Notes on a transformation

In 2003, analysts disparaged Canada’s RBC Financial Group for its acceptable but unremarkable performance.

Notes on a transformation 974x296

In 2003, analysts disparaged Canada’s RBC Financial Group for its acceptable but unremarkable performance. Lately, it has delivered nine quarters of stellar financial results. What changed? Elisabetta Bigsby and Douglas Ready tell how transformation champions can make change the coin of the realm.

Headquartered in Toronto, RBC Financial Group is Canada’s largest bank (by market capitalization and net income) and one of North America’s leading diversified financial services firms. Through its 70,000 employees, RBC provides personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services to more than 14 million customers (individuals, businesses, public sector organizations and institutions) around the globe.

In the late 1990s, a wave of consolidation in the US financial sector generated market expectations of comparable synergies and efficiency gains for Canadian banks. Yet, in 1998, merger requests by Canadian banks were denied by the Minister of Finance, the ultimate authority to approve such transactions. The opportunity for growth through in- market consolidation was eliminated, at least for the time being.

In 2000–2001, RBC responded to this constraint by making selected US acquisitions, including a regional bank and a brokerage firm. These acquisitions did not pay off as promptly as RBC had anticipated since, in the initial stages, forays into the US market provided elusive revenue synergies and limited cross-border cost savings.

In 2001, faced with limited expansion opportunities within a relatively small domestic market, and wary of additional expensive acquisitions, the newly appointed CEO, Gordon Nixon, realized that RBC needed another way to spur growth. Nixon had recently been appointed RBC’s CEO, following a successful seven-year run by John Cleghorn, a highly respected figure in Canadian financial services circles. Nixon, however, was not without his own reputation for success, having been highly successful running RBC’s Capital Markets operation. Expectations, therefore, were understandably high H from a variety of stakeholders.

Nixon quickly came to believe that one possibility for breakthrough growth lay in making the bank’s overall value greater than just the sum of its parts. This would require transforming RBC from a collection of autonomous businesses to a unified enterprise that could offer integrated services tailored to each client. Nixon would later argue that the opportunity was not difficult to spot, but the challenge would come in executing and sustaining the deep changes required in order to capitalize on the opportunity.

By strengthening cooperation among its various units, RBC could enhance customer loyalty and generate new revenues – growing through client acquisition and cross-selling rather than through a merger-and-acquisition strategy. For example, consider the owner of a privately held company who might be ready to cash out.

An integrated RBC would approach the client with a team comprising both commercial bankers to support the transaction and wealth management experts to support the client in the investment of the transaction’s proceeds. RBC could offer the client an integrated solution rather than a simple referral to another RBC unit – or worse still – have the client slip away to a wealth manager competitor. This was a compelling sales proposition. Cooperation among RBC units could also deliver cost reductions by eliminating duplication in support functions.

The leadership challenge

Yet, integrating RBC so that it could offer customers such tailored solutions presented the company with a significant leadership challenge: the effort would require truly effective cross-organizational partnering among the company’s various businesses. Historically, each of RBC’s businesses had achieved solid financial results by operating relatively autonomously.

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