abbey national

: Strategic change in organizations. Creative & Innovation, Strategic HRMAshar Farooq Malik Ocl_0117

INTRODUCTION

Organisations are dynamic enterprises that are constantly changing to be able to cope with changing external or internal environments. Managing change is difficult irrespective of whether that change is minor or major. The principles and processes are similar whether applied to the redesign of the working practices of one section or the restructuring of the entire organisation.The process starts with the recognition of a need to change, resulting from understanding the implications of changes in the external or internal environments. Pressure comes from these environments for the organisation to adopt a new position. The organisational response to recognition that change is required will be to define that new position in terms of new goals, strategies and objectives, and finally new activities and methods of operation. This involves specifying:

New working practices, in respect of the existing output or to accommodate new outputs; and/or

New management structures, involving changes to the way in which authority and responsibility are distributed throughout the organisation; and/or

New standards for the way in which people do their jobs, in terms of both operational activities and management decision-making.

In theory, it is management’s prerogative to introduce and impose the new position. However, this would require complete compliance from the workforce affected and this is highly unlikely. People are, in general, resistant to change where they do not see it as offering greater satisfaction, particularly where there is any uncertainty about the outcome. For change to be effective, the people affected must accept the new position before they will amend their working practices and behaviours to that required.To achieve this, management needs strategies for change which will effectively move the organisation from the present position to the desired new position. There is a range of such strategies, which involve overcoming resistance to change through a process of involvement and participation among those affected, such that they share the goals of the new position. This consideration of change implies an ad-hoc approach to the identification of pressures for, and the definition of, new positions and to the management of the transition to that position. However, in recognition of the need for continual change in response to a turbulent environment and the fact that there will never be satisfaction with the current position, organisations have attempted to build in some degree of permanent flexibility to accommodate that change. Organisational development is a process whereby certain change strategies are institutionalised into the management of the organisation to allow change to occur, so providing the means to identify and respond to environmental pressures and adapt organisational practices and behaviour on a continual basis.

Oxford College of London 1


Strategic change in organisations and different models:-

Lewin’s force fieldanalysis developed in the late 1940s. Simply put, this states that all organisations are subject to competing forces in respect of change:

‘driving forces’ compelling change, which arise mainly from the external environment of the organisation (both general and specific), but also from the internal environment in terms of performance results and aspects of the organisation’s resources; and

‘restraining forces’, which seek to resist change and maintain the status quo, and here we can identify such featuresas organisational inertia, vested interests of groups and the fears of individuals, etc.

Lewin maintained that the present state of any situation is an equilibrium between the forces for change and the forces resisting change. This represents the status quo.This position may be shown diagrammatically as follows, with the strength of the forces represented by the length and thickness of the arrows.

To change the status quoto the desired condition, it is therefore necessary to increase the driving forces, to decrease the restraining forces, or to do both. Although managers tend to think in terms of increasing the driving forces, such increases, according to Lewin, are likely to provoke a corresponding increase in the resistance forces. Hence, movement towards the desired state is achieved more easily by



reducing the resisting forces, rather than by increasing the driving forces. In other words, the best way to get the change accepted is to identify those things/persons which are resisting and look for ways of satisfying their needs, etc.The pressures for change may be so strong that continued resistance threatens the very existence of the organisation itself. Where the driving forces are strong, accentuating them may be an effective strategy for overcoming resistance.The identification of all the forces, their strengths and how they may be modified provides a diagnostic tool which can help in developing the key actions which need to be taken in order to solve the problem of introducing the change.

The Driving Forces for Change

The impetus for change comes about as a result of a change in strategy. As we have seen earlier in the course, strategy is determined by organisational goals and policies, and changes in these are likely to be a reflection of pressures originating in the environment of the organisation, both external and internal.The factor of change is one of the most certain factors in an organisational life. The certainty of change gives birth to the need of its appropriate management. Academics presented various models of the change management like McKinsey 7-S Model, Kotter's Eight Step Change Model, etc. In this section of the paper we will evaluate the changing environment of Abbey National in the current economy by employing three models of change i.e. 5 P's Model of Pryor, McKinsey 7-S Model, and “Lewin's Change Management” Model in detail.

“5 P's Model of Pryor”:

Introduction

The 5P model is a joint presentation of Mildred Golden Pryor, J. Chris White, Leslie A. Toombs and John H. Humphreys. The 5 P'S Model, developed by Dr. Mildred Golden Pryor, J. Chris White, and Dr. Leslie Toombs, bears a striking resemblance to the 7-S Model. Purpose describes the mission of the organization and the first step towards implementing change. We see identification of strengths and weaknesses within the organization which are key indicators of necessary change. Next, we see principles and processes which dictate how the business is to be conducted according to ethics, values, and integrity of the company. Then, people or individuals are organized to be consistent with the previous 3 P's specified. Finally, performance is measured and used as a basis for marking progress and change implementation. The advantage of this method is that is provides a complete diagnosis and allows for constant change. However, to successfully implement this change, individuals must be open to understanding management concepts and techniques (Pryor, White, & Toombs, 1999).It is a model of strategic management to obtain organisational success through 5 variables: “Purpose, Principles, Processes, People, and Performance”.



Key Points of the Model

The points mentioned below explain the model:Purpose is a variable that includes the objectives, goals, mission, strategies, feedback, and vision, and all other factors that show the intensions of the organization. Leaders of the organizations should clearly deliver the strategies and tactics to the staff in order to obtain the organizational goals. The other variables like principle and processes must be aligned with the purpose.Principles are the next P after Purpose. They encompass all organisational attitudes, assumptions and philosophies that indicate how to conduct the business. They also include ethics and other integrity elements to which employees need to make the commitment at the time of hiring. They are extremely important for the successful execution of organisational activities.Principles should be aligned with processes that involve all those infrastructure, systems, procedures and structure which are employed by organisation for the production of goods and for performing services.People are a group of individuals that achieve the organisational purposes by following principles of the organisation.Performance is comprised of all the metrics, results and measurements that are used as a standard for decision making process of the organisation. The establishment of measurement and feedback is an important task of leader for the long run survival and profitability of the organisation.All above stated 5P’s must be aligned with each other if the organisational leaders want to achieve a maximum efficiency and output (Pryor, et al 2007).



Relevance of 5 P's Model to Abbey National in the current economy

The 5P model is of relevance to Abbey National in the current economy, especially when it is undergoing a big change of its history. This is so because the 5P’s model is a best suit for strategic, quality, organisational, and change management. As Abbey National is overtaken by Grupo Santander, which is an international banking group so the new leader has to realize the current economic conditions of the UK in order to make this investment worthwhile (Winslow, 2005, p.8).Along with this the new leader should communicate the organisational purpose and principles clearly to the people. The processes should also be made clear from the leaders in order to remove any ambiguity. Lastly, leaders need to set up processes appropriately to reward the success of people. Thus by following the 5P model the occurrence of change in Abbey National can be managed very well by keeping in view the current economy of UK.

Lewin's Change Management Model

Introduction

In the 1950's, idea of change management was presented by Kurt Lewin in a form of three steps model. For over 40 years his model ruled in the area of change management.

Core points of the ModelHis model is explained in below stated points:In order to implement a change effort Lewin purposed three step process to managers and that is Unfreeze-Change-Freeze (Burne, 2004).

Step 1: UnfreezingThe first step is to create the motivation for change in the workforce. This part of the process is often neglected and is associated with breaking old patterns of behaviour –the existing culture –so that new patterns can be established. People should know why they are required to change and be committed to it (or at least understand the need for change) before they can be expected to implement change.

To ‘unfreeze’ the resistance to change, managers must increase the tensionand dissatisfaction with the present, and enhance the desirability and feasibility of the alternative. This stage is therefore associated with the communication process, and should incorporate such matters as

The reason for the change

The benefits to the organisation likely to accrue from the change

Who is involved



The benefits to individuals from the change.

Unfreeze is a stage in which those employees are motivated who either do not accept change or are not accustomed to the change occurred in the processes and duties (Burne, 2004). Lewin is of view that for the successful adoption of new behavior, the old behavior needs to be discarded. Schein (1996, p.27) explains that three factors i.e. status quo disconfirmation regarding its validity, anxiety for survival and creation of psychological safety are essential for the attainment of unfreezing stage.

Step 2: Changing

Change is concerned with identifying what the new behaviour/process/procedure is or should be, and encouraging individuals and groups to adopt the new behaviour etc. It involves the development of new responses by staff, based on the new information being made available to them, and moving them towards the new culture as necessary to fit the strategic requirements of the organisation.The second stage is the phase in which the change is implemented and adjusted. This stage is a transitional period in which people are unfrozen and started moving towards a new way (Burne, 2004).

Step 3: Refreezing

This final stage encompasses consolidation or reinforcement to integrate the changes made and stabilise the new culture in order to prevent people slipping back into the old one. Ideally, reinforcement should be positive in the form of praise or reward for adapting to the new circumstances; but occasionally negative reinforcement, such as sanctions applied to those who fail to comply, may be imposed.Some of the ways of reinforcement include:

Setting up employee suggestion schemes.

Giving staff a greater input into the decision-making process.

Implementing schemes which reward good effort, such as ‘staff member of the month’.

Creating team spirit through company identification schemes such as logos, advertising T-shirts etc.

Producing company newsletters.

Making managers more visible, for example by ‘open door’ policies.

The last phase is freezing or refreezing in which the organization is strengthened and people or employees are allowed to refreeze (Burne, 2004).Relevance of Lewin's Change Management Model to Abbey National in the current economy



This model can be relevant to Abbey National in the current economy because it defines ways for change management by keeping in view the psychological behaviour against the element of change. The employees of Abbey National would not accept the change if they are not treated by new leaders according to their mind. As the change has been occurred at Abbey National so by employing unfreezing strategies they will be able to successfully cover the transitional phase in order to refreeze towards the new directions.If new leaders do not reduce the anxiety of people by providing them safety the change cannot be implemented successfully. Lewin rightly acknowledged that change is not merely a step but a journey that needs persistent and strong efforts.

McKinsey 7-S Model

Introduction

The 7S framework was presented by McKinsey and Company in 1980s. It is not a pure strategy model but an approach that focuses on the force of the change employed by the leaders to achieve superior performance by affecting organizational change (PAPERS4YOU, 2010).

Core points of the Model

The model is based on the points explained underneath:He draws a line of distinction between managers and leaders of the organizations (Watson, 1983).For McKinsey the organizational development depends on seven factors and that are: “strategy, skills, structure, systems, staff, shared values, and a style” (Watson, 1983).Managers rely on a hard S’s like systems, strategy, and structure whilst leaders work with soft S’s like shared values, staff, style, and skills.StructureStrategySystemsSuperordinate GoalsSkillsStyleStaff



(a)Structure:-

Chander identified that the structureof an organisation followed by strategy development. In a study of large companies, he found that diversified activities forced them to adopt decentralised structures. He concluded that changes in strategy often result in management difficulties, because the current structures do not fit with the new strategies. This leads, for example, to excessive bureaucracy, extended lines of communication and large spans of control, and as a result, the organisation then has to make structural changes. While Chandler's thesis seems to fit with common sense, other theorists have suggested that the relationship between strategy and structure is more complex and particular structures can influence the type of strategies an organisation adopts. For example, if an organisation has a functional structure, in which jobs are grouped according their specialism, such as finance, production, marketing, etc., the structure may inhibit the development of different activities as strategic business units and restructuring may be necessary before a new strategic approach can be adopted.Organisations have to identify their businesses to manage them strategically. For the purpose of considering strategic options, it is helpful to analyse the separate

(b)Systems:-

By systems, we mean all the procedures within an organisation, either formal or informal, such as budgetary systems, financial control procedures, reward systems,



management information systems, operating procedures, etc. These can have a significant impact on strategy development and implementation. For example, portfolio analysis requires analysis of current activities as SBUs, but can existing systems provide financial data in the format required to assess their position and prospects

© Style:-

By style, we are referring to the culture of an organisation: the values, beliefs and norms shared by its members. As we have already seen, organisational culture is principally shaped by the approach of top management: not only in their formal statements, but also by their actions, such as how particular events are regarded, and which skills and abilities appear to be valued. Culture can also be affected by other factors as well, such as significant external changes forcing a reappraisal of accepted methods of working. Culture can support the achievement of strategic plans, as we saw in the example of ETA, where a company culture already existed which focused strongly on quality and innovation; but it can also hinder them if the shared norms

(d)Staff

As we have already seen, the management of human resources has developed from the traditional approach of regarding labour as simply one of the factors of production and managing staff through the operation of formal procedures such as reward systems, appraisal schemes,. to recognising the important contribution which people can make to organisational success. One of the characteristics of high-performing organisations identified by Peters and Waterman in The Pursuit of Excellencewas the attention which they gave to the recruitment and development of staff.Strategic human resource management makes the link with strategy explicit: human resource strategy must be aligned with the development of the corporate strategy. .This is achieved by the implementation of policies and procedures which support the achievement of organisational goals, such as performance management.There are also strong links between staff and style, as key staff management processes such as recruitment and rewards have an obvious impact on values, attitudes and behaviours.

(e)Skills

By skill we are referring not just to the individual skills of employees, but also to thedistinctive competences and capabilities which an organisation possesses, such as a strong focus on product development, skills in project management or excellent after-sales service.There is an obvious link between skills and staff, as the skills of an organisation are embodied in its employees. Specific skills may be acquired by recruitment, but also by equipping existing staff with the new skills required.

Strategic human resource management links the acquisition of skills directly with the achievement of goals. An important aspect of performance management is to address the core competences of the organisation and the capabilities of individuals and teams through continuous development.



The hard variables are more tangible, feasible and easy to identify against soft because they are well documented in the form of corporate plans, organisational charts and strategy statements, etc. (Burtonshaw-Gunn, 2009).McKinsey explains systems as scheduled processes and procedures that organisation follows. Likewise, strategy is a way that is adopted during resource allocation for the attainment of defined organisational goals. The last managerial hard is a structure which means the skeleton of the organisations (Burtonshaw-Gunn, 2009).

Shared values are the guiding themes and things of the organisation that everyone knows are essential for the organisation’s successful functioning. The factor of staff means the description of people needed by the organisation. The pattern of action whether symbolic or actual that are adopted for the organisational communication at large scale is known as style. Lastly, skills are a bunch of the attributes and unique competencies of the organisation (Watson, 1983).The model links planning with the organisational change by stating that all variables i.e. softa or harda are interdependent. Thus, organisational change as a whole is necessary instead of changing one or two variables (Grant, 2008).The softa variables are challenging for all kinds of change management strategies. This is because managing staff resistance against changing organisational structure and values is very hard (Grant, 2008).The change management in case of organisations is also difficult because employees are valued and encouraged for their innovations and thus are an important part of any organisation (Grant, 2008).

Relevance of 7S model to Abbey National in the current economy

The organisational analysis of Abbey National is very delicate especially by using the 7S model, when it is undergoing a big organisational change. Moreover, the dynamic and complex nature of softa variables is also making the task little challenging. Few points mentioned underneath are important to remember before making analysis of Abbey National with the help of the 7S framework model:Abbey National was a UK based bank that was taken over by Group Santander in 2004, that is an international banking group headquartered in Spain.This change in Abbey National is drastic in respect of cultural and demographic differences.Abbey National has rebranded since 2010 which means the change has occurred in its softa variables. This is because the source of leadership has moved from UK to Spain. As softa and harda variables are closely interrelated according to the 7S framework so change in softa will transform the harda factors as well. These days UK economy is going through the last phase of global economic crises of 2008. As the result of which, a stiff resistance is expected from the staff which is one of the constituting softa factors. Managers that are an exact opposite category of leaders have to deal with this situation with great care. They have to manage two kinds of changes; one that has occurred in the organisational staff and the second is the resultant change that comes in the strategy of the organisation as the result of staff resistance. In brief, both changes can be handled appropriately if managers and leaders work in coordination with each other



Section: B5 P’s Model Concept

5 P’s Model, developed by Mildred Golden, Chris J. White and Leslie A. Toombs, is a strategic management model that resorts to the alignment of five key variables to improve the organization and its operations, namely: Purpose, Principles, Processes, People and Performance:. Purpose: includes all elements that form the organizations’ purpose, namely the mission, vision, targets and aims and strategies;. Principles: are the guiding principles, philosophies or assumptions that guide the own organization and its business; this variable includes ethic and own organizational culture;. Processes: variable that represents organizational structure, internal systems, rules and procedures used by the organization to produce its products and services;. People: people or teams that perform a job in a coherent manner with the principles and processes of the organization to achieve its goals;. Performance: includes all performance metrics, measures and results that should be used as support or aid to the decision taking.For an organization to be efficient and effective is needed that all five variables are in consonance as a way to mutually support and reinforce themselves.Incompatibilities or inconsistencies among the variables leads to time, energy and money losses, and can also lead to employees’ frustration and discouragement.Beyond strategic management, 5 P’s model can also be used in quality management, organizational evaluation and change management.Steps for the 5 P’s Model implementation:. Purpose: identify the main strong points, weak points, opportunities and threats, identify the mission, vision, goals and organizational strategies;. Principles: identify organizational culture and values;. Processes: list all processes and draw them using flux grams, process maps, etc; identifying responsible for each process;. People: determine on which measures people are qualified for the duties they perform; identify the training needs;. Performance: identify used performance measures; establish key performance indicators set up a metric system.

Change Management and 5P's Model of Pryor at Abbey NationalAlthough all above stated models are relevant to Abbey National’s changing condition but 5P’s model is the most appropriate to implement and monitor the change occurred at the local bank of UK. It is suitable because it completely and constantly analyzes change by employing various management techniques and concepts.Plan for the implementation of 5P’s model of change in Abbey NationalThe Plan for the implementation of 5P’s model is illustrated below



History

Abbey National was the sixth major bank in the United Kingdom and was ranked second in terms of high mortgage lending before the acquisition by Santander Ltd, a well known international banking chain in the Euro zone. At the time of acquisition it was going in a loss of $1.6bn for a year 2002, against a profit of £1.47bn a year earlier. Later, Santander group took it over in 2004. Upon this change of leadership the goals, objectives, and strategies, etc of the bank has been restated which are mentioned underneath (Pryor et al., 2007).

Purpose

It includes all strategic theories like mission, vision, goals, objectives, etc. The mission and objectives of Abbey National have changed with its rebranding. Thus managers need to device new strategies and technologies in order to achieve the big goal of Abbey which is to lift the customer’s trust on the bank along with the introduction of international banking at Abbey. The new mission of the bank needs to be completely delivered to all the stakeholders especially, people. Moreover it should also be aligned with the new principles of the bank.

Principles

It includes the philosophy and attitude of Santander Ltd which are mentioned below:The philosophy of new leaders is to widen the nature of Abby National from indigenous banking to the international criteria.All employees have to abide by the international banking rules and ethics instead of domestic UK rules during their job tenure.Fraudulent consumers will be treated according to international banking law.

Processes

It involves the theories pertaining to systems like structure, procedures and communication channels, etc for the production of goods and services. The new leadership of Abbey National will introduce following new services and product mentioned below:It will launch online banking at international level. In this way offshore consumer can also reach their accounts and avail the services of Abbey National from outside the UK.An offshore foreign exchange services will also be introduced at Abbey National.In addition competitive overseas interest rates will be introduced.

People

This P includes all behavioural theories and aspects like team, individual, different types of customers and suppliers, etc. The new leader will bring following change in this area:



Internal consumer will be briefed about international banking whilst external customers will be encouraged at Abbey National.For the availability and provision of new products and services internal and external suppliers will be encouraged to make bids via tender.To understand the local consumer and to contribute in the economy of UK local people will be recruited along with outsiders.Team members and individual workers will be encouraged by offering bonuses and other benefits on the display of good performance.

Performance

It includes measurement and feedback strategies like benchmarking, etc. The change will be implemented by keeping in view the performance of the people working at Abbey National. In respect of performance of the organisation below mentioned steps will be undertaken:Individual and team work will be awarded with appropriate feedback.Clear measuring scales are defined to note down the performances of workers at Abbey National. These measures will not only keep the leaders up-to-date on recent changes but also provide employees information about the performance of all the activities of Abbey Bank.Measures to monitor the change ProgressAll above stated P’s will work in perfect alignment with each other. They are well integrated with each other and will not be assessed individually. To monitor the progress of change at Abbey National the above analysis will be employed.



Section: CAssessment to use a suitable strategic intervention technique in Abbey National

Intervening as a technique and phenomenon To intervene means that someone forces their way into an existing system of relationships, people, groups or objects with the aim of improving it. In processes of change intervening as a technique and phenomenon is an important topic. But keep in mind that models may offer some insight, but at the same time they show and conceal reality, because they are one-sided by definition. Aryris defines ‘to intervene’ as follows.“Organisations do not perform the actions that produce the learning. It is individuals acting as agents of organisations who produce the behaviour that leads to learning. Organisations can create conditions that may significantly influence what individuals frame as the problem, design as a solution, and produce as action to solve a problem. Whenever an error is detected and corrected without questioning or altering the underlying values of the system (be it individual, group, intergroup, organisational or interorganisational), the learning is single-loop.The term is borrowed from electrical engineering: a thermostat is defined as a single-loop learner. The thermostat is ‘programmes’ to detect states of “too cold” or “too hot”, and to correct the situation by turning the heat on or off.If the thermostat asked itself such questions as why it was set at 68 degrees, it why it was programmed as it was, then it would be a double-loop learner.” Single-loop learning occurs when matches are created, or when mismatches are correctSingle-loop learning occurs when matches are created, or when mismatches are corrected by changing actions. Double-loop learning occurs when mismatches are corrected by first examining and altering the governing variables and then the actions. Governing variables are the preferred states that individuals strive to “satisfies” when they are acting. These governing variabes are not the underlying beliefs or values people espouse. They are variables that can be inferred, by observing the actions of individuals acting as agents for the organisation, to drive and guide their actions. This is where intervention shows up. In case you don’t handle the double –loop thinking, you become a servant of the status quo!! In his “Intervention theory and method: a behavioral science view, Argyris presents 3 methods of intervention: 1. To rely on knowledge and know-how already present in an intervener. Success is pretty much guaranteed as the proven methods put a client at ease. 2. To use in a creative manner a combination of different sources of existing knowledge of an intervener from previous situations. This requires more time than the first approach. 3. A third approach builds on the first two methods: to combine sources of knowledge of an intervener with those of a client. In this way, an intervention helps a client to understand a problem and the intervention contributes to the theoretical knowledge



base of an intervener. This approach is less common, but should be preferred over the first 2 methods. The joint development of conceptual models not only helps the client, but is also useful for future cases an intervener has to deal with. In this way, an intervener tries to translate specific issues of a client to generally applicable rules and views the various interventions and strategies of

Assessment to use a suitable strategic intervention technique in Abbey National

The development of any organisation greatly depends on strategic intervention techniques. An organisation is a workplace where people of different attitudes and calibre have to work with each other by resolving the conflicting issues. A strategic intervention technique is way by which workers get training on how to work with the different types of people in order to achieve the goals of organisation.Abbey National plc is one of the most renowned banks in the UK that offers commercial services. The operation of Abbey has expanded internationally after the takeover by Santander, which is one of the largest financial groups. Currently, Abbey’s staff is composed of the diverse workforce due to which emergence of conflicts among workers is very normal aspect.In such circumstances there is a dire need of an appropriate strategic intervention technique. The technique should encompass the followings:It should educate employees on how to work efficiently with the different types of individuals.It should encourage workers to appreciate their co-workers in all organizational spheres.



Section: D

The Driving Forces for Change

The impetus for change comes about as a result of a change in strategy. As we have seen earlier in the course, strategy is determined by organisational goals and policies, and changes in these are likely to be a reflection of pressures originating in the environment of the organisation, both external and internal.

The extent to which these pressures act as driving forces for strategic change will be a function of two forces within the decision-making structures of the organisation:

the strength of the threat posed to the existing goals and strategy and/or the strength of the opportunities presented for furthering the existing goals.

how these are recognised by decision-makers: the threats and opportunities need firstly to be recognised, but also, crucially, they need power backing within the decision-making structure such that they are converted into driving forces.

Thus, understanding the pressures requires effective environmental analysis andaction within the decision-making structures to effect a change in strategy.

(a)Pressures from the External Environment

The external environment encompasses both the general external environment –which we can examine through the PEST analysis –and the specificenvironment of the market within which the organisation operates.

Political/legal pressures

These arise from changes in the direction of governmentpolicies –which affect the way in which regulations are interpreted (for example in relation to planning permission), the pattern of public expenditure and the economic climate –and the expression of these changes in legislation.Legislative changes have a considerable direct impact on organisations. Examples include employment law, health and safety requirements, data protection legislation, and environmental measures such as European Union packaging and recycling directives.

Economic pressures



These arise from changes in the economies of the countries in which the organisations operate. In the past this might only have constituted the home economy but, as business becomes increasingly globalised, organisations are more affected by economic happenings around the world. In 2008, for example, risky lending by US banks to domestic customers led to a worldwide credit crisis. To an extent, economic changes interact with political changes, in that governments determine national economic policy such as interest rates and taxes which have an effect on economic activity affecting businesses.

Social/demographic pressures

These arise from changes in such factors as birth and mortality rates, socialtastes and fashions, and public attitudes. For example, the UK has an ageing working population as the birth rate declined sharply after the 1950s. Such changes have affected product and marketing decisions, so that many businesses are now targeting the affluent over-50s.Changes in social tastes are often quite subtle and not immediately discernible but do have an impact on businesses. Public attitudes towards green issues and ethics in business have also impacted on organisations. Also, attitudes towards the treatment of different sections of the population; particularly women, ethnic minorities and disabled people, have radically changed since the early 1990s. All of this has been reflected in employment law, policies, internal relationships and even the use of materials for packaging products.

Technological pressures

This has been the area in which most change has taken place since the 1970s: change which has exerted tremendous pressure on working methods and products. Continual innovations in communications and information technologyprovide the means to improveefficiency and open up new approaches to the conduct of business: for example, the elimination of the personal secretary for most managers, who instead have personal work stations, laptops and portable telecommunications. The changes in communications technology, which have included email, intranets and the World Wide Web, have changed the ways in which business is done, opening up worldwide markets and increasing the speed of communication.These changes often seem to be the most difficult to adjust to because of the speed of change and the potentially revolutionary and radical effects the new technologies can have on jobs, skill requirements, and keeping up withcompetitors.

Market pressures

These arise principally from customer demands and the competitive environment. Organisations must react to these pressures and maintain at least some foothold in their markets, or they will cease to exist.Customer pressures reflect the way in which the public’s expectations of both products and the way in which theyinteract with the organisation are changing. Thus, there has been a move in many areas of commerce and the public services for the voice of the consumer to be recognised and products to meet their needs, rather than acceptance of what the organisation may feel are appropriate products. This



development of consumer power has been particularly felt in the service sector, but may also be seen in terms of the quality and price of all products that customers are prepared to accept.The actions of competitors are also a significant force, since organisations have to compete with other organisations offering the same or substitute products. Thus, competitive advantage becomes a priority and where one competitor has established such an advantage, all others in the market must adopt similar actions or innovate to develop their own.

The need for strategic change in Abbey National

The strategic change means the change in organizational mission, goals and objectives. There are many causes of strategic changes and one of the most prominent is the change in the leadership of the organisation. The acquisition of Abbey National by Santander Ltd provides the ground for the strategic change in Abbey National. This is so because the new leaders of Abbey National will restate the goal, and objectives according to their vision (Winslow, 2005).Abbey National was UK based bank while its acquisition by Santander Ltd converts it into international bank. This new status has been given to Abbey National by introducing offshore online and offline banking services. Now managers and workers have to adopt new strategies in order to achieve the goals and objectives of the bank.The factors driving the need for strategic change in Abbey NationalSome factors that are driving the need for strategic change in Abbey National are assessed below:

Change in the vision and mission of the bank’s leadership:-

The previous leadership of Abbey National was local so their aims and objectives were national. With the takeover of Santander Ltd the banks objectives and missions were transformed to international, which created the need for strategic change.

Change in the category of customers:-

The majority of customers were local before the acquisition of Santander Ltd. The customer’s composition changed after the addition of international customers.The composition of suppliers also changed after the acquisition of Santander Ltd. International suppliers started working along with national suppliers.The strategies and tactics to attain new organisational goals also generate the need for strategic change.



Section: E

Organizations compete with each other in the industries on the basis of access of the resources in the business environment. An organization which possesses a quality human resource can achieve competitive advantage over other organizations which do not have access to the quality human resource. Similarly resources such as financial resources, access to raw material, relationship between suppliers and distributors etc play an important role in providing firms competitive advantage over other firms. Any problem in getting access to any of the resource can cause adverse implications to the firm and hence cause firm losing its market share in the industry.

Assessment of the resource implications of Abbey National not responding to strategic change

Some of the resources that are not responding to the strategic change at Abbey National are assessed underneath:Small investors that were attached to Abbey National before its rebranding are not accepting its recent status. In particular they are opposing the change of bank’s name and the revamping of its branches. Thus the new leaders and managers need to make proper strategy in order to satisfy their stakeholders (Market Watch: Global Round-up, 2003).The shareholders of banks are also rebelling against pay policy of Abbey including its reward strategy.The business strategies employed by new managers and leaders are also not being appreciated by market partners of Abbey National. As the result of this the bank has to face the fluctuating figures of wholesale business and mortgages.Although the social order of UK is one of the modern societies in the world but Abbey National need some time to revitalize its image of online banking, especially of mobile banking? For this purpose the bank management needs to increase the security measures against its online banking services and products.The employees at Abbey National are also responding very slowly to the strategic change. This is so because old workers need some time to adjust with the new ones. The leaders need to align their people with the processes in order to achieve the purposes of the new leadership of the bank (Cave, 2004).



Section: FSystems development to involve stakeholders in the planning of changeThe major national and international stakeholders of Abbey National are: shareholders, employees, customer, business partners and community. A bank functions with the collaboration of all stakeholders, so to take all of them on board during planning of change is very essential. The system to involve stakeholders in the planning of change is developed by employing 5P’s model of Pryor which is illustrated belowThe brief description of above illustrated points is stated underneath:The new objectives and goals of the leaders should be well communicated to all stakeholders especially shareholders, employees and business partner. This is so because they are directly influenced by the profit and loss of the bank. If the stakeholders are divided on the implementation of change then leaders should try to convince the opposite side with the help of those who favours the change.The new philosophy of revamping and giving the bank international status should be properly delivered to all stakeholders. This is so because with the mutual cooperation of all stakeholders the changed objectives of Abbey National can be attained.With the rebranding of Abbey International the means of production and services are also changed. All stakeholders must be taken in confidence on this change.The new purposes like the objectives and products and services of Abbey National should be delivered to employees in particular and other stakeholders in general.Lastly all stakeholders like national and international customers, suppliers and shareholders, etc should be well informed with the performance of the bank (Botin, 2004).

Development of a change management strategy with stakeholders

In order to incorporate stakeholders Abbey is adopting a back to basic strategy of change management. Some of the points for a change management with stakeholders are discussed below:The brand name of Abby National will be revamped by taking all stakeholders, especially domestic customers and investors in confidence (Market Watch: Global Round-up, 2003).The red Santander’s interior and marketing communications strategies will be incorporated within Abbey with the mutual understanding of all stakeholders (Market Watch: Global Round-up, 2003).The talks will be made with various media agencies on the activities of Abbey.



Section: GEvaluation of the systems used to involve stakeholders in the planning of change incorporating a strategy for managing resistance to changeThe above stated system that is devised to involve stakeholders in the planning of change also helps in reducing the resistant factors to change. This is so because the confidence of customers, employees and other shareholders will be revived as the result of their involvement in the decision making strategies of Abbey. Those domestic investors, employees who were not accepting the restructuring of bank will be taken in confidence through negotiations and table talks. An evaluation of systems is illustrated below:

It is hard to judge how successful the acquisition of Abbey by Banco Santander was because only less than 5 months have passed. The position on the market of both companies became more stable consolidated; however, the management's expectations are subject to uncertainties and changes in circumstances. In February the bankannounced the best results in the history of the company: earnings increase 20% to $4 billion. 6,400 employees moved into the bank's $730 million headquarters. Nevertheless, there are still clouds on the horizon. The profit indicators for 2004 do not include Abbey which lost money in 2003 and is not fully integrated into company yet.

Mergers and acquisitions in financial services business area are very common and result in consolidation of the business unit. Acquisition is beneficial for all sides involved and Santander's acquisition of Abbey National of the UK is an evidence of this. Abbey has a major position in the United Kingdom mortgage market. Its strong distribution network represents for Banco Santander and Abbey shareholders a valuable opportunity: application of Banco Santander's commercial and technological practices to Abbey's banking operations.

Banco Santander is a Spanish bank with an international presence which was established in 1857. Today it is one of the largest banks in the world with approximately 41 million customers and it is present in the more than 10 countries. In addition, according to the statistics at 31 December 2003, the Banco Santander Group



was the second largest banking group. Its value is Ђ44.8 billions and total assets are Ђ351.8 billions. In addition, Ђ108.9 billions is saved in mutual funds and pension funds. It employs more than 100,000 people out of whom 66% worked outside of Spain at approximately 9,200 branches of the Banco Santander Group .

The Banco Santander decided to acquire Abbey for several reasons. First, it was believed that Banco Santander's retail banking skills could be used to improve financial services in the United Kingdom. It was an excellent opportunity for Banco Santander to enter the United Kingdom retail banking market through Abbey's 740 branches and get access to more than 17.8 million customers. The combined group has now the opportunity to create an international banking franchise which offers cost reduction and revenue benefits as well as benefits for Abbey's customers who gain better offers through implementation of technology based efficiency programs.

Abbey Board also recommended the acquisition because it considered the terms to be fair and reasonable. First of all, the acquisition represent a premium of about 28.4 per cent and value each Abbey share at 603 pence on the basis of the average closing prices of Abbey and Banco Santander shares for the three month period up. The Abbey Board believes that Banco Santander has the possibility to provide important resources and knowledge for quick growth of the business and reduction of the risk of the Abbey's implementation of financial service strategy.

In addition, the acquisition helps to secure long term position of both parties involved to compete more effectively through offering of new better products to its customers. The tangible benefits for Abbey's customers include improvements in offerings and implementation of the technology based programs .

The shareholders also have benefit from the acquisition: Abbey's shareholders have the opportunity to own a significant part of the Banco Santander. Under the terms of acquisition, Abbey shareholders receive one new Banco Santander share for every one Abbey share. The effective acquisition will result is existing shareholders of Banco Santander owning 76.4 percent of the issued shares of Banco Santander, and the corresponding 23.6 percent will be owned by the Abbey shareholders.

The deal of acquisition was valued at UK £8.5 billion to £8.9 billion and resulted in the creation of the tenth largest bank in the world. This deal has become the largest cross-border European banking deal which has ever been signed. Thus, a banking behemoth was created with a makret capitalization of approximately $62 billion.

Abbey is a sesond largest mortage lender in the Britain which specializes in loans in England and Northern Ireland. It has a strong distribution network. This company represented a value-creating opporunity for Banco Santander's shareholders. Abbey's business contributed to reinforce the European franchise and provided the Group with a more balanced stream of earnings.

Banco Santander, when notifying the bid to the Commission, has indicated that it agreed with the Royal Bank of Scotland to terminate some aspects of the 1988 alliance. One of the aspects is about reciprocal representation on each other's boards, known as cross-directorship. The Commission has concluded that the transaction of acquisition raises no competition concerns and has clear regulatory explanations.



The cross-border takeovers are rare in the European banking system; however, the acquisition of Abbey by Banco Santander is not the first one. For example, in 1998 there was the acquisition of Belgium's BBL by ING of the Netherlands. Bank Austria was overtaken by German HypoVereinsbank, and French CCF was acquired by the UK in 2000. The Commission has been arguing about cross-border mergers in the bankingsector because it is still too fragmented on the national levels leaving a possibility for international banks to acquire a significant market share outside their borders.

Barco Santander acquired the whole of the issues of Abbey and issued ordinary shares. Thus, Banco Santander gained the sole ownership and control of Abbey. Both Banco Santander and Abbey have a community-wide turnover in excess of approximately EUR 250 million, however they do not have more than 2/3 of their aggregate turnover within the same member state.

The acquisition primary caused some concerns in the banking and financial markets in the United Kingdom. Abbey focused its commercial activity on banking and financial services while Banco Santander had only limited activities in the UK before the acquisition. AS it was already mentioned above, Banco Santander is linked to Royal Bank of Scotland on the contractual basis.

The cooperation between Banco Santander and Royal Bank of Scotland is essential to understanding all benefits gained by Banco Santander acquisition of Abbeys. In 1988 both parties entered into a Strategic Cooperation Agreement. After the notification of the intended acquisition, parties decided to modify this agreement, in particular to terminate the representation on each other. Commercial cooperation in joint venture operations was also terminated. Banco Santander and Royal Bank of Scotland have procured that their representatives of the other bank do not attend any boars meetings.

The only link connecting two parties remained the limited cross-shareholding. Banco Santander holds about 5% of the ordinary shares of RBS and RBS holds about 3% of the ordinary shared of Banco Santander. After the September 2004, Banco Santander reduced the ownership of shares to 2.5%. These small fractions of shares hold do not allow either side to have a substantial influence over any commercial activity.

There were many concerns and investigations about such close commercial activities between Banco Santander and Royal Bank of Scotland. Before the acquisition of Abbey, Banco Santander's close cooperation with RBS could allow these parties to take control over financial activities in United Kingdom. For example, it could result in the reduction of the competition in UK's personal current accounts market, lead to higher prices and loss of innovation. The termination of cooperation because of the acquisition eliminated these threats to the market. It is one more important beneficial result of the merge.

In addition, after the acquisition of Abbey by Banco Santander part of Abbey's business is planned to be outsourced to RBS. However, Banco Santander no such plans forms part of the transaction. The future possible cooperation has not been discussed as a section of the notified operation. It is very little probable that in the future the parties will agree on outsourcing, because now they are competitors.



Outsourcing some operation, even minor ones, to a competitor is not very wise decision and for sure Banco Santander will never accept it.

The banking sector can be divided into three sections: retail banking, corporate banking and financial services. The united Banco Santander and Abbey do not excess 15% of the product market. The banking services of the Banco Santander and acquired Abbey have national scope geographically. The corporate banking market, however, will be limited and some products necessary for SMEs will be supplied at national level. The banking services for large corporate clients are allowed for Banco Santander to have more international dimensions. This is a potential growth benefit for the company.

Banco Santander and Abbey are both providers of banking services to householders and SMEs. However, before the acquisition the scope of activities of each party separately was limited: Abbey had activities only in UK at the national level limited activities in France while Banco Santander was present only in Spain. There were also offices of Banco Santander in London and Paris but they were operating only in the field of corporate banking activities. The Banco Santander's group presence in European business is mainly concentrated on retail banking in Spain and Portugal and international corporate activities are only a small fraction of the group's business. Thus, the acquisition is beneficial for both sides because it allowed widening the field of business for each side and becoming more consolidated .

The London branch of Banco Santander involved wholesale corporate banking activities and generated revenue which was below 1% of the market share. Even though the Banco Santander's market share in Spain is the entire Spanish market (20-25%), the market share on an EU corporate banking market is below 15%.

The situation with Abbey before its acquisition was almost the same. Abbey was active in two corporate banking product segments in the United Kingdom: financial market services and lending/mortgages. The market share it occupied was also less than 1%. The acquisition was not denied by the Commission because the combination of such low market shares would not cause threat to open competition. For Abbey and Banco Santander, on the contrary, the market share in UK was almost doubled and new markets opened for each side.

Nevertheless, there are still some problems in both companies. For example, new chief executive of Santander decided to set up a new division combining insurance and asset management. However, it is still unclear what will happen with 3,000 jobs from a workforce of 25,000. The answer is not given so far. During the take over the Santander's management pointed out that it plans to get cost savings and revenue benefits of more than £300 million from restructuring Abbey. Maybe this saving will come from reduction of 3,000 jobs"

It is hard to judge how successful the acquisition of Abbey by Banco Santander was because only less than 5 months have passed. The position on the market of both companies became more stable consolidated; however, the management's expectations are subject to uncertainties and changes in circumstances. In February the bank announced the best results in the history of the company: earnings increase 20% to $4 billion. 6,400 employees moved into the bank's $730 million headquarters.



Nevertheless, there are still clouds on the horizon . The profit indicators for 2004 do not include Abbey which lost money in 2003 and is not fully integrated into company yet.

References

1. Cave, Andrew. "Santander banked on Abbey boost." (04 June 2004).http://www.telegraph.co.uk/money/main.jhtml"xml=/money/2004/06/04/cnabbey04.xml&menuId=242&s Sheet=/money/2004/06/04/ixcity.html. (accessed April 8, 2005).

China Daily. "HBOS shuns Abbey, gives Santander 18 mln clients." (20 Sep 2004). http://news.xinhuanet.com/english/2004/09/20/content_1995838.htm(accessed April 8, 2005).

Flanagan, Martin. "Abbey's Scottish arm can breathe easier - for now." The Scotsman, 25 Nov 2004.

Loewenberg, Samuel. "Santander's Trial." Forbes. (14 March 2005).http://www.forbes.com/business/global/2005/0314/020.html. (accessed April 8, 2005).

Think Spain. "Santander boss upbeat about Abbey acquisition."http://www.finkspain.com/news-spain/7155. (accessed April 8, 2005).

TurkishPress.com. "SCH finalizing Abbey acquisition." (11 Dec 2004).http://www.turkishpress.com/news.asp"ID=33566 (accessed April 8, 2005).


http://www.turkishpress.com/news.asp

http://www.finkspain.com/news-spain/7155

http://www.forbes.com/business/global/2005/0314/020.html

http://news.xinhuanet.com/english/2004/09/20/content_1995838.htm

http://www.telegraph.co.uk/money/main.jhtml

http://www.telegraph.co.uk/money/main.jhtml

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