When Arvetica recently organized a mini-workhop on private banking business models with a former banker and a headhunter, one of the participants brought up an interesting idea to help bank’s align their organizational design and their business model. The idea consisted of using the Star Model concept developed by Jay Galbraith to achieve a strategic fit between business model and organizational design.

The star model basically says that a company should align five elements to achieve a sound organizational design: strategy, structure, processes, rewards and people - as illustrated in the image below:

• Strategy: Specifies the goals and objectives to be achieved as well as the values and missions to be pursued; it sets out the basic direction of the company.
• Structure: Through the organigram and the departmental design it determines the placement of power and authority in the organization (and unfortunately often represents the locus of energy consuming political in fights).
• Processes: Outlines the functioning of an organization and the circulation of information, notably through vertical and horizontal management processes.
• Rewards: Aligns the goals of the employee with the goals of the organization by providing motivation and incentives for the completion of the company’s strategic direction.
• People: Outlines the skills and mind-sets required by the strategy and structure of the company.

The star model in itself is already quite a handy and basic management concept that senior executives in private banking can easily apply. However, it seems particularly helpful today, in a time when multiple private banking business models are emerging. Executives must choose among them and then make organizational choices in accordance. The star model helps executives easily align their bank’s business model and organizational design.

We illustrate this by applying the star model to the organizational consequences of EFG International’s business model. EFG is a private bank that was founded in 1995 by Mr Jean-Pierre Cuoni (with major financing from the Latsis family) and has grown into a bank that currently has almost 90 billion SFr. of assets under management.

It’s business model is entirely built around EFG’s bankers who are called client relationship officers (CROs). Bankers run their own P&L based on the business they get from their clients and they are remunerated in consequence. This stands in contrast to the discretionary bonuses that most relationship managers get in other banks and which are decided by their superior managers. Everything at EFG is designed for and around CROs and they have the liberty to decide who they want as clients and how they want to serve them, within some general guidelines.

The organizational consequences of EFG’s business model are briefly outlined through Galbraith’s Star Model concept in the following image:

It would be quite interesting for any bank to take a deeper look at the state of alignment between their business model, strategy, structures, processes, rewards and people. In some cases the findings might prove fairly sobering.

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