International Management CW - 14036997

International Management – Student ID: 14036997

Operationa Strategy of JP Morgan Chase & Co.

Introduction

JPMorgan Chase & Co. is a largest American multinational institutions with 200 years

history of operating in financial service and banking industry. The firms provides products

and services in five segments: consumber & community Banking; corporate & investment

Bank; Commercial Banking; Asset Management and Corporate/Private Equity (JPMorgan

Chase & Co., 2014:2).

Diversification is the key factor to bring effective operation to multinational organisations

However, the objective to balance the organisational governance and value creation is such

a big challenge. Appropriate corporate strategy and key competences needs to be

considered to ensure the firm’s competitive ability. This assignment aims to address and

critically analyse the succeed of JPMorgan Chase in term of those issues, together with

identifying the reaction of JPMorgan Chase in a modern global competitive market.

The study aims to:

Describe JPMorgan Chase organisational structure, core competencies and

portfolio strategy

Critical analyze five product & service segments of JPMorgan by applying

different matrix.

To evaluate the corporate strategy of JPMC towards value creation and profit

earning.

To recommend changes in firm’s strategy.

Page 1


JPMorgan Chase & Co. Portfolio Strategy

1. JPMorgan Chase & Co. Business Portfolio

Figure 1 JPMorgan Chase & Co. Multidivisional Form

JPMorgan Chase & Co. (JPMC) owns two principal bank subsidiaries in the U.S., together

with national and overseas branches, subsidiaries, representative officesin more than 50

countries. Their operational activities are diversified into five major business segments as

shown in above chart. The diversification is based on products, services or customer types,

Page 2


in which each business line has its own managing system and financing statistic

(JPMorgan Annual Report, 2014:64). This diversified organisational structure is called

multidivisional structure (M-form), which was describes the diversification of firm across

products, industries and markets, when each product line has its own production and

division (Chandler, 1962).Chandler (1962) stated the nature of this form was setting

business structure toward growth management through product, industry or geography

diversity in globally operations. Williamson (1975) stated that the application of M-form is

the most effective strategy in term of maximizing profit. On the other hand, there is an

advantage of power delegation, while independence of units enhance “short term operating

decisions”.

2. Porter’s Three Tests

The demand for diversifying in business has been analysed in the previous part. However,

the question of precise diversification should be concerned, especially in term of

multinational firms with large-scale investment like JPMorgan Chase. Entering a new

market or industry is equal to possible challenges and risk for organisations to overcome

besides long-term growth opportunities. Three essential tests of Porter need to be applied

for risk of entry minimizing, and assuring profitability operation, especially creating

shareholder value (Porter, 1987). Several cases of JPMC during the history of multi-

diversification will be evaluated.

Attractiveness Test:

Hax & Majluf (1983) identified several indicators of industry attractiveness measurement

including market size, market growth rate, etc. Supporting this idea, Porter (1987) added

the industry structure as tool for industry attractiveness measurement.

In the case of Canada power industry, both forecasting indicators and industry structure

seem to reflect a potential investing opportunity. The unique difference in Canada market

is a chance of power companies to directly sell their product to “end-users” (Marketline,

2014). On the other hand, the forecasting indicators of market value also showed positive

clues for stable development in the next five years.

Page 3


Figure 2 Canada power industry value forecast

Cost of Entry

Porter (1987) identified two issues of multinational firms when investing into a new

market in term of cost of entry: the challenge to make profit higher than cost of entry;

overcome entry barriers.

An example of JPMC acquisition was the case of buying Bear Stearns in 2007. Because of

the support from the Government, JPMC met no trouble in the barrier of regulations.

However, the amount of $6.95 billion spent thence led to even bigger loss of JPMC in

operation, since they had to dealt with the problems in the financial operation of Bear

Stearn (Craig et al, 2008).

Better-off Test

The diversification by merging & acquisitions aims to mutually share business advantages

among different business units. Better-off test is about identifying whether the acquire firm

add value to the organisation system or vice versa (Allen & Gorgeon, 2002). The value

added by a new unit should be assessed to identify its short term or long term benefit. If the

value given is short-term, the acquisition would be considered the fail decision.

Take for example of the case JPMC to purchase Collegiate Funding Services, JPMC has

seen the long-term potential profit of the firm, as stated by Connor B., in term of

“marketing, origination and servicing capabilities” (JPMorgan Chase & Co., 2005:). The

target customers of Collegiate are students, those would help JPMC to approach this

customer segment. Indirectly, the student loan services, those are given to both students

and parents, will give JPMC a chance to broader their market size.

Page 4


3. JPMorgan Chase & Co. Key Competences

While the three tests specify the conditions for creating value, the key competence reflects

the long-term competitive ability of organisation. Further discussion has been given by

Prahalad & Hamel (1990) that the beginning competitive factor of product, which is cost

and quality, is less important as time goes by. Instead, the competitive abilities of firms

derives from core competencies play a key role, especially the management’s ability.

Several core competences have been demonstrated by critically analysing from JPMC

annual report (2014):

Product and service diversification in Banking & Finance industry and non-banking

industry

A wide range of product lines and servies derive from four major business segments as

mentioned above in the M-form. The product development of JPMC includes bank and

non-bank products and services, thus create value of convenience for customers. Along

with product diversification towards different objectives, JPMC can basically satisfy all

demand of customer all around the world and make them “unique”(Mascarenhas, 1998).

Multidivision and combined strength

JPMC Strategic Business Units NumberRetail Branches (United States) 448Wholesale Offices Abroad 28Chase Private Client locations 2,498Commercial Banking expansion cities 20Commercial Banking bankers 350Small business bankers 205

Figure 3 Number of JPMC SBU invested in 5 years (2009 – 2014)

Source: JPMC Annual report, 2014

The multidivisional structure of JPMC includes thoudsands brands, representative offices

all around the world approach the global range of customers. Moreover, the comprehensive

internal abilities such as long-standing client relationships, technology and product

capabilities derives from mix of businesses of JPMC. In accordance to Dimon, J. –

Chairman of JPMC, the combination of various products and services, along with mixture

of supportive activities from all business units “create a mix of businesses that works well”

for each of client segments.

Page 5


4. JPMG Corporate Strategy

Prahalad & Hamel (1990) proposed that business portfolios should be build based on core

competencies of business, and should enhance these core competencies. JPMC corporate

strategies is build toward effectively take advantage of the firm’s core competencies.

Before discussing the strategy of JPMC, its parenting style needs to be identified.

Figure 4 JPMC Control Influences Mapping

With the core strategy to simultaneously focus on three key areas: customers, controls and

profitability, the parenting style of JPMC is the strategic control, in which managers

attempts to exploite the advantage of linking different business units together (Goold &

Campbell, 1987).

Portfolio Management

The research study of Porter (1987) suggested that Portfolio Management did not

emphasize on diversification among products in same industry but limted the range of

businesses. JPMC, which has the “diversification through acquisition” (Porter, 1987),

applies this portfolio management. The structure of the company is diversified into four

seperate bank product segments, adding the corporate segment. Each of them runs business

independently, with different managers and financial report given each fiscal year. In

JPMC, each segment’s management is responsible for their financial performance for the

purpose of internal control and effective measurement of performance. This structure is

organized for “management reporting purposes” (JPMC Annual report, 2014).

Synergy – Sharing Activities

Page 6

JPM

C


Synergy refers to the combined strength of a multinational company, in which

“interrelationships between businesses” is a fundamental power of a company (Goold,

1993). Further discussion given by Porter (1987), “the ability to share activities” between

different SBU is important in term of creating competitive advantage by providing a wide

range of products and services as well as enhancing qualities.

A board of manager of JPMC emphasizes that the company is “not a conglomerate of

seperate, unrelated business” (JPMC Annual report, 2014). The customer caring and

satisfaction is to be guaranted by a mix of business works together. This structure of JPMC

means each SBU can make up supplement for others in particular cases, thus they can not

only share value but also improve the reputation of JPMC.

5. JPMC Portfolio Matrix Model

Campbell et al (1995) stated that Parenting-fit Matrix identified the relationship between

parent’s characteristics and Core success factors, parent’s characteristics and parenting

opportunities. A parent corporate of JPMC can rely on this matrix to make changes for

improving fit with its businesses.

Page 7


Characteristic of JPMC

Mental Maps Deep understanding in banking & finance industry (200 years of development history)

Good respond to risk management

Perception of stable and growth in business improvement

intergrity development in both economies and communities

Structure - Systems - Process Multidivisional in products, geography and types of customers

Huge system linkage closely (Two main subsidiaries with thoudsans brands, representative offices

globally)

Mix business with supporting links in both horizontal and vertical

Staff departments and central

resources

Large amount of staff because of big scale and wide range of product and service

Improved liquidity and capital position

Decentralization contract Balance between centralized and decentralized

Figure 5 Characteristics of JPMC Parenting

Page 8


Segment Critical Success Factors

Parenting Opportunity Analysis Parenting Attention

Consumer & Community Banking (CCB)

Able to create strong relationship through system of customer caring, since then expand range of loyal customers

Simplify the system, review branches, improve technique

High

Corporate & Investment Bank (CIB) Unique capabilities to large corporations, large investors and governments, Ability to embrace change and adapt

making incremental investments to enhance and expand;Improve infrastructure, simplify the systemParticipate in industry utilities

High

Commercial Banking (CB) Outstanding quality client and trustful customer relations, Industry - Leading capabilities and comprehensive serviceSustainable growth plan

Medium

Asset Management (AM) Experience from 200 years history create trustful reputationKnow-how to earn customer trust

Continuously reinvest and improve business across market cycles

Medium

Corporate Social & sustainable activities emphasized

Yet to be ascertained Low

Figure 6 JPMC Product CSF & Parenting Opportunity

Page 9


Figure 7 JPMC Parenting-fit Matrix

Heartland Businesses

Businesses in the heartland area refers to the businesses those have success factors fit with

parenting characteristics. These businesses, in accordance to Porter (1987) is able to

become key segments for managers toward the company success. In JPMC, in the last

three years, CCB & CIB always keep the leading role in business operation. With critical

knowledge and experience of the company, these two segments are also believed to be the

heartland businesses, the focus point of JPMC.

Edge of Heartland Businesses

In JPMC operation, the know-how experiences and trustful reputation of the company

throughout 200 years of history has always created value toward all business segments

include Asset Management and Consumer Banking. However, except those strength

derives from the nature of the company, the parent characteristic does not have factor that

can create valuation for the development of those segments. So AM and CB refers to Edge

of Heartland Businesses.

Page 10


Ballast Business

Although Corporate Segment records loss in the last two years, the segment plays a

specific role in bringing the social value to the company. The financial result is

understandable from the parent firm as well. However, the parent should figure out

opportunities to change the corporate segment refer to its CSF.

Figure 8 JPMC Net Revenue from 2012 – 2014

6. JPMC Nine-box Matrix

Figure 9 JPMC Efficiency & Returns

Page 11

Unit: $ mil


The given statistic of efficiency and returns of four core product segments of JPMC

witnesses for the outstanding ability of these products and services in the market.

Particularly, the corporate segment, as mentioned above, records loss for the last two years,

lies somewhere between the low and medium of competitive ability.

Finance & Banking industry, after the previous crisis, is considered to be in the midst of

restructuring & rehabilitate process. However, the market still remains its attractiveness

because of its profitable ability, and fundamental meaning in economic system (McDowell,

2015).

Until now, JPMC still keeps their shape on top of the competition. However, several

emerging competitve factors are occuring such as large banks outside of US, startups from

Silicon Valley and competitors from payment area. Responding to this situation, JPMC

critically analyze competitors to figure strategies accordingly. At the same time, existing

successful strategies are in progress with non-stop development.

Figure 10 JPMC Nine-box Matrix

Page 12


7. Market – Activated Corporate strategy Framework

Figure 11 JPMC Nine-box Matrix

The IMACS of JPMC reflects the ability of the firm to deliver value to each segment, thus

specific strategy refers to each business segment would be identified (McKinsey, 2000).

Approaching this framework, several suggestions are given to KPMC:

The CCB & CIB those are in the value-creation potential should be maintained

Those have good value creation ability such as AM and CB require the company to

adapt new strategy for more value.

JPMC should think about divesting Corporate segment, or find a way to change the

current situation, together with looking for new business opportunities.

Conclusion

JPMorgan Chase has a good-design structure in its multinational operation. The

diversification is based on product segment, and the corporate strategy approached are

portfolio management and synergy. On the other hand, the study has identified the flexible

parenting style of JPMC that leads to successful achievement in business. Several portfolio

matrix model affirms the good result in each segment operation. Lastly, the relationship

between parenting strategy of JPMC and its strategic units has been identified and

recommendation has been given.

WORD COUNTS: 2159 Words

Page 13


Table of Figures

Figure 1 JPMorgan Chase & Co. Multidivisional Form........................................................2

Figure 2 Canada power industry value forecast.....................................................................4

Figure 3 Number of JPMC SBU invested in 5 years (2009 – 2014)......................................5

Figure 4 JPMC Control Influences Mapping.........................................................................6

Figure 5 Characteristics of JPMC Parenting..........................................................................8

Figure 6 JPMC Product CSF & Parenting Opportunity.........................................................9

Figure 7 JPMC Parenting-fit Matrix....................................................................................10

Figure 8 JPMC Net Revenue from 2012 – 2014..................................................................11

Figure 9 JPMC Efficiency & Returns..................................................................................11

Figure 10 JPMC Nine-box Matrix.......................................................................................12

Figure 11 JPMC Nine-box Matrix.......................................................................................13

Bibliography

1. Allen, D., & Gorgeon, A. (2002). Diversification Strategy. Madrid: IE Business

School.

2. Campbell, A., Goold, M. & Alexander, M. 1995. Corporate strategy: the quest for parenting advantage. 1995, Long range planning, vol. 28, no. 3, pp. 122-122.

3. Chandler. A. (1962). Strategy and Structure: Chapters in the History of the

American Industrial Enterprise.MIT Press, Cambridge, MA,

4. Craig, S., Cincotta, J. & Wilcox, J. (2008). Strategic Report - JPMorgan Chase

Acquisition of The Bear Stearns Companies . Harkness Consulting.

5. Goold, M. and Campbell, A. (1987). Strategies and Styles: The Role

of the Centre in Managing Diversified Companies. Oxford: Basil

Blackwell.

6. Goold, M. 1993, "Why Diversify? Four Decades of Management Thinking", The Academy of Management Executive (1993-2005), vol. 7, no. 3, pp. 7-25.

7. Hax, A.C. & Majluf, N.S. 1983, "The Use of the Industry Attractiveness-Business

Strength Matrix in Strategic Planning", Interfaces, vol. 13, no. 2, pp. 54-71.

8. JPMorgan Chase & Co. (2014). JPMorgan Chase & Co. Annual Report 2014. New

York: JPMorgan Chase & Co.

Page 14


9. Marketline . (2014). Marketline Industry Profile - Power Generation in Canada.

London: Marketline.

10. Mascarenhas, B., Baveja, A. & Jamil, M. 1998, "Dynamics of Core Competencies

in Leading Multinational Companies", California management review, vol. 40, no.

4, pp. 117-132.

11. McDowell, D. (2015). The Emergent International Liquidity Network: Central

Bank Cooperation after the Global Financial Crisis.

12. Prahalad, C. K. and G. Hamel (1990), “The Core Competition of the Corporation,”

Harvard Business Review, May-June, 79—91.

13. Porter, M.E. 1987, From competitive advantage to corporate strategy, Harvard

Business School Publ. Corp, Boston.

14. Williamson, O.E. (1975). Markets and hierarchies: Analysis and antitrust

implications. New York: MacMillan Free Press

Page 15

International Management CW - 14036997

Documents

introduction jpmorgan

reaction of jpmorgan

firms strategy

business structure

effective strategy

corporate strategy of

term of multinational

growth management