UBS is a publicly company incorporated in Switzerland that operates in the global banking and financial services sector. While the organization’s principal offices were initially in Zurich, it is currently co-headquartered in Zurich and Basel. This public company was initially founded as Union Bank of Switzerland in 1856 more than 150 years ago. Following the company’s merger with Swiss Bank Corporation in 1998, UBS stopped being a figurative abbreviation of the company. In essence, UBS is no longer considered as the firm’s representational abbreviation but as a stand-alone name for this organization. Since its inception, the company has experienced tremendous growth and profitability across all its operations largely because of strategic business policies and practices including mergers and acquisitions like the 1998 merger with Swiss Bank Corporation.
The profitability and success of this company has also been supported by its increased expansion to new regions across the globe. The organization’s expansion and establishment of operations in several countries worldwide have been influenced by the increase in demand for private banking services from time to time. Currently, UBS has offices in over 50 countries worldwide and employs approximately 60,000 workers most of whom are based in the Americas followed by Switzerland and Europe. The huge employee base and operations in more than 50 countries have contributed to the organization’s leading position in the global banking and financial services industry.
UBS has a strong competitive position in its target markets worldwide because of its excellent performance in providing its customers with sound financial advice and solutions. This strong strategic position is also supported by the organization’s capabilities to create attractive and sustainable value to its customers and shareholders. The key drivers of the organizations strategic position are strong wealth management practices, capital efficiency, and a strong profitability and growth outlook. These factors have not only contributed to the strong competitive position but also enhanced the growth prospects of the organization across all its operations and target markets.
At the end of 2016 financial year, UBS net income was $832 million dollars or 827 million Swiss francs, which was below the expected 945 million Swiss francs. However, the company still maintained a strong position in the market despite the decline in profitability. In the past few years, UBS has experienced problems relating to wealth management, which has been considered as the major contributing factor to its decline in profitability. While the firm has largely focused its operations on the business of wealth management, the recent woes have contributed to declined profitability. The wealth management issues have affected the firm’s sustainability efforts and demonstrated the need for the organization to work with its clients in order to grow and safeguard their wealth across generations. UBS has also faced challenges relating to the need to create value for its international business clients through offering solutions in a manner that empowers them to respond to increased demands for private sector investment.
Part II
As shown in the previous section, UBS has experienced tremendous challenges relating to wealth management. According to Letzing (2016), the company’s recent decline in profitability is attributable to the wealth management problems it continues to experience. While the company reduced its volatile investment bank services in favor of the apparent more consistent wealth management business, recent wealth management woes have made it difficult for UBS to attain desired and expected profitability. For instance, at the end of 2016, the organization experienced a 60% decline year-on-year in profits to generate a net income of 827 million Swiss francs rather than the anticipated 945 million Swiss francs (Action, 2016). This decline was largely attributable to the organization’s wealth management practices and a slowdown in client activity in this area.
The current problems of wealth management by UBS have been compounded by turmoil in financial markets and the stark growth of capital in emerging markets. These problems have come at a time where are increased calls for enhanced private sector investment in the United Nations Sustainable Development Goals. Member States of the United Nations recently agreed that there is need to mobilize resources from various sources towards private investment for the achievement of sustainable development goals (Alba et al., 2015). These agreements were reached on the premise that the private sector has a vital role in the success and realization of sustainable development goals.
For the international investment community and UBS, these call for private sector investment in SDGs has generated the need to create value to international business clients. The international investment community faces the challenge of allocating capital to socially and environmentally-themed investment opportunities. In this regard, the global investment community needs to balance between investments in profitable ventures and investment in ventures that generate environmental and social benefits. This is a major challenge given that the community has capacity limitations and need to ensure that all their investments are profitable (Alba et al., 2015). In an increasingly competitive business environment, the international investment community faces difficulties in achieving this balance.
Additionally, the international investment community faces the challenges of insufficient risk-return profiles, inadequate investee company transparency, and lack of relevant data (United Nations, 2016). The global investment community has also faced the challenge of lack of adequate information on how SDGs are relevant to investors. These challenges have made it difficult for this community to promote private sector investment towards the SDGs through creating barriers to individual investors and investment companies or institutions.
For UBS, the main challenge emerging from these calls is the need to provide solutions that create value for its international business clients. Through improved value creation, UBS helps international business clients to engage in private sector investment towards the realization of the sustainable development goals established by the United Nations. These calls have created demands for banking and financial services companies like UBS to increase access to finance and provide a wide range of financial services to their customers. Given the turbulence in financial markets and other industry-related issues, increasing access to finance to international business clients is a major problem for UBS. The organization also experiences problems in providing solutions that create value to international business clients in relation to private sector investment towards SDGs because of increased regulatory pressures. Regulatory pressures have hindered the organization’s ability to provide suitable solutions that would in turn enhance the capabilities of its international business clients to improve investment in SDGs. When the organization’s international business clients are unable to have access to finance and other finance-related services, they are unable to respond to calls for private sector investment in United Nation’s Sustainable Development Goals.
Theoretical Framework for Understanding UBS’s Challenges
UBS’s challenges in relation to private sector investment in SDGs can be understood through the use of relevant theories in the analysis. One of the concepts applicable concepts to UBS’s current problems is the Creating Shared Value, which proposes that business organizations can create share value through generating financial value in a manner that also generates societal benefits (Porter & Kramer, 2011). Companies have experienced challenges in creating shared value because they are trapped in the old-fashioned approach to value creation, which focuses on profits and financial performance. Through the old-fashioned approach, business organizations have based their operations on a narrow approach and emphasis on profits while neglecting other components that are crucial towards profitable operations i.e. societal and environmental benefits. In this regard, business organizations seemingly disregard broader factors that could affect their long-term profitability and success in the market. Therefore, companies that utilize the outdated approach do not incorporate or focus on sustainability as a crucial aspect of their operations.
Based on this concept, UBS is experiencing challenges in providing solutions that generate value to its clients to increase private sector investment in SDGs because its operations are based on the outdated business model/approach. The organization’s strategy places much emphasis on providing its diverse range of customers attractive and sustainable returns (UBS, 2015). The value creation processes adopted by UBS towards value creation to its customers is centered on capital-efficiency, strong competitive position in the target markets, and excellent growth and profitability outlook. In light of this strategy, UBS operations are largely focused on profits, which essentially means that the organization has disregarded sustainability. The company considers capital strength and increased profitability in the target markets as the foundation for success. As a result, UBS provides solutions that are centered on generating profitability across all its operations. These solutions do not necessarily create value to the organization’s international business clients in a manner that they would increase private sector investment in SDGs. Moreover, the organization has seemingly defined markets on the premise of conventional economic needs rather than other vital aspects. This has provided a narrow approach across operations and in turn resulted in disregard of societal needs.
The second applicable concept to the current problems faced by UBS in relation to mobilizing private wealth towards the realization of United Nation’s Sustainable Development Goals is the Multifaceted Consumer Value Model. This model defines value as an interactive, relativistic preference experience that provides a framework for customers to not only respond to an organization’s products or services but also respond to corporate initiatives (Peloza & Shang, 2011). In this case, customers respond to the products/services and corporate initiatives based on their individual, subjective taste and preferences. When determining the responses, customers societal and environmental factors that influence their lives, which in turn demonstrates their sensitivity to the existing social issues. Therefore, multi-faceted customer value incorporates both intrinsic and extrinsic value because of the various issues at play.
Using this concept, UBS current issues in relation to promoting private sector investment in SDGs are brought by the apparent failure to create multi-faceted value to customers. In this case, the organization has seemingly failed to create a framework that enhances customers’ involvement in CSR activities. The current business model and framework in the organization does not provide a link between CSR activities and financial performance as demonstrated by the increased emphasis on profitability. This is regardless of the fact that CSR activities have been found to have the potential to develop different unique forms of customer value. Since it’s a banking and financial services organization, UBS could benefit from establishing business practices and creating philanthropy projects through which customers can engage in CSR activities, especially those that relate to SDGs.
Relevant Literature Relating to the Issue
The significance of creating shared value and multi-faceted consumer value in the success and profitability of modern business organizations has been well established in existing literature on value creation. As shown in the previous analysis, the main issue facing UBS is value creation for its international business customers to promote investments in sustainable development goals. Eccles & Serafeim (2013) state that sustainability has become an important aspect for organizations in the modern business environment. These researchers argue that sustainability is an important part of an organization’s strategy because of the multifaceted nature of customers’ needs in today’s business environment. According to Eccles & Serafeim (2013), organizations that incorporate sustainability as part of their strategy and operations achieve tremendous profitability and success in the long term. They contend that the long-term success from incorporation of sustainability in business strategy emanates from the link between company profitability and social progress.
Porter & Kramer (2011) state that creating the link between economic profits and social progress is crucial towards the long-term success of a business across all its operations. These researchers argue that creation of such a link is crucial for modern business because companies not only need to generate profits but also need to create societal benefits since they operate within a community or society. In concurrence, Epstein-Reeves (2012) states that creating shared value is vital for today’s businesses because shared value is the most suitable means to develop marketplaces, economies, companies, and communities. Shared value helps in growing these various entities in a manner that meets the needs and serves the interests of the business itself and others.
According to Peloza & Shang (2011), the creation of shared value is seemingly a multifaceted consumer value approach through which customers are involved in corporate social responsibility initiatives. In an age where sustainability has become an important concept of business operations, corporate social responsibility initiatives are seen as the most suitable initiatives towards achieving long-term business success and profitability (Peloza & Shang, 2011). When companies promote customers’ involvement in CSR activities, they essentially create various forms of value for customers, which eventually enhances their financial performance in the target markets.
Peloza & Shang (2011) seemingly suggest that customers’ involvement in CSR activities helps in improving an organization’s financial performance and addresses societal needs, harms and constraints. Therefore, such investments provide benefits for the business and the society or community. Additionally, these researchers state that sustainability adds customer value, which is crucial towards increased private sector investment in sustainable development goals. In concurrence, Kovaljova & Chawla (2013) argue that sustainability has been found to create customer value though value perceptions are largely determined by price. This implies that sustainability create value to customers when the price of products and/or services are deemed affordable by customers. However, in cases where the price of products and/or services is high, the value of sustainability to customers could be very limited. Therefore, these researchers contend that sustainability can create customer value when combined with suitable pricing strategies of products and services.
Recommendations
As evident in the analysis and review of relevant literature, sustainability is an important component in today’s business operations. For long-term successful operations and profitability, businesses need to incorporate sustainability as part of their operations. UBS has recognized the need to create value to its international business clients through providing solutions that enable them to respond to demands for private sector investment in SDGs. While the company has responded to this need through developing a policy for mobilizing private wealth for public good, there is need for further measures to achieve this goal. First, the company should redefine its productivity in the value chain as well as services and markets. This process would entail incorporating sustainability as an important concept of its value chain processes and profitability. UBS should redefine its services and markets through incorporating sustainability as a definitive feature of its operations and success. This can be achieved through adopting a shared value model in which the provision of financial services to clients is not only centered on maximizing profits but addressing societal needs and harms. Secondly, the organization should increase incentives to private investors to invest in SDGs. This would be an important measure towards enabling customers to engage in corporate social responsibility initiatives. In this case, the organization should identify philanthropic and investment opportunities that generate societal and environmental benefits. This should be followed by providing incentives that are linked to these initiatives to create multifaceted customer value and involvement of customers in CSR initiatives. Additionally, such incentives will enhance private sector investment in the United Nation’s Sustainable Development Goals (SDGs).