Explain how does the option "Do Nothing" would affect CFS based on all relevant Organizational Design concepts. Why is it the least appropriate option to take for CFS as an organization.

Ensure your description of the options and ranking is supported with clear, detailed, and quality responses that 'answers the question being asked'.

Use the case below to answer the questions using concepts and knowledge in Mana 341:

Abstract

Complete Financial Services (CFS) is a Canadian bank that has enjoyed a history of success. It has a market capitalization of $43 billion and holds 5th place in market share across its lines of business. High level of regulation in the industry has acted as a shield protecting CFS, as well as other Canadian banks. In the last five (5) years external forces have gained power and position through advancements in technology and changing customer preferences, which potentially posed a threat to CFS. Additionally, non-traditional competitors now competing for CFS's customers. These new competitors are the FANGs (Facebook, Amazon, Netflix, and Google). CFS needed to determine how to respond to this threat, while maintaining its success. The case will provide an understanding of how external and internal forces creates risks for a firm, and how a firm's organizational 'assets' (e.g., structure and culture) could become 'liabilities' as it responds to atypical threats. The case will require the application of organizational design principles and approaches organizational change.

The Offsite

Renee Martina and Jason Roshan are standing on the terrace and looking out at the lush forest in Muskoka, a cottage country region about 2-hours north of Toronto. They have just attended a presentation at the annual strategy planning session. At this last presentation of the 3-day offsite, they learn how non-traditional competitors are building trust with their customers. Customers are spending an increasing amount of time with these new competitors. The new competitors are increasing the range of financial services that they offer. These new competitors are not banks, they are technology companies.

Renee, the new CEO of Complete Financial Services (CFS) turns to Jason, the Executive Vice President (EVP) for Human Resources at CFS and expresses her concerns about the presentation they just attended:

"We must be very careful with how we respond to these issues. We have not faced these threats before. Banks and other financial services firms we know how to deal with, but technology companies, that's completely outside our expertise. Facebook, Amazon, Netflix and Google, the FANGs, it's hard to believe how much they know about our customers. These companies know if a customer is looking for a house, thinking to buy a car or getting ready to send their kids to college before we do. These FANGs already provide payment capabilities and are developing other basic saving and lending functionality. They are slowly becoming Banks."

Jason responds to Renee and shares his thoughts:

"You're correct Renee. This is not something we've seen before. Our customers' behaviours are also changing. They are spending more time with these companies using their apps and services. When we think about the shift in the demographics, the Baby-Boomers are aging these have been our lifetime customers. Its these newer generations, Generation X and Millennials that are at risk of leaving the Bank. We must think about the future; we could become disintermediated.

Hamish is already reviewing our digital and technology strategies, and Anna is reevaluating our customer insight capabilities. We have the capital to build a new app and invest in technology and start to collect more customer information. However, I think about how these FANGs are different from our traditional competitors. Other banks and financial institutions work like us, serve their customer likes us, they may even think like us. These FANGs treat risk differently. They work together differently. They launch products and services much faster than we do. The FANGs are completely different from us. We've never faced this type of competition before or faced these threats to our customers."

Renee looked at Jason and they both knew that a very different strategy was required for CFS to respond to these changes. They realized that the current organization would be challenged to compete with these new competitors. The organization would need to change, it would need to evolve, while maintaining its strength and position in the marketplace. They knew that they did not have a lot of time to act.

The Banking Industry in Canada

Banking in Canada is one of Canada's most important industries with several banks being among its largest and most profitable companies. The industry is dominated by a small number of banks with the five (5) largest banks representing 90% of the market. The Canadian banking industry has been considered one of the safest and soundest systems in the world and avoided major problems from the 2008 Financial Crisis. A survey conducted in 2008 by the World Economic Forum concluded that Canada had the best banking system in the world.

Banks in Canada contributed 3.8% (over $68 Billion) to GDP (Statistics Canada, 2021) and employed over 280,000 Canadians.

Regulation: "The Bank Act (the Act) is the primary law governing the banking industry in Canada. It recognizes the following three (3) categories of banks: 1) Canadian-incorporated domestic banks (listed in Schedule I to the Act); 2) Canadian-incorporated foreign bank subsidiaries (listed in Schedule II to the Act); and 3) authorized Canadian branches of foreign banks (listed in Schedule III to the Act). Schedule I and II banks are subject to the same requirements under the Act; however, while there are some similarities between the bank and foreign bank branch regimes under the Act, there are also some differences. Notably, foreign bank branches are not permitted to accept retail deposits.

The primary banking regulators in Canada are the Office of the Superintendent of Financial Institutions (OSFI), an independent agency that reports to the Minister of Finance (the Minister), and the Financial Consumer Agency of Canada (FCAC). Both regulators have ongoing, day-today supervisory duties. OSFI's mandate is focused on prudential matters in the financial services sector, while the FCAC focuses on market conduct regarding to financial services, products, and payments.

To carry on business in Canada, a bank or a foreign bank branch must obtain approvals from each of the Superintendent of Financial Institutions (the Superintendent) and the Minister. The activities of banks and foreign bank branches are limited by the Act, which sets out the types of business that a bank or foreign bank branch may carry on, the types of investments that may be made, and, for banks, the types of transactions that the bank may enter with related parties. Notably, banks and foreign bank branches are limited in their capacity to deal in securities, act as a fiduciary, and distribute insurance products.

Foreign banks may establish a presence in Canada by, with the approval of the Superintendent, establishing a representative office. However, these offices are extremely restricted in the types of activities that they can carry on in Canada. They are prohibited from carrying on a banking business in Canada, and instead can only act as a marketing office and referral conduit for Canadians who wish to carry on business with the foreign bank on a cross-border basis.

About Complete Financial Services (CFS)

Complete Financial Services (CFS) was founded in 1860 and it is headquartered in St. John's, New Brunswick. CFS operates across Canada and in select regions in the US, the Caribbean, Europe, and Asia. In Canada CFS offers a range of lending, saving, and investing products & services to personal, business, and institutional customers. In other geographies CFS primarily provides private banking and wealth management services. CFS has 45,200 employees across all businesses and geographies.

In 2018 CFS had over 8 million customers worldwide and 500 retail locations across Canada. Canada serves as CFS's primary operations providing 85% of the revenue and profitability. CFS holds the 5th place in market share across its Canadian businesses. In 1999 CFS launched its first online bank in Canada with the acquisition of World Banking Inc. (WBI) in California, U.S. WBI provided banking services to its private banking and wealth management customers around the world through its online (internet) based bank. With the acquisition of WBI, CFS could serve its customers through its traditional bank branches (bricks & mortar), telephone banking and online banking.

CFS Organizational Structure

CFS primarily operates in Canada with a structure where departments are grouped based on area of expertise e.g., products, risk management and sales & customer experience. Each department is headed-up by an Executive Vice President (EVP). Key strategic decisions are made through a centralized Senior Leadership Committee (SLC), which is comprised of the various EVPs and the Group Head. The EVPs report into the Group Head, with the Group Head reporting into the President and Chief Executive Officer (CEO).

CFS also operates in select businesses e.g., private banking and wealth management in Europe & Asia, and US & the Caribbean. Each international unit reports into an EVP e.g., EVP Europe & Asia, where the different parts of the business work together to support the respective region.

Considering its global presence and number of employees, CFS has implemented systems throughout the organization that allows employees, at all levels of the organization, to share information across the different areas of expertise e.g., intranet (internal internet) and internal networking sites.

CFS Way of Work

CFS's success has been enabled by its focus on adopting an integrated approach across key areas of the organization, while developing expertise in critical functions e.g., risk management, sales, and customer experience. CFS can also attribute its success to its ability to align its strategic objectives to group and individual levels of the organization, which provides clear prioritization on the allocation and use of resources i.e., people and capital. This approach has helped it to maximize its efficiency, contributing to its increasing levels of profitability. CFS has gained a reputation for demonstrating a high degree of employee collaboration across the organization, which has earned it several awards and industry recognition e.g., Best Workplaces in Canada, Top 100 Employers and Best Place to Work (Glassdoor).

CFS's human resource strategy is to hire from within the organization for senior positions within the organization. Candidates for these roles are identified early in their career and are then given opportunities to develop new skills and gain different experiences across the enterprise. This strategy helps ensure that CFS's approach to leading the organization and delivering results remains unchanged. The members of the current senior leadership team have all worked at CFS for over 20-years. CFS attributes its continued success to its history taking a conservative and controlled approach to developing and executing on strategy.

CFS's Customer Segmentation

CFS segments its personal customers primarily based on a mix of demographic and geographic factors e.g., age (generation), income and city (postal code). Commercial (business) customers are grouped based on annual revenues, number of employees and industry e.g., professional services and supply chain. CFS develops products & services and markets to personal and commercial customers based on this segmentation. CFS applies this approach to customers across all channels: branches, call centres, online, mobile and telephone banking.

CFS has been recognized with various awards for its customer service across both personal and commercial segments, as well as for its online and mobile banking capabilities. Awards include J.D. Power and Associates for Customer Satisfaction, Retail Banker International (RBI) Best Retail Bank and Forrester's Digital Experience for Mobile Banking.

CFS's Product Development Process

CFS pursues a conservative approach to introducing new products & services to the market. CFS typically waits for its competitors to introduce changes in the market before it introduces similar products. CFS introduces new products through a linear product development lifecycle. Different teams work on each phase of the lifecycle before the project moves onto the next stage.

CFS's Community Involvement

Over its 100+ year history, CFS has supported a range of causes including access to education, career development, and access to housing working with organizations including Pathways to Education, Youth Employment Services (YES), and Habitat for Humanity. Additionally, CFS has established an annual $10 million grant available to non-profit organizations focused on these causes. CFS has also demonstrated its support of various humanitarian causes across Canada and internationally. In 2015 CFS partnered with other Canadian Banks to donate $1 million to Canadian Red Cross in support of the Syrian Refugee Crisis. In 2019 CFS donated $50,000 to support victims of flooding in Ontario, Quebec, and New Brunswick.

These long-term commitments and community involvement have helped CFS build trust with its customers and key partners e.g., business, trade, and government associations. It has also allowed CFS to attract and retain new customers and employees.

The FANGs (Facebook, Amazon, Netflix, and Google).

Facebook, Amazon, Netflix, and Google (FANGs) are social media, ecommerce, entertainment, and engineering companies. Collectively they are referred to as Technology companies. These companies were founded as early as 1994 and provide services to customers around the world. Facebook, Amazon, and Google serve both personal and business customers.

Operating Model & Culture

These organizations tend to have an operating model that allows them to develop expertise in 'mission-critical' aspects of the business e.g., product design & engineering and user experience, while providing the setting for increased collaboration, risk-taking and innovation, which strengthens their ability to respond to changes in the environment. These organizations place a priority on employee training & development, with the aim of retaining talent and increasing productivity. The FANGs regularly search the market to attract new and highly skilled resources to support its priority on innovation and maintain expertise in the constantly changing area of technology.

Collaboration and innovation are enabled by a mix of internal online communities that allow employees from different departments and geographies to discuss and share ideas for new products & services. The use of Agile work environments where cross functional teams can work together, are also effective at promoting innovation in these organizations.

Product Development Process:

The FANGs use an iterative product development process to introduce new products to the market. Iterative development uses a series of progressive cycles (iterations) to design, develop, deploy, and test a new product or service. Iterative product development is based on the concept of Minimum Viable Product (MVP).

MVP refers to the minimum number of requirements that a product (or service) needs to have, before it is introduced to the market. Through the iterative process the product is tested to confirm functionality and value to the customer. At each iteration changes are made to the product based on feedback until it is considered complete for the initial version. This process allows the FANGs to quickly introduce new functionality & products and validate customer interest instead of waiting for a 'complete' product to be developed.

FANGs Relationship with Customers:

When a customer uses a product or service provided by the FANGs, data is collected about the customer, e.g., frequency of use, time of use, keywords searched, location based on IP address and income based on IP address. With the collection of data, the FANGs develop deep understanding of each customer, which allows them to suggest products and services, based on prediction of needs. Through data mining and data science these companies can predict a customer's buying patterns, behaviours and interests. Netflix provides a powerful example of how it studied the types of movies, actors, and directors that its millions of customers around the world watched, to create the popular House of Cards series.

Customers were also spending an increasing amount time using the services of these companies, which allowed the companies to continue to build-up the knowledge of the customers. Based on analysis by Statista, worldwide daily social media usage increased by 20% from 2012 to 2015. Facebook's monthly active users (MAU) increased from 300 million in 2009 to over 1 billion in 2012; over 200% increase in 3-years

The more time customers spent with the FANGs, it allowed the FANGs to collect more data about the customers, resulting in the FANGs being able to anticipate and meet customer needs more accurately. This cycle resulted in the FANGs developing higher levels of trust and loyalty with customers. In 2015 74% of Facebook's users believed that Facebook was committed to protecting the privacy of their personal information.

The Offer of Financial Services: In 2002 Amazon launched their first co-branded credit card with J.P. Morgan, which was reported to have a value of $15 billion. In 2011 Amazon started to offer loans up to $750,000 to small business customers in the U.S, by leveraging the transaction data from its ecommerce site. 7 years after this launch Amazon had provided $3 billion in loans. In 2012 Amazon launched its first credit card in Canada in partnership with Chase, and then relaunched an updated version of the card in 2019 with MBNA linked to Amazon Rewards and Amazon Prime. Amazon subsequently launched a credit card for businesses. Amazon currently does not offer direct business financing in Canada, mainly due to Canadian regulations. Amazon does offer businesses credit for goods purchase on Amazon (invoice financing) with 30, 45 and 60-day payment terms. In 2015 Facebook introduced payments capability for its Messenger App to enable its users to send money to each other. Facebook was already processing more than one (1) million transactions per day since 2007 when they released the payments capability.

Banks Feel the Fear: With customers spending continually more time with the FANGs, and the FANGs growing their offering of financial services, Banks were starting to get concerned. In a 2019 call with investors, Royal Bank of Canada (RBC) CEO Dave McKay, stated that he was increasingly worried about the FANGs getting into banking.

"They are getting between us and the moments of truth of our customers... Moving higher up in the funnel of decision-making and life moments before the financing decision or before the banking decision is mission-critical in us. taking control in that journey and not being beholden to somebody else's platform."

Fintechs: Financial Technology firms, Fintechs, are businesses that use technology to "...improve and automate the delivery and use of financial services". Fintechs focus on acquiring customers by offering a specific financial products or services e.g., credit cards and payment capabilities. Fintechs are also limited in their ability to offer a wider range of products due to regulatory requirements of the Canadian banking industry. In 2019 there were over 100 fintechs exploring opportunities in the Canadian Banking industry.

The benefit fintechs offered to customers, were improved usability of online & mobile banking, more intuitive and customized offer of products & services and increased convenience. While these benefits resonated with customers, a survey conducted by E&Y reported that Canadians were slow to adopt fintech, with only 18% having used fintech services, which in part can be attributed to low levels tech savvy compared to other countries. Another survey conducted by the Canadian Bankers Association (CBA) indicated that 91% of Canadians agreed that "...banks have earned their trust in ensuring that technologies for banking are safe and secure".

The Fintech: PayU

PayU was founded by five (5) former employees from the Canadian banking industry who had expertise in operations, customer segmentation and payment technologies. PayU developed payment capabilities targeted to small and medium-sized businesses. Their value proposition was a more intuitive, user-friendly payment system, which seamlessly integrated with a business's accounting and financial management systems. PayU also provided customers with on-site set-up and training. In addition, PayU's fees were lower than other banks. PayU was able to find a niche in the banking industry in which it could provide financial services with limited barriers to entry.

PayU's Product Development Approach

PayU adopted a needs-based approach to customer segmentation like the FANGs. They assessed the complexity of the industry in which businesses operated and developed a predictive model of a business's payment needs. Once a business became a customer it analyzed the specific transaction and payment patterns to provide customized payment capabilities for each customer. This approach allowed PayU to be more responsive to the needs of customers.

PayU applied an iterative approach to develop and innovate its payment capabilities. PayU's founders committed to develop enhancements each quarter, which would be evaluated by a select group of businesses (Customer Advisory Board, (CAB)) from different industries. PayU would incorporate any feedback from the CAB and then introduce the changes to its customers.

PayU was able to establish this approach to product development due to its highly collaborative cross-functional teams. The small size (less than 100 employees) of PayU allowed them to quickly share customer and industry insights, which would we used to improve its operational processes and products. Teams were given the authority to make product design decisions based on certain parameters and were encouraged to experiment with new payment technologies.

PayU believed that its focus on customer needs, culture of teamwork and coordination enabled it to attract and retain customers. Its customer acquisition strategy was to build awareness and credibility with small and medium-sized businesses, and then leverage that recognition to acquire larger institutional customers. Two (2) years after it introduced its first product to the market PayU had over 3,000 customers and was continuing to rapidly grow its customer base.

The rate of growth and innovation of PayU attracted interest and concern from Canadian banks, including Complete Financial Services.

The Decision

Renee reflected on the strategy session on the drive back home. The last 3-days was a great opportunity for the senior leadership team to spend some time before everyone took time-off for summer holidays. It was also an important for everyone to recognize the accomplishments in the past year and look ahead to the future.

It was the future with which Renee was most concerned. There would still be a need for businesses and people to borrow, invest and save money. However, how those customers met those needs were changing. Renee realized that customers were spending more time with the FANGs. Soon customers would trust FANGs more and start going to them for information and advice on financial services and products. Renee was also concerned about PayU. It was a firm that had the knowledge and expertise in a specific area of financial services. PayU had a targeted strategy and was becoming effective at acquiring customers, at the cost of the Bank.

Renee realized that responding to these new competitors would require a new approach to developing products and services, a different strategy for how CFS thought about the customer and rethinking for how CFS worked together.

She recognized that CFS had the capital and scale to develop technology solutions. She knew that CFS had built trust with Canadians over its 100+ years history and maintained its position in the market for decades. Considering these point Renee also asked herself if these new competitors were really a threat, or a distraction. But could she take the risk of ignoring the threats.

Making these types of changes, at the required scale, and facing these competitors was a scenario with which CFS had no experience. Renee realized that this decision required more than a strategic change and she realized that CFS needed to act now.Abstract

Complete Financial Services (CFS) is a Canadian bank that has enjoyed a history of success. It has a market capitalization of $43 billion and holds 5th place in market share across its lines of business. High level of regulation in the industry has acted as a shield protecting CFS, as well as other Canadian banks. In the last five (5) years external forces have gained power and position through advancements in technology and changing customer preferences, which potentially posed a threat to CFS. Additionally, non-traditional competitors now competing for CFS's customers. These new competitors are the FANGs (Facebook, Amazon, Netflix, and Google). CFS needed to determine how to respond to this threat, while maintaining its success. The case will provide an understanding of how external and internal forces creates risks for a firm, and how a firm's organizational 'assets' (e.g., structure and culture) could become 'liabilities' as it responds to atypical threats. The case will require the application of organizational design principles and approaches organizational change.

The Offsite

Renee Martina and Jason Roshan are standing on the terrace and looking out at the lush forest in Muskoka, a cottage country region about 2-hours north of Toronto. They have just attended a presentation at the annual strategy planning session. At this last presentation of the 3-day offsite, they learn how non-traditional competitors are building trust with their customers. Customers are spending an increasing amount of time with these new competitors. The new competitors are increasing the range of financial services that they offer. These new competitors are not banks, they are technology companies.

Renee, the new CEO of Complete Financial Services (CFS) turns to Jason, the Executive Vice President (EVP) for Human Resources at CFS and expresses her concerns about the presentation they just attended:

"We must be very careful with how we respond to these issues. We have not faced these threats before. Banks and other financial services firms we know how to deal with, but technology companies, that's completely outside our expertise. Facebook, Amazon, Netflix and Google, the FANGs, it's hard to believe how much they know about our customers. These companies know if a customer is looking for a house, thinking to buy a car or getting ready to send their kids to college before we do. These FANGs already provide payment capabilities and are developing other basic saving and lending functionality. They are slowly becoming Banks."

Jason responds to Renee and shares his thoughts:

"You're correct Renee. This is not something we've seen before. Our customers' behaviours are also changing. They are spending more time with these companies using their apps and services. When we think about the shift in the demographics, the Baby-Boomers are aging these have been our lifetime customers. Its these newer generations, Generation X and Millennials that are at risk of leaving the Bank. We must think about the future; we could become disintermediated.

Hamish is already reviewing our digital and technology strategies, and Anna is reevaluating our customer insight capabilities. We have the capital to build a new app and invest in technology and start to collect more customer information. However, I think about how these FANGs are different from our traditional competitors. Other banks and financial institutions work like us, serve their customer likes us, they may even think like us. These FANGs treat risk differently. They work together differently. They launch products and services much faster than we do. The FANGs are completely different from us. We've never faced this type of competition before or faced these threats to our customers."

Renee looked at Jason and they both knew that a very different strategy was required for CFS to respond to these changes. They realized that the current organization would be challenged to compete with these new competitors. The organization would need to change, it would need to evolve, while maintaining its strength and position in the marketplace. They knew that they did not have a lot of time to act.

The Banking Industry in Canada

Banking in Canada is one of Canada's most important industries with several banks being among its largest and most profitable companies. The industry is dominated by a small number of banks with the five (5) largest banks representing 90% of the market. The Canadian banking industry has been considered one of the safest and soundest systems in the world and avoided major problems from the 2008 Financial Crisis. A survey conducted in 2008 by the World Economic Forum concluded that Canada had the best banking system in the world.

Banks in Canada contributed 3.8% (over $68 Billion) to GDP (Statistics Canada, 2021) and employed over 280,000 Canadians.

Regulation: "The Bank Act (the Act) is the primary law governing the banking industry in Canada. It recognizes the following three (3) categories of banks: 1) Canadian-incorporated domestic banks (listed in Schedule I to the Act); 2) Canadian-incorporated foreign bank subsidiaries (listed in Schedule II to the Act); and 3) authorized Canadian branches of foreign banks (listed in Schedule III to the Act). Schedule I and II banks are subject to the same requirements under the Act; however, while there are some similarities between the bank and foreign bank branch regimes under the Act, there are also some differences. Notably, foreign bank branches are not permitted to accept retail deposits.

The primary banking regulators in Canada are the Office of the Superintendent of Financial Institutions (OSFI), an independent agency that reports to the Minister of Finance (the Minister), and the Financial Consumer Agency of Canada (FCAC). Both regulators have ongoing, day-today supervisory duties. OSFI's mandate is focused on prudential matters in the financial services sector, while the FCAC focuses on market conduct regarding to financial services, products, and payments.

To carry on business in Canada, a bank or a foreign bank branch must obtain approvals from each of the Superintendent of Financial Institutions (the Superintendent) and the Minister. The activities of banks and foreign bank branches are limited by the Act, which sets out the types of business that a bank or foreign bank branch may carry on, the types of investments that may be made, and, for banks, the types of transactions that the bank may enter with related parties. Notably, banks and foreign bank branches are limited in their capacity to deal in securities, act as a fiduciary, and distribute insurance products.

Foreign banks may establish a presence in Canada by, with the approval of the Superintendent, establishing a representative office. However, these offices are extremely restricted in the types of activities that they can carry on in Canada. They are prohibited from carrying on a banking business in Canada, and instead can only act as a marketing office and referral conduit for Canadians who wish to carry on business with the foreign bank on a cross-border basis.

About Complete Financial Services (CFS)

Complete Financial Services (CFS) was founded in 1860 and it is headquartered in St. John's, New Brunswick. CFS operates across Canada and in select regions in the US, the Caribbean, Europe, and Asia. In Canada CFS offers a range of lending, saving, and investing products & services to personal, business, and institutional customers. In other geographies CFS primarily provides private banking and wealth management services. CFS has 45,200 employees across all businesses and geographies.

In 2018 CFS had over 8 million customers worldwide and 500 retail locations across Canada. Canada serves as CFS's primary operations providing 85% of the revenue and profitability. CFS holds the 5th place in market share across its Canadian businesses. In 1999 CFS launched its first online bank in Canada with the acquisition of World Banking Inc. (WBI) in California, U.S. WBI provided banking services to its private banking and wealth management customers around the world through its online (internet) based bank. With the acquisition of WBI, CFS could serve its customers through its traditional bank branches (bricks & mortar), telephone banking and online banking.

CFS Organizational Structure

CFS primarily operates in Canada with a structure where departments are grouped based on area of expertise e.g., products, risk management and sales & customer experience. Each department is headed-up by an Executive Vice President (EVP). Key strategic decisions are made through a centralized Senior Leadership Committee (SLC), which is comprised of the various EVPs and the Group Head. The EVPs report into the Group Head, with the Group Head reporting into the President and Chief Executive Officer (CEO).

CFS also operates in select businesses e.g., private banking and wealth management in Europe & Asia, and US & the Caribbean. Each international unit reports into an EVP e.g., EVP Europe & Asia, where the different parts of the business work together to support the respective region.

Considering its global presence and number of employees, CFS has implemented systems throughout the organization that allows employees, at all levels of the organization, to share information across the different areas of expertise e.g., intranet (internal internet) and internal networking sites.

CFS Way of Work

CFS's success has been enabled by its focus on adopting an integrated approach across key areas of the organization, while developing expertise in critical functions e.g., risk management, sales, and customer experience. CFS can also attribute its success to its ability to align its strategic objectives to group and individual levels of the organization, which provides clear prioritization on the allocation and use of resources i.e., people and capital. This approach has helped it to maximize its efficiency, contributing to its increasing levels of profitability. CFS has gained a reputation for demonstrating a high degree of employee collaboration across the organization, which has earned it several awards and industry recognition e.g., Best Workplaces in Canada, Top 100 Employers and Best Place to Work (Glassdoor).

CFS's human resource strategy is to hire from within the organization for senior positions within the organization. Candidates for these roles are identified early in their career and are then given opportunities to develop new skills and gain different experiences across the enterprise. This strategy helps ensure that CFS's approach to leading the organization and delivering results remains unchanged. The members of the current senior leadership team have all worked at CFS for over 20-years. CFS attributes its continued success to its history taking a conservative and controlled approach to developing and executing on strategy.

CFS's Customer Segmentation

CFS segments its personal customers primarily based on a mix of demographic and geographic factors e.g., age (generation), income and city (postal code). Commercial (business) customers are grouped based on annual revenues, number of employees and industry e.g., professional services and supply chain. CFS develops products & services and markets to personal and commercial customers based on this segmentation. CFS applies this approach to customers across all channels: branches, call centres, online, mobile and telephone banking.

CFS has been recognized with various awards for its customer service across both personal and commercial segments, as well as for its online and mobile banking capabilities. Awards include J.D. Power and Associates for Customer Satisfaction, Retail Banker International (RBI) Best Retail Bank and Forrester's Digital Experience for Mobile Banking.

CFS's Product Development Process

CFS pursues a conservative approach to introducing new products & services to the market. CFS typically waits for its competitors to introduce changes in the market before it introduces similar products. CFS introduces new products through a linear product development lifecycle. Different teams work on each phase of the lifecycle before the project moves onto the next stage.

CFS's Community Involvement

Over its 100+ year history, CFS has supported a range of causes including access to education, career development, and access to housing working with organizations including Pathways to Education, Youth Employment Services (YES), and Habitat for Humanity. Additionally, CFS has established an annual $10 million grant available to non-profit organizations focused on these causes. CFS has also demonstrated its support of various humanitarian causes across Canada and internationally. In 2015 CFS partnered with other Canadian Banks to donate $1 million to Canadian Red Cross in support of the Syrian Refugee Crisis. In 2019 CFS donated $50,000 to support victims of flooding in Ontario, Quebec, and New Brunswick.

These long-term commitments and community involvement have helped CFS build trust with its customers and key partners e.g., business, trade, and government associations. It has also allowed CFS to attract and retain new customers and employees.

The FANGs (Facebook, Amazon, Netflix, and Google).

Facebook, Amazon, Netflix, and Google (FANGs) are social media, ecommerce, entertainment, and engineering companies. Collectively they are referred to as Technology companies. These companies were founded as early as 1994 and provide services to customers around the world. Facebook, Amazon, and Google serve both personal and business customers.

Operating Model & Culture

These organizations tend to have an operating model that allows them to develop expertise in 'mission-critical' aspects of the business e.g., product design & engineering and user experience, while providing the setting for increased collaboration, risk-taking and innovation, which strengthens their ability to respond to changes in the environment. These organizations place a priority on employee training & development, with the aim of retaining talent and increasing productivity. The FANGs regularly search the market to attract new and highly skilled resources to support its priority on innovation and maintain expertise in the constantly changing area of technology.

Collaboration and innovation are enabled by a mix of internal online communities that allow employees from different departments and geographies to discuss and share ideas for new products & services. The use of Agile work environments where cross functional teams can work together, are also effective at promoting innovation in these organizations.

Product Development Process:

The FANGs use an iterative product development process to introduce new products to the market. Iterative development uses a series of progressive cycles (iterations) to design, develop, deploy, and test a new product or service. Iterative product development is based on the concept of Minimum Viable Product (MVP).

MVP refers to the minimum number of requirements that a product (or service) needs to have, before it is introduced to the market. Through the iterative process the product is tested to confirm functionality and value to the customer. At each iteration changes are made to the product based on feedback until it is considered complete for the initial version. This process allows the FANGs to quickly introduce new functionality & products and validate customer interest instead of waiting for a 'complete' product to be developed.

FANGs Relationship with Customers:

When a customer uses a product or service provided by the FANGs, data is collected about the customer, e.g., frequency of use, time of use, keywords searched, location based on IP address and income based on IP address. With the collection of data, the FANGs develop deep understanding of each customer, which allows them to suggest products and services, based on prediction of needs. Through data mining and data science these companies can predict a customer's buying patterns, behaviours and interests. Netflix provides a powerful example of how it studied the types of movies, actors, and directors that its millions of customers around the world watched, to create the popular House of Cards series.

Customers were also spending an increasing amount time using the services of these companies, which allowed the companies to continue to build-up the knowledge of the customers. Based on analysis by Statista, worldwide daily social media usage increased by 20% from 2012 to 2015. Facebook's monthly active users (MAU) increased from 300 million in 2009 to over 1 billion in 2012; over 200% increase in 3-years

The more time customers spent with the FANGs, it allowed the FANGs to collect more data about the customers, resulting in the FANGs being able to anticipate and meet customer needs more accurately. This cycle resulted in the FANGs developing higher levels of trust and loyalty with customers. In 2015 74% of Facebook's users believed that Facebook was committed to protecting the privacy of their personal information.

The Offer of Financial Services: In 2002 Amazon launched their first co-branded credit card with J.P. Morgan, which was reported to have a value of $15 billion. In 2011 Amazon started to offer loans up to $750,000 to small business customers in the U.S, by leveraging the transaction data from its ecommerce site. 7 years after this launch Amazon had provided $3 billion in loans. In 2012 Amazon launched its first credit card in Canada in partnership with Chase, and then relaunched an updated version of the card in 2019 with MBNA linked to Amazon Rewards and Amazon Prime. Amazon subsequently launched a credit card for businesses. Amazon currently does not offer direct business financing in Canada, mainly due to Canadian regulations. Amazon does offer businesses credit for goods purchase on Amazon (invoice financing) with 30, 45 and 60-day payment terms. In 2015 Facebook introduced payments capability for its Messenger App to enable its users to send money to each other. Facebook was already processing more than one (1) million transactions per day since 2007 when they released the payments capability.

Banks Feel the Fear: With customers spending continually more time with the FANGs, and the FANGs growing their offering of financial services, Banks were starting to get concerned. In a 2019 call with investors, Royal Bank of Canada (RBC) CEO Dave McKay, stated that he was increasingly worried about the FANGs getting into banking.

"They are getting between us and the moments of truth of our customers... Moving higher up in the funnel of decision-making and life moments before the financing decision or before the banking decision is mission-critical in us. taking control in that journey and not being beholden to somebody else's platform."

Fintechs: Financial Technology firms, Fintechs, are businesses that use technology to "...improve and automate the delivery and use of financial services". Fintechs focus on acquiring customers by offering a specific financial products or services e.g., credit cards and payment capabilities. Fintechs are also limited in their ability to offer a wider range of products due to regulatory requirements of the Canadian banking industry. In 2019 there were over 100 fintechs exploring opportunities in the Canadian Banking industry.

The benefit fintechs offered to customers, were improved usability of online & mobile banking, more intuitive and customized offer of products & services and increased convenience. While these benefits resonated with customers, a survey conducted by E&Y reported that Canadians were slow to adopt fintech, with only 18% having used fintech services, which in part can be attributed to low levels tech savvy compared to other countries. Another survey conducted by the Canadian Bankers Association (CBA) indicated that 91% of Canadians agreed that "...banks have earned their trust in ensuring that technologies for banking are safe and secure".

The Fintech: PayU

PayU was founded by five (5) former employees from the Canadian banking industry who had expertise in operations, customer segmentation and payment technologies. PayU developed payment capabilities targeted to small and medium-sized businesses. Their value proposition was a more intuitive, user-friendly payment system, which seamlessly integrated with a business's accounting and financial management systems. PayU also provided customers with on-site set-up and training. In addition, PayU's fees were lower than other banks. PayU was able to find a niche in the banking industry in which it could provide financial services with limited barriers to entry.

PayU's Product Development Approach

PayU adopted a needs-based approach to customer segmentation like the FANGs. They assessed the complexity of the industry in which businesses operated and developed a predictive model of a business's payment needs. Once a business became a customer it analyzed the specific transaction and payment patterns to provide customized payment capabilities for each customer. This approach allowed PayU to be more responsive to the needs of customers.

PayU applied an iterative approach to develop and innovate its payment capabilities. PayU's founders committed to develop enhancements each quarter, which would be evaluated by a select group of businesses (Customer Advisory Board, (CAB)) from different industries. PayU would incorporate any feedback from the CAB and then introduce the changes to its customers.

PayU was able to establish this approach to product development due to its highly collaborative cross-functional teams. The small size (less than 100 employees) of PayU allowed them to quickly share customer and industry insights, which would we used to improve its operational processes and products. Teams were given the authority to make product design decisions based on certain parameters and were encouraged to experiment with new payment technologies.

PayU believed that its focus on customer needs, culture of teamwork and coordination enabled it to attract and retain customers. Its customer acquisition strategy was to build awareness and credibility with small and medium-sized businesses, and then leverage that recognition to acquire larger institutional customers. Two (2) years after it introduced its first product to the market PayU had over 3,000 customers and was continuing to rapidly grow its customer base.

The rate of growth and innovation of PayU attracted interest and concern from Canadian banks, including Complete Financial Services.

The Decision

Renee reflected on the strategy session on the drive back home. The last 3-days was a great opportunity for the senior leadership team to spend some time before everyone took time-off for summer holidays. It was also an important for everyone to recognize the accomplishments in the past year and look ahead to the future.

It was the future with which Renee was most concerned. There would still be a need for businesses and people to borrow, invest and save money. However, how those customers met those needs were changing. Renee realized that customers were spending more time with the FANGs. Soon customers would trust FANGs more and start going to them for information and advice on financial services and products. Renee was also concerned about PayU. It was a firm that had the knowledge and expertise in a specific area of financial services. PayU had a targeted strategy and was becoming effective at acquiring customers, at the cost of the Bank.

Renee realized that responding to these new competitors would require a new approach to developing products and services, a different strategy for how CFS thought about the customer and rethinking for how CFS worked together.

She recognized that CFS had the capital and scale to develop technology solutions. She knew that CFS had built trust with Canadians over its 100+ years history and maintained its position in the market for decades. Considering these point Renee also asked herself if these new competitors were really a threat, or a distraction. But could she take the risk of ignoring the threats.

Making these types of changes, at the required scale, and facing these competitors was a scenario with which CFS had no experience. Renee realized that this decision required more than a strategic change and she realized that CFS needed to act now.