Case study questions for Deutsche Bank:
1. What was the strategic and economic rationale for the acquisition in the case?
Deutsche Bank’s acquisition of Bankers Trust was implemented due to internal and external drivers or forces that influenced each firm to consider the merger. Merger is defined as the consolidation of two organizations into a single organization. It is said that both partners pursue a “strategic fit” or the similarity between organizational strategies (Shelton, 1988) or complementary organizational strategies setting the stage for potential strategic synergy. Hence, it can be said that one of the internal drivers of this merger to establish a strategic management system by integrating the business strategy of Deutsche Bank and Bankers Trust into one and unique strategic management for Deutsche Bank.
Deutsche Bank and Bankers Trust are global companies, which mean that these companies must be able to use strategic management to ensure that it will survive in the stiff competition in the global arena. As part of its business strategies, Deutsche Bank used the concept of acquisition. The main motivation behind the acquisition was to form a financial industry that will be able to adapt to globalization trends in financial and economic aspects.
In addition, the internal driver was to improve the profitability of Deutsche Bank by merging with Bankers Trust’s products, markets, customer base, efficiencies, assets, and facilities, or by simply eliminating some of the competition. The hope is that the combination of the firms will improve the operating efficiency and profitability of the companies involved.
Another internal factor that can be considered why Deutsche Bank acquired Bankers Trust is to be able to establish a competitive position or advantage in the global market environment. Through the acquisition Deutsche Bank may expand its business portfolio to be offered to a vast number of consumers. Since both banks merged together, Deutsche Bank is now able to offer more innovative banking services which may help the company gain competitive advantage for other competitors.
On the other hand, the acquisition was also initiated due to some external factors in the current banking market, which include globalization and customization, information technology, and increased customer sophistication, all of which have wrought massive changes in the competitive environment of banks.
When Deutsche Bank announced its acquisition of Bankers Trust in 1998, it was clear that this was not supposed to be a cost-driven deal, but rather a revenue-driven transaction. With relatively limited overlap in activities and markets, there was less duplication and, as a result, less cost takeouts that were likely to occur. Indeed, the management of Deutsche Bank and Bankers Trust did not emphasize cost cutting in their 1998 announcement of the transaction. They planned on boosting their share of wallet through cross-selling between their millions of clients. Analysts estimated that the greatest advantage in cross-selling would go to Deutsche Bank, which would integrate customers’ account information, including insurance, banking, and credit cards, onto one statement. Facing incompatible IT configurations and the mandate to generate new revenue streams through cross-selling, Deutsche Bank and Bankers Trust decided not to follow the traditional absorption approach, but rather to keep their IT systems decentralized to promote the advantage of specialized configurations.
2. What strengths of Bankers Trust were the most valuable for Deutsche Bank?
In merging two companies, there are many consequences that should be looked upon to. It’s up to the companies if the merging will create a new response from the market. They’ll be the one to make their new company a success of a failure. There are so many ways for two companies to merge, and one of which is takeover. Takeover of one company to another is one business gets ownership without cooperation from the other. Often the corporation that continues to function makes an outright purchase of the property and stock of the others; exchange of bonds, options, and other agreements are also employed by the corporations involved.
According to Morrison and Floyd (2000), it can be easily said that corporate takeover is a means of survival for companies. Morrison and Floyd (2000) continued that in this new environment, ownership matters, and managerial control stems from equity position rather than relational ties. The strengths of Bankers Trust will be the focus of this section.
According to Rhodes (2002) merger and acquisition will immediately impact the company with changes in ownership, in ideology, and eventually in practice. In order to have a more successful expansion, Bankers Trust should provide some marketing strategy for the company in which Deutsche Bank has been able to consider. Hence, one of the strengths of Bankers Trust is its diversification strategy that was imposed by Deutsche Bank right after the acquisition has been done.
Furthermore, there are three criteria of core competencies which can also be considered as the strength of Bankers Trust. These core competencies include superior customer value, business similar in way related to core competency and difficult to imitate or find substitutes for. It seems that the expansion of Deutsche Bank through its acquisition of Bankers Trust has achieved to a certain extend the above criteria in a way that it did provide something different and it was one of the first bank in the States providing insurance service to clients. Also, different businesses in the firm like credit cards, mortgage, insurance, private banking are similar in way related to core competency. Corporations can also achieve synergy by sharing tangible and value-creating activities across their business units.
Deutsche Bank’s acquisition of Bankers Trust has already created billions of dollars by corporate restructuring, portfolio management. In particular, as a result of the acquisition, Deutsche Bank was able to centralize computer systems, finance, human resource, project management, and procurement. The company estimates that this effort saved as much as 1 billion.
In addition, one of the strengths of Bankers Trust is its ability to strengthen the competitiveness of its operations. Strategic alliances through acquisition present an especially attractive avenue for the financial industry since the multinationals will be able to integrate different communications segments quickly, capture a developed customer base, consolidate smaller niches, remove a rival and prevent competition from doing so, and accelerate the implementation of new technologies with combined resources.
3. What were the major challenges for Deutsche in this acquisition?
There were times after the acquisition when Deutsche Bank experienced lowered employee commitment and productivity, increased dissatisfaction, high turnover, leadership and power struggles, and a general rise in dysfunctional behaviors such as sabotage. In addition, another challenge that the acquisition brought within Deutsche Bank was the tendency for the company to not give enough focus or attention to its banking services because of the many banking services that it offered in the market. In this manner, the company did not have that assurance of sustaining the competitiveness of other banking services.
Another challenge can be attributed to the cultural context. The consequences of culture became particularly apparent in Deutsche Bank’s acquisition of Bankers Trust, where not only different organizational cultures but also organizational cultures rooted in different national cultures meet (1996; 1991). Because the organizational members from diverse cultures like that of Deutsche Bank and Bankers Trust interacted and, especially, when one culture was required to adopt the methods and practices of the other culture, disruptive tensions emerged.
4. What were the major potential synergies from the deal? Were they realized?
Acquisition became the dominant methods of consolidation and the primary potential synergy was to control assets, and the best way to control assets was to own them (1998).
Deutsche Bank’s acquisition of Bankers Trust enabled the former to combine assets and activities, substantially lower costs, and become a strong competitor, by closing branches, moving down the scale-economies curve, combining facilities, increasing scale economies, and spreading the cost of R&D over volume. Deutsche Bank’s acquisition of Bankers Trust also enabled the former to improve its economics of the supply chain-and in all cases, integration of physical assets was vital in achieving the economic objectives of the acquisition.
Acquisition has been recognized to be one of the strategic ways in business operation growth and expansion. In line with the strategy of Deutsche Bank, it can be said that its acquisition of Bankers Trust have been able to provide the company a more comprehensive, efficient and effective ways to have a sustainable company growth. It has allowed Deutsche Bank to grow both internally and externally because through the acquisition the family of the company has increased, not only in its local operation but also in global environment.
Further, through the effective acquisition, Deutsche Bank is able to gain competitive advantage among its rival companies. The more competitors stake their strategic thinking upon being the lowest price producer or delivering the highest quality, the more they start to look alike in their marketplace, thus losing their competitive edge over one another. In meaning, competitive advantage arises out of a meaningful differentiation from one other player in the market. It is better to understand that developing a successful strategy in standard cycle market proves to be relatively simple for other companies.
However, if looked at too simply, a company will choose a strategy that is too narrow or too broad based on the other factors of choosing a strategy. Determining which customer needs to satisfy is an area where choosing the incorrect strategy can result in a decreased competitive advantage. Hence, with Deutsche Bank’s acquisition of Bankers Trust the company has been able to produce unique banking services in line with financial and insurance services that suit the needs and demands of their respective consumers. Moreover, through acquisition, the company had been able to gain a competitive advantage by making their banking services readily available in different parts of the world and always unique compared to other financial and insurance services.
5. Give a short update on the case
In Deutsche Bank’s acquisition of Bankers Trust, the advantages brought by its implementation include: 1) established a base for Deutsche Bank and obtained a going concern in a particular location. 2) established a niche because of the expansion of banking services offered in terms of financial and insurance services. 3) Increased productivity and profitability, increased output with unchanged fixed costs, yielding higher profit and 4) Expanded geographic coverage. Through the acquisition Deutsche Bank has been able to establish a competitive position not only in the local market but also in the global environment.
On the other hand, Deutsche Bank’s acquisition of Bankers Trust offered the above advantages and additional ones, such as: 1) Succession planning, which is a way to secure retirement through new ownership. 2) Reduced work level: a way to share responsibility among more people and 3) Security of a larger organization. Through this, Deutsche Bank is able to cope with larger competitors. The acquisition created or enhanced the bank’s strategic assets as well as distinctive capabilities.
Since Deutsche Bank gained different ideas on different kinds of financial and insurance services demanded by their customers, the company had also been able to diversify established better banking services. It can be said that effective acquisition is the key factor for the success of Deutsche Bank. The company’s acquisition strategy allows the whole organization to perform better in the banking industry.
CONCLUSION
The results of the analysis carried out on Deutsche Bank’s acquisition of Bankers Trust indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the operations of Deutsche Bank could still be expected to improve faster than average.
The review of Deutsche Bank’s capabilities and resources revealed very little inconsistencies regarding its acquisition strategies. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for Deutsche Bank.
The analysis among the banking environment as well as the implications of Deutsche Bank’s acquisition of Bankers Trust revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the competitiveness of Deutsche Bank.
Also, Deutsche Bank has to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options.
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