Citigroup has successfully faced the challenges of the 19th and 20th centuries and has always

The Economic, Societal, Political, Technological and Environmental trends give raise to Opportunities as well as threats. All these factors should be taken into account while building the strategies. A 2-by-2 matrix as shown below can explain this:

With respect to trends shaping the future of the world, the future strategies can be broadly classified into 4.

• S-O Strategies Pursue opportunities that are good fit to company’s strengths
• W-O Strategies Overcome weakness to pursue opportunities
• S-T Strategies Identify ways that the firm can use its strengths to reduce vulnerability to external threats
• W-T Strategies Establish a defensive plan to prevent the firms weakness from making it highly susceptible to external threats

Analyzing these different forces or elements alone is not enough to come up with a workable strategy. It is equally important to understand the relations between these various forces and determine what seems to be emerging from the combination. We also need to understand these forces in relation with other players such as Customers, Competitors, Strategic Partners, Providers of complementary products, suppliers and distributors.

Learning lessons from the past also will help us to build intelligent strategies. This is especially true for Citigroup with a long history of 200 years. This also is one way of honoring the visionaries who laid the foundations of this great legacy.  

In this document, the trends shaping the future are logically split into five areas – Political, Economical, Societal, Technological and Environmental. The article by Cetron and Davies provides an insight into these with their conclusions. These are critically analyzed and the impact of these trends in financial sector as a whole and Citigroup in particular is identified. Based on this, the strategic levers for competitive advantage are identified and the future strategies are built.

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2. Trends that have shaped the past strategies

Trends that have influenced the strategic direction of Citigroup in the past few years are described below and logically grouped into various external factors.

1. Economical:

 

1. Focus on developing economies:
   

The developing economies such as India, China, Brazil, Poland, and Russia will be the growth engine of the world in this century. The amazing pace at which these economies are growing and the consumer spending is increasing has provided and continues to provide unparallel opportunities in these once ignored parts of the world. The political leadership in these countries understands the importance of globalization and privatization and there is a paradigm shift in the attitude towards MNCs.

Citigroup has done extremely well in pursuing these opportunities and continues to do so. Launching of credit card in China with Shanghai Pudong bank or opening up of the first branch in St. Petersburg, Russia are just a few examples.

Citigroup also started a separate Consumer Finance group called CitiFinancial to address the demands for cars, houses and luxury goods especially in developing economies. This strategic move has been a bit hit in these countries as people become more and more affluent. This also has created a group of loyal customers who are getting richer as the economies of these countries continue to grow.

2. Acquisitions in the developed world:

Recent acquisitions of KorAm bank in Korea and Principal Residential Mortgage in US are examples of how the Citigroup wants to grow inorganically in the developed and almost-saturated economies where the competition and operating costs are high and new opportunities are lesser. Koram Bank acquisition is Citigroup’s largest-ever Asian investment with 223 branches in Korea. Citigroup also is in the process of acquiring First American Bank, a 3.5 Billion-asset bank with primary operations in Texas.

3. Knowing the customers and managing their wealth

Cetron and Davies (The Futurist 2003 Jan-Feb, P. 30) state, “Information is the primary commodity of more and more industries”.

Financial Advising using Citigroup Wealth Planning has been a success especially in developed economies. Understanding the short-term and long-term goals of the customers and ability to take risk is the future of the banking. It is the “customer experience” that matters to have a competitive advantage in a differentiated market.

2. Technological

4. Internet Banking

Internet is an incredibility efficient tool to handle information process. Due to the unprecedented penetration of Internet facilities into the households, the Internet banking had been growing in volume and value added services. Citigroup has very effectively faced the challenges in this arena - be in bill payment services, inter and intra banking fund transfers. It has improved the hardware and software capabilities to face up to the challenges.

5. Data Warehousing  

The transactional history of customer is a black and white record of how the customers are behaving in various environmental conditions. Citigroup has developed a very effective Data Warehousing platform to centralize analysis, campaigning, senior management reporting, sales performance monitoring, etc which has been extremely successful in building a customer centric view that otherwise is absent due to systems lying all over the place (Examples, Cards and Loans are on different systems). This has also helped the analytical processing to be moved out of transaction processing. Data Warehousing as such is a relatively new paradigm shift and Citigroup has very effectively responded to the need of the hour.

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3. Societal

6. Financial Education

Citigroup has made a 10 year-200 million commitment to support financial education across the globe. This is an investment worth doing and is a great way of advertising also. Educating people about the global economy and challenges of the future - where elderly population is growing dramatically and social problems and security concerns that comes as a “package” along with modernization are increasing - is an implicit way of delivering values and setting the market expectations.

7. Community Initiatives

In 2004, Citigroup’s US community investment has exceeded 24 Billion USD. For the low and moderate-income families, Citigroup has committed 200 Billion USD over a span of 10 years. Total philanthropic giving in 2004 from Citigroup foundation and the business combined exceeded 111 Million. Citigroup also introduced new program, which provided the employees a paid day off to volunteer at an eligible non-profit organization of their choice.

These initiatives help Citigroup in terms of reaching out to the world and pronounce that “Hey, we are a company built on the core values of humanity”.

8. Insurance

Cetron and Davies (“The Futurist Jan-Feb 2003”, P. 30) predicts “Global Demand for products and services aimed at the elderly can only grow quickly in the coming decade”

Citigroup Life Insurance and Annuities has surpassed the 1 Billion dollar net income for the first time. Individual life insurance account balance increased by 27 % to $6 Billion. But the penetration seems to be not that good due to a number of reasons including the government regulations in this sector in countries like India and China.

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4. Environmental

Banking sector is not directly affected by the environmental challenges (except for natural disasters!!). But there is implicit advantage for a global organization like Citigroup if the world is better off. Certain steps that Citigroup has taken in this direction are:

• Citigroup Venture Capital International made a $23 Million investment in Suzlon, a wind energy converter firm in India
• Citigroup underwrote 168 environmentally beneficial projects in US totaling more than $12.9 billion
• Citigroup in 2004 marked the first anniversary of the Equator Principles – to evaluate the environmental and social risks related to projects that it finance
• Citigroup revised the risk policies to include these concerns and hired a new ESRM (Environmental and Social Risk Management) director.

5. Political

The abuse of governments from Japan to Europe has made headlines about Citigroup due to wrong reasons. One of the ways in which Citigroup has responded to these challenges is through coming up with a “5 point plan” on shared responsibilities, training, compliance and control. The senior management is focusing now on cleaning up of the image using the cultural diversity and experience in its management to cope with the political challenges of a global network. This also includes a “history of Citigroup” movie to be seen by all the employees.

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3. Tomorrow and Beyond

Wells (Choosing the Future 1998, P. 82) states that  “We have no choice; to be practical, we must address the world as it truly operates”  

Understanding the environmental factors and the influence of these factors on various players provides a clearer understanding of how the market will behave in the future. Future strategies should be based on such an analysis.

An analysis of such factors in the Industry context combined with synthesis of relationship between these forces and players is the way to identify new patterns and opportunities (and some times threats also).

6. Economical

9. Euro – The next wave

With the introduction of the EU and Euro, the lives of 300 Million people have changed. With new countries joining EU, unfettered cross-border shopping and travels provide a wide array of opportunities. Lesser restrictions in the EU market (especially in the Eastern Europe) and opening up of new markets are another opportunity that can work in favor of Citigroup.

To highlight an example, Romania is preparing for the entry into EU. The politicians are keen to repeat its 2004 performance – this provides an unparallel opportunity for banking as retail spending booms.  

But this has to be read along with the political and cultural differences in the region to understand the complete picture. An example of this is recent fall of Euro on increased expectations that France will vote against EU constitution – and it happened today when I am writing this – The French Votes “NO”; 55 % “NO”. The political and economic implications of this “NO” vote and how it will impact the decision of other countries (The Dutch are going to vote on 1st June) has still to be studied given that it has taken 3 years to come up with a consensus on this constitution.

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10. Enter the Dragon

The talk of the century, no doubt, is China – the world’s fastest growing nation with world’s largest population. A credit card usage explosion is expected in China in the coming decade. This is a country where people move from lower income to middle class and to the riches in lightning speed. Mainland china is expected to have 75 Million credit cards by 2010 from 3 million currently.

China is a market with $1.5 Trillion in household saving and still growing at the fastest pace in the world. It has already become world’s second largest economy. The need of the hour for Citigroup is to be an early bird and catch the opportunities.

Does this come with no risk? No. Pressure on China to liberalize the Exchange rate regime will bear fruits in a few years that will possibly reduce the current growth rates and shoot up the prices. Potential social unrest due to issues of freedom of speech, human rights violations is another risk.  

11. Black Gold and the Cetron-Davies paradigm

Cetron and Davies (“The Futurist 2003 Jan-Feb”, P. 36) states that “Oil prices are likely to remain generally around $22 to $26 per barrel for at least the next five years”

This has proven to be wrong. The oil price is hovering above $50 a barrel (mostly due to demand supply gap) and is expected to increase up to $110 a barrel in another 3 years time.

Economists are predicting slower growth in world economy due to this. It is said that it costs $3 Billion for US for each cent raise in oil price. The high price of oil has already affected the retailers, airlines and manufacturing industries. There is also a chance of US economy getting pushed to a recession due to rising oil prices. All these means people left with lesser money and in turn affects the banking sector.

Is there an opportunity due to this? May be yes. There are opportunities in OPEC countries and Russia due to increase in oil prices. US also plan to explore oil fields in Alaska.

 

7. Societal

12. Terrorism

Economic costs of Terrorist attacks are extremely high - New York City alone stunned $105 Billion damages in attacks of Sep 11th. The counter-terrorism measures divert the resources away from economic development. Following the Sep 11th attacks, many G-7 central banks have cut interest rates to boost consumer confidence. The terrorist attacks had repercussions trickle down through every layer of global economy. The threat continues to exist and the implications in the banking industry are extremely high.

13. Population growth

The world population is expected to double in 40 years and poor countries will have world’s larger portion of the population. The population in the developed world will live longer and the fertility rate will diminish. That means world’s productive young population will be more concentrated in the developing world. That also means social problems in the developed countries due to public spending on retirement benefits and health care of the elderly.

This situation provides both opportunity and threat. The demand for insurance and products and services aimed at elderly people will see a dramatic increase. The importance of cultural diversity and racial harmony at the work place needs to be stressed. New schemes to attract knowledge workers from across the globe will need to be explored. Retirement age will need to be raised and continuous training at the workplace will be a norm of the future.

14. Changing Societal values

Societal values are changing rapidly across the globe with globalization penetrating into all the corners of the world. Even in developing countries like India, where people traditionally saved the money largely due to deep felt insecurity, the attitude is changing and the spending is sky rocketing. This also has increased spending in tourism, vacationing and travel. This provides huge opportunities for banks in such markets.

Changes in social attitudes have another dimension as well. Increased awareness of becoming “successful economically” in the under-developed world poses a social threat. Disappointments could drag unemployed men into terrorist movements and political rebellion. This could lead the society into instability and eventually will result in economic break down.

 

8. Technological

15. Internet and knowledge based society

Technology has revolutionized the global banking. Internet banking, even though relatively new, has penetrated the society at lightening speed and is still growing. Value added services through Internet banking such as bill payments, stock transactions, inter and intra bank fund transfers have become bare minimum necessities.

There is growing requirement in terms of continuous capacity addition to meet the ever-increasing usage. Recruiting knowledge workers and retaining them will be a challenge all industries will face in the future.

16. The nano-world

The next wave in technology is nanotechnology that will bring about a paradigm shift in the way in which the world uses technology. That also means increased investment in technology and skill set to ride and lead on this wave.

9. Political

The Anti-American sentiments widespread across the Muslim world could mean negative implications for Citigroup in those parts of the world. This could pose a real threat as the Arab world getting richer, thanks to the oil money and the Muslim population growing at a much greater speed compared to other communities. This also has to be seen in wake of the $10 billion stake Saudi prince has in Citigroup.

A fragile Taiwan-China relationship is another issue that could create problems to Citigroup as it has a very large presence in Taiwan and is trying to penetrate into the new main land Chinese market.

The volatile Latin American market and the political instability is another threat that banking industry as a whole and Citigroup in particular are facing in that part of the world.

4. Stake Holders’ Responses

Cetron and Davies (“The futurist 2003 Jan-Feb”, P. 33) states “The demand for greater accountability and transparency will be crucial, not only in the US business community, but also for countries that wish to attract international investors” – If you fail to read this writing, you fail, no legacy will help you.

According to Shareholder Wealth Maximization Model, the main objective of any firm is to maximize shareholder wealth. Citigroup experienced reputational problems in Japan, UK and Europe recently which had a devastating effect in the customer trust and these went totally against the goal of Citigroup to be “the most respected global financial services company in the world”. It also created a negative impression in the minds of the shareholders. This primarily has happened because Citigroup failed to understand the importance of increasing demand for greater accountability and transparency.

 

As a global blue chip company, Citigroup’s stakeholders are relatively at lesser risk with respect to environmental factor changes. But issues such as terrorism and political backslashes against American organizations in the Muslim world could have greater impacts in the stakeholders’ confidence in Citigroup.

Citigroup on its part has emphasized the “Responsibility towards Franchise” as part of its Shared Responsibility statement. It also emphasizes the respect towards local culture and communities.

Emphasis on the core values is also important in the drive towards this goal. Core values create the integrity for the company. Wells states (“Choosing the future, 1998”, P. 169) “these values permeate nearly every activity of the company and must guide all efforts directed toward achieving the vision”. Any departure from the core values will have devastating effect in the customer trust and so also the investor confidence.

 

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5. Strategies in the face of short comings

10. Emphasis on Core values

Wells (“Choosing the future, 1998 “, P.169) states “ Core Values are fundamental guidance to all behavior”.

Core values define what is company’s culture and should be embedded in all the actions of the staff and management. Citigroup had some major failures in this department. That means its time to reinforce the importance of core values and shared responsibility in the minds of the people. Ignoring this for the short-term benefits could prove to be suicidal. For Citigroup, this means its time to educate its own people on this vital component of building trust among customers and investors.

11. Anti Money Laundering

Preventing and prosecuting money laundering and finance of terrorism is taking the front seats in all the policy discussions of financial organizations. Development of internal policies and technology that could identify and prevent such transaction is an immediate priority for banks across the globe and especially for Citigroup due to its global presence and technology that allows global fund transfers.  

 

12. Transparency and accountability

Transparency and accountability in the operations is becoming more and more important as the world is becoming a place of equal opportunities and open markets. Citigroup, as a global organization should be able to adapt to these changes not only in the US, but also across the globe. The emphasis is also on adapting to local cultures and respecting local communities.

13. Funding Education

Funding education is not just a social responsibility; it is a long-term strategy towards building the knowledge workers required for the future and attracting talents from across the globe. Education has the potential of reducing the threats that the world and industries are facing in terms of terrorism and other social problems caused by unemployment and poverty.

   

14. Outsourcing secondary functions

Cetron and Davies (“THE FUTURIST, 2003 JAN-FEB” , P. 32) “Rather than paying salaries and benefits for activities that do not contribute directly to the bottom line, companies are farming out secondary functions to suppliers, service firms and consultants, which increasingly are located in other countries”.

For Citigroup this means that secondary operations such as back office technology, call centers, data centers, etc can be moved out to countries like India due to lesser operational and human resource cost and availability of skilled workers.

15. Attracting the right talent at the right time

In the midst of rapid advancements in technology and changes in the way of conducting businesses, attracting right talents will become a challenge that any organization will face in the future. Making Citigroup “The Place Anyone wants to be” is an important priority. Rewarding the right talents and building strategic partnerships with world’s leading educational institutes will be a direction towards this. The importance of continuous education also needs to be emphasized.

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6. References:

1. Stuart Wells , 1998  “Choosing the Future”  , Butterworth Heinemann
2. M K Lewis and K T Davis 1987 “Domestic & International Banking”, Philip Allan
3. Goh Keng Swee 1995 “The economics of Modernization” , Federal Publications
4. Cetron, Marvin J and Davies, Owen 2003 “Trends Shaping the future: Economic, and Environmental Trends” The Futurist, Jan-Feb 2003, P 27-42
5. Citigroup 2004 Annual Report
6. Citigroup Home Page

             

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7.  

07-Mar-2005 “A multicultural management would keep Citi out of trouble”

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04-Apr-05 “Banks take part in catch up story”

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8. Jan 2003 “Banking on the euro”

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9. 10-May-2005 The Standard - “China – Credit card use to explode”

Viewed on 27-May-05

10. 2005, Council on foreign Relations “China: Challenges for reform”

 

Viewed on 25-May-05

11. 08-Oct-2004 The Christian Science Monitor “$50-Plus oil drags on economy”

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12.  2004 “SWOT Analysis”

Viewed On: 03-May-05/25-May-05