HBOS

MGMT311

HBOS

Prepared by:

• Hanisha Kumar 4357310
• Stacey Lobo 4371471
• Nataliya Shmat 3958206
• Mehreen Chowdhury 4129775
• Fairuz Khan 4092375

Power and Politics

An Integrative Case Study

Table of Contents

1.0 Case Overview

Halifax + BOS

11.0 Reference List

9.0 Recommendations

5.0 Emotions of change

3.0 Case Details and Key Issues

6.0 Organizational Culture and Resistance

2.0 Scenario Analysis

4.0 Change Management Perspective

10.0 Additional Readings

8.0 Power and Politics

7.0 Leadership

Phil Kershaw, Operations Director for HBOS International “Cost-leadership begins with the hearts and minds of the company; with its culture.”

Forces against change

Forces for change

2.1 External Analysis

WHAT DID PAUL MOORE RECOMMEND?

POWER

Strategy core value: Incentivized culture

Strategy peripheral value: How employees responded as part of status quo

Changes peoples behavior so they do what you want them to do.

Market Trends

1. Organizational Culture: HBOS was the 4th largest bank in the UK.

2. Profit-oriented, Sales-driven culture

3. Power and Politics: Reward power, positional power, power of guiding coalition.

4. Uncertainty and Insecurity for junior level workers.

- Transparency within the organization

- Creation of Ethics officer position

- Training and Development

- Changing reward structure

- Participation and involvement

1. Competitive Forces: Need for efficiency, quality and innovation within the organization.

2. Credit crunch of 2009

3. Ethical Forces: Unethical Practices and unfair politics.

4. Paul Moore’s recommendation

5. Imbalance of System and Controls

Many UK banks were following a cost-leadership strategy in early 2000s.

2005 saw some market saturation and banks were trying to form CAs. Homogenous offerings

2010 onwards: Boutique banks and further banking niches

2014- Present: M-Commerce and Online Banking

• Over exhausted Sales driven culture leading to internal imbalance

• Tendency to take excessive risks

• Use of Destructive Opportunism and unfair politics

• Misuse of reward power

• Prevention of changes to Status Quo

• Employment mechanism issues: Hiring inexperienced members; Practicing Nepotism

• Leadership issues

(Myers et. al 2012)

Conceptualizing power- HBOS uses "power as a relational property"

- Between individuals

- Change agents control rewards

- Limited power

Key Issue 2: What could Paul Moore have done differently to avoid the repercussions and facilitate the necessary change?

(Linsley 2006)

Prior to 2001 merger:

• Halifax had a long-standing sales culture.
• BOS on the other hand, was new to the culture.
• Halifax culture ultimately overpowered and prevailed.

• Beeman, D, Sharkey, T, 1987, The Use and Abuse of Corporate Politics, Business Horizons, pp:26-30.
• Daft, R, 2007, The Leadership Experience, Cengage Learning.
• Drazin, M 1990, ‘A stage-contingent model of design and growth for technology based new ventures’ Journal of Business Venturing, vol 3 [Online] [Last Accessed 20th October 2015] URL: http://www.sciencedirect.com/science/article/pii/088390269090028R
• French Jr., R, Raven, B, 1958, 'The bases of social power', in D. Cartwright and A. Zander (eds) Group Dynamics, 3 edn, New York: Harper & Row, pp:259-269.
• Freeman, S, 1999, Identity maintenance and adaptation: A multilevel analysis of response to loss, in: B.M. Staw and R.M. Suttorn, Vol. 21, pp:247-294.
• Kubler-Ross, E, 1969, On Death and Dying, New York, Scribner.
• Linsley, P, 2006, ‘Risk Disclosure in UK Banks’, Journal of Banking Regulation, pp:268-282.
• Myers, P, Hulks, S, Wiggins, L, 2012, Organizational Change, Oxford.
• Nadler, D, Tushman, M, Hatvany, N, 2010, 'A model for diagnosing organizational behavior', Managing Organizational Change, pp:35-48.
• Pagon, M, Banutai, E, Bizjak, U, 2008, Leadership Competencies for Successful Change Management.
• Perman, R 2012, How HBOS Wrecked the Best Bank in Britain, 2 edn, Edinburgh, UK
• Stuart, R, 1995, Experiencing organizational change: Triggers, processes and outcomes of change journeys, Personal review, 24 edn, pp:3-87.
• Venzin, M, 2009, Building an International Financial Services Firm, 3 edn, pp:203-230, Oxford University Press, Edinburgh, UK
• Zanzi, A, O'Neill, R, 2001, 'Sanctioned versus non-sanctioned political tactics', Journal of Management Issues, Vol. 13, pp:245-262.
• Keena, C 2015, ‘Little has changed in banking, says UK whistleblower’, The Irish Times, 18 May, viewed 8 November 2015, <http://www.irishtimes.com/business/financial-services/little-has-changed-in-banking-says-uk-whistleblower-1.2215871>.

Leadership: Sometimes when there is a major focus on senior leader and a directed approach to change, there is often an underlying assumption that employees are relatively passive. However, leaders can emerge from amongst employees.

Leaders focus on the Long-term: Setting direction and Challenging the Status Quo.

Managers focus on the Short-term: Planning detail and accepting the Status Quo.

This implies that management is a lower level of activity which allows for continuous improvement, whilst only LEADERSHIP can deliver a Discontinuous Change. (Myers et. al 2012)

1.0 Case Overview

2.0 Scenario Analysis

2.1 External (Macro-environmental) Analysis

2.2 Internal (Micro-environmental) Analysis

3.0 Case Details and Key Issues

4.0 Change Management Perspective

5.0 Emotions of Change

6.0 HBOS Organizational Culture

7.0 Leadership

8.0 Power and Politics

9.0 Recommendations

10.0 Additional Research

11.0 Reference List

HBOS plc is a banking and insurance company headquartered in UK.

• May 2001: HBOS was formed as a result of the merger between Halifax and Bank of Scotland.
• 2003-2006: HBOS shares rose by 53%. Over-eager sales culture driven by incentives.
• 2004: Paul Moore, Global Risk Head spoke out and dismissed. Subsequently blew the whistle.
• 2008: Financial crisis led to plummet in stock market.
• January 2009: HBOS officially taken over by Lloyds Banking Group with government support.
• Government intervention via bypassing Competition Law allowed Lloyds to wholly own HBOS as a subsidiary (Venzin 2009).

(Myers et. al 2012)

Contextual Environment

Task Environment

Emotions drive people

People drive performance

(Myers et. al 2012)

“The wrong people get to the top of these organisations,” he argues.  

Risk management and compliance managers cannot do their work properly without putting their own jobs at risk.

What drove the sales culture at HBOS?

Introduction of Bonuses:

• Decentralize structure to sales team

Crisis

• Loss of control over risk appetite

Paul Moore, Global Risk Head (2002-2005)

PESTEL Framework

(Linsley 2006)

Risk-return relationship!

Financial crisis deeply impacted all economies

HBOS Merger:

• Organizational Structure
• Specialized jobs

Crisis

• Delegating more authority to employees
• Many BOS employees left the firm

Competition: Cost-leadership strategies were the result of entrepreneurial calculation, changeable customer requirements and competitors’ and suppliers’ strategies (Perman 2012).

Customers: UK Banks were trying to create a sustainably unique strategic position in foreign markets. Expansion to Western Europe and North America (Linsley 2006).

Consumers more rational. Younger generation and presence of Asian and American demographics.

UK Government strongly encourages FDI, facilitator rather than influencer

Stage model of transition

Porter's 5 Force Analysis

Stage model of transition

LOW

Read the politics of the firm, 'Issue Selling', and Incrementalism

Stakeholders:

1. Denial- carrying on as if nothing is wrong

2. Anger- rage, frustration and resentment

(Venzin 2009)

Personal and Emotional impacts and responses of organizational change based on Kubler-Ross models of stage

(Stuart 1995)

(Freeman 1999)

Strong sales-driven culture prevalent:

• Roles reinforced relationships that were resistant to change

Crisis

• Conflict resolution was limited

Marketing strategies overseen by legislation. Market-based legal environment. Focus on consumer protection.

3. Bargaining - acknowledging the situation, but attempting to negotiate more time

4. Depression- mourning for things already lost an lost prospects

5. Acceptance- preparation to move forward

(Kubler-Ross 1969)

Advanced technology in banking. Mobile apps, online banking, trading, etc.

MEDIUM-HIGH

LOW

HIGH

(The Irish Times, 2015)

Cultural Change Recommendations:

• HBOS must become more agile.
• Proactively address concerns
• Collaborative rather than Redesign merger (Myers et. al 2012)

The positive emotions are accepted, while the negative are unwanted and dismissed as resistance (Kubler-Ross 1969)

• HBOS adopted a high-risk strategy to drive growth (Perman 2012).
• Status quo formed by excessive rewards and high incentives to junior bankers.
• Guiding coalition by senior executives to reinforce culture (Positional Power).
• Secretary would often omit crucial comments in minutes (Information Power).
• Politics in hiring new managers.

Shareholders, low-level employees, senior executives, customers

MEDIUM-LOW

Paul Moore found discrepancies in HBOS risk practices but was immediately dismissed as a warning to others (Coercive Power)

(Drazin, 1990)

Key Issue 1:

Compliance and controls were insufficient to manage the risky and low-rated project ventures

Response to change over time

(Nadler & Tushman)

HBOS types of power:

A few lead, and the rest follow…

HALIFAX- Incremental and Proactive change

BANK OF SCOTLAND- Discontinuous and Reactive change

Positional power: -Centralized approach

-Control resistence with position

-Moore dismissed/ friend hired

2.2 Internal Analysis

(French & Raven 1958)

Year 2001

• Isolates
• Bystanders
• Participants
• Activists
• Diehard

-Formal Leaders in Denial of the Need to Change

-Whistle blower who seek to draw attention (Paul Moore)

-Emergence of "Resistance Leaderships"

-Powerful guiding coalition

Planned change: Merger

Creation of HBOS

Since Halifax had a very strong culture, it seeped into HBOS: FINE-TUNING

Coercive Power: -Threaten

-Paul Moore spoke out- gagging order

-Cannot challenge/ silence resistence

What major stage of development?

(Nadler et. al 2012)

Historical View: -Provides an alternative perspective / interconnectedness

-"Pattern of past behavior affecting current functioning"

-2001 Merger

- Brought in Sales induced culture

- BOS team couldn't handle

Current Impact?

Year 2009

Acquisition of HBOS

Emergent Change:

£12 billion take over by Lloyds Banking Group

Reactive and Revolutionary Change: Re-creation

Reward power: -Power to give rewards

-Means to "sell"

-Tangible rewards

-Junior bonueses/ coalitions

(Perman, R 2012)

(French & Raven 1958)

New Leaders

Controls

Competence

Controls

Competency

• Generally no objective measures
• No examinations
• Peter Moore laid off

(Pagon et. al 2008)

(Myers et. al 2012)

Case: Inappropriate balance of systems and controls

1. Sales Manager - Director

2. Andy Hornby- Retailer- COO

Minimized: Recruitment stage

Right training and discharge

(Pagon et. al 2008)

Recommendation: Go through inspection, montior activities, appropriate role and work.

POLITICS

Beeman describes politics as behind the scenes efforts to sell a particular idea (1987)

• Negative use Dysfunctional
• Theoretically- midst of change = politics
• Lack of trust

(Zanzi and O'Neil 2001)

Positives

Negatives

• Accelerated change
• Recognition for seniors

• BTS Lobbying
• Time wasted
• Mistrust

(Myers et. al 2012)