The fusion of Raiffeisenbank and eBanka (2005 – 2008): successful partnership of equals?

Background:

Raiffeisenbank:

Raiffeisenbank a.s. has operated on the Czech market since 1993 and is a part of Raiffeisen
International Bank-Holding AG, which owns 51% of the shares, making it the majority shareholder of
Raiffeisenbank a.s. It is an economically successful bank, whose group has repeatedly bought other
banks in the past and incorporated them into its structure. The organizational culture evolved in
certain measure from the Austrian national culture, from the Czech perspective quite similar to
German national culture (for the needs of this case study we can interchange them, and draw
differences of Czech vs. German cultural standards from NOVÝ, Ivan and Sylvia
SCHROLL-MACHL. Spolupráce přes hranice kultur. 1^st edition Prague: Management Press, 2005, 313 p.
ISBN 8072611216). If one were to speak of Raiffeisenbank's definitive competitive advantage on the
Czech market in the given period, it would probably be corporate loans.

eBanka:

eBanka was established back in 1997 as Expandia Banka, which was the first on the Czech market to
introduce complex direct banking services. Throughout its existence, it maintained the leading
position in applying modern technology in banking. In 2000, Česká pojišťovna became the new owner
of Expandia Banka, and began the bank's new expansion strategy. This also led to a change in the
bank's name, becoming known as eBanka in 2001. Thanks to its new business strategy, eBanka began
reporting growth in key financial indicators and in the number of its clients. After transformation
in 2003 to 2005, the originally Internet bank became a bank serving two key segments: natural
persons and small and medium-sized enterprises. Despite this, eBanka's main competitive advantage
was technology. It was also a purely Czech bank, and at the time of its winding down it was "the
last purely Czech bank on the Czech market". The distinction of the organizational culture of
eBanka from that of Raiffeisenbank was given by both of these characteristics (technology and Czech
national culture).

Acquisitions:

In 2006, Česká pojišťovna, a. s. and Raiffeisen International Bank-Holding AG signed a share
purchase agreement for shares of eBanka, a. s., and on October 24, 2006, with the payment of the
purchase price and transfer of shares, eBanka became a part of the Raiffeisen financial group.
Integration processes of both banks began in 2006, and legal fusion was completed on July 7, 2008.

Problem:

Raiffeisenbank bought eBanka for its technologies and branches. It has succeeded in capitalizing on
this. What was not managed was cultural discord. Firstly, the original strategies of both banks
vastly differed, so the initial cultures in harmony with them also differed. Further differences
ensued from the disparities of a "technology-based bank" vs. a standard bank, whereas after fusion
of these banks, the original employees generally tended to stand by their original identity - a
normal reaction to something unknown or perceived as threatening. The next mistake was the fact
that the entire event was presented as a fusion of equals, though in reality it concerned the
purchase of the weaker by the stronger. Meanwhile, during consequent consolidation of departments,
the managers of a new department were sometimes employees of the originally "weaker party"
(eBanka), who thus managed employees of the originally "stronger party" (Raiffeisenbank), while
differences in remuneration persisted. Original eBanka employees had higher salaries prior to the
fusion, which were maintained even after fusion - a known fact in the company.

All these problems were ignored upon planning the fusion, and after fusion, instead of fading away,
they continued to worsen.

Further information:

From research of the corporate culture after fusion:

"As opposed to values, certain differences existed between the original employees of both banks in
the requirement for openness and informal negotiations - something required more by the former
eBanka employees. Greater flexibility of choice was seen amongst the original Raiffeisenbank
employees."

"The need for cohesiveness, cooperation and good relations at the workplace however was strong, as
demonstrated also by conducted interviews. The survey indicated that while management preferred
openness towards changes and flexibility, employees made it abundantly clear that stability and
certainty were important to them. Constant changes were indicated as a major source of perceived
stress. Also positive thinking received a relatively low number of votes, and a consequent survey
showed that this also tied in with the constant changes after fusion. Some employees lost their
motivation and feeling of certainty due to the rapid changes implemented in practically all
activities and processes, which formed a part of their daily work."

"One may state in general that constant changes bother key employees of eBanka more, but they have
been able to come to terms with them so far, while original Raiffeisenbank employees react with
lesser resistance, but in more resigned fashion."

"From statements and replies especially from certain employees, there is clear implication of
growing tension and frustration caused by the constant changes. Respondents did not generally
assess the changes themselves so negatively, but were in strong agreement regarding the method and
frequency in which changes were being implemented, and they criticized the lack of coordination."

Comments on the Internet:

"I would only perhaps add that mainly the culture has changed in today's bank. There is no room at
all now for creative people. It is a nasty bureaucratic company, with all the abuses of large
corporate structures without decent senior leadership. However, top management mainly buried eBanka
during the tenure of Peter the Great [Petr Kellner of PPF, editor's note], because it could not
explain to him that he should not sell yet, but should wait a while longer, because the era of
quality Internet banking was just about to come (it is well known that eB was simply ahead of its
time at the close of the 1990s)."

"Amongst eBanka clients, the most sensitive matter is Internet banking, which is assessed as the
best in the Czech Republic in numerous surveys and comparisons. eBanka's Internet banking is
directly connected to an internal banking system, which is an uncommon information structure
amongst banks - and which causes significant complications upon integration of the banks. For this
reason and others, a unified IT system is only planned for later in the final phase of
integration."

Tasks:

1.       Define how the strategies of the original entities may have looked.

2.       Define the current strategy of Raiffeisenbank.

3.       Define important characteristics of the original organizational cultures.

4.       Define the organizational culture adequate to the current strategy.

5.       Propose a method of changing both original organizational cultures into a new one.