Change Management in the Banking Industry: Lessons Learned

By Rodriguez, Arturo | Organization Development Journal, Fall 2012 | Go to article overview

Change Management in the Banking Industry: Lessons Learned


Rodriguez, Arturo, Organization Development Journal


Abstract

This review describes the intricate relationship between transformational leadership, work alienation, and organizational structure in the banking industry. The literature review yields evidence of a very strong relationship between the style of leadership employed and organizational structure on the motivation levels of the rank and file and the levels of work alienation present in community banks that are trying to shift to a more sales oriented focus to remain competitive in their markets.

Introduction

The banking industry has undergone tremendous changes in the last three decades. From a strict regulated environment, the banking and financial services industry underwent deregulation, which sparked an increase in competition, followed by a bailout from the federal government. Winston (1998) discusses the effects of deregulation on the banking industry and finds that the increased merger activity occurs within one decade of deregulating an entire industry. These mergers, in turn, facilitated the large-scale exit of weaker companies. This increase in competition forced the more inefficient firms to improve their performance or disappear.

The time period of deregulation occurred between 1970 and 1994, as 38 states lifted their restrictions on branching. Banking companies were allowed to expand in some states by establishing multi-bank holding companies, even though intrastate banking was generally restricted. In the mid-1980s, the Office of the Comptroller of the Currency (OCC) permitted nationally chartered banks to branch freely in those states where savings institutions did not have branching restrictions (Stiroh & Strahan, 2003). New technologies (such as advances in credit scoring techniques and the development of large customer information databases) applied to banking products may have paved the way for the complete elimination of geographic markets (Kroszner & Strahan, 1999). Furthermore, interstate banking and intrastate regulation were a causal factor in the convergence of market share across all states as well as the steady market share of good banks (Stiroh & Strahan, 2003).

In order to be able to survive in this newer competitive environment, banks have changed their organizational culture to one that fosters proactive behavior and sales. An organization's sales culture was seen as the growth-oriented facet of the market oriented firm. The growth that organizations pursued comes through a focus on the customer in whom relationships are built through the creation of value for new and existing customers (Lassk, Ridnour, & Shepherd, 2001). Since there is little difference between the products and services offered in retail banking, the perception that customers have about the quality of service received and customer satisfaction may influence consumer loyalty. In retail banking, a difference exists between customer retention and customer loyalty; a loyal customer is usually portrayed as being less price-sensitive and more inclined to make more numerous and frequent purchases.

The reasons why banks prefer loyal customers as opposed to just customer retention is evident; since loyal customers become advocates of the organization and take a role in the decision-making of their peers and families in the form of referrals. When the customer is completely satisfied, loyalty towards the institution is strengthened; however, banks tend to diminish customer loyalty when their clients perceive that the fees they are charged are excessive or higher than those of competing banks. In an increasingly competitive marketplace (new players in already saturated markets), customer loyalty continues to play an increased role in the success of established banks (Farquhar & Jones, 2003). A sales culture, however, is only one facet of a market oriented organizational culture. If a sales culture should be utilized as a tool to attain longterm goals, long-term relationships that create value for new and existing customers need to be forged. …

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