MNG3702 EXAM PACK

MNG 3702 EXAM COURSE LECTURER: Lynne Addison MODULE MNG 3702 2 nd SEMESTER 2018 1 MNG3702 EXAM PACK BASED ON THE NEDBANK CASE STUDY APPENDIX B: EXAMINATION CASE STUDY OCTOBER/NOVEMBER 2018 Nedbank: The strategic leadership of Tom Boardman, 2004 to 2009 Nedbank’s history traces back to the early 19th century with the establishment of the Cape of Good Hope Bank in 1831. Following successive branding and structural changes, from The Nederlandsche Bank voor ZuidAfrica to the Netherlands Bank of South Africa, to Nedcor Group in the 1980s, the Nedbank Group was formed in 2003. Today the bank has strategic alliances across the globe, they are proud of their reputation as one of the most transformed banks in South Africa. The history of the bank has various highlights. For example, in 1964, it became the first bank to introduce computerised banking services and in 1983, it became the first bank in South Africa to pay interest on current accounts. In addition, the bank underwent various mergers, acquisitions, name changes, listings and delistings on the stock exchange, and launched various corporate social responsibility initiatives such as the World Wide Fund for Nature, which launched the Green Trust. Nedbank regards 2004 as a watershed year for the group as both structural and strategic changes were implemented to restore its performance and lay the foundation for sustainable growth into the future. In this year, Nedbank was faced with considerable challenges and a highly uncertain future. In the previous year, the Nedcor Group was formed, combining Nedcor, BoE, Nedcor 2 Investment Bank and Cape of Good Hope Bank. In 2004, the bank was losing market share, headline earnings1 were down 98 per cent with a return on equity2 of only 0,4 per cent. Nedbank was considered the poorest performer of the top banks in South Africa, who were all on an upwards trajectory compared to Nedbank’s decline. Nedbank’s reputation was at an all-time low. During this time, Tom Boardman was appointed as CEO and has been tasked with the rebuilding of Nedbank. On the day of the announcement of his appointment, the Bank’s stock prices drop by 6 per cent. However, the new CEO had a plan which entailed a complete overhaul of the way the company did business, including corporate culture and leadership. Mr Boardman formulated the following goals: 1 Headline earnings are a measurement of Nedbank’s earnings based solely on operational and capital investment activities. Headline earnings specifically exclude any income related to staff reductions, the sale of assets or accounting write-downs. 2 Return on equity (ROE) measures Nedbank’s profitability. It calculates how many Rands the bank generates with each Rand of  Regain market share in key retail product areas and penetrate the mass market  Retain leading positions in key wholesale market segments and grow the business banking franchise  Reposition and stretch the Nedbank brand for broader market appeal  Become a bank for all South Africans  Become the best place to work for in the financial services sector The core business strategy of the bank informed a redefinition of its brand and the supporting marketing initiatives, anchored in the restated vision “[t]o become Southern Africa’s most highly rated and respected bank ….. by our staff, clients, shareholders, regulators and communities. However, in order to be successful, Tom Boardman and Nedbank understood that, in order to realise the vision, the bank needed to change, undergo a learning process. In addition, they also realised that this new vision needed to be supported by a strong strategy and a uniting set of values. “In order to create a ‘High Performing Culture’ it was critical these values were adopted, accepted and lived by all employees, and be seen to exist with top leadership”. The emergence of a vision-led, values-driven organisation was encapsulated in what is referred to at Nedbank as the "Dagwood" - an overall one-page strategic summary of the issues important to the rebuilding of Nedbank. 3 Tom Boardman launched Strategy, Values and Brand workshops with senior leadership to establish the direction and core values of the organisation. Four of the core values were established during this process, and were aligned with their parent company’s values. These four values were accountability, respect, integrity and pushing beyond boundaries. For the final value, Nedbank’s employees were encouraged to offer their input. The value cohesively chosen was “people-centred” which reflected Nedbank’s efforts to become more client driven and employee focused. The “Journey Back to the Top” was a three-year planning process, which sought to address the immediate issues facing Nedbank, while establishing measures to track the effectiveness of their initiatives. Priorities included breaking down silos within the organisation through restructuring departments and the executive team, fostering transparency by promoting two-way communication between leadership and staff, and developing a fair and equitable environment, which went beyond the laws required in South Africa. Using regular Cultural Values Assessments, Nedbank is able to gauge the effectiveness of their various initiatives. They use the assessment, in conjunction with an additional employee satisfaction survey, to listen to their employees. This helps to point the organisation in the right direction and understand what shifts in priorities might be needed to improve performance. The outcomes of Nedbank’s turnaround strategy were remarkable. Since 2005, Nedbank have measured their culture every year. They include the result from their annual Cultural Values Assessment as part of their corporate scorecard. The regular assessments of their culture have allowed Nedbank to measure and monitor the evolution of their organisation. Each year since the survey has been offered to employees, the participation rate has increased – from 20% in the first year to 69% in 2010. The entropy score has fallen from 25% in 2005 to 13% in 2009, where it remained in 2010 despite the continued uncertainty in the financial market place. The value matches from the Current to Desired Culture has risen from three to six. The Nedbank Staff Survey shows an overall improvement of 26% during this time. In 2010, Nedbank achieved an additional milestone when they reached their long sought after goal of a top Current Culture value at Level 5. 4 Entropy is a universal property of systems and refers to their tendency to run down and die. A primary objective of management, from a systems perspective, is to avoid entropy and to strive for synergy. Synergy reinforces the need to work together in a cooperative fashion. Changes to the organisation were not just felt internally. Hard measures were also impacted, as Nedbank realised their targets of 20 per cent return on equity and 55 percent cost-to-income ratio. They also had the highest shareholder return of all the “Big Five” South African banks in 2009. Clearly, Nedbank has made great strides from 2004 when it comes to their culture. Their success can be attributed, at least in some part, to their focus on building a strong foundation of values within the organisation. However, Nedbank continues to face challenges. Market conditions within the financial industry are still marked by instability and on-going uncertainty. In 2010, Nedbank had a change in leadership with the appointment of Michael W T Brown as new CEO, following the retirement of Tom Boardman. Mr Brown’s was appointed as Chief Financial Officer of the bank in 2004. He was previously an executive director of BoE Limited. In 2003, he was appointed as Head: Commercial Property Finance at Nedbank Limited, and was part of succession planning done by Mr Boardman. The bank continue to emphasise their culture by tying their results to their scorecard just as they would do with financial measures and recognising its importance as their competitive advantage.