Final Paper

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org theory final paper

Executive summary (Abstract)

Merrill Lynch is a global asset management company that was acquired by Bank of America during the financial crisis.  The two companies were married in order to provide stability and security to the surviving financial institutions.  During the crisis, Lehman Brothers, one of the oldest asset managers in the industry, had a crisis of confidence due to its highly leveraged security positions. Government Regulators wanted to send a message, a sacrificial lamb had to be chosen, and they decided to let Lehman fail.  At the same time, other asset managers were poised to fall like dominoes. This prompted regulators to insist that Merrill Lynch partner with Bank of America and Bear Stearns strike a deal with JPMorgan.  This turned too big to fail banks into much larger institutions which has created a far greater systemic risk profile resulting in higher capital requirements. While the famous Dodd-Frank legislation still being written, with extremely low profit margins, and the government incessantly trying to extract penalties for the housing crisis, these institutions are leaning out their workforces while planning for the future.

This has lead Merrill Lynch to simplify its organizational structure to better serve its clients by moving away from single Financial Advisers managing upwards of $150 million in assets to creating financial advising teams around them. This points to the main hurdle I see for the company, dividing the commission that established Advisers have earned while rolling out the team structure.  After reaching the pinnacle of your craft and becoming a million dollar producer, why would someone want to share all that hard work and money with a team?  The answer is it allows the company to streamline its operations while integrating succession planning in their organizational model.  The new structural model will allow the company to better achieve its goal as stated below while growing its assets under management (AUM).

At Merrill Lynch, your Financial Adviser focuses on the things you care about most –family, goals, and priorities – even as they change over the years.

Organizational analysis

Looking at the organizational chart taken from the Bank of America investor relations site (Appendix 1), we can see that Merrill Lynch now appears to be completely integrated.  Although it looks nice and neat in the picture, Bank of America announced it was acquiring Merrill Lynch on September 14, 2008, the deal closed January 1, 2009, and the integration was complete in 2014.  I personally believe the combination of two companies can take a very long time if they are to be seamlessly integrated.  Currently the Merrill Lynch Wealth Management unit has an office separate from Bank of America in the Alaska region but as the team structure develops and bank branches are closed it is easy to see that both businesses will be under one roof. The complexity of the Bank of America model lends itself to simplicity as there is a tall and high vertically differentiated three tiered structure.  The structural model I added for Merrill Lynch itself appears to be a flat Jack Welch style model which is extremely encouraging to see because it does not leave room for bureaucratic nonsense.  This actually plays into the new team structure as each group is an independent business allowing for greater flexibility.  This type of model is indicative of a wide span of management leading me to believe that the officers at Merrill Lynch are some of the top professionals in their areas.  These two structures appear to oppose each other but one is just a substructure inside the other and they have leaned operations since the financial crisis due to low interest rates providing abnormally low profits.  Overall the structure does not appear to be overly complex, it is simple and straight forward, but we must remember that these charts are meant to appear that way.  That being said I pulled their report from the Goldman Sachs U.S. Financial Services Conference in 2014 and they appear to have simplified their business even further as shown in the third picture of Appendix 1.

Looking at the total company, Bank of America looks like a tall vertically differentiated structure and Merrill Lynch looks like a flat horizontally differentiated structure.  When the companies merged the Bank of America structure remained. However, when I visited the Merrill Lynch office in Anchorage, the flat horizontally differentiated structure was evident by visual inspection.  I had the opportunity to sit down with three personal financial advisors in the Anchorage office and they were apprehensive about the new team structure but were willing to work towards the new objective because it would allow them to better serve their clients in the long run.  There was a lot of talent, sharing of ideas, and everyone seemed to work together for the betterment of the client.  It was also easy to see that there were invisible lines drawn, each Adviser has their own office and pool of clients defining their business that they were willing to guard like a shark.

I did not see a strictly competitive work environment rather a seriously friendly competitive learning curve.  The new team structure is organized to be led by an experienced Adviser that already has a large amount of assets under management.  However, as I was entertaining the idea of working for Merrill, I was told that if I was ambitious I could go out on my own and build my team personally.  This was enticing but I decided it would be much more educational to work with a seasoned professional because the environment is extremely competitive and I could always form my own business later. Making this decision was simple because there is a 90% fail rate for the new Financial Adviser program.  The goals are high and if the hurdles are not met they let you go after 1 year.  Specifically, a new Adviser in training has to bring in $10 million in assets per year for the first three years, then they are considered a newly minted Adviser.

That being said, the company has a deep bench of proprietary technology that is available to Financial Advisers so that they can service clients adequately.  Although they have basic computers in their Anchorage offices their proprietary technology comes from a central research department.  I believe it is an industry standard but the company has its own methods and world class analysts.

The company’s organizational culture is seriously fun and friendly.  I talked with Nancy Olzack on the phone and met with her in person at the Anchorage office on the 12th floor of the Frontier Building located at 3601 C St, Anchorage, AK 99503.  I also had a phone conversation with Mike Maroni, the Regional Director out of Seattle.  Both represented the company in a professional business manner and wanted me to reach my personal goals as well as succeed at Merrill Lynch.  I entertained the idea of working at the company and they both agreed that I should finish my MBA in Capital Markets first as it would make me a more knowledgeable Adviser.  Throughout our conversations, both Ms. Olzack and Mr. Maroni exemplified the company’s statement of putting the ideals first, family, goals, and priorities.  The company is centered on taking care of the client and maintaining happy employees.  This works to their advantage because happy employees keep clients happy and represent the company well in the community.  Overall, Merrill has an excellent culture and is accepting of anyone willing to work hard.  There are no barriers and other than the securities licensing and 4 year college degree requirement.  The company is a very green company in that it really has little or no waste or carbon emissions due to it being in the financial industry.  I imagine that the floor of the building in Anchorage they rent does have a carbon footprint but related to other industries it is rather small.  Regarding diversity, I looked at the top six managers in the company and it was amazing to find they were very diverse in education, background, and both sexes were represented.  I have looked over quite a few companies in my research and I never found such a diverse group as these six.  The company is also committed to social responsibility and taking care of its stakeholders.  This is very desirable so that the opening of new wealth management offices are well accepted by local communities throughout the globe and the company is seen as taking a holistic approach to their external environment.

With the playing field for the financial industry being global, the competition is fierce and companies fight for top performing Financial Advisers.  This is obvious a weakness for the new team structure but from the Advisers in the Alaska office I have spoken with, they welcomed the change because they can increase their assets under management, they can take more vacations, and they can secure their own retirement.  The possibility of Merrill Lynch being acquired for its financial team is nonexistent because the acquiring company would have to absorb Bank of America.  I do see Bank of America spinning off Merrill in the future and making it a completely stand-alone public entity.  This would come close to eliminating the “too big to fail” capital requirements and reduce the burden of over regulation.  Even then I don’t think the possibility of a merger or acquisition is in the cards.  The company is already global and operates in the markets listed below.  As far as regulations they are the same or similar around the world, I hear that a lot of traders like Thailand because they have not taxes on capital gains.

The company is internationally diversified but Mexico and India are the emerging markets with the most favorable demographic distributions and I believe they should expand further in those regions.  Their competitors at home would be the same competitors abroad because international clients look to America’s financial prowess.  As far as expanding the team model into these two regions, I would suggest the company recruit individuals specifically from India and Mexico, develop a team around them, and then send them back into the field.  It is rather obvious to see that this model would be the most efficient if we use Indra Nooyi, the CEO of Pepsi, as an example.  She has unique insight into the fast growing Indian market in specifically areas such as, tastes, habits, culture, and product placement.  In this respect I think Merrill Lynch should follow Pepsi’s model and in the process they will win the hearts and minds of the clients they seek to capture.

Conclusion

In conclusion, I can see seasoned Financial Advisers that are $1 million or greater producers, meaning that they have $100 million or more under management at a 1% fee rate, being apprehensive.  Some might even follow the approach of the Adviser I talked to at Wells Fargo Wealth Management in Fairbanks, Alaska and leave Merrill Lynch.  This particular Adviser, in a three hour conversation, told me that he was the largest producer at the Anchorage office and was fine working alone.  This was exactly why he moved to Wells Fargo, he had developed a fantastic business and could work it by himself with a single secretary.  In my opinion, there will be seasoned professionals that take this approach because they want their money and hard work to themselves and I can completely respect that.  However, this may come at the expense of strained service to the client as well as difficulty finding a suitable trainee for retirement.  The new team structure that Merrill Lynch has envisioned solves all these problems and is the best approach for its business.  This may not be concurrent with the interests of a seasoned Financial Adviser in the beginning, but from the talented professionals I have had the pleasure of sitting down with, they like the idea of mentoring their replacement and agree it is best for the long run of the business.

Appendix 1

Organizational Charts

References

Maroni, Mike. “Interview with Mike Maroni.” Business review. Self-sponsored. Merrill Lynch Wealth Management, Anchorage. 9 Feb. 2015. Lecture.

Olzack, Nancy. “Interview with Nancy Olzack.” Business review. Self-sponsored. Merrill Lynch Wealth Management, Anchorage. 9 Feb. 2015. Lecture.

Merrill Lynch Wealth Management. (2015, January 1). Retrieved March 13, 2015, from https://www.ml.com/

Merrill Lynch Wealth Management. (2015, January 1). Retrieved March 13, 2015, from https://sec.gov/

Bell, Robert. “Interview with Robert Bell.” Business review. Self-sponsored. Wells Fargo Wealth Management, Anchorage. 13 Feb. 2015. Lecture.

Decision Making

The video that we were instructed to watch was very informative and peaked my interest in several ways.  When I started my education process I initially wanted to become a statistician so I completely understand how data can be manipulated to serve a specific outcome.  In this respect I keep an open mind but at the same time I maintain a healthy dose of skepticism.

This video attempts to reveal that higher net worth individuals are more self-centered than those that are less well off.  The problem I have is that we do not know how this particular study was designed.  The sample seems to be students from the population at Berkeley, which is generally a higher net worth group of individuals.  Also, the idea that only high net worth individuals drive BMW’s or Mercedes is a loose characterization.  Adding to that, it is short sighted to think a game of lopsided monopoly conveys the difference between rich and poor.

I think the idea that higher net worth individuals are rude and treat people negatively is incorrect.  The conclusions drawn at the end of the video are related to an income inequality and a liberal agenda.  What I personally saw is that more money allows a greater sense and allocation of power.  It is up to each individual how they wield and convey their use of that advantage.  I believe that individuals who know how to create wealth are less apt to deal with certain types of people just because they operate in different social circles.  They may be more demanding and blunt because they have more and expect more.  Is that wrong?  Again the question is how this advantage is wielded and conveyed.  None of us have the time in our lives to make everyone happy, sometimes the things we do hurt the people that we love.  In the end what we all need is understanding. Unless someone is specifically targeting you to gain an advantage or aiming to use you, they probably are just trying to provide for their family and live some resemblance of the good life.  I would ask, why would someone having a complete advantage yield spoils to someone else?

That being said, the organizational implications could lead to a disconnect between corporate officers and employees.  The fact is that employees facilitate a greater percentage of the work while corporate officers manage the strategic vision of the company.  However, leaderless armies do not win wars and individuals with highly developed skill sets do not work for minimum wage.  The problem we really have is our country is controlled by a group of large corporations co-opted by politicians and our regulatory bodies have failed to maintain our capitalistic environment.  These large corporations, like Walmart, are virtual monopolies and need to be broken up into four or eight competing entities.  This would spur innovation, competition, and entrepreneurship, as well as create more job opportunities because each organization would need four or eight CEO’s instead of one. But right now we have more of a social-capitalism that seeks to divide people and picks winners and losers for votes. 

Overall, we must remember that we need leaders to lead armies and officers to run corporations. When MAO was in China he took the farms away from the farmers and gave ownership to the field hands.  In taking the management away from the managers 20 million people starved to death.  This is because some people are built to be leaders and others are not or they are not willing to put in the effort it takes to lead.  This leads me to the statement that everyone is capable, but not everyone is willing and capitalism, true capitalism, allocates resources more efficiently and provides the most opportunities for the greatest number of individuals.

Chapter 10: How Do You Fit the Design?

I had lower numbers on adaptability (6) and mission culture (7) while having slightly higher numbers on clan culture (8) and much higher on Bureaucratic culture (15). I believe this is because I enjoy environments that are relatively unstructured where I have to physically manage operations and find solutions. I do not want everything spelled out for me, I want to create a team and achieve a goal. I guess that is why I scored lower on mission culture, I like to weigh options and execute a plan of attack. I scored relatively low numbers on clan culture, I don’t believe in any business that a manager should get too friendly with the staff at work. Outside work you can have barbecues and poker games but at work your employees need to know you mean business. I will never understand why someone would want a completely structured environment, I would get bored very easily because there is no room for creativity and I would feel like my growth in learning would be stifled. I prefer a more autonomous position where I get to make decisions and have more input and control over the workflow. It’s is probably something I get from my father, he always kept me thinking what the next step was when I was a child.

Chapter 10: How Do You Fit the Design?

 

*Rank the following items from 1 to 8 based on the strength of your preference (1=highest preference; 8= lowest preference).

1. The organization is very personal, much like an extended family. _3_
2. The organization is dynamic and changing, where people take risks. _4_
3. The organization is achievement oriented, with the focus on competition and getting jobs done. 6_
4. The organization is stable and structured, with clarity and established procedures._7_
5. Management style is characterized by teamwork and participation._5_
6. Management style is characterized by innovation and risk-taking._2_
7. Management style is characterized by high performance demands and achievement._1_
8. Management style is characterized by security and predictability. _8_

 

 

Scoring: To compute your preference for each type of culture, add together the scores for each set of two questions as follows:

Clan culture– total for questions 1, 5: _8_

Adaptability culture– total for questions 2, 6:  _6_

Mission culture– total for questions 3, 7:_7_

Bureaucratic culture– total for questions 4, 8:_15_

*A lower score means a stronger preference for that specific culture.

*A higher score means the culture would not fit your expectations.

Organizational Complexity

Organizational Complexity

1: How complex is your organization internally?

According to Wikipedia, the organization structure of Merrill Lynch stemmed down from John Thain, the former Chairman, President, and CEO of the firm. Under his direct supervision are seven vital positions within the overall firm. Presidents, Vice Presidents, and Chairmen of the variety of sectors within Merrill Lynch, such as investment banking, typically occupy these positions. Below these upper management authorities are the lower management employers, who manage a further subdivision of a particular sector of Merrill Lynch. The lower management employers supervise the employees who specialize within a sector of the firm, for example, consultants.

Looking at the organizational chart taken from the Bank of America investor relations site, we can see that Merrill Lynch has been completely integrated.  Although it looks nice and neat in the picture Bank of America announced it was acquiring Merrill Lynch on September 14, 2008, the deal closed January 1, 2009, and the integration was complete in 2014.  I personally believe the combination of two companies can take a very long time if they are to be seamlessly integrated.  The complexity of the Bank of America model lends itself to simplicity as there is a tall and high vertically differentiated three tiered structure.  The structural model I added for Merrill Lynch itself appears to be a flat Jack Welch style model which is extremely encouraging to see because it does not leave room for bureaucratic nonsense.  This type of model is indicative of a wide span of management leading me to believe that the officers at Merrill Lynch are some of the top professionals in their areas.  These two structures appear to oppose each other but one is just a substructure inside the other and they have leaned operations since the financial crisis due to low interest rates providing abnormally low profits.  Overall the structure does not appear to be overly complex, it is simple and straight forward, but we must remember that these charts are meant to appear that way.  That being said I pulled their report from the Goldman Sachs U.S. Financial Services Conference in 2014 and they appear to have simplified their business even further as shown in the third picture below.

Any time I think of a merger I am reminded of the America Online and Time Warner deal.  Most analysts believe that two companies can never be completely integrated due to differences in culture, organizational design, and the relationship between established and growing traits.  Then I think of the other side of that coin where there resides Larry Ellison and his company, Oracle.  Mr. Ellison has had all the hallmarks of a serial acquirer that is desperately trying to by grown but there is just one problem, he masterfully integrated every business and has increased his bottom line and created wealth for shareholders.  So there is a dichotomy, but I think the Bank of America and Merrill Lynch merger will integrate very well.  It was interesting to find, according to Wikipedia and other sources, that there are internal emails stating the Bank of America CEO Kenneth Lewis had “misgivings about the acquisition of Merrill Lynch, and that federal officials pressured him to proceed with the deal or face losing his job and endangering the bank’s relationship with federal regulators”.

http://en.wikipedia.org/wiki/Bank_of_America

Horizontal differentiation: the degree of task specialization across the hierarchy.

Vertical differentiation: the depth of the hierarchy, total number of levels – top to bottom.

Note: these choices include an understanding of the span of control, the number of middle managers and if the company has undergone any delayering, scope of professional divisions, and matrix implications.

Blob: Undifferentiated, low on both vertical and horizontal differentiation, little specialization of task, flexible and quick to respond to changes. Job descriptions are very loose, or may not exist. Lack of definition as to who is to do what. This is a relatively undefined organization in the sense that there are no formally specified subunits.

Tall: Low on horizontal and high on vertical differentiation. Large middle management, which focuses on information processing (i.e., taking directions from the top and passing to the bottom, etc…).

Flat: High on horizontal and low on vertical differentiation. Fewer middle managers to coordinate between the top executives and the lower levels in the organization. Information exchange focuses on policy and strategy not task specific operations (i.e., offering general guidance). This is a decentralized organization where lower levels make decision base on this guidance.

Symmetric: High on both horizontal and vertical differentiation. Organization’s work is broken down into many task specialties as well as many vertical reporting levels. Horizontally breaking down tasks into smaller tasks means that work can be done simultaneously in the subunits. Parallel processing of work, ability of each to deal with the marketplace, and the opportunity to work independently.

To assess horizontal differentiation, look at the lowest level of your firm, how many subunits are there across the firm? Many subunits = high differentiation (X > 5) , few = low.

To assess vertical differentiation, how many levels are there from the top of the firm to the bottom? Many levels = high differentiation (X > 5) , few = low.

#2: Locate your organization on the figure, what is the complexity?

Looking at the overall company, Bank of America, It looks like a tall vertically differentiated structure and Merrill Lynch looks like a flat horizontally differentiated structure.  When the companies merged the Bank of America structure remained. However, when I visited the Merrill Lynch office in Anchorage, the flat horizontally differentiated structure was evident by visual inspection.  There was a lot of talent, sharing of ideas and everyone seemed to work together for the betterment of the client.  However there were clear lines drawn, each adviser has their own pool of clients that defines their business that they will guard like a shark.  That being said I do not see a competitive work environment rather a competitive learning curve.

#3: Does your organization’s complexity fit its structural configuration?

I personally think that Bank of America Merrill Lynch has a tall divisional structure because that is what the bank had before the merger and it works best for the company.  So, to answer the question, I would have to say yes and no, Merrill Lynch itself has more of a flat divisional structure, in my opinion.

The definition of a Divisional Organizational Structure

“In a business that departmentalizes according to geographical areas, markets, or products and services, each division operates as an autonomous business. For example, a company might have North American and South American divisions, or exploration and production divisions. Using this structure, division heads have decision-making power, which they rely on to respond to changes in their particular markets or areas of responsibility quickly. A potential disadvantage is that creating production, finance and marketing departments for each division inevitably duplicate some efforts and increases costs. In addition, one division might compete with another division for resources and market standing, just as one company competes with another”.

http://yourbusiness.azcentral.com/functional-vs-divisional-organizational-structure-3764.html

Circle one of the types in each of the following categories:

	Type 1	Type 2	Type 3	Type 4
Organizational complexity	Blob	Tall	Flat	Symmetric
Configuration	Simple	Functional	Divisional	Matrix
Environment	Calm	Varied	Locally stormy	Turbulent
Strategy types	Reactor	Defender	Prospector	Analyzer with/without innovation
Organizational goals	Neither	Efficiency	Effectiveness	Efficiency and Effectiveness

The following are definitions of configuration:

Simple: Tasks or work activities are specified on an ongoing basis rather than in advance; an organization where one individual, the boss, is responsible for all activities; the organization chart usually shows all employees reporting to one person.

Functional: The primary partitioning of the firm’s tasks into smaller specialized tasks and the efficient completion of each task. Task are assigned by specialization of work; tasks are grouped by skills requirements.

Divisional: Tasks are assigned to relatively independent divisional units by product, customer, region; or other externally oriented focus; each division relatively self contained; executives make policy and financial decisions; organizational chart represents the divisions reporting to the headquarters.

Matrix: A combination of a functional and divisional form; a dual focus firm and hierarchy.

#4: Is there “fit” across the organizations components? What do we know now about how our organization aligns across these categories? What would make them more effective? Should your organization change its structure based on its complexity?

There is a good fit across the organizations components and it aligns well across these categories although I would like to think that Merrill Lynch is analyzer with innovation it is a defender most of the time. I think the Merrill Lynch organizational structure should stay exactly as it is. It allows for maximum exchange of information, communication, and coordination.  Even though Bank of America has a tall divisional structure I think Merrill Lynch operates best with the flat divisional structure while the financial advising and wealth management units are supported by the bank but operate independently as a division should.  

Regarding the Anchorage office, it has the feel of a separate division that takes minor directives from the parent company in meeting goals and targets set by the bank for amassing assets under management.  If the structure were to change and create less autonomy at the local level the financial advisers would just leave Merrill Lynch with their clients.  It would be very easy for them to go work for Wells Fargo or another wealth management firm in the area.  

I think that Merrill Lynch recently decided that it wanted to stay at the forefront of the wealth management business.  The company has innovatively transformed the single financial adviser position into a team role because there are so many knowledgeable advisers looking towards retirement.  With this model the new advisers get training for a nominal salary and the company gets the ability to maintain its large portfolio of assets as the new advisers can easily take the places of the retiring ones.  This is the exact reason that I want to work for Merrill Lynch; I get to learn from a seasoned professional and receive a guaranteed and proven business that produces tremendous cash flow.

The only idea I have for making the financial adviser and wealth management position more effective would be to have the seasoned adviser deliver clients that they turn away to new advisers.  The problem with this is the new advisers need to respect the hard work the other advisers put in to get to the point where word of mouth brings in more business than they can handle so they can push clients in their direction.  Without that it could ruin the business or affect the credibility of the local business.

Environmental Complexity Handout

How turbulent is your company’s environment, and how well do they adapt?

#1: List out as many elements affecting your company as you can for each of the sectors below.

Industry (Competitors, industry size, competitiveness, related industries):

Competitors- The list has narrowed since the financial crisis, currently they are Morgan Stanley, Goldman Sachs, Credit Suisse, UBS, Wells Fargo, Raymond James, Edward Jones and the following list,

Industry size-It is a global industry that is estimated at $16 trillion in the United States.

Competitiveness-Extremely competitive I have heard there is a 90% drop out rate for the Financial Advisor program.  The goals are high and typically if the hurdles are not being met they let you go after 1 year.

Related industries-Every financial services industry is related because Merrill seeks a holistic approach in servicing clients.  I have had conversations with the Anchorage office and they can even dabble in business lending and mortgages.

Raw Materials (Suppliers, manufacturers, real estate, services):

The company does not really have any raw materials, they rent space in buildings throughout the United States.  They currently are on the top floor of the frontier building in Anchorage, Alaska.  Their suppliers and manufacturers in their wealth management division supply financial information and market data.  Merrill seeks a more holistic approach to serve the client completely in the financial realm.  They provide every financial service available in house and through partners.  I could list every service but I would need multiple pages.  As far as real estate

Human Resources (Labor market, employment agencies, universities, unions):

I talked with the Anchorage branch manager Nancy Olzack and she seems to handle all the Financial Advisors until they get on their feet.  Since the company is a division of Bank of America I believe most of the human resource situations are handled through the parent.  The Financial Advisors are capitalists so there is no need for a union.  The company does hire individuals that have a four year degree or extensive experience.  I also talked with the regional director out of Seattle, they seem like a tight knit group.  The director suggested finishing my MBA and then coming to work for the company which is what I am planning to do.  Due to the large hurdles I imagine their turnover is large for new hires but for seasoned professionals there is almost none.

Financial Resources (Stock markets, banks, private investors):

Due to the fact that the company is part of Bank of America its credit rating should allow it great access to credit markets.  Bank of America’s credit table is listed below.

Rating

Moody’s

Standard & Poor’s

Fitch

Outlook	Stable	Negative	Negative
Long-term senior	Baa2	A-	A
Short-term	P-2	A-2	F1
Subordinated	Baa3	BBB+	BBB+
Trust preferred	Ba1	BB	BB+
Preferred stock	Ba3	BB	BB

Technology (Techniques of productions, computers, information technology, e-commerce):

The company has a deep bench of proprietary technology that is available to Financial Advisors so that they can service clients adequately.  They have basic computers in their Anchorage offices.  Their proprietary technology comes from a central research department.  I believe it is an industry standard but the company has its own methods and world class analysts.  Unfortunately it is not available until I am currently employed.

Economic Conditions (Recession, unemployment rate, inflation rate, growth):

Due to the company servicing clients that have net liquid assets of $250,000 plus, a career as a Financial Advisor is relatively recession and unemployment proof.  This is assuming that you can manage your client’s expectations and their assets well during a financial storm.  Inflation is good for the company as a Financial Advisor would recommend clients to have real estate that allows for gains during inflation

Government (City, state, and federal laws, regulations, taxes):

The financial services area of the economy seems to be the most heavily regulated lately with the signature Dodd-Frank piece not being completely written and implemented.  The regulation is such that they are still penalizing banks for the Mortgage Backed Security (MBS) mess of 2009.  Which is interesting because it’s the tax payers that lost, we bailed out the banks and all we have to show for it is more debt on the country’s balance sheet.

Sociocultural (Age, values, beliefs, educations, religion, work ethic, consumer and green movements):

The company has an excellent culture and is accepting of anyone willing to work hard.  There are no barriers and other than the securities licensing and 4 year college degree requirement.  The company is a very green company in that it really has little or no waste or carbon emissions due to it being in the financial industry.  I imagine that the floor of the building in Anchorage they rent does have a carbon footprint but related to other industries it is rather small.

International (Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rate):

The playing field for the financial industry is global so competition is fierce and companies fight for top performing Financial Advisors.  The possibility of Merrill Lynch being acquired is nonexistent because the acquiring company would have to absorb Bank of America.  I could see Bank of America spinning off Merrill in the future and making it a completely stand-alone public entity.  Even then I don’t think the possibility of a merger or acquisition is in the cards.  The company is already global and operates in the markets listed below.  As far as regulations they are the same or similar around the world, I hear that a lot of traders like Thailand because they have not taxes on capital gains.

#2: Is the organization internationally diversified? Yes/No

If yes, where are they currently? Who are their major competitors? What markets should they expand to?

Yes the company is internationally diversified but relating to their clients assets, it is the Advisor’s responsibility to allocate their portfolio accordingly.  I assume this question is asking if the business internationally diversified and I would also say yes given the list above.  Mexico and India are the emerging markets with the most favorable demographic distributions so I believe they should expand in those regions.  The problem is the drug cartel in Mexico which could hinder business because there is no Advisor that would want to be personally linked to drug money or be under the thumb of a drug cartel.  Their competitors at home would be the same competitors abroad because international clients look to American’s financial prowess.  However we could include Barclays and the following list,

If no, why not? Should the company plan for expansion? Where should they go? Why?

The company should expand wherever there are assets that need to be managed.  I specifically think Mexico and India will be great markets.

If the firm is local, do they export out of the state? To whom? Should they consider exporting or expansion? Why/why not?

The firm is local in Anchorage but not currently in Fairbanks.  Although I am sure if a client in Fairbanks wanted to have his or her assets managed from the Anchorage office a Financial Advisor from Merrill lynch would fly to Fairbanks to extend service. I know I would or I would refer them to the advisors that I know personally.

#3: How complex and unpredictable is the organizations environment?

Complexity: measured as the number of factors in an org’s environment and their interdependency (Reliant on each other (e.g., supplier/buyer or strategic alliance). Environmental complexity increases as the number of factors increases and/or the interdependency increases. Ex/ If a firm has two major competitors it faces low complexity; numerous conditions – competitors, prices, labor pool, new products- high complexity.

Unpredictability: lack of understanding or ignorance of the environment in terms of the nature of the factors and their variance; greater variance means less predictability. The higher the environmental unpredictability, the less accurate the forecasts are and the more uncertain management can be about the future. Ex/ Recent financial crisis in the US has made the US market less predictable.

Which environment does your organization exist in?

The organization exists in a regulatory environment that is slowly becoming more stable every day.  With every central bank around the globe committing to some sort of quantitative easing policy (expansive monetary policy) it makes for financial markets that have a price discovery problem.  This makes active management more difficult and passive management more profitable.  The risk to a Financial Advisor is the risk he or she creates themselves in a portfolio allocation or by not learning or knowing their environment.  Of course there is always the statistically fat tail events that happen like 2009, which I think have a greater probability of happening because of all the fiat currency floating around the globe.  We are currently nearing the end of an 80 year bond bull market which is going to burst sooner or later.

Merrill Lynch itself has these competitors in Anchorage, Morgan Stanley, Credit Suisse, UBS, Wells Fargo, Raymond James, and Edward Jones which puts it in a complex environment.  Also the number of products it offers and the competition for preferred connections with complimentary service providers in a small area like Anchorage is probably fierce.

#4: Does your organization’s strategies and goals fit their environment?

Circle one of the types in the following categories that you have found your company to portray: environment, strategy type, and organizational goals.

Type 1 Type 2 Type 3 Type 4
Environment Calm Varied Locally stormy Turbulent
Strategy types Reactor Defender Prospector Analyzer with/without innovation
Organizational goals Neither Efficiency Effectiveness Efficiency and Effectiveness

This is a interesting question because is there no company that can be well rounded and have a strategy type that focuses as an analyzer with innovation?  I see Merrill Lynch in an environment that is turbulent but calm in the sense that there is a fixed number of clients in any one area to be served that Advisors are seeking to capture.  However once you have your client base you treat them well and match their investment direction with their goals you have them for a long time, sometimes generations.  I know Financial Advisors that are very good, so much that they turn away clients and I want to be one of those individuals that they turn away clients to until I build my business completely.  So Initially

Merrill is constantly innovating and trying to gain market share especially with their new approach to creating a team Financial Advisor position rather than having one or two people manage a 150 to 200 clients (i.e. $150-$200 million in assets).  The financial industry has fierce competition that focuses on efficiency and effectiveness in order to retain clients.  A Financial Advisor has to be at the top of their game reading news and keeping up to speed on world and economic events.  This industry is not for the faint of heart, most will be chewed up and spit out.

The following are definitions of Miles and Snow’s strategic typology:

Reactor: Neither an explorer nor an exploiter of the firm’s opportunities. Tries to adjust to the situation after it is possible to capture any opportunities that may have been present. There is no innovation. Ex/ Digital Corporation missed PC market – parts now in HP

I would actually disagree that this is HP, ever since Meg Whitman took the helm she has played the role of analyzer with innovation after restructuring the company for growth.

Defender: Focus on exploitation of resources and current situation, but low on exploring anything new or being innovative. Executives are focused on keeping the organization’s position in the market. Less emphasis on product development, and more on maintaining market share or profitability.  Ex/ Coca-Cola

Prospector: High on exploration of its opportunities but low on exploiting its current situation. Focuses on innovation perhaps to the detriment of being efficient on existing opportunities. Searches continuously for new market opportunities and experiments regularly. Ex/ Google

Analyzer without innovation: Strong focus on exploitation and weak focus on exploration, similar to the defender except it has passive innovation strategy. Looks at what other firms are doing that are successful and imitates. Ex/ Fashion industry

Analyzer with innovation: Strong focus on both exploitation and exploration. Exploits its current position of resource utilization and market position, adopts an active innovation strategy of developing new products. Goes beyond what others do and surveys technology and market changes to look for additional opportunities. Ex/ Xerox

#5: Did your organization align across environment, strategy type, and organizational goals? Yes/No

Yes and no, was there supposed to be a fifth category?  If a new advisor is minted they would be an analyzer with innovation and after they have all their clients they would tend to be a defender that still valued efficiency and effectiveness.  The environment in the same respect would move from turbulent to calm. 

If yes, where do you think the organization should go now? Do you predict changes in their environment?

I believe I answered this question in the previous couple questions.

If no, should the organization align on these factors? If so, how should they do it?

The truth is Merrill Lynch allows its advisors wide latitude to build their business as long they hit production targets of a certain amount of assets under management in the specified amount of time.  It comes to about $10 million in assets per year from the literature I have received from the company and after that point word of mouth spreads if you are good to your clients.

Organizational structure change

1) My organization added a new product or service line.

Adding a new product or service line wouldn’t necessarily change an organization’s structure.  If the new product is large enough the company might have a separate division if it were, for example, to purchase a competitor like Raymond James.  In that case the company would be absorbed and the structure would evolve to match Merrill Lynch unless they were being purchased because they have a new and innovative approach.  In either case the structure would be expanded with additional personnel or exist as a subsidiary with its own structure.  When a company is purchased it doesn’t always get reorganized if it is run efficiently, sometimes the company just has desirable assets that provide an additive synergistic cost lowering structure enhancement.  Generally though their SG&A is bloated so management roles are leaned out.  This would result in structure that looks somewhat like the following diagram.

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2) My organization grew to become an international organization. If it is already international, then it expanded to a new region.

If Merrill lynch expanded with its current model the structure would look the same as above. The structure would be a duplicate of the United States division having a divisional manager over each smaller region, with a regional manager over several regions.  It really depends on how large of an area we are looking at but the structure would be a fractal of the larger structure reporting to a VP and President of International Operations.  Of course this assumes that the prescribed structure is acceptable in the international context.  Other successful organizations would have to be analyzed.  There is no sense expanding internationally in an unsuccessful fashion.

3) Your organization bought and merged with another organization (with not so similar products or services). What type of organization would this be and how would the merger look at the organization’s structural level?

Using the following organizational structure, the company would have to create a lateral expansion of the model to encompass the new and different subsidiary.  I would use the flat structure and add another section making a President and CEO at the top, then VP’s, then managers of respective areas with employees under them.  Simply put I would add another VP over the new organization and integrate it.

Swot Analysis (Merrill Lynch)

Organizational Design (Merrill Lynch)

The definition of Organizational Design is

1. how to partition big tasks into smaller subunit tasks &
2. how to coordinate these smaller subunit tasks, so that they fit together to efficiently realize organizational goals

Organizational goals:

1) efficiency focus on inputs, use of resources, and costs

2) effectiveness focus on outputs, products or services, and revenues

These are competing priorities.

• Some orgs focus on efficiency- minimizing costs of producing goods or services
• Others focus on effectiveness- generating revenues or seizing leading edge innovations
• All org value both, but which is the dominant priority?

Quad A = low/low = little focus on using resources well and few specific goals related to higher level ideas or targets (Monopoly or new start up)

Quad B = Low Effect/High Efficien = smallest amounts of resources necessary to produce products/services. Need stable environments (Low cost focus)

Quad C = High Effect/Low Efficien = Focuses on goals, highly volatile environments or when first mover has advantage.

Quad D = High/high = competitive complex and volatile environments requiring innovations and cost competition.

Quad D may be the most sought after position, achieved perhaps through a revolving process of focus shift (i.e. efficiency most of the time with busts of effectiveness OR have one department focus on efficiency while another focuses on innovation.

Questions:

1. What does the organization do? What is its major work activity?

Merrill Lynch is an asset manager and is multifaceted in their holistic approach in serving clients.  I interviewed with the Anchorage office and the perception I have is they seek to help people reach their financial goals and a financial adviser can build their business in any way they see fit.  Autonomy is completely allowed as long as the adviser stays within the prescribed guidelines and put the clients interest first.

The company’s major work activity is to increase assets under management by gathering high net worth clients and helping them reach their financial goals.

2. How does the org score on efficiency?

1          2         3         4         (5)

3. How does the org score on effectiveness?

1          2         3         4         (5)

4. Where would the organization like to be in the graph?  Merrill Lynch would be in section D of the graph because they are highly efficient and highly effective.  They strive to have one person, or using their team model, five people manage 150 clients with a minimum of $250,000 of assets.  This ideally translates into the management of $150 million plus by an individual or small group.  The rest of their holistic approach is satisfied by central planning and personal relationships within or outside the firm minimizing their cost structure and strictly focusing on the client.

5. Does the position correspond to the vision and mission statements of the organization?  Yes, the position aligns with the vision and mission statements of the organization shown below.  They are client and shareholder centric and they want to achieve preeminence in the area of financial advising.

I dreamt a dream…

I dreamt a dream of a company and voila, it was.  My job would be none other than the job Thomas Crown holds in the movie The Thomas Crown Affair.  It has power, prestige, money, and a fun lavish lifestyle if desired but structure when needed.

Ideally I would be a successful trader of securities and that would evolve into trading high priced art and collectible cars.  When I had billions, my own island, and a private jet, I would convert the company into a venture capital firm that bought, reorganized, and reintroduced companies through public offerings.  Pure capitalism, not greed, but complete fun with a team of experts that work hard and play hard.  I would probably still trade securities, art, and cars, but reorganizing companies and preserving jobs would truly be exciting.

The structure of the organization might look like Amazon but perform more like Facebook regarding the exchange of ideas and knowledge.  I prefer the Jack Welch style which is flat and defined but people are comfortable reporting errors without retaliation and giving others credit for ideas because they compete as a group and not cut the throats of those around them.  Eventually I would like it to look like Microsoft, where units operate independently and just report to me, top management, and the board.

The most important five operative goals I would put at the top of my list would be, people, process, organization, diversity, and bringing great ideas to the top.

With respect to people within any organization, they need to be thanked, paid commensurately, and appreciated.  When something is done exceptionally well, the individual needs to be held up as an example for others in such a manner that sets expectations higher within the work group or organization.  People are the lifeblood and if they are given the chance to plant themselves and grow autonomously, they will.  Then they can accomplish amazing things and will only need a little pruning here and there while becoming a magnificent rose.  That being said the weeds need to be picked and disposed of.  Too often a rotten apple is allowed to be baked into a pie and make people sick.  In other cases it is allowed to be left on the counter and rot, impregnating the air with a foul smell and ruining everything around it in the process.

Regarding processes, I believe that guidelines should be spelled out, and for those that require a rigid environment, it should be spelled out completely.  However I do not believe in bloated bureaucracies that hamper execution, productivity, and imagination.  Bureaucracies stifle innovation and waste money while providing no value add.  So to strictly define my preferred process, I would enjoy giving each individual as much freedom as they want, they can work from home, in a park, or be at their desk five minutes early every day.  This has to be earned and as long as they complete their work in such a manner that it does not interfere with the operation of the organization in any way other than it would if they were required to appear at a certain time, latitude is extended to the fullest.  Besides that, safety is paramount and execution of organizational goals and directives are imperative.  Quite a few companies set lofty goals, have great strategic plans, and shoot for the moon but they always fall short on execution.  Just getting things done on time can change a company.

General organization is self-explanatory to some, a hindrance to others, and part of a strict code to many.  I believe truly that cleanliness and organization makes everything easier to find and a lack of clutter makes it easier to think.  I would develop organization from within so that if a directive from the CEO was given, it would be communicated to the janitor within any time frame desired.  Organization is a broad term in my mind and is very close to communication.  Great organization communicates efficiency and great communication leads to desired organization in all aspects of a company.  

The idea of diversity comes from a place of acceptance in my mind but also makes me thing of the free exchange of ideas that foster innovation.  Diversity relates to inclusion, including everyone in the organization.  I really see it as arming yourself with the best people possible that have hidden talents you have never thought of.  People that do not agree with you for one reason or another in your organization fosters growth, a higher level of thought, and intellectually innovates an organizational structure.  Having someone that is willing to argue with you until the wee hours of the morning because they think something is a mistake and could adversely affect the company is a good thing, and fostering that type of inter-employee respect is very important if not critical.  Diversity is a must in any company I am involved with because it provides greater points of view, represents America, and creates a well-rounded environment.

There are plenty of individuals in a company that have great ideas that never see the light of day.  I would not allow this to be hidden, the company would have a daily blog that everyone would be required to type their thoughts into, whatever they may be, even remembering a dog barking.  Often the best ideas and the most fun comes from walking down a well-developed path when you stop, where you normally wouldn’t, to bend over and pick up some trash, then suddenly you notice something different and exciting and inspiration finds you.  

Everyone must be given credit where credit is due and there would need to be an incentive program for those who contribute profound ideas that develop into projects and themes within the company.  After all this comes respect, which concludes my thoughts.  Thank you for reading and imagining with me. 

Numbers!

Well I achieved a messy 30 on my first try to connect the numbers.  My mind naturally looks for patterns so this probably took longer than it should have.  However, it was an excellent example and it speaks volumes about organization.