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Market Expansion TrainingDay 1
September 12-13, 2011RBAP Conference Room, RBAP
BuildingIntramuros, Manila
Case for Expansion
Case against Expansion
Exploring Various Expansion Strategies
The Strategy ChallengeS-O Strategy
• Enter new territories in Visayas through new branches/MBOs.
S-T Strategy
• Maintain the current markets among farmers, traders, LGU employees, and microentrepreneurs by introducing better designed products. Business focus shall remain on farmers (30%), micro (20%) and SMEs (30%) totalling 80% of loans allotted to these sectors.
• Improve IT systems and credit processes to support overcome competition.
The Strategy ChallengeW-O Strategy
• Implement a total quality thrust in the bank.• Implement a centralized and integrated IT infrastructure for all
units by 2007.• Institute organizational development plan for personnel.
W-T Strategy
• Develop fee-based services and alternative financial services beyond lending such as remittances, collection services, ATM, new MF products (MF Agri/HMF), etc.
• Improve risk management and good governance towards globally acceptable best practices.
• Build-up of equity via plowback of profits. Reduce dividends.
Product Diversification• 2000: BPI became the first bancassurance firm
after it acquired the insurance companies of the Ayala Group– FGU Insurance Corporation– Universal Reinsurance Corporation– Ayala Life Assurance, Inc.– Ayala Health Care, Inc.– Ayala Plans, Inc.
• 2009: Completed sale of its 51% stake in Ayala Life to Philamlife to form the BPI-Philam Life Assurance Corporation.
Market Re-segmentation• 2000: BPI introduced its Internet bank, BPI Direct
Savings Bank• 2010: Partnered with its sister firm, Globe
Telecom, in establishing Globe BanKO, a mobile savings bank with microfinance as its main thrust.
• Followed by the launch of the BPI Family Ka-Negosyo program, a reinforced program to fit the financing requirements of micro and small entrepreneurs, signaling BPI's foray into small and micro-entrepreneurship.
• BPI “Micro deposit” ATM account...
Mergers & Acquisitions
Pro• Rapid gain of market share• Secure critical technologies• Fill-up gaps in product lines• Have faster product roll-out• Acquire talent
Con• Risk of failure due to
incompatible culture and processes
• Over-paying for acquisition• Internal dissent• Employees turn-over
Manage the acquisition process by assigning a top executive to over-see the integration process with focus on managing social and cultural fit.
Product Diversification
Pro• Used to enter new market
niche• Answer customer needs of
existing market• Protect core products and
market• Deliver top-line revenue
growth
Con• Time-consuming
preparation and change of internal processes
• Reconfigure IT support structure
• Heavy cost in initial product roll-out
• Risk of market rejection
Appoint product management unit to lead product research, design, and process improvements in coordination with other bank departments.
Customer Re-segmentation
Pro• Discover new market
segments• Support profitable market
segments• Boost investments in key
technologies and products• Expand sources of demand
from existing products
Con• Risk of poor market uptake• High cost of investment for
small markets• Complexity of managing
multiple markets and delivery channels
• High incremental cost with potentially lower incremental profits per new customer.
Market research unit and financial planning unit must carefully consider cost implications as you go to a different market niche. Impact on per unit cost or profits must be considered.
Geographic Expansion
Pro• Expand market reach• Diversify geographic risk• Enhance brand recognition• Tap new clients from the
same market segment• Increase resources (loans,
deposits)
Con• Capital intensive• Burn-out of assigned
employees• Complex management
control systems• Heavy investment in IT
infrastructure• Lax internal controls
Key executive should focus on putting together interdisciplinary team for market research, construction, IT, HR, and branch operations opening.
Market Expansion TrainingDay 2
September 12-13, 2011RBAP Conference Room, RBAP
BuildingIntramuros, Manila
Microfinance Expansion Strategies
Geographic Expansion
Pro• Expand market reach• Diversify geographic risk• Enhance brand recognition• Tap new clients from the
same market segment• Increase resources (loans,
deposits)
Con• Capital intensive• Burn-out of assigned
employees• Complex management
control systems• Heavy investment in IT
infrastructure• Lax internal controls
Key executive should focus on putting together interdisciplinary team for market research, construction, IT, HR, and branch operations opening.
Sample MBO Organization
Nightmare Scenarios without a Risk Management System
INCREASED COSTS INADEQUATE RESOURCES HIGH MAINTENANCE COST PROJECT DELAYS EMPLOYEE FRUSTRATIONS
CUSTOMER DISSATISFACTION DOWN TIME DUE TO POOR MAINTENANCE FIRE, FLOOD, THEFT, DAMAGE & DETERIORATION HIGH CUSTOMER COMPLAINTS LOSS OF REPEAT ORDERS ANOTHER CUSTOMER LOST
BAD PUBLIC IMAGE POOR QUALITY SERVICE POLICY CONFLICTS CONFLICTING PRIORITIES MANAGEMENT DISINTEREST RE - WORK LACK OF SKILLS UNPLANNED VARIATIONS MATERIAL WASTAGE
Source: AJA Registrars, 2008
18
Business Risk:
“The level of exposure to uncertainties that the enterprise must understand and effectively manage as it achieves its objectives and creates value”
An EWRM Approach Needs a Context
19
Categories of Business Risks
ENVIRONMENT
RISK
PROCESS
RISK
INFORMATION FOR
DECISION-MAKING
RISK
Sources of Uncertainty
Uncertainties affecting the viability
of our business model
Uncertainties affecting the execution of our business model
Uncertainties over the relevance
and reliability of information
that supports our
value-creation decisions
BSP Risk Framework
Internal Ratings-Based Approaches
Credit Risk Standardized Approach Foundation
IRB Advanced
IRB
Market Risk Standardized Approach Internal VaR Models
Operational Risk
Basic Indicator Approach
Standardized Approach
Advanced Measurement Approaches
Sources and Mitigation of RiskRisk Area Sources of Risk Risk Mitigating
ActivitiesCredit RiskMarket RiskOperational RiskReputational RiskFinancial RiskOther Risks
22
BUSINESS STRATEGY
WHAT WILLNOT ALLOW
USTO SUCCEED?
BARRIERS TO SUCCESS
BUSINESS RISKSCHANGES IN EXTERNAL
ENVIRONMENT
Business Risk
Source: SGV & Co., 2006
23© 2000 Arthur Andersen All rights reserved.
The Business Risk ModelTM
Environmental scan
Business model
Business portfolio
Valuation
Organization structure
Measurement (strategy)
Resource allocation
Planning
Product/service pricing
Contract commitment
Measurement (operations)
Alignment
Environment risk
Price
Liquidity
Credit
Information for decision making risk
Process risk
Operations
Interest rate
Currency
Equity
Commodity
Financial instrument
Business reporting
Environment/strategic Process/operational
Financial
Competitor Customer wants Technological innovation Sensitivity Shareholder relations Capital availability
Sovereign/political Legal Regulatory Industry Financial markets Catastrophic loss
Cash flow
Opportunity cost
Concentration
Default
Concentration
Settlement
Collateral
Customer satisfaction
Human resources
Knowledge capital
Product development
Efficiency
Capacity
Performance gap
Cycle time
Sourcing
Channel effectiveness
Partnering
Compliance
Business interruption
Product/service failure
Environmental
Health and safety
Trademark/brand erosion
Empowerment
Information processing/
technology
Integrity
Leadership
Authority/limit
Outsourcing
Performance incentives
Change readiness
Communications
Relevance
Integrity
Access
Availability
Infrastructure
Management fraud
Employee/third party fraud
Illegal acts
Unauthorized use
Source: Arthur Andersen, 2001
Greater Business Risks
Higher Expectations of Internal Audit
Increasing Expectations of the Internal Audit Function
IncreasedFlexibility
Add MoreValue
Expertise inTechnology
Business Risk /
Process Focus
Effective Change Agent
DeeperSkill Sets
Requires Internal Audit to Provide
World Class Services
TechnologyAdvancements
Globalization of Operations
Rapid Expansion
IncreasingCompetition
Speedof Change
FluctuatingMarket Demands
TechnologyAdvancements
Globalization of Operations
Rapid Expansion
IncreasingCompetition
Speedof Change
FluctuatingMarket Demands
Source: SGV & Co., 2006
Why go for Risk Management?
•Compliance with regulatory requirements Compliance with regulatory requirements
•A documented risk management system is intended to provide A documented risk management system is intended to provide the framework for consistency of approachesthe framework for consistency of approaches
•Efficiency of actions and approaches and cost savings associated Efficiency of actions and approaches and cost savings associated from preventive rather than reactive managementfrom preventive rather than reactive management
•Elimination, or at least, minimization of risk damaging to profit Elimination, or at least, minimization of risk damaging to profit and to reputation – customer complaints, penalties imposed. and to reputation – customer complaints, penalties imposed.
•Employee motivation and satisfaction - cost saving of staff Employee motivation and satisfaction - cost saving of staff “turnover“turnover
Why go for Risk Management?ENLIGHTENED MANAGEMENT FOCUSENLIGHTENED MANAGEMENT FOCUS
• Enlightened management focus is – Enlightened management focus is –
““Whatever we do, Whatever we do, WE DO FOR USWE DO FOR US and and
notnot because it is forced on us” because it is forced on us” - -then this initiative WILL be:then this initiative WILL be:
–RationalRational–EffectiveEffective–EconomicEconomic–SustainableSustainable–SensibleSensible
The SUCCESS of a Risk Management System depends on COMMITMENT from all levels
and functions of the organization especially top management.