A Critical Analysis of the Effects of Strategy Formulation in the Finance Industry

A CRITICAL ANALYSIS OF THE EFFECTS OF

STRATEGY FORMULATION IN THE FINANCE

INDUSTRY

This Scholarly Material Is Meant For Research Purpose Only.

For Research Materials, Kindly Text Your Research Topic

Or Request Free Project and Seminar Topics.

For Local Content Research Topics/Materials, kindly call: +234-803-043-3711; 0805-624-0284Web: www.research.sanddatas.com Mail: [email protected]

SandDATA ResearchPhone- +234-0803 043 3711 Web: www.research.sanddatas.com

[email protected] Email- [email protected]

http://www.research.sanddatas.com/

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Implicit in the operations of business enterprises is the need to achieve

some desired goals and objectives. This is so, whether the organization is a

profit of a non profit making enterprises. Strategy constitutes a well thought

out plan of action towards the attainment of organizational objectives. It is an

all pervasive element in very human endeavour and it sometimes turns out to

be the only differentiating factor between similar people and synonymous

organizations. Consequently, most organizations put a lot of efforts into

strategy development and implementations. A lot of publicity exercises are

also often involved. This is usually meant to inform and educate staff

members as well as allies of the organization. But, incidentally, not all

strategies lead to the attainment of organizational goals and this could be

frustrating given the enormous cost outlay of managing strategically. Also, it

goes without much saying that failure to achieve set targets constitutes a

strong pointer towards management incompetence and a justifiable reason for

their replacement.

Thus, the importance attached to fashioning of organizational strategy is

informed more by the fear of the consequences of failure, than the desire for

success. This explains why the term strategy is treated with great awe within

the military parlance – slight slip off course by an individual within an army

of men could lead not only to his own demise, but the examination of an

entire community men. Prior to the global depression of the 1930s, most

going concerns paid little attention to the ways and means of achieving their

objectives. The environment was assumed simple and leaders of thought

imagined that the adoption of one of the contending philosophies would



always do the trick. But the great global depression of between 1928 and 1930

made a ridicule of most economic theories hitherto held as sacrosanct.

Modern business are however more apt with realities and imperative of

changes. Assumption about the environment has changed drastically to

anything but simple. The threat of competition is very high, while the reality

of a possible computer buzz by the turn of the century is also starring every

manager in the face. What more, these continuing changes cut across all

industries as well as national boundaries. Of great attention to this work are

happening in the finance industry. It constitutes a sector where desire for

changes and improvement are being agitated for on daily basis. Global efforts

are now focused on financial super marketing a total decentralization of bank

service. This will make it possible fir a customer to transact all form of

businesses within the confine of a branch, without the customer being

physically present at the department actual department designated for

offering some of the services.

In Nigeria, this is still a wild team. Current drives are however being

geared towards satellite banking, whereby bank branches will be linked with

each other through a Nationwide computer network. This will then make it

possible for a bank customers to transact business in any branch of a bank

by simply opening an account any where within its network. Towards this

end, government regulations are being firmed up. For example between 1990

and 1998, banks have been required to shore up their capital base from

N50million to N500million. This and many other stringent conditions have

posed two major challenges to bank management: first is how to source this

huge sum and second is how to justify same in a retarding economy.

Various survivals mean therefore have to be fashioned out. Businesses

and focus have to be redefined, while priorities are being well defined and



doggedly pursued. And as expected, the resulting competition has not only

created on interesting scenario, it is threatening to send many players out of

business, even as some are making the best out of the situation. This work

is kindled by these ongoing efforts. It seeks to examine the volume and

contents of bank business, their objectives, and strategies in place for

achieving same. Of particular importance is how banks generate these

strategies. The need for this is because, often, organizational failures are

recorded not because they are lacking in focus, but some people do “very

marvelous job pursuing strategies that have fatal flaws”.

What is known today as conventional banking in Nigeria started in 1894

with the establishment of British West African Bank, latter known as

Standard Bank and now First Bank. this early period to 1952 witnessed the

birth and demise of many banks, due to lack of appropriate banking

regulations. The few that survived this era with First Bank include Barclays

Bank (Union Bank), Agbonmagbe Bank (Wema Bank) and African Continental

Bank (ACB) among a handful others.

In order to bring about sanity and provide basis for solid economic

development, the period following 1952 was largely dedicated to instituting

appropriate legal framework for the industry. Hence the enactment of the

banking ordinance of 1952 and a revision of same in 1958, which provided for

the establishment of Central Bank of Nigeria (CBN). Also about the same

period, the report of a Barback committee setup in 1958 was submitted to

government. This culminated into the establishment of the Lagos Stock

Exchange in 1961. With these two umbrella bodies, the financial sector was

set for a more endurable growth. Not many activities were witnessed

thereafter, owing to a nationwide civil disorder of the mid 60s. The post war

era which also coincided with a period of oil boom however witnessed



increased activities.

The need to have a firm control of the economy brought in a great deal

of government participation during this period. Substantial interest was thus

acquired in the expatriate banks, following the indigenous enterprises

promotion decree of 1972, as amended in 1976. The highly protective

government policy and the largesse from oil importation during this period

presented little or no challenge to operators. Not much interest was therefore

paid to proper focusing of bank businesses as well as possibility of a down

turn. Meanwhile, the Euphoria of this period soon faded away, following a

global oil glut in the early 1980s, which drastically reduced oil income and set

the entire economy almost on the brink of collapse. Consequently, the need

for a complete overhaul of the entire financial system became highly

imperative. A panacea was however sought in the Structural Adjustment

Programme (SAP) which was launched in 1986. major thrust of this policy was

the deregulation of the entire economic system in order allow for easy mobility

of both human and non human assets. The finance industry witnessed a

sharp growth during this period. A new legislature framework was put in

place through the enactment of Banks and Other Financial Institution Decree

(BOFID). Licensing conditions were relaxed and this led to proliferation of

both Banks and Non Banks Financial Institution.

This again resulted in increased competition and overstretching of the

few available bank staff. A big challenge was therefore posed to the wits of all

operators in the industry, while the resulting strive could allow only the fittest

to survive. A sharp demarcation was consequently drawn between competent

and non competent banks as majority of the latter quickly fizzled out the way

they came. This demise of the unfit sent a red alert signal across the length

and breadth of the entire nation, which led to serious runs on banks and



deep rooted nationwide financial distress. The effect of this disturbance is still

being felt till the present day.

Government however made some facesaving moves to salvage this

situation, but these came rather lately, it soon became apparent that

government had hitherto failed to prepare the regulatory arm well enough for

the fallout of deregulation. Also, it became obvious that most bank

management lacked the competence to manage the evolving changes and

increasing complexities associated with the period. This was so because most

banks were then lacking in focus and appropriate grasp of key strategic issues

which needed be addressed in turbulent times.

Following these hard realities, bank management are now being

compelled to have a critical reappraisal of their focus, objectives and their

entire business plans. The pertinent question that need be asked and

addressed in this circumstance is the focus of this work. Specifically, there is

need for banks to critically reexamine what business they are in to: review

the resources required to face the nextmillennium (which will undoubtedly

pose more serious challenge than those of years past); reexamine the process

of arriving at their choice plan (strategy); question management culture in

place; and critically challenge the structural set up for strategy

implementation.



1.2 Statement of the Problem

1.3 Aim and Objectives of The Study

The basic aim of this work is to arrive at workable alternative strategic

framework for banks in relation to their Preliminary Mission Statements.

The objective on the other hand relates to general review of the resultant

effects of banks’ strategic management process.

Specially this will include the following:

a) Examination of processes of arriving at banks’ choice strategies.

b) Review of the prevailing structural framework towards successful

strategy implementation.

c) Examination of banks’ financial performance to determine whether the

adopted strategies lead to desired result.

d) In the light of i – iii, above to make appropriate recommendations on

strategic framework required for superlative performance

1.4 Sources and Methodology of Data Analysis

Sources of data for this project will be largely secondary. These will

include publication of trade bank Plcs as well as its Published Annual

Reports. Others will include journals of other banks as well as publications of

regulatory authorities such as Central Bank of Nigeria (CBN), Nigeria Deposit

Insurance Company (NDIC). And the Chartered Institute of Bankers.

The methodology of analysis is such that will follow a trend pattern.

Specific performance indices (both quantitative and qualitative) will be

examined over a period of Ten (10) years 1987 – 1997 to see whether these

reflect a stable pattern.

1.5 Scope and Limitation

The study will cover period of Trade Bank’s existence since 1987 to date.



As stated earlier, performance indices that to be reviewed will be both

quantitative and non quantitative.

The quantitative indices will include the Bank’s capital base, branch

network and structure of deposit growth. Others will include level and

structure of its load portfolio; Return on Capital Employed (ROCE), level of

liquidity as well as its Earnings Profile and dividend pay out.

The work is constrained mostly by one’s inability to assess inner working

of other banks in relation to their strategic activities. This limits the level of

comparative analysis that could have been done.



1.6 Plan Of The Work

The rest of this study will proceed as follows: review of literature in

chapter two; data specification and method of analysis in chapter three;

chapter four contains analysis of data, while the last chapter is on summary

and conclusion.



CHAPTER TWO

LITERATURE REVIEW

2.1 Concept of Strategy

The term strategy is often used in relation to many activities and

preoccupations. Hence it has a broad spectrum of application, ranging from

relationship in the ordinary course of life to technical undertakings. Such

areas where it is formally applied and pronounced include the military circle,

gaining activities and most especially business organizations. Defining it in

the military context, Hornby (1974) stated that strategy has to do with the art

of planning operation in war, especially movement of Armies and Navie into

favourable position for fighting. Neumann (1948) populonized the usage in

relation to game. He defines it as a form of plan – a complete plan which

specifies what choice to make in every possible situation.

In the filed of business, where it has gained the most pronounced

acceptance, literature is replete with so many positions and perspective to the

term. Peter F. Drucker puts it in a very simple form, as a purposely action

meant to achieve specific goals and objectives. Tregoe and Zimmerman (1980)

define strategy as a framework which guides the choices that determine the

nature and direction of an organization.

Commerford and Challagham (1985) simply put strategy as the very

focus of strategic management process, and see it as the goals and plans for

reaching (a broader) organizational objectives and for guiding it into the

future. In their own opinion, Hoffer and Schendel (1978) define strategy as the

fundamental pattern of present and planned resource deployment and

environmental interactions, which indicates how an organization achieves its

objective. Furthermore, they stated that it is a “means of locating an

organization in what theorist call an environment”.



Strategy according to Saap and Smith (1980) can be defined in terms of

responding to likely future changes in operating environment. They added the

fact that “the most important criteria for banks’ effectiveness is not in their

operational efficiency, but in their ability to adapt to environmental changes”.

From the foregoing one can deduce that strategy represents a plan of

action meant to respond to possible future changes within one’s environment.

A strategy is imperative in order to aid achievement of organization goal and

objectives, against all odds, in a skillful and masterly manner and in proper

alignment with the enterprise philosophy and culture, as well as other

external factors, outside of its control.

2.2 Role of Strategy within an Organization

Since business organizations are meant to achieve objectives, they

necessarily have to implement a strategy. Some simply go ahead doing their

businesses “as we have been doing it”, thus implementing strategies not

probably known to them. Others develop theirs following an implicit process

of brain storming and critical evaluation. Incidentally, studies have shown

that most organization do not follow the explicit strategy development process.

Enterprises that explicitly develop strategies often desire a number of benefits

there from;

i. As a plan, strategies give direction to an enterprise and ensure unity

of purpose. This saves the enterprises the cost of diversion and

digression from the main course;

ii. Strategies assist in the allocation of organizational resources. This is

so because in the process of its generation, resources required for

implementation would have been identifies and agreed upon;

iii. Strategy is a very good means of communicating and ensuring



consensus. This is so because, in the process of brainstorming,

everybody who is relevant to strategy implementation would have

been made to air his views about now to achieve the enterprise

objectives.

iv. Strategy is a means of creating a niche in a competitive environment.

Often times what differentiate enterprise from one another, especially

in a homogenous market is the different strategies being adopted,

either in the way they package their products, or the style of delivery

and the ways and manners they render their services or even in

terms market penetrating schemes.

v. Strategy is a means of propelling action. To serve this purpose,

strategies must be believable by all and every member of an

organization. Also, targets sets must be seen to be achievable, while

adequate resources must be put in place toward performance.

2.3 Levels of Strategy

Much as strategy is an all embracing concept, business enterprises do

not implement same strategy across all strata of the organization. First, job

requirements differ at various levels in the enterprise. Also, different level of

education and experiences at various levels will necessarily result in different

level of understanding and disposition to issues. For example, the non skilled

employees at the base level of an enterprise may find it difficult to

comprehend some complex planning issues. Hence, strategies are often

broken down into operational components in order to endow every member of

the organization with their existence and effects.

Writers have proposed many levels, depending on the size and

complexities of an organization. Three levels have however gained popularity

over time, before Ansoff introduced the fourth in 1979. These levels are:



corporate, business, functional and society.



2.3.1Corporate Strategy

This consists of plans and actions that are expected to guide the entire

organization as an entity into both near and distant future. It represents a

wholistic decision pursued in unison by every member of the organization as

derived from its corporate mission, objectives and goals. It answers in general

term what business line the entire organization seeks to pursue as reflected

in its various units and divisions. Corporate strategy also reflects

organizational preferences when compared with one another. Commerford and

Challagham (1985) believe for example, that corporate strategy can vary in its

desirability, just as financial managers’ portfolio of investment can.

Furthermore, the preponderance of corporate strategy makes it a very

complex decision. Ansoff (1955) opines that issues involved in corporate

strategy are harder to pin point and as such require special attention.

2.3.2Business Level Strategy

This respondent’s specific objectives and plans for different businesses

or division of an enterprise. It is usually focuses on the product/market

segment of the industry in which an enterprise is competing. Its purpose is to

ensure superlative performance for the organization’s product in relation to its

competitors. At this level, the strategic attention is more on quality service,

delivery, style, innovation and profitability.

A business level strategy often requires the support of functional units

where resources required for performance will be allocated.

2.3.3Functional Strategy

Plans at this level are concerned with the different arms of an enterprise

such as finance marketing, production and research and development. Their

roles are purely supportive and are concerned with sourcing all allocating

resources towards ensuring the success of the entire organization. Summing



up the role of functional strategy, Hoffer and Schendal (1969) enthused that

focus at this level is simply that of maximization of resource productivity.

2.3.4Societal Strategy

This has to do with how an enterprise plans to relate with its larger

environment, especially those outside of tits competitive areas. The need for

such a plan develops out of continuous agitation for higher societal

responsibilities on the part of corporate bodies. The is based on the feelings

that since corporate bodies take all their resources from the society, they

should also have specific plans to develop the environment. Thus,

“organizations with poignant social problems often give special attention to

societal strategy in order to ensure a peaceful coexistence between them and

the society”. Commerford and Challagham (1985) cited utility companies, oil

firms and Educational Institutions (for which sharply focused scrutiny has

developed over time) as examples of Enterprise that need to implement

societal strategy.

2.4 Types of Strategies

Strategies are of varied forms and often described in generic terms.

Their application is, however, situation specific. This is so because the

circumstance surrounding operation and planning premises vary from one

enterprise to another. Also, manager that do not appreciate the availability of

different forms of strategies often limit vision and horizon and are not able to

work out alternative means of addressing situations. Thus, for an optimal

strategy to be adopted during a planning exercise, managers have to

appreciate the various forms of plans and their key features, in terms of what

is required to implement a particular strategy.

The most common forms of generic strategies are growth and

retrenchment strategies. Miles and Snow (1978) however, added other terms



such as prospector, defender, analyzer and reactionary strategies. Other forms

include those used by Porter (1980): overall cost leadership, differentiation

and focus strategies.

2.4.1Growth Strategy

This has to do with just getting bigger and is usually measured in terms

of sales. It however, has relevance for an entire enterprise as the urge to get

bigger may also be in terms of size or resources. This strategy form can either

be internal or external. It is internal when the enterprise plans to grow

through generating increased sales from within, be offering new products or

operating in a rapidly growing market or by simply selling to increased

number of buyers.

Enterprises can also grow internally by sourcing material inputs

directly, thereby reducing cost and offering their products at lower prices in

order to gain more market shares. External growth involves acquiring some

other firms either in related or nonrelated areas to the current business. The

drive for this type of strategy is often borne out by the need to either award off

competition or to reap the benefit of large scale production. An enterprise

seeking to pursue growth strategies will often require skill in general

management and finance. The earlier will enable it to properly appraise new

offers and bids, while latter puts it in a good position to pay for new

acquisition.

2.4.2Retrenchment Strategies

This is the opposite of growth strategies. It basically involves reducing in

size. This strategy can be either strategic or operational. Strategic

retrenchment refers to the redefinition of goals and objectives on which plans

are based. It may happen if an unanticipated occurrence suddenly makes

plan unrealistic. Decisions may then be taken to reduce targets and set less



ambitious goals so that employees can be motivated toward performance.

Operational retrenchment on the other hand refers to a situation where

an enterprise goals and objectives remain unchanged while some aspects of

the business had to be constricted in order to achieve set goals. For example,

it a competitor (hitherto unanticipated) suddenly discovers how to drastically

reduce cost in such a way that selling in the same market becomes

unprofitable, one way out may be to reduce production scale and put

resources into other viable areas or to leave the market out rightly.

2.4.3Prospector Strategy

This emphasizes the need to compete with superlative and effective

market maneuvering. Enterprises adopting such strategy will continuously

work on improved products, using enhanced packaging and distribution

network. This strategy form is usually suitable for enterprises with strength in

general management, research and development (R & D) as well as finance.

2.4.4Defender Strategy

This involves maintaining the status quo. Enterprises that adopt such

are those that are really stable and fairly comfortable with their product mix

and market share. They usually have strong management base with high level

of operational efficiency. They also have the capacity to raise required capital

to finance their programme.

Ordinarily, the defending enterprise is not interested, unlike the

prospecting one, in breaking new grounds, but it could be very ferocious in

attacking any organization that attempts to enter into its product or market

areas.

2.4.5. Analyzer Strategy

This is a hybrid situation between prospecting and defensive strategy.

An enterprise adopting analyzer strategy is fairly comfortable with its product



and market position. It is however; often prepared to launch new products or

break into new market areas, immediately the prospector shows the way. To

adopt an analyzer strategy, an enterprise will have to be strong in general

management, research and development (R & D) and in production. Ready

source of liquidity must also be available in order to be able to seize

unanticipated opportunity.

2.4.6Reactive Strategy

This form is often employed by weak enterprises. On its own, such

enterprise cannot break new ground, nor has ability to push a superior

product in the market. Hence, it puts all plans on the actions of other player

in the industry. It comes in last into a growing market and often gets out last

in a contracting market. This is so because it does not act until there are clear

indications that other players in the industry have made moves.

Reactive strategies are often a function of intuition, as most planning

activities are meant to be proactive.

2.5 Process of Strategy Formulation

From the concept of strategy established in the previous section, there is

no gainsaying in asserting that it is about the most important singular means

of achieving enterprise’s goals and objectives. Serious attention therefore, has

to be paid to the process of its formulation. This is so because once the means

is faulty, the probability of achieving enterprise goals is virtually nil.

Resources and efforts will therefore be expended only to arrive at nothing.

Writers on the subject matter, have not only made efforts at explaining the

process of its (strategy) formulation, they have also paid considerable

attention to the need to simplify their languages, as well as make their

presentation in a logically fascinating manner.

Our focus in this section is therefore, directed at finding out whether the



process so explained are different in their main essence, since slightly

different terms are used by writer on the issue. This is only necessary

because the audience in focus vary from one writer to another. Also, the depth

and level of complexities differ from one author to another.

Consequently, our presentation will be a summary of some of the

suggested processes after which we shall deduce a working paradigm on

which our subsequent works will be premised. Saap and Smith (1980)

proposed some processes which include; strategic audit; environmental

analysis; (internal and external environment)’ development of mission,

objective and goals; strategy development; strategy implementation and

control. Rick Miltz (1988) presented a ninestep process which include: goal

setting (1year and 1 – 5years); evaluation of internal resources as strength

and weakness; appraisal of external factor in order to identify opportunities

and threats: understanding one’s competitive position; scenario building

(1year, 1 – 5years); strategy formulation; strategy testing, Evaluation and

selection; strategy implementation and control.

Commerford and Challangham (1990) simply suggested a two – phase

model – goal formulation and development of action plans to achieve goals.

They further explain the process of action plan as including: environmental

analysis (industry and internal analysis); strategy evaluation and selection; as

well as strategy control.

From the foregoing one can infer that the suggested processes are

virtually the same. The remaining part of this section shall therefore, be

devoted to examining the exercise involved at each stages which shall be

presented in following order namely; diagnosis of current situation; evaluation

of internal resources; industry analysis; environmental analysis; formulation

of mission, goals and objectives; scenario building; alternative strategy



development; strategy evaluation and selection; strategy implementation and

control.

2.5.1Diagnosis of Current Situation

This refers to a thorough analysis of what the organization is currently

doing in relation to recent changes in the operational terrain. Diagnosis is

either strategic or operational. Strategic diagnosis involves a thorough review

of key products of strategic management. These include the goals, mission

and the current strategies being implemented by an enterprise. The major

assumption upon which the strategy is presented is also examined.

Pertinent questions at this stage include:

What changes have occurred in the global market that can effect on

current strategies and goals?

Are these changes sufficiently strong enough as to make the enterprise

review its objectives and strategies?

What new moves are being made in the industry especially by competitors

that can affect current strategy?

What new opportunities or threat have become discernible that can affect

the enterprise current strategy?

What changes have occurred in the key success factors in relation to the

enterprise businesses?

How appropriate therefore is the current strategy in the light of changes in

all of the factors examined above?

Responses to these questions will either lead to a planned change in the

organizations structure and strategy or retention of same, based on strong

conviction that they are still appropriate and relevant. Petu (1998) has

argued that most successful organization is those who can sustain their

strategies over time. Hence, strategic diagnosis will let an enterprise know its



standing in relation to effectiveness of its own strategies. Operational

diagnosis on the other hand involves the examination of results obtained from

implementing current strategy.

Each functional arms of the enterprise are evaluated in terms of how far

they met their targets. These arms include finance, marketing, production,

research and development and information technology. Performance indices

usually examined include sales, profit margin, balance sheet size,

performance ratios as well as other measure s of effectiveness and efficiency.

Where the performance indices show that there are deviations from plans,

then, questions will be asked as to factors responsible for variance so

discovered. Consideration will now go further than the strategy implemented,

to include the functional structures and the entire process of strategy

implementation, to see where the problem actually lies.

In essence, what the diagnosis does for a planning enterprise is to let it

know where it is presently located both strategically and operationally.

Having known its present standing, the organization then proceeds to

set some preliminary goals and objectives which it hopes to achieve in the

future. This added to the diagnosis a planning enterprise would have been

able to determine its presents status, and what it wants to be both in the near

and distant future. Machinery will now be put in motion to assess the

feasibility or otherwise of these objectives.

2.5.2Environmental Analysis

An enterprise environment refers to factors or forces which can affect its

performance both in the near and distance future. No successful firm can

afford to neglect the effect of its environment, except it carries out its

operation in a vacuum. Even then, the closet becomes an environment which

it has to manage. Hence, modern day (managers take ample time to



understand these forces and work out how they can interact with them in

order to achieve their targets. The operating environment can be basically

classified into two, namely external and internal. External factors are those

that are outside the control of a single or individual enterprise. Saap and

Smith (1980) further classified external forces into Remote and Proximate.

Remote factors include such forces as government legislation/political

situations, economy, demography and social factors. They are said to be

remote because of the difficulty involved for a single enterprise to influence

them. Proximate external factors on the other hand are said to be the forces

operating within the industry in which it is operating, and which actually

drive its performance instincts. Such factors include competition, entry or exit

barriers, suppliers power as well as buyers bargaining powers.

Internal factors on the other hand refer to factors which are within the

control of enterprise. These include financial resources, production, level of

automation and organizational culture.

2.5.3Strength, Weaknesses, Opportunity And Threat

Usually, when an enterprise diagnosis its environment, the purpose is to

draw specific lessons and source important input for the formulation of its

strategies. The analysis of an enterprise’s internal resources allows it to know

its strength and weaknesses. An organization is said to have strength in

relation to internal resources which it has in abundance and in the right

quality mix to carry out its activities. Where some of these resources are

lacking, the enterprise is said to be weak.

Strategies are usually premised on areas of strength while some strategy

– set are avoided if the organization lacks resources to execute them. Analysis

of external environment often results in identification of opportunities and

threats. Opportunities refer to some form of attractiveness which the



enterprise can exploit to its own advantage, using its internal resources.

Threat on the other hand are difficulties which may negatively affect an

enterprise performance and which if not well managed, may lead to its

extinction. Again, such difficult only becomes threats if the enterprise is

lacking in resources to confront them. For simplicity, two level of analysis are

often undertaken in order to arrive at opportunities and threats. The first is

usually regarded to as industry analysis, which represents a thorough

diagnosis of the enterprise proximate environment. The other analysis is that

of the remote environment which also has strong effect on the proximate

environment.

2.5.4Development of Mission Objectives and Goals

After the determination of its areas of strength and weaknesses as well

as opportunities offered in the environment and the likely difficulties it may

face, a planning enterprise is now in a good stead to develop future goals and

appropriate plans towards attaining them. For this purpose all the previous

findings and analysis will now serve as input and the organization’s action

could then be described as informed decision. As earlier indicated these

mission and objectives may remain unchanged from the previous one, or it

may change radically if the organization discovers that it needs to have a

strategic refocusing. Whether or not there is need for change, the enterprise

must necessarily develop appropriate strategies towards achieving them.

However, before then, it most leaps a bit into the future to see how its

operational terrain may likely be.

2.5.5Scenario Building



Since strategy implementation will require inbuilt flexibility, planning

enterprise must develop different expectation of future events. This will enable

it to prepare different strategy – set for different situation. Likely occurrences

are often described as least probable, probable or most likely. Expectation will

be higher for the most likely events, but adequate preparation will also be

made for the possibility of other events occurring.

2.5.6Strategy Development

This stage represents the heart of strategic management. It involves

developing alternative strategies towards achieving enterprise goals and

objective, based on its expectations of the future. The first step required is

the identification of Key Success Factors (KSF). These are issues relating to

the enterprise business which if well addressed, will lead to achievement of its

goals and objectives. On the hand, if they are not well addressed, the

enterprise is just as good as not operating at all. Next is the development of

alternative strategies to address these key issues, after which a choice is

made, based on the need to achieve appropriate fit between the organization

and the people who will execute the strategy.

Diagram Showing Linkage Between Goals, Environment

And Strategy (Rick Moltz Model)


GOALS

FUTURE SCENARIO

CURRENT SITUATION

STRATEGIES FOR THE FUTURE


The diagram in figure 1 shows the interaction and linkages between the

earlier stages of planning exercise and the development of strategy.

In a simplified form, it shows how a planning enterprise seeks to

formulate strategies, starting with goals formulation, and how its

understanding of current situation links up with its expectation of future

situation towards the generation of strategies required to achieve the set goal.



2.5.7Strategy Evaluation and Choice

This has to do with having a closer look at the alternative strategies

being developed before an optimal one is chosen. In evaluating strategies, the

enterprise will be concerned with the practicability of the strategies in relation

to the organization’s peculiar circumstances. Thus, three issues are always

addressed in evaluating strategies before final selection. These are

consistency, risk and sensitivity.

Consistency test is carried out to see whether the strategy fits with other

arms of the organization. This is to avoid the problem often associated with

the generic nature of strategies and to appreciate that every enterprise

situation is peculiar to it. Usually, some enterprises simply adopt varied forms

of generic strategies without due consideration to their specific make up. For

example, a particular strategy may be considered good to achieve growth for

most organizations. But, it may not be an acceptable means, given the culture

of a particular enterprise. Hence, consistency test will ensure that the

strategy is actually meant to achieve what the enterprise aims at. Testing for

risk involves considering the level of deviations expected from result, if a

particular strategy is implemented. Writers are agreed that risk is measured

by standard deviation. To arrive at this, streams of outcomes from

implementing the alternative strategies are first determined. Next is the mean

expected outcome. The higher the standard deviation the higher the risk

involved in implementing the strategy.

Every planning enterprise will have to determine the level of risk it want

to take. This level can be classified as low, medium or high. Usually, the level

will depend on the enterprise target profit level and capital structure.

Enterprise with high target level will naturally profit level and capital

structure.



Enterprise with high target level will naturally have to contend with

higher possibility of failure. Regarding capital structure, organizations

financed entirely by equity funds will not likely impalement high risk

strategies. On the contrary, risk is often higher for enterprises with some

reasonable degree of gearing. By and large, most planning enterprises will

often settle for a medium risk or what is considered as an optimal risk,

considering its peculiar situation. Test conducted on the strategy will then

ensure that the risk involved I the proposed strategy is not outoftune with

what is acceptable. Sensitivity analysis refers to trying to anticipate, the likely

effect on result, if a key resource input changes significantly below

expectation, while implementing the strategy. In the main, this test measures

the tolerance limit of the strategy and indicates which of the enterprise

resources would likely impact significantly on result in case it is not available

to specification. After concluding the rigours of these tests, the strategy that

now satisfies condition set out are then chosen as those to be implemented.



2.5.8Strategy Implementation

According to Moltz (1980) refers to the process of operationalizing the

chosen strategy by aligning people’s behaviour and attitude with the strategy.

Often, the entire process of sourcing input for, and developing enterprise

strategy will be meaningless, if the chosen strategy is not implemented.

Although it appears very simple, this stage appears to be the most difficult in

the strategic management process. This is so because it often calls for

changes in attitude and perhaps the entire structure of the planning

enterprise. To ensure that strategies are well implemented, an enterprise

starts by determining the functional areas where key functional strategies will

have to be implemented so as to make for smooth implementation of corporate

strategies.

In order to energize the functional arms, required resources are then

allocated so that their effort to perform is not considered. The necessary

cultural changes are then affected so that people could be aligned with the

organizational direction. This demands that the enterprise executives play

leading roles so that employees can be strongly motivated towards

performance.

Having ensured the right attitudinal disposition, the enterprise also has

to determine the appropriate time for commencing programmes which will

reflect its chosen strategy. The imperative of timing is based on the fact that a

good strategy introduced at a wrong time may as well account for failure of

implementation, just as adopting a wrong strategy might. In providing

leadership for strategy implementation the enterprise executive will need to

gain acceptance of the key players within and outside the organization. This

often requires a lot of compromise and the best of leaders are those who can

combine many leadership styles in the process of making people to perform.



Also, such a leaders must be people whose values are strong and whose

visions dominate existing culture, such visions are usually so strong that

others often have no choice than to buy into it.

2.5.9Strategy Control

Strategy control involves monitoring the implementation programmes

and the entire strategic management process to ensure that the enterprise

activities conform with plan. To ensure effective control, the entire

organizational key players will have to agree on planning assumptions as well

as standard measures of measuring performances. These standard measures

will now have to be applied in two forms. Firstly, operational results will have

to be compared with targets. Any deviation noticed is aptly investigated for its

causes and immediate correction. Secondly, the process of strategic

management will have to be examined. This involves a continuous revision of

planning assumption and inputs as well as the institution of a contingency

plan, where there is fear that some unanticipated forces may affect the

viability of the strategy plan.



2.6 Measures of Strategy Performance

Performance measure is usually part of control activities. It assists an

enterprise to determine the effectiveness of strategies. An effective strategy is

one which, when implemented leads to the achievement of enterprises goals

and objectives. Generally adopted indices include those that capture levels of

turnover, market share, profitability, efficiency of assets and liquidity position.

Pohlman (1985) suggested eight performance measures for financial

institutions. These include: return on equity, which compares after tax profit

with average equity; Return On Asset (ROA), which relates after tax profit to

average asset; profit margin, defined as ratio of after – tax profit to total

operating income; and equity multiplier, which shows the relationship

between average asset and average equity. Others include asset utilization

which is ratio of average asset to average equity; Net Interest Income (NII),

defined as the difference between interest income and interest expense and

Net Interest Income Ration (NIIR) which is a quotient of net interest income

and average assets. The last is Maturity Ratio (MR) which measures interest

rate sensitivity – a parameter which Pohlman submitted is more paramount

for thrift and savings institutions.

A cursory review of Pohlman’s submission shows a bias for profitability

and return on asset utilization, without much regard for liquidity and the

need to meet short term obligations. Although this may have been built into

his maturity ratio concept, but the process of measuring this is very complex,

thereby limiting its usages. Besides there are many simple measures of

liquidity which are widely accepted and easily applicable.

In recent time, a parameter known as “CAMEL’ rating has gained wide

acceptance in the finance industry. Following each letter of the CAMEL

acronym, it measures Banks Capital adequacy, assets quality; management



quality, earning level and liquidity position. Inspite of its wide acceptance the

measure also presents some problems. For example, what criteria should be

used to measure quality of management. Effort at resolving this however

shows that, if other indices of capital, asset, earning and liquidity level are

above average then the quality of the bank management should be adjudged

satisfactory, since the entire happenings in an enterprise are solely the

responsibility of management.



CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Sources And Type Data

The data types are both primary and secondary. The primary forms are

source by the researcher from his personal interaction with key officers in the

bank, while the secondary ones are sourced from the bank’s published

annual reports and accounts, research publications of the bank and those of

the Nigerian Deposit Insurance Corporation (NDIC), as well as the Central

Bank of Nigeria (CBN).

The focus of the research includes:

What structural arrangement is in place to accommodate the

bank’s strategy(ies)?

What operational focus does it have (the bank)?

What broad strategy types has it been implementing?

What process of formulating the strategy?

How effective have they been overtime?

Findings on Nos. I –iv questions were qualitatively presented, while the

last involves specifying some data in order to arrive at objective result.

3.3 Data Specification

Utilized data are expressed in the form of Ratio. They include the

following, namely:

i. Return On Equity After Tax Profit

Average Equity

ii. Profit Margin Profit After Tax



Operating Income

iii. Net Interest Income Interest Income – Interest Expenses

Profit After Interest, Tax Preference Dividend

iv. Earning per share After Tax Profit

No. of Share (Ordinary)

v. Net Interest Income Ratio Net Interest Income

Average Asset

vi. Dividend Cover Earning Per Share

Dividend Per Share

vii. Net Asset Per Share Net Asset

No of Shares

viii. Loan Per Deposit Total Loans and Advances

Total Deposit Liabilities.

Period of analysis is between 1987 – 1997. as at the time of writing this

project, the bank’s 1998 figures were not yet available , otherwise the year

1998 would have been included.



CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

Introduction

Attempts are being made in this chapter to bring out meanings from the

various data inputs that relate to Trade Bank’s strategic management

activities.

The first part of the chapter briefly reviews the structure of the bank;

the second describes the process of Strategy Formulation in the bank; the

third is On Analysis of the Bank’s Performance indeces, while the last draws

Summary on the findings presented in the first three sections.

4.1 Trade Bank Structure

Figure 4.1, shows the present organ gram of Trade Bank Plc, following

its most recent management restructuring.

By and large our findings reveal that the structure has not been a static

one. It has been changing as necessary since inception, thus reflecting the

growing nature of the bank.



TRADE BANK PLC ORGANIZATIONAL STRUCTURE

For example, the bank started with a simple structure which consisted

of a Board of Directors; a team of Management Staff and a host of middle level

management staff at the branch level.

As it presently, it increasing size and complexities are being reflected.

The structure is made up of A Board of Director (three of which are executive

members); A committee of Top management Staff, a general management

team which consist of regional authorities and heads of staff departments;

and the general middle level management which is made up of branch


Chairman

Managing Director / Chief Executive officer

Executive Director Finance & Mgt Service

Executive Director Banking Operation

Coy./Legal adviser General Manager Treasury & International Finance

AGM Network Control

Chief Inspector

Head of Administration

Head of Information Tech

Head of Finance

Head of Northern Operations

Head of Western Operation

Head of Eastern

Operator General Services

Training

Branch Management


managers and officers.

It is important to point out the regional management has led to a

stronger control and focusing for the bank as well as enhanced operational

effectiveness.

4.2 Operational Focus

Although the bank has significant government holding in it Equity mix,

its operational is general focused at the private business individuals in the

real sector of the Economy.

Specific attention is often paid to business with quick and high turnover.

This is greatly reflected in the branch localization strategy of the bank for

example a sizeable number of the bank’s branches are located very close to

market centres.

In terms of lending, it was gathered that the bank also has a highly

restrictive lending policy towards government and government owned projects.

4.3 Broad Strategy Type

Being a Commercial Bank intent on lubricating the wheel of the nation’s

Economic Growth, the bank operate a broad based – low cost strategy.

This is to allow it serve a wide spectrum of clients and build sufficient

margin or reserve for further growth.

In terms of risk the bank disposition has always been a continuous one

judging from its all – Equity Capital base.

4.4 Process Of Strategy Formulation In Trade Bank

Trade Bank depicts an organization that formulates strategies for all the

four levels of where distinct strategies are required.

There is however, a very strong similarity between the process of

formulating some of these plants. For example, the bank’s societal strategies

are integral part of corporate strategies, while the operational areas are



treated as business units just as the various marketing outlets or branch

network. Thus, the strategy formulation process is reduced to corporate and

business units, and these will be discussed in turn.

4.4.1Corporate Level Strategy Formulation

Findings show that five distinct stages are involved in the formulation of

the bank’s corporate strategies. These could be described as; direction setting;

generation of input on environmental factors; General Management

Brainstorming; Management committee scrutiny; and Board approval.

a. Direction Setting:

This involves identification of key strategic issues as identified by the

corporate development unit and as fine tuned by the Chief Executives.

These issues are communicated to all the bank branches and

department with allowances for issues not hitherto identified by the unit.

b. Branch and Department Inputs:

In each department and branch of the bank, there exist a strategic

Business Unit (SBU) planning sub committees. They consists of the officers

there in and a re chaired by their various Head of Department (HOD) or

Branch Managers as may be appropriate.

The key issues communicated to the SBU(s) are then thoroughly

discussed and positions are taken some of which are documented as inputs

for the next round of brainstorming. Inputs above the operating environment

of each SBU are also forwarded to the Corporate Development laid for further

processing.

c. General Management Brainstorming:



For the purpose of ensuring broad participation in strategy formulation,

the bank has since June 1991 instituted a general brainstorming session

which thoroughly discussed key strategic issues relating to the bank and its

environment. The session holds every quarter.

The session consists of all executives’ members of the bank’s

management, operational heads, and other heads of departments as well as

branch managers.

Prior to the meeting of this general house, both operational and strategic

results of various arms of the bank would have been forwarded to

Development Unit while the latter is being collated by the Finance

Department.

The session often commences with opening remarks by the Bank’s Chief

Executive Officer (CEO), who chairs the meeting. This is followed where

necessary, with some additional clarification by some other top executives of

the bank. this is followed by a general review of the bank’s remote and

proximate operating environment.

Next are general discussions on key issues arising from the environment

in relation to Trade Bank Plc. The house thereafter breaks up into working

committees where these keys issues a further discussed and

recommendations agreed upon. These are then presented to the general

agreement is always arrived at and copies given to everybody in attendance.

d. Management Evaluation:

At this level the broad based strategies agreed up at the brainstorming



session are made issues of further discussion at the management committee

level. This is aimed at ensuring proper scrutiny before they are presented for

board consideration and approval.

Management scrutiny will also give the bank’s executives the

opportunity to further appraisal of any proposed strategy in relation to some

internal constraints which are not subjects of general discussions.

e. Board Approval:

The bank’s broad of director meets regularly on quarterly basis, except

there are other contingent needs which may necessitate some extra ordinary

meeting.

Management committee, after through appraisal of the proposed

strategy forward their position to the board of directors for its consideration

and approval or recommendations to the proposed strategy.

Options open to board are to either approve as recommended; approve

subject to some changes; or propose further discussion on the issue.

Where the last of the three options is adopted, management returns the

issues via the SBU to the general management session for another round of

deliberation. However where approval is given, then divisional offices will put

machinery to ensure implementation as appropriate.

4.4.2Business Level Strategy Formulation

The process of formulating business level strategy in the bank follows

the pattern of a five – stage activities; Strategic Audit; Environmental

Scanning; Competitive Position Assessment and Development of Objectives,

Mission and Goals (MOGS) and Plan writing Velting and fund Approval.

(1) Direction Setting – This

is done at each stage of the planning activities through the corporate

development department, by inviting SBU’s representatives to the head



office for necessary training on what the activities involve and what the

bank stands to achieve. The training programme usual contains a well

packaged mix of both theories and practices of strategies planning.

Position papers are often presented while practical cases are also

examined in order to drive home the points made. On completion, these

SBU representatives will now serve as resources persons in their

respective locations.

(2) Strategic Audit –

Though termed as such, both the strategic and operational results of

each SBU are reviewed. This is accomplished through a well simplified

information gathering form. It requires every SBU to compare its present

position with its planned state.

(3) Environmental

scanning, competitive position assessment and development of mails.

Similar to what attain in the first stage, the bank also dispatch simples

input forms to SBU. These contain short and straight – to – the point question

on:

4. The SBU internal resources, to determine their strength and

weaknesses.

5. Occurrences with their remote and proximate environment, to

determine available opportunities and possible comment and future

threats.

6. Summary of each strength, weakness, opportunities and threats.

The next line of action is for the corporate development unit to

scrutinize these input sheets and ensure that they are completed according to

instruction. Those that do not meet the required standards are turned to the

originating SBU with covering notes on areas to improve upon. Further



processing of these input will only commence after all the SBU inputs have

been properly made to expected standard.

iv. Plan Writing: After the standardization of all SBU’s input the corporate

development unit now writes up the plan for each of the SBU based on the

provided information.

Thus, the entire plan document will contain both the individual SBU

plan as well as the organizational plan which will be derived mainly from the

earlier.

v. Vetting by SBU: Each SBU is then required to peruse its plan document

and comment on whether or not the contents represent their views.

After collating the documents with comments from each SBU, they are

then forwarded to the strategic planning committee which will further

deliberate on same and forward their recommendations to the management

committee.

Management committee will further deliberate on the document and

forward their recommendation to the board of directors for final approval.

f. Implementation and Control

Implementation is undertaken both at the SBU level (business strategy

implementation) and the divisional level (operational level strategy).

The divisional offices also have as part of their duties, the need to

ensure that each unit under them implements its strategies to the letter.

For control purposes quarterly returns are rendered to the corporate

development units about the result of strategy implementation.

The other control arm is a well – established inspection department.

This ensures that operational plans (as contained in the bank’s Manual Of

Procedure (MOP)) are implemented to the letter.

Any deviations spotted are then promptly rectified in order to ensure



that the bank maintain its focus.

4.5 Analysis of Operational Results

As indicated in the previous chapter, a time series analysis was

conducted on some of the bank’s performance indices in order to determine

the effectiveness of its strategies in relation to its set objective and mission

statement. Results of the analysis are presented as follow:

4.5.1Profit Margin

This is a measure of the bank’s operational efficiency. It shows how well

the bank has been able to cope with competitive pressure over time. To make

the index were meaningful; it is being compared with the level of asset

utilization.Year 198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7Profit Margin (%) 4.2 26.4

6

31.4

6

12.4

1

8.15 11.4

6

8.28 8.82 7.64 6.5 2.9

Asset Utilization

(x)

0.05 0.08 0.13 0.16 0.22 0.23 0.36 0.25 0.24 0.22 0.18

Above result shows a low margin, continuously dropping since 1994 and

reaching its lowest level in 1997. For these periods level of asset utilization

also shows same pattern. This implies that the bank business turnover is not

sufficient to cover its investment in asset utilized during the period.

However, between 1987 and 1993, asset utilization showed a growing

pattern, while that of profit margin was cyclical.

Consequent on the above a conclusion could be reached that the bank

has been seriously effected by with competitive pressure during the period

under review.

4.5.2Return On Equity (ROE)



This measures the overall benefit to owners of the bank ordinary shares,

of their investment in the bank. As part of its objective the bank aims to

maximize this return with the adoption of customer – drive approach to

marketing.

Results obtained are as follows:Year 198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7ROE 2.8 20.3

3

23.9

5

11.6

7

17.8

8

20.9

7

30 29.0

2

20 15 3

This shows a fairly low return in the first and last years under review.

For the rest of the period (i.e. 1988 – 1996), the index average about 21%.

4.5.3Net Interest Income (NII) And NII Ratio

In the absence of other income items, the NII is said to be a good

measure of the level of spread enjoyed by the bank in its lending and show the

effect of interest rate change in its result.

The NII Ratio on the other hand relates to the size of the institution.

This makes for easy comparison when undertaking cross sectional industry

analysis.

Findings on the indices as regards trade bank are presented as follows:Year 198

7

198

8

1989 1990 1991 1992 1993 1994 1995 1996 1997

NII 116

9

632

1

1421

4

1440

7

2832

9

5692

1

10801

4

1066

49

11373

5

3373

35

4305

55NII

Ratio

25 6 13 8 13 12 18 13 11 24 12

Above results show that the bank witnessed an increasing trend in its

NII throughout the period under review. This show that its performance is

highly dependent on interest rate change. It also shows that the various

interest rate changes during the review period had positive effect on the banks

performance.



Standard expectation however for the NII is for it to remain fairly

constant over a reasonable period of time. That this is not so for the bank

shows that it is subjected to vagaries of interest rate changes.

4.5.4Dividend Cover

This attempts to capture how significant the bank earnings is in relation

to its dividend liabilities.

Results obtained are as follows:Year 198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7Profit Margin

(%)

0 0 3.08 1.46 2.37 3.14 2.48 2.05 1.8 0 0

The above shows inability to pay equity holders in the first and last two

years under review. Sufficient earnings were however available in relation to

dividend payment between 1989 and 1995. Still, the pattern was cyclical.

4.5.5Net Asset Per Share

This index measures the bank’s worth in relation to its shareholding.

The understated results were obtained.Year 198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7Net Asset Per

Share

1.03 1.28 1.28 0.63 0.7 0.68 0.83 0.97 1.67 0.98 0.88

A growing trend is observed between 1992 and 1997 for this performance

index. Also, for all the period under review, the bank returned a Networth

higher than the value of its shares. This implies that despite the strong

competitive pressures which the bank had to face over years (as reflected in

the profitability indices), it is still able to ensure that it adds value to each

naira invested in the bank by equity holders.

4.5.6Loan – Deposit Ratio



This is intended to capture the level of income generating asset the bank

is able to create from its deposit over time. Results obtained are: Year 198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7Lon – Deposit

Ratio

0.12 0.10 0.37 0.67 0.39 0.42 0.46 0.36 0.41 0.45 0.33

Observation from the above shows that apart from the earlier years

when it was about 12%, this ratio averages about 40% for the period under

review, while the growth pattern is cyclical.

Absolute figures however, show that lending has been on the increase

since inception. Same goes for deposit base.

It is difficult to conclude on the appropriate of the percentage of loan to

deposit. Rather, this ratio is of assistance in raising questions as to how the

bank deposit funds have been utilized over time. Some of these question

include the followings namely;

i. What use was made of the larger percentage of the deposit not

converted into loan?

ii. What percentage of the loan is good and what margin from lending?

Investigation shows that government regulation over the years

constricted lending. Specifically, the introduction and usage of stabilization

security by government during most part of the study period has tied down a

substantial portion of depositors’ fund with the government. Furthermore,

these fund which were arbitrarily determined were not to be included in the

calculation of bank’s loans and advances, but were to be included as part of

their liquid funds. The aim of government was to control liquidity in its own

way. And by including stabilization security funds as part of banks liquid

assets it has a continuous basis to keep more funds to itself under the guise



that the banks are over liquid and those they may fuel inflation.

Regarding the percentage that is good, further disclosure in the books of

the bank shows that, just like any other business operating in the Nigerian

environment, it has to content with some bad loans which for operating

purpose are double edged served against the banks. One, there is loss of

income resulting from non payment, two, the bank also have to make

provision for loan no repaid, thus further depleting the margin made from

performing facilities.

Recovery efforts are however, being intensified and some other operating

results are showing positive outcome from such endeavours.

4.4.0Summary of Findings

From the analysis of both primary and secondary data far undertaking

in this chapter, some reasonable conclusions can be drawn regarding the

efforts of the strategies adopted in administering the bank as well as the

processes of arriving at these strategies.

i. Structure: The bank’s structure has been changing continuously over

time to reflect growth in size and complexities. This has forced changes in the

process of strategy formulation. For example, the regional offices now

constitute a bridge between the business units and management. It is

therefore, easier for the business units to seek clarification on policy matter

and to give feedback on realities on the ground.

ii. Returns On Assets: Profit margin and return on equity were used to

capture this. Result shows that these are low. Specifically strategies

implemented have not resulted in acceptable level of asset utilization turnover.

They have also not been able to put the bank in a very good competitive

position. Incidentally, tight control measures as reflected in the emerging

structure may reduce delivery time which may have weakened its competitive



process.

iii. Interest Rate Change: Inability of the bank to maintain a constant Net

Interest Income (NII) margin over time makes it valuable to vagaries of interest

change. This will be more especially so, if the rate moves downward.

iv. Net Worth: A consistently positive Net Asset per share shows that the

bank in focused on maximizing the net worth of the company. This objective is

said to be most acceptable as organizational goal in modern times. The bank

can therefore achieve a lot more in terms of accessing financial markets given

its good public perception as reflected in its worth.



CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

This work is premised on the growing attention being given to formal

planning in the Nigerian financial industry. It examines the process of

strategy formulation in banks with trade bank plc as its focus, using its

financial performance indices as measures of effectiveness of those strategies.

It commences with a review of banking businesses in Nigeria and the

need for it prepare for a longer challenge in the next millennium.

Attempt was also made to define strategy within the context of its

importance to the achievement of organizational goals and objectives.

The levels at which strategies are being implemented within formal

organization were also examined. It was noted that every organization, no

matter its size and level of complexities do implement a strategy. This is so

whether the organization does it consciously or unconsciously.

Several theoretical postulates on the process of strategy formulation

were examined. It was discovered that varying terms are often used to

describe similar activities and this sometimes make the exercise abstractive

and theoretical. In its main, the process start with determining an

organization’s goals (both strategic and operational) and ends with the

implementation of a well throughout alternative plans (based on all possible

scenario) towards achieving the set goals.

Trade bank’s planning process follows those discussed in literatures.

But for easy administration, it is compressed into four stages, namely;

strategic audit, environmental analysis and position assessment, as well as

strategy development and plan writing, SBU Velting and Approval. In addition,

the bank seems to put high premium on its structure in order to give effects



to its strategies.

Performance indices measuring competitive pressure and asset

utilization were employed. They were specified in chapter three and analyzed

for a period of ten years (1987 – 1997). Results obtained were analyzed in

chapter four.

The results show that the bank has over the years been subjected to

high competitive pressure as reflected in its low profit margin and level of

asset utilization. In essence therefore, the strategies implemented by the bank

over the period under reviewed have only made it to barely survive its first

decade. The bank is then faced with the challenge of evolving thoughts that

would earn it superlative performance during the next decade.

5.2 Suggestions and Recommendations

Findings from previous sections of this work have shown that in spite of

the tight scenario within which the bank operates, it could still utilize some

opportunities to its advantage, especially as the bank focuses on the next

millennium. To fully utilize these opportunities as they present themselves,

the bank will need to clearly distinguish strategic issues from operational

ones. The earlier relates to how the bank determines what goals and

objectives to pursue, while the latter relates to how to achieve these objectives

in the ordinary course of its business activities.

In order to obtain optimum strategic results, the bank should review the

process of generating inputs for its planning activities. Specifically, the brain –

storming exercise which was said to be a prevailing culture in the bank

between 1992 and 1996 should be revived. This would make for proper

articulation of goals and objectives by both top and middle level management

before they are adopted. In addition, it would also ensure commitment and

enhance both individual and group drive toward goals achievement.



For enhanced operational efficiency, the bank needs to improve on both

its profit margin and level of asset utilization. Incidentally, both goals appear

achievable in the Nigerian financial market as many utilized opportunities

abound therein. Specifically, the bank should consider improving the quality

of its services which will translate into higher earning since price is positively

related to quality.

To improve on the level of asset utilization, service delivery points should

be increased. This will have the effect of increasing the usage of existing

assets. One way of achieving this may be to increase the bank’s branch

network. The other is to enter into formal representative arrangements with

other banks in area where the bank does not have to branch.

Deposit generating machinery should also be enhanced standards being

set for staff in this regard should be strongly implemented.

The emerging structural arrangement based on regions and division also

poses some operational challenges to the bank. if not properly managed, it

may lead to undue bottlenecks and delays. This may lead to increased waiting

time for customers and put competitors in better stead in terms of delivery

time. A good way out is for the bank to standardize its operations at this level

in a workable manner. Clear cut operational framework backed up with

appropriate authorities should be worked out in order provide the regions

with the required leverage.

For control purpose, the bank should enhance its inbuilt checks and

balance. Modern day monitoring of financial activities is done on daily basis.

The bank can achieve complete daily monitoring through Wide Area Network

(WAN) computer programme. In the alternative, a nonepage return format

could be worked out highlighting the essential indices that ought be

monitored on daily basis.



Effective communication is also required for optimum planning and

control. A system ought to be worked out where every member of staff will

know what is expected of him at any particular point in time, regarding the

occurrence of some key job related event. This system is meant to help staff in

managing themselves appropriately and making for a balance between the job

requirement and their personal goal. If this is done, staff will easily constitute

effective checks against anomalies and fraud, without being seen as outcasts.

Reward system should then be tailored towards encouraging positive attitudes

and the criteria should be well understood by everybody. Such criteria should

also be measurable in simply manner.

Finally, the bank should look up to the next decade with enhanced

Information Technology (IT) facilities. Specifically, subsequent branch

developments should be technology driven. This becomes highly imperative

because if appropriate technology is not put up today in anticipation of future

changes, future events will force their acquisition at higher prices than would

have been required in years past.

5.3 Conclusion

Following results obtained form planning activities in the bank, it can be

concluded that strategic management processes in itself may not bring about

superlative performances, but it will ensure that the survival of the

enterprise. It need be given the required support and broken down into

operational terms in order to endow every member of the planning

organization.

Regarding trade bank, planning activities would be concluded to have

elements of sound planning. The has ensured the survival and moderate

growth of the bank in spite of the only tight scenario under which it operated

during the period under review.



With enhances financing for automation upgrade (which is already in

progress) the bank seems posed for a highly superlative performance in its

second decade of operation.



REFERENCES

Abayomi, A. T. Optimal Growth Strategies for Service Organizations; A Case

Study of Trade Bank Plc.

Adekanye F, The Elements of Banking in Nigeria. (1986) Graham Burn UK.

Adeyemi, S. L., Strategic Management in the Banking Industry; A Case Study

of Three Large Nigeria Banks.

Ansoff, H. L, Towards a Strategic Theory of the Firm; Economic’s et societe’s

Vol. 2 No. 3 1968.

Ayodele, J., “Regulatory Failures in Banks” Trade Banker Vol 2 No 1 March

1993 Edition.

Commerford, R. A; Challagham, D. W., Strategic Management Test, Tools and

Cases for Business Policy (1985) Wadswork Inc.

Drucker, P. F., Management; Tasks – Responsibilities and Practices. (1973)

Nos. New York. Harper & Road.

Francis, A., Business Mathematics and Strategics (1993) DP Publications

Ltd., London

Glueck, W.F; Jaunah, L. R., Business Policy and Strategic Management,

(1988) McGraw Hall Inc.

Hoffer, C. H.; Schendel, D.; Strategic Formulation: Analytical Concept (1978).

St. Paul M. N West Publishing.

Hornby A. S., (1974) Advance Oxford English Dictionary.

Kotler, P, Marketing Management; Analysis, Planning, Implementation and

Control. (1988) Prentice Hall of India Ltd.

Kotler P., A Guide to Gathering Expert Estimates. Business Horizon Oct. 1970

Moltz R., Steps to Strategic Management, A Guide for Entrepreneurs (1985)

Word ware Inc.

Olowojolu, B. T. C., (1997), Survival and Growth Strategies in the Nigerian



Building Industry; A Case Study of Union Bank Plc.

Neumann, J. V., Theory of Games and Economic Behaviour (1944) Englewood

Cliffs N. J. Prentice Hall.

Ovavielefouma, G., Financial Management and Investment Decision in

Nigeria. (1996) Investor Publisher Inc. Lagos.

Ogwuma P. A., “Growth of the Banking Industry in Nigeria” Union Institute of

Bankers Journal (1980).

Ojo, O. A, Banking and Finance in Nigeria (1982) Graham Burn Bedforshire.

Olowe, R. A. Financial Management; Concept, Analysis and Capital

Investment (1988) Briefly Jones Nig. Ltd.

Peter, M. C., Competitive Strategy; Techniques for Analysis Industries and

competitors. (1980) New York Free Press. USA.

Paundey, I. M., Financial Management (1995) Ramprintograph, Dehil India.

Pohlman, J. E., “A Framework for Strategic Planning” Handbook for Building

Strategy (1985) Edition.

Robert, A. E., Inflation and Regulation” The Effects on Financial Institutions

and Structure.

Vanlton, James, C., Financial Management and Policy (1992) Prentice Hall

Inc.







Documents

A Critical Analysis of the Effects of Strategy Formulation in the Finance Industry