Mission Statement of Abbey
Abbey is a bank that was formed in 1944, following the merger of the Abbey Road Building Society and the National Building Society. Previously known as Abbey National, it changed its name in 2003, unveiling a new look and announcing their intention to “turn banking on its head.” It is the sixth largest bank by assets in the UK, providing personal financial products and services such as mortgages, banking, general insurance and life assurance. Abbey is also involved in Commercial Banking. It employs around 26,000 people, and has about 1.8 million shareholders.
Mission Statement and Strategic Objective
Every organisation has a mission, a purpose, a reason for being. A popular view of a mission statement is that it should be no longer than a single line, and should be easy to understand. The mission should be the brand. This seems to be a policy that Abbey has followed. Their mission statement reads “to be number one for number one.” The number one provider of Personal Financial Services to each individual (themselves being their own number one). It is short and simple, and easy to memorise. This mission statement provides a direction for Abbey.
But another popular view of a mission statement is that it should state the company’s attitude, orientation and outlook.2 In this, the mission statement should:
1. State who the company is,
2. State where the company wants to go,
3. State how the company plans to get there,
4. State why the company needs to do this.
For this part, Abbey has outlined their “Strategic objectives”
3. This tells who Abbey is by describing the areas that the company wants to specialise in, and the values that will guide them. The objectives say where Abbey wants to go, their long term goals; “…to be the biggest company providing just personal financial services in the UK…” How Abbey plan to get there is by reviewing the company, and putting “the right people in the right place with the right skills.” It outlines the services that Abbey will offer, and how Abbey plan to beat the competition. It aims to beat the competition through offering a higher quality of products and services to their customers, while at the same time driving down costs and improving efficiency across the company.
A good mission statement should provide strategic direction and vision for a company, and should not have to be revised every few years. A Rival Mission Statement
4 Halifax Bank of Scotland (HBOS) is one of Abbey’s main rivals, as it offers similar products and services. Previously two separate banks, Halifax and Bank of Scotland merged in 2001. Like Abbey, HBOS outline their mission in a small statement which tells of their reason for being. Their strategy further outlines where they plan to go, and how they plan to get there. Like Abbey, customer service is a high priority. Another factor that Abbey and HBOS have in common is that personal finance is a high factor in their strategic plan. HBOS state their goal, who their customers are, and which products they will offer in order to achieve their goal.
As with Abbey, HBOS have recently revised their mission and strategy, and as such, should not have to review it in the near future. Agency Cost Theory: Moral Hazards and Adverse Selection The problems that occur from agency in Abbey are mainly moral hazards. The executives pursue growth, rather than company earnings. Abbey is one year into a three-year turn around plan, due to previous attempts at expansion.
In the summer of 2001, Abbey began to experience serious problems. It had lost over 54 million which was a modest amount for an institution that had made 1.7 billion in pre-tax profits the year before. Abbey’s investors, however, weren’t familiar to credit losses, and they started to ask questions about the business that had caused the risk: wholesale banking.
5 Abbey’s head of the wholesale bank, Gareth Jones, had authorised the buying of things such as junk bonds, and aircraft leasing in Australia. Executives, in general, receive more rewards for an increase in the firm’s size rather than for the growth of earnings, and as such, may recommend strategies which will accomplish this. That is what Gareth Jones did. However, this was not consistent with the image of a UK mortgage lender, and Abbey were forced to cover the portfolio with over 2 million.
However, shareholders normally want to maximise earnings, and the failure of the wholesale bank, as well as the subsequent capital that went into covering it eventually resulted in a loss of 686m, was exasperating to stakeholders, and Gareth Jones, and the chief executive, Ian Harley left Abbey.
Adverse selection was also a problem for Abbey. The wholesale banking illustrates this. The shareholders did not fully understand how the wholesale banking works, and thus, did not realise the priorities of the head of the wholesale bank. This resulted in both shareholders and the chief executive losing out. Stakeholders Abbey have five main stakeholder groups- customers, shareholders, business partners, employees and the wider community. Their influence and power differ, as can be seen in a stakeholder map.
Communication with stakeholders has recently been a feature of the Abbey strategy. Shareholders are inside stakeholders. Abbey lost 686m7 during 2003, due to the refocusing itself as a retail bank. Communication with shareholders is normally a focus point of Abbey. There are annual general meetings (AGM), and shareholders are regularly sent information on the shares via post. There is also a “shareholder centre” on the Abbey website.
8 This has a large quantity of information regarding shares and results of the company.
The wholesale bank problem could have been handled better by Abbey, with more benefits for shareholders. As it moved more into the wholesale banking, Abbey was making less of a loss than other banks. But the problem with moving into a new market, there are teething problems, and communication with shareholders can be seen as less important