Financial Services Management

A Qualitative Approach

Stewart Falconer

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781134098705
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Sweeping changes have taken place within financial services over the course of the past thirty years in response to a variety of influences, such as changes in customer attitudes, an evolving regulatory environment, innovations in information technology and the intense level of competition within the sector. In addition, the global financial crisis has had a huge impact on the perceptions of stakeholders and on the reputations of organisations operating in financial services.

This new textbook introduces management with a focus on concepts, theories and skills particularly suited to the financial services sector. Beginning with an overview of the development of management theories through history, the text then focuses on topical issues such as organizational design, the use of information technology, the development of a marketing orientation, social responsibility, ethics and, the influence of the external business and social environments and organizational development and the management of change.

This practical textbook mixes theory with application throughout - employing a variety of case studies and examples to render the topic both accessible and memorable. The result is a resource that will help lecturers teaching management skills and students keen to develop their financial services understanding.

1 Introduction

DOI: 10.4324/9780203515532-1

Background

Authoring a book that examines management within the financial services sector could become a major piece of work and, if all aspects of management were to be covered, the task would probably be impossible. Apart from anything else, it could be argued quite easily and reasonably that management is management, regardless of which business sector is being considered. For example, the same broad approaches that have been developed over the years apply pretty much universally and we see evidence of this in the ways in which people are managed within organizations and the design models that are used. Similarly, different styles of leadership manifest themselves within the broad range of businesses as do the range of cultural models that can be seen. This could lead us to the conclusion that a book that focuses on management within financial services is not really necessary as we could simply refer to one of the many ‘management texts’ that are available in University libraries throughout the world. In fact, a number of these will be referred to throughout this volume. However, my intention is not to look at management in general terms but, rather, to focus on areas of management that are of particular relevance to financial institutions and to the financial services sector. So, that's fine and it may be a good argument for the focus which I intend to adopt but, even allowing for the fact that I am intending to examine areas which are of relevance to that sector, what is so different about financial services organizations? Even if we don’t need to cover every topic that is included in a general management textbook, you might still reasonably ask why a useful approach might not be to select the relevant chapters from such a book.

On the other hand, though, you do come across different approaches to management and different management styles in different types of industry or business and I think it has to be said that the financial services sector has been renowned for having a traditional, hierarchical, paternalistic and even autocratic style of management. So it has been different from other areas of business in the past, even in the relatively recent past. Having said that, though, one of what I consider to be the interesting things about the financial services sector is not necessarily how it was in the past but how it has been in recent years. Sweeping changes have taken place over the course of the past 25 years or so in response to a number of influences, not least the impact that has been made by innovations in information technology and the general level of competitiveness within the sector. In the very recent past, of course, we have seen the sector affected by the global financial crisis. That has had a huge impact on the way in which the sector is perceived by its many stakeholders and on the reputations of the range of organizations within it. The consequences have had to be managed using a variety of management techniques and approaches.

All these influences, including the more recent economic ones, provide the background to this book and the topics that it covers and I believe that that background makes the financial services sector and financial institutions an excellent model within which to study management and organizational behaviour.

Following on from this broad theme, therefore, what I have attempted to do in devising the text is to select a number of topics that I believe are, or have recently been, of particular significance to managers and to management within the financial services sector, topics that are currently exercising the minds of managers in a variety of different financial services organizations. The broad range of subjects that I have identified as falling within this category is as follows:

• organizational design;
• leadership;
• organizational development and the management of change;
• business and the external environment;
• information technology;
• service quality and relationship management.

These are quite general topics and there are inevitably sub-headings within each. As a consequence, in some cases, two chapters are allocated to the topic because I feel it justifies that additional coverage. In addition, because this is a very practical subject, throughout the text, I have tried to provide examples of the practical application of the theoretical concepts and ideas covered under each heading, using case studies as appropriate and relevant.

Before looking at each of the topics listed above, I felt that it was useful and, probably, necessary to begin by looking at two particular areas in order to put the rest of the text into some context. First of all, I use Chapter 2 to spend some time setting out what we mean by the financial services sector. In doing this, I consider the players in the sector and the products that they provide. However, in addition, I spend a little time looking at the evolution of the sector over the past 30 years or so and how and why it has changed. In that connection, I also felt it was of value to consider how perceptions of the sector have changed as I believe that all these issues have had a substantial impact on the way in which organizations have been and continue to need to be managed.

The second ‘introductory’ aspect is an attempt to put the theoretical background into some context. It goes without saying, I think, that people have been thinking and writing about management for many years and a variety of different theories have been developed, particularly over the past hundred years or so. These are general theories, of course, and not approaches that have been developed simply for the financial services sector. However, they do provide the background for a number of the other areas that I will cover, in particular, organizational design, leadership and motivation, and organizational development. They are also relevant to several of the other chapters in the text. In view of this relevance, I believe it is helpful and appropriate to provide a brief overview of the development of theories and approaches to management and organizational behaviour and you will find this contained in Chapter 3.

Looking briefly at the content of the rest of the text, the topics covered are:

Organizational design

Organizations within the financial services sector have made a number of significant changes to their structures in recent years. These changes have taken place for a variety of different reasons, such as cost reduction or to enable customer needs to be met more effectively. However, it can be argued that they are simply a response to a very competitive business environment and, consequently, a way of maintaining or achieving competitive advantage. For example, we have seen the introduction of call and now contact centres, initially using the medium of the telephone but, more recently, developing into on-line delivery, which have enabled tasks to be centralized when they did not require to be undertaken locally or close to the customer. Other operations have been centralized and, conversely, but for good reason, operations have been decentralized. Businesses have, arguably, become much more customer-focused and this has been reflected in their structure and design and this can be seen quite clearly in what has happened to branch networks in banking where the branch environment has been rationalized in order to enable staff to concentrate all their efforts on dealing with customers and selling them products that will meet their financial needs.

Along with other influences, technology, and, in particular, the internet, has helped make all this possible through improved communications and delivery mechanisms. There has been an enormous, consequential impact on structures, enabling them to be flattened out with resultant cost savings as well as substantially improving customer service. At the same time, though, technology has also enabled systems to be introduced which allow programmed decisions to be taken, for example in the granting of loans and the underwriting of insurance products and, of course, allowing consumers to buy any number of financial products on-line. These are the sorts of issues that make this area especially relevant to the management of organizations in the sector and it is covered in Chapters 4 and 5.

Leadership

Organizations within the financial services sector have, arguably, always had strong leaders. That has enabled them to move forward and establish themselves in a position of economic strength. In recent years, though, I think it is fair to say that the style of leadership within business organizations has changed at a general level as society and social attitudes have changed. This has been reflected in the financial services sector just as much as has been the case in other sectors of industry. One particular change that we have seen has been that the ‘top people’ in financial institutions have become less anonymous. What I mean by that is that, while once we didn’t know their names and probably referred to them as ‘men in grey suits’ (and they generally were men), things have changed and they have become more obvious as personalities who appear in the media. Perhaps the classic example of this was Fred Goodwin of RBS but others such as Bob Diamond, formerly of Barclays, and Stuart Gulliver of HSBC have become equally prominent, for different reasons, in recent times.

In addition to the increased prominence of the leaders themselves, as we have seen a substantial amount of rationalization taking place within the financial services sector in recent times, there is an argument that leadership and a strong leader or leaders have become even more important to manage their businesses through significant integration programmes and then motivate everyone in the organization towards the achievement of a successful and profitable future. As I have suggested, these people have become personalities in their own right and we are reading and hearing about them more and more. However, what makes them good (or not so good) leaders? What qualities do they have that set them aside from others and what approaches do they use to achieve success? In addition, we must bear in mind that, within financial services and especially in banking, we have seen leaders discredited due to recent activities and, paradoxically, some of those who were previously perceived to be good, strong leaders have now been shown not to have been so at all!

Chapter 6 looks at the whole subject of leadership and assesses different approaches, methods and styles, which may or may not be used to good effect. At the same time as considering the theoretical background, though, it also reflects on the qualities and approaches of a number of leaders within the financial services sector. This practical view provides the opportunity to consider some of those leaders who have been discredited in recent times, while, at the same time, bringing out and emphasizing the important points about leadership and motivation that the chapter is trying to make.

Organizational development and the management of change

Change is everywhere, whether in our private life or at work, and it has become an all-pervading feature of companies within the financial services sector over the past 30 years or so. As I’ve indicated already, companies review their structures regularly and that can be very disruptive. Chapters 7 and 8 examine why the change within the sector has happened, as well as considering how it has been managed. As well as looking at how it has been managed, Chapter 8, in particular, examines some practical examples of change management and makes an assessment of how effective that management has been. This latter aspect considers how people in the organization might be affected, in terms of whether the impact is good or bad, desirable or undesirable. Of course, that probably depends on how successful the change is perceived to be and that depends on how it is managed.

Business and the external environment

We all know that business does not operate in a vacuum and that there are many external factors that can have a substantial influence on the ability of the business to achieve success and meet its objectives. In many cases, the frustration for business managers is that these external factors are outside their control and it is only possible to try to anticipate and forecast changes and put plans in place to cater for them and their potential impact on the business. Of course, the key is to do that more quickly and more effectively than the competition.

Not every external influence is entirely outside the control of the organization though and Chapters 9 and 10 examine this topic from two different points of view. First of all, I consider what we refer to as the contextual environment, those political, economic, social and technological influences that, to a substantial extent, set the context in which business has to operate. While that part of the external environment will be covered in Chapter 9, Chapter 10 will examine what I have termed the operational environment. By that, I mean that part of the external environment that impacts much more immediately and directly on business through customers, competitors, suppliers, shareholders and a range of other stakeholders. While it is very difficult, if not impossible, for business management to exert any control over the contextual environment, this is not so much the case with the more immediate, operational factors. For example, while business cannot change social attitudes and social thinking to any significant extent, you can have considerable impact on the activities of your competitors through the provision of products that are much more attractive to consumers than their products are.

So, this part of the book looks at the contextual environment and the operational environment, covering the former from the PEST (Political, Economic, Social, Technological) analysis point of view and the latter from the social responsibility angle or the extent to which business should be accountable to the rest of society or its stakeholders. This has substantial significance for the financial services sector for various reasons. First of all, it is the influences of the contextual environment that have dictated the strategic direction that the sector has followed in recent years, certainly since politicians decided that the sector should be deregulated in the mid-1980s and, of course, more recently, as the economic environment has had an impact through the global financial crisis. In addition, though, for some time now, there have been a number of questions asked about the extent to which organizations within the financial services sector always meet their responsibilities to their various stakeholders. We have seen examples of mis-selling of products such as pensions, endowment assurance and payment protection insurance, as well as the recent manipulation of LIBOR rates, and it could be argued that there was some irresponsibility in the activities surrounding the US sub-prime crisis. Some of these issues are discussed in Chapter 2 but the fact that they have occurred suggests that there is some value in looking at the issues of social responsibility and business ethics in our review of the operational environment.

Information technology

It is difficult to speak about the financial services sector these days without talking about information technology, which, as well as involving changes to working practices and changes to organizational structures, has had an enormous impact on the way in which organizations within the financial services sector interact with their customers. IT has had a huge impact on the sector and it is covered in Chapter 11 where we look at the impact of information technology on the sector and the organizations in it. I begin by trying to understand clearly the need for and the role of information in business management and then look more closely at the technology that collects, stores and retrieves that information for management to use in their management processes. I then go on to look at the influence of information technology as a service provider and as a facilitator, and evaluate its advantages and disadvantages. In particular, I examine its uses in the financial services sector and other sectors in terms of the products and services that are generated or distributed by information technology systems.

The chapter then goes on to evaluate the impact of information technology internally on organizational design and employees and externally on customer relationships, examining some of the benefits and potential disadvantages for employees and customers of the uses of information technology. This, in turn, will allow us to investigate the various ways in which the use of information technology within the sector provides opportunities to obtain competitive ad...