Does It Pay Off

Compargon/ assess HSBC and Citi-corps IT strategies. Do they empower in IT primarily as a way of cutting be and improving their avail able efficiencies, or do they invest strategic completelyy with a view to entrench their competitive positions? As watch overd in the coating of the article written by the Asia Case Research Center and the University of Hong Kong HCBC and Citigroup cod some(prenominal) fractureed into globular financial institutions.Both organizations confound heavily invested in Information Technology and, as is self-reported in both companies financial statements, both argon committed to using IT to gain a competitive advantage. That is where the similarities end. When we strain the details it is obvious that although both firms have heavily invested in IT advancements the types of projects and general draw near are very un equal. Let us world-class olfactory perception at HSBC. The Hong Kong and Shanghai Banking Corpo balancen was founded by Thomas S outherland in 1865 with branches in London Shanghai, and San Francisco.By the category 2007 the association had grown to have 9500 offices, 200,000 shareholders, 310,000 employees and over one hundred twenty-five zillion customers spanning 76 countries. HSBC create their business based on the philosophy of managing for pry from 1998 done 2003 with the objective of providing a satisfactory return on shareholder keen. One of the primary ways HSBC attempted to accomplish this scheme was through its approach to leveraging engineering science.An example of the associations engineering dodge is found in a statement which was part of the comp alls 1996 yearbook report. In this report the bon ton described its IT form _or_ system of government as a strategy based on harnessing the power of fresh technology to provide new and better inspection and repairs for their customers while con acceptedly improving the bevels available efficiencies. Then stated the challenge they saw as a global financial services organization factored highly just about their ability to link different parts of the group more than than near together.As one progresss further into the details of HSBCs instruction technology approach numerous examples of this 1996 strategy are apparent in the organizations approach to the spend of information technology. HSBCs history appears dotted with instances of the exploitation of ground breaking Independent systems, outsourcing to save courts, and acquisitions of emerging technologies. Despite the sound price tag the company remained concentrate on providing innovate nurture added products and services to both received and prospective customers. Outsourcing is one key to the ope proportionalitynal efficiency approach mentioned in its 1996 annual report.HSBC opened its first seaward process center in China in 1996 and by 2007 had more than 18,000 employees across Asia spanning ten (10) Asian countries. HSBC estimated that by t ransferring its back office bear upon to India and China it saved the organization approximately 30 million U. S dollars annually. Further savings were realized in 2003 when the bank merged and consolidate HSBC and HSBC Finances technology service teams later leading to the offshoring of the HSBC concourse Service Center creating another 67 million in annual savings.In total HSBC claims that offshoring provides the bank an estimated cost savings of over 100 million U. S dollars annually. Meanwhile HSBC took on more IT staff to support service improvement projects and online banking. Heavily investing in platforms and applications designed to extend or streamline the online process HSBC fully embraced ecommerce. Beginning in 1998 with their successful Y2K test and implementation HSBC heavily invested in the inter engagement as a meaning of authorizeing new customers and deepening watercourse customer relationships.Some of the projects were internally innovated however, just a bout were a product of strategic acquisitions and/or partnerships with other organizations HSBC is very foc apply on creation the company has used its innovative focus to successfully leverage the power of the net to reach customers around the introduction. To create the worlds most inclusive efficient internet portal the company has worked with several different organizations that could assist in furthering its digital capabilities Some examples of these partnerships are.Working with Compaq to design an internet payment gateway, partnering with HTK to enable merchants to set up online blood fronts, working with MasterCard to develop and launch Asias first electronic wallet, cooperating with IBM to develop multichannel banking services, teaming up with Sky digital satellite to launch the UKs first television banking system, and finally a joint venture with Merrill Lynch to inaugurate online brokerage services. At the same time the bank was partnering with multiple organizations growth several technology offerings things were also being innovated internally.HSBC developed and delivered many valuate added products and services like launching mobile banking and secure net payments for merchants in 1999, the creation of Ibusinesscorporation. com and HSBC. com. HSBC. com which was designed to create a universal presentation of all HSBCs services at any time anywhere to any of its customers was the crown jewel of the technology strategy. overall the company dedicated a large percentage of its IT budget time and focus on the development, expansion, functionality and inclusiveness of creating a comprehensive online presence.HSBC spent 164 million dollars on the website hsbc. com in 2001 alone. The internet strategy seemed to pay off for HSBC creating large gains in number of customers and legal proceeding. Overall gains were seen in commercial and consumer banking with increases in customer poem in both divisions. Overall the bank saw its customer number in crease 24% with online transactions increasing a whopping 116%. however this massive push online odd the company with 26 websites and over 1. 1 billion dollars in expenses.In wrinkle to the HSBCs strategies for utilization of IT recourses Citicorp followed the diversified financial services model built on the belief that different financial service products should be conglomerated to commensurateness earnings and to create less earnings volatility. The company sweard it was more cost effective to cross sell financial products in one go than to sell them separately. distinct than the wide corporate structure found at bottom HSBC Citicorp only consists of three major business groups all primarily back up by standard corporate infrastructure. While both banks focused on lobal growth HSBC focused on innovation and leveraging the internet to reach current and potential customers Citi corps approach was that of growth, parkality, and local control. Unlike HSBC, Citigroup took an merged approach to its IT governance universal. By using a combination of package and customized software to develop group wide platforms Citigroup enhanced the strength of its all-inclusive international branch network to facilitate noesis ex deepen across borders. Since IT projects at Citi were often initiated with a local business unit typically they were designed with local solutions in mind.The only truly global necessity placed on the innovating branch were that the local system be open of effectively and efficiently being linked with Citi groups existing system and that pledge arrangements could be make. The key for Citi was the consistent platform and the ability to share knowledge across space not necessarily that it was internet driven and deployable to the substantial world. Also in stark contrast to the HSBC strategy of cost savings through outsourcing, Citigroup pursued IT outsourcing only in a very hold in way and not for strategic initiatives.While HSBC was b uilding strategic initiatives with numerous orthogonal companies Citigroup took on projects like the 750 million dollar project in the 90s to integrate the banks 60,000 personal computer and 2,000 LANs worldwide into a common global network and system infrastructure. The power of its integrate technology platform would later be demonstrated by the rapid integration of the 750 branch CitiFinancial system By 2000 Citigroup had leveraged its strong common technology platform and its international branch presence to launch its own online presence, Citi on the net.Directly related to their standard technology and growth platforms by the end of the year 2000 Citigroup had over 800 million online accounts in an effort to deliver convenience and value to its clients. Citigroup created new internet units including e-commerce, e-business, and e-capital markets to empower the existing business lines while simultaneously creating an internet operating group to drive the corporate internet st rategy and again use it to coordinate efforts across divisions. By 2002 Citi on the net had been replaced by my citi. om providing the platform necessary to allow the bank the ability to cast off online banking available in over 90 countries ultimately leading to processing over 39 million transactions around the world in rout to being named best of the web 2003 The banking giants internally driven internet strategy seemed to culminate with the launch of Citibank direct in 2006 and nearly 10 billion dollars in deposits. Overall in my perception of the IT strategies of both Citi and HSBC their perplexity of IT investment does not appear to fit into one black or white strategy however appears more likely to exist on a continuum.I believe there are examples of both HSBC and CITI investing in IT as a way of cutting costs and improving their operational efficiencies. With HSBC one example of this is outsourcing. With regard to Citi one example is the focus on standard systems providing local solutions. Additionally, I believe both organizations also used technology effectively as strategies to entrench their competitive positions. HSBC as a platform to cost effectively expand its global reach without the pricy build-out of constructing an extensive global brick and mortar branch network through the use of the internet.In contrast, for CITI to be able to provide local solutions by leveraging its global knowledge, services, and offerings to provide value added products and services to current and prospective clients. In shutting not addressed directly in the article that appears to be relevant as I look at the different IT approaches taken by both Citi and HSBC is where they started. Both companies come from different backgrounds created in different environments for the purpose of serving different clients.Although eventually their worlds collided their roots seems quite different. I cant help but wonder, to what degree were the different approach to types and amounts of investment in IT between the two global banking giants has to be attributed to (1) Different business strategys with each company recognizing its own cartroad of least resistance to accomplish their organizations goals. (2) The best way to leverage the current asset base of each individual organization. 2. In your assessment, which one of the companies do you think was cleverer in its IT investments?Both organizations appear to have take the standn the ability to split ones organization through the use of technology when technology that can complement their overall business strategy comes available. For Citibank this availability arose through an increase in recourses by the organization conversely, for HSBC through technological advancements made in the market place. My perception is that both companies utilized IT investments like a vehicle, to get from where they were to where they wanted to be.The numbers provided in the back of this report show the companies are s trikingly similar in many ways scorn their very different beginnings and historical decisions regarding investment in IT. Five factors compared n the report are compiled below that both demonstrate their striking comparison but also provide clues to who at least for now is win the battle for global banking clients. Category(2006) Citi-Bank HSBC Leader of Employees 325,000 312,000 Citi-Bank IT expenditures 3762 4810 Citibank Net-Profit 21538 16358 Citi-Bank Total Assets 1,884,318 1,712,627 Citi-BankMarket Capitalization 269. 1 212 Citi-Bank ROA 1. 14% 0. 96% By doing some basic calculations using the numbers above it is easy to see that as of the time of this report the company with the best history of exertion was clearly Citi-Bank. Although total assets and number of employees are strikingly similar the difference in the organizations is clearly found in three areas. Net profit, IT expenditures, and market capitalization. ROA for HSBC is . 96% which signifies it is destroying shareholder capital by losing 4 cents for every dollar invested.Conversely, Citi-Bank with an ROA of 1. 14% is creating value by transforming every 1$ invested in the company into 1. 14 cents providing a 14% return annually. Another metric not common in finance but appears pertinent here would be an employee to IT expenditures ratio where HSBC spent $15,416. 67 per employee and Citi-Bank spent $11,575. 38. The second ratio that appears to point to an modify IT strategy for HSBC is a total asset to IT expenditure ratio in which again HSBC spends 28% of its total assets on. IT where Citibank again has a better ratio at 20% of its total assets.Neither of these last two ratios is very common but both appear to be where HSBC could attempt to close the chap in financial performance between the two companies. Finally of note needs to be the difference in market cap anticipate both companies have a fairly equal amount of issued common equity the fact that Citi-Banks market cap is 57 bill ion dollars high that HSBC demonstrates to me that when the marginal investor compares the perceived future performance comparing both companies current business plan investors believe with more confidence that Citi-Bank go out pose I higher return on investment and stronger cash flows than will HSBC.Despite HSBCs efforts to cut costs be on the forefront of banking innovation Citicorp clearly was able to leverage its vast global network of mend assets in a standardized approach more successfully than HSBC was able to leverage the internet to increase its profitability through global expansion. In closing I again wonder if part of the increased performance Citicorp sees beyond that which is seen by HSBC is related to cultural bias Simple current consumer preference in the majority of the cultures in which both firms operate.In conclusion, the writer would like to briefly mention potential factors that came to mind while reading this article. mentation outside the numbers part of me believes that although trends are less prevalent than they have been for generations past, several groups of commonwealth, are particularly fond of being able to bank at a physical location. Some dont believe in banking at all. Like the trail that amazon is blazing in the online retail market place online banking platforms are different than most people are used to.Change is often strange and sometimes difficult but if HSBCs IT strategy is ever to pay off it must hope like amazon that as time passes if more people require comfortable with the idea of online banking their model whitethorn thrive. However, until that time unless it were to drastically change its business model and begin to invest in a global network of physical bank branches HSBCs best strategy may be to stay the course of investing in driving customers more towards the feeling of convenience than perceived safety.