Розділ 2 Інноваційні процеси в економіці

УДК 648.11

M. Lisiński, A. Radzevičienė, M. Šaruckij[1]

Peculiarities of Multicultural Banking Approach

This paper investigates how two financial services companies: Rabobank, a Dutch based company, and UK based Co-operative Bank operate within the multicultural environment of the Netherlands and UK. The aim of this study is to understand why Rabobank and Co-operative Bank have made multicultural business a part of their strategy and how multicultural banking is carried out in practice and what is crucial for the success in this field and could be used by other organisations working under conditions of multicultural environment. In this connection, the theoretical framework of multicultural banking phenomenon was investigated. It was also analysed how the increasingly multicultural environment sets a new agenda for competition, and how does it influence organisations’ strategies for human resource policies in order to benefit from the variety of cultural backgrounds and experiences of the staff and to become more competitive.

1.Introduction

The shift from ethnically homogeneoussocieties to multicultural ones is a distinctive trend of recent social and economic development in Europe. The geographical mobility of people for residing and/or working purpose has been growing noticeably during the last decades [8, 12, 16, 21, 22, 24]. Increasing national and ethnic diversity of societies make a tremendous impact on the overall social climate in many countries, and require an adequate response to this challenge in all business areas. Within a wide scale of reasons leading business organisations to the adoption of the multicultural strategies, two main particular initiatives should be spotted. First, business companies choosing international expansion strategies are seeking to adjust their strategic and operational activities, as well as products and services to their customers’ profile [3-5, 20, 24, 25]. Secondly, the increasing ethnic diversity of the society changes the pool of employees of business organisations, and leads to increasing ethnic diversity of the staff [11, 16]. This also creates the necessity to adjust companies’ culture, as well as behavioural patterns to the changing human resources profile in the company [5]. This article investigates newly emerging company strategies in the banking sector in response to the increasing cultural diversity of the business environment. The idea of the paper originates from field study results [14] obtained by one of the authors of the article who took part in the ongoing broader study on diversity in the banking sector conducted at the Service Research Center, Karlstad University (Sweden).

The aim of the article is to outline the framework for theoretical analysis of multicultural banking concept, and to define the multicultural banking concept referring to existing banking practice. The authors investigate how does the increasingly multicultural environment influence organisations’ strategies and how the companies can take the advantage of the variety of cultural backgrounds and experiences of the staff.

2. Theoretical framework of multicultural banking phenomenon

2.1. Culture influence on management

The impact of culture on organisations’ strategies and management is widely discussed in management theory and research for the past 30 years, and boosted by the works of Cox, Gudykunst, Kealey and Protheroe, Martin and Hammer, Trompenaars and Hampden-Turner [3, 15, 18, 20, 24]. In the article we followed Hofstede’s definition of culture which explains it as “collective programming of the mind, which distinguished the members of one human group from another” [16]. Although the extended term culture may be defined by ethnicity, race, gender, sexual orientation, disability, age, socioeconomic group, occupation, and almost any other high-awareness identity, this study focuses on the culture as a concept primarily defined by ethnicity or race. The business environment culture is definedas a set of values, attitudes, beliefs, artefacts and behaviours represented in the patterns of business activities and which are adopted by business subjects and individuals (partners, competitors, consumers), and treated as appropriate in a given environment.Academics and practitioners working in the area of multicultural communication argue that the growing importance of understanding how to use cultural differences cannot be neglected when striving to achieve common goals in a changing environment and to create effective strategies to manage a multicultural organisation’s environment or multicultural organisation itself [5, 8, 13, 15, 16, 22, 24]. There is a substantial amountof literature examining the impact of culture on organisational solutions.

Numerous studies have focused on work culture, management and organisational development in multinational companies in different countries [5, 8, 12, 13, 17]. These studies analyse how different cultural, organisational and technological factors influence management patterns and organisation in companies within the same industry in different countries. One of the conclusions from studies on cross-culture management related to the multicultural banking study is that managers operating in a multicultural environment must become familiar with the hidden language of different cultures they interact with.This knowledge includes: perceptions of time, space, value systems, behavioural patterns, verbal and non-verbal communication clues, etc. [13, 15,17, 24, 25].

To improve communication between the representatives of different cultures Gesteland [13] suggests to learn, to understand and to accept values represented by another ethnic group. Elashmawi and Harris [8] emphasise learning as a process which helps to be able to communicate successfully in the fast-growing multicultural environment, both locally and globally.

Recent studies [5, 18, 20] have identified the characteristics constituting cross-cultural communication competence and the domains of intra and interpersonal as well as cognitive and behavioural abilities and skills.We argue that multicultural banking supposes strong emphasis on imparting into an organisation common cultural values, tolerance and awareness of differences, that is extremely important for any cross-cultural interactions.

Regardless of the cognitive abilities of man, there is an inherited hidden knowledge in every culture [25]. Therefore, there is higher adequacy of a signal and a message received in a process of communication between those who have the same cultural or ethnic background rather than those who are of different cultural backgrounds and have learned it. People from the same culture are more likely to interpret each other’s words and actions appropriately. It takes additional time and effort (i.e. additional organisational resources) to learn the hidden knowledge of particular culture.

Therefore, cultural differences very often can be frustrating since they are confusing and difficult to predict [13]. The variety of potential communication problems arising from the differences across cultural boundaries is extensively discussed [18, 20, 24]. It means, that organisations working in multicultural environments as well as organisations having a multicultural human resource profile have to put a lot of effort to manage cultural differences within and outside the organisation.

As the notion of organisation culture is very complex, we have chosen a definition which reflects a dynamic character of it in the context of a functional viewpoint on the organisation. In this perspective organisation culture is a ‘soul’ for the ‘organisational body’, an identity. Thus, the organisational culture is treated here as a management tool by its relationship to the long-term success of the company [1].

The building and maintaining sustainability of organisation culture has spotted the phenomenon of coexisting cultural values [3, 17] in the organisations. The coexisting values, perceptual and behavioural patterns converge into a new blend, unique for each particular organisation and creatinga specific organisation climate.

These arguments build a framework for organisational solutions in multicultural banking cases analysed in the article. The solution to these problems is identified as a sociological premise of the organisational change and has been defined as multicultural banking in our study.

2.2 Diversity management

According to Cox it is impossible to avoid diversity, since it is not a choice but a fact of life. Diversity is the variation of social and cultural identities among people existing together in a defined employment or market setting” [6, p.3]. The domestic work environment in most countries is becoming more complex. Most countries are experiencing population growth among traditional minorities [11], who also seek to move beyond entry-level jobs and influence the structure of the workforce (e.g. the Netherlands, Table 1). In this post-industrial age, a new culture is emerging. One of its norms is competence, regardless of one’s race, colour, creed, or place of origin [8].

Parhizgar [22] claims that cultural diversity means the representation of majority and minority groups in a society according to their historical family wealth and political influence. The term makes a distinction among ethnicity, race, colour, gender, and wealth, as well as it makes people different, with distinctly different group affiliations of cultural significance.

Although the existence of diversity in the workforce is now widely recognised in organisations throughout the world, it is too often viewed only in terms of legal compliance and human rights protection. In reality the implications of diversity are much more demanding. Cox [4] argues that differences of culture are not only highly significant but also frequently overlooked or inadequately understood as factors affecting the quality of work relationships in diverse work groups. Furthermore the author [5] indicates that the presence of diversity in an organisation or work group can create obstacles to high performance for several reasons:

  • Reducing the effectiveness of communication and increasing conflicts among employees,
  • Lower level of social attraction and lower level of commitment to the group,
  • Identity harassment and discrimination behaviours can increase organisational costs.

On the contrary, the researchers [5, 8, 15, 20, 24] argue that well-managed diversity adds value to an organisation by:

  • Improving problem solving,
  • Raising creativity and innovation,
  • Increasing organisational flexibility,
  • Improving the quality of employees through better recruitment and retention,
  • Improving marketing strategies, especially for organisations that sell products or services to the end users.

Table 1 – Population of the Netherlands 1996-2004 by origin, thousands

Years / Natives / Persons with a foreign background[*]
First and second generation
Persons with a foreign background, % / Western origin / Non-western origin
Totalnon-western / Morocco / Netherlands Antilles and Aruba / Suriname / Turkey / Other non-westernorigins
2004 / 13169880 / 19,0 / 1419855 / 1668297 / 306219 / 130722 / 325281 / 351648 / 554427
2003 / 13153814 / 18,8 / 1416156 / 1622602 / 295332 / 129312 / 320658 / 341400 / 535900
2002 / 13140336 / 18,4 / 1406596 / 1558353 / 284124 / 124870 / 315177 / 330709 / 503473
2001 / 13116851 / 18,0 / 1387036 / 1483188 / 272752 / 117089 / 308824 / 319600 / 464923
2000 / 13088648 / 17,5 / 1366535 / 1408767 / 262221 / 107197 / 302514 / 308890 / 427945
1999 / 13060991 / 17,1 / 1353199 / 1346035 / 252493 / 99130 / 296984 / 299662 / 397766
1998 / 13033792 / 16,7 / 1341947 / 1278453 / 241982 / 92105 / 290467 / 289777 / 364122
1997 / 13012818 / 16,4 / 1333161 / 1221128 / 232841 / 88709 / 285524 / 279708 / 334346
1996 / 12995174 / 16,1 / 1327602 / 1171113 / 225088 / 86824 / 280615 / 271514 / 307072

Source: [23]

The added values, mentioned above, are extensively used by decision makers developing multicultural banking strategy, although the main question remains unanswered: How can an organisational increase in its cultural diversity not suffer significant adverse effects on performance? The mentioned problem is attempted to be solved by identifying the emerging multicultural banking strategies. The external environmental pressure to introduce this approach, the idea to use a multicultural banking approach as well as its role in the business development philosophy are also being analysed in the article.

2.3 Ashby’s Law of Requisite Variety for diversity management

The diversity problem can be generalised and looked upon as a problem of managing complexity of the internal and external environment of the organisation. For this purpose we use the law of Requisite Variety formulated by W. Ron Ashby, an often-cited authority in the field of cybernetic science. Ashby’s Law describes the conditions under which complex systems (such as an organisation) operate and investigates the means by which it can be controlled [9].

The chain of arguments that leads from the concept of “system” to Ashby’s Law and Managerial Cybernetics is rigorous and long (see [9]). Therefore, only the main ideas corresponding to our study are presented below.

1)There is a way of looking at the organisation which emphasises the relationships between its parts and relationships with the environment. This approach is called the “system” view [9].

2)A system is a network of interdependent components that work together to accomplish the aim of the system [6]. The system may constitute a whole or be a part of the complex system.

3)Complexity is an attribute of most systems. The element of complexity is called “variety”, which in many respects is similar to the notion of “diversity” discussed above. The variety of the system is a number of distinguishable states it can occupy.

4)Ashby’s Law of Requisite Variety states that in order to manage a complex system, the controlling entity must generate at least as much variety as the system being controlled. Only variety can absorb variety [2]. According to Ashby’s Law, the organisation can meet the variety of the market only by generating and providing variety itself.

The central problem of management is that often the variety of the system under control is far greater than the variety that the manager can adequately handle. For example, the market might contain much more different customer groups than the marketing manager may think of. In the internal environment of the organisation the employees might represent many different ethnic groups, and the supervising authority within the organisation might have a lack of cultural intelligence to deal with them. Therefore, the lack of an adequate organisation’s response to this problem might create management problems.

Figure 1 – Graphical representation of management problem and Ashby’s Law

Source: Adapted from [2].

Ashby’s Law of Requisite Variety provides the foundations for one of the most complete and most complex models of the organisation in the market today [9, 10]. This is the Viable System Model (VSM) and management cybernetics theory developed by Beer [2]. This theory is based on the cybernetic insights about how systems and organisms are capable to survive and organize themselves, hence, management cybernetics focuses on control and communication in organisations. Because of its complexity the model failed to become a widely used management theory [9]. However we found that in our case this theory provides us with the tools to describe the phenomenon of our investigation.

The underlying idea behind the model is that the key problem for the management is to manage the variety of the organisation. To be capable to deal with this variety there is a need for five systems within the organisation that each work within the scope of its specific responsibilities and all together capture the complexity of the whole organisation. If all these subsystems are present and functioning correctly, then the organisation is viable, i.e. capable of surviving.

3. Theoretical propositions

In this article we discuss two theoretical propositions emerged within the framework of research on culture and communication, organisational diversity, Ashby’s Law and VSM, which were tested during the field study. Thus, our propositions are:

P1: Multicultural banking is a part of the overall marketing strategy that aims to target new market segments and increase the market share of the organisation.

P2: Employees from different ethnic backgrounds are expected to have a more positive attitude, better understanding and therefore should bemore efficient in serving ethnically-diverse customers of the banks.

4. Methodology

The main empirical findings of the study are based on the case studies and interviews with the stakeholders in two selected banks: Rabobank (the Netherlands), and the UK based Co-operative Bank. When choosing a case study approach we followed the Dubois and Gadde [7] argument, that the interaction between a phenomenon and its context is best understood through in-depth case studies. The case study model fits well the aim of the study: to look deeper at the multicultural banking phenomenon, as well as to understand and analyse its interdependencies with other strategic andorganisational issues in the studied cases.

The underlying logical structure of this study design is based on the Viable Systems Model (VSM) and the management cybernetics theory developed by Beer [2]. The data is collected and presented with the help of the VSM and Viplan methodology [10], the research structure is based on methodological suggestions provided by Yin [26], albeit, enriched by narratives and organisational stories. The model is comprehensive and provides a means by which to investigate separate units and to understand the organisation as a whole. This methodology has been chosen for the study of multicultural banking for the following two reasons. First, this methodology allows us to understand the identity of multicultural banking through analysis of its stakeholders and by combining their views allowed to create a comprehensive statement describing multicultural banking. Second, the activities and processes investigated can be identified and represented in a simple structural model.

The case study reports were carried out during the fieldwork at several of Rabobank’s offices and headquarters in Utrecht, the Netherlands, during 10th – 12th February, 2004 and at the headquarters of Co-operative Bank respectively during 18th – 20th May, 2004. During that period, the phenomenon of study was observed and the interviews were conducted [14]. The study has been followed by collecting other sources of evidence including direct observations, documents, archival records, and other physical documents, like booklets, promotional materials and internal reports.

5. Implementing multicultural banking strategy

To test our theoretical propositions on multicultural banking, two financial companies – Rabobank, located in the Netherlands, and the UK based Co-operative Bank were chosen. Both are regarded as working in the multicultural environment. The propositions were particularly tested using interview-techniques, asking interviewees to describe how they understand the term multiculturalbankingand describe certain practical managerial solutions related to the study issue. The investigated meaning of multicultural banking in Rabobank was givenas follows: “Multicultural banking – simply it is rather to pay attention to the opposite and do not try to sell each others culture. That does not mean the end of your own world, since your own values remain.” On the other hand, the same concept in the Cooperative Bank has been perceived in terms of “meeting the needs of the environment the bank is operating in, that means recognising the needs of a diverse range of people as well as of ethnic minorities or the disabled.”

Proposition 1. One of the main reasons why Rabobank undertakes multicultural banking is based on marketing considerations. Rabobank regards the ethnic market segment as a way to increase its market share and, in particular, to improve its position in the cities. Besides, the demographic developments in the Netherlands (Table 1) show that targeting this market segment is crucial to maintain its competitive position and to do successful business in the future. This is relevant for Co-operative Bank banking practice too. According to Diversity Manager from Co-operative Bank “There is a need to investigate new products for ethnic minorities development opportunities and calculate their costs, since the Cooperative Bank is seen as a medium sized UK based financial organisation with about 2m customers”. The findings support P1.