Strategies in Action
“HSBC”
Introduction
Headquartered in London, HSBC is one of the largest banking and financial services organizations in the world. HSBC's international network comprises over 9,500 offices in 76 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.
With listings on the London, Hong Kong, New York, Paris and Bermuda stock exchanges, shares in HSBC Holdings plc are held by nearly 200,000 shareholders in some 100 countries and territories. The shares are traded on the New York Stock Exchange in the form of American Depositary Receipts.
Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal financial services; commercial banking; corporate, investment banking and markets; private banking; and other activities.
The HSBC Group has an international pedigree which is unique. Many of its principal companies opened for business over a century ago and they have a history which is rich in variety and achievement. The HSBC Group is named after its founding member, The Hong Kong and Shanghai Banking Corporation Limited, which was established in 1865 to finance the growing trade between China and Europe.
HSBC’s Strategy for 2004
At the end of 2003, HSBC launched ‘Managing for Growth’, a strategic plan that provides HSBC with a blueprint for growth and development during the period to 2008. The strategy is evolutionary, not revolutionary. It builds on HSBC’s strengths and it addresses the areas where further improvement is considered both desirable and attainable.
Management’s vision for the Group remains consistent: HSBC aims to be the world’s leading financial services company. In this context, ‘leading’ means preferred, admired and dynamic, and being recognized for giving the customer a fair deal. HSBC will strive to secure and maintain a leading position within each of its customer groups in selected markets.
HSBC will concentrate on growing earnings over the long term at a rate which will place it favorably when compared with its peer group. It will also focus on investing in its delivery platforms, its technology, its people and its brand to support the future value of HSBC as reflected in its comparative stock market rating and total shareholder return (‘TSR’). HSBC remains committed to benchmarking its performance both absolutely and by comparison with a peer group.
HSBC’s core values are integral to its strategy, and communicating them to customers, shareholders and employees is intrinsic to the plan. These values comprise an emphasis on long-term, ethical client relationships; high productivity through teamwork; a confident and ambitious sense of excellence; being international in outlook and character; prudence; creativity and customer-focused marketing.
The plan also reaffirms HSBC’s recognition of its corporate social responsibility (‘CSR’). HSBC has always aspired to the highest standards of conduct, recognizes its wider obligations to society and believes there is a strong link between CSR, long-term success and value creation. Moreover, changing public expectations across a wide spectrum of social, ethical and environmental issues require continuing attention to this area. The strategy therefore calls for a renewed emphasis on CSR and for increased external communication of the Group’s CSR policies and performance, particularly on
education and the environment, which will remain the principal beneficiaries of HSBC’s philanthropic activities.
HSBC’s growth ambitions centre on its four customer groups: Personal Financial Services; Commercial Banking; Corporate, Investment Banking and Markets; and Private Banking; and specific strategies are being implemented for each of them. HSBC believes that by organizing its internal and external reporting around customer groups, it reinforces to all its employees the Group’s customer focus.
Within Personal Financial Services, the increasing integration, skills sharing and transfer of technology with the consumer finance business has augmented and enhanced existing activities. In addition, the introduction of skills and practices from the world’s leading retailing businesses is shaping HSBC’s competitive positioning.
Key elements in achieving HSBC’s objectives for its customer groups will be accelerating the rate of growth of revenue; developing the brand strategy further; improving productivity; and maintaining the Group’s prudent risk management and strong financial position. Developing the skills of HSBC’s staff will also be critical and it will be necessary to ensure that all employees understand how they can contribute to the successful achievement of the Group’s objectives. Employees who do make such a contribution will be rewarded accordingly.
Operational management will continue to be organized geographically under four regional intermediate head offices, with business activities concentrated in locations where growth and critical mass are to be found.
The plan contains eight strategic imperatives:
- Brand: make HSBC and its hexagon symbol one of the world’s leading brands for customer experience and corporate social responsibility;
- Personal Financial Services: drive growth in key markets and through appropriate channels to make HSBC the strongest global player in personal financial services;
- Consumer Finance: extend the reach of this business to existing customers through a wider product range and penetrate new markets;
- Commercial Banking: make the most of HSBC’s international customer base through effective relationship management and improved product offerings in all the Group’s markets;
- Corporate, Investment Banking and Markets: accelerate growth by enhancing capital markets and advisory capabilities focused on client service in defined sectors where HSBC has critical relevance and strength;
- Private Banking: serve the Group’s highest value personal clients around the world;
- People: attract, develop and motivate HSBC’s people, rewarding success and rejecting mediocrity; and
- TSR: fulfil HSBC’s TSR target by achieving strong competitive performances in earnings per share growth and efficiency.
The key elements of HSBC's strategy were presented to analysts and investors during our investor day on 27 November 2003 (HSBC.com).
Diversity Strategy
In its successful business operation, HSBC Bank understands the local communities and spread that understanding around the world. In doing so, they are in a unique position. The business has been built for 166 years with local, on-the-ground, financial experts and is a part of the local culture. This expertise and understanding is considered invaluable as a principal member of a global financial services and banking group.
What also makes HSBC soar is their employment of diverse people that make the company more adaptable to new situations. Such diversity strategy targets not simply about gender, ethnicity, disability, religion or age but also about respecting individuals and treating everyone, customers and colleagues, with dignity.
Diversity reaches far beyond compliance with legislation and equal opportunities initiatives for HSBC. As an international bank, HSBC value the diversity of the markets in which it operates. HSBC’s diversity strategy is based on the premise that the most important competitive differentiators are the quality of individual service they provide to individual customers and the way they treat individual employees.
As a matter of fact, HSBC have a number of senior general managers who champion initiatives that particularly focus on such issues as disability, race, gender, and sexuality. Their role is to help every employee to increase their understanding of the communities and customers and to ensure that understanding is shared throughout HSBC bank. One of the ways in which they do this is by forging partnerships with organizations that promote equality of opportunity in business and in the community.
Diversity has been so important to HSBC which operates internationally and have put up offices to over 70 countries worldwide with over five thousand offices in the Americas and almost three thousand in Europe.
Fundamental Strategic Thinking
As the bank is a leveraged play on the underlying economy, two challenges came along with it. First key challenge is to select the better performing economies and second is to attract the most valuable clients in HSBC’s chosen economies. Additionally, HSBC aims to produce a blend of earnings from developed mature-growth economies and those developing higher-growth economies (considered on a risk-adjusted basis).
Leveraging HSBC’s internationality provides revenue generating and cost saving opportunities. That is, leveraging through HSBC’s local presence the increasing trade and other links between developed and developing economies, transferring skills and best practice, and managing resources globally.
Fundamental Operating Strategy
Ø Customer-driven company that stay close to customers
Ø International teamwork
Ø Strong capital and financial position
Ø Conservative, sound risk management
Ø Disciplines expense control
Ø Ethical behavior, observing the letter and the spirit of rules and regulations
HSBC’s Broad-brush 25-year Scenario
The key economic areas will be focused on NAFTA (North America Free Trade Agreement) which is led by the United States of America, and in China. An astounding 50% of the increase in world demand will come from developing countries such as China, India, Mexico and Brazil. Furthermore, major opportunities within the Diaspora of Chinese, Hispanic, Indian and many other expatriate communities.
In general areas, Long Term Capital Management (LTCM) has been affected along with Russian debt default, corporate scandals, rollercoaster equity markets, unbalanced global growth, and increasing regulation.
Positioning of HSBC
Investing in countries of future consumer demand
In China alone, US$663 million is invested in 10% of Ping An Insurance and 8% of Bank of Shanghai. In Mexico, US$2 billion is invested on acquisition of GF Bital. In Brazil, US$815 million is invested on acquisition of Lloyds TSB assets in Brazil (2003).
In its acquisition of Data Management Platform, HSBC’s purpose is to build on an integrated application suite that can deliver an operational trading environment based on centralized data repositories in a short time frame. Consequently, this strategy will avoid the time and resources it takes to build in-house as well as the cost of systems development and maintenance ().
HSBC’s Impact in Latin America
HSBC is about to significantly increase its presence in Latin America, with plans to buy Mexico's fifth largest bank, Grupo Financiero Bital SA, well in motion. Bital, with 1400 branches, six million customers and 12.5 per cent of the Mexican market, will be HSBC's biggest branch network outside of Europe once the transaction is completed.
The purchase of the Bital (for US$1.14 billion) will be a massive bonus for traders as HSBC can now seamlessly facilitate trade throughout all of the Americas ().
Managing for Growth
HSBC have a strategy for growth that is delivered in many ways. Acquisitions remain an integral part of HSBC strategy for growth.
· Focusing on enhancing HSBC’s revenue generation culture
· Further developing the brand
· Managing costs strategically
· Maintaining a prudent credit/market risk stance
· Investing further in people
Customers remain at the center of HSBC strategy having a specific strategy for each of the five worldwide customer groups. In addition, HSBC position as the world’s local bank enables to approach each country uniquely, blending local knowledge with a worldwide operating platform.
Customer proposition will be calibrated along a spectrum with intensive relationship management at one end and monocline services at the other. Taken as a whole, HSBC will concentrate activities on geographies where growth and critical mass are located.
HSBC Strategy is focused on Customer Groups. Such groups comprises the Personal Financial Services (PFS) including HSBC Premier, Consumer Finance (CF), Commercial Banking (CMB) including Small and Medium-sized Enterprises (SMEs) and Middle Market Enterprises (MMEs), Corporate, Investment Banking and Markets (CIBM), and Group Private Banking (GPB).
The key regional axes of management cover the United Kingdom and Eurozone, North America and NAFTA, Asia-Pacific, South America, and the Middle East.
Enhancing Products
HSBC is continuing to enhance certain products which are core to customer group offering. Some products will be managed or coordinated globally and particularly. Specifically, cards will be enhanced by exploiting the experience and platforms provided by Household. Scale and international reach is considered in Cash Management along with Custody and Funds Administration, and further promoting Insurance and Asset Management including Retirement Benefits.
Such enhancements will enable the Group to ensure that HSBC have the best capabilities that will be able to offer a comprehensive service to customers, particularly where products are sold globally and use the product expertise globally.
Customer Proposition
Customer Proposition will be calibrated along a spectrum of strategic advisory relationship between Corporate, Investment Banking and Markets, and Group Private Banking. Premier International sets an example of enhanced personalized banking. The Monoline proposition, especially in cards, promotes efficiency. It is also effective in both mature and emerging markets and can be run in parallel with relationship based services.
In delivering growth through enhancing revenue generation culture, it involves a lot of what HSBC have to do. First, is strengthening the use of marketing as a key management tool of the business lines. Then rewarding revenue performance and penalizing mediocrity. Next is focusing investment on business and geographies with largest growth potential. Finally, benchmark the growth targets and achievements rigorously against peer group.
Developing the Brand
The brand has been already a great success and HSBC is continuing with the next phase. The brand is now sufficiently strong that can accommodate brand variety at customer, product and even country level as and when required by the business model. Reputation is the key element of the brand proposition and cannot be overstated. HSBC’s policies for corporate and social responsibility are part of the brand. HSBC will treat employees with the same values as treating with customers.
Managing Costs Strategically
Managing costs strategically will greatly help in achieving maximum efficiency and flexibility. Global resourcing and processing will be an essential element of the business.
Maintaining a Prudent Credit/Market Risk Stance
HSBC independent credit function has an excellent track record in a testing environment. HSBC’s approach to credit for corporate and institutional clients will remain relatively conservative. Credit for Small and Medium-sized Enterprises and personal customers will continue to be managed on a portfolio, risk-adjusted return basis.
Investing Further on People
The substantially increased size of the Group means that it is imperative to invest fully on people. The management of Group talent is at the heart of the Group’s competitive advantage and needs to be strengthened. Graduate recruitment will remain central to the growth of talented people aligned to the Group character. The IM cadre will remain an essential element of the Group’s management and will be adapted to reflect the evolution of the Group’s businesses. People will be more directly compensated in relation to their performance. HSBC have to significantly strengthen the diversity of the people.
Acquisitions as Foreign Entry Strategy
Acquisitions still remain an integral part of HSBC strategy. There is no need for a transformational acquisition but opportunities for incremental acquisitions which extend HSBC customer base or provide key product capabilities will be considered. Such examples are The Mexican AFORE, Lloyds TSB Brazilian assets, and Bank of Bermuda (2003).
Criteria for Selecting Acquisitions
Acquisitions must fit into the overall business strategy. They must be Earning per Share accretive in the first full year and to exceed the Group’s cost of capital within an acceptable time frame (3-4 years). Moreover, They should bring a valuable customer base or product capability. Human fit is essential – a similar outlook and character is a sine qua non. They should be capable of smooth integration of IT platforms. Finally, the existing Group should be able to add value to the acquired business (2003).
How does Corporate Social Responsibility Matters to HSBC?
As for HSBC, the term Corporate Social Responsibility (CSR) means addressing the expectations of their customers, shareholders, employees and other stakeholders in managing business responsibility and sensitively for long-term success. The Chairman of HSBC believed that Corporate Social Responsibility is the best way of fulfilling obligations to their customers, shareholders, colleagues and the world at large.
In the social dimension, HSBC listens to their stakeholders in developing their business in ways that will continue to appeal to customers, investors, employees and other stakeholders. In its belief that the world is a rich and diverse place, HSBC concentrates workforce on diversity strategy (as stated earlier) in anticipating and meeting their customers’ needs.
Moreover, HSBC has found that community involvement of their employees brought them many benefits. Being recognized in the community as good corporate citizens and employers, helps HSBC attracts great people who in turn can provide great service to their customers. Aside from that, education is also crucial to the development and prosperity of every country. This part is very important for HSBC since it goes to more than 60 countries worldwide. HSBC seek to build the confidence and abilities of young people (customers and employees) on whom their future business will depend by investing in education.
Conclusion
Within the span of two years, from January 2003 up to November 2005, HSBC garnered almost 40 awards along with soaring rankings. The Global Finance Magazine (2005) awarded HSBC as the Best Consumer Bank, Best Corporate/Institutional Information Security Initiatives. This was just one of those awards won by the HSBC in its excellent performance. Such achievements, rankings, and awards can be directly caused by HSBC’s business strategies. With the previously-stated strategies, there has been no doubt that HSBC deserves awards and rankings in the field of business.
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