Restructuring at

Citibank
Porter Five Forces
• Threat of substitute
If the threat of substitute is high then Citigroup Misdeeds has to either continuously invest into R&D or
it risks losing out to disruptors in the industry.
• Threat of new entrants
If there is strong threat of new entrants then current players will be willing to earn less profits to reduce
the threats.
• Rivalry among existing players 
If competition is intense then it becomes difficult for existing players such as Citigroup Misdeeds to earn
sustainable profits.
• Bargaining power of buyers
If the buyers have strong bargaining power then they usually tend to drive price down thus limiting the
potential of the Citigroup Misdeeds to earn sustainable profits.
• Bargaining power of suppliers
If suppliers have strong bargaining power then they will extract higher price from the Citigroup
Misdeeds.
Citibank Background
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.
1. STRATEGY
Customers:
• It was 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.
2.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.

3. 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.

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.
• The incentive 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.

The 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.
• It increased the control of the top management, and gave them greater flexibility in implementing organizational
changes.
• Accountability:
• Earlier the geography division head was accountable for the performance of his country division.
• One 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.
• It 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
• 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.

The control implications of the restructuring 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.
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.