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Macquarie Bank Case Study Session 5

Macquarie Bank has maintained success through incremental adjustment to changes in the deregulated Australian banking environment since the 1980s. It diversified into new markets and grew organically and through acquisitions while keeping a flexible, collaborative culture. As it expanded, Macquarie faced coordination challenges which it addressed by developing business units, improving communication, and establishing organizational goals and values. Its small size, specialized niche strategies, and loosely linked structure allowed flexibility and agility in responding to market demands. As it continues to grow, Macquarie will need to assess if these strategies remain effective to sustain its competitive advantage.

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946 views4 pages

Macquarie Bank Case Study Session 5

Macquarie Bank has maintained success through incremental adjustment to changes in the deregulated Australian banking environment since the 1980s. It diversified into new markets and grew organically and through acquisitions while keeping a flexible, collaborative culture. As it expanded, Macquarie faced coordination challenges which it addressed by developing business units, improving communication, and establishing organizational goals and values. Its small size, specialized niche strategies, and loosely linked structure allowed flexibility and agility in responding to market demands. As it continues to grow, Macquarie will need to assess if these strategies remain effective to sustain its competitive advantage.

Uploaded by

Vivek Tripathy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Exercise: 1 7th Class of OSD

Macquarie Bank Case Study


Macquarie Bank is an excellent example of a highly successful organization, which has
been able to maintain its success using an incremental adjustment process while
operating in a rapidly changing environment. During the 1980s and 1990s, changes
occurred in the environment of Australian financial institutions. These included rapid
deregulation of the financial services sector by the Australian Labour Government. The
critical moves involved were the floating of the Australian dollar, progressive removal of
restrictions on competition between banks, building societies, merchant banks, and
other institutions which offer financial services, and grant of new banking licenses
including licenses to 16 foreign-owned banks to operate in Australia.
From its inception as Hill Samuel Australia in the early 1970s, the banks strategic
focus was merchant banking (investment banking). In 1980, the bank commenced a
process of diversification. But, with deregulation in the 1980s it diversified further,
building up strength in specialist markets, particularly in high value-added niches
(market segments) like corporate services, bullion and commodities. The pace of
diversification quickened by the mid 1980s with the bank entering into a range of new
areas including retail domestic banking, equity investments, property and leasing.
Growth took place by way of both development and acquisition. Macquarie remains one
of Australias most successful and profitable banks. So, how did Macquarie executives
manage the needed organizational change?
Change in Macquarie has been a process of constant adjustment. One executive
described it this way: We never stay still, but we dont change in quantum leapsour
corporate culture would preclude that. Running a business on partnership concepts
means that policy decisions are not dramatic, they evolve. The rapid growth in
Macquaries product range was accompanied by a quadrupling of staff strength in the
1980s. The number of business-product units, or clusters, increased to almost 30 by
the late 1980s, presenting an increasing problem of co-ordination in a collegial/
partnership system where unit heads nominally report to the managing director. The
increase in size and complexity created problems of co-ordination. The obvious answer
was to create additional structures, systems, and controls, but this was foreign to the
collegial values of the bank, which is staffed mainly by highly qualified professionals.
The strategy adopted was to formulate a goals and values statement an articulation
of deeply held values about cultural and business behaviour, including how the process
of change should be managed. The statement is essentially a set of values and norms
and internal controls that substitute external control systems. Developing business units
into highly autonomous profit centres and then creating cross-functional synergies
through more systematic communication by management across these centres,

supplemented the efforts for co-ordination. But what were the methods adopted at
Macquarie to bring about these changes?
There was increasing convergence on a consultative style of management. The
consolidation of the style is reflected in the frequent use of the executive committee as a
forum for discussion of major issues and decisions. The collegial style was symbolized
by the fact that the managing director shared the same open-plan office. Interestingly
enough, when first-line and middle-level managers were asked for their perceptions of
the banks leadership style, they saw it as substantially more directive than consultative.
All fifteen respondents who rated the managerial style this way indicated that they
thought this directive style was appropriate. We need strength and decisiveness at the
top, one commented. Consistently, some who rated the leadership style as
consultative, believed that the style was not directive enough for the present
environment. This is an interesting comment because it challenges one of the basic
assumptions of the organizational development movementthat people desire to be
consulted on issues relating to organizational strategies. In a turbulent external
environment, however, they may prefer decisive leadership Macquarie does not have
the all-encompassing human resource systems typical of some organizations. It follows
an organic, developmental approach, aptly summarized by one executive as follows:
We recruit the best from universities and graduate schools, give them on-the-job
training and pay them top money. We are a meritocracy. We try to provide a flexible
organizational environment where people can achieve. The
policies are well suited to a flat organizational structure where specialist skills can be
developed within small work teams, closely related to the product-market interface. It is
not expected that
Macquarie will change the basic tenets of the meritocracy system However, there was
sufficient evidence during the study to indicate that the bank may need to consider more
systematic approaches to its human resource policies in the future. The priority areas in
human resource practices were;
Recruitment and selection (corporate image of an employer is important; use of
psychological tests and the policy of growing our own from graduate trainees is a key
strategy)
Performance appraisal (an essential mechanism for tracking goal achievement and
helping in determining rewards)
Rewards and compensation (we pay well)
Organization and development (goals and values statement, team building, monthly
newsletter, etc.)
The question that naturally arises is how the bank was able to maintain an incremental
strategy and achieve such outstanding results in such a dynamic environment? Its
success appears to have been mainly a function of its small size as compared to the
other banks and its combination of diversified niche strategies coupled with a loosely
linked flexible organization. Its short communication chains and collegial-workforce
culture led to considerable flexibility in responding to changing market demands. These

are strengths, which larger organizations seek to emulate through the formation of
decentralized, strategic business units.
Macquarie Bank has been successful in operating this way so far. As the bank grows
further, the executives will have to assess whether these strategies can continue to
prove adequate. Nevertheless the case demonstrates that participative evolution can be
an effective change strategy even in a turbulent environment, at least for a relatively
small, highly specialized, and successful niche player such as Macquarie.
Updates from the web-site
Organizational structure and business activities
Macquarie has a non-hierarchical organizational structure, split into six operating
groups. The Executive Committee, a central group comprising the Managing Director,
Deputy Managing Director, Head of Risk Management, Head of Corporate Affairs and
heads of Macquarie's major operating groups, manage the organization as a whole.
Individual businesses operate within Macquarie's operating groups. These businesses
work closely together, specializing in defined product or market sectors, and are
committed to their client's relationship with the Macquarie group.
Within overall guidelines and a strong risk management framework, the operating
groups have substantial discretion in the way they manage their business activities.
Great emphasis is placed on a client's relationship with Macquarie as a whole.
Five service groups provide the framework, infrastructure and support that the operating
groups require to manage their business. These are the Corporate Services, Financial
Management, Group Legal, Market Operations and Technology, and Risk Management
Groups.
The present organization structure is as under. Critically evaluate how the present
structure can help the Macquarie Bank to sustain in competition.

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