Erste Bank in Cee

Introduction

By the end of the late 1990s, the financial service markets were characterised by a race for European cross-border mergers due to a high consolidation pressure. The Austrian Retail Banking Sector was considered to be the “lousiest“ banking market in Europe. The only way for Erste Bank to stay independent seemed to be to embark on a growth process. Therefore, in 1997 Erste Bank launched the biggest IPO in Austrian history with a volume of 508 Mio. Euro and merged with Girocredit. Back then Erste Bank had total assets of €49 billion, a market capitalization of €2 billion, a customer base of 0.6 million and employed 9,300 people.

At that time most other European banks decided to focus on further developing the more profitable investment banking business at the expense of their retail operations.

In contrast to that, Erste Bank invested heavily in exploiting the retail banking business, thus making it its core business. Under the leadership of Andreas Treichl, the Chairman of the Managing Board since July 1997, Erste Bank launched an aggressive expansion strategy into the Central Eastern European markets. Although this strategy was often predicted to fail, Erste Bank managed to successfully enter Czech Republic, Croatia, Slovakia and Hungary. This success affected the company’s balance sheet positively; total assets of €139.7 billion, a market capitalization of €10 billion, a customer base of over 12 million and a workforce of over 35,000 employees.

Today, Erste Bank is further searching for potential growth areas to keep up with the track of success.

Problem statement

The highly successful acquisitions of several banks in CEE countries resulted in a complex organisational structure due to numerous individual markets and brands. In addition, the structure of the decision-making process could not keep pace with the bank’s expansion. First efforts of consolidation of certain functions have led the way towards a higher degree of centralisation and efficiency. When considering the further expansion of Erste Bank’s business and field of activities, consolidation and restructuring seem to be indispensible objectives. Due to the situation at present there is a demand for a straightforward structure of corporate architecture, ideally assigning duties to the group committee on one side and to national group boards on the other. Therefore, it's essential to establish clear definitions of functions that should be centralised as well as for functions that should rather be planned on a local level.

Problem analysis

Erste Bank’s problem is dominated by two major drivers; the geographic expansion of the group and the prevailing decision making process. In the following section these two problems will be analysed.

1. Regional influence

Erste Bank is active in CEE markets, which are strongly characterised by the former communist system; central planning has left these countries with a strong need for strict corporate governance as well as for clearly defined tasks and objectives. Furthermore, by giving national groups these kinds of responsibilities, it will be possible to clearly communicate operative goals to their employees. In addition, legal systems in CEE-markets tend to be very complex and strongly vary in between countries; these issues will be tackled by the creation of local legal departments. The same applies to HR decisions, which ought to be taken care of locally due to underdeveloped labour market conditions. Another indispensable responsibility that has to be dealt with locally is the adaptation of marketing, since financial products are consumer sensitive and have to be adjusted to local practice.

2. Coordination issues in MNCs

Cross border activities and an increasing company size are affecting the complexity of a company’s physical size and the complexity of the decision making process. Physical issues will be answered by centralizing certain activities. Therefore a decrease in employees and doubled activities will be realized, which will