Restructuring at Citibank

Submitted by:
Ruchi Singla
2019673
Citibank Restructuring
Citibank carried out a restructuring of its organization in 1994. The basic change
was that the division of organization was along geographic lines earlier, but this
has been changed to be along the three dimensions of Customer, Product and
Geography, with incentive rewarding ability in the descending order in which they
have been listed. The changes in this reorganization can be understood under the
three heads of Strategy, Organization and Incentives.
STRATEGY
• Customers: Earlier, Citibank had been serving the geography based subsidiaries
of large corporations operating within each country. With the restructuring the
focus shifted to serving these large corporations directly, as well as serving the
needs of institutional investors.
• Products and Value proposition: Earlier, each geographic division used to provide
products to meet the entire financial needs of each customer within its
geography. The focus now shifted to meeting the full financial needs of their
parent organizations, rather than country subsidiaries, globally.
Citibank Restructuring
ORGANIZATION
• The organization was strictly along geographic divisions. In OECD countries,
customers received the benefit of an informal organization called the WCG
(World Corporate Group) lobbying on their behalf with the divisional
management to provide more customized services. Post restructuring, however,
the Organization was more multi-dimensional with three dimensions of
customer, product and geography, with priorities assigned in the same order.
Thus customer assumed priority over geography.

INCENTIVES
• Revenue recognition, which the basis for rewards, was done on a geography
basis. Post restructuring, the revenue recognition was done along the three
dimensions of Customer, Product and Geography.
Citibank Restructuring
The objectives to be achieved by such a restructuring were two-fold.
• Exploit market opportunities
• The slow economic growth and increased competition faced by large
corporations in Europe, USA and Japan led to lack of growth in their revenues.
Investors were however demanding increased returns, so these corporations
attempted several ways to make this possible such as horizontal mergers,
outsourcing back office activities, investing in emerging markets and stock
repurchases. These activities translated into an increased demand for financial
products of various types, thus providing market opportunities for Citibank, and
necessitating an increased customer focus.
• Ward off competition in corporate banking sector in OECD countries
• Due to increased competition in this sector, Citibank executives were anxious to
leverage their global reach which provided them with a competitive advantage
over local players. This would be difficult with a geographic division approach.
Tools of Control and Influence used by top management in episode of
restructuring
The restructuring design was aimed at giving priority to the customer dimension of performance.
The product dimension had second priority and the geographical dimension the last priority. This
implied that certain aspects of servicing clients’ needs such as customer relationship management
were now included as criteria for distribution of rewards, when whereas earlier such activities
were all but ignored in the distribution of rewards and were left to the initiative of the geographic
divisions. Including customer and product related performance in the reward system had the
following implications for control by top management:

• Coordination: Coordination between geographies became easy as each geography did not need
to be separately dealt with to the earlier extent, when it came to activities such as introducing a
new product or modifying existing products. Presence of a product division for that product
with designated personnel for contact in each geography meant the geography heads could be
bypassed in modifying the products, thus facilitating easy coordination. This increased the
control of the top management, and gave them greater flexibility in implementing
organizational changes.
Tools of Control and Influence used by top management in episode of
restructuring
• Accountability: Earlier the geography division head was accountable for the performance of his
country division. He could get away with poor performance of one product if other products did well
in his country. One dissatisfied client could be justified by citing many other satisfied clients. This
reduced ability of top management to enforce high levels of performance along all dimensions. Now
there were one product head, one customer head, and one country head responsible for poor
performance of each specific product in each specific country with respect to each specific customer.
All three would be held accountable for the low performance and this could not be justified away
with better performance of other products, geographies or customers. This effectively gave the top
management micro level of control over the functioning of the organization. The top management
could now reach into terrain that was earlier the prerogative of the country heads.
• Reward Allocation: If the global corporate headquarters wanted to push a certain product, it could
increase the component of reward that was determined by the product dimension and all
geographic divisions would be incentivized to sell more of the product, even without any further
pressurizing by the global corporate HQ. Similarly, if any one customer or groups of customers was
to be given more priority the customer dimension of rewards for products targeted at those
customers would be increased and product and geographic divisions would have to increase their
performance with respect to this client to get the additional rewards.
Tools of Control and Influence used by top management in episode of
restructuring
To sum up, the control implications of the restructuring was that power was
taken from the hands of the country heads and given to the top
management at the corporate HQ. This was however consistent with the
idea of leveraging Citibank’s global reach to improve its business in each
country. Left to themselves, the Geographic divisions would refuse to make
the trade-offs, in terms of greater reliance and reciprocal responsibilities to
the other geographic division, involved in having this advantage. Their focus
would have been more on defending turf and improving the geographic
division’s performance based on domestic sales revenue.
Thank you