Management and Organizations
May 9, 2013
Because of the insistently sluggish market since the Financial Crisis of 2008, many major banks have been in the business of cost cutting in recent years. These major financial institutions have been trying to fight against low revenue, staggering stock prices, and many new profit regulations that have been put in place since 2008. Citigroup for example was forced to cut more then 11,000 jobs worldwide in order to reduce their operating costs. Deutsche Banks tried to do the same thing with their 2015+ plans however this strategy change has a lot of faults. Instead of focusing mainly on changing its strategy we believe the bank should also try to focus on some structural changes.
In a personal interview the Vice President of Real Estate Investments for Deutsche Bank said, “After 2007, both the environment and the banking industry have changed. In order to remain competitive and available to all our clients, we need to cut costs and increase profit.” As we saw from the banks quarter four-income statement of 2012 immediately after 2015+ were implemented the banks net income dropped by almost 2.5 billion dollars in a single quarter. 2015+ is evidently not effective in increasing profit or cutting costs. Structural changes would reduce the cost of salaries and would not require cutting as many jobs as other banks have been doing.
As we learned in class when a company uses a mechanistic organizational structure it composes of a tall top-down hierarchy with centralized decision making. It also calls for many departments, each division being very specialized in a specific task. 2015+ for Deutsche Bank is based on this mechanistic structure as it is adding an Asset & Wealth Management division as well as a Non-Core Operations unit. It also is changing its compensation packages for executives in order to reduce cost. (Schmid 1). If the bank were to switch to a more organic organizational structure there would be no need to add these new departments, there would be a flat hierarchy, and they would have more decentralized decision-making. This would make the bank more flexible, adaptable to the environment, and customer-focused. We feel that this change would not only provide the bank with a more customer focused competitive advantage, but also have massive cost cutting solutions. It would eliminate the need to have high paid leaders, as the middle management would be able to do many of the tasks currently addressed by these executives. Even though this would slash a few jobs from the company, it will be a lot less then 2015+, which as already cut more then 1,900 jobs from the bank.
Beyond changing the banks structure to reduce costs, we feel that in order to increase its profits, Deutsche Bank should engage in some revenue expansion measures. The CEO of Starwood Group Frits van Paasschen, one of the biggest hotel chains in the world was recently quoted saying that it was impossible to run an international company from the United States. We believe that the same holds true for Deutsche Bank in Europe. Currently the brand is focused mainly in Germany, however still have many offices around the world. We feel that the bank should try to direct some of its efforts more east in Asia as well as some select countries in South America and Africa. In developing economies Deutsche