1、Deloitte Research1633 BroadwayNew York, New York 10019USADeloitte ResearchDeloitte Research1633 BroadwayNew York, New York 10019USAA financial services industry study byDeloitte Consulting and Deloitte another crucial component is anew approach to the management of a multibusinessorganization. When
2、an organization must face the future not witha clearly articulated and precise battle plan, but instead with aseries of contingent strategies and just-in-case resources, the keyto implementation success is knowing when and if to exercise thereal options that created the necessary flexibility. This r
3、equires avery different role for the corporate office than the one typicallyprescribed, one in which senior executives take an active role indetermining the timing and mechanisms of integration amongOPERATEiPorter, M. E. (1980). Competitive Strategy. New York, Free Press.iiPrahalad, C. K. and G. Ham
4、el (1990). “The Core Competence of the Corporation.” HarvardBusiness Review (May-June): 79-91.iiiBrandenburger, A. M. and B. J. Nalebuff (1996). Co-opetition. New York, Doubleday.ivChristensen, C. M. (1997). The Innovators Dilemma: When New Technologies CauseGreat Firms to Fail. Boston, Harvard Busi
5、ness School Press.OPERDeloitte Research Strategic Flexibility in the Financial Services Industry5Uncertainty in the FinancialServices IndustryThe financial services industry is undergoing a metamorphosis:market boundaries and competitors, once clearly labeled, arebeing transformed by a wide array of
6、 forces for change.Incumbents are invading each others customer and productmarkets even as start-ups and established firms in seeminglyunrelated industries threaten similar incursions. Many aspectsof the industrys transformation remain unclear, andtremendous uncertainty surrounds even the most basic
7、questions of strategy:a73 What products and services should I offer?a73 Who are my customers?a73 Which new entrants are a flash in the pan, andwhich are truly dangerous?a73 Who are my competitors?a73 Which components of my business model areworth retaining?a73 What business am I really in? and, desp
8、ite it all, industry executives are increasingly forcedto make bet-the-company decisions with no guarantees ofsuccess.In the face of this turbulence and unpredictability, thestrategic challenge facing financial services companies is nolonger one of predicting the future, or even attempting to create
9、it, but rather one of coping with and exploiting inescapableuncertainty. Doing this, however, requires a fundamentally newapproach to strategy formulation and implementation, for thetraditional tools of strategic planning and financial analysis aresimply not up the task. In their stead is proposed a
10、 frameworkfor thinking about strategy amid uncertainty called StrategicFlexibility, an approach that has been under development forseveral years (see The Genesis of the Strategic FlexibilityFramework).At the same time, flexibility is only necessary, and hencevaluable, when two conditions are met. Fi
11、rst, significant uncertaintymust impinge on the major strategic issues facing an organizationor an industry. When strategists have confidence in their projectionsor predictions of the future, there is no need to be flexible. Second,there must be no clear best response to this uncertainty: even ifthe
12、 future is unpredictable, if there is one all-purpose riposteflexibility is of no use.If Strategic Flexibility is to be valuable to executives leadingfinancial services organizations, one must first assess the degree towhich the financial services industry is subject to both anunpredictable future a
13、nd debate regarding how best to respond.The Horsemen of UncertaintyThere are many drivers of change that serve to make the future ofthe financial services industry unclear everything from customersand globalization to capital market pressures and general economicconditions. Indeed, the horsemen of u
14、ncertainty are so numerousthey might better characterized as a cavalry. To illustrate how thesedrivers create the kind of uncertainty that makes flexibility valuable,consider two in detail: regulation and technology.REGULATION Most financial services executives view manyaspects of regulation as an i
15、mpediment to the success of theindustry. Barriers between markets and restrictions on productofferings stifle innovation and growth. However, the consequencesof changes in regulation can be highly unpredictable. For example,in the 1980s the U.S. government deregulated deposit interest ratesand incre
16、ased deposit insurance. This resulted in fierce competitionfor consumer accounts, resulting in a dramatic fall in the net interestspread on funds. Consequently, many thrifts found themselves withtoo thin a cushion to absorb losses from real estate loans, whichcontributed at least in part to the savi
17、ngs and loan crisis.6Like financial services, the communications industry ischaracterized by big-money bets in the face of tremendoustechnology, market, and regulatory uncertainty. An examinationof how some of the worlds leading communications companieshave come to cope with and exploit this uncerta
18、inty yielded thefoundations of the Strategic Flexibility framework presented inthis report.iTo determine the defining characteristics of strategicallyflexible organizations, we compared the management practicesof diversified firms coping with high levels of uncertainty withthose of similarly diversi
19、fied firms competing in comparativelystable industries.The primary insight of that work was that diversificationstrategies can create much-needed strategic flexibility if they areimplemented appropriately. In the communications industry, thismeant diversifying into new lines of business that were se
20、en aspotentially but not necessarily critical elements of futureproduct market strategies.For example, BCE, a US$20 billion Canadian communicationsfirm, has operating units in local, long distance, and wireless tele-phony, satellite television, television broadcasting, newspaperpublishing, Internet
21、portals, and Internet access to name onlythe consumer side of its activities. BCE acquired these assets overa 15-year period, and has for the most part run them as autono-mous business units. However, as technology and markets havematured, the firm has begun to explore significant convergenceproduct
22、 offerings. For example, in early 2001, the firm launchedan effort to develop and deploy the ComboBox: a set-top boxdesigned to integrate the Internet, satellite television, comput-ers, and TVs with new types of interactive media content and com-merce opportunities.The diversity of BCEs operating di
23、visions created strategicflexibility by affording the company real options on convergence-driven product and service offerings. By acquiring the requisiteoperating assets early in the game, BCE was able to lock up neededaccess. By operating these divisions as independent units, it wasable to delay i
24、ts integration efforts until favorable outcomes weremore likely. Each new operating division, then, represented theright, but not the obligation, to make further investments in cross-divisional cooperation and integration.A distinguishing characteristic of this kind of flexibility-drivendiversificat
25、ion one that we see in the diversification initiatives ofmany financial services companies is that a portfolio of operatingunits will have a particular structure: there will tend to be a clusterof fairly tightly integrated operating divisions (or related divisions),as well as a number of otherwise q
26、uite independent divisions (orunrelated divisions). Combining diversification strategies in thisway is something that earlier research had suggested should beavoided.iiHowever, in industries characterized by high degrees ofuncertainty, these combination, or hybrid, diversification strategiesare actu
27、ally associated with superior capital market returns.iiiThissuggests that investors are not blind to the value that flexibility-driven diversification can create.STRATEGIC FLEXIBILITY FRAMEWORKThe genesis of theiTo obtain a copy of the report entitled “Strategic Flexibility in the CommunicationsIndu
28、stry: Coping with uncertainty in a world of billion-dollar bets”, register at and download a free copy. Alternatively, contact the studys author, MichaelRaynor, at .iiEach type of diversification (related, unrelated, or vertical) is seen to require a specific setof administrative systems to be mana
29、ged effectively. These administrative arrangementsare thought to be fundamentally incompatible that is, a firm cannot have in place bothsystems appropriate to a related diversification strategy and systems appropriate to anunrelated diversification strategy. Consequently, combining diversification s
30、trategiesmeans that some part of the diversified firms portfolio will be subject to an administrativemismatch, and will therefore suffer a performance penalty. See Hoskisson, R. E. and M. A.Hitt (1994). “Downscoping: How to Tame the Diversified Firm”. New York, Oxford UniversityPress.iiiRaynor, M. E
31、. (2000). Hidden in Plain Sight: Hybrid Diversification, Economic Performance,and “Real Options” in Corporate Strategy. “Winning Strategies in a Deconstructing World”.R. Bresser, D. Heuskel, M. Hitt and R. Nixon. London, John Wiley “Bests Aggregates ”Bests Review Magazine”, July 1996 ( NB: 1995 data
32、 used here as 1990 source was unavailable.)LEGEND DIVERSIFIED MONOLINE10The strategic challenge for the newly dominant diversifiedplayers is to exploit synergies among their various businesses.Focused players must ensure that sticking to their knitting remainsa competitive strategy as the landscape
33、shifts. This is especiallytrue as scope-based competitors continue to expand their empiresinto the insurance business where focused firms maintain asignificant presence. The most notable example of a scope-basedplayer attacking the insurance industry is Citibanks acquisition ofTravelers, the fifteen
34、th largest player in the life insurance and P (2) Average size the average nominaldollar value of all acquisitions done; (3) Diversity the number ofdifferent industries in which the target companies operated at thetime of acquisition.iIn the lower left quadrant, we have the Opportunists firmsfor whi
35、ch M DELOITTE CONSULTING ANALYSIS12services market. Yet, many players are ill prepared for this particularscenario and the opportunities it could unleash, betting insteadon a protracted regulatory policy development process.Second, the strategic issues associated with information andcommunications t
36、echnology involve key unknowns for banks.Having spent vast sums over the last three decades building asophisticated payment networks on an incremental basis, banksnow face potential competition from other data network ownersas regulators redraft the rules. The challengers to banks fall intotwo categ
37、ories. One is the data network and managementproviders, such as EDS. These companies are looking at theopportunities to use their existing networks in new ways. The otherconsists of companies exploiting the digitization of cash togetherwith the growth of mobile devices. For instance, Vodafone recent
38、lystated that “M-commerce will emerge as an important applicationbased on the convenience that it offers to the user.” Some expertsbelieve m-commerce will be based at first on an m-wallet anelectronic environment to contain established credit and debitpayments methods. It would then evolve into a mi
39、cro-paymentsmechanism as an alternative to cash.8These two technology-related challenges could add up to a fundamental shift in howpayments are made in both the B2C and B2B arenas.Third, banks face competition from a rash of new entrants froma variety of sectors and geographic regions. In the past,
40、regulatorywalls separated banks and protected their activities. As these wallscrumble, new players are seeking out new opportunities infinancial markets. The range of new entrants is vast and includesmobile operators, data and IT giants, and even dotcoms such asPayPal. It could well be that none of
41、these new rivals pose asignificant threat to incumbent financial institutions they maychange the rules of the game, but take little in the way of marketshare, or they may run into difficulty due to any number of otherproblems. Nevertheless, these companies are deft competitorswith a keen sense for b
42、oth markets and technology, and so theycannot be ignored.What these two extremes illustrate in sharp relief is thatneither focus nor scope is the best approach in todays financialservices industry; each can work. No dominant strategy hasemerged, and so the optimal portfolio-level response to thecomp
43、etitive pressures shaping the industry remains largelyuncertain. Instead, what we see are different companies pursuingvery different strategies that are explicitly or implicitly based uponconflicting theses regarding the future of financial services.THE PAYMENTS SYSTEM The European scene is particul
44、arlyinstructive when considering the uncertain future of the paymentssystem, particularly as various levels of government attempt toharmonize the patchwork of markets that characterize the EuropeanUnion. The broad range of factors affecting European payments canbe grouped into three clusters: new ru
45、les and regulation, blindinglyquick technological change, and the emergence of new players.First, for the last five decades, the rules governing the financearena have remained largely unchanged. However, at the nationaland pan-European levels, significant change appears imminent.Nationally, as the r
46、esult of a wave of concern about the levelof competition among banks, governments have been draftinglegislation to reshape the rules surrounding payments systems.For instance, in the United Kingdom, the Cruickshank reportconcluded that banks have a monopoly on payment networks andthis was working to
47、 the detriment of consumers. In France, theauthorities have recently placed price controls on the cost ofprocessing checks.At the pan-European level, the EC and European Central Bankare driving for the creation of a single payments area. However,there are still significant differences between each o
48、f the Euro 11:the average cost of a cross-border credit transfer in the Euro-zoneranges between 8.91 (payment originating from Luxembourg)and 29.68 (payment originating from Portugal).Simultaneously, the rapid adoption of new banking rulescurrently being debated within Europe, along with theintroduc
49、tion of the Euro, could create the worlds largest financialDeloitte Research Strategic Flexibility in the Financial Services Industry13The challenge for European banks is constantly to sift thepotential implications of these many developments in thepayments arena. Different organizations are pursuing differenttacks: some have done little, choosing only to monitor thesituation. Others, such as ABM-Amro in Holland, have entered thefray only to reverse course as conditions proved less favorable thanexpected. Specifically,
