Exercise: 1 – 7th Class of OSD

Macquarie Bank Case Study

Macquarie Bank is an excellent example of a highly successful organization, which has been able to maintain its success using an incremental adjustment process while operating in a rapidly changing environment. During the 1980s and 1990s, changes occurred in the environment of Australian financial institutions. These included rapid deregulation of the financial services sector by the Australian Labour Government. The critical moves involved were the floating of the Australian dollar, progressive removal of restrictions on competition between banks, building societies, merchant banks, and other institutions which offer financial services, and grant of new banking licenses including licenses to 16 foreign-owned banks to operate in Australia.

From its inception as ‘Hill Samuel Australia’ in the early 1970s, the bank’s strategic focus was merchant banking (investment banking). In 1980, the bank commenced a process of diversification. But, with deregulation in the 1980s it diversified further, building up strength in specialist markets, particularly in high value-added niches (market segments) like corporate services, bullion and commodities. The pace of diversification quickened by the mid 1980s with the bank entering into a range of new areas including retail domestic banking, equity investments, property and leasing.

Growth took place by way of both development and acquisition. Macquarie remains one of Australia’s most successful and profitable banks. So, how did Macquarie executives manage the needed organizational change?

Change in Macquarie has been a process of constant adjustment. One executive described it this way: ‘We never stay still, but we don’t change in quantum leaps—our corporate culture would preclude that. Running a business on partnership concepts means that policy decisions are not dramatic, they evolve.’ The rapid growth in Macquarie’s product range was accompanied by a quadrupling of staff strength in the 1980s. The number of business-product units, or ‘clusters’, increased to almost 30 by the late 1980s, presenting an increasing problem of co-ordination in a collegial/ partnership system where unit heads nominally report to the managing director. The increase in size and complexity created problems of co-ordination. The obvious answer was to create additional structures, systems, and controls, but this was foreign to the collegial values of the bank, which is staffed mainly by highly qualified professionals. The strategy adopted was to formulate a ‘goals and values’ statement— an articulation of deeply held values about cultural and business behaviour, including how the process of change should be managed. The statement is essentially a set of values and norms and internal controls that substitute external control systems. Developing business units into highly autonomous profit centres and then creating cross-functional synergies through more systematic communication by management across these centres,

supplemented the efforts for co-ordination. But what were the methods adopted at Macquarie to bring about these changes?

There was increasing convergence on a consultative style of management. The consolidation of the style is reflected in the frequent use of the executive committee as a forum for discussion of major issues and decisions. The collegial style was symbolized by the fact that the managing director shared the same open-plan office. Interestingly enough, when first-line and middle-level managers were asked for their perceptions of the bank’s leadership style, they saw it as substantially more directive than consultative. All fifteen respondents who rated the managerial style this way indicated that they thought this directive style was appropriate. ‘We need strength and decisiveness at the top’, one commented. Consistently, some who rated the leadership style as consultative, believed that the style was not directive enough for the present environment. This is an interesting comment because it challenges one of the basic assumptions of the organizational development movement—that people desire to be consulted on issues relating to organizational strategies. In a turbulent external environment, however, they may prefer decisive leadership Macquarie does not have the all-encompassing human resource systems typical of some organizations. It follows an organic, developmental approach, aptly summarized by one executive as follows: ‘We recruit the best from universities and graduate schools, give them on-the-job training and pay them top money. We are a meritocracy. We try to provide a flexible organizational environment where people can achieve.’ Thepolicies are well suited to a flat organizational structure where specialist skills can be developed within small work teams, closely related to the product-market interface. It is not expected that

Macquarie will change the basic tenets of the meritocracy system However, there was sufficient evidence during the study to indicate that the bank may need to consider more systematic approaches to its human resource policies in the future. The priority areas in human resource practices were;

• Recruitment and selection (corporate image of an employer is important; use of psychological tests and the policy of ‘growing our own’ from graduate trainees is a key strategy)• Performance appraisal (an essential mechanism for tracking goal achievement and helping in determining rewards)• Rewards and compensation (‘we pay well’)• Organization and development (‘goals and values’ statement, team building, monthly newsletter, etc.)

The question that naturally arises is ‘how the bank was able to maintain an incremental strategy and achieve such outstanding results in such a dynamic environment?’ Its success appears to have been mainly a function of its small size as compared to the other banks and its combination of diversified niche strategies coupled with a loosely linked flexible organization. Its short communication chains and collegial-workforce culture led to considerable flexibility in responding to changing market demands. These

are strengths, which larger organizations seek to emulate through the formation of decentralized, strategic business units.

Macquarie Bank has been successful in operating this way so far. As the bank grows further, the executives will have to assess whether these strategies can continue to prove adequate. Nevertheless the case demonstrates that participative evolution can be an effective change strategy even in a turbulent environment, at least for a relatively small, highly specialized, and successful niche player such as Macquarie.

Updates from the web-site

Organizational structure and business activities

Macquarie has a non-hierarchical organizational structure, split into six operating groups. The Executive Committee, a central group comprising the Managing Director, Deputy Managing Director, Head of Risk Management, Head of Corporate Affairs and heads of Macquarie's major operating groups, manage the organization as a whole.

Individual businesses operate within Macquarie's operating groups. These businesses work closely together, specializing in defined product or market sectors, and are committed to their client's relationship with the Macquarie group.

Within overall guidelines and a strong risk management framework, the operating groups have substantial discretion in the way they manage their business activities. Great emphasis is placed on a client's relationship with Macquarie as a whole.

Five service groups provide the framework, infrastructure and support that the operating groups require to manage their business. These are the Corporate Services, Financial Management, Group Legal, Market Operations and Technology, and Risk Management Groups.

The present organization structure is as under. Critically evaluate how the present structure can help the Macquarie Bank to sustain in competition.