CITI GROUP

A Case Review

BY

Aakash Shrestha
Shikhar Dhami
Shreejan Bista
Simran Shrestha

MAY 2023

[ECON 512: EMBA‐2023]

 Synopsis
The case study looks into Citigroup's history, the market landscape, and the challenges associated
with mergers, integration, and regulatory compliance in the financial industry.

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 Table of Contents
Synopsis.......................................................................................................................................... 2
Table of Contents .......................................................................................................................... 3
1 Introduction ........................................................................................................................... 4
2 Core Issues.............................................................................................................................. 4
2.1 Concentrating on Successful Business or Continue to Acquire?...................................... 4
2.2 Why did Citigroup focus on expansion rather than focusing on its most successful
businesses? ........................................................................................................................ 5
2.3 How to mitigate Risk Associated with Integration and Complexity Management? ........ 5
2.4 Can Citigroup optimize its resource allocation? ............................................................... 6
3 Analysis ................................................................................................................................... 6
3.1 Facts on Core Issues ......................................................................................................... 6
3.2 SWOT ANALYSIS .......................................................................................................... 7
3.2.1 Strengths ................................................................................................................... 7
3.2.2 Weaknesses: .............................................................................................................. 8
3.2.3 Opportunities: ........................................................................................................... 8
3.2.4 Threats....................................................................................................................... 8
4 Solutions ................................................................................................................................. 8
5 Managerial implications with limitations of MI ................................................................. 8
References .................................................................................................................................... 10

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1 Introduction
Citi Group is a multinational financial services corporation headquartered in New York City.
Established in 1812, Citi Group has presence in over 160 countries and offers a wide range of
financial products and services to individuals, corporations, governments, and institutions
worldwide.

2 Core Issues
Citi Group have enjoyed both success and failure since its inception. It has achieved significant
growth, becoming one of the largest and most profitable financial service companies globally.
However, it has also faced challenges, including financial crisis-related losses and regulatory
issues that have impacted its reputation and financial performance. Some of the core issues
associated with the Citi Group are described below to understand the problem associated with it.

2.1 Concentrating on Successful Business or Continue to Acquire?

Strategic Goals

Concentrating on Continue to grow

Successful Businesses through acquisitions

In terms of the strategic goals, both the above mentioned options can be analysed through
opportunity costs. In case, the Citi Group opts to Concentrate on Successful Businesses, it can
allocate its resources such as capital, talent, and technology, towards further developing and
expanding these segments. This ensures that resources are utilized efficiently and effectively,
generating higher returns. Citigroup's successful businesses are likely to have developed a strong
expertise and competitive advantage in their respective markets. By concentrating on these areas,
Citigroup can leverage its existing strengths to outperform competitors and capture a larger market
share. In addition to that, focusing on successful businesses reduces the risk associated with
venturing into new and unproven markets. This mitigates the potential losses and uncertainties that
come with expansion into unfamiliar territories, thus minimizing the opportunity cost of failed
ventures.

On the other hand, Citigroup may choose to continue its growth through acquisitions, it is a well-
known fact that acquisitions typically require significant financial resources, including upfront

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payments and integration costs. By pursuing acquisitions, Citigroup would need to divert capital
from other potential uses, such as investment in existing businesses or debt reduction. The
opportunity cost lies in forgoing these alternative uses of capital. Integrating acquired businesses
into Citigroup's operations can be complex and time-consuming. This diversion of managerial
attention and resources towards integration may come at the expense of focusing on and
developing the most successful existing businesses. The opportunity cost lies in the potential loss
of growth and value creation in these core segments. Risks: Acquisitions involve inherent
uncertainties and risks, such as cultural clashes, regulatory hurdles, and unforeseen challenges in
realizing synergies. The opportunity cost arises from the potential negative impact on financial
performance and shareholder value if acquisitions fail to deliver expected results.

2.2 Why did Citigroup focus on expansion rather than focusing on its most successful
businesses?
Citi Group continued to expand to make the most out of economies of scale, which played a crucial
role in the company's success. Due to the increase in size of the group, Citi Group was able to
achieve cost advantages and operational efficiencies that are associated with large-scale
operations. As the company expanded, it could spread its fixed costs, such as infrastructure,
technology, and administrative expenses, over a larger customer base. This enabled Citi Group to
lower its average cost per unit of production or service, resulting in higher profitability.

Moreover, Citi Group's expansion allowed it to leverage its resources more effectively.
Furthermore, economies of scale enhanced Citi Group's competitive position. The company could
offer a wider range of services, attracting more customers and retaining existing ones. In summary,
Citi Group's continued expansion was driven by the desire to harness economies of scale.

2.3 How to mitigate Risk Associated with Integration and Complexity Management?
There is always risk associated with the integration and complexity management during the
acquisition of a company. Inter departmental integration is always a challenge. Every department

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may have its own way of doing things which can cause additional conflicts. Furthermore, the
employee may also find it difficult to cope up with the changed culture of the company. The
Company should help their employees understand and make them aware of the new rules of the
company.

2.4 Can Citigroup optimize its resource allocation?

Citigroup can optimize its resource allocation to maximize the benefits of economies of scale
across its diverse business units. Citigroup can leverage economies of scale to achieve cost savings,
increase efficiency, and enhance its competitive advantage by effectively managing and allocating
its resources. Implementing centralized decision-making processes which involves consolidating
certain functions, such as procurement, IT systems, and risk management, to eliminate duplication
and take advantage of economies of scale. Centralization allows for better coordination,
standardization, and control over resources, leading to cost savings and improved efficiency.
Furthermore, Citigroup can prioritize investments in shared infrastructure and technology
platforms across its business units. By developing common systems, processes, and technologies,
the company can streamline operations, reduce redundancy, and achieve economies of scale. This
approach not only reduces costs but also facilitates seamless integration and collaboration among
different units, enhancing overall performance.

3 Analysis

3.1 Facts on Core Issues

 As discussed above, Citigroup pursued a strategy of expansion through acquisitions,
aiming to become a fully diversified financial services firm with a broad scope and large-
scale operations. Moreover, the same can be seen in their acquisition of Travelers Group
in 1998, which marked a significant step towards diversification. Citigroup faced the
decision of whether to concentrate on its most successful businesses or continue expanding
through acquisitions. This strategy allowed them to tap into different sectors of the
financial industry, such as banking, insurance, and investment services, with the goal of
capturing a larger market share and increasing their revenue potential.
 By diversifying their business portfolio, Citigroup aimed to reduce the risk associated with
relying heavily on a single business segment or market. Citigroup emphasized the
importance of distribution channels and open architecture in capturing value and serving
customers worldwide. The company reported successful cross-selling, with a doubling of
cross-marketing revenues between 1998 and 2001 which helped in the potential benefits of
their expansion strategy.
 Citigroup aimed to reach and serve customers across various wealth segments, providing
multiple services and products. This approach allowed them to capture more market share
and increase their customer base.
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  By offering a comprehensive suite of services, Citigroup aimed to enhance customer
loyalty and increase revenue through cross-selling opportunities. The reported doubling of
cross-marketing revenues between 1998 and 2001 indicates some level of success in this
regard.
 Citigroup acknowledged the risks associated with integration and complexity management.
They emphasized expense discipline, acquisitions expertise, and risk management as
crucial elements of their strategy. Additionally, the company implemented a rigorous risk
management framework to identify, assess, and mitigate potential risks arising from
integration and complexity management. Citigroup recognized that integration and
complexity management pose significant risks when acquiring and merging diverse
businesses. To mitigate these risks, they focused on expense discipline to ensure efficient
resource allocation and cost control during integration processes.
 The company's focus on economies of scale allowed them to offer multiple services to
customers worldwide, leading to increased cross-marketing revenues and potential cost
efficiencies. Citigroup's objective of optimizing resource allocation to maximize
economies of scale is crucial in achieving competitive advantages and cost efficiencies. By
consolidating their diverse business units and leveraging their broad scope, Citigroup
aimed to share resources, infrastructure, and expertise across different segments of their
operations.
 This approach allowed them to achieve cost savings through bulk purchasing, standardized
processes, and centralized support functions. Furthermore, Citigroup's extensive
distribution channels enabled them to reach a broader customer base and offer multiple
services to different consumer segments. This not only enhanced their revenue potential
but also provided opportunities for cross-selling and upselling, leading to increased
customer loyalty and higher profitability.

3.2 SWOT ANALYSIS

Analyzing the core issue of Citigroup's inability to manage mergers properly and conflicts in
management and ideologies using a SWOT analysis, we can identify the following:

3.2.1 Strengths

Successful mergers and acquisitions by Citigroup in the past show the company's capacity for
corporate growth and business integration. The business has a competitive advantage in the market
thanks to its wide variety of financial services, which include retail banking, investment banking,
and insurance. Citigroup is able to draw clients and investors thanks to its widespread presence
and solid brand recognition.

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3.2.2 Weaknesses:

Inefficient merger management can cause problems with integration, cultural clashes, and disputes
across management teams, which can hurt organizational effectiveness and performance.
Ideological and management conflicts may result in internal divides, a lack of coordination, and
difficulties making decisions, which may affect the company's overall strategic direction.
A massive corporation like Citigroup can be difficult to manage, which can lead to bureaucratic
procedures and a delayed reaction to market changes.

3.2.3 Opportunities:

Citigroup may experience synergies, financial savings, and a rise in market share as a result of
properly handling mergers and acquisitions. Teamwork, goal alignment, and decision-making
efficiency can all be improved by resolving conflicts in management and ideologies. The financial
sector is always changing, giving Citigroup opportunity to modify its business plans and provide
cutting-edge goods and services.

3.2.4 Threats
Customer dissatisfaction and lack of confidence can result from poorly managed acquisitions and
management conflicts that harm a company's reputation. Financial sector rivals can exploit
Citigroup's internal issues to increase their market share. If conflicts and poor management lead to
non-compliance with industry regulations, there may be regulatory and legal problems.

4 Solutions
 Develop measures to address cultural differences after conducting a thorough assessment
of them, with the goal of establishing a unified corporate culture that is consistent with the
vision and values of the combined company.
 To ensure that goals, strategies, and expectations are understood at all management levels,
create regular and open channels of communication.
 To give staff the skills and information they need to adjust to the changes brought about
by the merger, offer training and development programs.
 Utilize feedback tools to acquire information and make the necessary adjustments to the
integration process, such as employee surveys and consumer feedback.

5 Managerial implications with limitations of MI

Managerial implication refers to the use of information that helps in the making of decisions by
the manager which might influence the company, its employees, and its customers.

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 Give open and honest communication a high priority both inside the team and also throughout
the entire organization. Create channels for information exchange, promote two-way
communication, and make sure that staff members are aware of the objectives, plans, and
expectations.
 Recognizing the value of change management, manage the team's exposure to organizational
changes in a proactive manner. Also assist the team members during the transition, assess
cultural differences, organize dialogues, and offer training and growth opportunities.

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 References

1. NYU Stern. (n.d.). Citigroup: Scale and Scope. Retrieved from

https://pages.stern.nyu.edu/~lcabral/teaching/citigroup.pdf

2. Rajan, R. G., & Zingales, L. (2012). Saving capitalism from the capitalists: Unleashing the power of
financial markets to create wealth and spread opportunity. Retrieved from SSRN website:

3. Rajan, R. G., & Zingales, L. (2012). Saving capitalism from the capitalists: Unleashing the power of
financial markets to create wealth and spread opportunity. SSRN.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2037394

4. Anon. (2001, December 19). Citigroup shares rise on IPO day. Retrieved from CNN Money website:

5. CNN Money. (2001, December 19). Citigroup shares rise on IPO day.
https://money.cnn.com/2001/12/19/ipo/citigroup/index.htm

6. Reeth, J. (2017, June 20). Citigroup stock history: From boom to crisis and back again. Retrieved
from The Motley Fool website:

7. Reeth, J. (2017, June 20). Citigroup stock history: From boom to crisis and back again. The Motley
Fool. https://www.fool.com/investing/2017/06/20/citigroup-stock-history-from-boom-to-crisis-and-
ba.aspx

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