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Mergers and Acquisitions: Case Study RBS CultureCase Study

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Mergers and Acquisitions: Case Study RBS

RBS Culture

Industry Environment

Behavioral Economics Aspects and Implications

Governmental Regulation and Market Intervention

Mergers and Acquisitions: Case Study RBS

When analyzing the mergers and acquisition case of Royal Bank of Scotland (RBS) and ABN AMRO, one must look at this case through many different lenses. Any time one giant organization seeks to gain control of another large organization, by applying a mix of forceful acquisition strategies then a complex and dynamic stage inherently emerges in which monetary speculations, cultural dynamics, knowledge management, business process re-engineering, risk management are all among the metrics that account for the actors. These actors, and many more that remain unlisted, all intertwine in the case of mergers and acquisitions to shape the success or failure of such ventures in both the long and short run.

Not only are these factors dynamic in nature, but they are also subject to human judgment and interpretation. Though objectivism is always the goal of any professional, subjective influences are nearly completely unavoidable; especially by practitioners that must operate under the burdens of deadlines. Heuristics must be relied upon frequently and the luxuries of having ample planning resources are uncommon at best. Even with proper planning the plan must nearly always fluctuate dynamically in time to achieve the moving target that represents success. It is nearly impossible to conceive of a plan of such a scale that could account for all the butterflies flapping their wings in China, so to speak.

These challenges represent many of the issues that RBS faced when entering into the acquisition process in this particular instance, as it had done so several times in the past. Sir Fred Goodwin, the leader at the helm during the duration of the acquisition, said after the acquisition was already initiated: "The acquisition of the ABN AMRO Businesses remains compelling from a financial point-of-view, as evidenced by the fact that it produces essentially the same earnings enhancement for the Group, despite the smaller size of the transaction. From a strategic perspective, whilst we would have preferred to acquire LaSalle as well, the businesses we are acquiring open up many new markets and growth opportunities, enabling us to significantly accelerate our strategic development (RBS, 2010)." It is evident from this statement that the leader championed the acquisition because of its perceived value to RBS. This paper will examine the scope of this endeavor from several perspectives and discuss reasons in which the leader's vision and also the context in which the decision was made to attempt to illustrate factors that prohibited the bank from its vision manifesting into a reality for the RBS organization.

Stereotypes and Culture

The role of CEO does not always provide the leader as much freedom in decision making that one might expect. Both the corporate culture as well as the board of directors acts to set boundaries on the locus of control that a leader has. Although a CEO has more resources at their disposal than many positions provide, a chief executive cannot act indiscriminately of the environmental boundaries that ensue in any organization. Furthermore, the market itself places pressure on the leadership to react to the external pressures produced by the competition. For example, the reason that ABN AMRO stood subject to an acquisition in the first place was because of stagnant growth of their operations.

Once a corporate culture has established itself, it carries with it a momentum that is uneasily broken. RBS had built a culture of expansion through acquisition at the turn of the century; lead by Sir Fred Goodwin. Under his leadership, RBS managed to acquire through merger the control of NatWest; which at the time of acquisition was nearly double the size of RBS (Skinner, 2009). Following the NatWest venture, RBS made a number of other successful ventures including Churchill Insurance, Charter One Bank in the U.S., and also a large stock acquisition in the Bank of China. From examining the history of RBS ventures, a resulting trajectory of extremely ambitious growth emerges.

Though Sir Goodwin received much of the credit for earlier successes that exponentially increased RBS market share and allowed them expanded access into foreign markets, he by no means acted alone. To achieve such massive growth took the entire organization acting towards a shared goal. This transformational organizational effort undoubtedly built a corporate culture of its own with its own momentum; a momentum of rapid growth through acquisitions and mergers. If an analysis was done prior to the enactment of the ABN AMRO venture, it is reasonable to speculate that the analysis would included some prediction of a merger and acquisition in the near foreseeable future.

Also adding substantial bulk to the momentum is the fact that RBS had acquired expertise and a knowledge base built around conducting mergers and acquisitions. This knowledge acts as a kind of intangible asset that doesn't appear on any balance sheet but undoubtedly represented a tool in the CEO's repertoire that was readily available as soon as any opportunity presented itself that might fare well with the use of this technique for expansion.

When considering all of the different aspects of the cultural implications that appear in this case, it could be potentially be considered unreasonable to have expected RBS to have acted by any other means. RBS had gobbled up market share through acquisition to become one of the top global banks through the vehicle of organizational culture that supported the means to achieve such plots. In hindsight, if RBS wanted to level off its expansive growth strategy then a smart play would have been to institutionalize change management activities with a new transformational leader at the mast to usher in a new culture of sustainable growth. Without the advantage of hindsight it is difficult to uphold such an insight in the face of a strategy that has produced such growth; it is hard to judge when to pull the brakes on a system that doesn't seem to be broken.

Industry Boundaries

At no time during this case was RBS acting alone in a vacuum. According to an ad hoc list published on Wikipedia, there have been well over thirty mergers and acquisitions in the banking industry since the year 2000 (Wikipedia) in the United States alone. It is important to view the existence of competitive pressures placed upon RBS through other organizations in the market place. If conservative growth strategies produce marginal or stagnant financial growth then they not only have to offer explanations to the stakeholders as to why their performance does not equate to that of peer organizations, but it also runs an increased risk of becoming the target of an acquisition themselves.

The banking and financial services industry represents a conglomeration of products and services that can be considered as mature in the product life cycle development model. There are relatively few markets that remain untapped; banking institutions are prevalent globally. Therefore this creates an environment in the industry in which mergers and acquisitions represent one of the only remaining avenues to increase market share in a heavily saturated industry. This provides banking institutions full access to the full spectrum of rhetoric available in a kind of neo-classical capitalistic Darwinism model and leaves leaders with little room to develop any strategy that might consider anything less than expansive growth.

Not only are the implications of market pressures heavily weighted in the minds of today's industry leaders as incentives for mergers and acquisitions, there are other, more subtle benefits that may also provide organizations' competitive advantages through this mode of expansion. One author argues that the infusion of new ideas, paradigms, perceptions, and business process can act to revitalize otherwise uninspired standard operating procedures (Vermeulen, 2010). Therefore, the author argues, that even though initial considerations for mergers and acquisitions are centered on expansion, the ultimate long-term benefits acquired may exceed reductionist speculations through value added externalities.

Illusions and Behavioral Economics

One of the most exciting and yet controversial perspectives that may be applied to this case is the role of emotions and other psychological considerations that influence market dynamics. The new emerging field of behavioral economics considers the psychological implications of human judgments and uses these underlying influences to explain otherwise inexplicable phenomenon when perceived through the lens of neo-classical economic theory. This field examines issues such as the use of heuristics, framing, and tackles market inefficiencies such as the occurrences of bubbles, such as the real estate bubble that represents part of RBS's demise in this case.

One piece of academic literature examines the possibilities of bankers' herding behaviors as a catalyst for the financial crisis (Haiss, 2010). Herding behavior can be roughly described as a follow the leader type behavioral mechanism in which one individual perceives a member of a peer group operating in a certain manner and mimics the behavior themselves. Examples of this can include instances of bank runs and also certain market fluctuations.

When applying this perspective to the case at hand, many interesting… [END OF PREVIEW]

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