Team essay information system final

DOES IT PAYOFF? STRATEGIES OF HSBC & CITI BANKS

CASE STUDY REPORT COURSE: MN5123 - INTERNATIONAL INFORMATION SYSTEM

JANUARY 23, 2014

SCHOOL OF MANAGEMENT ROYAL HOLLOWAY, UNIVERSITY OF LONDON

Does it payoff? Strategies of HSBC & CITI banks

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Table of Contents Introduction ...................................................................................................................................... 2

Strategic Alignment model: IT Strategies & Implementation .............................................................. 3

Vertical Linkage – Strategy fit......................................................................................................... 3

Business strategy & Business Process ......................................................................................... 3

IT strategy & IT Process .............................................................................................................. 4

Horizontal Linkage – Functional Integration ................................................................................... 5

Business Strategy & IT strategy .................................................................................................. 5

Business Process & IT process .................................................................................................... 6

Cross Linkage ................................................................................................................................. 7

Business Strategy & IT process ................................................................................................... 7

IT strategy & Business Process ................................................................................................... 7

Successful IT Investment & Implementation Strategy: ....................................................................... 8

IS Success: DeLone and McLean IS model....................................................................................... 9

Information Quality ....................................................................................................................... 9

System Quality .............................................................................................................................. 9

Service Quality............................................................................................................................. 10

Intention to Use........................................................................................................................... 10

User satisfaction .......................................................................................................................... 11

Net benefits................................................................................................................................. 11

Conclusion ....................................................................................................................................... 11

Group Conflicts & Managing Strategy .............................................................................................. 12

Exhibits ........................................................................................................................................... 15

Bibliography .................................................................................................................................... 16


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Introduction

Perhaps it is the cliché that over last few decades, the role and influence of Information

Technology (IT) on organisations has meaningfully changed. IT is surpassing its old-

fashioned “back office” role and is progressing toward a “Strategic” role through a wide

gamut of markets and countries, with the potential to support business strategies and

also to shape new business strategies (Konsynski & McFarlan, 1990). In spite, there is

growing anxiety that the expected value of the investment in IT is not being realised

(Roach, 1991). One of the enduring and important problem in Information System (IS)

discipline is the alignment of business and IT strategies (Galliers, 2004) and for the last

two decades this has persisted as top concern for IT managers and organisations

(Luftman & Kempaiah, 2008). A successful strategic alignment between IT and business

strategies enables a firm to obtain competitive advantage, realize business objectives,

organisational goals and also it reinforces cognizance and benefits of information

systems (Lederer & Mendelow, 1988).

Therefore, as Tallon (2007), mentioned for banking organizations such as HSBC and CITI,

which attain multi-focused strategies, information technology (IT) plays a crucial role as

a source of value. In this case study report, we will be discussing about IT strategies and

its successful integration into business goals of two banking giants namely HSBC and

Citigroup. In first section we will be analysing IT and business strategies using Strategic

Alignment Model (1993). In the second part, a study will be made to understand the

success of IT alignment with business strategies using Delone and Mclean (2003) updated

Information System (IS) model. At last, conflicts arising during the storming stage of

group development along with few strategies to manage group conflicts will be discussed.


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Strategic Alignment model: IT Strategies & Implementation

Strategic Alignment Model (SAM) (Henderson & Venkatraman, 1993), is one of the

prevailing and most often cited model for IT alignment (Chan & Reich, 2007),

conceptualises IT alignment to include both the integration between business and IT

domains and the fit between strategy and structure. The effective alignment of business

and IT strategies involves ‘four major domains of strategic choices’ which forms SAM i.e.,

business strategy, IT strategy, business process (organisational infrastructure) and IS

process (IS infrastructure) (Henderson & Venkatraman, 1993).

(Further to below detailed analysis, please refer Exhibit section for consolidated analysis of

HSBC and Citigroup’s IT strategies using SAM model).

Vertical Linkage – Strategy fit

This first linkage called ‘strategic fit’, is the vertical linkage between use of strategy and

infrastructure of business. This lay emphasis on executing the market-positioning

strategy by structuring internal factors and the necessity to make choices that position

the enterprise in an external marketplace (Van de Ven. II & Drazin, 1985).

Business strategy & Business Process

A firm’s business strategy refers to choices of strategy related to firm’s business scope,

distinct competencies and governances (Harindranath, 2007). Citigroup’s primary

business strategy was to follow a “diversified financial services business” model

conglomerating different sectors of business like stock brokers, banks and insurances.

Citibank organised itself in three major business groups, to fit its strategies: Expanding

distribution; Transferring expertise; Investing in people and technology; Allocating

capital to maximize returns; Embracing shared responsibilities, and to obtain competitive

advantage in terms of Global presence and reach, valuable brand name, scale and


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efficiency and the wide range of products (Citigroup, Annual Report;, p. 2006). For

example, CitiFinancial, Citigroup, Corporate and Investment Banking, Citigroup

Investment Research division and Citigroup Alternative Investments (Farhoomand,

2007). Citibank’s goal of being one of largest retail banks; fit their strategy expanding

distribution.

On the other hand, HSBC’s business strategy of “Managing for Growth” relates to its

business process objective of being recognised for offering customers fair deal (HSBC,

2007). In views of using technology to enable customers the ease of doing business, HSBC

Global Technology (GLT) was established in 2002 to quality technology solutions accost

efficiently. In order to support online banking and service-improvement, HSBC hired

more number of staffs, which resulted in 1.2 million customer’s registration for personal

internet banking and 177,000 for TV banking. Among the eight global pillar strategies

established by HSBC in 2007 & 2008, allocating responsibility and delegation authority

implied to its key business value of delegating authority and making accountable.

Similarly other key business values like, fair dealing, truth, minimum bureaucracy at all

levels were emphasized in instituting employment policies strategy (ibid).

IT strategy & IT Process

Citibank exhibited integrated IT strategy and governance approach throughout its global

divisions. Integration of IT strategy with its IT process were evident throughout its IT

investment and development over years. Citibank made strategic investments in

customised software’s and packages to enhance its strengths and to facilitate exchange

of knowledge across its global branches (Rapp, 2002). While the bank retained its control

on its core system architecture and tools used, it outsourced in a very minimal way, its

non-core activities like implementation to EDS and Digital Equipment Corporation. Its


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‘round-the-clock’ telephone service, e-Citi commerce solutions, MyCiti.com, “Citi on the

Net” and other tools provide its customers with convenience, value and also improving

efficiency, fitting its IT strategy: ‘better serve clients and lower costs’ (Farhoomand,

2007).

Comparatively, HSBC’s first TV banking – Interactive Financial service integrated

technologies of banks with most common technologies available with customers. It made

many such creative utilization of technology to serve customers with new and simple

services. Realisation of IT strategies like development of IT was observed with the launch

of other HSBC products like mobile banking, cable & wireless KHT, Mondex card, Secure

Netpayment Solutions during 1999’s correlates with its IT processes. HSBC’s

establishment of regional technological services (HUB) in nearly 63 countries to provide

global implementation, services and meet local technological needs in line with its IT

strategy of offshoring processing to respective countries, making it “the world’s local

bank”(ibid).

Horizontal Linkage – Functional Integration

Horizontal linkage also called ‘functional integration’, is the alignment of business and IT

process. Functional integration provides IT the opportunity to deliver competitive

advantage (Horner & Benbasat, 1996).

Business Strategy & IT strategy

Citigroup’s business strategy is ‘diversified financial service’, which means provide large

range of products to meet varies of customers’ needs under one roof. Their IT strategy is

to create a common system to benefit customer a better service. Both of Business and IT

strategy has same view on meeting customer satisfaction. Also, centralised IT system will

offer customers and employees more convenient and easier access.


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The alignment of business strategy and IT strategy in case of HSBC was well defined by

creating separate entities like IT development, IT operations, IT general and CIBM IT HK

based on type of end users served and applications. These individual entities enabled to

improve banking experience of customers. Use of technology efficiently can also be

observed in its development of online banking portals like hsbc.com, “Yahoo! PayDirect

from HSBC”, to provide consumers with person-to-person payment money transferring

and a range of transaction banking and treasury services (Farhoomand, 2007).

Business Process & IT process

Alignment between business and IT process are essential as they are the infrastructure

of business. It includes day to day transactions, management skills, organizational

systems, etc. IT process gives a great support to business process as it increase efficiency.

Business process drive IT process to be developed to meet increased competitive and

customers’ requirements. By looking at Citigroup’s case, we can see this linkage clearly.

In 2006, Citi invested an electronic communication network that provided state-of-the-

art technology for immediate access to liquidity. It reduced the number of its data centres

by 20% and consolidated its call centre for greater efficiency (Citigroup, Annual Report;,

p. 2007).

HSBC invested regularly in keeping up the technology updated regularly and up-to-date.

An example being, after the initial development of its hsbc.com website in 2000, the bank

invested around USD $2 billion on its dotcom initiatives and launched new generation of

hsbc.com, adding a major number of new services into old system. Again in 2001, HSBC

invested USD $164 million in hsbc.com alone and a second generation of strategic

internet business banking platform (hsbc.com) was launched to include common

presentation and capability to all HSBC’s services and any type of its customers. This was


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its first business application. Consecutively this continuous investment in IT for

technology updating resulted in 76,650,000 number of customers visiting HSBC website

across 150 countries in 2001 (Farhoomand, 2007).

Cross Linkage

Business Strategy & IT process

IT process and Business strategy are interrelated to each other. IT process can support

implementation of business strategies effectively and also result in enhanced business

strategic goals. For example, in 2002, Citi group upgraded Citi Direct Online banking,

available in 90 countries, and process more than 39 million transactions worldwide in

2004. This IT process helped Citigroup manage daily transactions more efficiency, make

their business strategy as ‘largest retail bank’ more realistic (Farhoomand, 2007).

In terms of HSBC’s, business strategy and IT process were strongly related and in many

instances has shown positive compliments. The introduction of HSBCnet in 2004, showed

the increase in number of customers in commercial banking by 43% (HSBC, Annual

Report, p. 2005). Business growth in terms of internet sales raised by 25% in 2006

resulting in USD $5.7 billion profits and with nearly 250,000 new online saving accounts

created after introduction of 2G Innovative Business Solutions (HSBC, Annual Report, p.

2007). It was also evident with 116% increase in online transaction and 24% increase in

new customers when HSBC incurred an additional expense on IT expenses.

IT strategy & Business Process

IT strategy of Citigroup is to develop group-wide platforms to enhance the organizational

strength. As Citi is an international bank, they are fully aware the importance of local

conditions of each branch. Therefore, they believe integrated local system to their


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existing global centralised system is the adequate one to use. The reason they are

choosing this kind of system is depends on the nature of business process, which is their

business scope, customers, and markets. On the other hand, IT strategy also helps their

business process, such as, their global centralised credit card system and call centre,

make customer manage their own card easily. This fit their IT strategy as ‘better serve

clients and lower costs’ (Farhoomand, 2007).

HSBC with its “the world’s local bank” strategy successful established regional

technological services to meet local customer’s needs, like HSBC Universal banking

System. The establishment of new dealing room concept employing the use of latest

technologies to enable coordination between HSBC Futures, Securities and Market,

during 1998, enabled to achieve HSBC’s “Manage for value” strategy. Further in 2001

HSBC also made investment in customer relationship management along with its online

banking platform, to provide with additional intelligent services to customers (ibid).

Successful IT Investment & Implementation Strategy:

A successful IT implementation is considered to have many positive implications to firms

business and on future IT investments. It increases projects (Jenkin & Chan, 2006), IT

investment (Byrd, et al., 2006) and organizational performances (Chan & Sabherwal,

2006). As per Burn & Szeto (1999), the degree of IT success will certainly influence the

level of communication between business and IT planning processes and the connections

between business and IT executives, also it improves business relationships at all levels

of organisation. Greater the “fit" or alignment between firm's IS strategy and business

strategy infers that the Information systems are directed on critical areas of positive

business performance (Das, et al., 1991).


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IS Success: DeLone and McLean IS model

One possible way to study IT success is analysing the six dimensions as proposed in

Delone and Mclean (2003), updated IS success model. Further we will be using this model

to analyse Citigroup’s IS model.

Information Quality

The first dimension, can be observed in Citigroup’s performance in many ways. The use

of the system in e-banking procedures is volitional and users are able to do it in the way

they want and in the time they are comfortable with. Therefore, the quality of information

can directly encourage customers to continue using the system or make a transaction, or

discourage them (Pérez-Mira, 2010). Within Personal Finance Services, Citigroups was

able to use new technologies in order to gain improved targeting and to meet customer

needs and consequently increase the sale (Farhoomand, 2007). With the objective of

assuring trust, security and privacy, whilst developing innovative services and products,

Citigroup along with its group companies centralised its approach to e-commerce with

the investment of around USD $1 billion during 1997 to 1999 (Farhoomand, 2007).

System Quality

The second dimension, measures the degree of success in the way software and hardware

work together (Pérez-Mira, 2010). Citigroup introduced many specialised departments

globally, this allowed a rapid handling of different data that can be seen as a positive effect

on the overall structure. With the launch of e-Citi in 1997 and e-Citi commerce in 1998,

partnering with all Citigroup businesses globally, Citi was one of the bank to offer round-

the-clock telephone access in many countries, account information, research and email

exchange. The internet corporate banking service, Citibank Commerce enabled clients to


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order products, monitor order status and complete settlement. PC banking products of

Citigroup were the highest-rated products by SmartMoney magazine way back in 1998,

indicates the successful integration of technology in its products and services

(Farhoomand, 2007).

Service Quality

This third dimension, in banking environment is about the support IT people offer to the

users before, during and after the transaction or operation cycle. Providing customers

with superior quality service at lower cost using technology was one of the business

strategy of Citigroup (Citigroup, Annual Report;, p. 2006). Early strategic alliances with

AOL, Oracle, Mobile One and Lava Trading, and leveraging the technologies by its

acquisitions, allowed Citibank to provide financial services, online banking, insurance,

mortgage services and other investment tools to its customer. Additionally, its

globalisation by targeted acquisitions and joint ventures allowing to offer high yield

services and rapidly increase its customer base. It was also the first financial firm to

globally introduce enhanced authentication over internet and other online channels for

sensitive transactions. Citigroup was first to offer its customer with the facility of account

aggregation after the introduction of MyCiti.com in 2000.

Intention to Use

The forth category, can be separated into two parts of, and Use. Intention to use, which is

an attitude, can be considered as an individual level construct. The IT investment of Citi

was intended to “have more common systems and standards across Citigroup”, and “better

serve clients at lower costs” (Citigroup, Annual Report;, p. 2007). The other part, Use,

which is behaviour, can be measured by different ways, such as the frequency of use.


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Overall, customers adopted quickly to newly introduced technologies as seen within the

biometric credit card or the e-banking platform that was launched in 2006, and increased

its commercial customers.

User satisfaction

The fifth category is the level of user’s satisfaction with “Citi on the Net” and other web

sites, Global transaction services, reports and support services. In 2004, with the

introduction of Citi Direct, customers responded favourably to the enhanced online

banking service, processing more than 39 million transactions globally (Farhoomand,

2007).

Net benefits

Finally, the sixth category, , which was introduced as impact in the original Delone and

Mclean model and shows the balance between negative and positive impacts of the firm’s

operation on all stakeholders. Citibank accelerated its growth worldwide in its credit card

business after acquiring ten strategic companies and having the best-in-industry

technology platform, it was successful in getting 100 million accounts. Further with its

“Citi on the Net” strategy, creating new units like e-Commerce, e-Business and e-Capital

Markets it could acquire more than 800 million accounts.

Conclusion

On an overview, Citigroup has been successful in multi-channel expansion in number of

ways to deliver products and services, such as telephone, PCs, Internet, customized voice

response, and more smart ATMs. Referring to Appendix 1 of case study, Citigroup was

able to increase its market capitalisation from USD $17 billion to USD $269.1 billion in


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ten years and triple its net profits. Though HSBC with its decentralised IT strategy could

achieve success in terms of IT integrations and attain business goals, in terms of product

and service delivery, Citi’s emphasis on globally centralised technology development is

more responsive to competitive advantage over its competitors.

Group Conflicts & Managing Strategy

Tuckman (1965) proposed four stages in group development; Forming, the orientation

or testing phase, Storming, the conflict zone, Norming, where the group starts to

overcome resistance or conflict and Performing, where roles become functional and

collective energy is channelled into the task.

This essay seeks to address conflicts, which arise during the Storming stage and highlight

two most effective strategies to manage conflict.

The Storming stage, labelled intragroup conflict, is characterized by lack of unity, hostility,

and emotional responses to group tasks as each member tries to express their

individuality (Tuckman, 1965). Two types of intragroup conflict have been observed in

groups; Task-focused Conflict and Relationship-focused Conflict (Jehn, 1997). Task

focused conflicts tend to raise challenges, constructive criticism in a bid to improve

productivity and decision making. Conversely, Relationship focused conflicts often create

an atmosphere of negativity and un satisfaction, decreasing goodwill and mutual

understanding which could have detrimental effects on the performance of the group

(ibid). Several conflict management styles have been identified and adopted till date.

Typically, most leaders tend to adopt the style that best suits their team, whilst bearing

in mind that the team may consists of persons with diverse work styles or philosophies


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as may be described by the Belbin (1981) , Myers-Briggs(1985) or any other

psychometric or personality tests (Furnham, et al., 1993)

Rizzo, et al., (2000) highlighted Thomas and Kilmann’s five management styles;

Competitive, Compromising, Avoiding, Accommodating and collaborating, which are

effective for handling conflicts depending on situation.

Competitive Style is more of a win or lose approach to conflict (Rizzo, et al., 2000). Often

times, it involves pushing one view point at the expense of another and it provides quick

resolution. However, it may leave team members feeling bruised or resentful (ibid).

Compromising, often termed lose-lose approach, tackles conflict with a concern for the

Task as well as Relationships. It seeks to take the middle ground which results in reduced

tension, however, it leaves members unsatisfied with the outcome (Rizzo, et al., 2000).

Conversely, Collaborating, often referred to as the most effective approach to conflict is

termed the win-win approach. It seeks to satisfy the needs of all conflicting members with

a particularly high concern for Tasks and Relationships. In Collaboration, high

cooperation and low confrontation is adopted to yield a mutually acceptable solution that

reinforces mutual trust, respect and effective collaboration in the future (ibid).

In Avoidance approach to conflict, a low cooperation and low confrontation is adopted so

as to evade the conflict, especially when it may seem trivial (ibid). However, as a manager,

evading the conflict may be misconstrued as not knowing how to manage the situation.

Accommodating approach is another most commonly adopted method to handling

conflict. It involves high cooperation and low cooperation by playing down the

differences and celebrating the similarities so that conflicting members become willing

to accept each other’s views (Rizzo, et al., 2000).


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As a manager, Collaborating and Accommodating conflict management styles may appear

to be the most effective, however, effective conflict management resides in knowing

which style is most suited, while being aware of the team dynamics; personalities, and

work styles (Furnham, et al., 1993).


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Exhibits


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Team essay information system final

Leadership & Management

vertical linkage strategy

strategies implementation

system quality

information quality

cross linkage

service quality

strategic alignment

university of london