. The new organizational structure includes three banks
Divisionalization levels and banks
Organization model characteristics Capitalia Yes.
San Paolo IMI No. Divisionalization exists only at the level of Commercial Function.
Credem Yes. There are three business units (divisional units) for retail banking, corporate banking and finance.
The corporate division has its own registered brand (Credem Imprese).
Bancalntesa The current strategy (strategic plan 2003-2005) envisages merging of segment-specialized commercial functions belong- ing to different divisions into one Division, representing the commercial function for the bank as a whole.
The Corporate Division (strongly specialized in corporate fi- nance), the Italian Banks Division (for the coordination of branches controlled by the banking group) and the Overseas Division remain at head office level.
MPS No. The Corporate Division was founded in august 2002 and is subordinate to the Deputy General Manager, who is in charge of the commercial function.
BNL No. Divisionalization occurs only at the level of commercial functions.
2. Regional and branch divisionalization Deutsche Bank
Dresdner Bank Commerzbank HSBC
Credit Agricole ABN Ambro Banco Santander BNP Paribas Unicredito Capitalia San Paolo IMI Credem Banca Intesa
Yes.
Not available.
Not available.
Yes. Regional offices and branches are managed and coordi- nated as global business.
Yes. There are specialized branches for corporate market of re- gional offices.
Yes.
Yes.
Yes. In France some of the branches are dedicated to corporate customers while others are multi-segment. In the rest of the world, branches are specialized in corporate segments.
Yes.
Yes.
Yes.
Yes.
Yes, but in phase of re-structuring towards more integrated so- lutions at regional offices level, which should merge former
tisp^^
Divisionalization levels and banks
Organization model characteristics MPS
BNL
Dresdner Bank
No. The Corporate Division interacts with the Commercial Functions of the banks dedicated to corporate customers (MPS, BT, BAM, CRPrato) as well as with product companies (for consumer credits, investment banking, rural banking and mer- chant banking). However, it is the "Banks Division" that coor- dinates the banks within the group and such banks control the branch network. In each bank's head office and in each branch, marketing and commercial functions are then subdivided ac- cording to market segment: corporate and retail.
Only 30% of branches are specialized in the corporate segment;
the rest consists of multi-segment branches.
Yes.
3a. Professional divisionalization: presence of professional roles specialized in re- lations management with customers from different segments
Commerzbank Quote from the 2001 Annual Report: "Our strong customer ori- entation as a relationship bank is underscored by the sustained expansion of our modern services and financing through a de- centralized distribution system with broad national coverage, the combination of regional and sector distribution for our ma- jor customers, incorporating specialists, above all from invest- ment banking and a target-group-oriented product range and professional consulting services for corporate plans and strate- gic issues."
Fortis Bank Yes. Relations with corporate customers are run by the Compe- tence Centers in Brussels and Rotterdam. The principle consists in preserving the "global commercial relationship".
HSBC Yes, there are 900 relationship managers assisted by product specialists all over the world. For multinational companies (the prevailing segment), there are Global Relationship Manage- ment teams in 81 countries. A team usually consists of:
a) a Global Relationship Manager, who is in charge of the overall management of the relationship and the permanent con- tacts with customers so as to monitor customer related needs and product/services provided;
b) regional and local relationship managers, dealing with cus- tomers in the respective geographical areas;
c) an Advisory Relationship Manager from the Investment Bank who identifies strategy and tactics opportunities and de- velops flexible solutions specifically designed for customers;
d) product specialists.
Barclays Yes, the Corporate Manager^esidesthisreference figure, two
Divisionalization levels and banks
Organization model characteristics Credit Agricole
ABN Ambro Banco Santander BNP Paribas Deutsche Bank Unicredito Capitalia San Paolo IMI Credem Banca Intesa MPS BNL
additional figures deal with customers in order to guarantee daily back-up and constant service.
Yes, in regional banks.
Yes.
Yes, the relationship manager is responsible for small, medium and large enterprises.
Yes, the corporate banker.
Yes.
Yes.
Yes.
Yes, in corporate branches Yes.
Yes, in corporate branches Yes, in corporate branches Yes.
3b. Professional divisionalization: separation of structures designed for large cor- porates and SMEs
Dresdner Bank The new Corporates & Markets division merges the two former Investment Banking and Corporate Customers divisions, thus integrating the commercial activity with that of investment banking designed for large corporates and SMEs. The Corpo- rates & Markets division customers consist of selected multina- tional groups located in Germany or abroad as well as approx.
30,000 domestic SMEs. The management of the small business and corporate client segments is assigned to the new Private and Business Clients division.
Commerzbank Yes, inside the Corporate and Investment Banking Division there are two "departments" respectively dedicated to Corpo- rate Banking and Multinational Corporates.
Fortis Bank The Network Banking Division offers financial services to re- tail customers and SMEs. As for corporate customers, there are operating centers in the major European cities (mostly for cross-border services). In some specific sectors Network Bank- ing also supplies specialized services for the large corporate segment. The Merchant Banking Division provides Financial Markets, Investment Banking and Private Equity services to in- stitutional clients, SMEs and large corporates.
HSBC Yes.
Barclays Not available.
HVB (HypoVer- Yes. The SME segment is serviced by the Germany and Aus- einsbank) tria/EU Divisions (basic financial services and regional corpo- rate finance). The large..cor^oratejegrnent^ is serviced by the
Divisionalization levels and banks
Organization model characteristics
Credit Agricole ABN Ambro Banco Santander BNP Paribas Deutsche Bank Unicredito Capitalia San Paolo IMI Credem Banca Intesa MPS BNL
Corporates and Markets Division. The segment includes enter- prises capable of facing the capital market or with an over 500 m euro turnover; multinationals; enterprises located in the USA, Asia and Western Europe.
Yes, activities designed for large corporate are almost entirely assigned to the structures of C A Indosuez.
Yes.
Yes, there are large corporate managers in branches.
No. The segment is managed by the "Corporate & Investment Banking" business unit.
Yes.
Yes.
Yes, at the level of relationship officers/corporate bankers.
Yes.
A transactional approach is adopted when corporate turnover is over €m 150. The Retail Division includes the small business segment.
Yes (inside the Corporate Division)
Yes, the Key Client Office inside the Marketing Area, which will soon become independent.
Yes, the commercial function is subdivided into corporate and groups & large enterprises.
a "With the goal of assigning clear cut responsibilities and of concentrating exper- tise, the customer-oriented Corporate Banking, Multinational Corporate and Fi- nancial Institutions departments have been assigned to a single member of the Board of Managing Directors since the start of this year. The scope of Corporate Banking was extended to the whole Europe, while Multinational Corporates and Financial Institutions continue to be active worldwide. At the same time, since the start of the year we have had regional board members for the first time to look af- ter Germany; four in Germany, two in other European countries and one each for America and Asia." (2001 Annual Report).
bThe Corporate Division is in charge of defining group development lines with re- spect to customers segments, commercial assistance to regional banks, branch network and its actors. It offers four types of services: industry strategy and moni- toring, commercial offers, business animations, local communities identification and protection. Services distribution takes place entirely through regional banks, in accordance to the typical federal model of the CA system (which is similar to the Italian ICCREA - BCC model and to the model of DG Bank in Germany). CA efforts are aimed at achieving growing coordination of banks' activities and de- veloping products and distribution supporting services. However, some customers operate with several regional banks as their business is located in different Ger- man regions. If the client is "big", the relation is assigned directly to CA Indosuez.