Citibank E Business Strategy

Published Date: 02 Nov 2017

Introduction

Banks in today’s world are completely aware of the changing requirements of business due to the opportunities and threats posed by the information technology offered to consumers. That is the reason why each bank today deems an internet strategy essential for its growth and survival. Al-Mudimigh (2007) observes that consumers now are more informed and require "personal attention and highly customized product and services". Therefore, a bank’s organization strategy formulation has to concentrate on precisely what consumer wants, in order to compete in the e-business environment.

E-business and its significance in banking industry

E-business simply means doing business electronically. As Russell and Taylor (2003) observe that, "E-business refers to the replacement of physical processes with electronic ones". Such a business not only has to concentrate on internal factors but also external ones. That is why a focus on consumers and competitors is important to establish an e-business, along with effectively using its internal support system. Thus, the organization strategies for an e-business are different from the strategies for any other business. Kalakota et al. (1999, p.60) proposed that the implementation of e-procurement is integrated with the change in organizational management procedures. E-business success is incumbent on a thorough comprehension of the intertwined role played by:

Business Models

People

Organization

Technology

Citibank brief overview

Citibank decided to enter e-commerce with the aim to introduce technology based services and products to get major hold of the virtual banking phenomenon thus taking a leading edge among its competitors. It was among one of the first banks that introduced automated teller machines (ATMS). Being the joint venture of Citigroup, it is a major financial service provider founded in 1812 in New York City. The company holds banking network in more than hundred countries around the globe (Dodgeson, 2000, p.101).

Aims and objectives of the study

This study is an attempt to elucidate how Citibank has used this technique to its advantage along with an analysis how it can be further used by Citibank to ward off competitive threats.

The effectiveness of the e-business strategy employed by Citibank in the global corporate banking industry will be determined.

An appraisal will be made regarding how catering to consumers from a wide variety of different social, legal and economic background can create problems for an organization and how strategic tools can be used to overcome these problems.

Building blocks of E-business

Internet technology has played a critical role in the progress of e-business. Internet was launched in early 1960s. In 1989, CERN labs designed a new protocol for data distribution over internet which became known as the World Wide Web in 1991 (Howe, 2010). Before the introduction of that protocol, internet access was only limited to research, government and military institutions and use of technology for conducting business transacions was very partial (Jackson, 2003, p.44). The fact is clearly understandable from the discussion that internet and world wide web technology are building blocks of current e-business era.

Requirements for an efficacious E-business

There are two basic elements that are required in successfully continuing an e-business. These are an e-business model and appropriate strategies to implement proposed actions. Weill and Vitale (2001) defined e-business model as a description of links between a company’s customers, suppliers and other relevant stakeholders, which identifies the flow of money, information and products, and values of the people who have a share in the organization. They also devised a diagramming technique called e-business model schematics to develop successful e-business models.

Citibank’s differentiation strategy:

With the advent of internet technology, commercial banks began to adopt this service not as differentiation but as a survival strategy. New online products being offered have encouraged rivalry by making the transactions more lucid through offering operational mechanisms like customer service and flexibility of use of the banking provisions.

Products and services offered by Citibank:

In the financial industry Citibank is involved in providing services and products like Global Cards, Debit Cards, Visa Cards, Global Wealth Management, Consumer banking, Institutional Client Group etc. The bank further extended its internet scheme by forming new units; e-Consumer, e-Business, e-Asset Management and e-Capital Markets to incorporate the internet to all the banking activities. These units helped amalgamate the tradition banking personnel with the new technological side of operations (Citigroup, 2011). The e-business products that Citibank offers include:

CitiDirect (corporate internet banking service),

Citi-Alert (GSM notification service),

E-Card (Internet shopping card),

CitiPhone (twenty four hours phone banking service),

Citi bank online (Retail internet banking service),

Electronic business cards

CitiDirect:

Customers experience flexibility in terms of getting information about their receivables and payments to be made. Citibank e-business covers the entire product range offered by the bank from trade services, cash management to e-banking. For meeting global market demands, Citibank has launched a URL system by the name of "CitiDirect" to further enhance online banking arena, offering customers access to their bank accounts by just one click on the Web (Schneider and Perry, 2000).

CitiDirect was designed as an online banking service for the corporate customers to be able to perform transactions regardless of their geographic location. It was a "browser-based delivery channel" (CABC, 2002) which provided the consumer with all their personalized Citibank products and services in an instant. Citibank had to work on constantly improving CitiDirect along with addressing the security concerns of the customers initially. However, still it managed to slowly shift its consumers onto this platform.

Citi Alert:

Citi-Alert is also a very useful product for Citibank’s corporate as well as retail consumers. This on demand product provides consumers with regular financial updates. With the changing level of cellular phone technology, Citi-Alert or Citi-Mobile has made banking even more convenient for the consumers.

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Services Offered by Citibank

Furthermore, Citibank’s other electronic business purpose cards, such as a wide range of credit cards, debit cards and internet shopping cards etc. along with ATM and transport facility. CitiPhone; the phone banking service is also part of the Citibank e-business product range. These services help keep pace with the ever changing individual consumer demands.

citibank crd.jpg

Strong information system - a key to e-business success

Information system is defined as the set of interrelated systems and components that gather, store, process and distribute information in an order according to the given instructions to support and enhance the decision-making process in all levels of the organization (Laudon and Laudon, 2007, p. 48).

The term Information system is not limited to computers only rather it is used in a broader context. Use of internet and world wide web technology for creating value for the shareholders of the company is a part of that broader picture. In addition to helping a company running an e-business, information system also helps running functional business processes like sales and marketing, HRM, accounts and finance and manufacturing and production (Laudon and Laudon, 2007, p.76).

Strong information system - a key to e-business success

Online facility launched by Citibank:

Citibank introduced its online services in year 1997. This helped Citibank with its transformation and paved the way for it to be recognized to become one of the leading brands in the world as the bank which continued to invest in technology for its wide variety of consumers (CABC, 2002).

Alliance with technological firms:

Citibank’s goal was to become "the world's leading e-business". This required the Citigroup to establish an entirely new business model for itself, in order to make possible the huge shift from traditional banking. The Citigroup built itself a new e-business structure, where it transformed its traditional assets into digital asset by forming alliances with names like:

Oracle

Commerce One, Inc.

SAP AG etc.

Establishing Security Architecture:

A strong information system has the power to enhance the company’s profits and productivity and efficiency. Some of the benefits that information system provides include, cost reduction, efficient communication between the company and consumer, decreased product or service arrival time to market and decreased time to respond on consumer’s need. A company should establish and manage its information system on a strategic basis for implementing a successful e-business. McCauley and Khan stated that the prime challenge associated with e-banking facility is the customers’ concern for security. To overcome this issue, Citibank has launched many web based integrated security systems and "multi-layered security architecture" also inventing private and public access codes, user authentic passwords and privacy controls (2002, p.9). The services offered by Citibank are valued by Fortune 500 companies over other international finance industry competitors (McCauley and Khan, 2002).

In the banking sector where market share is reliant on the customer expectations regarding the products and services offered by the company, technology plays a dominant role to shape business structure. In 1990s the primary focus of Citibank was to develop a virtual language support and architecture system for the global expansion of business. The company partnered with technical vendors thus launching high computing standards. "Security Architecture" was the IT security software introduced by Citibank to promote internet banking. Such software development efforts led the company to improve its client share by mitigating costs and time constraints. For further progress, "object oriented programming" was initiated to gain the "zero-defect reusable code" (Dodgeson, 2000, p.101).

Connect, transform and extend:

The strategy devised by Citibank to cater to e-business needs encompasses three features i.e. to "connect, transform and extend". Clients are encouraged to visit the website portal for making online transactions. Internet has been utilized as the medium to transform the company’s key elements through online services. With the aid of e-business, global markets have been targeted by launching improved solutions to strengthen the bank’s infrastructure and collaboration with e-commerce companies that provide technical expertise.

In words of Citibank’s management, e-business strategy for us is to CONNECT the customers to our services available on the web, TRANSFORM our capabilities to the new internet offerings and EXTEND our approach to the new markets through integrated infrastructure solutions and alliance with technological and E-commerce market makers. This strategic statement clearly reflects the subsequent efforts made by Citi management to join the competition of global e-banking phenomena (Citigroup, 2011).

Global Technology Group:

For ensuring that its basic business strategy is in compliance with the newly emerging e-business strategies, the company introduced "Global Technology Group" that offers a well accepted organization culture integrating technological advancements with routine tasks (Citigroup, 2011).

Main mission of the Citibank is to boost up the economic-brand image by inculcating its e-business incentives to takeover its competitors thus making itself the hub of financial services offered via internet. The competencies that favour Citibank to achieve its strategic aims include the e-banking facility which is capable of tackling billing and payment procedures being presented both electronically and on paper (Citigroup, 2011).

Strategy formulation techniques in Citibank for competing in the e-business environment:

When Porter’s definition for strategy is considered, business models turn into a conjectural representation of strategy (Currie, 2004, p.13). Strategy is the set of activities which helps in creating unique and valuable positions for the company that differentiate it from its competing firms (Porter, 1996, p. 68). Strategy formulation is commonly stated as strategic planning or long range planning and it is a process that relates to the development of company’s mission, objectives, strategies and policies. The process of strategy formulation starts with the situation analysis and can be done through various methods like SWOT analysis, SFAS matrix, and review of mission and objectives of the organization (Wheelen et al, 2004, p.104).

Among Citigroup’s market strategies, monopolistic competition and economical price were experienced by the proper implementation of customer care service. Clients had the facility to use telephone support and contact relationship managers online for strengthening the brand name. These services helped to bring about customer loyalty and account penetration improved. Clients started to prefer banking online thus utilizing Citibank’s e-banking provisions devised by integrating complex IT systems (McCauley and Sharma, 2002).

The aim of the company was to become the greatest "e-business enabler" for which Citibank recognized the modern methods to improve the efficiency of financial activities and service acquisitions by digitalizing assets and automating client processes (McCauley and Khan, 2002).

While Citibank was able to attain operational, technological and cost efficiency yet, diverting clients from the traditional banking system was a major challenge. In order to ensure that the e-business strategy of Citibank has supplanted the traditional financing methods, new capabilities were introduced encompassing relationship marketing between customers and employees. Thus the bank becomes able to realize the macroeconomic trends (McCauley and Khan, 2002).

Reasons for opting e-business strategies

There were several reasons for Citibank to opt for e-business strategies. E-business at that time was expanding rapidly, and Citi wanted to repeat the traditional banking concepts. It wanted to become one of the leading banks to provide online banking services. The reasons for going for online services are briefly discussed below:

For extending the customer base

To surmount the problems associated with establishing the physical branches and their limitations

Fulfilling the increasing consumer expectations with financial products

Enhancing the brand image through innovative use of technology

Improving customer relationships

Existing strategies related to e-business and IT systems

Citibank has had a leading position in technology adoption, and has continued to invest in new technological applications in the banking sector. It has made a number of efforts to prove itself as a leading online banking solution provider in the world. In year 2000, Citibank made an alliance with four companies to develop Financial Settlement Matrix. It was a web based company which aimed at connecting buyers and sellers into the electronic market place. It was providing services like payment processing, credit and other services with the help of other participating banks and financial services providers. The Citigroup formed an "Internet Operation Group" in 2000 under its e-business strategy. This group was the initial setup for the bank to establish internet projects under the "e-Citi" unit, in collaboration with the already existing business unit (CABC, 2002).

The strategies that Citibank has adopted to achieve its brand name can be categorized as following:

Internet Banking Solutions

Differentiation Strategy

Pricing Strategy

Personal Financial Portal

Alliance Strategy

Universal Banking Strategy

Internet Banking Solutions

According to the Internet Banking Solutions strategy, Citibank focused on having a low number of branches located distantly, but in a vast number of countries. Along with providing internet banking solutions in most of the countries it served in. This helped Citibank gain consumers in a feasible and cost efficient manner (Zhu and Kraemer, 2002).

Differentiation Strategy

Differentiation strategy is among Porter’s generic competitive strategies. The differentiation strategy is the one where Citibank is trying for its competitive advantage (Porter, 1980) by creating a distinct image and product range. By providing exclusive web banking options, Citibank is able to create a distinct-brand image in order to stay ahead of the competition (Bakos, 1997). For this brand image to continue, Citibank continues to prioritize innovating products and services indefinitely. By choosing differentiation strategy, Citibank offered powerful online banking service to its customers, where the customers are able to operate their accounts through internet with ease of access because of a user-friendly interface and full confidence.

Pricing Strategy

According to a report presented by Ernest and Young on online banking, internet banking is most cost effective as compared to other methods of providing banking solutions like Branch; call centre (Human), automated response system, Automated teller machine and Dialup PC banking. Transaction cost through internet banking is 1 Cent. Greenstein and Ray (2002) revealed that when companies bill clients via electronic banking, almost 3.35 dollars per transaction are saved. When it comes to the costing strategy, Citibank’s discounts on using online services rather than physical banking allow it to gain an edge over competition, as the pricing discounts encourage consumers to use the online services. The online services also drive the direct deposits program.

Personal Financial Portal

Moreover, Citibank makes up as an interactive web space for the consumers, where they can freely retrieve their accounts (Sohn and Lee, 2002). This is because Citibank provides individual portals to consumers to gain information such as market trends, along with other personalized services.

Alliance Strategy

Citibank partnered with firms specializing in information technology to help in its technical development as an e-business. Oracle, Commerce One Inc., SAP AG, Wisdom Technologies and Bolero.net were the key firms that Citibank partnered. Along with this, Citibank was one of the five firms which collaborated to form the company FinancialSettlement Matrix.com. This firm provided an option to make financial transactions online amongst businesses (CABC, 2002). Strong alliances across the globe help Citibank to get aligned with all kinds of market trends and industries. International business ventures make this bank rich in material resources. Continuous use of technological innovations in transaction processes help to secure the infrastructure, encryption and updated security.

Universal banking strategy:

Another of Citibank’s strategies was to establish universal banking. In order to do that, it established regionalised centres for trade, cash and data. This helped Citibank acquire higher efficiency and benefits from economies of scale, i.e. regionalization helped reap the benefits of being a global bank.

E-Business Model of Citibank:

According to Applegate (2000, p.53), term business model enable us to understand complex business structures and draw relationships among its different elements. The term business model is often confused with term strategy. Linder and Cantrell (2000) stated that business models are related to main rationality of the business and strategy; on the other hand, it is most commonly used to describe competition among the firms in a particular industry.

The e-business model of Citibank can be easily differentiated on the basis of customer care service instead of price. Keeping in view the technology and resource allocation, Citibank is likely to initiate customer satisfaction. With the launch of customer oriented services like product consultants, relationship managers, technological investments, telephone helpline, online banking etc., Citibank has defined the standard for meeting customer expectations.

The e-business model of Citibank comprise of the following six elements:

Online Value Proposition

Competitive Advantage

Virtual Value Chain

Cost Structure

Citibank’s e-business model

OVP (Online Value Proposition):

Factors like delivering product in a presentable manner to the competitors, target population and their potential benefits have to be taken into account while estimating value proposition. The OVP offered by Citibank favours the internet banking facility on the go, thus, offering flexibility to make transactions anytime within 24/7 also ensuring that the security concerns of clients are fully catered (Rayport and Jaworski, 2004). The e-banking method helps in mechanizing the business transactions of corporate clients. This service is both time and cost effective for both the company and customers (Ward, 2001).

Competitive Advantage:

Porters Five Forces of Competitive Advantage

According to Porter’s theory of competitive advantage:

"Bargaining power of suppliers" in the banking industry has suffered a major setback resulting in the accessibility of "low cost capital" and market penetration.

Contrary to that, "bargaining power of buyers" has improved due to the same reasons.

"Threat of new entrants" is relatively low due to the present economies of scale, market entry restrictions and requirement for extensive capital.

"Rivalry among competitors" is strong as in the banking industry; new innovative techniques are shaping the business set up. Citibank possesses sufficient resources and is likely to adapt according to the changing market demands.

"Threat of substitutes" is more as with Citibank, other international banks are also providing financial services on a global scale but Citibank is at an extra advantage due to its long term brand reputation that helped the company maintain a loyal customer share.

Another differentiation feature of Citibank is that it has promoted SMS banking via mobile devices thus making a connection between the intangible and material resources. The service of "personal financial portal" further aid in individualizing customer centric services like fund transfers and bill payments.

Cost Structure:

Pricing strategy in the e-business launch was not an issue for Citibank as internet banking is far less expensive than conventional methods of transaction. Not only capital but human resources are also saved. Online correspondence with customers with regard to their billing information helps to save costs on direct mail and paper use.

Virtual Value Chain:

Strategy formulation requires an evaluation of the limited internal resources of one’s business, and using these resources in such a way to create the finest outcome possible for the consumers (Quinn, 1980). One of the best available strategy formulation techniques is the value chain framework by Porter (1980), according to which an organization works on acquiring competitive advantage keeping in mind its resource base.

Porter (1980) proposed that firms must reevaluate their value chain consistently and should focus on their core competencies. Citibank also appraised its traditional market strategy and came up with the alliance strategy to better functionalize its activities and strengthen relations with the corporate customers.

Strategies for future success:

E-business management requires continuous technological development and innovativeness as time passes. Therefore, Citi has to continuously update its online products and network and make sure that it regularly partners with the companies that provide cutting edge technologies and product innovations. The company has to maintain its agility and competitive advantage over other companies because if it does not other will. The customers who utilize online services are well aware of many product aspects and therefore, their expectations are much higher than that of a traditional customer. In order to maintain the existing customer base as well as to attract other customers, continuous product update and technological innovation is critical (B. Burke Consulting, 2009).

With the history of strategic management that Citibank had, there are a number of opportunities to enrich its future e-business success. It can have an edge in the market if it uses its brand name effectively, persistently upgrades its online products and keeps developing its e-business strategy to incorporate the ever changing requirements of the consumers.

E- Business Practices of other major financial institutions:

The data gathered by New York Stock Exchange (NYSE), 2009 revealed that strong competition experienced by Citibank was due to the following banking industries:

JP Morgan Chase (JPM)

Bank of America Corporation (BAC)

Deutsche Bank AG (DB)

Morgan Stanley (MS)

Wells Fargo and Company (WEC)

Competition faced by Citibank over the past two decades (B. Burke Consulting, 2009).

Citibank’s operational income and return on assets

The financial revenues of the company are far exceeding despite the wide scale activities that are part of the Citibank’s market strategy i.e. extending business by properly utilizing resources and considering the vitality of economies of scale. Global expansion of Citibank was gradual as domestic banking needs were being catered to a great extent.

Citibank’s current valuation (Morningstar, 2011)

Citibank’s comparative analysis:

Among the major competitors, JP Morgan and Bank of America gives strong sense of rivalry as the functional sectors of all the three of them are somewhat similar. Citigroup is trying to differentiate its product and service offerings by further laying stress on investment banking, initiating corporate and social strategy together with the commercial and consumer banking provisions being offered to the clients. Following is a brief comparison of all the three banks in relation to the e-banking strategies they possess.

JP Morgan:

Being a well known bank for investment and asset management, JP Morgan has its financial asset circulation in nearly sixty countries with initials ranging above 700 billion dollars. The bank is pacing towards getting involved in the B2B markets.

E-invoicing is an additional e-service offered by JP Morgan Chase Bank. Further enhancement of the electronic facilities includes provision of door step services to business clients. E-invoicing helps to retrieve the entire banking information of a whole sale or corporate customer. To motivate potential clients for utilizing e-banking facility, JP Morgan plans to introduce a cash management mechanism. Customers will be kept regularly informed about their billing statements with the aid of e-invoicing. Special consideration is also been placed for the MNEs and SMEs who wish to get benefitted by the capital lending services of the bank in order to proceed with their entrepreneurial activities. With the launch of software programme supporting e-billing services, investment record and document listing, JP Morgan Chase estimates to attract a clientele of 3 million within coming years. Bank is making efforts to divert customers for visiting the e-portal Chase.com in order to get benefitted by internet banking (JPMorgan Chase & Co., 2011). (I have to complete the following points)

Bank of America:

Citibank:

E-business practices:

B2B

B2C

Financial market situation

Return on Assets

Efficiency Ratio

Liquidity Ratio

Debt Ratio

Strategic options available to Citibank for enhancing e-business future potential

Cash and trade system for developing e-business products for varied industries

Catering specified treasury requirements of different operational sectors

Identifying potential needs

Strategic partners and customers segregation

(Collaboration of Citibank with Oracle, SAP AG, Bolero.net and Wisdom technologies which provided technical expertise for virtual business environment)

Marketing different market segments

Firm must leverage global opportunities

Introduce socialization mechanisms