National Australia Bank organisational audit Free Essay Example

It is also prompting micro changes within the organisation through cultural change. Dunphy (1996) systems theory suggested that planned change by an organisation is usually prompted by failures resulting from its inability to adapt to its changing environment. NAB has historically maintained an increasingly process-driven, bureaucratic company, which has become complacent in its success. Subsequent failures have prompted significant core structural change within NAB. Hannah & Freeman argued, “Core structural change is precarious and leads to an elevated probability of organisational failure and death”.

With this statement in mind, failure for NAB is inevitable if quick action is not taken to rectify numerous strategic problems. Examples of organisational change include technological such as process reengineering, strategy and structure such as departmental restructures, cultural change including an increased customer focus and organisational change in products and services. NAB’s primary focus in terms of organisational change is altering the values, beliefs and attitudes of employees and restructuring the organisation to prompt such changes.

MANAGEMENT OF CORPORATE CHANGE cont. The National Australia Bank has many shareholders, which rely on the success of the organisation. Excluding some long-serving employees who are resistant to change, the organisation’s key stakeholders are supportive of significant change within the company to rectify its many issues. As a result, NAB’s plans for organisational change are considered collaborative because the organisation does not need to coerce key interest groups to accept change in the company.

The change is also considered transformational rather than a simple change because it is essential to the long-term survival of the company rather than a means of simple improvement.

As illustrated in the below diagram by Dunphy & Stace (1988), NAB is described as an out of fit company with little time for rectification (p. 31). The positive aspect is that key interest groups support radical change. Within the below diagram, NAB’s proposed change is a charismatic transformation. Diagram 1 – Change Strategies & Conditions for Use.

Simple Change Transformational Change Collaborate Participative Evolution Use when: > The organisation is in fit but needs fine-tuning. > Time is available > Key interest groups favour the proposed change Charismatic Transformation Use when: > The organisation is out of fit > There is little time > Key interest groups support radical change. Coerce Forced Evolution Use when: > The organisation is in fit but needs fine-tuning > Time is available > Key interest groups oppose the proposed change Dictatorial Transformation Use when:

> The organisation is out of fit > There is little time > Key interest groups oppose change but change is central to survival Source: Dunphy & Stace, 1988, p. 31. MANAGEMENT OF CORPORATE CHANGE – RECOMMENDATIONS Effectively managing the extensive corporate change required within NAB will be the organisation’s most important task. Its ability to successfully implement such changes will determine its future survival, not only its success. Prior to implementing corporate change, NAB must approach the change in a planned and strategic manner.

This includes identifying all the corporate communication issues (please see Key Issues on page 3) through extensive research both internally and externally and also setting specific goals and objectives to be met. NAB then need to determine the approach it intends to take, the particular action strategies it will utilize and the implementation strategy it will action including, which channels will be utilized and the exact message content. It is also recommended that NAB establish a control strategy to evaluate the success of the corporate change process (please see Appendix 2).

NAB’s main focus is to execute corporate change from the inside out. By altering it’s internal corporate culture, which if successful, will amend its key stakeholders perception of the organisation. Therefore, NAB’s focal point is its internal publics. Grunig stated that internal publics can be categorised to assist the organisation in tailoring its corporate communication efforts. Such categories include an active employee public, which is considered to have high problem recognition, a high level of involvement and low constraint.

In comparison, a passive employee public has low problem recognition, a low level of involvement and high constraint. By effectively identifying the characteristics of its internal publics, NAB can facilitate the change process through verbal communication and symbolic communication that is personalised and effective. REPUTATION MANAGEMENT Corporate identity, image and reputation are highly relevant factors for NAB in its current environment and are described as the most critical parts of the corporate communication function within an organisation (Argenti, 2003, p. 57).

Argenti (2003) described corporate identity as the self-presentation of the organisation (p. 58). It consists of the organisation’s behaviour, communication and symbolism, which form its expression. Corporate identity includes the physical and visual representation of the organisation such as a professional receptionist that is well groomed. It also projects a sense of trust to stakeholders and prompts the expectations they hold of the organisation. In comparison to corporate identity, an organisation’s image is much more versatile and is dependent on the particular public receiving the message.

Therefore, a company may have numerous different images resulting from its many stakeholders. An organisation’s reputation differs from both its corporate identity and its image because it is based on the perceptions of all the company’s constituencies unlike corporate identity and because it is built up over time rather than a particular perception at a given point in time like in the case of its image (Argenti, 2003, p. 71). Argenti (2003) stated, “The foundation of a solid reputation exists when an organisation’s identity and its image are aligned (p. 71).

Once a solid positive reputation is achieved, an organisation has a distinct competitive advantage resulting from this intangible asset. In the case of NAB, despite its historical long-standing reputation, its consistent lack of continuity between its identity and image in conjunction with the occurrence of crisis events have significantly damaged the organisation’s reputation. REPUTATION MANAGEMENT cont. The below diagram created by Argenti (2003) called the Reputation Framework illustrates how an organisation’s corporate identity, image and reputation relate to each other and effect each other (p. 72).

Diagram 2 – Reputation Framework Corporate Identity Names, Brands, Symbols, Self-presentations Corporate Reputation Source: Argenti, 2003, p. 72. There are many factors that can impact on an organisation’s reputation. These include the organisation’s vision, its policies, organisational culture, and communication both internally and externally and also a crisis event. The National Australia Bank has suffered negative retribution following its failures in all these areas. REPUTATION MANAGEMENT cont. Legitimacy Gap Theory Once significant factors occur to damage an organisation’s reputation, a legitimacy gap may result.

Sethi (1994) describes the legitimacy gap theory as gaps between societies expectations of an organisation’s behaviour in comparison to its actual performance. The greater the gap between stakeholder’s expectations and the company’s performance, the greater the pressure on the organisation to rectify the issue. As a result of extensive negative publicity surrounding NAB’s crisis events, the organisation is no longer viewed as behaving legitimately, resulting in a breakdown of its reputation and relationships with stakeholders (please see Appendix 3).

The following diagram illustrates the legitimacy gap. Diagram 3 – The Legitimacy Gap Source: Sethi, 1994. Legitimacy Gap Theory – Recommendations To effectively counteract the legitimacy gap, it is recommended that NAB shift its corporate performance towards the expectations of its stakeholders, which can be achieved through the recommendations discussed throughout this paper. REPUTATION MANAGEMENT cont. In line with NAB’s strategy of improving the organisation by altering its organisational culture, NAB’s reputation also ties in with this strategy.

Reputation can be considered a human resource issue for the company as it aims to alter the culture of existing employees. A strategy may include hiring new employees that are considered elite, with an already well-established reputation and a passion for the organisation. An organisation’s human resource issues being considered, as an impacting factor on its reputation is a contemporary theory within corporate communication management. Concerns regarding the impact of poor human resources within an organisation on its reputation as a whole is illustrated in the following diagram.

Diagram 4 – Human resource issues & its impact on reputation REPUTATION MANAGEMENT – RECOMMENDATIONS The human resource diagram illustrates the effects of the company’s employee’s opinion of the organisation on its reputation. It is recommended that NAB measures and evaluates the internal opinions of the organisation as part of an identity audit, which should take place to periodically assess the progress of the company’s strategy. Once an identity audit takes place, the organisation’s objectives need to be reviewed and altered by senior management to ensure they remain appropriate.

NAB’s vision, mission and values can strongly impact on its reputation also, so it’s imperative that they are regularly reviewed and communicated to internal publics. Finally, implementation of any strategies and changes must occur as a means of ensuring the company is dynamic and adaptive to its environment. CONCLUSION The National Australia Bank has arguably experienced the largest amount of crisis events in such a short period of time within the financial services industry.

As a result, it has a difficult task ahead of re-structuring and re-strategising the organisation in an attempt to repair the damage. The NAB will undertake this task through an inside-out approach, whereby the primary focus is to improve employee moral, empower employees and subsequently improve the customer service quality of the organisation. Such changes will be achieved through organisational cultural change, extensive management of this change and also a strong focus on the organisation’s reputation.

Through a stable, talented and passionate senior management team, together with the strategies and recommendations discussed throughout this paper, the objectives of repairing NAB is an achievable goal. LIST OF REFERENCES 1. Argenti, P. (2003). Identity, Image and Reputation. McGraw-Hill and Irwin. 2. Arena. 3. Dunphy, & Stace. 1988, cited in Wilson 1992. 4. Grunig. 5. Hannah, & Freeman. 6. Schein, E. 1984. 7. Sethi, 1994. APPENDIX 1 – BRW ARTICLE John Stewart’s vision for NAB Getting NAB back on track will take some hard decisions, and the market wants to see some hard figures.

Is John Stewart up to it? By Adele Ferguson BRW. 07 October 2004 John Stewart Image:Jessica Shapiro When John Stewart says he will fix the mess at National Australia Bank (NAB), he means it. “My aim is to consistently get the company into the top quartile of total shareholder returns. I want consumer surveys to come back with consumers being advocates for the bank and I want staff to be so happy and proud to be working for the bank that they ask how they can get their kids a job,” he says.

Since Stewart became chief executive of NAB in February, the market has waited for him to release his blueprint on how to fix the bank. In an exclusive interview with BRW, he says he will unveil his strategy on November 10, the day he also presents the group’s annual results. APPENDIX 1 – BRW ARTICLE cont. But he is unlikely to put the market out of its misery and give a definitive prognosis on the future of its four British and Irish banks. “It will depend on circumstances whether or not we will give chapter and verse on the UK.

But the situation just now, and I don’t see that changing, is that we are committed to staying and developing the UK, and work is going on to that effect … A lot of what I’ve been working on is, what is the value that we can create for shareholders? And what are the variations of that? So there are different ways and different strategies we can employ to do that. And what is the potential to be created by disposal of any of the businesses, and checking that we are making the right decisions,” he says.

But he will need to use more than just words on that day if he is to convince the market that he has what it takes to put the bank back on a path to growth. In the past 18 months, shareholders have seen more than $10 billion wiped from the company’s market capitalisation, they have suffered seven big profit downgrades, a $360-million foreign exchange scandal, a draconian set of conditions from the financial services regulator, 70% turnover in the bank’s board and senior management, poor performance from its British and Australian operations and quantifiable damage to its brand.

If Stewart’s strategic vision shows any signs of weakness, if he decides not to attach a detailed timetable and financial targets to his strategy, if the write-downs are deemed to be too timid or the outlook for 2005 is worse than expected, Stewart’s dream of fixing NAB and gaining the respect of staff and investors will be seriously damaged. “The most likely time [for giving a timetable and financial targets] is at the results presentation. But I’ll have to think about that one. It will depend on the degree of confidence. APPENDIX 1 – BRW ARTICLE cont. I can understand why shareholders like these targets.

But some of the things we are dealing with, it is very difficult to be precise on that timeline,” he says. Stewart is in a quandary. If he decides to give himself some elbowroom, he will send a message that the bank’s problems have not yet stabilised. Most chief executives in similar positions have been bold and put timeframes on their financial targets. Even John Fletcher, who inherited a similar mess at the country’s biggest retailer, Coles Myer, and who had never worked in the retail industry, set goals, such as achieving an $800-million profit by 2006.

Fletcher joined Coles Myer in September 2001, when the profit was $333 million. As Wilson HTM banking analyst Brett Le Mesurier says: “The Common-wealth Bank was able to give the market a detailed costing and benefit program for its transformation program and it was able to do that within six months of the announcement. NAB and Stewart have had much longer. ” For now, Stewart will not be pinned down. “It [the turnaround] will take as long as it takes. I don’t mean that to be evasive, that’s really one of the hardest questions.

If you ask me, ‘John, will you be successful? ‘ – absolutely. I’m very confident we can make NAB great again, so what you can get is the icon that it should be. Maybe not while I’m here, I’ll probably have retired. But it will get back there,” he says. Stewart’s contract expires in February 2007, and he is unlikely to renew it. By then he would hope that the company is on a path to recovery and that he has an appropriate successor. APPENDIX 1 – BRW ARTICLE cont. However, his job will be a lot harder if he cannot win over the long-suffering investment community.

According to UBS banking analyst Jeff Emmanuel, NAB, at a group level, has consistently under performed the banking sector in earnings per share (EPS) growth for the past 10 years. In that time, NAB outperformed the sector just twice, in 1998 and 2001. Comparing compound annual EPS growth of NAB with the sector, NAB has under performed by 4% during that time. Emmanuel says he cannot rule out the possibility of further earnings downgrades in 2005, or cuts to its dividend. All banks are facing challenges Stewart will be trying to fix the bank just as conditions in the sector start to get tough.

The banking sector has enjoyed the fruits of more than a decade of uninterrupted economic growth, and credit growth of more than double the 3. 8% rate of GDP growth over the past decade. But there is a question mark over how long the good times can continue. Slowing credit growth and the likely higher bad debt charges stemming from a turn in the credit cycle are two big challenges facing the banking sector as it tries to maintain profit growth. Other challenges include the pressure on profit margins as competition intensifies between the banks in the home lending and business lending markets.

NAB has the leading position in business banking in Australia, including about 25% market share in small-business lending and 26% market share in total business lending. But rivals are eroding that market share. The most notable include ANZ Banking Group, St George Bank and Westpac Banking Corporation. In the past few months irrational pricing has started to appear in the sector, with some banks waiving establishment fees on personal loans, business loans and home loans, and offering reduced interest rates on credit cards. None of the banks will admit to starting the price war, however most point the finger at NAB.

Stewart says NAB is a follower. APPENDIX 1 – BRW ARTICLE cont. “We were accused of reducing prices, but we didn’t. What we did was match, in individual cases, the competitors. That was short-term stuff to protect the franchise. What happened was, when we were under attack, I said one thing we mustn’t do is hurt the franchise,” he says. However it began, the discounting is hurting NAB. Stewart issued a profit warning on July 14, that cash earnings before significant items for the six months to September 30 are expected to be 10-15% lower than the March 2004 half-year result of $1. 85 billion.

As a reason for the downgrade, Stewart said: “In our retail bank in Australia we have forgone income and incurred expenses protecting the franchise. ” None of the other banks have had to come out with a similar profit warning. David Spotswood, investment manager at Credit Suisse Asset Management, says the two main issues for the company are its inability to explain clearly why its profits are falling by about $500 million, or 10-15%, in 2004, when the sector is growing at 5-12%, and how the management and board plan to steer the company’s strategic direction, financial targets and performance indicators.

“Both these issues are about clarity or the lack of it,” he says. Stewart’s decision to use discounting to retain customers is occurring at a time when NAB’s board and executive team are in transition and the Australian Prudential Regulation Authority (Apra) has imposed a series of conditions that are hurting the bank financially. The most important is Apra’s requirement that NAB must have a minimum capital reserve equivalent to 10% of its risk-weighted assets.

To meet this requirement by June 30, as well as pay shareholders a dividend, the company had to make a $2-billion subordinated debt issue as well as a $1. 2-billion equity issue, which the bank referred to as a fully underwritten dividend reinvestment plan. APPENDIX 1 – BRW ARTICLE cont. Direction and priorities On November 10, Stewart is expected to outline the direction and priorities of the Australian business.

He will also discuss the bank’s overseas operations, reveal asset write-downs, cost-cutting objectives, and explain how the company plans to move into cross-subsidisation of banking and financial services. As for the troubled British operations – Yorkshire Bank, Clydesdale Bank and Northern Bank in Britain and National Irish Bank in the Republic of Ireland – Stewart hints that they will be fixed up rather than sold. However, if there is a buyer out there, NAB is a willing seller. The reason is simple.

The assets need a lot of work; they account for less than 4% of the market, and some observers are bracing for a halving of earnings from these assets over the next three years. In the six months to March 31, 2004, they accounted for 20% of NAB’s earnings. At the bank’s interim profit briefing, Stewart said the profit margins in its British businesses needed to come down in line with the industry. Banking is like any other business: you either pitch your profit margins in line with the competition or you don’t write much new business.

The four banks have margins of about 4%, compared with the market average of 2. 5%. The British assets account for more than 25% of the total bank assets – $103. 9 billion for the year to September 30, 2003 – but they do not have a national brand and are far from having critical mass. Nor do they have a presence in the south of England, which is the most lucrative banking region in Britain.