Case Study

Firm: Credit Lyonnais

Industry: Banking

Countries: France, World-wide

International HRM Issue: The internationalization of a bank & the cultural conflicts involved

1) Introduction

This study of Credit Lyonnais, one of the world's largest banks with offices in over 60 countries, examines the organisation and human resource management strategies thought necessary to survive the rapid market changes in international banking. Credit Lyonnais provides a particularly good example of a large bank which is determined to succeed through growth in services offered in existing markets and through extending into new markets.

Credit Lyonnais has offices on all continents, and in the countries where it has operations, it applies one of two growth strategies:

i)  organic growth (increasing the activity of its branches and subsidiaries, or opening new branches)

ii) acquisitions / mergers (involving either take-overs or purchase of minority interests in local banks).

Credit Lyonnais now has 610 offices outside Europe and these are either subsidiaries (where the HRM has a majority shareholding) or associated companies (where the HRM has a minority shareholding). The Credit Lyonnais Group has grown very rapidly over the past few years and will continue to grow with planned expansions on all Continents and in all areas of business.

Realizing at an early stage of its expansion that its service and market strategies required an equally strong human resource strategy Credit Lyonnais set out to implementing HRM policies to achieve its business goals.

2) An International Corporation

The Credit Lyonnais Group has grown very rapidly over the past decade principally by the acquisition of foreign banks throughout Europe and in other markets around the world. To benefit from its acquisitions many Credit Lyonnais managers believe they must now integrate their banking network in terms of common services and client management.

One of the key challenges that face Credit Lyonnais is to fully internationalise its HRM policies and become a true multi-cultural, globalised, organisation. This task is made harder as many senior managers think that the bank is already international simply because it has a tradition of foreign operations and that it has doubled its size through the acquisition of foreign banks. Such thoughts obscure the fact that Credit Lyonnais is still dominated by French culture and French ways of doing businesses despite the fact that the bank now employs far more people outside of France than within.

3) French Context

To have a good understanding of the cultural environment of this HRM there is a need to consider the culture of France, particularly its political & economic history and the style of management and organisation often associated with French companies. In France the State plays a key role in the economy and in society: the State regulates economic development through economic planning over a five-year period. State ownership of services and industries is still high compared to most other EU Member States and as one of the last large nationalised banks to be privatised, Credit Lyonnais is still strongly influenced by government.

With a savings rate of 12.2% of disposable income, France traditionally represents a good market for banks although de-regulation of the banking industry and the privatisation of some State owned banks during the 1980s meant that banking profits rapidly declined. However, from a HRM perspective, the French government, which always plays a primary role in defining the basic terms of the relationship between employers and employees, insisted on the maintenance of workers` standard of living through wage indexing (linking wage increases to the rate of inflation), increased social insurance provision and through dissuading banks from making staff redundant.

Although trade union membership in France is low (only about 10% of the working population are members), unions are powerful and strongly influence the government. Unions in France, as elsewhere, negotiate collective agreements but, unlike in many other countries such as the UK, these agreements, once negotiated with the employer body in the relevant industry, then legally apply to all employees in the industry. Terms and conditions of employment in the banking industry are generous because of these forces, which are: a government supportive of workers, and union negotiated collective agreements. However, today the banking sector is faced with new needs and the collective agreements are considered by many bank managers as a block to competitiveness.

PART ONE: FRENCH HRM at Credit Lyonnais

4) The Nature of Management in France

Short-comings in French management generally are noted: the elitist management education system has been criticised by some for not providing the right calibre of flexible, international managers, capable of responding quickly enough to shorter product / service life cycles. In fact the managerial class, cadre, is officially recognised by tradition and law. This managerial status gives managers special pensions and social insurance and also representation privileges on HRM's Board of Directors. This management system rigidly links hierarchical status with graduation from the 'right' universities, the grandes ecoles, and ensures that business leaders are among some of the best educated in the world. However, the down-side to this French approach of only appointing managers who have been to these superior universities is that the system suppresses the aspirations of supervisory and lower-grade personnel who find it difficult to be promoted into managerial positions. In spite of increased overseas investment, French management often lacks the international vision and experience of their counterparts in Germany, the Netherlands, the UK and the USA.

As in some other Latin countries and Japan, there exists a steep educational pyramid in France with the grandes ecoles at the top. These grandes ecoles select an elite corps of students through very difficult entrance examinations. The exams test for analytical and reasoning capacity rather than interpersonal skills or professional aptitude. The diploma of a grande ecole is sometimes considered an 'entrance ticket' into the fast-track of a public or privately owned company. In effect the task of the grande ecoles is to select France’s future business leaders. The grande ecole provide over 50% of the top managers in French companies.

Thus in France, an individual’s self-education or entrepreneurial attitudes are less likely to contribute to success than his or her diploma and capacity to develop social / political relationships. Because they are destined to rise rapidly up the career hierarchy, grande ecole graduates often rotate very quickly through a wide variety of company positions gaining scope, sometimes at the expense of depth.

5) Bureaucracy & Hierarchy in France

The traditional French model of organisation has been described as a combination of bureaucratic and aristocratic behaviour. Organisations generally have many hierarchical levels which, of necessity, restrict managers at each level to a narrow range of responsibilities and areas of action (that is, a narrow span of control - few employees to manage). Managers (and non-managerial workers) aggressively guard their areas of responsibility from encroachment. French organisations have been characterised as societies of castes, where each group tries to preserve its trade or profession and its independence. Even though this implies that organisational structures and hierarchical relationships are likely to remain relatively rigid, formalised work rules are frequently vague or absent (strong work rules do exist but these are informal).

6) Attitudes to Work in France

French workers influence organisational and managerial styles through their attitudes toward work and family life. Perhaps because of their Catholic heritage, French employees have traditionally considered work a simple necessity, rather than a focus for personal and collective fulfilment. During the 1970s the role of human resource managers consisted principally of negotiating the transfer of HRM profits to employees by way of improved remuneration, benefits and working conditions. Employees generally had little concern for the future well-being of the company. During the 1980s, however, this separation between individual's standard of living and the organisations long-term ability to generate profits began to erode. Human Resource managers refocused on making employees aware of the linkage between their individual living standards and future job security and the firm's future. This linkage appears now to be well established as France enters the new century and companies actively discuss the social contract and how individuals should contribute fully to their firm.

7) Employment in Banking in France

Highly regulated, protected markets, such as that of the French banking industry before the 1990s, result in overstaffed, over-bureaucratic organisations. Because the services of the banking industry (savings accounts, personal cheque accounts, business accounts, life assurance, mortgages etc.) are remarkably undifferentiated and almost instantaneously copied by competitors, the quality and effectiveness of a bank's employees is probably the most critical factor to its success. Banks cannot build distinctive quality into their service design and then turn on an automated assembly line. Quality must be delivered by people who, as experience has taught us, can be inconsistent, uncooperative, unmotivated, and sometimes work actively against the changes required for a firm to become dynamic, profitable organisation.

During the past decade banks throughout EU have seen regulatory, national, and
international trade barriers fall; the EU's Second Banking Directive came into force about ten years ago allowing European banks to freely move into any other EU state and to also offer a broader range of financial services. This de-regulation has encouraged many bank directors to expand the services offered by their companies into other, more lucrative, services and sectors such as insurance operations and underwriting corporate debt, to mention just two. Indeed one of the dominant competitive strategies of the largest European banks in the late 1980s was to develop a wide range of products offered in all the major European markets. This strategy, called the 'universal bank', usually involves the merger of banks both domestically and internationally with other banks and with other financial service providers (with insurance firms for example). This diversification of banks' activities is creating a number of significant HRM challenges.

8) New HRM Challenges

One result of these changes, involving more 'products' being offered in more national markets, has been that the skills and attitudes of the banks' staff have failed to keep up. Bankers have often been characterised as conservative, reserved individuals who are very attentive to detail. As banks move increasingly into other 'product' lines, such as life insurance sales, some of their employees must emulate the enthusiastic personality profile of a salesperson. This transformation is particularly important as banks are finding that new services are providing higher margins and, therefore, an increasingly greater share of their turnover.

The banking industry has also, of course, become much more competitive. Having the opportunity to expand into other markets and countries is a double-edged sword in that banks from other countries can expand into your market! This need for bank staff to become more competitively aware represents a real culture change especially for the French.

Both 'back office' computing technology and automatic cash machine technology combined with the growth of 24 hour telephone and internet banking has, in most parts of Europe, resulted in both significant job losses and, at the same time, the creation of newer, but lower skilled, jobs in telephone call centres. Such decreases in staff numbers and de-skilling of staff have been particularly difficult to achieve in France given the government's support for job security. A further change affecting employment numbers and types in traditional banks such as Credit Lyonnais, has been the emergence of non-banking competitors offering traditional banking services such as some of the large French retail store groups which offer customers personal cheque accounts and credit cards.

French banks have, however, responded to these sorts of challenges by improved training for bank staff particularly in the area of customer relations and marketing and selling. Improving service quality cannot, however, happen through training alone: bank employees need to fundamentally change their attitudes toward the bank’s clients. As in all service oriented businesses, the development and maintenance of strong interpersonal relation-ships is critical to the long-term success of the bank.

9) Remaining HRM Problems

Credit Lyonnais in the 1990s had essentially two types of human resource problems:

1)  having too many of the same type of employees with the wrong skills (people with traditional banking skills but not the new, customer friendly, marketing and selling skills). Many employees not only had the wrong skills but also the wrong attitudes being reluctant to use computers, associating computers with secretarial work, and being unfriendly with customers, regarding friendliness as inappropriate in their profession.

With regard to managers, Credit Lyonnais had managers who were under-educated generalists in an increasingly specialized industry. Managers were also unwilling to ‘let go’ of decision making and, therefore, newer, younger, staff felt that they were constantly being controlled and had no autonomy and discretion.

2)  having too few of the type of employees needed: customer friendly, highly computer literate, multi-lingual and sales orientated people.

Banking firms are reacting to the intensified competition and lower or negative profit margins by demanding more co-operation from their employees requiring them to be flexible and responsive to changing customer needs. These demands are difficult for older bank staff to accept as they had become accustomed to high salaried, stable and secure jobs and as these staff have a strong union, bank’s managements are still struggling to implement change.

10) New banking Business Strategies

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Success in the new banking environment is essentially based on four strategies:

i) Growth through acquisitions with the goal of dominating niche markets across a range of countries such as personal banking and investment for high income / wealth clients, or specialist small business banking.

ii) Becoming a universal bank, that offers all types of financial services in the home country and in a range of foreign countries.

iii) Defending domestic markets by creating or enhancing personal client relationships.

iv) Selling more services and / or new products such as financial advice or insurance.

11) New HRM Strategies within France

There is widespread recognition throughout the European banking industry of the need for new human resource management strategies to enable the achievement of these for new business goals. At Credit Lyonnais changes in employment, the organisational structure, increased training, better performance appraisal, development of new remuneration systems, and attempts to modify employee attitudes are the HRM strategies that are now being used to change the culture of the organisation within France.