Caso Nokura en Modelo Delta

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Strategic Management II15.904

Nom ur a Secur i t ies Co. , L td .

St r a teg ic Ana lys is

Boon Chung PhuaYasushi Iguchi

Akio SaitaNorihito Shimizu

~ All members from Management of Technology Program Class of 2004 ~


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15.904 Strategic Management II

1. Introduction

Nomura Securities Co., Ltd. (NSC) is a wholly-owned subsidiary of Nomura Holdings, Inc. (NHI),

which forms part of the Nomura Group. NSC plays a central role in the securities business, the

Group's core business. As the leading securities and investment banking firm in Japan, NSC

endeavors to provide individual investors and other diversified corporate clients with a range of

services through the capital markets including investment advisory services and fund raising. In this

paper, we analyze the current business of NSC using the framework provided in THE STRATEGY

CONCEPT AND PROCESS by Arnoldo C. Hax and Nicolas S. Majluf, and the delta project by

Arnoldo C. Hax and Dean L. Wilde ll and propose a business strategy for NSC.

The later part of this section, we introduce NSC from three points of view, its history, business

overview, and current business strategy.

1.1 Company History

Nomura was incorporated in Japan on December 25, 1925 under the Commercial Code of Japan

when the securities division of The Osaka Nomura Bank, Ltd. became a separate entity specializing

in the trading and distribution of debt securities in Japan. Nomura was the first Japanese securities

company to develop its business internationally with the opening in 1927 of a representative office in

New York, which actively traded non-yen-denominated debt securities. In Japan, Nomura broadened

the scope of their business when they began trading in equity securities in 1938 and when they

organized the first investment trust in Japan in 1941.

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15.904 Strategic Management IIIn recent years, Nomura have sought to take advantage of new opportunities presented by

deregulation of the Japanese financial market and by developments in information technology. For

example, to increase retail customers access to their services, they have taken advantage of the

Internet to offer on-line brokerage and related services.

On October 1, 2001, Nomura adopted a holding company structure. In connection with the

reorganization, Nomura changed its name from The Nomura Securities Co., Ltd. to Nomura

Holdings, Inc. A wholly-owned subsidiary of Nomura assumed Nomuras securities businesses and

is named Nomura Securities Co., Ltd., the strategic business unit being analyzed in this paper.

Nomura have also strengthened their mergers and acquisitions and other financial advisory business

by acquiring majority interests in Nomura Corporate Advisors Co., Ltd., formerly Nomura

Wasserstein Perrella Co., Ltd., in November 1999. Nomura Corporate Advisors became a wholly-

owned subsidiary of Nomura in September 2000 and merged with Nomura Securities in April 2002.

Nomura have also enhanced their asset management business through the acquisition of a majority

interest in Nomura Asset Management Co., Ltd. in March 2000. Nomura Asset Management

became a wholly-owned subsidiary of Nomura in December 2001.1

1.2 Business Overview

Nomura Securities Co., Ltd. (NSC) is the leading securities and investment banking firm in Japan

and have worldwide operations. As of March 31, 2003, they operated offices in more than 20

countries and regions including Japan, the United States, the United Kingdom, Singapore and Hong

1Nomura Holdings, Inc. annual report 2003

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15.904 Strategic Management IIKong. As of the same date, they employed 14,385 people, with 11,583 in Japan and 2,802 outside

Japan.

NSCs customers include individuals, corporations, financial institutions, governments and

governmental agencies. Their businesses consist of the following three business segments:

Domestic Retail principally investment consultation services to retail customers

Global Wholesale principally fixed income and equity trading, investment banking, and

merchant banking in and outside Japan

Asset Management principally development and management of investment trusts, and

investment advisory services

NSC is also one of the world's leading securities firms with more than $150 billion assets and

shareholder equity of over $13.5 billion.

1.3 Current Business Strategy

According to their core business fields, NSC defined their current strategy as the followings:

1) Retail

Reinforcement of channel to customers

Stimulation of stock market

Improvement of productivity and efficiency of branch management

Customers attention to asset management by 401K plan

2) Investment banking

Establishment of complete product line and management for customers demand to equity

finance

Entry to merchant banking

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15.904 Strategic Management II3) Trading (bond and equity)

Global product line

Readiness to Straight Through Processing (STP) and T+1 [*]

Adaptation to electronic transaction

4) Asset management

Expansion of demand to mutual fund

Stable portfolio management

[*] STP means that information passing seamlessly and electronically among all participants involved in the

transaction process. It goes far beyond the buyer and seller to include all affected parties: data provider,

exchange, service provider, computer operator, regulator and more. T+1 means that market participants have

to make settlement on the day following trade date.

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2. Corporate Vision

Nomura Groups vision is to establish its position as a globally competitive Japanese financial

services group. In order to realize this vision, it currently focuses on three areas: strengthening

action to expand the securities market in Japan, enhancing business origination in Japan, and

pursuit of collective strength through greater cooperation among its divisions.

The Japanese economy has experienced severe recession over more than ten years. Most recently,

the Japanese economy experienced a recession in 2001 primarily due to a global high technology

recession, but started recovering in early 2002 due to inventory adjustments and economic

turnarounds in the United States and Asia. Since mid-2002, however, the economy has stagnated as

the recovery in domestic demand has been weak and export growth has slowed. In the spring of

2003, growth had yet to show signs of recovery. In October 2002, the Japanese government

announced its Program for Financial Revival to accelerate the disposal of non-performing loans at

major Japanese banks as a necessary step to revive the economy. At the same time, the

government decided to establish the Industrial Revitalization Corporation of Japan to coordinate the

disposal of bad debt and revitalization of Japanese industries and corporations. This new

organization started operations in May 2003.

The two key thrusts for Japans Revival are 1) Acceleration of Corporate Restructuring and 2) the

Shift of Individual Financial Assets. Key developments toward economic revival have begun to

surface in the form of quicker corporate restructuring and the shift of individual financial assets to

capital markets. Nomura increasingly expect to see a cycle where accelerated corporate

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15.904 Strategic Management IIrestructuring helps boost corporate profitability and individual investors move their money through

capital markets to the more profitable companies.

This is Nomuras fundamental stance regarding the business environment. Its strategy is for each

division to play its own part towards Japans revival.2

3. Strategic Positioning by using the Delta Model

Nomura aims to contribute to Japans revival by supporting the flow of money between companies

progressing with restructuring and individual investors. Its strategy towards this end is to promote

corporate restructuring by providing solutions via capital markets and encourage the shift of

individual financial assets from cash and deposits into higher risk-return products by supplying

diverse products. (Ref. Fig.1)

ProvideSolutions via

Capital

SupplyDiverse

Products

NOMURA

Accelerationof CorporateRestructuring

Shift of IndividualFinancial Assets

Methods

Objectives

Money FlowIn Market

Fig.1. Two corporate objectives of Nomura

2Investor presentation on May 16, 2003 by Nobuyuki Koga, President & CEO, Nomura Holdings, Inc.

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15.904 Strategic Management IIThe strategic positioning of Nomura is to provide a competitive capital marketplace, bringing

together complementary groups of buyers and sellers, through Total Customer Solution based on

Horizontal Breadth and Customer Integration, and Systems Lock-In by establishing a Dominant

Exchange. (Ref. Fig.2)

System

Lock-In

Best

Product

Total

Customer Solution

Dominant Exchange

Differentiation

Customer Integration

Horizontal Breadth

Fig.2. Strategic positioning Movement of Nomura (Delta Model)

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15.904 Strategic Management IINomuras business portfolio comprised of Domestic Retail, Global Wholesale and Asset

Management divisions. Division heads are given discretion to execute business within the

management resources allocated.

Business execution is split between the Chief Operating Officer (COO) and Co-COO.

To strengthen cooperation among Nomura Group Business Lines and give full scope to the Groups

collective strength, and achieve Horizontal Breadth, the COO is responsible for all three divisions

and aims to pursue business that extends beyond Nomuras business lines. (Ref. Fig.3)3

DomesticRetail

GlobalWholesale

AssetManagement

HORIZONTAL BREADTH

COO Co-COO

CEO

Fig.3. Horizontal Breadth of Nomura Group

To promote integrated Group Management for Customer Integration, the Co-COO will advance

integrated Nomura Group management transcending legal entities. (Ref. Fig.4)

Nomuras greatest asset is its integrated corporate strength. By taking this approach, Nomura aims

to break the division-legal entity mould and pursue efforts to enhance Nomura Groups collective

strength.

3 Investor presentation on May 16, 2003 by Nobuyuki Koga, President & CEO, Nomura Holdings, Inc.

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15.904 Strategic Management IINomura should aim to achieve a System Lock-In position through Dominant Exchange by

developing diversified customer-focused products and collaborating with other world wide players to

provide broad investment instruments, opportunities and high return on investments, to attract the

targeted investors/buyers. The ready pool of investors/buyers will further attract companies to

approach Nomura to lead manage their capital raising needs reinforcing the value of the

marketplace.

DomesticRetail

Global Wholesale AssetManagement

CUSTOMER INTEGRATIONNomura

InternationalNomura Funds

Research &Technology Nomura Holding

America

Nomura AssetManagement

--- ---

---

COO Co-COO

CEO

Fig.4. Customer Integration in Nomura Group

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4. Customer Segmentation

Thinking about customer segmentation, there are basic measurements such as geography,

demography, psychographics, and behavior. In this section, we define customer segmentation of

NSC. Basically, customers for securities companies are divided into two categories, 1) individuals, 2)

corporate and government. To analyze the business, we segment customers into the following tiers.

Table 1. Customer Segmentation

Costomer Tier

Individual Tier 1 IT1: Wealthy individual customers who are familiar with investments (JPY10M+ available to invest)

Individual Tier 2 IT2: Wealthy individual customers who are NOT familiar with investment (JPY10M+ available to invest)

Individual Tier 3 IT3: Mass individual customers (Less than JPY 10M available to invest)

Corporate Tier 1 CT1: Large size corporate customers and government

Corporate Tier 2 CT2: High potential Mid/Small size corporate customers

Corporate Tier 3 CT3: Low potential Mid/Small size corporate customers

First, we subdivide individuals according to the following Fig.5. We adopt 10 million Japanese Yen

as the level to differentiate rich from mass, because the amount will be the cap on the guarantee of

full bank savings deposits when the deposit payoff system is introduced in Japan in the near future.

We also use 30 million Japanese Yen as the level to differentiate rich from middle-rich. The

household expenditure survey conducted by the Management and Coordination Agency shows that

about 15% of households in Japan has over 30 million Japanese yen saving.

Individual Customers

(JPY) YES NO

Rich 30+M

Middle-Rich 10-30M

Mass Less10M

Familiarity with Investment

Tier 1 Tier 2

Tier 3

Fig.5. Individual customer segmentation

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15.904 Strategic Management IIWe characterize Tier 1 as individuals who are wealthy and have already built asset. These people

are relatively few, but they invest much money to utilize their own familiarity with investment method

and investment products. To meet their demand, NSC has to provide professional know-how to

reinforce customer satisfaction by realizing high performance of investment result. Tier 2 is a group

of individuals who are not familiar with investment but have substantial money to invest. They are

diamonds in the rough, but extremely attractive for NSC. Thus, NSC should place much emphasis

on providing education services to this tier as a coaching staff for investment. Tier 2 customers

currently have much of their asset as cash or deposits. The pie chart in Fig 6 shows the business

potential for this customer tier. This chart shows a breakdown by product of individual financial

assets. As of December 2002, 56% of these assets were still held in cash and deposits. NSCs role

is to connect these assets with the risk assets. 4

Japanese Individual Financial Assets Total:

1,396 trillion yen (as of Dec.2002)

Cash & Deposits

56%

Insurance &

Pensions

29%

Equity

6%

Investment Trusts

2%Bonds

2% Others

5%

Fig.6. Individual customer asset allocation

4Investor presentation on May 16, 2003 by Nobuyuki Koga, President & CEO, Nomura Holdings, Inc.

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15.904 Strategic Management IITier 3 is a group of individuals who are low-value customers for NSC. NSC should provide low price,

user-friendly system and reliable information to this tier, and lead them to use on-line trading, the low

cost direct channel.

On the other hand, we also subdivide corporate customers into three tiers. We use the availability of

bond, IPO, and financing issues as a measurement to divide the three tiers. Tier 1 is a group of

companies which can offer bonds to the public or which meet the IPO standards defined by Tokyo

Stock Exchange. NSC provides consultation services for them to realize a low cost procurement of

fund and build a good partnership to lead manage bond and equity issues. Since government can

issue bond, the government is also included in this tier. Tier 2 is a group of companies which have

no large issue, but they may have the possibility to grow and result in IPO or M&A. Therefore, we

cannot easily conclude that NSC should lead them to low cost service channel. To assign

companies to this tier, NSC has to assess customers future growth precisely. It is essential to

provide the necessary face-to-face financial consultation to maintain a good relationship with them.

For Tier 3 with low business potential, low price standardized service can be provided.

To summarize the description above, the Business Dimension for each of the Customer Tiers is

shown in Table 2, and the Value Proposition for different Customer Tiers is shown in Table 3.

According to this customer segmentation, each segment is located in the delta model as following

Fig.7.

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System

Lock-In

Best

Product

Total

Customer Solution

IT1, CT1

IT2, CT2

IT3, CT3

Fig.7. Strategic positioning based on our customer segmentation

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Table 2. Business Dimension of the Customer Tier

Business Dimension of the Customer Tier

Customer Dimension Customer Tier: Individual Tier 1 (IT1)

Products & Services Transaction Intermediary of equi ties, bond, and mutual fund-related beneficial securi ties,

ex. MTN (Medium Term Note), Foreign Currency Bonds, Savings-type products such as bond

investment trusts

Financial Consulting, Financial Advising, Saving Advising

Customers Wealthy people who invest much money by full use of their investing knowledge

Channels Real branch (face to face)

End Users Same as "Customers"

Complementors Investment Trust Banks, Asset Management Companies, Insurance Companies, Research Institutes,

Other worldwide players, Other wealthy people, Government,

Unique Competencies Abili ty to listen to the customer to understand their needs, Stable portofolio management, Diversity

products and services, High Trust and sophisticated customer service



ex. Various mini equities, mutual funds

Education(virtual trading, seminar, TV/newspaper advertisement, brochures), Investment Advisory,

Online brokerage, Portfolio s imulation, Market analysis

Customers Wealthy people who can afford to invest much money, but who dont know how to invest

Channels Real branch (face to face), Direct channel (Call Center, Internet)



Other worldwide players, Other investors, Government

Unique Competencies Educational services which encourage investment activities of customers, Name-value(appeal to

customers)



ex. Various equities, Foreign Currency Bonds, Attractive Dividends Blue Chip Fund

Financial Advising, Saving Advising, Investment Advisory, Online brokerage, Portfolio simulation,

Market analysis

Customers People who can afford to invest low amount of money

Channels Direct (Call Center, Internet)



Other worlwide players, Other investors, Government

Unique Competencies Effective investment advisory, Reliable market analysis, Stable on-l ine system, Convenience of CallCenter(Hotto Direct Service)

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Table 2. Business Dimension of the Customer Tier (Cont.)

Business Dimension of the Customer Tier

Customer Dimension Customer Tier: Corporate Tier 1 (CT1)

Products & Services Lead manage stock and bond issue by customers, Inves tor's Relation advisory, Financial

Counsulting,

Investment products, M&A advisory

Customers Large size corporate customers and government

Channels Visit customers

End Users Stakeholders of the corporation, Investors

Com plem entors Investment Trust Banks, Asset Managem ent Com panies, Insurance Com panies, Other investors,

GovernmentUnique Competenc ies Long-Term relationship, Past performance, Reliablility, Broad customer network


Products & Services Financial Counsulting(Equity Financ ing), Lead manage stock and bond issue by customers,

Investor's Relation advisory


Customers High potential Mid/Small size corporate customers

Channels Visit customers, Branch (face to face)

End Users Stakeholders of the corporation

Com plementors Investment Trust Banks, Asset Managem ent Companies, Insurance Com pany, Government

Unique Competenc ies Past performance, Reputation, Reliability, High-quality total solution


Products & Services Financial Counsulting(Equity Financ ing), Lead manage stock and bond issue by customers,

Investor's Relation advisory


Customers Low potential Mid/Small size corporate customers

Channels Branch (face to face)

End Users Stakeholders of the corporationCom plementors Investment Trust Banks, Asset Managem ent Companies, Insurance Com pany, Government

Unique Competencies Reputation, Reliability, High-quality total solution

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Table 3. Value Proposition

Value PropositionCustomer Tier: Individual Tier 1 Value Proposi tion Elements

Professional investment advisory, Reliable and intimate consultation, Diversified product offers,

Privileged treatment

The most professional executive team to support the management of customers' asset (customer

intimacy)

Value appropriation:

Value gained by Customer Outstanding performance for their investment, Customized solution to their needs, Understanding of

market trends, Support for total asset management

Value gained by us Gainning high profit per customer, Customer Bonding, Gaining referral customers, New product

ideas, Solution knowledge accumulation

Value gained by both Ready supply and demand of funds

Customer Tier: Individual Tier 2 Value Proposition Elements

Easy accessible entrant for them to build asset, Education about building asset, Customer friendly

services, Virtual investment, Portfolio simulation, Reliable advising, Simple product offer

Easy accessible channel to customers(branch, internet, call center), Customer friendly advisory

team, Quick response, Broad product knowledge but with simplified product explanation


Value gained by Customer Easy and credible entry into investor's world, Knowledge about building asset

Value gained by us Gaining repeated and new high value customers, Customer intimacy, New product ideas, Gainingreferral customers

Value gained by both Mutual opportunities

Customer Tier: Individual Tier 3 Value Proposi tion Elements

Ease of use, Lower fee than face-to-face channels, Fast, convenient, and relibale intermediacrecy of

transaction, Market analysis

Easy accessible channel for customers to execute transaction (direct channel), Quick response,

Stability of system


Value gained by Customer Ease of use, Convenient service, fair price, Reliable market analysisValue gained by us Low cost administrat ion, Repeated transactions

Value gained by both Balance between cost and value of service

Set of experiences we will provide to the

tier

Set of value delivery systems needed to

provide the experiences


tier




tier



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Table 3. Value Proposition (Cont.)

Value Proposition

Customer Tier: Corporate Tier 1 Value Proposi tion Elements

Professional investment and financing advisory, Reliability, Plivileged treatment, Optimal return on

stock and bond issueThe experienced professional team to provide the reliable services to customers


Value gained by Customer Low cost of their financing, High performance for their investment, M&A information, Secure feeling,

Special care

Value gained by us Gaining repeated operations, Gaining referral customers, Reputaion, Credible performance in largedeals

Value gained by both Ready supply and demand of funds


Professional know-how to finance especially through IPO, Reliabe, intimate advice

The most professional executive team to judge customers' future growth and provide the most

suitable solutions for current situation


Value gained by Customer Solutions to their needs, Knowledge about equity financing and asset managementValue gained by us Gaining future large customer, Customer intimacy, Gaining referral customers

Value gained by both Explore growth opportunities for both


Professional know-how to finance especially through IPO, Reliabe

Professional executive team to provide suitable solutions for current situation


Value gained by Customer Solutions to their needs, Knowledge about equity financing and asset managementValue gained by us Gaining referral custom ers

Value gained by both Balance between cost and value of service


tierSet of value delivery systems needed to








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Caso Nokura en Modelo Delta