e-Business For corporate customers
Hype or hope ? Corporate Strategy - Fall 2002 Semester International Business School Groningen Compiled by: Vasyl Dutschak Malte Kaub Mirko Kochendorfer Gernot Schüssler Qi Zhang
Supervised by: 227 074 253 516 233 476 226 078 232 631
Jani Roland Holst
November 13, 2002 © 2002, TEAM CITIBANK
TABLE OF CONTENT Executive Summary................................................................................................................................. 1 1 Citibank company background – Business Idea - .......................................................................... 2 1.1
The corporate structure of Citigroup.......................................................................................... 3
1.2
Cash management & trade finance products &services .......................................................... 3
1.3
Cash management .................................................................................................................... 3 1.3.1 Liquidity Management ....................................................................................................... 3 1.3.2 Payables Management ..................................................................................................... 3 1.3.3 Receivables Management................................................................................................. 4
1.4
Financial performance ............................................................................................................... 4
2 Current E-Business Strategy – E-Business idea –.......................................................................... 5 2.1
Citibank analysis........................................................................................................................ 5 2.1.1 Major business .................................................................................................................. 5 2.1.2 Need for e-business .......................................................................................................... 5 2.1.3 Citibank & e-Business ....................................................................................................... 6
2.2
Citibank’s e-Business strategy .................................................................................................. 6 2.2.1 Six key elements of Citibank’s e-business strategy .......................................................... 7 2.2.2 Business Customer Framework of Citibank...................................................................... 8 2.2.3 Alliance network ................................................................................................................ 8 2.2.4 Citibank’s key technology partners ................................................................................... 9
3 Current Resources of Citibank – Transactional Environment – .................................................. 11 3.1
Strategy Analysis with the 5 Forces Model from Porter .......................................................... 11 3.1.1 Threat of New Entrants ................................................................................................... 11 3.1.2 Power of Suppliers .......................................................................................................... 11 3.1.3 Power of Buyers .............................................................................................................. 12 3.1.4 Availability of Substitutes ................................................................................................ 12 3.1.5 Competitive Rivalry ......................................................................................................... 12
3.2
Transactional environment possibilities................................................................................... 13
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3.2.1 Outsourcing ..................................................................................................................... 13 3.2.2 Takeovers/Mergers ......................................................................................................... 13 3.2.3 Trust / Brand Reputation ................................................................................................. 13 3.2.4 Fluctuation of high potentials – brain drain - ................................................................... 14 3.2.5 Conclusion....................................................................................................................... 14 4 Citibank environment – Contextual Environment – ...................................................................... 15 4.1
Economic Growth .................................................................................................................... 15
4.2
Sophisticated Customers......................................................................................................... 15
4.3
B2B Market .............................................................................................................................. 16
4.4
B2B EBPP ............................................................................................................................... 17
4.5
Internet Banking Developments .............................................................................................. 19
4.6
Competition.............................................................................................................................. 20
4.7
E-Business............................................................................................................................... 20
4.8
Technology Developments ...................................................................................................... 22
4.9
Emerging Markets ................................................................................................................... 22
4.10 E-business security ................................................................................................................. 23 4.11 Terrorist Attacks ...................................................................................................................... 23 4.12 E-Banking regulations ............................................................................................................. 24 4.13 What is really uncertain…? – Key uncertainties and options at one view - ............................ 25 5 SWOT Analysis – At a Glance – ...................................................................................................... 25 5.1
Strengths of Citibank’s e-business .......................................................................................... 25
5.2
Weaknesses of Citibank’s e-business..................................................................................... 26
5.3
Opportunities and Threats of Citibank’s e-business................................................................ 27
5.4
SWOT Diagram ....................................................................................................................... 27
6 Possible Scenarios – The uncertain future -.................................................................................. 28 6.1
Possible, plausible scenarios – What will it be tomorrow ? -................................................... 28
6.2
Value of the business idea in the scenarios ............................................................................ 28
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7 Suitability, Acceptability, feasability of the Options – is everybody happy?-............................ 29 7.1
Suitability of the generated options in the scenarios ............................................................... 29 7.1.1 Scenario 1: Economic Growth & Explosive E-Business Development .......................... 29 7.1.2 Scenario 2: Economic Growth & Slow E-Business ........................................................ 29 7.1.3 Scenario 3: Recession & Slow E-Business.................................................................... 30 7.1.4 Suitability summary - CHART ......................................................................................... 31
7.2
Acceptability of the generated options .................................................................................... 31 7.2.1 Stakeholder mapping ...................................................................................................... 31 7.2.2 Acceptability of most important stakeholders to the generated options.......................... 32 7.2.3 Feasibility – Can Citibank afford and realize? - .............................................................. 33
8 Strategy recommendations for Citibank - The essence - ............................................................. 33 9 Suggestions as to how to implement the strategy for Citibank – Just one touch - .................. 34 10 Unused resources – Hot ideas- Fighting the paradigm -.............................................................. 35 10.1 Building up the marketplace – The market place idea – ......................................................... 35 10.2 E-Business as a tool or a product? – The value added tool idea –......................................... 36 10.3 Do service to your customer and understand your customer – The consultant idea -............ 36 Appendix 1: Citibank e-Business e-solutions .................................................................................... 37 Bibliography ........................................................................................................................................... 38
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EXECUTIVE SUMMARY Citibank’s Global Cash and Trade division was in the business of managing the flow of money for its corporate customers. It provided the tools and channels for its customers to receive money efficiently and to make payment in a timely fashion. In 2000, intense competition and the dot com boom put pressure on Citibank and its competitors to transform their business in the new economy. In response to these challenges, Citibank made a serious push to deliver integrated solutions that would enable its corporate customers to conduct transactions on-line. Citibank’s e-business strategy – Connect, Transform and Extend – was to Web-enable its core services, develop integrated solutions, and reach new markets. The ultimate goal was to build a single Web-enabled platform for all customers with similar needs. To transform its Global Cash and Trade Division into an e-business, Citibank faced challenges in serving its corporate customers who had discrepant needs. Sophisticated clients, such as multinational companies (MNCs), required custom-built host-to-host product interface. Other customers, such as the small-and-medium-sized enterprises (SMEs), were more conservative and were not ready for webbased solutions. How could Citibank build a flexible and agile e-business product that could capture their total cash management & trade service needs? Given Citibank’s enormous global reach, how could it integrate the Internet initiatives into its overall strategy and create sustainable competitive advantages? The scope of the report is within Citibank’s cash and trade division, we limit it to corporate customers and examine a three year time horizon. Chapter 2 of the report analyzes the current e-business strategy of Citibank (strategic business idea). Looking at the competitors and the customers (transactional environment) in chapter 3, the “Porter Five Forces Analysis” is used. Only looking at, and out of the company is not enough, hence the evaluation of its contextual environment follows in chapter 4, and ends up in an uncertainty-impact diagram to identify the key uncertainties. Chapter 5 provides you with a SWOT analysis, the results so far at a glance. The key uncertainties lead us to the possible and plausible scenarios in Chapter 6, in which Citibank’s business idea is tested. The options generated so far must also make the way through the test for acceptability (stakeholders), suitability (robustness) and feasibility (affordable) to become our final strategy recommendations (chapter 7). Implementation can only be touched in chapter 8, this would be worth an own report. Finally we found some fascinating unused resources which can add value to Citibank (chapter 10) if used wisely. The following chapter deals with the company background. (main business)
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1 CITIBANK COMPANY BACKGROUND – BUSINESS IDEA In 1812, Citibank of New York (now Citibank) opened its business. The bank had experienced several mergers of which the most important one (1998) took between Citibank N.A. (this name was adopted in 1976) and Travelers Group. Since then, a new name Citigroup Inc. has been adopted by the holding company. Briefly, its history can be traced by those important mergers: Citibank, which began in 1812; Travelers, since 1864; Smith Barney, founded in 1873; and Banamex, which was formed in 1884 as a result of the merger of Banco Nacional Mexicano and Banco Mercantil Mexicano. As a leading financial service company, in 2001, Citigroup Inc. employed 268,000 staff across over 1000 countries serving 192 million customers. Citibank (also known as the ‘consumer bank’) is the consumer and corporate banking arm of the financial services giant Citigroup. The company operates through around 1,100 locations in some 100 countries worldwide. Citibank offers standard banking fare, including deposit accounts and lending services. The firm also cross-sells products form its parent company, and other subsidiaries of Citigroup. Citibank is headquartered in Pittsford, NY. Citibank offers its corporate finance services to multinational companies in North America, Europe, Asia/Pacific region, Latin America, Middle East and Africa, and corporations, financial institutions, and governments in many countries. Other major brand names under Citigroup's trademark red umbrella include Citi Cards, CitiFinancial, CitiMortgage, CitiInsurance, Primerica, Diners Club, Citigroup Global Corporate and Investment Bank, Citigroup Asset Management, The Citigroup Private Bank and CitiCapital.1
1
http: //www.citigroup.com/citigroup/corporate/history/index.htm.
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1.1 The corporate structure of Citigroup2
1.2 Cash management & trade finance products &services3 Citibank is a world leader in cash management and trade services. With 3,500 offices in 100 countries around the world, Citibank has a unique global infrastructure providing a wide range of innovative financial solutions. Its global cash and trade division involves the managing of flow of the money for its corporate customers. A variety of tools and channels for customers are offered to receive money effectively and to make payment timely. At present the cash and trade division process approximately 1 trillion in financial transaction each business day. The detailed descriptions of products offered are following. 1.3 Cash management 1.3.1 Liquidity Management Citibank's liquidity management solutions enable companies to control working capital surpluses and deficits at a local and regional level. • Notional Pooling - increased management of liquidity without funds movement. •
Zero Balancing Account - concentrating cash for higher yields.
•
CitiNetting - settlement of inter-company payments in a low-cost environment.
1.3.2 Payables Management The Citibank’s cutting edge solutions and unrivalled global network ensure local and foreign currency payments are efficiently and securely executed. 2
http://www.citigroup.com/citigroup/fin/ar.htm.
3
http://www.citibank.com/singapore/corporate/products/mn_p_cas.htm, 19.10.2002.
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•
Paylink SGD/USD Check/Paylink Express SGD - Delivering low cost SGD/USD Payment outsouring.
•
Paylink SGD Business Check - a low cost SGD outsourcing check payment solution.
•
Paylink USD Business Check - a low cost USD outsourcing check payment solution.
•
Worldlink - a multicurrency global payments service, supporting corporate and institutional customers around the world in their foreign currency needs.
1.3.3 Receivables Management From local collections to the outsourcing of the receivable function, Citibank provides efficient collections processes, optimizing working capital flows and reducing administrative costs. • Lockbox Lite/Wholesale Lockbox/Retail Lockbox - the solution for SGD or/and USD Check receivable. •
SpeedCollect GIRO - a low cost SGD electronic collection solution through the interbank clearing system.
1.4 Financial performance As a globally leading financial company, Citigroup continuously enjoys an excellent reputation and consequently, the profit is going to stay a high level from a perspective of long run. After the merger with Travelers Group, in particular, diversity of products and services had been expanded and the economics of scale and cost -efficiency has been evolved further. Financial performance 2001 compared with 2000
Global consumer: Global corporate: Global investment management and private banking: Investment activities: Corporate/others: Core income:
2001
2000
% change
7.366 5.844
6.004 6.166
22,68% -5,22%
1.535 530 -706 14.569
1.445 1.383 -858 14.140
6,23% -61,68% -17,72% 3,03%
(In millions of dollars) Source: Citigroup Annual Report 20014. 2001 was a tough year from the financial point of view, but Citigroup still reached a record of $14.57 billion for its core income, after $1.8 billion pre-tax impact of September 11, Enron and Argentina. In addition, the fiscal-year revenue is $83.6 billion, an improvement of 8%. As we have looked at the Company Citibank, we now turn to Citibank’s e-strategy.
4
http://www.citigroup.com/citigroup/press/020117a.htm, 20.10.2002.
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2 CURRENT E-BUSINESS STRATEGY – E-BUSINESS IDEA – The next chapters will deal with all possible views you have to consider, developing new strategy recommendations. Starting with a look at the E-Business idea we will come to the transactional environment and end up a view at the contextual environment. Business idea Transactional Contextual
2.1 Citibank analysis The Company's activities are conducted through Global Consumer, which delivers a wide array of banking, lending, insurance and investment services; Global Corporate, which provides corporations, governments, institutions and investors with a broad range of financial products and services; Global Investment Management, which offers a broad range of life insurance, annuities and asset management products and services; Private Banking, which consists of traditional banking activities, and Investment Activities, which consists of the Company's venture capital activities. Citibank already operates in virtually every business and industry sector on a global basis and can apply this experience to new market opportunities - with the speed companies have come to expect and demand in today's economy. 2.1.1 Major business Consumer finance business Consumer finance business is largely comprised of three major global businesses: Citibanking (full financial services, credit card business) and private banking (consulting services). Citibank is committed to offer continued quality financial services to customers all around the world. Corporate finance business Citibank's corporate finance business is designed to help multinational corporations, domestic companies, financial institutions and governments all around the world. Currently, Citibank has entered into a total of 76 developing nations. Citibank offers valuable sources for the businesses of not only multinational corporations, but also companies focusing on global as well as localized services. 2.1.2 Need for e-business Products have become more commoditized and pricing differences more slight, the great differentiator today is delivering customer value. Customer-centric companies need a well-planned, integrated ebusiness strategy that takes into account both customer needs and corporate business objectives. EBusiness is opening the door to unprecedented opportunities for firms to build sales and increasing revenue streams by expanding geographical scope, reducing operating costs, improving procurement, productivity and supply chain efficiency. In 1997, e-business transactions totalled more than $1 billion. According to Cambridge, Mass.-based Forrester Research, that number is expected to reach $1.3 trillion by 2003, with business-to-business (B2B) e-business outpacing business-to consumer (B2C) by a factor of ten, to represent 9 percent of all U.S. business trade. IDC, a Framingham, Mass-based research firm, predicts that 510 million people on the planet will be online by the same year.5
5 http://www.digitrends.net/ebiz
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2.1.3 Citibank & e-Business Citibank, with a business philosophy based heavily on technological advantages, has sought to implement state-of-the-art technology in an effort to deliver unique value to a highly mobile customer base. The firm is at the forefront of e-intelligence development and actively uses a range of technologies to design and develop products, better serve remote customers, improve managerial decision-making and lower operating costs. In March 2000 Citigroup founded the “Internet Operation Group”, a committee responsible for an interaction between e-Citi (prototype for Internet initiatives) and the bank’s business units, to explore the Internet. A month later Citigroup launched the second phase – the creation of two units aimed to open the Internet to all consumer and corporate banking activities: e-Customer and e-Business. In May 2000 the business units e-Capital Markets and e-Asset Management were added; these four units where intended to complement e-Citi. Mr. Jorge Bermudez, Executive Vice President and Head of Global Cash Management and Trade Services, was appointed to lead the e-Business unit. Citibank aims, through its e-Business solutions, to give its customers (local, regional & global) the opportunity to fully take advantage of eCommerce. The strategy “connect, transform & extend” was a means to deliver its vision. 2.2 Citibank’s e-Business strategy
Connect Web-enable core services to connect with its customers
TRANSFORM Draw full range of Citibank’s capabilities to deliver
EXTEND Reach new markets, new customers
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2.2.1 Six key elements of Citibank’s e-business strategy
EmbedCitibank Citibankas asthe thetrusted trustedbrand brandwithin within 1.1.Embed communities communities Buildup upaanetwork networkof ofstrategic strategicpartners partners 2.2.Build Helpcustomers customersto toserve servethemselves themselves 3.3.Help Web-enablecore coreservices services 4.4.Web-enable Createknowledge-based knowledge-basede-services e-services 5.5.Create “e-Us” 6.6.“e-Us”
Citibank e-Business started to manage customer relationships locally at the country or regional level. Thus Citigroup’s new structure involved traditional business units in formulating internet strategies and forming committees to coordinate and synthesises, an approach that mirrored that of other banks.6This resulted in the use of multiple processes, systems and support staff performing overwhelming activities. Mr. Bermudez’s e-Business unit had to develop Internet software for corporate clients setting up B2B electronic commerce exchange. This reflects the early days of the Internet, where banks erroneously managed e-business as separate projects. But market demands and changing business models have fostered the need to view customer relationships on a global basis in order to understand all aspects of the relationships to ensure resources are appropriately aligned, customers are satisfied and shareholders are provided the demanded value. The graphic below shows the complex business-customer framework of Citibank.
6
Wells Fargo & Co. And Chase Manhattan Corp. integrated their efforts more closely with their business units.
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2.2.2 Business Customer Framework of Citibank.
Nowadays e-Business provides comprehensive e-Commerce solutions that empower corporations and financial institutions globally to transform financial and business processes. Citibank e-Business solutions focus on the integration of internet-based exchanges, software solutions, logistics, and financial services with existing, end-to-end, liquidity management, investment, and trade finance capabilities. E-Business defined a CRM (Customer Relationship Management system) strategy and selected a tool with analytics and selling methodologies to transform the management of its customer relationships. The initial focus was on centralizing information. The secondary focus was on standardizing process and improving sales methodologies. The next focus was on executive information and analytics. To result has been a reduction in systems, a defined sales process, centralized customer information and improved sales performance. The business is able to leverage what it knows about its customers to sell more effectively and win the right (profitable) deals resulting in shareholder value.
2.2.3 Alliance network As mentioned, Citibank tried to excel at all facets of e-Business – a strategy that failed. Citibank invested millions of dollars but failed to specialise in several areas such as software development, system development and front-end services. Clients and software technology are constantly changing; Citibank overestimated its capabilities, thus struggling to keep pace with client needs. Citibank got its lesson and focused on alliances and the use of strategic business partners, which had complementary technology or infrastructure or access to markets. Mr. Tom Edgerton, Alliances Head for Citibank eBusiness explained that need: “In future, it won’t be what your company can do, but what the network of companies you work with can provide.”7
7 Citibank (2000), „Citi seeks alliances to accelerate in to the e-space“, The Citibank Globe, November-December, 3rd December, 2001.
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2.2.4 Citibank’s key technology partners They include Oracle, Commerce One Inc., SAP AG, Wisdom Technologies and Bolero.net.
Customer
Marketplaces
Financial Services
Treasury of the Future
Distribution and Procurement Management Citibank’s challenge is the correct management of the customers and suppliers and ensure that they understand Citibank’s strategy, while not exploiting the Bank’s strengths of the information base. Mr. Edgerton said of companies that had approached Citibank to partner them: “Citibank brings considerable value to potential alliance partners. They’re interested in our brand, our financial services expertise, our global presence, our strong customer relationships and position as a trusted provider, as well as our knowledge of specific industries and international markets.”8
CitiDirect Customer convenience had been the thrust of Citibank’s continuous evolution of its products and services. Key to this goal was providing clients with more channels to access Citibank, and the Internet provided Citibank the flexibility to meet this demand. CitiDirect was designed for corporate customers to do full transactions on-line anywhere around the globe. It was a browser-based delivery channel designed to deliver on-line all of Citibank’s cash management and trade products and services, enabling customers to make inquiries about their account balances, request statements, provide transaction initiation details and request statement transaction reports on-line and in real time. CitiDirect allowed customers to perform these functions at any location with internet access. This was particularly useful for global companies with operations spread out in many countries but wished to maintain control at regional or global treasury centres. Citibank benefits from a global and trusted brand that can be exploited to overcome eConsumers' fear to pay online.
Regionalisation The transformation process involved consolidating all the data centres within each country. Data were centralised and systems were developed to manage the automatic processing of transactions. By May 1999, the data centres were rationalised to 60. On the operations side, Citibank began with the regionalisation of cash and trade, which afforded Citibank a complete focus on the process. The 8 Interview with Citibank e-Business Group in Hong Kong, 2001.
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regionalised and specialised processing centres provided Citibank scale and continual improvement opportunities. They reduced the cycle time for transactions, minimised error rates to near zero and yielded new efficiencies for Citibank and its customers.
Extend CitiDirect’s success was evidence of Citibank’s vision of delivering transaction services online anywhere in the world, 24/7. Building a new global infrastructure gave Citibank the opportunity to deliver e-products at scale more quickly and more efficiently to customers, and any capability improvements in one region would be seamlessly deployed world-wide. Citibank expected CitiDirect to evolve constantly, which would give Citibank the flexibility to continuously enhance the system according to the changing needs of its customers. Other European banks focused mainly on providing pan-European solutions; fewer banks wanted to deliver global services. Citibank’s priority was to move all its corporate customers onto CitiDirect, because its main goal was to retire the legacy systems of the old-style electronic banking. Citibank had to contend, however, with difficulties in migrating certain customers from using traditional means to using the new products and services. Citibank’s corporate clients included top-tier MNCs as well as SMEs. Previously, Citibank had not focused on SMEs; it was in 1997 that it started to consider the SME segment and introduced CitiBusiness.25 While MNCs with an e-business focus knew what they wanted, SMEs that wanted an ebusiness presence were unsure how to move on. Some were not even e-enabled and were still tied up with the legacy systems of the 70s, 80s and 90s. The greatest concern of most customers was security. Some resisted making the transformation because they were sceptical about security, and such old behaviour was entrenched. In part, these concerns about security hindered Citibank to roll out the Webbased applications despite Citibank’s readiness. CitiDirect had already developed sophisticated security procedures using the latest encryption techniques. Its multi-layered security architecture included public and private access keys, single-use passwords and multiple authorisation controls. The next chapter steps from the business view to the transactional environment.
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3 CURRENT RESOURCES OF CITIBANK – TRANSACTIONAL ENVIRONMENT –
Business idea Transactional environment Contextual
3.1 Strategy Analysis with the 5 Forces Model from Porter Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop a competitive advantage over rival firms can use this model to understand the industry context better, in which the firm operates in. Porter identified five competitive forces that shape every single industry and market. These forces help to analyze Citibank’s e-business strategy, its profitability and attractiveness. The image shows the relationship between the different competitive forces.
3.1.1 Threat of New Entrants The easier for new companies to enter the industry, the more cutthroat competition will be present. Factors that can limit the threat of new entrants are known as barriers to entry. Citibank, as a major brand itself, developed with its products/ services a strong customer loyalty, due to a strong customer driven approach. The strong brand awareness Citibank developed resulted in customers to regard Citibank as an innovative, global bank offering an excellent customer service. Citibank is able to provide the customer with every product throughout the e-platform itself (One Source – all products) – while competition can not. Multinationals, in particular, need a strong bank with global experience and global presence, - Citibank is able to support them in any country they are operating in. Indispensable are Citibank’s endeavours to provide security in payment (especially in the B2B & B2C context), mostly by strong cooperation with strategic partners, which can play off their key competences in the e-security market.9 However, Citibank suffers high fixed costs to keep the e-system running, regardless of any demand fluctuations of the services/ products. Competition tries to keep pace and tend to immensely invest in the e-business market (i.e. Deutsche Bank, ABN AMRO). Any advantages Citibank keeps steps ahead of their rivals shrinks – competition must be carefully analysed. Fortunately governments throughout the globe do not build up great obstacles, which have to take in account, while thinking about e-banking. But time brings change and therefore national and international rules and regulations should not be underestimated.
3.1.2 Power of Suppliers This part describes how much pressure suppliers can place on Citibank’s e-business. Citibank has a long tradition in developing own products, however that approach did not work (see 3.2.1), Citibank ebusiness embarked this strategy and a framework of alliances has been established.10 If one supplier has an exceptional impact to affect Citibank’s profit margins and volumes, then it holds substantial power. However, there are many suppliers for e-business products and with continuous investment in technology Citibank was committed to uphold its position as a premier supplier of cash management and transactional banking services in e-business, by investing heavily on technology to improve its products & services.
9
See: e-Business Alliance Framework. Clark, 2001.
10
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None of Citibank’s subsidiary switches to another (competitive) product that is very costly, although the subsidiary in the different countries is allowed to pick their favourite provider.11 The financial product is extraordinary important for the customer, they can operate without it, but in the current market environment, fortunately, the supplying e-business industry has a lower profitability than Citibank. Citibank must not be afraid of powerful suppliers and therefore outsourcing their core competences.
3.1.3 Power of Buyers Power of buyers describes how much pressure customers can place on Citibank’s business. If one customer has an impact large enough to affect the company's margins and volumes, then this customer holds substantial power. Citibank strongly depends on their multinational customers, who represent only a small number of buyers, while purchasing large volumes. Switching to subsidy (competitive) product is not simple - but possible. The financial product and services Citibank is offering is extremely important to the buyer, they can not operate without it for a certain period of time. Surprisingly customers are not too price sensitive in the bank sector - up to certain extend obviously. Important for the customer is the trust and the security of the products/ services a bank offers. This could turn into a trap for Citibank. They must reach their ambitious growth and profit aims demanded by the shareholders but simultaneously have to hold the global orientation with deep local roots in every market operating in, in order to maintain the loyalty of their customers – the important local touch.
3.1.4 Availability of Substitutes What is the likelihood that customers will switch to a competitive product or service? If the cost of switching is low, then this poses to be a serious threat. The main issue is the similarity of substitutes. If the price of the financial products rise substantially, a customer is likely to switch to a competitive (i.e. Deutsche Bank, ABN AMRO) because the products are offering same value/ service, but it’s more difficult to find a competitor with as much international experience as Citibank has. In 2002, Citibank celebrated its 100th year of operations in China, Hong Kong, India, Japan, the Philippines & Singapore. Therefore, it’s –nowadays- nearly impossible to get a coequal substitute for Citibank’s e-business products and services.
3.1.5 Competitive Rivalry Last but not least, CR describes the intensity of competition between existing banks. Highly competitive industries like the financial industry generally produce high returns but the cost of competition is high, too. Many banks of about the same size are present at the financial market. However Citibank’s advantage is their global reach and their dominance. As part of a global financial institution that employs over 268,000 employees across 100 countries12, Citibank is uniquely positioned to serve its customers’ global needs. In the emerging markets where 86% of the world’s population live, accounting for 43% of the world’s purchasing power, Citibank had implemented an embedded bank strategy. That was, a bank that had roots in the country as deep as any local indigenous bank, building a broad customer base, offering diverse products, actively participating in the community and recruiting staff and senior management from the local population. This local commitment and history together with the global reach and expertise is a powerful combination that sets Citibank apart from its competition. The main advantage Citibank can use is its ability to provide corporate customers the most cost-effective, cutting edge, reliable and secure solutions.13 Furthermore Citibank Named World's Best Internet Bank, World's
11 12 13
Business News Americas Mexico, 9. march 2001. Annual Report Citigroup, 2001. Bruno, 2001.
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Best Online Cash Management Bank and World's Best Corporate/Institutional Bank14 proving their outstanding position in the e-business.
3.2 Transactional environment possibilities 3.2.1 Outsourcing Outsourcing of a mainframe data centre environment has become an accepted strategy by many organizations to help achieve their corporate goals. What was once considered a “core competency” of a company has become a utility. Their best Information Technology staff should be focused on new initiatives that make a company more competitive in the market place. This can be achieved through reducing costs or by the strategic goal of increasing revenues through new services and channels of distribution. Placing Citibank’s mainframe data centre in hands of an organization, whose “core competency” is infrastructure support, can be seen as one example. Cost reduction remains a major objective of an outsourcing engagement, but there are many other reasons that cause the investigation of outsourcing.
3.2.2 Takeovers/Mergers The issue of takeovers, mergers & acquisitions has to be seen in two dimensions. First possibility is that Citibank merges or takes over another bank to improve their e-business, while “just” buying competitive market share, secondly they can acquire helpful IT firms. When two banks merge the risk ramifications on the IT departments cannot be overstated. Daily complexities and challenges experienced by one bank become exponentially magnified when combined with the complexities and challenges of another. It is safe to say that unless both banks have a systematic methodology to manage change, this merger will be much more difficult and expensive to control than it really has to be. Understanding that the touch points between the two IT departments go much broader and deeper than the technical layer, leaders in both organizations must pay primary attention to the personnel issues involved. Executive leaders on both sides must become acutely aware of the behaviour changes and begin managing expectations in a proactive manner from the outset. The work force part is always the most daunting and complex part of the merger equation. While engaging in personnel communication campaigns and performing baseline assessments, the real detailed IT operations and infrastructure assessment are critical to perform in a holistic approach. This requires formal documentation of all technical touch points, digital assets & devices, information / transaction flows, outsource relationships, etc. Only by performing this deeper level analysis both companies will become aware of the potential liabilities and points of failure that exist within either of the IT departments. For example, if the assessment finds that the target bank does not do regular security checks on their outsourced on-line banking host provider, the acquiring bank may become liable for this failure to follow a federal banking regulation.
3.2.3 Trust / Brand Reputation “We have a tremendously strong brand. People know us as a huge global bank that’s very innovative. People expect us, then, to have a footprint in the e-space. We build our brand by presenting at a lot of major conferences around the world.”15 Thus the global Citibank brand is one crucial point in their strategy to reach corporate customers from among the 500 Fortunes to the little retailer. The brand has to accomplish several tasks:16 •
14 15 16
Make the Citibank brand name an attractor and a trigger
http://www.citibank.com/e-business/homepage, 29.10.2002. Clark, 2001. Boucaud, 2002.
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•
Make scale a competitive advantage
•
Make the name support a price premium
•
Make the name recognizable and relevant around the world
•
With a single Brand promise worldwide, Citibank is able to speak regardless of geography, with a single voice and greater efficiency
•
No matter what the mission of a customer is, the Citibank brand should support their efforts in providing trust to the stakeholders of the companies
3.2.4 Fluctuation of high potentials – brain drain As announced in 1997 as the “War for talent”17 by McKinsey, it was difficult to recruit the needed highly talented and educated personal to subsist in a fast changing e-business environment. However, in these days basic conditions changed completely. Citibank does not have to equip admirable first year personal with stock option rights or company cars and furthermore Citibank is not afraid losing experts by fluctuation in these days. Notwithstanding this matter of fact Citibank’s E-Business division has to be aware of the problem loosing high-potentials in the future, hence they have to create a work environment employees do appreciate.
3.2.5 Conclusion The Internet had touched many areas in banking and changed the way institutions & companies make strategic decisions. At the same time, technology changed customers’ expectations and needs. It is a challenge for Citibank to translate its traditional strengths to the Internet and additionally in a way which adds value to its customers. Citibank was responding to this challenge by: •
Web-enabling access points to allow customers to connect seamlessly to Citibank
•
Building a new global infrastructure to deliver products and services on-line
•
Integrating products in new ways
In a business environment where change is inevitable, Citibank needs a distinctive strategic direction that creates competitive advantages that cannot be easily replicated by competition. In addition, Citibank needs to make global transformation to deliver its e-business strategy and create a culture that would embrace the econcept, a key element of a highly integrated e-business.
17
Results of the 5 Force Analysis at a glance Strong brand recognition One source – all products Competative advantage High fixed costs of Citi
Many suppliers of e-products Financial products not affected by suppliers Lower profitability of supplier than Citi No threat of outsorcing core competences
Addiction to big clients Obligation to reach ambitious goals Keep loyality of customers
Substitutes are avaible Global presence as key advantage Citi expierence in foreign markets
Micheals et al, 2001.
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4 CITIBANK ENVIRONMENT – CONTEXTUAL ENVIRONMENT –
Business idea Transactional environment Contextual environment
4.1 Economic Growth Former outlooks of the global economy often had been proved wrong. It is very difficult to foresee the development of the world economy throughout the next few years. Too many unpredictable things can happen like the attack on the World Trade Centre, which had led the world economy into difficult times. But for a multinational company like the Citibank the global development has a very high impact on its
businesses because during a downturn all related business areas are affected. Of course Citicorp and its e-business division as well as all the others. The world economy has the highest impacts of the uncertain elements on the businesses of Citibank.18
4.2 Sophisticated Customers Citibank is an expert to serve different market segments. However, with the high growth of Internet, Citibank had to follow its clients and become e-enabled to be able to maintain high level of service at a lowest possible cost. Sophisticated corporate customers began to look for an additional range of services. They wanted to have access to more efficient Web-enabled financial processes19 that would allow them to conduct business over a single system, coordinated with all their financial needs. Clients were demanding services such as payments, collections, disbursements and data reporting to develop as part of banks' e-business agenda. Clearly, a product corporations wanted to buy from banks was integrated working capital management. Banks that could not keep up forced its clients to establish financial shared services centres (SSC) (e.g. Whirlpool) that disinter mediated banks. Therefore, customer was evolving as bank’s direct competitor. Middle markets were also driving the growing need for Internet banking capabilities. Over half of the middle-market companies in the US and Canada were using their financial institutions’ on-line banking facilities more often20. Nearly 50 per cent of respondents said on-line offerings were important issue of 18 19 20
http://www.oecd.org/pdf/M00034000/M00034944.pdf (looked up 10/30/2002). Cockerill, C. (2001), “Cash management takes to the Internet,” Euromoney, Iss. 381, London, January, p. 105. From a study of Greenwich Associates (May-June 2001).
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their banking relationships and cash management had the steepest gain in usage among mid-size companies.21 Banks were therefore pressured to identify what companies were looking for and to keep up with the customers with whom they were supposed to develop “advice-giving” relationships. Therefore, banks started to rethink their traditional cash management services as their customers press on innovation. On the other hand, in today’s economic slowdown banks attempt to cut costs, while customers are demanding more as technology, and global growth continues to drive change in the industry. The technology that allows banks to offer internet banking solutions is just several years old, and there is a lot more potential to be explored. Therefore, Citibank should invest in IT on a more traditional basis with clear economic benefits, not based on inflated valuations of imaginary growth as it happened during dot.com bubble. Becoming a net player does not necessary mean being successful. Nowadays, web is a tool to improve current business processes22 – not a business unto itself.23 However, logistics of this tool has to be studies thoroughly because it distinguishes time-honoured methods and looking 5 years ahead, e-business will transfer itself into self-standing business. This is one of the new ideas (see Hot Ideas, chapter 10, at the end of the report) Citibank should consider.
4.3 B2B Market Sophisticated clients were looking for ways to streamline and improve their traditional payment processes. They demanded electronic invoicing, automatic application of payments to accounts receivable, on-line payment guarantees and non-repudiation of transactions that could be enabled by digital receipts stored in archives. On the payment side of the transaction, businesses required multi-currency payment management and payment aggregation by invoice and currency. Most companies were interested in technological solutions that allowed them to avoid paper disputes, which meant that the information flowing with a payment was deemed to be as important as the payment.24 TowerGroup predicted that payment activities would migrate to the Internet and that there would be US$4 trillion in B2B e-payments activities by 2010. TowerGroup also reported that in 2000 more than 90 per cent of all B2B payments were made by cheque, with seven per cent occurring over automated clearinghouse (ACH) network, a non-Internet system designed to handle large payments, and the rest using financial EDI services such as Fedwire.25 The majority of small businesses used traditional payments such as cheques; large companies that used ACH did not have the complete data that surrounded a B2B payment. In addition to cheques, various payment methods were available, with clearance time varying according to the method: •
Notes and coins – Notes and coins paid into an account did not require clearing; it had no particular attraction to a bank, especially in large volumes, because they were a non-interestbearing item
•
Banker’s draft – A cheque drawn on a bank. A payment by banker’s draft was guaranteed.
•
Credit cards – Made by voucher or electronically; voucher payments were processed in similar way to cheques.
•
Special presentation of cheques – Taken only in cases of extreme doubt about the customer; for example, the payee company could ask its bank to make a special presentation of the cheque by posting the cheque to the paying customer’s bank.
21 Rountree, D. (2001), “Importance of on-line banking,” Bank Technology News, 14(11), New York, 2 November, p. 86. 22 Winter, 2001. 23 Business Week, May 13, 2002, “How E-Biz Rose, Fell, and will Rise anew”. 24 For example, if a company shipped a buyer 100 products at US$10 per piece, but five of the products were defective, the company might simply remit US$950 electronically without any information about the defective products. In such a case, there would be greater possibility of costly payment processes because of back and forth inquiries. The solution would be to send a paper explanation; however this could translate to additional billing inquiries and disputes. 25 To use the ACH network, a company is required to have US$10 million to US$50 million in annual revenues.
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•
Transfers – Funds were transferred from one bank account to another on receipt of instructions (through telephone, subsequently confirmed by writing, on paper, sent by cable, telex or electronic processing centre) by the paying bank to make the payment.
All these old-fashioned methods of delivering banking services were time consuming and not efficient. This led the business community to the Internet usage in banking.
4.4 B2B EBPP Celent Communications explored the upcoming market for business-to-business (B2B) electronic bill presentment and payment (EBPP)26. Over the past few years financial institutions and billers have focused on offering consumers EBPP solutions, and until recently, have ignored a very lucrative sector of the market, the B2B side. As a result bill issuance and payment process remained inefficient so that business had to dedicate immense resources and sustain substantial costs to process many bills and invoices. Celent Communications predicted that the number of Electronic Invoicing will go up steadily by 2005, as companies see this as part of the cost cutting procedures. Although there are fewer customers in the B2B market than in B2C, the complexity and number of bills and invoices is larger and their dollar value is considerably greater. This market potential for B2B EBPP is slowly being recognized as businesses and solution providers realize the tremendous economic benefit and revenue potential. Within the past year, several solutions have emerged and the focus in the EBPP market is starting to shift to the B2B sector. B2B EBPP is a new technology and needs to be explored before it becomes a new standard. There are constrains for possible fast adoption: • Time required to implement it into real life •
Persuade customers to restructure the payment processes and systems around an electronic solution.
•
Lack of existing standards and comprehensive solutions
•
Solutions involve not only banks but also software vendors, which are automating the financial supply chain.
•
However, in the long-run is extremely promising for the B2B EBPP.
The other report of Celent Communications looks at B2B payments from another point of view.27 It evaluates spending side on B2B EBPP solutions in the Financial Services Globally. Banks have realized the potential of B2B EBPP and started to invest heavily to come up with the cost savings solutions that would withstand the critics.
26
Ariana-Michele Moore, Celent Communications (April 5, 2001), “Putting B2B into EBPP: A Market Overview”. 27 Ariana-Michele Moore, Celent Communications (June 22, 2001), “Ranking the Vendors of B2B EBPP Solutions”.
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Financial institutions have the potential to play a large role in the B2B EBPP market. Situated at the heart of the payments infrastructure and cash management solutions, they are well positioned to offer the solution to Fortune 1000 customers. Celent predicts that annual spending on B2B EBPP solutions will increase from US$27 million in 2000 to over US$100 million in 2005. Provided that Citibank keeps investing in these tools rationally and makes efficient use of the technology, it can become a leader in the industry. Citibank is strategically positioned to serve the biggest customers. Europe has been ahead in eBanking. Despite the success of paperless payments in Europe, the check continues to be the payment vehicle of choice in the U.S. Of the nine billion of B2B payments made in 2001, 82% were made by check, while of the US$31 trillion in B2B payments, 65% was accounted for by checks. ACH payments were a distant second with 13% and 34%, respectively.28
"The migration of B2B payments to electronic channels in the U.S. will be an evolutionary process," says Grealish (Celent Communications). "There are no revolutions in the wings. Gradually propelled by both bank and non-bank initiatives to automate the financial supply chain, electronic payments will overtake the check in terms of total value of transactions by 2008. In terms of volume, the check will continue to reign through the end of this decade.” Both Celent Communications charts clearly show the trends and developments in the industry. B2B e-Business is where profits will be made. The dot.com frenzy saw plenty of casualties, especially B2C ventures. Although some notable companies survived, few made money. Only a minority had a decent business plan or an efficient supply chain to ensure success. That focus has changed. Success stories around e-procurement will continue to build. And B2B e-Business will affect every stage of the supply chain.29 This is where Citibank should be rational with its investments. It is obvious that electronic era will come, but the question remains when it will be standard.
28 Grelish, Celent Communications (Feb 13, 2002), “Business-to-Business Payment Systems: Does Reality Byte?”. 29 Deloitte Consulting (Dec 2001), “E-Outlooks: the top ten e-business Hot Topics for 2001”.
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4.5 Internet Banking Developments The general e-Banking trends are30: •
Institutions with Internet banking outperformed non-Internet banks in terms of profitability.
•
Among the key bank characteristics explaining which banks have chosen to offer Internet banking are membership in a bank holding company, physical location of the bank in an urban area, relatively higher premises.
•
Among banks that offer Internet banking, larger banks and banks that offered the service for a longer time were significantly more likely to offer a wider range of services on the Internet. Large banks have more aggressive plans to offer business Internet banking services in the future than small institutions.
•
Despite the sluggish world economic growth, US banks are likely to increase their technology spending this year by over 4% compared to 2001. Top banks are spending in excess of US$2 billion each annually on technology, with Citibank reaching a staggering spending level of US$5 billion in 2002. Very large proportions of banks’ IT spending is to maintain existing infrastructure and increasingly to gain additional market share from competitors. Large banks tend to spend 25% of expenses in IT.31
Do banks see clear economic benefits from such IT investment? Are they going to earn it back anytime in the foreseeable future? Wouldn’t it better to wait and invest when more information is available on ebanking adoption rates, use of the channels and the real need of the customers? Given the high cost, long lead times, and commoditized nature of the current online experience, it is still optimal today to be a fast follower in the NET. It is important, however, to restructure banks’ traditional models, adjust them for online channel, and test for feasibility. Treating the online space as a ‘real’ business will enable banks to stay at the forefront, while remaining cost competitive in today’s challenging business environment. Online Banking has been around for a while and key lessons learned from the first wave are as follows32: • Consumers have demonstrated a strong preference for completing core-banking functions online •
Consumers have not adopted peripheral offerings for either products, content (information, news & weather), or alternative channels (wireless).
•
Those consumers who deal with their institution online are generally more attractive demographically and behaviorally than average bank customers
•
The number of online customers appears to peak at about 15-20% of a bank’s total customer base
30 Karen Furst, William W. Lang, and Daniel E. Nolle (2000), Economic and Policy Analysis Working Paper, “Internet Banking: Developments and Prospect”. 31 Celent Communications (Jan 2002), “I.T. Budgets at U.S. Banks continue to grow, despite Recession”. 32 Deloitte Research, 2002, “Top Ten Global Banking and Securities Trends”.
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However, Citibank should also consider human factor in the changes every new client has to go through when scraping their existing cash management system. Despite the fact that there are clear economic benefits and great ideas behind internet banking, could it be implemented in real life fast enough and without problems? How will client’s employees perceive this change? This issue is introduced as a one of the Hot Ideas (chapter 10, consultant idea) at the end of the report.
4.6 Competition Some multinational companies could not wait for banks to develop Web-enabled financial products so they started building their own systems and looking for ways to disintermediate banks. Other corporations approached the banks and signified their interest in participating in future developments. New technology, however, required major investments in people, risk and technological services that some banks were not ready to make – the banking industry’s trend towards consolidation meant that fewer banks were competing at the global transactions services marketplace. Deutsche Bank and Citibank were two leading banks that had invested hundreds of millions of dollars in the infrastructure required to move and monitor cash balances on-line. In 2001 Deutsche Bank was building a global payment system (db-eBills) capable of accommodating many currencies, languages and local business practices. This was a serious push to outdo the rest of the competition, but DB still remained mainly dominant in Europe, while Citibank was associated with global highest quality service. ABN AMRO was also making a serious push to develop its product range. It offered clients the opportunity to outsource the use of a multi-counterparty treasury management system33. Clients could make savings by outsourcing because they did not have to buy all the necessary workstation and hire additional stuff. ABN-AMRO used the same systems and people for several clients at the same time. In international cash management (ICM), companies either partnered with a lead bank that put together a solution for them, or dealt directly with local banks. The majority of companies used a lead bank to provide a solution in four ways: using correspondent banks, acting as an overlay bank, becoming a member of a banking club or bringing together a network of standardized service providers. Most of the Fortune 500 companies preferred Citibank when making international e-payments34. Although Citibank established itself as a strong contender in the e-payment space, technology companies competed heavily by using their technological expertise and interests in providing new services.
4.7 E-Business Major trends of the e-business in 200235: •
E-Business Spending: 18% of IT Budgets
•
Results indicate that e-business will account for 18.2 percent of IT budgets in 2002, equating to over $240 billion of global spending.
•
E-Business Spending to Outgrow IT Spending
•
E-business spending will grow at 10.6 percent in 2002, compared to overall IT spending growth of 4.4 percent.
33 Rappaport InstitutionalInvestor.com, 04/08/02, “Banks Rethink Cash Management, Turn Toward Modernization”. 34 Clark, P. (2001), “No longer banking on exchanges,” B to B, 86(13), 25 June, p. 13. 35 A.T. Kearney and Sun Microsystems (November 2001), Line 56, survey of 259 e-business executives from a variety of industries regarding their e-business strategies and spending for 2002.
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•
Development Priorities for 2002
•
Respondents ranked business intelligence/analytics and sell-side initiatives, such as CRM and catalogs, of highest importance in their 2002 plans.
•
E-Business Drivers and Barriers
•
The need to increase sales and revenue and gain competitive advantage are the two biggest drivers of adoption, while implementation costs and budget constraints are the major barriers.
•
Early Adoption of Web Services
•
Web services is set to become a major method for interacting with trading partners in 2002. Also, portals and extranets both ranked above private and public exchanges as means for engaging with trading partners.
•
Financial Viability of Vendors a Major Factor
•
The financial viability of vendors has loomed as a major factor for vendor selection, equal with ROI models.
•
E-Business and Corporate Strategy Alignment
•
The majority of respondents indicated that their e-business strategies are either fully aligned and developed simultaneously with corporate strategy, or developed with direct reference to corporate strategy.
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In general, business world started to realize that e-business should be integrated beyond the enterprise. Deloitte Consulting advises that E-Business is a new necessity that extends the ability to synchronize systems with business partners. It's getting hard to see where one company's systems start and their suppliers' systems end. A happy customer is one that doesn't know or care who handles which part of a service they receive. Seamless systems make this possible36.
4.8 Technology Developments Despite tighter budgets and more pressure to deliver, new technologies are coming to market that have the potential of making a dramatic impact on the way corporate America does business. Technology Trends takes an early look at several new technologies poised to solve challenges in chip performance, information storage and bandwidth. • Reconfigurable Chips-This article studies a processor that can be programmed in the field to perform different tasks while data is flowing. •
Information Storage-To handle the continuous increase in data, information plants will replace servers at corporate data centers.
•
Passive Optical Networks-This technology is emerging to deploy the last mile of bandwidth to small- to medium-business and residential markets.
New technologies could be very important for Citibank. Maybe, some new technology would allow Citibank to deliver their service faster, more secure, and more reliable. New technologies could also prove to be cheaper in the long run.37
4.9 Emerging Markets Citibank has a long-standing presence in emerging markets, which includes all locations outside North America, Western Europe and Japan. Citicorp’s Emerging Markets Corporate Banking and Global Transaction Services (EM Corporate & GTS) business offers a wide array of banking and financial services products and services that help multinational and local companies fulfil their financial goals or needs. Citicorp’s strategies focus on its plans to gain market share in selected priority emerging market countries and to establish Citibank as a local bank as well as a leading international bank. Citibank typically enters a country to serve global customers, providing them with cash management, trade services, short-term loans and foreign-exchange services. These services are also part of Citibank’s global E-Business strategy and therefore, are the next step to be offered there. With the lack of technology, finance, and know-how in emerging markets, adoption of the e-payment would be slower than in developed countries. However, it is essential to provide global payment solution to be able to attract Fortune 500 companies, who intensively more towards emerging markets seeking cheaper labour costs. Emerging markets are projected to grow at least twice as fast as the OECD countries. Also, they have younger populations that are entering the consumer economy. Real competition in emerging markets is 36 Deloitte Consulting (Dec 2001), E-Outlooks: the top ten e-business Hot Topics for 2001. 37 Kranzley, 2001.
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HSBC in Asia and the Spanish banks in Latin America. Nevertheless, Citi had $11 billion in revenue from emerging markets and $2.7 billion in net income38. If this were a stand-alone business, it would rank in the Fortune 500. However, volatility, with all its risks, is the major problem in EM. This volatility could kill local banks, but it shouldn’t kill Citibank thanks to its size and geographical diversification. This is a perfect time to acquire competence in EM and gain sizable market share. For instance, Citi gained on the deposit side and on the lending side during the Asia crisis.
4.10 E-business security E-business security is becoming more and more important. Through the continued growing of ebusiness the whole business world becomes more and more vulnerable to hackers, viruses and other security risks. Nowadays two third of people who are involved in e-business activities are saying that their e-business activities are vulnerable to security breaches and even 87% have the opinion that it is getting harder to ensure secure applications.39 These risks can have tremendous effect on the companies. Important data can be lost, the connection to the customer can break down or even confidential data can be stolen. Forecasts say that these security concerns will become more and more important in the future and that all businesses have to invest more money in this sector to keep security of the company on a high level and to maintain the trust of the customers. Especially for a bank like Citibank, which handles such a sensible good like money, security has to be ranked among the top e-business challenges.40 Anyone who has not done so already should take an interest in computer security. Unfortunately there is no single right answer to the problem. What is appropriate for a bank, for example, would be overkill for a small company. Technology is merely part of the answer, but it has an important role to play.41 "Despite the fact that the global turmoil is expected to continue for some time, history has proven that in times of war, technology's boundaries are expanded at a rapid pace. The result is that society at large is usually the ultimate beneficiary," said Mark Evans, managing director of Deloitte & Touche's Technology, Media & Telecommunications Group (TMT) based in Silicon Valley. "With the threat of terrorism, security moves to the forefront of priorities for corporate America."42
4.11 Terrorist Attacks The latest horrible events are showing that there is still a threat against Americans, American companies or institutions that are a symbol for the American way of life. Citibank is the world biggest bank with its headquarter in the United States. It is a symbol for the Western capitalism and therefore always exposed to the threat of Islamic extremists. 38 Business Week Online, 8/13/2001, “Emerging Markets 'Will Grow...Twice as Fast.'” 39 Network World, “Security concerns dominate NW500 survey”; Suzanne Gaspar;05/07/01 40 Network World, 05/07/01, “Top e-business challenges” 41 The Economist, Oct 24th 2002, “SURVEY: DIGITAL SECURITY” 42 Deloitte & Touche and Deloitte Consulting, Fall 2001 Technology Trends "Staying the Course".
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Vice President Dick Cheney said last weekend the prospects of a future terrorist attack in this country are "almost a certainty."43 This shows that the danger is not banned already and that terrorist attacks can occur wherever and whenever. The Citibank is exposed to this risk in two different ways: • A Citibank facility can be hit directly with the result that e-business recourses, data and human recourses will be lost. •
Also if another situation will be hit, Citibank will suffer of the shock which will hinder the economic development in the U.S. but also worldwide.
Looking Ahead: Post 9/1144 Technology Trends focuses on ways companies can proactively protect them against the very real threat of cyber terrorism and plan for disaster recovery. Cyber Terrorism-Companies need to revaluate their own vulnerability to cyber attacks, many of which could come in the form of computer viruses. IT security is no longer a luxury, it is a necessity. • Disaster Recovery-Companies are now taking a serious look at their disaster recovery systems for securing data. The article advises companies on what to do once damage has been done and examines technologies, such as EMC's remote mirroring technology, as a way to ensure data recovery after a disaster. Citibank should consider this threat very seriously as it may damage Citibank’s image and brand. Customers might consider leaving their bank, should they experience a few days downtime, not saying about complete crash of financial/banking system, which could be the result of terrorist attack. Citibank has the strongest brand in the banking industry and it should strive to maintain by all means.
4.12 E-Banking regulations Political e-business regulations differ from country to country, so it will be a difficult task for the future to find a common worldwide standard. As it concerns Citibank, a worldwide standard would be very helpful and cost cutting. But it will last many years until this will be fulfilled. In the meantime all the different regulations like privacy laws, which content is allowed to be published, regulations concerning the electronic signature, etc. have to be considered. Another topic is laws against money laundering. Citibank is probably the biggest money launderer worldwide. It handles these activities via private banking and correspondent banking. Estimates by experts place the rate of return in the private banking market between 20-25% annually.45. If governments ally to fight the laundering money market, and they do increasingly do that after September 11th terrorist attacks, a highly profitable market can be lost. Furthermore the outcomes can severely damage the reputation of Citibank.
43 USA TODAY; “Terrorist attack an 'economic wild card'”, 05/22/2002. 44 Deloitte & Touche and Deloitte Consulting, Fall 2001 Technology Trends "Staying the Course". 45 James Petras , La Jornada, 19th May 2001, "Dirty Money" Foundation of US Growth and Empire.
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4.13 What is really uncertain…? – Key uncertainties and options at one view -
Predetermined Elements
Key Uncertainties
High
E-business development
Impact
B2B EBPP
Key Drivers of Change
Economic development
Competition Internet Banking dev.
E-Business security
Sophisticated customers
Emerging markets.
B2B Market
Technology dev. Terrorist Attacks
E-Banking regulations
Low
Uncertainty
Low
Strategy evaluation & development
High
Scenario development
5 SWOT ANALYSIS – AT A GLANCE – Following we summarize the most important strengths, weaknesses, opportunities and threats we found out until now.
5.1 Strengths of Citibank’s e-business Brand Image Citibank is the biggest bank in the world and the best known. It has a very high reputation (see customer satisfaction) and this reputation is transferable to the e-business section. The good brand image of Citibank makes it easier to attract new customers and helps to maintain the current customer base. It is easier for a new customer to trust in a well-established brand than in a new evolved bank he knows nothing about. The brand image of Citibank creates a competitive advantage to the competition. Global operating Citibank operates across over 100 countries and serves over 192 million customers. This unique network allows especially multi-national customers to use the same bank for all its subsidiaries. (see 15.11.2002
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chapter 1) This global experience provides Citibank an advantage over competition (e.g. Deutsche Bank, ABN Amro), which tended to focus pan-European, only.
Product/service variety The high amount of products offered is a strong asset of the Citibank. The costumer has all products from one single provider. That makes it easy and cost efficient and the probability of changing the bank decreases. (see Chapter 1.2 & 1.3) Bargaining power Citibank represents the consumer and corporate banking arm of the financial services giant Citigroup, which had US$ million 54.498 tier 1 capital, in 2001.The size of the company allows Citibank to negotiate from a very strong position with its suppliers. Hence the prices of the supplied goods are very competitive. Furthermore the suppliers have to react flexible to the demands of Citibank, additionally this strong bargaining power allows Citibank to remain flexible to any market changes demanded by the corporate customer. Customer satisfaction According to the Global Custodian magazine, Citibank is the only bank worldwide that received “toprated” or “commended” status in 18 of 19 major markets concerning topics like corporate actions, valueadded service, technology and client service among others.46 Additionally Citibank became “Global bank of the year” in 2001.47These results outline high satisfaction, which result in high customer loyalty. R&D/Pioneering Citibank signifies interest in participating in future developments and understands that they must embrace technology to remain competitive in a market characterized by rapid technological innovation, continual pressures for cost containment and high demands for customer transaction convenience. New technology, however, requires major investments in people, risk and technological services. Therefore Citibank has to consider while attempting R&D, if there will be a reward in terms of profit for any development they are facing. But not every e-commerce project involves massive infrastructure and development investments. Therefore the price performance relationship has to be considered and the strategic partners must be used wisely, thus past maverick strategies of Citibank proved false. Dynamic Pricing Dynamic pricing are the analytics and business rules that automate and report point-of-sale decision making. This is a cruel factor for Citibank, thus customers want access and service 24x7x365 and also they want choice, convenience, quality and low prices– all at the same time. Additionally competition is everywhere; Barriers to entry have reduced. Citibank’s E-business strategy can cope with these demands; they are able to pinpoint their offers from one data centre throughout the globe. Therefore future strategies have to carefully consider competition and market demand (customer), in order to remain a step ahead competition. 5.2 Weaknesses of Citibank’s e-business E-business actually operates in the red In the fiscal year 2001 Citibank’s e-business operated in the red. Those costs are unavoidable, thus the Citibank has to operate regardless whether demand is in existence or not. High fixed costs Due to fact that Citibank is present in nearly all relevant markets it has a huge network of regional centers, service centers, etc., which have to be maintained despite the economic situation. This can deliver the risk that e.g. in countries like Argentina where an economic crisis occurred, the turnover falls rapidly but the costs remain on the same level. To stay in those markets this risk has to be taken.
46 http://www.citibank.com.tr/citigroup/press/020926b.htm. 47 The Banker, 2001.
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Banking risks The e-bank is like a regular bank exposed to the normal banking risks like interest risk, credit risk or liquidity risk.48 Reputation risks “Any problems with either security or legal issues can significantly impact the reputation of the bank”49 Trust and confidence of the consumer is a very important issue of any bank but especially for ebusiness it is crucial. There are many possibilities how the reputation can suffer. First there are the security risks like Hacker attacks as the best known risk but also “spoofing” where bank customers are directed toward a false site, can lead to irreparable loss of trust between the customer and the bank.50 But also claims against the bank, its employees or affiliates can damage the brand image of the Bank. Strategic Partners (see Chapter 3.2.1) Some areas like software development and/ or system development do not belong to the core activity of Citibank. Therefore cooperation with strong strategic partners in order to get the necessary expertise and sophisticated products is inevitable to maintain its strong market position in future.
5.3 Opportunities and Threats of Citibank’s e-business Opportunities and threats are handled in the transactional part. (Chapter 3)
5.4 SWOT Diagram
STRENGTHS (internal) • • • • • • •
Brand Image Global operating Product/service variety Bargaining power Customer loyalty R&D/ pioneering Dynamic pricing opportunities
OPPORTUNITIES (external) • • • • •
WEAKNESSES (internal)
Strategic Partners Sophisticated customer B2B&B2C market Prospering world economy/ e-business Low government impact
• • • • •
E-business operates in the red High fixed costs Banking risks Reputation risks Addiction to big multinationals
THREATS (external) • • • • •
Legal issues Competition E-Business security Terrorist attacks on world economy World economy/ e-business downturns
All the analyzed strengths, weaknesses, opportunities and threats we translated to options and key uncertainties, are now to be looked. First we begin with developing the scenarios.
48 Pennathur; P. 2113, 2001. 49 Pennathur; P. 2112, 2001. 50 Pennathur; P. 2113, 2001.
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6 POSSIBLE SCENARIOS – THE UNCERTAIN FUTURE 6.1 Possible, plausible scenarios – What will it be tomorrow ? After eliminating the key uncertainties “Economic development” and “E-Business development”, it is now possible to create possible scenarios. The most contrasted points of view regarding economic development are a possible global economic growth (A’) or a global recession (A’’). In addition the two sides of E-business development are an explosive development of e-business (B’’) or, on the other hand, a very slow progress of e-business (B’). The possibility of a recession in economy and an explosive development of e-business are not completely inconceivable, however it is not very likely. Thus we excluded this, in its extremes rather contradictorily, scenario. (A’’ B’’) In result this leads us to three possible scenarios: Economic growth with either strong e-business development (A’ B’, A’ B’’) or an economical slowdown with only little economic development. (A’’ B’)
6.2 Value of the business idea in the scenarios The business idea of Citibank (connect, transform, extend) works perfectly in a fast growing economy with explosive e-business development (A’B’). In an economic growth and an e-business slowdown however it will be much more difficult to provide customers with e-business solutions (A’B’’), because for some reason customers prefer ordinary ways of payment. Understanding the reason why will be the key to acquire new customers. Finally in times of recession and slow e-business development (A’’B’’), the conventional e-business idea of Citibank is surely not enough. That inspired us to some ideas we describe in chapter 10.
A‘ growth
•B2B EBPP •Competition •E-Business Security
•B2B EBPP •Competition •E-Business Security
B‘ slow
B‘‘ explosive •B2B EBPP •Competition •E-Business Security
Contradictorily !
A‘‘ recession Chart: Scenario development Each option created in the previous chart is now to be tested in every possible scenario. Therefore it is possible to maintain an objective point of view how the options will behave in every possible future. The essence is not to evaluate a best, worst case scenario or to favourite one particular scenario, but to find out what the value of each option is. If an option yields value to Citibank in each scenario, it is more robust and will work in every possible future. In contrast if an option appears to be a good choice only in one scenario and a bad choice in the other scenarios it can be very dangerous to implement it if it suddenly changes into an unpredicted future. Following we have a look at the suitability of the options. 15.11.2002
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7 SUITABILITY, ACCEPTABILITY, FEASABILITY OF THE OPTIONS – IS EVERYBODY HAPPY?7.1 Suitability of the generated options in the scenarios 7.1.1 Scenario 1: Economic Growth & Explosive E-Business Development • •
• • •
• •
•
Citibank should invest in E-Security. It is increasingly important to consider E-Security as on of the major threats for businesses. E-Security has been ranked top of the list when responders were asked which of the business challenges the priority are. Should high growth future happen Citibank should consider its competitors and should react to what is happening in internet banking industry? However, during the rapid growth Citibank won’t have a problem getting new customers and expanding into emerging markets, and therefore competition should not be much of a problem. It also depends on how aggressive Citibank’s overall strategy is. Citibank should certainly expand into emerging markets, which are very likely to grow at a much faster pace during global growth. Citibank’s will have to follow its customers, should they decide to expand into emerging markets, open new factories, stores, etc. Investment in e-banking should be of the utmost importance during the expansion. Customers will demand better quality, speed, and reliability of the Cash Management products. Also, some new products should be developed and added to E-Business strategy. B2B EBPP will boost substantially. As companies start growing and are keen to use eproducts, they are very likely to change to this new cost-saving feature. Investment in B2B EBPP will be essential during growth scenario, as new standards have still to be explored and fully developed. It would be very interesting to see what development will happen in general and react to those – there is an ongoing need to monitor EBPP technologies. New e-banking products will have to be developed and delivered (very likely through internet channel) to Citibank’s customers. There will be growing demand for new products and developments. Outsourcing and focus on strategic partners is not one of the major concerns as Citibank does not run a high risk during the growth period. Given the increasing revenues, Citibank and its current partners should be able to create value for its customers of sufficient quality – therefore, there is no need to strive for new deals in the industry. Branding is one of the top banking challenges, but during economic growth Citibank should be able to maintain current top ranked brand name. It should monitor its operations and try to deliver best customer service, which is expected from Citibank.
7.1.2 Scenario 2: Economic Growth & Slow E-Business •
•
•
Citibank should invest in E-Security. Security is always a concern, no matter the environment. It is increasingly important to consider E-Security as on of the major threats for businesses. ESecurity has been ranked top of the list when responders were asked which of the business challenges the priority are. Especially in the situation when there is an economic growth, but slow development of the e-business, it is very likely that customers are simply reluctant to use e-products. Competition is important. When e-business of other banks will struggle, while other business are growing, they will try to develop some kind of new products, invest more money in sales force, lower prices, etc. It is very important to watch competition should such a scenario happen. Citibank should be very caution about expending into emerging markets, which are very likely to grow, but use of high-tech will be even lower than in developed market. If largest customers are reluctant to use e-payment in the developed countries, they won’t even think about it in emerging. Watching its customers and their need in bank e-products will determine when Citibank takes action in emerging markets.
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•
•
•
•
•
Investment in e-banking is important to the extant to attract customers and convince them to use Internet Banking. Security could be a concern here or customers might not see any benefits (cost-savings) in internet banking. Also, customers might see various difficulties to change its all working capital management into e-business solutions. Customer’s managers could be a problem because of the unwillingness to change what they are used to for many years – human factor. This issue should be considered very seriously by Citibank. Possible strategy to tackle this problem is presented in Hot Ideas section later in the report. B2B EBPP is likely to be slow. As e-business is slow, the process of standardizing of this technology will be slow as well. Banks should make some effort to try to use this technology in its products and see how it could be improved to attract more customers. Banks could also work together to develop one global solution and offer quality customer service. New e-banking products will have to be developed and delivered (very likely through internet channel) to Citibank’s customers. However, Citibank should focus on new products to attract customers. These new products will very likely be replacement for those that exist in Citi’s portfolio, but are not in demand. These new products should add extra value to the customer, when compared to current ones. Outsourcing and focus on strategic partners is something to be considered when ebusiness is slow despite good economic growth. Citibank might have a problem delivering IT solutions, which would work well with its banking products. Strategic IT partners could have more expertise, in cooperation with Citibank, to offer better customer service. Branding is one of the top banking challenges nowadays, as banks grow global where they are not yet known. Creating and maintaining strong brand has become an important management challenge. Citibank should align the whole organization and its processes to deliver a service that is promised by its current strong brand – customers choose for more expensive Citibank, because they expect higher level of service.
7.1.3 Scenario 3: Recession & Slow E-Business •
• •
•
•
•
E-Security, although always very important, should see some cut in spending. During recession and slow e-business Citibank will need to cut cots, as it is unlikely to get new customers and see revenue growth with its current clients. However, this cut should be only to the extant that it saves a little bit of costs, but still maintains reasonable level of security for its clients. Also, security spending should depend on the length of the downturn. Again, Competition is very important. Deutsche Bank, ABN-Amro, HSBC are very likely to reduce its prices, explore new solutions, seek profitable areas. Citibank should respond to that by taking similar actions and try to maintain its current clientele. Emerging markets are likely to be a problem. Citibank’s clientele won’t enter new markets during world economic slowdown to the extent that it would create some good revenues. It’s good time to acquire local banks in emerging market during the trouble times – they might be under priced. Investment in e-banking should be cut as well. Customers will be reluctant to adopt it and by the time world economy turns back to growth acquired technology might be outdated. Prices for that IT will also go down as economic situation will improve. It’s a good time for Citibank’s employees to gain some know-how in advisory services and adoption of the cash management solutions for its clients. Clients are unwilling to change unless banks will make sure change will be smooth with foreseeable results. B2B EBPP is likely to be slow. Banks will cut costs and will work very little on development of these new technologies. Without other players in the industry cooperating, Citibank will have trouble creating the standard by itself. On the other hand, it could be a good option to make Citibank’s way of e-banking a new standard for the industry – this might involve huge spending. This depends on the overall strategy of CitiGroup as a whole. New e-banking products won’t help Citibank to get more customers or increase the level of payments. New product should see some cut back in spending. They should only be developed in case customers as for them.
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• •
Outsourcing and focus on strategic partners is an important issue to be considered during slow times. By outsourcing and alliances Citibank should be able to diversify its risk and provide better solutions for its customers in the most effective way. Branding is, again, top banking challenge. Citibank should strive to maintain its current strong brand value during the hard times. These are the times when customers see how good is their bank and how much value it adds to the organization.
7.1.4 Suitability summary - CHART
Options Inv. In E-Security Reaction on competition Acces to emerging Markets Investment in E-Banking Investment in B2B EBPP new products Outsourcing of services Focus on Strategic Partners Inv. In Brand
Economic growth, Explosive E-Business developement ++ + ++ ++ ++ ++ 0 0 +
Economic growth, slow E-Business ++ ++ 0 + + + + + ++
Recession, slow EBusiness + ++ 0 0 ++ ++ ++
7.2 Acceptability of the generated options 7.2.1 Stakeholder mapping Acceptability is concerned with the expected performance outcomes of a strategy. These can be of three broad types. Return risk and stakeholder reactions, this point is discussed now. In general it is useful to use more than one approach. Stakeholder mapping identifies stakeholders’ expectations and power and helps in understanding political priorities. It underlines the importance of two issues. • How interested each stakeholder group is to impress its expectations on the organization’s purposes and choice of strategies •
Whether they have the power to influence is concerned with the power of stakeholder groups.51
The power interest matrix seeks to describe the political context within which an individual strategy would be pursued by classifying stakeholders in relation to the power they hold and the extent which they are likely to show interest in supporting or opposing a particular strategy. The matrix indicates the type of relationship which organisations typically might establish with stakeholder groups in different quadrants. The acceptability of strategies to key players (segment D) is of major importance. The most difficult issues are mostly related to segment C. Although these shareholders are in general passive,
Stakeholder mapping: the power/interest matrix Level of interest Low
High
B A Low Minimal Keep Informed effort Power
High
C D Keep Key satisfied Players
Source: Johnson et al., P. 208, 2002. 51
Johnson et al, P. 208, 2002.
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they could easily gain importance and move to segment D. A disastrous situation could arise when their level of interest is underrated. Citibank might meet expectations of stakeholders in segment B through information. These stakeholders can be crucially important “allies” in influencing the attitudes of more powerful stakeholders, for example through lobbying. The impact of the government regarding the time horizon of three years is rather slight and the level of interest might grows, however probably not fast enough.
The IT Supplier have a high level of interest in the development of our e-business strategy, because that is their source of income. As specified in the “Porter Analysis” the IT supplier market is broad enough to know that the influence of suppliers is limited.
Citibank Stakeholder mapping Level of interest Low Low
A Government
Power
High B Shareholder + IT Supplier Employees + Alliances +
High The shareholders are always an important Customers group to watch at. They have a high interest in a successful strategy of the company in order to maximize their profit out of the investment made. Citibank’s shareholders have to group Source: Johnson et al., P. 208, 2002. themselves to apply pressure to the management board, which remains to be difficult. That is the reason why the power of shareholders is currently low, but it can move quickly to segment D! C
D
Citibank’s employees have major interest in a powerful e-business strategy. Security of their positions is the crucial point, but the influence against a strategy decision is quite moderate. What could be more difficult then employees, who do not support the e-strategy but rather work against it? Thus, a good communication flow is one of the bases of a powerful strategy.
Alliances are a recent issue for Citibank. Historically they used to build up structures all alone, but they realized the importance in the field of e-business to build up alliances. Otherwise they can’t keep up with the speed demanded by today’s e-business reengineering. Partners simply provide the means to extend our offering to the marketplace. Additionally they allow reaching new sets of customers. Citibank is customer driven. They have to meet the customer needs, carefully listen and react on sophisticated requirements. Although we discovered that Citibank can benefit from their existing customer loyalty within the three years time horizon. They can totally influence any means of change and thereby have a disastrous influence on Citibank.
7.2.2 Acceptability of most important stakeholders to the generated options Previously we discovered the most important stakeholders. These are Customers, Shareholders and Employees. All these stakeholders support investing in E-Security. Furthermore they all agree on having an eye on Citibank’s competitors. (Imitate competitor products, keep market or first move advantage, time to market is time to money) Shareholders disfavor risky investments with unsure revenues in future and may constrict Citibank’s efforts to penetrate emerging Markets. Also general investment in E-Banking looks too unspecified for shareholders. Shareholders and customers would appreciate investing in products they really need: B2B EBPP, to ensure the daily trading. Outsourcing could be favored by shareholders, but be aware of your employees. If they do not feel confident within the organizational culture and fear the security of their position they simply would not support Citibank’s struggle for value creation. Hence take other options first into consideration. 15.11.2002
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Focusing on Strategic Partners is more appropriate in a slow economic environment. The brand name itself is one of the key assets of Citibank. Thus no important stakeholder group will bring arguments against maintaining and developing Citibank’s outstanding brand.
7.2.3 Feasibility – Can Citibank afford and realize? We have no insight into the internal financial information of Citibank, therefore we cannot comment on the feasibility of our recommendations in detail. However, we can extrapolate from the present financial statements of Citibank that a lack of financial capacity is not an obstacle in realizing strategic options.
8 STRATEGY RECOMMENDATIONS FOR CITIBANK - THE ESSENCE -
52
•
Invest in E-Business Security52 Customers expect Citibank’s products to work properly at the fist place, saying nothing about being secure. Most of the clients are unwilling to change to a new electronic payment system, as it involves additional risk. Clients will hate to see their systems hacked, data stolen and payments delayed. This will damage client’s reputation and consequently, Citibank’s image will suffer. Also, the growing threat of cyber terrorism should be taken very seriously and options are to be evaluated.
•
Have an eye on your competitors Citibank is certainly the best and the largest, and has been ranked the first in different areas banking many times. This is due to its innovative products, good organization, global reach, strategic view, etc. However, competitors are following very closely and they imitate every good product Citibank comes up with. Competitors watch every mistake Citibank does in the process and come up with good solutions to avoid those mistakes. Citibank is strongly advised to watch its competition and by all means try to maintain its current position and market share. Some kind of cooperation on the cash management division would add value to the society as a whole by making inter-bank payments smoother. This cooperation would especially be very effective in development of EBPP technology and setting up industry standards. Hence,
•
Invest in B2B EBPP products This technology is relatively new and is still to be explored. Most of the procurement process will eventually become part of the e-business strategy for most of the companies. This is due to the fact that electronic orders, electronic invoicing, electronic payments, etc. will become more efficient and cheaper. The question is not whether it will happen, but rather how soon it becomes standard. There is a lot to be done on the development of this technology and Citibank should play major role in doing that. Otherwise, it will have to pay huge licensing fees to be able to use the technology ones it is developed by competitors. Investing in EBPP will ensure Citibank stays ahead of competition in cash management business.
•
Invest in Brand As Citibank expand outside their around the world, entering markets where it is not yet known and trusted, creating strong brand has become an important management challenge. This is not to be done by high investments in advertising, but by alignment of the added value and business processes with the Citibank’s brand promise. By creating stronger brand, Citibank will achieve a strategic step ahead of the competition. This will allow Citibank to maintain its customer base and gain new customers.
Blair, 2001.
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9 SUGGESTIONS AS TO HOW TO IMPLEMENT THE STRATEGY FOR CITIBANK – JUST ONE TOUCH Because it was not the scope of the report to give a detailed explanation how to implement the recommendations, we just touch this important issue within this paragraph. Certainly one of the most important resources of Citibank is its work force. So the roles people play, the way they interact through formal and informal processes and the relationship that they build are crucial to the success of the strategy.53
Structure
Prozesses
Relationship and Boundaries
Source: Johnson, P. 420, 2002 An organisation’s configuration consists of the following organisational ‘strands’ and how they are blended together within the organisation: The broad structural design (of roles, responsibilities and lines of the communication flow) is an important influence on the success or failure of the strategy implemented. Failure to address issues of structure can, at a minimum, constrain strategy development and performance. But structure is not the formula for success, as too many managers have tended to believe. The processes that connect, drive and support the employees within and around an organisation will have a major influence on success or failure. These processes include formal systems and controls but also, most importantly, the informal ways in which people interact/communicate and the behaviours needed to gain success. How relationships within and beyond the organisation are fostered and maintained will also influence performance. An important part is how the boundaries between various ‘players’ are defined and sustained. This includes: how responsibility for strategic and operational decisions can be divided, issues of centralisation and devolution, where within the wider value chain activities are best located, the issues of outsourcing, relationships with partners and issues of strategic alliances.54 Chandler already stated in 1969, “Structure follows Strategy.”55 Hence one should not start looking at the structure of Citibank thinking of the implementation of the strategy, but start somewhere between the processes, the relationship and boundaries. Understanding both points will improve our speed of change. However, the task of implementation of our recommendations will not be dealt with in this report, we go one with some valuable realizations we made developing this report.
53 Pugh, 1984. 54 Johnson, P. 419 ff, 2002. 55 Chandler, P. 91, 1969.
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10 UNUSED RESOURCES – HOT IDEAS- FIGHTING THE PARADIGM Customers care about "e" and expect their firm to offer at least a minimum of capability. But are online financial services (consumer in particular) just going to be the next 'ATM'? Is that all there is? Many firms think so, at least for now, and have been scaling back their investments. However, this technology and channel is only several years old and there is a lot more potential to be explored. But this needs to be done on a more traditional basis, with clear economic benefits, not based on inflated valuations of hypothetical spin-offs. Your customers are online now - the challenge is figuring out how to fit the customer even closer to our business ideas – simply let the customer become a close part of Citibank! 56 "Despite market enthusiasm, adoption rates for the B2B EBPP market will be slow. The time required to implement a solution and persuade customers to transfer their systems to a solution will be significant impediments for the industry. These two impediments, coupled with the lack of existing standards and comprehensive solutions will greatly impact initial growth. However, the long-run is extremely promising for the B2B EBPP market," concludes Ms. Moore57. Given the high cost, long lead times, and commoditized nature of the current online experience, it is optimal today to be a fast follower in the NET. New organizational models that move the online channel closer to established businesses should be pursued, which includes subjecting business cases for online offers to traditional evaluation metrics. Firms should be vigilant about exploring any potential ‘killer applications’ that may be on the online horizon, but should stay cost-sensitive and use a ‘real options approach’ during investing. Treating the online space as a ‘real’ business will enable firms to stay at the forefront, while remaining cost competitive in today’s challenging business environment.58 Without Citibank’s paradigm in our heads we are able to look out of the window. Followed by our ‘three step plan’ for new, pioneering strategic ideas.
10.1 Building up the marketplace – The market place idea – After analyzing the transactional environment we became aware of the banal fact that our customers always have to cut costs, appending to the environmental situation in a more or less intensive manner. Cost cutting is surely the greatest task within a bad economic environment and in the opposite situation companies still have to trade a lot because of a still growing world economy. Citibank has 35,000 corporate customers that rely on a movement of US$ 1 trillion dollars a day59, so why do not they implement the next logical step? Web has just changed how technology applications and services are delivered. Corporate customers are already connected to Citibank, so lets start connect them. Would it not be a value added for entrepreneurs to choose out of a variety of suppliers and customers of the Citibank ebusiness marketplace? The advantages would be: •
Citibank already trades with 35.000 companies: That builds up trust between the companies
•
The E-payment is already provided by Citibank, so customers can rely on secure payments
•
Our marketplace grows over and above geographic barriers. A step towards the perfect marketplace, transparent and driven by supply and demand, while steered by the customer itself and controlled by Citibank
•
Customers can choose among the cheapest product, up to made-to-measure products worldwide
56 Deloitte Consulting (2002), “The top 10 global banking & securities trends”. 57 Ariana-Michele Moore, Celent Communications (April 5, 2001), “Putting B2B into EBPP: A Market Overview”. 58 Deloitte Research, 2002, “Top Ten Global Banking and Securities Trends”. 59 Clark, 2001.
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•
Citibank acts as a broker between the needs of their customers – provide customers with increased choice and convenience
•
Customers automatically use the financial products of Citibank to cover their trading
•
Citibank has the first move on a completely new market: competitive advantage – time to market, time to money -60
•
Outstanding global presence of Citibank is the key advantage in such a global solution
•
Customers generate value added for Citibank by trading on their platform
•
Hence Citibank would be able to gain market power in all scenarios. Accessibility and suitability is surely also given because it would generate new jobs and value added to the shareholders. In the first step they just would have to provide the e-business infrastructure to their customers and the
10.2 E-Business as a tool or a product? – The value added tool idea – The current strategy paradigm of Citibank (Connect, Transform, Extend) considers e-business to be a tool transporting the product to our corporate customer as a new distribution channel for the same products. That is not enough! The role of e-business changes from just being a new distribution tool, to be an integrated product itself; that creates value for Citibank.
10.3 Do service to your customer and understand your customer – The consultant idea Citibank is driven by the sophisticated needs of their customers. In interacting directly with each and every customer Citibank is able to collect extensive information about their customers. When do they make an order? Do their customers pay in time? Which company interacts with another company? How much do they order, how much do they pay? What are the peak-periods? Simply a straight customer driven approach is needed to hold first place – Customer is King! This is sensible information, but handled the right way it remains a treasure, which should not be underestimated. This e-knowledge associated with the experience of Citibank creates new value, which must be stored, analysed and evaluated by Citibank and its employees with expert knowledge in order to keep pace with the e-marketplace. By consulting customers not only in financial products, but also in finding solutions for their needs to trade with suppliers and customers, Citibank must consult them to find out how to improve business.
60 Allen et al., 2001.
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APPENDIX 1: CITIBANK E-BUSINESS E-SOLUTIONS Citibank e-Business e-Solutions responsibilities Sandy Weill Chairman
Deryck Maughan Internet Operating Group
Victor Menezes / Michael Carpenter Global Corporate and Investment Bank and Emerging Markets
Jorge Bermudez e-Business
Dardo Sabarots Global Business Management
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BIBLIOGRAPHY ALLEN C., KANIA D., YAECKEL B. (2001): One-to-One Web Marketing: Build a Relationship Marketing Strategy One Customer at a Time, Second Edition, Wiley & Sons, New York. BLAIR K. (03/2001): Has dot.com Banking Peaked?, in: ABA Banking Journal, Volume 93; Issue 3, Simmons-Boardman Publishing Corporation. BOCAUD P.-C. (2002): That brand stands for, in: http://marketing.about.com/gi/dynamic/offsite.htm?site=http%3A%2F%2Fwww.eastcoastbraintrust.org%2F html%2Fms_brand.html. BRUNO M. (05/2001): Who's using whom on the internet? Internet Banking, in: US Banker 28 Vol. 111, No.5. CHANDLER A. D. (1969): Strategy and Structure: Chapters in the History of the American Industrial Enterprise, MIT Press, Boston. CLARK P. B (2001): No longer banking on exchanges, in: http://www.btobonline.com/cgibin/article.pl?id=6254. JOHNSON G., SCHOLES K. (2002). Exploring Corporate Strategy. 6th ed., Prentice Hall, Essex. KRANZLEY A. D. (05/2001): Lifestyles Fuel Internet Banking, in: Credit Card Management Vol. 14, No. 2, Thomson Financial, Inc. MICHALES E., HANDFIELD-JONES H., AXELROD B. (2001): The War for Talent, Harvard Business School Press, Boston. PENNATHUR A. K. (8/2001): „Clicks and bricks“: e-Risk Management for banks in the age of the Internet;; in: Journal of Banking and Finance, Vol. 25(11). PORTER M. E. (1998): Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York. Pugh D. (1984): Organisation Theory, Penguin, London. WINTER M. (12/2001): Straight Talk about Internet Banking, in: ABA Banking Journal , Volume 93; Issue 12, Simmons-Boardman Publishing Corporation.
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