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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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15.904 Strategic Management II
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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15.904 Strategic Management II
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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15.904 Strategic Management II
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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15.904 Strategic Management II
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
Customer Dimension Customer Tier: Individual Tier 2 (IT2)
Products & Services Transaction Intermediary of equi ties, bond, and mutual fund-related beneficial securi ties,
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)
End Users Same as "Customers"
Complementors Investment Trust Banks, Asset Management Companies, Insurance Companies, Research Institutes,
Other worldwide players, Other investors, Government
Unique Competencies Educational services which encourage investment activities of customers, Name-value(appeal to
customers)
Customer Dimension Customer Tier: Individual Tier 3 (IT3)
Products & Services Transaction Intermediary of equi ties, bond, and mutual fund-related beneficial securi ties,
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)
End Users Same as "Customers"
Complementors Investment Trust Banks, Asset Management Companies, Insurance Companies, Research Institutes,
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
Customer Dimension Customer Tier: Corporate Tier 2 (CT2)
Products & Services Financial Counsulting(Equity Financ ing), Lead manage stock and bond issue by customers,
Investor's Relation advisory
Investment products, M&A 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
Customer Dimension Customer Tier: Corporate Tier 3 (CT3)
Products & Services Financial Counsulting(Equity Financ ing), Lead manage stock and bond issue by customers,
Investor's Relation advisory
Investment products, M&A 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 appropriation:
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 appropriation:
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
Set of experiences we will provide to the
tier
Set of value delivery systems needed to
provide the experiences
Set of experiences we will provide to the
tier
Set of value delivery systems needed to
provide the experiences
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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 appropriation:
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
Customer Tier: Corporate Tier 2 Value Proposi tion Elements
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 appropriation:
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
Customer Tier: Corporate Tier 3 Value Proposi tion Elements
Professional know-how to finance especially through IPO, Reliabe
Professional executive team to provide suitable solutions for current situation
Value appropriation:
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
Set of experiences we will provide to the
tierSet of value delivery systems needed to
provide the experiences
Set of experiences we will provide to the
tierSet of value delivery systems needed to
provide the experiences
Set of experiences we will provide to the
tierSet of value delivery systems needed to
provide the experiences
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