Analyze the organization design of RBS becoming. Comment as to wheather it is more centralized or more decentralized. Justify your answer.What form(s) of structure has the bank used to divide the business?Since it is also necessarily a geographically dispersed organization, what methods of coordinations is it likely to use?Does RBS have a mechanistic or an organic structure? Explain.What are the main issues of a HRM nature that are likely to be topical within RBS?The isue of bank bonuses are still highly topical and contentious in early 2010. Explain the dilemma that Stephen Hester faces, and comment on any recent developments in this area.Identify the biases abd the decision - making style in RBS. Use them to analyze possible explanations for the troubles at RBS.Why do you think the Board was unable to influence Fred Goodwin and the senior team? what sources of power did (a) Goodwin and (b) the board, possess? 412PART 4 CASEpackage for Ite staff-although some seniormanageredeclined to take a salary increa8e.Where next?Staphen Haster replaced Goodwin as chief axAcutivaand has been trying to rebuild the bank. He aims tofocus on its traditional strengthe such as UK retailbanking, wealth management, and global paymenteand insurance. The investment banking business willbe halved in size. It will try to disposa of other parts ofthe business, such as other foreign ratail assets, andweak parts of the investment bank.In 2009 Mt Hester reached a new pay daal whichwas agreed by UK Financial Investmenta, which man-ages the state's shareholding in RBS. While the head-line figure of £9.6 million attracted wide criticism,defenders pointed out that most of It depended on theshare price rising from 35p to 70p - which would bringbig benefits to the taxpayer. Others pointed out that itwas such short-term Incentives that cauaadmany ofthe problems at the bank in thefirst place.A related issue was to reconsider the structure ofbank pay, such as awarding more bonuses In sharesratherthan cash, and paying tham over longer periods -80 that those which had been arned by takingexcessive risks could be clawed back. Rewarde shouldbe more tightly dependent on exceptional per-formance, not the rising tide of the markets. Butwhether such policies worked would depend on howthey were applied.This is a matter of governance. Shareholders auf-feced In the crash, but they had not tried to restrain theltBoarde during the good times. RBS had all.of the for-mal mechaniems of corporate governance in place -Independent non-executive diractors, audit and riskcommittees, and a remuneration committee. Nons ofthe people on these boarda and committees appearsto have been able and willing to stand up to the chiefexecutive as he created a culture which encouragedbankers to take great risks (such as investing in theIt is alao targeting the world's wealthiest peoplethrough the Coutts subsidiary. These are mainly entre-BraRBurA, media and entertainment stars. It has a jointtroubled US housing market, and In many new andcomplex financial instruments) with shareholdersmoney. Whatever misgivings they may have had in pri:vata, they continuad to support the management tamventure with Bank of China which offers services to therapidly growing number of Chinese people with morethan $1 million to invest.in public - 90 par cent of shareholders approved theABN AMRO deal.SOASA: Kennedyet al. (2006); Economist, 14 Ecbolas 2009, 805oGiakTimes, 6 May 2009, 23 June 2009; company website. worth £158 billion and with huge daily transaction vol-launched Direct Line as one of the first examples of de-livering financial services by telephone, and now one of umes. Planning for this took over two years, and paidthe UK's largest private motor insurers. An online bankcomplements the services offered by the bank weekend in October 2002.branches.off when all the accounts were transferred over oneThe Integration Programme was completed in earlyTHE ROYAL BANK OF SCOTLANDThe formal structure in early 2010 was that it had six 2003, and was widely seen as a successful strategic'customer-facing' divisions:move by Fred Goodwin and his team (Kennedy et al.,2006). Having made 23 acquisitions since 2000, andalthough not ruling out further ones if the opportunityarose, the group claimed to be focusing on growing'organically', by building up existing businesses.www.rbs.co.uk• UK Personal (retail and wealth management);• UK Corporate (larger UK companies);• RBS Insurance;• US Retail and Commercial;• Europe and Middle East Retail and Commercial;• Global Banking and Markets.In 2007 manysaw Ihe Royal Bankof Scotland (RBS) as ing oand various other paper processes, is a very mech-one of the most innovative and best-performing banks gnisticstructure. Thebankcreatedthe division in 1999in the United Kingdom. By 2008 it was on the point of by transferring most administrative tasks from thecollapse, and only survived because the UKgovern-ment invested £45.5 billion in thebank (at about 50 pence a share), inrefurnfor an 84 percentstakeinthebusiness. In2010it was beginningtorecover and was developing a planto buy backthe government stake,so that it would return to privateHowever, Fred Goodwin, the chief executive whohad led the bank's ambitious acquisition programme,completed a deal (in partnership with Fortis, a Belgo-Dutch lender, and Santander of Spain) another deal inlate 2008 - which was to prove disastrous. In thebiggest deal in banking history the consortium ac-quired ABN AMRO, a Dutch bank. Many had doubtedthe wisdom of the deal, since RBS would need to raisebranches to a central location. To select staff for theThese were supported by seven Group divisions -Restructuring and Risk, Finance, Manufacturing, Legal,Strategy, Communications and Human Resources.A culture of acquisitionRBS had developed a reputation for acquiring other fi-nancial institutions and integrating them profitably. win denied this would be necessary, but his reputationMost notable was the acquisition of NatWest Bank in suffered when he asked shareholders to contributemore capital to complete the purchase. At first Good-ownership.What happened to bring aboutthis change? Before 2007 manage-ment made many internal changesfollowed by some successful ggaui-sitions. The internal changes tookplace between 1992 and 1997 duringwhat was called Project Columbus.This made radical changes Ihrough-out theretail division, including:2000, not least because NatWest was three times the£12 billion in a rights issue. Many believe that RBSsize of RBS at the time. To win the bank, RBS had to picked the wrong time and paid the wrong price fordemonstrate its ability to extract major cost savings the ABN AMRO business.from the combined operations, and drive greater in-come from the combination of brands, customers,products and skills. The RBS bid promised to deliver a Worse was to come as, when the 2008 financial crisis'new force in banking' with the scale and strength toexploit new opportunities in the UK, Europe and the its operations. In October 2008 the UK governmentUSA, Some industry analysts doubted the ability of unveiled an historic bail-out - including a capital injec-RBS to deliver on its bid promises, so the company tion of state money that amounts to partial nationalis-was under pressure to complete the integration ation. This led shareholders to press for managementprocess on time and meet the cost savings and incomebenefits quoted during the bid.The Integration Programme was quickly establishedfollowing the takeover, dividing the task into 154 inte-gration initiatives to be completed in three years. Thesewere expected to yield £1.1 billion in annual cost sav- only 50. The bank's remuneration committee agreedings and reduce staff by 18,000. Programme Manage-A failure of governance?e ofdeveloped, the bank found that it was unable to fund* egsegmenting customers into threenewstreams - retail, commercial OThe Royal Bank ofscotland Group pieand corporate:• creating new management roles and graanisationstructures• new human resource policies to base appointmentand promotionon achievement and ability.changes, and especially for the dismissal of Sir FredGoodwin. Despite having had to seek a governmentbail-out, and to the fury of public and politicians alike,Sir Fred insisted that he was entitled to his full pensionof over £700,000 a year, due at once, although he isnew division they used personality tests to identifythose more comfortable with processes and systems.Those who were more interested in people remained into Sir Fred's massive payoff as part of the negotiationsto get rid of him, and the government did not try tothe branches.ment teams were established in each affected businessThis transformed the bank's hiusiness and providedWith many brands, RBS uses different sales andmarketing channels to reach its customers. However, itaimsto makethe underlying processes of banking asand technology area, and control and reporting proce- reduce it when it rescued the bank. Sir Fred had adures were set up. The key elements of the integration contract.strategy were agreed and widely communicated:the base for growth and acquisitions.An evolving structureOthers pointed out that bankers' pay during theuniform as possible, whether for customers of NatWest,the retail bank, or a corporate client.bubble was too high, but that it would be a mistake forOverthe yearsthe bank had become more centralised.as developments in IT during the 1960s enabled it tosentralise administrative functions. Control bringsmore gentralised decisions over products, margios andrisk management. Against 1hat, the customerrelation-ship managers press for more localflexibility to over-ride the system to meet the needs of a valuable• To use RBS information systems as the single plat-form for operations across the merged bank.• To migrate customer-facing systems such as creditcards, ATMS and internet screens to RBS systems.• To transfer the NatWest customer and accountingthe state to impose pay limits. Finance relies on individ-uals, and employers compete for their skills. If tax-payers were to get their money back, RBS would needto become profitable, and it was unlikely to do so if itcould not attract good staff by paying competitivesalaries. This view appeared to prevail, as in early 2010the bank (with government acquiescence) approvedwhat appeared to many to be a generous bonusThe branches themselves had been mechanistic,with staff working on strictly defined tasks. Now thebranches are more organic, with stafftryingtointerestcustomers in other products within a more open phesi-callayout. The bank tries to be organic atthe customer-facing areas, with customer relationship managerstrying to improve service quality.The bank was quick to exploit the opportunities thatnew technology offers. It was an early Innovator when Itdata to the RBS systems in a single weekend.This last was the largest of the integration tasks, in-volving the migration of 18 million customer accountscustomer.The Manufacthuring Division, which deals with rostine functions suchasclearing cheques, accountopen-

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1) Analyze the organization design of RBS becoming. Comment as to whether it is more centralized or…