Strategic management practices of Sri Lankan commercial banks

Strategic management practices of Sri Lankan commercial banks

HASALAKA EDIRISINGHE

BSc (Colombo University, Sri Lanka)

MBA (Deakin University, Melbourne, Australia) This thesis is submitted to the fulfilment of the requirements for the degree of Doctor of Business Administration Australian Graduate school of Entrepreneurship, Swinburne University of Technology, Australia.

2008

Declaration This thesis contains no material which has been accepted at any other

University for the award of a degree, and to the best of my knowledge and

belief, the thesis contains no material previously published or written by

another person or persons , except where due reference is made.

_________________________

Hasalaka Edirisinghe

AGSE Swinburne University of Technology Melbourne, Australia (March 2008)

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Acknowledgements

The completion of this thesis was greatly assisted by a number of people, to whom I am

very grateful. Firstly, I would like to thanks Professor Chris Christodoulou for the

enthusiasm and trust he showed toward both myself and this project. His advice and

guidance were much appreciated throughout my research project and also during the

preparation of this thesis. You were a terrific supervisor. Thank you.

I would also like to thank my second supervisor Professor Chris Selvarajah for his

assistance throughout my research project.

A special mention of appreciation must go to all the senior bank executives who willingly

participated in this research study. Without your help this study might not have been

completed.

Finally, I must thank my father E.M.Jayasinghe and my mother Sumana Edirisinghe, for

their encouragement and assistance during my many years of study. You both have worked

really hard to provide me a good education. I love you and will be forever grateful.

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TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii LIST OF ABBREVIATIONS xvi LIST OF TABLES xvii LIST OF FIGURES xxvi ABSTRACT xxxii PART ONE INTRODUCTION AND 1 BACKGROUND AND LITERATURE REVIEW Chapter 1 Introduction 2 1.1 Introduction 2 1.2 Background to the research 2

1.3 Research objectives 4

1.4 Research process 5 1.5 Structure of the thesis 7

1.6 Significance of the Research 9

Chapter 2 Background on Sri Lanka and the banking 11

industry in Sri Lanka 2.1 Introduction 11

2.2 Background on Sri Lanka 11

2.3 Financial sector in Sri Lanka 12

2.3.1 Central Bank of Sri Lanka 13

2.3.2 Supervision of Banks 14

2.3.3 Licensed commercial Banks (LCB) 15

2.3.4 Challenges faced by the Commercial banking sector 16

2.3.5 Risks being a Bank in Sri Lanka 17

2.4 Macro economic environment of Sri Lankan commercial 19 banks

2.5 Chapter Summary 20

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Chapter 3 Literature review 22 3.1 Introduction 22

3.2 The history of strategy 22

3.3 The definition of strategy 23

3.4 The evolution of strategic management 26

3.5 Strategy Levels 29

3.6 Strategic Management process 30

3.7 The Environment 32

3.7.1 External environment 33

3.7.1.1 General Environment 34

3.7.1.1.1 Political and legal environment 34

3.7.1.1.2 Demography 35

3.7.1.1.3 Socio-cultural 35

3.7.1.1.4 Economic 36

3.7.1.1.5 Technological 36

3.7.1.1.6 Global 37

3.7.1.2 Industry environment 37

3.7.1.2.1 Threat of entry 39

3.7.1.2.2 The threat of substitutes 40

3.7.1.2.3 Bargaining power of suppliers 40

3.7.1.2.4 Bargaining power of buyers 41

3.7.1.2.5 Rivalry among the existing competitors 41

3.7.1.3 Competitor analysis 42

3.7.2 Internal environment 43

3.7.2.1 Organizational structure 44

3.7.2.2 Organizational Ownership 46

3.7.2.3 Organizational Size 47

3.7.2.4 Organizational culture 48

3.7.2.4.1 Sub cultures 51

3.7.2.5 Management style 51

3.7.2.6 Stakeholder expectations 53

3.7.2.7 Resource base view of the company 56

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3.8 Strategic planning 58

3.8.1 Vision and Mission statements 60

3.8.2 Objectives and Goals 61

3.8.3 Analytical tools and techniques 62

3.9 Strategic thinking 65

3.10 Corporate level strategies 67

3.10.1 Diversification strategies 68

3.10.2 International strategy 71

3.10.3 Acquisitions and merger strategies 73

3.10.4 Research and development strategies 74

3.10.5 Turnaround strategies 75

3.10.6 Divestiture strategy 76

3.11 Chapter Summary 77 PART TWO THEORETICAL FRAMEWORK AND 79 METHODOLOGY Chapter 4 Theoretical framework and research questions 80 4.1 Introduction 80

4.2 Theoretical framework 80

4.3 Research questions 83

4.4 Summary 83 Chapter 5 Methodology 85 5.1 Introduction 85

5.2 Population definition 85

5.3 Survey Approach 85

5.3.1 Primary data 85

5.3.2 Secondary data 86

5.4 Instrument development 86

5.4.1 Pre-test of the questionnaire and the final questionnaire 87

5.5 Data collection procedure 88

5.5.1 Introductory letter and the letter of consent 89

5.5.2 Interview process 89

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5.6 Response rate 90

5.7 Data analysis 90

5.8 Framework for analysis 91


PART THREE DATA ANALYSIS 94 Chapter 6 Characteristics of sample companies 95 6.1 Introduction 95

6.2 Industry participation 95

6.3 Respondent aspects 96

6.4 Ownership Aspects 97

6.5 Size aspects 97

6.6 Planning system aspects 100

6.7 Characteristics of the sample companies by 101 ownership, planning and size aspects

6.8 Chapter Summary 102 Chapter 7 Company structure, company 103

ownership and company size 7.1 Introduction 103

7.2 Organizational Structure 103

7.2.1 Organizational structure 104

7.2.2 Organizational levels 104

7.2.3 Number of units at corporate level 105

7.2.4 Highest positions at corporate level 105

7.2.5 Organizational units at second level 106

7.2.6 Highest positions at second level 106

7.2.7 Highest positions at third level 107

7.2.8 Second management level units 108

7.2.9 The lowest level of profit centre 108

7.2.10 Structural types 109

7.2.11 Structural changes in last five years 109

7.2.12 Important structural changes made 110 (during last five years)

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7.2.13 Main reasons for the structural changes 111

7.2.14 Applicability of the current organization structure 112 for the next five years

7.2.15 Major structural changes expected by the bank for the 113 next five years

7.3 Ownership 114

7.3.1 Changes in company ownership 116 (during last five years)

7.3.2 The main reasons for the changes in your 117 company’s ownership

7.3.3 The major factors that supported the above 117 ownership changes

7.3.4 Successful rate of the ownership changes 118

7.3.5 Strategic importance of the ownership changes 119

7.3.6 Expected ownership changes in next five years 119

7.4 Size of the Banks 120

7.4.1 Bank satisfaction on company performance 120 compared to their size

7.4.2 The main barriers faced by the banks to 121 enhance their bank size

7.5 Chapter Summary 122 Chapter 8 Organizational culture, management style and 124

stakeholder expectations 8.1 Introduction 124

8.2 Organizational culture 124

8.2.1 The importance of the management of the 124 organizational culture

8.2.2 Top management satisfaction with the current 125 organizational culture

8.2.3 The groups who influenced the company culture 125 (over the last five years)

8.2.4 The major characteristics of company culture 126

8.2.5 Most important actions on company culture 128

8.2.6 The nature of the cultural changes 130

8.2.7 The main reasons for the cultural changes 130

8.2.8 Major cultural changes made by the banks 132

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8.2.9 The major factors which supported the 134 cultural changes

8.2.10 Major factors which made cultural 136 changes difficult

8.2.11 The banks that experienced problems when 138 implementing cultural changes

8.2.12 Success of the company’s culture changes 139

8.2.13 Expected cultural changes by the commercial banks 140

8.2.14 Presence of sub cultures 141

8.2.15 The major reasons for development of sub cultures 142

8.2.16 Top management perception about the sub cultures 142

8.2.17 Top management preferences on company culture 143

8.2.18 The influence of company culture on 143 company strategies

8.3 Management style 144

8.3.1 Key characteristics of management style 144

8.3.2 The groups who influenced the management style 145

8.3.3 The effect of management style on follower’s 146 performance and job satisfaction

8.3.4 The influence of management style on 147 company performance

8.3.5 The influence of management style on 148 company strategies

8.3.6 The problems faced by the banks in their current 148 management style (over the last five years)

8.3.7 The major problems faced by the banks in their 149 current management style

8.3.8 The power distance between managers and 150 subordinates

8.3.9 Internal politics 150

8.3.10 Top management perception about the 151 internal politics

8.4 Stakeholder expectations 152

8.4.1 Major Stakeholder groups of the banks 152

8.4.2 Stakeholder expectations of the Sri Lankan banks 153

8.4.3 The level of top management interests aligned with 154 the overall stakeholders’ interests

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8.4.4 Company action on stakeholder groups 154

8.4.5 Stakeholder expectation influence on 155 company strategies

8.5. Current resources of the commercial banks 156

8.5.1 Major capabilities of the commercial banks 157

8.5.2 The capabilities which are crucial to the 159 success of the business

8.6 Chapter summary 160

Chapter 9 External environment 164 9.1 Introduction 164

9.2. Demand environments 164

9.3 Competitive environment 167

9.4 Competition and market share 169

9.5 Company customers 171

9.5.1 Company dependence on its major 100 customers 173

9.5.2 The percentage of banks revenues from their 100 174 largest customers

9.6 Company competitors 175

9.6.1 Competitors influence on company strategies 177

9.7 Company business and the government 178

9.8 Company suppliers (Sources of funds) 180

9.9 Company’s business sector 184

9.10 Political and legal environments 185

9.10.1 Current government’s involvement on 188 bank’s operations

9.10.2 Impact of Sri Lankan laws and regulations 189 on bank’s operations

9.11 Impact of Sri Lankan economy on banks operations 191

9.12 Impact of Sri Lankan social/cultural environments on 193 banks operations

9.13 The impact of technology available in Sri Lanka 194 on banks operations


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Chapter 10 Mission, vision and long term goals at corporate 199 and second levels

10.1 Introduction 199

10.2 Company mission statement 199

10.2.1 Stated elements in the mission statement 199

10.2.2 Influential groups on banks mission statements 200

10.2.3 Appropriateness of mission statements for the next 203 five years

10.3 Vision statement 204

10.3.1 Influential groups on formulating banks current vision 205 statement

10.4 Corporate long term goals 206

10.5 Second level long term goals 216

10.6 Chapter summary 221 Chapter 11 Planning and planning systems 224


11.2 Planning systems 224

11.2.1 Relationship between plans 225

11.3 Corporate plans 225

11.3.1 Update and progress review of corporate plan 225

11.3.2 Effort spent on the types of planning activities 225

11.3.3 Forecast development 227

11.3.4 Major headings of corporate plan 232

11.3.5 Access to corporate plan 233

11.3.6 Computer models/systems to support 234

corporate planning

11.3.7 Corporate planning department 236

11.4 Second level planning 240

11.4.1 Major headings of second level long term plans 241

11.4.2 Computer models/system to support second 242

level planning

11.5 Third level and fourth level long term business plans 243

11.6 Contingency planning 243

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11.7 Various functions of corporate planning 244

11.8 Nature of the banks planning process 247

11.9 Planning process and external analysis 250

11.10 Coordination issues involved in the banks 254 planning process

11.11 Personal involvement in the corporate 257 planning process

11.11.1 Roles of various personnel in the 258 planning process

11.12 Major problems of current planning process 261

11.13 Expected changes in the strategic management 261 approach

11.14 Importance of informal planning 262

11.15 Planning effectiveness 263

11.16 Contribution of formal planning 263

11.17 The extent that the banks strategically managed 264


Chapter 12 Strategic thinking capabilities 268 12.1 Introduction 268

12.2 Employee participation and risk taking behaviour 268

12. 3 Systems perspective 269

12.4 Strategic intent 270

12.5 Thinking in time 271

12.6 Intelligent opportunism 272

12.7 Classification for strategic thinkers 273

12. 8 Chapter summary 274

Chapter 13 Analytical tools/ techniques, corporate strategies 277 and the management of quality


13.2 Analytical tools and techniques which influence bank’s 277 strategies

13.2.1 Environment and resource analysis techniques 277 (over the last five years)

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13.2.2 Planning techniques (over the last five years) 278

13.2.3 Environment and resource analysis techniques 279 (over the next five years)

13.2.4 Planning techniques (over the next five years) 281

13.3 Benchmarking 282

13.3.1 Benchmark groups 282

13.3.2 Major dimensions of banks benchmark process 283

13.4 Resource allocation decisions 284

13.4.1 The importance of criteria in evaluating expenditure 285 proposals

13.5 Corporate strategies 287

13.5.1 Product/market growth strategies 288

13.5.1.1 Company’s strategies concerning new products 290 and service introductions

13.5.1.2 Organizational responsibility for new products 291 and markets

13.5.2 Research and development strategies 292

13.5.2.1 Support staff for R& D strategies 293

13.5.3 International strategies 294

13.5.4 Acquisition strategies 298

13.5.5 Divestiture strategies 300

13.5.6 Merger strategies 302

13.5.7 Turnaround strategies 304

13.6 Management of quality 306

13.6.1 Strategic approaches towards the quality in banks 307

13.6.2 Personnel responsible for addressing the major 308 strategic quality issues

13.6.3 The extent that the employees are involved 309 in the quality approach

13.6.4 Total quality management strategies 310


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PART FOUR COMPARISONS WITH 315 PREVIOUS STUDIES AND THE MAJOR RESEARCH FINDINGS

Chapter 14 Comparison with previous studies 316 14.1 Introduction 316

14.2 Background of the previous studies 316

14.3 Formalized strategic planning 317

14. 3.1 Relationship between plans 317

14.3.2 Corporate planning effort 318

14.3.3 Corporate planning effort spent on Forecasting 319

14.3.4 Use of computer models/systems 320

14.3.5 Nature of corporate planning 321


Chapter 15 Major research findings and further 328 research directions


15.2 Major Research findings of the research 328

15.2.1 Research question 1 328

15.2.1.1 Respondents characteristics 329

15.2.1.2 Vision and mission statements 329

15.2.1.3 Long term goals at corporate and second level 330

15.2.1.4 Corporate strategies and processes 331


15.2.2.1 Organizational structure 332

15.2.2.2 Ownership 333

15.2.2.3 Size 333

15.2.2.4 Organizational Culture 333

15.2.2.5 Management style 334

15.2.2.6 Stakeholder’s expectation 335

15.2.2.7 Resources, capabilities and key success factors 335

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15.2.3.1 Demand environment 336

15.2.3.2 Competitive environment 336

15.2.3.3 Industrial factors 337

15.2.3.3.1 Competition and market share 337

15.2.3.3.2 Major customers 337

15.2.3.3.3 Company suppliers 337

15.2.3.3.4 New entrants 338

15.2.3.4 General environmental factors 338

15.2.3.4.1 Political and legal factors 338

15.2.3.4.2 Economic factors 338

15.2.3.4.3 Social cultural factors 339

15.2.3.4.4 Technology factors 339

15.2.4.1 Research question 4 part1 339

15.2.4.1.1 Strategic planning at corporate level 339

15.2.4.1.2 Strategic planning at second level 342

15.2.4.1.3 Contingency planning 342

15.2.4.1.4 Third level and fourth level planning 342

15.2.4.2 Research question 4 part 2 343


15.2.5.1 Company structure 344

15.2.5.2 Organizational culture and management style 344

15.2.5.3 Mission and Vision statements 345

15.2.5.4 Long term goals 346

15.2.5.5 Planning and planning systems 347

15.2.5.6 Corporate strategy and processes 350

15.2.5.7 Management of quality 351


15.3 The unique features associated with different 352 categories of banks

15.3.1 Government banks 352

15.3.2 Locally owned banks 354

15.3.3 Foreign owned banks 357

15.3.4 Large banks 359

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15.3.5 Medium sized banks 362

15.3.6 Small sized banks 364

15.4 The unique features associated with strategic 366 management practices in Sri Lankan banks

15.5 Significance of the study 367

15.5.1 Contribution to theory 367

15.5.2 Contribution to practice 368

15.5.3 Contribution to the methodology 368

15.6 Limitations of the study 368

15.7 Future directions 369


References 370

Appendix 1: Research questionnaire 389

Appendix 2: Introductory letter and letter of consent 495

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LIST OF ABBREVIATIONS & And % Percentage П Mean/Average etc et cetera F Foreign owned G Government owned L Large banks LO Locally owned banks M Medium sized banks N Number S Small sized banks T Total CBSL Central Bank of Sri Lanka FSP Formalized strategic planning MST Moderate strategic thinkers MSBU Multiple strategic business units NFSP Non formalized strategic planning NPL Non performing loans SLSM Sri Lanka stock market SSBU Single strategic business units SST Strong strategic thinkers WST Weak strategic thinkers

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LIST OF TABLES Table 2.1: Core functions of the Central Bank 14 Table 2.2: Financial indicators of the LCB’s 16 Table 2.3: Economy Growth prospects 20 Table 3.1: Mintzberg’s ten schools for strategy 26 Table 3.2: The evolution of the research about leadership 52 Table 3.3: Core arguments for stakeholder responsibility 55

and its practical implications

Table 3.4: Checklist for the PEST analysis 62 Table 3.5: Firm capabilities and diversification strategies 70 for different country resource environments Table 6.1: Banks that participated in this study 95 Table 6.2: Respondents job titles 96 Table 6.3: Description of the three categorize in 97 ownership aspects Table 6.4: Ownership characteristics of the participating 97 companies in terms of ownership aspects Table 6.5: Of these size measures, is one of these 99 considered most important? Table 6.6: Most important size measures of the 99 participating bank Table 6.7: Classification for size aspects 100 Table 6.8: Participating banks in terms of size aspects 100 Table 6.9: Does your company have a formalized 101 strategic planning system at the corporate level? Table 6.10: Characteristics of the sample companies 101 by ownership, planning and size aspects Table 7.1: Could you please provide us with an 103 organization chart of your company?

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LIST OF TABLES (CONTINUED) Table 7.2: Organizational structure 104 Table 7.3: Organizational levels 105 Table 7.4: Number of units at corporate level 105 Table 7.5: Highest positions at corporate level 106 Table 7.6: Organizational units at second level 106 Table 7.7: Highest positions at the second level 107 Table 7.8: Highest positions at the second level 107 Table 7.9: Are the second management level units 108 defined as profit centres? Table 7.10: The lowest level of profit centre 108 Table 7.11: Structural type 109 Table 7.12: Organizational structure changed during last five years 110

Table 7.13: Year of structural change 110 Table 7.14: Important structural changes made 111 (during last five years) Table 7.15: The main reasons for the structural changes 112 Table 7.16: Applicability of the current organizational structure 113 Table 7.17: Major structural changes expected by the 114 banks for the next five years Table 7.18: Bank sell its shares in SLSM 115 Table 7.19: Shareholder pattern of the commercial banks 115

listed under SLSM Table 7.20: Company sell its shares in overseas stock market 115 Table 7.21: Changes in company ownership (during last five years) 116 Table 7.22: The main reasons for the changes in your company’s ownership 117

Table 7.23: The major factors that supported the above ownership changes 118

Table 7.24: Changes in company ownership (For the next five years) 120

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LIST OF TABLES (CONTINUED) Table 7.25: Do you think you need to enhance the size 121 of your bank to gain more profits? Table 7.26: The main barriers that you have to enhance your bank’s size 122 Table 8.1: The major characteristics of company culture 127 Table 8.2: The banks which changed their company cultures 130 (over the last five years) Table 8.3: The nature of the cultural changes 130 Table 8.4:The main reasons for the company culture changes 131 Table 8.5: Major cultural changes made by the banks 133 (over the last five years) Table 8.6: The major factors which supported the cultural changes 135 Table 8.7: Major factors which made cultural changes difficult 136 Table 8.8: The banks which experienced the problems when 138 implementing cultural changes Table 8.9: The problems experience by the banks 138 when implemented cultural changes Table 8.10: Do you expect any major changes in your 140 company’s culture in the next five years? Table 8.11: Expected major culture changes by the Sri Lankan 141 commercial banks Table 8.12: Do you have sub cultures in your company? 141 Table 8.13: The major reasons for development of sub cultures 142 Table 8.14: Do you think development of subcultures weaken 143 or undermine the organization? Table 8.15: Preferred types of company cultures 143 Table 8.16: Key characteristics of management style 145 Table 8.17: The banks which are having significant problems 148 with its current management style

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LIST OF TABLES (CONTINUED) Table 8.18: The major problems faced by the banks 149 in their current management style Table 8.19: Major Stakeholder groups 152 Table 8.20: Stakeholder expectations 153 Table 8.21: Current recourses of the commercial banks 157 Table 8.22: Major capabilities of the commercial banks 158 Table 8.23: The capabilities which are crucial to the success 160 of the business in the Sri Lankan banking sector Table 9.1: Predictability of bank’s revenues/sales 165 (during last five years) Table 9.2: Predictability of bank’s revenues/sales 165 (for the next five years) Table 9.3: Market growth rates of the banks sales/revenues 166 (last five years) Table 9.4: Market growth rates of the banks sales/revenues 166 (next five years) Table 9.5: Competitive environment 167 (During last five years) Table 9.6: Predictability of the banks competitor environments 168 (last five years) Table 9.7: Predictability of the banks competitor environments 169 (next five years) Table 9.8: Most important markets 170 (during last five years) Table 9.9: Most important markets 171 (during next five years) Table 9.10: Major customer groups 172 (last five years)

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LIST OF TABLES (CONTINUED) Table 9.11: Major customer groups for the next five years 173 Table 9.12: The percentages of average banks revenues 175 from their 100 largest customers in terms of ownership and size aspects Table 9.13: Banks major competitors 176 (for the last five years) Table 9.14: Banks major competitors 177 (for the next five years) Table 9.15: Government regulations on banks businesses 178 Table 9.16: Changes expected by the banks 179 in the government regulations Table 9.17: Major sources of funds (last five years) 180 Table 9.18: Major sources of funds (next five years) 181 Table 9.19: Main categories which banks major sources 183 of funds felt into (last five years) Table 9.20: Main categories which banks major sources 183 of funds felt into (next five years) Table 9.21: Possible new entrants to the banking industry 184 Table 9.22: Current impacts of the Sri Lankan government 187 policies on bank’s operations

Table 9.23: Current government’s involvement on bank’s operations 189 Table 9.24: Current impacts of the Sri Lankan laws 191 and regulations on bank’s operations Table 9.25: Current impact of the Sri Lankan 192 economy on bank’s operations Table 9.26: Current impacts of the Sri Lankan 194 social cultural environment on bank’s operations

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LIST OF TABLES (CONTINUED) Table 9.27: Current impacts of the available technology 195 in Sri Lanka on bank’s operations Table 10.1: Does your banks have a mission statement? 199 Table 10.2: Stated elements in mission statement 200 Table 10.3: Changes made by the banks 202 Table 10.4: Average years that the banks will 204 continue their current mission statements Table 10.5: Characteristics of vision statement 205 Table 10.6: Average years that the banks will continue 206 their current vision statements Table 10.7: Does your bank has corporate long term goals 207 Table 10.8: Quantitative long term goals 207 Table 10.9: Does your bank has qualitative goals? 208 Table 10.10: Qualitative long term goals 208 Table 10.11: Processes of formulating banks long-term goals 210 Table 10.12: Have your corporate level goals changed 212 in the last five years Table 10.13: Major changes made by the banks 213 Table 10.14: Banks continuation periods of the current goals 214

Table 10.15: Does your banks have second level long term goals 216 Table 10.16: Units of measurements 217 Table 10.17: Banks processes for formulating 219 second level long term goals

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LIST OF TABLES (CONTINUED) Table 11.1: The banks which had planning systems at corporate level 224 Table 11.2: Banks which had a planning system at second level 224 Table 11.3: Relationship between the plans 225 Table 11.4: Update of corporate plans 226 Table 11.5: Frequency of reviewing the progress of corporate plans 226 Table 11.6: Banks which purchased external forecasts 229 Table11.7: Major headings of corporate long range plan 232 Table 11.8: Organizational personnel who have access to banks corporate 233

plan Table 11.9: The models and systems used by the banks for 235 their corporate planning Table 11.10: Banks which had a corporate planning department 237 Table 11.11: Document used by the corporate planning department 240 Table 11.12: Does your bank has second level long term plans? 240 Table 11.13: Major headings of second level long term plans 241 Table 11.14: Organizational levels that has contingency planning 244 Table 11.15: Banks expected changes in the strategic management 262 approaches in the next five years Table 12.1: Classification for the strategic thinkers 273 Table 12.2: Categorized strategic thinking capabilities of size 274 and ownership aspects Table 12.3: Overall strategic thinking capabilities of the banks 275 Table 13.1: Three major dimensions of banks benchmarking process 284 Table 13.2: Supporting staff of R& D strategies 293 Table 13.3: Percentage of revenue allocations 294

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LIST OF TABLES (CONTINUED) Table 13.4: Does your company have international operations? 294 Table 13.5: Bank’s revenues take place outside Sri Lanka 295 Table 13.6: Three major business types of overseas revenues 295 Table 13.7: Three most important overseas markets of the banks 296 (Over the last five years) Table 13.8: Major reasons overseas markets were chosen 296 Table 13.9: Three most important overseas markets of the banks 297 (Over the next five years) Table 13.10: Did your bank make any significant acquisitions 299 during last five year? Table 13.11: Banks which divested, liquated or eliminated any 300 important operations Table 13.12: Banks which merge with other companies 302 Table 13.13: Has your company made any significant turnarounds 304 in the last five years? Table 13.14: Strategic approach towards quality in the banks 307 Table 13.15: Personals responsible for addressing the major 308 strategic quality issues Table 14.1: Population and the sample size of the current and previous 316

studies Table 14.2: Percentages of formal and non formal planners 317

Table 14.3: Relationship between corporate and short term plans 318

Table 14.4: Corporate planning effort spent on different planning activities 319

Table 14.5: Corporate plan effort spent in forecasting areas 319

Table 14.6: Forecast transmission from corporate to second level 320

Table 14.7: The models and systems used by the companies for 321 their corporate planning

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LIST OF TABLES (CONTINUED)

Table 14.8: Nature of corporate planning process 322

Table 14.9: Corporate planning co-ordination with other planning 322

Table 14.10: Various functions of the corporate planning 323

Table 14.11: Corporate Planning effort put on external analysis 324

Table 14.12: Quality of information received from various departments 325 for corporate planning

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LIST OF FIGURES Figure 1.1: Research process 6

Figure 2.1: Geography of Sri Lanka 11

Figure 3.1: Generic Perspectives on strategy 24

Figure 3.2: The strategy making Pyramid 30 Figure 3.3: Elements of strategic management 32

Figure 3.4: Elements of industry structure 39

Figure 3.5: Components of competitor analysis 43

Figure 3.6: The reciprocal influence view of strategy and 50 environment as moderated by organizational culture Figure 3.7: Stakeholder categories 56

Figure 3.8: Relationship between company resources 58 and core competencies Figure 3.9: The BCG matrix 65

Figure 3.10: The elements of strategic thinking 67

Figure 4.1: Theoretical Framework (strategic management processes) 82 Figure 5.1: Framework for analysis 92 Figure 6.1: Size measures 98 Figure 7.1: Successful rate of ownership change (over the last five years) 118

Figure 7.2: Strategic importance of the ownership changes 119 (Over the last five years)

Figure 7.3: Bank satisfaction level on company performance 120 compared to their size Figure 8.1: Importance of the management of company culture 124 Figure 8.2: Top management satisfaction with the 125 current organizational culture Figure 8.3: The groups who influenced the culture 126 (over the last five years) Figure 8.4: Most important actions on company culture 128

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LIST OF FIGURES (CONTINUED)

Figure 8.5: Success of the company’s culture changes 139 Figure 8.6: The influence of company culture on company strategies 144 Figure 8.7: The groups who influenced the management style 146 Figure 8.8: The effect of management style on 147 follower’s performance and job satisfaction Figure 8.9: The influence of management style on company performance 147

Figure 8.10: The influence of management style on company strategies 148 Figure 8.11: The power distance between managers and subordinates 150 Figure 8.12: The level of internal politics in Sri Lankan commercial banks 151 Figure 8.13: Top management perception about the internal politics 151

Figure 8.14: The level of top management interests 154 aligned with the overall stakeholders’ interests Figure 8.15: Company action on stakeholder groups 155 Figure 8.16: Influence of stakeholder expectations on company strategies 155 Figure 9.1: Company dependence on its major 100 customers 174 Figure 9.2: Competitors influence on company strategies 178 Figure 9.3: Satisfaction levels of the banks on government regulations 179 Figure 9.4: Dependency levels of the banks on their major sources of funds 182 Figure 9.5: Difficulty of entry into banking businesses 185 Figure 9.6: The extent government policies impact on banks operations 186

Figure 9.7: Government involvements in banks operations 188

Figure 9.8: Impact of Sri Lankan laws and regulations on bank’s operations 190 Figure 9.9: The impact of the Sri Lankan economy on bank’s 192 operations

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Figure 9.10: The impact of Sri Lankan social/cultural 193 environment on bank’s operations Figure 9.11: The impact of technology available in 194 Sri Lanka on bank’s operations Figure 10.1: Influential groups on formulating banks 201 current mission statement Figure 10.2: Major factors that influenced the changes in banks 202

mission statements Figure 10.3: Appropriateness of mission statements for the next five years 203 Figure 10.4: Influential groups on formulating banks current vision 206

statements

Figure 10.5: Groups influence on the formulation of banks long-term goals 209

Figure 10.6: Important roles of corporate long term goals 212

Figure 10.7: Factors influenced the changes of banks corporate level goals 214

Figure 10.8: Banks achievement of their corporate goals 215 (during last five years)

Figure 10.9: Major reasons for banks achievements 216

Figure 10.10: The groups who influenced the formulation of second 218

level long term goals

Figure 10.11: Major roles of the second level long term goals 220

Figure 10.12: Quality of the second level long term goals 220 Figure 11.1: Effort spent on the types of planning activities 227 Figure 11.2: Effort expended by corporate 228 planning in forecast development Figure 11.3: Transmission of forecasts from corporate 230 level to second level

Figure 11.4: Impact on the corporate planning if external forecasts 231

purchased were not available

xxviii

LIST OF FIGURES (CONTINUED) Figure 11.5: Difficulty faced by the second level units 231 to obtain information they currently receive from the corporate planning Figure 11.6: Added value of the corporate plan over 234 the second level plans Figure 11.7: Use of computer models/systems to support 235 corporate planning Figure 11.8: The usefulness of computer models/systems 236 for corporate planning Figure 11.9: The extent that line personnel were rotated 237 through the corporate planning department Figure 11.10: Extent of chief corporate planner attend meetings 238 Figure 11.11: The authority of the corporate planning department 238 Figure 11.12: The performance of the corporate planning group 239 Figure 11.13: The extent annual budgets for the second level units 242 were integrated with the long term plans of these units Figure 11.14: Use of computer models/system to support 242 second level planning Figure 11.15: Usefulness of computer models/systems 243 Figure 11.16: Various functions of corporate planning 245 Figure 11.17: Nature of the banks planning process 248

Figure 11.18: Planning process and external analysis 251 Figure 11.19: Coordination issues involved in the banks planning process 255 Figure 11.20: CEO’s personal involvement in the corporate 257 planning process Figure 11.21: Board of director’s involvement in the corporate 257 planning process

xxix


Figure 11.22: How supportive the board of directors regarding 258 corporate planning activities Figure 11.23: Roles of various personnel in the planning process 259 Figure 11.24: Importance of informal planning 262 Figure 11.25: Planning effectiveness of the banks 263 Figure 11.26: Contribution of formal planning 263 Figure 11.27: The extent that the banks strategically managed 264 Figure 12.1: Employee’s participation and their risk taking behaviors 269 Figure 12.2: The relationship of the interdependencies included in the 270

banks value creation process Figure 12.3: Strategic intent 271 Figure 12.4: Banks thinking in time 272 Figure 12.5: Intelligent opportunism 273 Figure 13.1: The influence of environment and resource analysis techniques 278 (over the last five years) Figure 13.2: The influence of Planning techniques (over the last five years) 279 Figure 13.3: The influence of environment and resource analysis techniques 280 (over the next five years) Figure 13.4: The influence of Planning techniques (over the next five years) 281 Figure 13.5: Influence of benchmarking on banks strategies 282 (over the last five years) Figure 13.6: Benchmark groups and the level of benchmarking 283 Figure 13.7: The importance of the long-term resource allocation decisions 285 Figure 13.8: The importance of criteria in evaluating expenditure proposals 286 Figure 13.9: Formalization of corporate strategies 287

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LIST OF FIGURES (CONTINUED) Figure 13.10: The explicit part of banks corporate strategies 288 Figure 13.11: Product/market growth strategies 289 Figure 13.12: Company’s strategies concerning new products and service 290 introductions Figure 13.13: Organizational responsibility for new products and markets 291 Figure 13.14: Research and development strategies 292 Figure 13.15: Global orientation and the international strategies 298 Figure 13.16: Acquisition strategies 299 Figure 13.17: Acquisition strategies (next five years) 300 Figure 13.18: Major reasons for divestitures strategies 301 Figure 13.19: Future roles of divestiture strategies 302 Figure 13.20: Major aims of mergers 303 Figure 13.21: Future roles of merger strategies 304 Figure 13.22: Turnaround strategies 305 Figure 13.23: Future roles of turnaround strategies 305 Figure 13.24: The importance of management of quality 306 Figure 13.25: The extent that the management of quality 306 addressed as a strategic issue Figure 13.26: The extent that the employees are involved in 309 the quality approach Figure 13.27: Total quality management strategies 310

xxxi

ABSTRACT Strategic management addresses the question of why some organizations succeed and

others fail. While the field of strategic management has developed rapidly, no one has

attempted to investigate the strategic management practices of a particular industry in Sri

Lanka. Hence, this research aims to explore the strategic management practices of the Sri

Lankan commercial banks and to provide original knowledge about the strategic

management practices of a particular industry in a developing country.

Licensed commercial banks dominate the financial sector in Sri Lanka and as at 31st

December 2005 there were 22 commercial banks operating in Sri Lanka. The Banking

sector has shown a significant expansion during the last five years. Despite the significant

expansion, the banking industry in Sri Lanka is currently going through a period of rapid

change due to new products and services being introduced by the banking industry as a

result of globalization and the adoption of new technologies. Therefore, an exploration of

the current strategic management practices of the Sri Lankan commercial banks will be

extremely important for every commercial bank in the Sri Lankan banking industry.

The prominent authors in the field of strategic management fall in to two main categories in

the way they look at strategy, namely the “strategic planning” or the “strategic thinking”

approach. This study aims to investigate both the strategic planning and the strategic

thinking capabilities of the Sri Lankan commercial banks. However, the major priority of

this research is to investigate the strategic planning practices which are currently playing a

major role in the strategic management practices of the Sri Lankan commercial banks.

Because of the exploratory nature of the study research objectives were stated instead of

research hypotheses. The large number of variables that were expected to be investigated in

this study, together with no prior knowledge about how the variables would behave in the

Sri Lankan banking industry meant that this study was developed around key research

questions. The theoretical framework for this study is based predominately on previous

research studies but was adapted to the Sri Lankan banking industry and in accord with the

major research questions of this research study.

xxxii

Except for one commercial bank all the commercial banks in Sri Lanka participated in this

study, a response rate of 95.5%. The primary data was collected through personal

interviews using a questionnaire with senior executives who were responsible for their

corporate planning. The respondents were categorized according to ownership, size, and

planning system aspects.

Except for one bank all the banks had a formalized strategic planning system at their

corporate level. Thus, whether it is a large, medium or small sized bank strategic planning

systems played a major role in these banks strategic management processes. However, the

top management of most of these banks were also aware of the importance of having strong

strategic thinking capabilities. It would appear that the banks preferred to have formalized

strategic planning systems and also seek to develop strategic thinking capabilities.

Overall banks spent most of their strategic planning effort on action planning or operational

planning for the next 1 to 3 years. Most of the effort spent on forecast development was in

the areas of domestic economy, laws and regulations for the financial services sector,

industry level demand, and competitive analysis and in these areas the forecasts were

transmitted to a reasonably high degree from corporate level to second level. The

responsibilities for a number of strategic analyses were decentralized to the operations,

marketing and second level managers to some degree but the corporate level was mainly

responsible for competitive, supplier, customer, political, social and cultural analyses

whereas operations people were mainly responsible for technological analyses.

The medium sized, large, locally owned and government owned banks were identified as

being moderate strategic thinkers whereas the small sized and foreign owned banks were

identified as being weak strategic thinkers. There were no strong strategic thinkers

identified amongst the banks. Strategic thinking capabilities such as strategic intent and

intelligent opportunism were identified as low in most banks. Thus, there is much room to

improve the strategic thinking capabilities of Sri Lankan commercial banks.

Corporate strategies such as mergers, acquisitions, and divestitures did not play a major

role in most banks corporate planning during the last five years and are also not expected to

play a significant role in the next five years. However, a reasonable number of banks had

executed turnaround strategies during the last five years. Benchmarking has also played a

xxxiii

reasonably high role in these banks during the last five years. The management of quality is

also considered as important and is being addressed as a strategic issue to a great extent.

There are number of significant contributions from of this research study. First, this study

has identified and discussed the overall strategic management characteristics of Sri Lankan

commercial banks and their expected changes to their strategic management practices in

the next five years. This will also help corporate level managers in Sri Lankan commercial

banks to compare their strategic management practices with other banks. Secondly, the

theoretical framework developed for this study provides the foundation for other research

studies to potentially investigate the strategic management practices of other industries in

Sri Lanka. Finally, the database developed in this study will help other researchers who

plan to do further research into Sri Lankan commercial banks.

xxxiv

PART ONE INTRODUCTION AND BACKGROUND TO THE RESEARCH AND LITERATURE REVIEW Chapter 1: Introduction Chapter 2: Background on Sri Lanka and the banking industry in Sri Lanka Chapter 3: Literature review

1

Chapter 1: Introduction 1.1 Introduction This chapter will discuss the background to the research, research objectives, research

process, structure of the thesis, and the significance of the research.

1.2 Background to the research

The development of the field of strategic management within the last two decades has

been dramatic (Hoskisson, Hitt, Wan & Yiu 1999) and it grows larger every day.

Because of the nature of the strategy it does not contain universal truths that can be

documented through scientific theorems and proofs (Chinowsky & Byrd 2001).

According to Anand & Singh (1997) a significant amount of the empirical studies in

strategy were concerned about the scope of the firm and its performance implications.

However, strategic management generally addresses the question of why some

organizations succeed or fail, and it covers the causes for company’s success or failure

(Porter 1991). While the field of strategic management developing rapidly, no one has

attempted to investigate the strategic management practices of a particular industry in

Sri Lanka. This research aims to explore the strategic management practices of the Sri

Lankan commercial banks and therefore, it will provide insight knowledge about the

strategic management practices of a particular industry in a developing country.

Licensed commercial banks dominate the financial sector in Sri Lanka and as at 31st

December 2005 there were 22 commercial banks operating in Sri Lanka (Central Bank

2005a). The Banking sector has shown a significant expansion during the first half of

2007 and that includes an increase in assets, loans and deposits by 203 billions rupees

which was a 9.5% increase compared to the previous year (Central Bank 2007). Despite

the significant expansion, the banking industry in Sri Lanka is currently going through a

period of rapid change due to new products and services introduced by banking industry

as a result of globalization and the adoption of new technologies. Therefore, exploring

the current strategic management practices of the Sri Lankan commercial banks will be

extremely important for every bank in the Sri Lankan banking industry.

2

Since no organization has unlimited resources, strategists must decide which alternative

strategies benefit the firm most (Fred 1997).Thus, a strategy “reflects managerial

choices among alternatives and signals organizational commitment to particular

products, markets, competitive approaches, and ways of operating the enterprise”

(Thompson & Strickland 2003, p10). Furthermore, different organizations in different

environments are likely to emphasize different aspects of the strategic management

process (Johnson & Scholes 1999). Therefore, investigating the strategic management

practices in Sri Lankan commercial banks, which no one has attempted earlier, is simply

not an easy task.

The major argument in the field of strategic management during last three decades was

whether the strategic management process must be a planning or a thinking process.

Wilson (1998) identifies that, during last three decades strategic planning has been an

on again and off again affair for most companies, even though the need for strategic

thinking has increased rather than decreased. The data from the studies conducted by

Christodoulou (1984), Bonn (1996) showed that in Australian large companies strategic

planning plays a major role however, it has undergone substantial changes since the

early 1980s (Bonn & Christodoulou 1996). Taylor (1997) asserts that strategic planning

is back but, with changes like Mintzberg would have wanted such as less bureaucracy,

more emphasis on implementation and innovation, and fewer staff planners etc.

Therefore, despite its criticism strategic planning still plays a major role in firms.

Collis & Montgomery (1995) assert that because of global competition and

technological changes the markets move faster and faster and that strategic planning is

too static and too slow to adopt the new strategies which match to environmental

changes. Mintzberg (1994) thinks strategic planners should not create strategies but,

they can supply data to help managers think strategically. Mintzberg (1994) further

believes strategic thinking as a synthesizing process, that involves intuition and

creativity, whose outcome is “an integrated perspective of the enterprise”. Simpson

(1998) claims strategic planning is a waste of time because of number of reasons such

as it focuses more attention on the market than on competition, set aggressive top-down

targets instead of developing bottom up financial forecasts etc.

3

Liedtka (1998) asserts “it is individual who think strategically not organizations and in

order to think strategically individuals require a supporting context to manage the

strategic conversations that occur within it and therefore, strategic planning systems can

play an important role in this process”. Thus, companies can have formalized strategic

planning systems and they also can encourage the strategic thinking capabilities inside

their organizations. This study aims to investigate both the strategic planning and the

strategic thinking capabilities of the Sri Lankan commercial banks. However, the major

priority of this research is to investigate the strategic planning practices which are

currently playing a major role in strategic management practices of the Sri Lankan

commercial banks. Christodoulou (1984), Bonn (1996), Nimmanphatcharin (2002),

Kakanamveetil (2004), and Angkasuvana (2005) questionnaires will be redeveloped and

redesigned so as to investigate the Sri Lankan commercial banks strategic planning

practices, and Liedtka’s (1998) elements of strategic thinking model will be used to

analyze their strategic thinking capabilities. Research objectives will be developed

instead of research hypotheses because of the exploratory nature of this research study.

1.3 Research objectives

This research study seeks to explore the strategic management practices of the Sri

Lankan commercial banks and all the major areas of the banks strategic management

activities will be covered. The major objectives of this research are given below.

• To develop a theoretical framework to explore the strategic management

practices in Sri Lankan commercial banks based predominately on the research

conducted by Christodoulou (1984), Bonn (1996), Nut-tapon (2002),

Kakanamveetil (2004), and Angkasuvana (2005).

• To investigate the current strategic management practices of the Sri Lankan

commercial banks and to also identify the future (for the next five years)

strategic management practices that the commercial banks in Sri Lanka expect to

adopt to compete with the other banks in the Sri Lankan banking industry.

• To identify the major internal and external factors that can affect the banks

strategic management practices. The internal environmental factors will include

factors such as ownership, size, planning systems, organizational culture,

4

management style, stakeholder expectations and key capabilities etc. and the

external factors will include factors such as demand environment, suppliers,

political, economic, social, and technological environments etc.

• To investigate the strategic management practices by investigating the banks

strategic planning and strategic thinking capabilities.

• To compare the strategic management practices of Sri Lankan commercial banks

with the studies done in other countries so as to find out the differences of the

strategic management practices between the commercial banks in Sri Lanka and

the companies in other countries.

• To create a data base that will helpful for the future researchers who are willing

to do more research into the Sri Lankan commercial banks.

1.4 Research process

Figure 1.1 illustrates the research process of this research study which aims to explore

the strategic management practices of the Sri Lankan commercial banks. As at 31st

December 2005 there were 22 commercial banks doing business in Sri Lanka and all

those banks were selected as the population for this study. The first step of this research

is to study the banking industry in Sri Lanka and find out the external environmental

factors that can affect their practices. Then a literature review about the field of strategic

management will be undertaken and the literature review will identify the important

concepts and the issues in the field of strategic management important for this study.

Then the theoretical framework will be developed to address the major research

questions and it will be mainly based on the previous research conducted by

Christodoulou (1984), Bonn (1996), Nimmanphatcharin (2002), Kakanamveetil (2004),

and Angkasuvana (2005). Development of the questionnaire will be the next step and

the primary data will be collected through the personal interviews with the senior

executives who are responsible for their (banks) corporate planning. SPSS software will

be used for the primary data analysis and the interpretation of the data will be the next

step. The major research findings of this study will be compared with the major research

findings of the research carried out in other countries. Then the unique features of the

strategic management practices by ownership and size aspects and the unique features

of the strategic management practices in Sri Lankan commercial banks will be

5

summarized. Finally, limitations and the possible directions for future research will be

mentioned.

Figure 1.1 Research process

Study the Sri Lankan banking industry in Sri Lanka and find out the external factors that affect the Strategic management practices of the commercial banks

Literature Review and development of theoretical framework

Development of questionnaire

Data analysis and data interpretation

Compare the major research finding of the research with other research studies and summarize the unique features of the strategic management practices by ownership and size aspects and also identify the unique features of the strategic management practices in Sri Lankan commercial banks.

Identify the limitations of the research and several directions for future research.

Secondary data Primary Data

Conduct personal interviews

6

1.5 Structure of the thesis

This thesis contains 15 chapters and a brief description of each chapter is given below.

Chapter1 Chapter1 will explain the background to the research, research objectives, research

process and the significance of the research study.

Chapter 2

Chapter 2 will discuss the financial sector in Sri Lanka, especially the Central Bank and

the commercial banks of Sri Lanka and highlight the major external environmental

factors that can affect the strategic management practices of the Sri Lankan Commercial

Banks.

Chapter 3

Chapter 3 will provide a literature review of the field of strategic management and

discuss the major relevant theories which are important for the study of Strategic

management practices of Sri Lankan Commercial Banks.

Chapter 4

Chapter 4 will provide the theoretical framework developed for this research study

which is based predominately on the research studies conducted by Christodoulou

(1984), Bonn (1996), Nimmanphatcharin (2002), Kakanamveetil (2004), and

Angkasuvana (2005).

Chapter 5

Chapter 5 will explain the methodology adopted for this study under the major headings

of population definition, survey approach, instrument development, pre test of the

questionnaire, data collection procedure, data analysis and the framework for data

analysis.

7

Chapter 6

Chapter 6 will investigate the major characteristics of the sample companies such as

industry participation, respondent aspects, size aspects, ownership aspects and planning

system aspects.

Chapter 7

Chapter 7 will investigate 3 major internal environmental characteristics of the Sri

Lankan commercial banks more thoroughly and those characteristics will be the

company structure, company size and company ownership.

Chapter 8

Chapter 8 will analyze the organizational culture, management style and stakeholder

expectations of the Sri Lankan commercial banks and perceive whether there are any

significant differences either by ownership, or size aspects.

Chapter 9

Chapter 9 will analyze the external environments of the Sri Lankan commercial banks

and those external environmental dimensions include the demand environment, market

competition, market share, company competitors and customers, company business and

government policies, major sources of funds and banks political, economic, social,

technological, legal environments etc. Any significant difference of the external

environmental dimensions either by size or ownership aspects will be highlighted.

Chapter 10

Chapter 10 will discuss the mission, vision and the corporate level and second level

long term goals of the Sri Lankan commercial banks and find out if there are any

significant differences either by size or ownership aspects.

Chapter 11

Chapter 11 will investigate the planning and planning systems at corporate level and

second level of the Sri Lankan commercial banks and highlight the significant

differences either by size, ownership aspects.

8

Chapter 12

Chapter 12 will investigate the strategic thinking capabilities of the Sri Lankan

commercial banks and highlight the significant differences either by size, ownership

aspects

Chapter 13

Chapter 13 will analyze the analytical tools and techniques which are used to develop

the banks strategies, corporate strategies and the management of quality of the Sri

Lankan commercial banks. Any significant differences by ownership, size aspects also

will be highlighted.

Chapter 14

This chapter will compare the major research findings of this research study with the

major research findings of other research studies carried out in other countries namely

Australia, India, and Thailand. The differences of the strategic management practices

between the countries will be highlighted.

Chapter 15

This chapter will discuss the major research findings of this research in terms of 6 major

research questions. This chapter also summarizes the unique features of the strategic

management practices by ownership and size aspects and the unique features of the

strategic management practices in Sri Lankan commercial banks. At the end of the

chapter the significance of the research and the limitations of the research will be stated.

1.6 Significance of the Research

Firstly, most of the concepts and theories in the domain of strategic management have

been developed in western countries but, this research study is specially designed to

explore the strategic management practices in Sri Lankan commercial banks and

therefore, this research will provide insight knowledge about strategic management

practices of a particular industry in a developing country.

9

Secondly, this study identifies the importance of strategic thinking capabilities in the

banks strategic management process which was lacking in the previous studies of

Christodoulou (1984), Bonn (1996), Nimmanphatcharin (2002), Kakanamveetil (2004),

and Angkasuvana (2005).

Finally, the major research findings of this study will provide the opportunity for the

individual banks to compare and assess their strategic management practices with other

banks in the Sri Lankan banking industry. That will help the individual banks to identify

the shortcomings and strengths of their strategic management practices.

10

Chapter 2: Background on Sri Lanka and the banking industry in Sri Lanka

2.1 Introduction This chapter will provide background on Sri Lanka and the banking industry of Sri

Lanka. Furthermore, the major external environmental factors that can affect the

strategic management practices of Sri Lankan commercial banks will be discussed.

2.2 Background on Sri Lanka Sri Lanka is an island situated in the Indian Ocean to the east of the southern tip of the

Indian subcontinent which is separated by the Palk Strait, a strip of shallow water 18

miles across its narrowest point. It has a total area of 66,000 squire kilometres and a

population of 20.7 millions. The capital of Sri Lanka is Sri Jayawardanepura Kotte and

the major cities with higher population are Colombo, Gampaha, Kurunegala, Kandy,

Kaluthara, and Ratnapura respectively. The geography of Sri Lanka is shown in figure

2.1.

Figure 2.1 Geography of Sri Lanka

Sri Lanka

11

The origins of Sinhalese are from the north Indian Aryans who came to the island in

500 BC. The other significant ethnic group the Tamils is from Dravidian origin.

Buddhism arrived to the country in 300 BC and provided the foundation to develop a

greater civilization around the cities of Anuradhapura and then Polonnaruwa. All the

kings who governed the country during these eras gave Buddhism a higher priority.

Buddhists- Sinhalese civilization in Sri Lanka came under attack during the colonial

eras of the Portuguese, the Dutch and the British. Sri Lankan politics since

independence from the British has been strongly democratic and all the governments

have been elected democratically.

74% of the Sri Lankan population is Buddhist Sinhalese, 13% Tamils, and 7% Muslims.

The official languages of Sri Lanka are Sinhala, Tamil and English. Sri Lanka is

struggling with a civil war since 1983, and the fights are still occurring in the northern

part of the country between the government forces and the LTTE (a guerilla

organization who fights for a part of the country). About 65,000 people have been killed

but they could not find a permanent solution to end the crisis permanently. The civil war

has caused a major setback to the development of the country. The ceasefire signed by

the government and the LTTE in 2002 gave the opportunity for the all citizens in the

country to enjoy the benefits of a peaceful environment but, unfortunately it has come to

an end in 2005.

Sri Lanka has a high level of literacy (93%) and a life expectancy of 73 years despite its

low income per capita. Sri Lanka is a developing country and its services sector

produces 55% of the GDP. The fastest growing sector which is manufacturing is

dominated by the garment industry, while the agricultural sector produces 18% of the

GDP and more than one of the third of the workforce is involved in the agricultural

sector.

2.3 Financial sector in Sri Lanka

The financial sector in Sri Lanka consists of financial institutions such as licensed

commercial banks, licensed specialized banks, registered finance companies, primary

dealers, the employee’s provident fund, insurance companies and financial markets

12

such as the foreign exchange market, the money and capital market, other informal

financial markets and the financial infrastructure consisting of the legal framework

underlying the financial system and the payment and settlement system (Central Bank

2005a). Even though there are so many financial institutions, the financial sector in Sri

Lanka is dominated by the licensed commercial banks and the licensed specialized

commercial banks which have 57% of the total assets and 94% of the total deposit

liabilities. The Central Bank of Sri Lanka is responsible for the smooth functioning of

the financial sector.

2.3.1 Central Bank of Sri Lanka

The Central Bank of Sri Lanka was established in 1949 by the monetary act and it

started operations on the 28th August 1950. The objectives of Central Bank was

amended by the monetary law act in 2002 and the newly established core objectives of

the Central Bank are maintaining economic and price stability, and maintaining

financial system stability (Central Bank 2005b). A higher degree of autonomy has been

given to the Central Bank to achieve their objectives and it closely works with the

Ministry of Finance when making policy decisions.

To safeguard price stability, the Central Bank needs to introduce and implement policies

to control imports and exports. Price stability of the country directly influences the

inflation rate and when price stability is high there is usually a low inflation rate for the

country. When the inflation remains low consumers and producers can make their

decisions more confidently and this is usually the basis for long term economic growth

for the country (Central Bank 2005a).

The Central Bank of Sri Lanka (2005a) defined financial system stability as “the

effective functioning of the financial system which create a favorable environment for

depositors, encourages efficient financial intermediation and the effective functioning of

markets and hence promotes investment and economic growth”. Central Bank also

recognized that lack of financial system ability increases bank failures. The core

functions of the Central Bank of Sri Lanka are listed in Table 2.1.

13

Table 2.1 Core functions of the Central Bank

Core functions of the Central Bank

Conduct of monetary policy Conduct of exchange rate policy Management of the official foreign reserves of Sri Lanka Issue and distribution of currency. The central bank has the exclusive right to issue banknotes and coins that are legal tender in Sri Lanka. Licensing, regulation and supervision of banks, finance companies and primary dealers in government securities. Provision of clearing and settlement facilities to financial institutions (commercial banks and primary dealers) holding settlement accounts with the Central Bank. Acting as the economic advisor, banker and fiscal agent of the government.

Source: Objectives, functions and organization, Central Bank 2005

2.3.2 Supervision of Banks

The Central Bank is responsible for the regulating and supervising of banks in the Sri

Lankan financial system to safeguard the depositors and investors. According to the

Banking Act and Monetary Law act, the Central Bank is the licensing authority for

banks and it issues two types of licenses, for the commercial banks and specialized

banks. Only commercial banks are able to maintain current accounts and the specialized

banks can maintain only savings accounts. The supervisory functions of Central Bank

include the issue orders on the licensing, operations and closure of banks, the prudential

requirements relating to banks, the resolution of weak banks and the enforcement of

regulatory actions (Central Bank 2005b).

14

2.3.3 Licensed commercial Banks (LCB)

Licensed commercial banks (LCB) have been the most important financial institutions

in Sri Lankan financial sector in terms of assets and the magnitude of financial services

provided. LCB accounted 46% of the total financial sector assets and 81% of the

banking systems assets (Central Bank 2005a). According to financial stability review of

the Central Bank of Sri Lanka (2006), there were six large commercial banks in the Sri

Lankan banking industry which in total have 81% of the total licensed commercial

banks assets. These six banks include 2 government owned banks and 4 locally owned

banks.

Table 2.2 shows the financial indicators of the LCB from 2001-2006. It is worth

mentioning that most of the LCB’s credits distributed to the trading, consumption,

housing and property development sectors respectively. The volume of LCB’s non

performing loans (NPL) and NPL ratios have reduced during last few years and that can

be highlighted as a major development in the banking industry. Return on asset ratio

increased 0.8 to 1.8 from 2002 to 2006. However, banks liquidity ratio has gone down

from 30.9% to 23.9% during the period of 2002-2006. During the period of 2002 and

2003 Sri Lanka’s commercial banks overall return on equity and liquidity ratios were

higher and that is mainly due to the economic growth reported by the Sri Lanka’s

financial sector because of the cease fire agreement between the government and the

LTTE. Thus, it is worth noting that the war between the government and LTTE has a

major influence on the country’s economy.

15

Table 2.2 Financial indicators of the LCB’s

Micro Prudential Indicators of the Banking Sector

2001 2002 2003 2004 2005 2006

Licensed Commercial Banks

1. Capital Adequacy Ratio - Tier I Capital Ratio (%)

7.8 9.3 8.9 9.3 12.2 10.5

2. Capital Adequacy Ratio - Total Capital Ratio (%)

8.6 10.3 10.3 10.3 12.8 11.7

3. Gross NPA as a % of Total Loans & Advances

15.3 14.5 12.5 8.9 6.8 5.4

4. Net NPA as a % of Capital Funds 134.7 93.7 52.3 29.8 16.5 12.6 5. Sectoral Credit Distribution (%) Trading 40.5 37.7 36.8 35.7 32.6 29.1 Financial 3.2 3.3 4.2 4.8 5.2 6.1 Agriculture 4.7 4.7 4.5 3.8 4.3 3.9 Industry 10.5 11.6 10.9 10.0 9.7 8.8 Tourism 1.3 1.4 1.4 1.3 1.5 1.5 Housing & Property Development 14.0 14.1 14.0 14.3 14.4 16.2 Consumption 11.6 12.5 14.1 16.3 17.3 19.4 Others 14.2 14.7 14.0 13.7 15.0 15.0 6. Return on Assets (%) 0.8 1.1 1.4 1.4 1.7 1.8 7. Return on Equity (%) 15.5 20.5 21.1 18.3 16.8 18.5 8. Liquidity Ratio, % (DBU) 30.9 33.2 26.1 26.3 24.2 23.9 9. Net Open Position (NOP), % of Capital Funds

5.4 3.1 (5.6) 2.8 0.01 0.01

Source: Financial system stability Report 2006, Central Bank of Sri Lanka

2.3.4 Challenges faced by the Commercial banking sector

Piyasena & Corera (2006) identify that Sri Lankan capital markets are underdeveloped

and that they have not posed serious competition to the banking sector hence

commercial banks were able to maintain a high percentage of assets in the financial

sector. According to Ahamed (2006) Sri Lankan financial markets have somewhat

lagged behind the rest of their regional counterparts. Madurapperuma (2006)

categorizes 24 banking functions that the commercial banks in Sri Lanka currently are

performing such as financial intermediation, diversification of credit risk, asset stripping

etc., and points that banking industry is not dying but, other financial institutions and

16

instruments such as merchant and investments banks, insurance companies, leasing

companies, unit trusts, portfolio fund managers are trying to replace banks. However,

Madurapperuma (2006) concludes that mindset and the habits of the people in Sri Lanka

had led to an existence of a dominant banking system and it will take some time to

replace it by other financial institutions and by other instruments. Abeyaratna (2005)

mentions non-banking organizations involved in taking deposits have been growing

both in terms of numbers as well as volume, and claims that it is a potential threat for

the commercial banks which depend on retail deposits to mobilize funding for their

growing asset portfolios. Thus, we can expect more developments in financial markets

in Sri Lanka in the near future which directly influence the percentage of total assets

owned by the commercial banks. Hence, banks will need to deliver higher returns for

their shareholders in order to keep them with the banks in the future and to achieve that

goal banks will need to use their assets more efficiently to get maximum returns.

Perera (2006) asserts that commercial banks in Sri Lanka have to deal with an

increasing pace of change in the competitive environment within which they operate

and he proposes four key elements for the banks to adopt to successfully face those

changes such as risk management, technology, service excellence, and relationship

management. Kumara (2006) claims that despite the technology spread in the field of

banking, Sri Lankan people preferred the service with a human touch rather internet

banking and this highlight the importance of branch banking with higher technology.

Therefore, banks need to open branches through out the island to gain more customers

as most of the consumers of Sri Lankan commercial banks preferred not to use internet

banking facilities but, like to visit branches for their needs.

2.3.5 Risks being a Bank in Sri Lanka

Madurapperuma (2005) recognizes three broad categories of risks that the commercial

banks can face such as credit risk, market risk and operational risk. Credit risk is the

risk of loss due to a debtor’s non-payment of a loan or other line of credit and this might

be the most significant risk that a bank can face. Market risk comes from the changes in

the market prices such as exchange rates, interest rates, and equity and commodity

prices. Operational risk can be defined as the risk of loss resulting from failed internal

17

processes, people and systems or from external events. Banks have to take risk when

they do business and those risks leads to gains or losses. Madurapperuma (2005),

Parekh & Jayasinghe (2006) identifies the importance of capital adequacy and asset

quality to deal with these risks.

The credit growth rate remained at 21% at the end of year 2006 and it has been at a high

level during the recent past (Central Bank 2006). The growth of credit was due to higher

credits demanded from consumption and housing and construction industries. The

volume of non performing loans (NPL) and the ratio of NPL to total loans in the past

few years have reduced but, there has been a slight increase in last few months in the

year of 2006. Commercial Banks reported having higher provision covers for their NPL

and it was reported that government banks have a provision cover of 80% of the NPL

(Central Bank 2006). Thus, the Central Bank thinks there is no credit risk for the Sri

Lankan commercial banks in the short term but is planning to introduce policies to

restrict the execution rights of banks for the loans of above Rs. 5 million as a solution to

reduce the credit risk of the banks.

The banking industry is highly dependent on interest income and therefore, fluctuations

in interest rates heavily influence the banks success or failure (Central Bank 2006).

Inflation influences the interest rates and Central Bank allows banks to increase their

interest rates for deposits and lending’s gradually in response to the inflation rates. It

was reported that the banking sector in Sri Lanka have not been adversely affected by

the fluctuations in interest rates and banks continue to maintain their high profits further

(Central Bank 2006).

In addition to operational risks which can occur due to human errors and system failures

the Central Bank of Sri Lanka identified two other kinds of operational risks which can

heavily influence the banking industry in Sri Lanka (Central Bank 2006). First risk is

the concentration of shareholder power of large and medium sized locally owned banks.

There is a trend to acquire banks significant shareholdings through indirect ways and

create a monopoly in the banking industry by one or very few businessmen and that can

adversely affect the performance of the entire banking industry in Sri Lanka. To address

this issue Central Bank has introduced a new share ownership policy for banks which

allows a maximum shareholder limit at 15% while retaining the threshold limit at 10%

18

and shareholdings exceeding 15% need to get the approval from the Monetary Board

only for special situations (Central Bank 2006). The second kind of risk involves the

large financial firms which have banks as part of their company. Large number of cross

shareholdings, common directors and inter group transactions which lead to abuse of

power can adversely affect the banking system in Sri Lanka (Central Bank 2006).

2.4 Macro economic environment of Sri Lankan commercial banks

The global economy growth rate in the year 2005 and 2006 were 4.9% and 5.1%

respectively and it was expected to grow 4.9% in the year 2007 (see table 2.3).

Therefore, global financial market conditions remain positive for the Sri Lankan

financial system and all the major export markets are expected to grow steadily in the

year 2007 and also major import markets such as India, China and South Korea are

expected to grow more rapidly. However, Central Bank of Sri Lanka identified some

risks that can influence the Sri Lankan financial system negatively in the longer term.

The significant increases in oil and metal prices in the world market can cause higher

inflation in developing countries like Sri Lanka and higher inflation can negatively

affect the performance of the Sri Lankan banking industry. Current account deficit in

USA is also considered as a risk because it may lead to a reduction in USA’s imports

and the USA is a major export market of Sri Lanka. Despite those risks, the Central

Bank of Sri Lanka expecting a growth rate of 7.5-8.5 % for the year 2007 (Central Bank

2006). Thus, the macro economic picture for the next year is expected to be positive for

the Sri Lankan financial sector.

19

Table 2.3 Economy Growth prospects

Region and country 2005 2006 2007

World Advanced Economies USA Euro Area Japan Emerging Market and developing countries Developing Asia China India

4.9 2.6 3.2 1.3 2.6 7.4 9.0 10.2 8.5

5.1 3.1 3.4 2.4 2.7 7.3 8.7 10.0 8.3

4.9 2.7 2.9 2.0 2.1 7.2 8.6 10.0 7.3

Source: World Economic Outlook 2006 (Adopted from Financial system stability review, Central Bank,

2006)

2.5 Chapter Summary

Sri Lanka is an island situated in the Indian Ocean with a population of 20.7 millions.

The capital of Sri Lanka is Sri Jayawardanepura Kotte and the higher population cities

are Colombo, Gampaha, Kurunegala, Kandy, Kaluthara and Ratnapura. 74% of the Sri

Lankan population is Sinhala Buddhists followed by 13% Tamils and 7% Muslims. The

official languages are Sinhala, Tamil and English. Around 65,000 people have been

killed due to the war with LTTE, a guerilla organization who is fighting for part of the

country since 1982. Despite the low income per capita Sri Lanka has a high level of

literacy (93%) with a life expectancy of 73 years.

Sri Lankan commercial banks (LCB’s) dominate the financial sector in Sri Lanka, and

the Central Bank of Sri Lanka is responsible for regulating and supervising banks in the

Sri Lankan financial sector to safeguard the depositors and investors. LCB accounted

for 46% of the total financial sector assets and 81% of the banking system’s assets. The

Central Bank identified 6 large banks which have 81% of the total LCB’s assets and

those 6 banks include 2 government owned banks and 4 locally owned banks. During

the period of 2002-2003 the Sri Lankan banking sector reported improvements in the

financial performance figures such as liquidity ratios, return on equity and return on

assets and that was mainly due to the higher economic growth achieved by Sri Lankan

20

economy since the government’s ceasefire agreement with the LTTE. Thus, the

war/peace situation in Sri Lanka has a great influence on the country’s economy.

It was found that the capital markets in Sri Lanka are underdeveloped and have not

posed serious competition for the banking sector yet. The mind set and the habits of

people led to the existence of a dominant banking system in Sri Lanka and it probably

will take some time for part of it to be replaced by other financial institutions and

instruments. However, in the near future it will be more competitive for the LCBs as

other financial institutions and instruments develop rapidly. Thus, banks will have to

deliver higher returns to their shareholders to keep them with the banks in the future and

they will also have to use their assets more efficiently to increase their returns. Despite

the expected competition from the other financial markets banks need to open more

branches to attract more customers because it is widely believed that most of the

customers of Sri Lankan banks preferred to have a service with a human touch rather

using internet banking facilities.

Credit risk, market risk and operational risk can be identified as the three major risks

currently facing the banking industry in Sri Lanka and according to the Central Bank all

these kinds of risks are at a manageable level. The world economy and the global

business environments remain favorable for businesses in the 2007. However, an

increase in oil prices and an increased current account deficit in USA can negatively

affect the Sri Lankan financial sector in the longer term but, even with those negative

effects the Central Bank of Sri Lanka is expecting the economy to grow 7.5%-8.5% in

the year 2007.

The next chapter will discuss the literature review of this study.

21

Chapter 3: Literature Review 3.1 Introduction

This chapter will discuss the literature in the field of strategic management. The

literature review will start by analyzing the history of strategy, and the definitions for

strategy. Then the evolution of the field of strategic management will be discussed.

The literature review will also identify the analysis of external and internal

environmental factors that affect company’s strategic management practices. External

environment will be discussed under three major categories namely the general,

industry and competitor environments. The major internal environmental factors that

will be discussed in this chapter include the factors such as structure, ownership, size,

organizational culture, management style, stakeholder expectations, resources,

capabilities and core competencies of the companies. Then the literature review will

focus on two views of strategic management namely strategic planning and strategic

thinking. Under the strategic planning approach, vision and mission, objectives and

goals, and analytical tools and techniques which are used for strategic planning will

be discussed. The concept of strategic thinking will be discussed under the elements

of Liedtka’s (1998) strategic thinking model. Finally, the literature review will discuss

the major corporate strategies that a company can adopt and these include

diversification, international, acquisitions and mergers, research and development,

turnaround, and divestiture strategies.

3.2 The history of strategy The history of strategy and strategic management goes back to 500 BC. It is believed

that many concepts of strategy have come from Chinese military history and many

concepts about strategy were written in “The Art of War” which was originally

written in the 6th century BC by Sun Tzu (Hubbard 2000). He highlights the

importance of quick responses to changing environments and asserts planning works

only in controlled areas but, not properly in changing battlefields. Although the

concept of strategy goes back to Chinese military history its application to the

22

business world is relatively recent. According to Hubbard (2000) as an academic

discipline, the first books in the field are considered to be the 1965 Learned,

Christensen, Andrews and Guth’s book developed for teaching business policy at the

Harvard Business School and Ansoff’s book on corporate planning published in the

same year. The major objective in the model of strategy in both books was to match

the internal resources and capabilities of the organization (organization’s strengths

and weaknesses) with the demands of the environment (its opportunities and threats).

According to these two books strategy totally belongs to the chief executive officer

(CEO) who had to assess the company’s position and to decide which strategy to

implement (Hubbard 2000).

3.3 The definition of strategy

According to Meyer & Wit (1999), the only way of understanding the philosophy of

strategy is to understand the diversity of the definitions of strategy given by the many

outstanding thinkers in the field of strategy and also to conclude that there is no

simple answer to the question of what is “strategy”.

Whittington (1993) proposes four basic approaches to strategy namely classical,

processual, systemic and evolutionary. These four approaches differ fundamentally

according to the outcomes of strategy and the processes by which it is made. The

vertical axis of figure 3.1 measures the degree to which strategy either produces profit

maximizing or pluralist motives. The horizontal line measures whether strategies are

deliberate or emerge by experience.

In the classical perspective, strategy is perceived as a rational process which includes

deliberate calculation and analysis. Classical theorists believe that the environment

can be changed and therefore, rational analysis and objective decision making

determine the organization’s long term success or failure (Whittington 1993). Their

ultimate goal is to maximize the competitive advantage of the company.

In the evolutionary perspective, rational planning is often seen as irrelevant.

Environment is too unpredictable for evolutionary theorists and therefore, they expect

23

markets to secure profit maximization rather than relying on rational planning

methods. All managers can do is make sure that they fit as efficiently as possible to

the environmental demands of the day (Whittington 1993).

Figure 3.1 Generic Perspectives on strategy

Outcome Profit-Maximising

Pluralist

Processual Systemic

Evolutionary Classical

Process Deliberate

Emergent

Source:Whittington 1993, P.3

Processual theorists believe rational plans can be changed over the time due to

environmental changes and the differences of individuals who create and implement

those plans. Therefore, strategies emerge with much confusion and in small steps. For

processual theorists, both the organization and markets are often sticky messy

phenomena and the best advice is “not to strive after the unattainable ideal of rational

fluid action, but to accept and work with the world as it is” (Whittington 1993, p23).

Systemic strategists accept the importance of the rational planning to act effectively in

response to environmental changes and they reject the notion of rational planners as

perfect profit maximizers. According to systemic perspective, strategies can be

changed due to the managers’ cultural and social backgrounds. As a result different

organizational structures and goals can be created and therefore, firms differ

according to the social and economic systems in which they are embedded

(Whittington 1993).

24

Similarly, Mintzberg et al (1998) proposes five P’s for the strategy and views strategy

as plan, pattern, ploy, position or perspective. Strategy as “plan” describes strategy as

a direction, a guide or course of action into the future, a path to get from here to there

and therefore, strategies are intended and made prior to the actions. “Pattern”

perspective views strategy as consistent behaviour over time and therefore, the pattern

view is looking at its past behaviour while the plan view is looking at the future.

Companies can develop strategies for the future and they also can identify the pattern

of their strategies in the past. Thus, the plan view has the intended strategy and the

pattern view has the realized strategies. Mintzberg’s view of strategy as a ploy

represents a specific plan to outwit an opponent or competitor. For example a

company may threaten to expand plant capacity to discourage a competitor from

building a new plant and thus, the company’s strategy was the threat, not the

expansion (Mintzberg & Quinn, 1996). Mintzberg view of strategy as position

believes “Strategy is the creation of a unique and valuable position, involving a

different set of activities” (Mintzberg et al, 1998, P 13) and strategy as perspective

viewers consider the company’s fundamental way of doing things. The perspective

view “looks inside the organization, indeed, inside the heads of the strategists, but it

also looks up-to the grand vision of the enterprise” (Mintzberg et al 1998, P14).

In addition to the above five definitions of strategy, Mintzberg et al (1998) proposes

ten schools of strategy such as design, planning, positioning, entrepreneurial,

cognitive, learning, power, cultural, environmental and configuration. These ten

schools have different views about the strategy (See table 3.1) and the relationships

between them are varied according to the development of strategy.

25

Table 3.1: Mintzberg’s ten schools for strategy

Strategy School Concept The Design School Strategy Formation as a process of

conception The Planning School Strategy Formation as a formal process The Positioning School Strategy Formation as an analytical

process The Entrepreneurial School Strategy Formation as a visionary process The Cognitive School Strategy Formation as a mental process The Learning School Strategy Formation as an emergent

process The Power School Strategy Formation as a process of

negotiation The Cultural School Strategy Formation as a collective

process The Environmental School Strategy Formation as a reactive process The Configuration School Strategy Formation as a process of

transformation

Source: Mintzberg et al 1998, p5 3.4 The evolution of strategic management

Once we come to the conclusion that the definitions of strategy can be varied

according to its formation process and purposes of the business, it is worth noting that

the study of strategic management is simply not an easy task. However, Hussy (1998)

mentions that a historical perspective in strategic management explains some of the

conflicting views of strategic management and shows how the subject has developed

as organizations tried to find better ways of developing strategies for the future and,

how environmental changes led to new concepts of strategy making being sought.

Prior to the 1920s, most business decisions were relatively short term in focus and

less entrepreneurial (Bourgeois 1996). With the beginning of the modern companies

such as General Motors, Dupont in the 1920s, companies tended to focus on long-

term plans and financial planning played a major role among senior managers. “The

methods typically involved translating sales forecast into production schedules,

estimating the costs associated with the planned volume, and deriving the profit

forecasts” (Bourgeois 1996, P4) and this approach was based on the assumptions that

the environment was stable and that sales projections could be made.

26

In 1965 Igor Ansoff published his first book titled “corporate strategy” when most of

the companies were using long range planning (Hussey 1998). In the late 1960s

companies in the United States underwent many changes such as massive

multinational mergers and acquisitions to avoid anti trust laws, which discouraged

high market shares in any particular industry (Hubbard 2000). As a result BCG

developed a 2×2 market growth/relative market share matrix and developed the

concept of the experience curve (Hubbard 2000). In late 1960s and early 1970s

companies had to cope with higher inflation due to high oil prices and they had to

introduce cost control methods. During this period the major purpose of the

companies was survival rather long term planning. Therefore, in late 1960’s long term

planning was replaced by corporate planning. Corporate planning addressed the

company’s long term and short-term goals, scope and growth directions. Ansoff (1965

p94) highlights the importance of corporate planning by stating “Firm need a well

defined scope and growth direction, that objectives alone do not meet this need, and

that additional decision rules are required if the firm is to have orderly and profitable

growth”.

In 1980s Porter’s model of competitive analysis and his set of generic strategies and

the concept of value chain dominated the area of strategic management. Porter (1980)

introduced the model of five competitive forces in a company’s environment that

influence competition such as threat of new entrants, bargaining power of firm’s

suppliers and customers, threats of substitute’s products and intensity of rivalry

among competing firms. Porter (1980) further claims that these forces may explain

why firms adopt a particular strategy. In his book (1985) titled “Competitive

Advantage”, Porter asserts two basic types of competitive advantage a company can

have namely low cost or differentiation and proposes three kinds of generic strategies

that can be adopted to gain competitive advantage such as cost leadership,

differentiation, and focus. Porter (1985, p16) further argues that companies which fail

to adopt one of these strategies are “stuck in the middle” (P.16). Furthermore, Porter

(1985) introduced the value chain model as a basic tool to systematically examine all

the activities a firm performs and claims how they interact is necessary for analyzing

the sources of competitive advantage.

27

While Porter’s work dominated in the field of strategic management in 1980s

Japanese companies competed against the United States companies by adopting Total

Quality Management (TQM) principles which concentrate more on efficiency and

effectiveness of operations than unique strategies (Hubbard 2000). Therefore,

companies in United States understood that there was more to strategy than industry

analysis and positioning the firm against competitors. In the early 1990’s the field of

strategic management was attracted to the Prahalad & Hamel’s (1990) concept of

building “core competencies” to achieve sustainable competitive advantage. Prahalad

& Hamel (1990) define the core competences as “the collective learning in the

organization, especially how to coordinate diverse production skills and integrate

multiple streams of technologies”. Prahalad & Hamel (1990) further highlighted the

importance of having core competencies as well as the external environmental factors

and the positioning of the company in a market.

Both the industry analysis and the resource based view analysis only provide static

analysis of the organization’s current position and do not concentrate much on the

future external environmental trends (Hubbard 2000). Globalization and technological

developments which took place in the late 1980’s led to changing business

environments for the companies in the globe and companies had to react to these rapid

environmental changes.

Mintzberg (1987) always a big fan of organizational learning asserts that all strategy

making walks on two feet namely deliberate and emergent, and deliberate strategy

focuses on control while emergent strategy focuses on learning. Mintzberg praises the

value of emergent strategy because it opens the door for strategic learning of the

company and it also acknowledges the organization’s capacity to experiment

(Mintzberg et al 1998, p189). Nonaka and Takeuchi (1995) define organizational

learning as knowledge creation and propose four modes of knowledge conversions in

a company. The major purpose of organizational learning is to successfully face

future environmental changes and therefore, most of the strategists view of the

strategic management process is as a thinking process rather than a planning process

(Mintzberg 1987).

28

Thus, in 1990’s prominent authors in the strategic management literature field fall in

to two main categories in the way they look at strategy, namely the “strategic

planning” and the “strategic thinking” approaches. However, Heracleous (1998)

identifies the number of different ways that the various authors use the terms of

strategic planning and strategic thinking. According to Heracleous (1998) for some

authors “strategic thinking and strategic planning are two different thinking modes

which can use at the different stages of strategic management process (eg Mintzberg),

for some authors strategic thinking is not so much creative as analytical (eg Porter),

for some authors strategic planning has remained an analytical activity but the

organizational practices surrounding it have been transformed, and for some the real

purpose of analytical tools of strategic planning is to facilitate strategic thinking, and

for others strategic planning is useless and should be scrapped in favour of strategic

thinking. Liedtka (1998) highlights the importance of strategic planning systems for a

company to provide a supportive context for the employees to think strategically.

Thus, it is worth noting that companies can have strategic planning systems and also

encourage the strategic thinking capabilities within it.

Given that there is no exact definition of the strategic management with prominent

strategists arguing their own perspectives on strategic management, this literature

review will now focus on strategy levels, and the major elements of strategic

management.

3.5 Strategy Levels

Johnson & Scholes (1999) identify three levels of strategy in a large company namely

corporate level, business level and operational level strategy. Similarly, Thompson &

Strickland (2003) divide companies into two categories namely diversified and single

business companies and propose four strategy levels for diversified companies (see

Figure 3.2) namely corporate, business, functional and operational levels while

proposing three levels of strategies for the single business companies such as

business, functional and operating level strategies. According to Johnson & Scholes

(1999 P11), corporate strategy is “concerned with the overall purpose and scope of the

29

organization to meet the expectations of owners or major stakeholders and add value

to the different parts of the enterprise”. Business level strategy is to compete

successfully in a particular market (Johnson & Scholes 1999), and functional level

strategies are for each specific functional unit within a business such as marketing,

finance, and production etc., and operational level strategies to manage the basic

operation units in the functional areas such as plants and sales (Thompson &

Strickland 2003).

Figure 3.2 The strategy making Pyramid

A diversified company

Corporate Level Strategies (Responsibility of corporate level managers)

Business Level Strategies (Responsibility of business-level general managers Functional level strategies (Responsibility of heads of major functional activities Activities within a business unit or division)

Operational level strategies (Responsibility of plant, managers, geographic unit managers, and lower level supervisors)

Source: Thompson & Strickland (2003) Strategic Management: Concepts and Cases p52

3.6 Strategic Management process

Johnson & Scholes (1999) developed a model for strategic management which

consists of strategic analysis, strategic choice and strategy implementation. Similarly,

Thompson & Strickland (2003) identified five major tasks of strategic management

that include developing a strategic vision and business mission, setting objectives,

crafting a strategy to achieve the objectives, implementing and executing the strategy,

evaluating performance. Figure 3.3 shows the model developed by Johnson & Scholes

(1999) to explain the strategic management process. According to Johnson & Scholes

30

(1999) strategic analysis is concerned about the strategic position of the company in

terms of its external and internal environments and stakeholder expectations. Analysis

of external environment includes the company’s operating political, economic, social,

technological, legal environments and the main purpose of that is to find out the

opportunities and threats that exist in the operating environment. Similarly, internal

environmental analysis is concerned with the company’s resources and competences

which can identify its strengths and weaknesses. The other part of the strategic

analysis includes the analyses of the stakeholder expectations and the company’s

major purposes.

Strategic choice includes identifying the bases of strategic choice, generating strategic

options and evaluating and selecting of strategic options. Johnson & Scholes (1999)

highlight that identifying the bases of strategic choices means identifying the

company’s strategic mission and intent which provides the overall ambition of the

company and also how the company seeks to compete at the SBU level. Generation of

strategic options seeks to find out what strategic development direction best matches

the company’s main objectives. Evaluating and selecting of strategic options includes

an assessment of the suitability of the strategy and that may be an evaluation of the fit

between company’s resource capability and operating environment or the

development of company’s resource capability to create more opportunities for the

company (Johnson & Scholes 1999).

Strategy implementation involves the process of translating strategy into

organizational action through organizational structure and design, resource planning

and the management of strategic change (Johnson & Scholes 1999). The major

questions needed to be addressed by the company under the strategy implementation

are the questions such as what should the company structure and design be, what are

the key tasks that need to be carried out, and what sort of systems are needed to

monitor progress etc.

31

Figure 3.3 Elements of strategic management

Strategic analysis

Strategic choice

Strategy implementation

The environment

Expectations & Purpose

Bases of strategic choice

Organization structure and design

Strategy evaluation and selection

Resource allocation and control

Managing strategic change

Strategic options

Resources, competences, and capability

Source: Johnson & Scholes (1999) exploring corporate strategy p24

3.7 The Environment

The success of a business in a company mostly depends on the match between its

operating environment and the company and therefore, understanding the

environment is important for every company. Viljoen (1996, p185) asserts that “one

of the primary tasks of the strategist is the management of the interface between the

organization and its external environment”. Several studies (eg. Lanyon & Abdalla

1997, John, Bruce & Fred 1982, Ronald 2003) also highlight the importance of

environmental analysis for strategic planning. According to Johnson & Scholes

(1999) environmental analysis is important for managers because of three reasons.

First, managers face difficulties when trying to understand the environment because

32

the environments consist of so many different influences. Secondly, is the uncertainty

of the future that is being created by fast growing technological changes and the speed

of global communication. Finally, managers are human beings that can make errors

and therefore, the need to reduce the complexity of the environment by the use of

environmental analysis methods.

Kendra (2004, p40) defines “environmental scanning as internal communication of

external information about issues that may potentially influence an organization’s

decision making process”. Thus, the entire environment can be divided into two major

categories namely the external and the internal environments. Analysis of external

environment helps organization to understand their external environment and Hitt,

Ireland & Hoskisson (2005) note that when the firm’s understanding of the external

environment is matched with knowledge about its internal environment it helps to

form the company’s strategic intent, strategic mission and also to create strategies.

3.7.1 External environment

External environmental scanning is to identify and evaluate trends and events beyond

the control of the organization (Fred 1997). It helps the organization to identify the

opportunities and the threats that exist in the environment. Several research studies

such as Maier, Rainer & Snyder (1997), Rivers, Fottler & Parker (2005), Haque,

Khatibi & Karim (2006) recognize the importance of analyzing the external

environmental factors that can affect the organization. Hitt et al (2005) identify the

war on Iraq, the strength of separate economies at different times, and the emergence

of new technologies as three major examples of external environmental factors that

affect most of the companies in USA.

Hitt et al (2005) divide the external environment into three major categories namely

the general, industry, and competitor environments. The general environment has a

number of dimensions such as political/legal, technological, socio cultural, global,

demographic which represent the broader society that can influence an industry and

the firms within it. The industry environment is the set of factors that directly

influence the organization and its competitive actions such as the threat of new

33

entrants, the power of suppliers, the threat of product substitutes, and the rivalry

among the competitors. Competitor analysis is about the collecting and interpreting

information about the company’s competitors. Hitt et al (2005) assert that the analysis

of general environment focuses on the future, and the analysis of the industry

environment focuses on the factors and conditions that influence the company’s

profitability within its industry while analysis on competitor environment focuses on

predicting the dynamics of competitor’s actions, responses and intentions.

3.7.1.1 General Environment

The general environment consists of the factors that can affect the company

dramatically and normally, the company has less ability to predict them and to control

them (Dess, Lumpkin & Eisner 2006). Dess et al (2006) & Hitt et al (2005) divides

the general environment into six major dimensions such as demographic,

sociocultural, political/legal, technological, economic, and global. Most of the studies

use PEST analysis to analyze the general environment which represents political,

economical, sociocultural, and technological factors that can affect the firms

businesses. Johnson & Scholes (1999) claim that the major questions need to be asked

when doing a PEST analysis are what environmental factors are affecting the

company?, which of these are the most important at the present and in the next few

years?. The following paragraphs will discuss the six dimensions of the general

environment identified by Dess et al (2006) & Hitt et al (2005).

3.7.1.1.1 Political and legal environment

A number of studies such as Quer & Claver (2007), Heinrich (2007), and Narjoko

(2007) highlight the influence of political factors that can affect the firm’s strategic

position while studies of Thomas (2004), Foster (2005), and Demil & Bensedrine

(2005) investigate the influences of legal systems of a country for the firm’s

businesses. Hitt et al (2005) assert that despite the International Monetary Fund (IMF)

push for countries to liberate trade barriers, the political and legal policies towards

international business differ significantly from country to country. Thus, it is

advisable for a company to analyze and understand its political and legal environment

and the possible future changes in the policies of the government. Johnson & Scholes

34

(1999) identify that monopolies legislation, environmental protection laws, taxation

policy, foreign trade regulations, employment law, and government stability are the

most important factors that need to be identified by a firm when analyzing its political

and legal environments.

3.7.1.1.2 Demography

Demographic factors are the easiest element to analyze in the general environment

(Dess et al 2006). Studies conducted by Bakshi & Zhiwu (1994), Shiclds (2005), and

D’souza, Taghian & Khosla (2007) found that it was important to understand the

demographic factors so as to perform well in the business environment. Hitt et al

(2005) state that the major segments which need to be analyzed in demography are

population size, age structure, geographic distribution, ethnic mix, income distribution

etc. China and India have large markets due to their high populations and as a result

we can see large companies trying to move their businesses into those two countries

and this illustrates how population size can affect the company strategies. The number

of elderly people in USA is rapidly growing and therefore, new markets will emerge

in future to satisfy their needs such as retirement villages, restaurants, and hospitals

(Hubbard 2000). Grete & Seyan (2005) study found that even though the retailers in

UK show more interest in targeting the young people, the mature consumers will

become more important for the fashion industry in the UK in the next decade because

of their increasing population

3.7.1.1.3 Socio-cultural

The socio-cultural segment is concerned with the society’s attitudes and cultural

values (Hitt et al, 2005) and social concerns can have immediate effect on the

activities of an organization (Viljoen, 1996). For example people now trying to quit

from smoking and also trying to have balanced diets as a result of their increased

education about healthy activities. This trend has affected the tobacco business

companies and the food manufacturers. Hubbard (2000) asserts that sociocultural

trends are difficult to capture, because change is almost invisible but claims that

companies need to understand the new attitudes and trends of people to be successful

in the future. The developments in single dating agencies and the establishment of

35

super markets that provide longer shopping hours for the customers are two examples

of companies responding by identifying people’s sociocultural attitudes.

3.7.1.1.4 Economic

Study of the economic environment is important for every company because

customers consumption patterns are largely influenced by the economic trends such as

disposable income, inflation rate, interest rates etc.(Viljoen, 1996). Studies conducted

by Lindani (1996) and Peter (2004) found the influence of macro economic indicators

for organization businesses. Government’s fiscal policy and monetary policy

determine the country’s general economic conditions. Thus, economic conditions in

the general environment link with the political and legal factors.

3.7.1.1.5 Technological

Hubbard (2000) claims that most organizations were affected by major technological

changes. Dess et al (2006) support that notion by identifying innovation which helps

to create new industries and alters the boundaries of existing industries. Charlene &

Carolyn (2003) argues that when the technology of an industry changes, the firm’s

approach to sourcing new technology plays a major role in building the capabilities

needed to build new technical outputs. Thus analysis about the technological

environment becomes vital for most companies.

Thomas & Anne (1996) found that by only adopting information technology (IT) has

not produced a sustainable competitive advantage for companies, but some companies

gained a competitive advantage by using IT to leverage intangible, complementary

human and business resources such as flexible culture, supplier relationships,

planning- IT integration etc. Similarly, findings of Michael & Ravipreet (2003) study

concluded that organizational learning plays a significant role in mediating the effects

of IT on company’s performances.

The study of Shaker & Jeffrey (1993) found that technology policies of firms can vary

widely according to their different business strategies and John (1987) sees

technological innovation of a company as a useful tool for the corporate strategy.

36

Thus, there must be a link between technology and the company’s business and

corporate strategies.

3.7.1.1.6 Global

According to Hitt et al (2005, p 49) the global dimension of the general environment

includes “new global markets, existing markets that are changing, important

international political events, and critical cultural and institutional characteristics of

global markets”. Marc (2002) identifies that new market opportunities, competitive

threats, and diffusion of business models associated with globalization were the main

reasons for restructuring of firms during last decade. The results of the study of Orly

(2005) suggests that firms whose managements pay more attention to their external

environment are more likely to develop global strategies to expand but, managements

who concentrate more on internal environments are less likely to be global. Harry and

Denise (2000) found that internal driving forces to become global include owner-

manager knowledge and competencies, and the skills of their work force and the

external driving forces that cause globalization include willingness and ability of

owner-managers to participate in global networks, gather specific marketing

information, and have access to relevant channels of distribution.

Different companies use different global strategies when they do business globally.

The study of Johny & George (1993) found that Japanese companies have more

global strategies than American companies and as a result the Japanese companies

perform more favorably than the American companies globally.

3.7.1.2 Industry environment

An industry is a group of firms producing products that are close substitutes (Hitt et al

2005, p52) and compared to general environment industry environment has a more

direct effect on company’s competitiveness. Company’s competitiveness depends on

the nature of the industry that the company is doing their businesses. Porter (2004)

sees the competition as the core to firm’s success or failure and highlights the

importance of having a competitive strategy to successfully position against the forces

37

that determine industry competition. According to Porter (1980, p.3) “industry

structure has a strong influence in determining the competitive rules of the game as

well as the strategies potentially available to the firm”. Thus, the analysis of industry

environment is important to every company.

Porter (2004) states that whether it is domestic or international, or whether they

produce a product or service, the competition is embodied in five competitive forces

namely the entry of new competitors, the threat of substitutes, the bargaining power of

suppliers, and the rivalry among the existing competitors. Figure 3.4 shows Porters

five forces that affect competition among companies. The collective strength of those

five forces determines the ability of company’s profits over their competitors. The

strongest competitive force or forces determine the profitability of an organization

and therefore, companies need think about the impacts of those forces for the

company, before formulating the strategies (Porter 1979).

38

Figure 3.4 Elements of industry structure

Power of suppliers

Bargaining Industry competitors Intensity of rivalry

Bargaining

Substitutes

Power of buyers

Threat of substitutes

Determinants of substitutes threats Relative price performance of substitutes Switching costs Buyer propensity to substitute

Determinants of buyer power Buyer concentration- - versus firm- -concentration Buyer Volume Buyer information Price sensitivity Price/total purchases Product differences Brand identity Buyer profits

Buyers Suppliers

New entrants

Rivalry determinants Industry growth Fixed/costs/value added Intermittent overcapacity Product differences Brand identity Switching costs Concentration and balance Informational complexity Diversity of competitors Corporate stakes Exit barriers

Entry Barriers Economics of scale Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantage Government policy Expected retaliation

Threat of new entrants

Determinants of supplier powerDifferentiation of inputs Switching costs of suppliers - -and firms in the industry Presence of substitute inputs Supplier concentration Importance of volume to supplier Cost relative to total purchase in - – the industry

Source: Minntzberg et al (1998) Strategy Safari, p 101

3.7.1.2.1 Threat of entry

New entrants to an industry influence the market share of existing companies and also

the substantial resources available for them. The seriousness of threat of entry

depends on the present barriers to entry and the reaction from the existing competitors

that the entrants can expect. Porter (1979) identifies that if the barriers to entry are

high and if the newcomers can expect sharp retaliation from the existing competitors

in a market then the existing companies will not pose a serious threat for the new

entrants. Furthermore, Porter (1979) proposes six sources of barriers to entry namely

39

economies of scale, product differentiation, capital requirements, cost advantages

independent of size, access to distribution channels and government policies.

3.7.1.2.2 The threat of substitutes

Companies doing business in one industry are more likely to have stronger

competition when their products and services are good substitutes. Porter (1979,

p142) asserts that “substitutes products that deserve the most attention strategically

are those that (a) are subject to trends improving their price performance trade-off

with the industry’s product, or (b) are produced by industries earning high profits”.

Thompson and Strickland (2003) proposes three factors that determine the substitute’s

strong competitive pressures for their competitors such as whether attractively priced

substitutes are available, whether buyers view the substitutes as being satisfactory in

terms of quality, performance, and other relevant attributes, and whether buyers can

switch to substitutes easily. Johnson & Scholes (1999, p120) proposes four different

forms of threat of substitution.

• Product to product substitutes: for example fax for the postal service and e-

mail for the fax

• Substitution of need by a new product or service rendering an existence

product or service superfluous: for example, if more precise casting means that

engine blocks are cast to a finer specification, then demand for cutting tools

may be reduced.

• Generic substitution occurs where products or services compete for need: for

example furniture manufacturers and retailers compete for available household

expenditure

• Doing without can also be thought of as a substitute: for example tobacco

industry

3.7.1.2.3 Bargaining power of suppliers

Suppliers can exercise their bargaining power with the companies in an industry by

threatening to increase prices or reduce the quality of purchased goods and services.

40

Thus, powerful suppliers can influence company’s profitability by increasing the

prices of their inputs to the company (Porter 1980). Porter (1980) further identifies

that powerful suppliers can be created through the situations when it is dominated by

a few companies and is more concentrated than the industry it sells to, it is not obliged

to contend with other substitute products for sale to the industry, the industry is not an

important customer of the supplier group, and the suppliers product is an important

input to the buyer’s business etc. Furthermore, Porter (1980) recognized labor as a

major supplier for the companies and further mentions that scarce, highly skilled

employees can bargain away significant amount of company’s profits.

3.7.1.2.4 Bargaining power of buyers

Like suppliers, buyers also can force down prices, demand higher quality or more

service, and play competitors off against each other at the expense of industry profits

(Porter 1979). Buyers bargaining power will be more powerful when it is

concentrated or purchases large volumes relative to seller sales, the product it

purchases from the industry represent a significant fraction of the buyer’s costs or

purchases, the product it purchases from the industry are standard or undifferentiated,

and it earns low profits etc (Porter 1980).

3.7.1.2.5 Rivalry among the existing competitors

According to Thompson and Strickland (2003) rivalry between the existing

competitors is the strongest force among the Porter’s five forces that creates

competition among the companies in an industry. Price competition, product

introduction and advertising slugfests are some of the tactics companies can use to

counter the rivalry among the existing competitors. Porter (1979) highlights a number

of factors that increase the rivalry among the competitors in an industry such as

numerous and equally balanced competitors, slow industry growth, high fixed or

storage costs, lack of differentiation or switching costs, capacity augmented in large

increments, diverse competitors etc. According to Porter (1980) the extent of

competitive rivalry among the companies can be changed due to changes in industry

growth because of the industry maturity.

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3.7.1.3 Competitor analysis

In addition to general and industry environments analysis, competitor analysis is the

other part of the external environment analysis of an organization. Increased rivalry

between companies leads companies to pay more attention to competitor analysis. Hitt

et al (2005, p63) identifies four major questions that the companies need to find

answers to when they do a competitor analysis such as,

• What drives the competitor, as shown by its future objectives?

• What the competitor is doing and can do, as revealed by its current strategy?

• What the competitor believes about the industry, as shown by its assumptions?

• What the competitor’s capabilities are, as shown by its strengths and

weaknesses?

Furthermore, Hitt et al (2005, p64) highlights the importance of companies having

competitor intelligence which “is the set of data and information the firm gathers to

better understand and better anticipate competitors objectives, strategies, assumptions,

and capabilities” for an effective competitor analysis. The major components of a

competitor analysis are shown in the figure 3.5.

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Figure 3.5 Components of competitor analysis

Future Objectives How do our goals compare with our competitors goals? Where will emphasis be placed in the future? What is the attitude toward risk?

Assumptions Do we assume the future will be volatile? Are we operating under a status quo? What assumptions do our competitors hold about the industry and themselves?

Capabilities What are our strengths and weaknesses? How do we rate compared to our competitors?

Response What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors?

Current strategy How are we currently competing? Does this strategy support changes in the competitive structure?

Source: Hitt et al, 2005, p64

3.7.2 Internal environment

In this section, the internal environmental factors that can affect the strategic

management practices of companies will be discussed and these factors include the

organizational structure, company ownership, company size, organizational culture,

management style, stakeholder expectation, and the company resources, capabilities,

competencies and core competencies.

43

3.7.2.1 Organizational structure

Organizational structure is considered by many to be the anatomy of the organization

and the idea of structure as a framework “focuses on the differentiation of positions,

formulation of rules and procedures, and prescriptions of authority (Ivancevich 1997,

p669). Chandler (1962, p14) defines structure “as the design of organization through

which the enterprise is administered” and mentions design has two aspects first, the

lines of authority and communication between the different administrative offices and

officers and second, the information and data that flow through these lines of

communication and authority. Ivancevich (1997) further asserts that through the

design of the structure, management establishes expectations for what individuals and

groups will do to achieve the organization’s purposes. Therefore, the structure of an

organization provides differentiation and integration of work undertaken by the

employees of the company.

Robbins (1987) identifies three major components of a company structure namely the

complexity, formalization and centralization. Complexity refers to the degree of

differentiation that exists within an organization, formalization refers to the degree to

which jobs within the organization are standardized, and centralization refers to the

degree to which decision making is concentrated at a single point in the organization.

Robbins (1987) also found that centralization and complexity of structure are having

an inverse relationship. Thus, the decentralized structures were associated with high

complexity.

Johnson & Scholes (1999) proposes four kinds of structures that a company can adopt

namely simple, functional, multidivisional and matrix structures. Simple structures are

better for the companies which have an owner with very small number of

subordinates and simple structures can apply only to small sized companies.

Functional structures divide into organizational units based on the separate functions

they perform such as production, finance and marketing. Daft (2001) highlights a

number of strengths of functional structures such as allowing economies of scale

within the functional departments, enabling in depth knowledge and skill

development and to accomplish functional goals. Weaknesses include slow response

44

time to environmental changes which may cause decisions to pile on top, and lead to

poor horizontal coordination among departments and result in less innovation etc

(Daft 2001).

Multidivisional structures sub divide into organizational units on the basis of

products, services and geographical areas. In multidivisional structures divisions can

be created as single business units (SBU’s). SBU is “a unit of a firm which has the

responsibility for developing the firm’s strategic position in one or more SBA’s” and

SBA (strategic business area) is “a distinct segment of the environment in which the

firm does business” (Ansoff & McDonnell 1990, p50). The multidivisional structures

are best suited to fast changes in unstable environments that involve high coordination

across functions, allows units to adopt different products and clients and usually best

in large companies with several products (Daft 2001). The weaknesses of this

structure is the loss of economies of scale in functional departments, poor

coordination across product lines, and the difficulties to integrate and standardize

across product lines (Daft 2001, p100).

In a matrix structure teams consists of individuals borrowed from functional managers

by account or product managers and therefore, individuals report to two bosses

(Palmer & Hardy 2000). The strengths of matrix structure are it achieves coordination

necessary to meet dual demands, flexible sharing of human resources across products,

suited to complex decisions and frequent changes in unstable environments (Daft

2001). The weaknesses are it causes participants to experience dual authority which

can be frustrating and confusing, time consuming due to frequent meetings and

conflict resolutions sessions and will require great effort to maintain power balance

(Daft 2001). The structural contingency framework argues that environment is a

major factor that decides which structural type is going to be optimal such as

functional structures in stable environment, divisionalized structures in diversified

environments and matrix structures in unstable and turbulent environments etc

(Palmer & Hardy 2000).

Several research studies found a significant positive relationship between strategy and

structure (Chandler 1962, Grinyer, Ardekani & Al-Bazzar 1980, Rumelt (1974) and

Channon 1975). Rumelt (1974) and Channon (1975) found a significant positive

45

relationship between the fit of strategy and structure with performance while Grinyer,

Ardekani & Al-Bazzar (1980) found only a very small (not significant) positive

relationship. Thus, the research findings about the fit between strategy structure and

performance were ambiguous.

The debate over structural fit with strategy still remains in the strategic management

literature. Chandler (1962) in his research concludes that structure follows strategy

and the importance of a fit between strategy and structure to be succeeded. However,

Palmer & Hardy (2000) question the traditional idea of a fit between strategy and

structure and assert managers appear more likely to succeed, by finding the right fit of

structural components for a particular situation but, being aware of the fluidity of the

processes that make up technology, environment, strategy and structure and by

developing skills to manage those processes more effectively. Palmer & Hardy (2000)

idea was supported by Ghoshal & Bartlett (1995,p96) and claim that companies need

to have purpose-process-people policies instead of strategy structure systems to shape

the behaviors of people and create an environment that enables them to take initiative,

to co-operate, and to learn.

3.7.2.2 Organizational Ownership

The standard assumption in economics and strategic management is that the owners of

the companies want to maximize their economic profits or shareholder value

(Thomsen & Pedersen 2000). Agency theory demonstrates that top managers, acting

as agents of stockholders, can take action that may not be consistent with the interest

of owners (Li & Simerly 1998). Managers may have other interests such as high

compensation, low effort levels, expense preference etc. which differ to their owners’

interests and therefore, the relationship between managers and owners can differ in

firms.

A number of researchers attempted to find the effects of ownership structure (equity

structure) on company performance but, failed to identify which ownership structures

significantly affect company performances. However, Short (1994) finds support for

the hypothesis that owner controlled firms have higher profitability measures than the

46

manager controlled firms but, the results were often statistically insignificant (Short

1994).

Several research studies focus on the ownership concentration of companies and its

effects for the companies. Ownership concentration measures the power of

shareholders to influence the managers (Thomsen & Pedersen 2000). The research of

Gedajlovic & Shapiro (1998) finds that country effects exist in the ownership

concentration-profitability relationship due to institutional differences across

countries. Similarly Ramaswamy, Li & Veliyath (2002) claim that the ownership

behaviors differed according to different countries and therefore, the relationship

between ownership and corporate governance may have differences. Li & Simerly

(1998) link the ownership-performance relationship with the environment and find

that increased insider ownership leads to better returns under conditions of greater

environmental dynamism. Furthermore, the research of Peng (2004) finds that

outsider directors do make a difference in firm performance especially in sales growth

but, only a little impact on financial performances such as return on equity.

In other research regarding the relationship between company ownership and

company corporate strategies, Wright, Kroll, Lado & Van (2002) argue that risk

increasing corporate strategies may initially be emphasized but, risk reducing

strategies may subsequently be emphasized as managers expand their stock

ownership. Similarly, Denis, Denis & Sarin (1999), Lang & Stulz (1994) and Loderer

& Martin (1996) asserts that when the companies have a higher ownership incentives

companies are less likely to adopt risk reducing strategies such as diversification

strategies because owners prime goal is to maximize the profitability.

3.7.2.3 Organizational Size

Size is a major element of organization and therefore, several researchers focus on

company size with other aspects of the company such as size with structure

(Mintzberg, Lampel, Quinn & Ghoshal 2003, Johnson & Scholes 1999), size with

corporate culture (Hitt, Hoskisson & Harrison 1991), size with innovation

(Hammonds 2002), size with economies of scale (Lewis, Morkel & Hubbard 1993),

47

size with company’s strategic response (Clemens, Bamford & Douglas 2007) size

with decision making process (Kubicek 2006) and size with company performance

(Clayton & Arnold 1987) etc.

Researchers in the business field still debate how the company size should be

measured. Robbins (1987) claims that over 80 percent of research studies were using

the number of employees as a size measure. However, Robbins (1987) identifies some

criticisms about the number of employees as a size measure because it comprises full

time and part time employees and also some big companies can have a small number

of employees due to their high level of efficiency. Despite the criticisms Robbins

(1987) rated number of employees as a good measure because it was highly related to

other size measures such as total of assets etc.

Argenti (1980) views size as a critical strategic consideration for the company and

asserts that when a company grows it has to face three kind of major problems such as

lack of flexibility, adoption of formal procedures for management, and increase of

social responsibility.

According to Lewis, Morkel & Hubbard (1993) larger companies have the potential to

operate at lower unit costs than their smaller counterparts and therefore are in a good

position to gain competitive advantage. Mintzberg & Quinn (1996) asserts larger

organizations have more formalized behaviors, and also the more elaborate its

structure, that is the more specialized its jobs and units then the more developed will

be its administrative components. According to Hammonds (2002) large companies

cannot innovate easily. Thus, the research findings about the firm size and its strategic

success are ambiguous.

3.7.2.4 Organizational culture

Organization culture is a complex and deep aspect of organization that can strongly

affect the members of an organization (Champoux 2003). Schein (1985) defines

organizational culture as “a pattern of basic assumptions-invented, discovered, or

developed by a given group as it learns to cope with the problems of external

adaptations and internal integration that has worked well enough to be considered

48

valid and therefore, to be taught to new members as the correct way to perceive, think

and feel in relation to those problems”. Schein (1985) and Champoux (2003) identify

three dimensions of organizational culture such as the artifacts and creations, values,

and basic assumptions. Artifacts include sounds, architecture, language, products, and

ceremonies of an organization. Values tell organization members what they do in

various situations and basic assumptions tell organization members how to perceive,

think about and feel about work, performance goals, human relationships and the

performance of colleagues. According to Champoux (2003) artifacts of the culture

have the highest and basic assumptions have the lowest level of visibility for the

employees.

Barney (1986) in his research found that firms that have valuable, rare, and

imperfectly imitable cultures can be a source of sustainable competitive advantage for

the firm. The research of Carmeli & Ashler (2004) found a positive relationship

between organizational performance and organizational culture and Bate (1996)

asserts that companies need to think culturally about the strategy and strategically

about the culture. The study of Scroggins (2006) highlights the importance of the

culture when implementing successful strategies. Thus, company strategy, company

performance have a close link with company culture.

Figure 3.6 shows a simplified relationship between the environment, strategy and

organizational culture. According to the figure 3.6 the perceptions of the top

management of the company about the environment (strategy formulation) is

influenced by the initial values and practices of company’s members (organizational

culture). Similarly, strategic responses taken by top management to changing

environmental factors are also influenced by the organizational culture (Vecchio et al

1996). Thus, strategists need to consider their organizational culture when they

formulate and implement strategies.

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Figure 3.6: The reciprocal influence view of strategy and environment as moderated by organizational culture.

Environment Top management team

C U L T U R E

Strategic response

Perceptual Process

Source: Vecchio, Hearn & Southey 1996, p702

Similarly, Kotter & Heskett (1992, p11) studies conclude the relationship between

corporate culture and company performance:

• Corporate culture can have a significant impact on a firm’s long term

economic performance

• Corporate culture will probably be an even more important factor in

determining the success or failure of firms in the next decade

• Corporate culture that inhibit strong long term financial performance are not

rare, they develop easily, even in firms that are full of reasonable and

intelligent people

• Although tough to change, corporate cultures can be made more performance

enhancing

Changing environmental conditions pressure the companies to change their cultures to

adopt new strategies to successfully respond to those changes. Stace & Dunphy

(1994) recognized powerful pressures that forced the organizations to change their

organizational cultures such as new technology, more demanding customers,

increased productivity, increased quality, increased responsiveness, increased product

differentiation and continuous innovation. Hellriegel et al (1998, p554) proposes a

number of requirements that a company needs to fulfill when they change their

organizational cultures such as:

• Understanding the old culture first to understand from where the changes must

start,

• Providing support for employees and teams who have ideas for better culture,

50

• Finding the most effective subculture in the organization,

• Not attacking culture head-on but, finding way to help employees and teams to

do their jobs more effectively,

• Treating the vision of a new culture as a guiding principle for change,

• Recognize that significant organization wide cultural change takes 5-10 years,

• Living the new culture because actions speak louder than words.

3.7.2.4.1 Sub cultures

Organizational cultures can be divided into different sub cultures and there are

number of reasons for developing sub cultures in an organization. Champoux (2003)

identifies three major reasons for developing sub cultures in an organization such as

different occupational groups, different social backgrounds and workforce diversity

and the global environment of an organization. Different occupational groups include

finance, accounting, manufacturing etc. and different social backgrounds include the

different income level families and people groups who have a variety of values and

view points. Workforce diversity includes the different people who come from

different races, religions, ages, sex etc. It is believed that companies with strong

cultures have a lesser amount of subcultures than companies with weak cultures.

3.7.2.5 Management style

During last four decades considerable strides have been taken to understand what

leadership is (Fiedler 1996), and Nysted (1997) clearly states how research about

leadership changes over time (see table 3.2).

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Table 3.2 The evolution of the research about leadership

From beginning of this century-1940 The major assumption was that leaders possessed

universal characteristics that made them into

leaders and centered on the identification of traits

associated with great leadership

From 1940-1960 Focused on what leaders did rather than who the

successful leaders are

From 1960-1980 Focused on the view that effectiveness of

leadership depends on interaction between

leadership style and situation

In 1980’s Focused on charismatic, transformational, and

visionary leadership behavior, attribute

importance, both explicitly, to personality traits.

Source: Nysted (1997) Who should rule? Does personality matter?

Poulin & Hackman (2001) state the success of two firms in similar industry can be

varied and the two central explanations of such firm level differences in performance

was leadership and strategy. Hambrick (1987) conclude that the strategic success of

the firm mainly depend on the fit between the firm’s competitive environment and top

management team’s aptitudes, skills and knowledge base. Thus, leaders’ behaviors

have a major influence on company success.

Managers can adopt different styles to influence their subordinates and finally to

reach the company goals. Fiedler’s contingency model in leadership literature

explains why a managers may be an effective leader in one situation and ineffective in

another (Waddell, Devine, Jones & George 2007). According to Fiedler’s model

leadership style can be varied from relationship oriented to task oriented leaders.

Similarly, Robert House (House’s path goal theory) identifies four kinds of leadership

styles that can motivate subordinates such as directive (focus on getting the job done),

supportive (focus on subordinates), participative (give subordinates a say in decision

making) and achievement oriented (motivate subordinates to perform at the highest

level) behaviors (Wadel et al 2007). House’s Path goal theory further claims that

directive behaviors work when subordinates are having difficulties to complete tasks,

52

supportive behaviors work when subordinates are experiencing high level of stress,

participative behaviors work when subordinates support of a decision is required and

achievement oriented behaviors work when subordinates need to achieve higher level

or goals (Waddell, Devine, Jones & George 2007 p206).

Rapid changes in economic conditions in the globe and technological developments

have caused organizations to seek to increase their productivity by increasing their

management effectiveness. A number of research studies highlights the importance of

continuous leadership training (eg.Collins 2001, Sarri, Johnson, Mclaughlin &

Zimmerle 1988, and Collins & Holton 2004) to increasing management effectiveness

of companies. Sarri, Johnson, Mclaughlin & Zimmerle (1988) find that most US

companies expect stable or increase management training and education in the next

five years and the main reasons were the need to update managers on changing

concepts/skills and an increased company emphasis on management training and

education. According to Collins (2001) leadership development is truly effective only

when it adds value to the entire organizational system at all of the core levels namely

the organizational, group and individual levels.

3.7.2.6 Stakeholder expectations

Johnson & Scholes (1999, p213) define stakeholders as “those individuals or groups

who depend on the organization to fulfill their own goals and on whom, in return, the

organization depends”. According to Nix, Whitehead & Blair (1990) the concept of

organizational stakeholders is becoming increasingly important for organizations and

now stakeholder management is becoming an important approach for formulating and

implementing organizational strategies. Mitchell, Agle & Wood (1997) claim that an

“organization is an environmentally dependent coalition of divergent interest” and

according to Ackermann & Eden (2003) understanding the stakeholders and the

amount of power they have will help the organization to plan their future.

O’Shannassy (2003) identifies the roles of internal and external stakeholders in the

modern strategic management process which involves not only the strategic planning

but also the strategic thinking. Berman, Wick, Kotha & Jones (1999) find that firms

53

which address stakeholder concerns have enhanced financial performance. Harrison,

Bosse & Phillops (2007) by linking stakeholder theory and resource base theory show

why firms that identify the needs of a broad group of stakeholders properly may enjoy

a competitive advantage that is not available to other firms. Therefore, the

stakeholders of a company can have a great influence on the company’s success or

failure and it is the management’s duty to identify them properly.

Goodstein & Wicks (2007) identify five core arguments for how stakeholder

responsibilities influence company and also its broad implications for the companies

(see table 3.3). Morsing & Schultz (2006) analyze how corporate social responsibility

communication (CSR) effects stakeholders and propose a number of strategies for

CSR communication in order to better conceptualize how managers inform, engage

with and involve important stakeholders. Those strategies include improving

stakeholder information strategy to keep the general public better informed, and using

formal press releases such as annual reports and websites rather than advertisements

etc. Thus, CSR communication will help the companies to identify the changing

trends of stockholder’s expectations.

54

Table 3.3: Core arguments for stakeholder responsibility and its practical implications

Core stakeholder responsibility arguments Practical implications

Stakeholder responsibility provides a powerful

re-orientation in how to think about business

ethics

Firms and stakeholders share in the responsibility

for creating and sustaining an ethical business

context

Stakeholder responsibility is useful in helping

explain moral failures in corporations, assigning

blame to various stakeholders.

Stakeholder opportunism and/or indifference can

be an important determinant of unethical business

behavior

Stakeholder responsibility may prompt new

thinking about how to create organizations where

moral failures are rare.

Firms and stakeholders can work together to

create regimes of responsibility that limit moral

failures and promote ethical behavior

Stakeholder responsibility can be a vehicle that

aids our thinking about how we create

organizations that are noted for excellence and

outstanding performance

Business success depends on developing firm and

stakeholder relationships that foster both

responsiveness and responsibility.

Stakeholder responsibility gives us a language to

determine how we can conceptualize and work

through novel business challenges.

Firms can look to stakeholders as mutual partners

in striving for responsible business excellence.

Source: Goodstein & Wicks (2007) Corporate and Stakeholder Responsibility: Making Business Ethics A Two-Way Conversation

Savage, Nix, Whitehead & Blair (1990) identify four types of stakeholders that a

company have and propose four types of strategies that the company can adopt

against them (see the figure 3.7). The four types of stakeholders include supportive,

marginal, non supportive and mixed blessing stakeholders and the strategies they can

adopt for each category are involve, monitor, defend and collaborate respectively.

Savage et al (1990) also assert that managers must use an overarching strategy to

change relationships with stakeholders from less favorable to favorable categories.

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Figure 3.7 Stakeholder categories

Mixed Blessing Strategy: collaborate

Supportive Strategy: Involve

Non Supportive

Strategy: Defend

Marginal

Strategy: Monitor

High Low

Stakeholder’s potential for threat to organization

High

Low

Stakeholders potential for cooperation with organization

Source: Savage, Nix, Whitehead & Blair (1990) Strategies for assessing and managing organizational stakeholders

3.7.2.7 Resource base view of the company (Resources, capabilities, competencies and core competencies)

The resource based view of the firm is one of the most widely accepted theoretical

perspectives in the strategic management field (Newbert 2007). In the resource based

view, a company is understood to be a bundle of assets and capabilities (Hafeez,

Zhang & Malak 2002) and these assets and capabilities are known as strategic

resources which can provide a competitive advantage for the company (Grant 1991).

The concept of organizational capability has attracted a lot of interest primarily in the

field of strategic management (Schreyogg & Kliesch-Eberl 2007). The study of

Molina, Pino & Rodriguez (2004) found a positive relationship between industry,

management capabilities and the firm’s competitiveness.

When the Porter’s market structural analysis expanded in the field of strategic

management in 1980’s, Prahalad & Hamel’s view of competencies and core

competencies spread in the field of strategic management as a counter view (Hubbard

2000). According to Clark (2000) core competency approach to strategy making is

one of many contributions within resource based view of the firm.

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Prahalad & Hamel (1990) define core competencies as “the collective learning in the

organization, especially how to coordinate diverse production skills and integrate

multiple streams of technologies” and proposes three kinds of tests to identify them

namely they provide potential access to a wide variety of markets, must make a

significant contribution to the end product and must be difficult for competitors to

imitate.

It is worth noting that a company cannot develop core competencies without

managing their resources, capabilities, and or the competencies strategically. Figure

3.8 shows the Hafeez, Zhang & Malak (2002) proposed structured methodology for

identifying core competencies of a firm. Resources can be defined as anything

tangible or intangible owned by the firm and firm’s resources consist of physical

assets (location buildings), intellectual assets (brand name, reputation etc.) and

cultural assets (working ethics, empowerment etc.). Capabilities are the abilities to

make use of resources to perform some task or activity and competencies are valuable

capabilities in terms of “enabling the firm to deliver a fundamental customer benefit

(Hafeez et al 2002). The results of Clark (2000) find a number of organizational

factors can affect the ability to create core competencies such as organizational

culture, size, structure, stage of development and strategic focus of the organization.

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Figure 3.8 Relationship between company resources and core competencies

Low Value High

Not Unique Uniqueness Very Unique

Core competencies

Competence Key Capabilitie

Firm capability Design R & D Purchasing Production Marketing Management etc.

Firm Resources Physical Assets Intellectual Asset Cultural Assets

Low Collectiveness High

Low Strategic Flexibility High

Source: Hafeez, Zhang & Malak (2002) Core Competence for sustainable competitive advantage: A structural methodology for identifying core competence

3.8 Strategic planning As discussed earlier, most of the concepts in strategic and corporate planning were

developed in the USA. Many of these concepts have been extensively adopted by

companies in different national environments (Capon, Farley & Hubert 1987). The

study of Capon, Christodoulou, Farley & Hubert (1986) highlights the significant

differences in the strategic planning practices of the Australian and the USA large

manufacturing companies. It is clear that the concepts in corporate and strategic

planning have been used by the companies in different national environments in

differing ways to achieve their organizational goals.

At the end of 1970s and early 1980s strategic planning suffered a downturn in

popularity (Glaister & Falshaw 1999) and came under heavy attack from management

scholars (Grant 2003). The major critique of the strategic planning was its low

performances in unstable environment (Mintzberg 1994 a, Mintzberg 1994 b, Quinn

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1980). However, some research studies found that strategic planning was positively

associated with unstable environments (eg. Eisenhardt 1989, Grant 2003, Miller &

Cardinal 1994, Ansoff 1991, and Armstrong 1982). Thus, research findings about the

relationship between strategic planning and unstable environments are ambiguous.

Ansoff (1991) one of the prominent scholars in strategic planning criticises the

Mintzberg’s notion of “strategic planning can work only in stable environments” and

asserts that strategic planning generally produces better alignments and performances

than does trial and error learning. Furthermore, Miller & Cardinal (1994) conclude

that strategic planning and performance has a positive relationship and claims that the

results of Mintzberg (1990) and Greenley (1986) which shows planning does not

benefit performance appear to have been incorrect because of the methodological

errors in their research studies.

According to Mintzberg design school, strategy formulation must be a deliberate

behaviour of conscious thought and responsibility of that control and conscious must

rest with the chief executive officer (Mintzberg et al 1998). Thus, only the top

managers of an organization were involved with strategic planning. That was the

situation in strategic planning in 1960’s but, several studies highlight the changes that

occurred in strategic planning systems during last two decades. According to Bonn &

Christodoulou (1999) the substantial changes in company’s strategic planning systems

include increased flexibility of planning systems, decentralized strategic planning to

divisions or business units, moving the planning responsibility from staff personnel to

line managers, and changing the role of corporate planning departments. According to

Grant (2003) companies adopted multiple scenario planning for their strategic

planning practices to respond to the rapid changes in the environments quickly and to

also establish vision and mission statements which have a strategic intent. Thus,

current strategic planning practices in organizations are better equipped than the

strategic planning practices in 1960s.

Pearce, Freeman & Robbinson (1987a) define strategic planning as the process of

determining the mission, major objectives, strategies, and policies that govern the

acquisition and collaboration of resourses to achieve organizational goals”. O’Regan

& Ghobadian (2007) claim strategic planning must include written plans, which cover

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more than year of activity, have awareness of alternative strategic options, encompass

shorter plans for major functional areas, identify future resource requirements,

encompass procedures for ongoing monitoring and modification, and include

environmental scanning data. Glaister & Falshaw (1999) identify the importance of

the link between long range strategic goals with both mid range and operational plans

for an effective strategic planning system. Steiner (1979, p34) assert “there is no

single planning model for organizations and the formal strategic planning systems

must be designed to fit the unique characteristics of each company”. Lorange &

Vancil (1977) identify three levels of an organization that strategic planning usually

involves namely corporate, business and functional levels.

3.8.1 Vision and Mission statements

Thomson & Strickland (2003) declare that effective strategy making starts with the

formation of a strategic vision which describe where the organization wants to go in

future. Corporate vision outlines the desired future at which the company hopes to

arrive (Wit & Meyer 1998) and David (1997) defines mission statement as a

“enduring statements of purpose that distinguish one business from other similar

firms”. Thompson & Strickland (2003 p32) proposes three major tasks that managers

complete in forming a strategic vision namely:

• Coming up with a mission statement that defines what business the company

is presently in and conveys the essence of “who we are, what we do, and

where we are now”.

• Using the mission statement as a basis for deciding on a long-term course,

making choices about “where we are going”, and charting a strategic path for

the company to pursue.

• Communicating the strategic vision in clear, exciting terms that arouse

organization wide commitment.

According to Wit & Meyer (1998) corporate mission plays three important roles for a

business organization namely:

• Direction: The corporate mission points the organization in a certain direction,

by defining the boundaries within which strategic choices and action must

take.

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• Legitimization: The corporate mission can convey to all stakeholders inside

and outside the company that the organization is pursuing valuable activities

in a proper way.

• Motivation: The corporate mission can go a step further than legitimization, by

actually inspiring individuals to work together in a particular way.

Furthermore, several authors highlight important factors that a company must

consider when they create mission statements such as the importance of getting the

inputs from the bottom up (D’Orleans 2007), it must not be too far from the current

situation of the company (Campbell 1997), and the need to change their mission with

the environmental and products changes (Johnson 2007).

3.8.2 Objectives and Goals

Organizational goal setting is vital for every organization because it is the first step

that develops a road map for organizational activity and guidance for establishing the

metrics to measure company progress (Ransom & Lober 1999). Lorange & Vancil

(1977, p5) differentiate company’s objectives and goals by mentioning “an objective

is an aspiration to be worked toward in the future and a goal is an achievement to be

attained at some future date”. Thus, objectives come before the goals and Lorange &

Vancil (1977, p5-6) further elaborates the difference between objectives and goals in

terms of four dimensions.

• Time Frame: An objective is timeless and goal is temporal and time phased

and intended to be superseded by subsequent goals.

• Specificity: Objectives are stated in broad, general terms, dealing with matters

of image, style, and self-perception; goals are much more specific, stated in

terms of particular result that will be accomplished by a specified date.

• Focus: Objectives are usually stated in terms of some relevant environment

which is external to the organization; goals are more internally focused and

carry important implications about how the resources of the organization shall

be utilized in the future.

• Measurement: Quantified objectives are stated in relative terms and quantified

goals are expressed in absolute terms.

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Several research studies identify the importance of setting objectives and goals in

corporate planning (eg Armstrong 1982, Bourgeois 1980). Furthermore, the study of

Roth & Ricks (1993) find firm’s nationality and internationalization do not effect the

firm’s goals configuration.

3.8.3 Analytical tools and techniques

A number of analytical tools and techniques that are used in the strategic planning

will be briefly discussed below.

SWOT analysis: SWOT represents the internal strengths and weaknesses of a

company and its opportunities and threats that exist in the external environments

(Farjoun 2001). Even though strategic management has grown in different directions

most of the strategic management text books continue to use SWOT model as their

centrepiece (Mintzberg et al 1998).

PEST analysis: PEST analysis can use to analyse the political/legal, economic, social

and technological factors in the macro environment that can affect the company and

also to identify which of those are more important for the company (Johnson &

Scholes 1999).Table 3.4 provides a simple checklist for PEST analysis.

Table 3.4: Checklist for the PEST analysis

Political/legal Monopolies legislation Environmental protection lows Taxation policy Foreign trade regulations Employment law Government stability

Economic Factors Business cycles GNP trends Interest rates Money supply Inflation Unemployment

Socio- cultural factors Population demographics Income distribution Social mobility Lifestyle change Attitude to work and leisure Consumerism

Technological Government spending on research Government and industry focus on technological effort New discoveries/development Speed of technology transfer Rates of obsolescence

Source: Johnson & Scholes (1999) p105

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Five forces analysis: Five forces analysis is used to analyse company’s industry

environment. According to Porter (1980) industry structure has a strong influence in

determining the strategies potentially available for a company. Porter (2004) identifies

the five major forces as suppliers, buyers, competitors, new entrants, and substitutes

that control an industry. Thus, the results of Porter’s five forces analysis help the

company to adopt the most suitable strategies to position themselves well against their

competitors in an industry.

Key success factors analysis: Key success factors can be used as a description of the

major skills and resources required to perform successfully in a given market and

knowledge about key success factors is of practical managerial relevance (Bisp,

Sorensen & Grunert 1998). Thus identifying the key success factors in an industry is

important for every company.

Product life cycle analysis: Life cycle assessment techniques are a powerful tool to

calculate environmental impacts on firms products, systems and resource

consumption (Bhander, Hauschild & McAloone 2003, Mont & Bleischwitz 2007,

Berkhout 1996).With life cycle assessments products and services managers need to

identify which stage the product or service remains in (eg. introductory, growth,

maturity or decline) and to develop strategies according to the stage. For example if

the product is at introductory stage then company needs to implement more marketing

strategies to create awareness.

Portfolio analysis and strategy: The purpose of portfolio analysis is to analyse the

opportunities that exist outside of the company’s current scope and come to a decision

whether the firm must change the scope of its portfolio through diversification or

internationalization, or both (Ansoff 1965). When the opportunity arises, strategy can

be used to determine whether the opportunity fits with the firm’s strategic intent and if

it does not fit then the opportunity can be rejected.

ETOP & SAP analysis: Environmental threat and opportunity profile (ETOP) help

the managers to identify the threats and opportunities in the environmental sectors that

affect the company’s strategy such as from socioeconomic, technological, competitor,

supplier, and government environments etc. By doing a ETOP analysis managers can

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identify the most critical sectors of the environment and focus intensively on their

potential impact on the strategy of the firm as a whole (Glueck & Jauch 1984).

Strategic advantage profile (SAP) analysis help the managers to identify the more

critical areas in the firm, which have a relationship to the strategic posture of the firm

in the future such as marketing, R & D operations, corporate resources, and finance

etc (Glueck & Jauch 1984).

The BCG matrix: BCG matrix was developed by Boston Consulting Group and it

can be used to compare company’s strategic business areas (Ansoff & McDonnell

1990). Figure 3.9 shows the BCG matrix. The vertical dimension of the matrix

represents the company’s volume growth and the horizontal dimension represents the

market share in relation to the share of the leading competitor. The BCG diagram

suggests how the company must take the future decisions regarding their strategic

business areas as follows:

• The star should be cherished and reinforced.

• The dogs should probably be divested, unless there are compelling reasons for

keeping them.

• The cash cows should be made to control (severely) their investments and send

excess cash to the headquarters.

• The wildcats need to be analysed to see whether the investment necessary to

convert them into stars is worthwhile (Ansoff & McDonnell 1990 p67).

Thus, BCG matrix is important for a company because it proposes decisions on the

desirable market share positions and allocations of strategic funds among the strategic

business areas (Ansoff & McDonnell 1990).

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Figure 3.9 The BCG matrix

Stars

Wildcats

Cash cows

Dogs

High Volume Growth Low

High Low Market share as function of leading competitor

Source: Ansoff & McDonnell (1990) Implanting strategic management p67

McKinsey 7-S framework: In 1980 McKinsey consultancy company encouraged

managers to think about the interrelationship between 7 key variables that affect the

company’s effectiveness. Thus McKinsey 7-S framework focuses on the 7 variables

that affect the company effectiveness namely strategy, structure, systems, staff, super

ordinate goals, skills, and style of the company.

3.9 Strategic thinking

The concept of strategy making process being purely deliberate or purely emergent

lay in the two ends of a horizontal axis and where one end means no learning and

other end means no control (Mintzberg et al 1998). The scholars who think strategy

formulation as a strategic thinking process usually believe that strategy formulation is

based on an emergent strategy. Minztberg (1994) asserts strategic thinking is about

“synthesis that involves intuition and creativity that the outcome is an integrated

perspective of the organization, a not too precisely articulated vision of direction”.

Senders (1998) highlight the importance of strategic thinking over the strategic

planning by claiming:

• The business world is not mechanistic, and so mechanistic approaches to

strategic planning will not succeed

• Organizations are regularly impacted by unexpected sudden change, often

driven by events out side the company’s normal sphere of interest.

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• Organizations are part of much larger systems, and need to be aware of both

the existence of this system and its interactions with it

Liedtka (1998) captured five essential discrete but, inter related elements in strategic

thinking process. Figure 3.10 shows the elements of Liedtka’s (1998) strategic

thinking model namely systems perspective, intent focused, thinking in time,

hypothesis driven, and intelligent opportunism.

A systems perspective considers a strategic thinker has a mental model about how the

world works and this include understanding of both the external & internal context of

the organization (Liedtka 1998). The dimensions of the external context of the

organization dominated the field of strategy for many years (eg Porter’s industry

analysis). But, not much focus was given to the internal dimensions that comprise the

organization. Even though the fit between corporate, business, and functional level

was considered more important, according to Liedtka (1998) fit with the fourth level

(the personal) may be the most critical for a company. Thus, strategic thinkers must

think about the multiple relationships between corporate, business, and functional

strategies with each other, to the external context, and to the personal choices he or

she makes on daily basis (Liedtka 1998).

Liedtka (1998) thinks strategic thinking is intent driven. Hamel and Prahalad (1989)

define strategic intent as “creating an obsession with winning al all levels of the

organization and then sustained that obsession over the 10-20 year quest for global

leadership”. Hamel and Prahalad (1989) further claim that strategic intent captures

the essence of winning, sets a target that deserves personal effort and commitment,

and implies a sizable stretch for an organization. Hence, strategic thinking is about

shaping and reshaping of intent (Liedtka 1998).

In addition to the intent driven focus there must be room for intelligent opportunism at

lower levels to capture the emergent strategies that might better suit the changing

environments (Liedtka 1998). This will provide opportunity for the lower level

employees to adjust to the changing environments without relying on the top

management foresight.

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Thinking in time considers the importance of understanding the organization’s past

and current memory to create future. This includes “choosing and using appropriate

analogies from its own and others histories, and for recognizing patterns in these

events” (Liedtka 1998).

Finally, strategic thinking recognizes it as a hypothesis driven process that deals with

hypothesis generating and testing as central activities. Hypothesis generation question

asks the creative question what if….? and hypothesis testing follows with the critical

question if … then…? (Liedtka 1998) and this kind of experimentation provides the

background for the organization to continue their learning.

Figure 3.10 The elements of strategic thinking

Strategic thinking

System perspective

Intent focused Thinking in Time

Intelligent Opportunism

Hypothesis Driven

Source: Liedtka J.M. 1998 Strategic Thinking: Can it be taught?

3.10 Corporate level strategies

Corporate strategy defines “the scope of the firm’s operations and how the

management allocates or deploy its resources to make the whole firm a vital,

competitive enterprise” (Lewis et al 1993, p193) and corporate level will be

“concerned primarily with strategic resource flows to and from the various businesses

and providing a strategy for improving the quality of the portfolio” (Lorange 1980,

p18). The following chapters will discuss the major corporate strategies that are

available for a company to achieve their overall company goals. These corporate

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strategies include diversification, internationalization, mergers and acquisitions,

R&D, turnarounds, and divestitures.

3.10.1 Diversification strategies

Over the last three decades the topic of corporate diversification has been a central

topic in the strategic management (Bowen & Wiersema 2005). Firms may diversify

into new product or foreign markets when they feel that the home markets are

maturing or when they want to reduce their overall risk exposure (Wan 2005).

According to Palich, Cardinal & Miller (2000) the results of studies conducted about

the link between diversification and company performance were ambiguous and

disagreements still remain how and when diversification can be used to build long-run

competitive advantage. These inconsistencies in the past research findings led to an

increase in research into the field of diversification.

Davis & Devinney (1997) identify two types of diversifications namely the related

diversification which diversify into similar lines of business or markets, and unrelated

diversification which diversify into unrelated lines of businesses. Finance theory

explains how the related diversification performs better than unrelated diversification

(because unrelated diversification is more similar to portfolio diversification that can

be done by the investors more cheaply in financial markets) and this is supported by

the study of Rumelt (1982). According to Davis & Devinney (1997), even though

unrelated diversification is negatively associated with company performance, it does

two primary things for the company namely it replaces the external market with an

internal system and it provides diversification benefits such as bankruptcy avoidance

for the company (by reducing the risk of investment).

Ansoff (1988) gives three major reasons for the question of why firms diversify.

Firms diversify when their objectives can no longer be gained from the current

portfolio, when their retained cash exceeds the total expansion needs of the present

portfolio and when the diversification opportunities promise greater profitability than

expansion opportunities.

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Wiersema & Bowen (2008) developed a theoretical framework to understand how

industry globalization, foreign competition, and product diversification can influence

firm’s international diversification. The study of Wiersema & Bowen (2008) found

that industry globalization and foreign competition in the domestic market have a

positive relationship with the firm’s international diversification but the product

diversification has a negative relationship with the firm’s international diversification.

Hoskisson & Turk (1990) argue diversification provide two advantages for the

managers that the shareholders do not enjoy; increased compensation for managers

and reduced employee risk. Hoskisson & Turk (1990) view is associated with agency

theory and therefore, agency theory argues that diversification reduces the firm

profitability at the expense of manager’s benefits. By considering the conceptual point

of view, Geringer, Tallman & Oslen (2000) find that increasing levels of

diversification must have positive effects on performance due to economies of scope

and scale, market power effects, risk reduction effects, and learning effects. The

positive association between diversification and company performance is supported

by several research studies such as Geringer, Beamish & Dacosta (1988) in

multinational companies, and Rumelt (1982) in US companies. The research of

Palich, Cardinal & Miller (2000) find that performance increases when the company

shift from single business strategy to related diversification but, performance

decreases when firms change from related diversifications to unrelated diversification.

Thus, the findings of the link between diversification and performance have shown

mixed results during last few decades.

Hoskisson, Hitt, Johnson & Moesel (1993) measures the construct validity of an

entropy (an objective) approach to measurement of diversification strategy and the

results found that a strong convergent, discriminant and criterion-related validity for

the entropy measure of diversification. Convergent validity associates with the

Rumelt (1982) subjective measure of diversification, discriminant validity associates

with the size, debt and R & D intensity, and criterion related validity associates with

accounting and market based performance. The results of structural equations

modelling show a strong standardized validity coefficient with a diversification factor

representing 0.87 for the entropy and 0.94 for Rumelt’s measures. Thus, Hoskisson,

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Hitt, Johnson & Moesel (1993) study recommends to use diversification factor with

both the entropy and Rumlet’s subjective measures for maximum accuracy.

By considering the resource based view and institutional economies, Wan (2005)

provides a conceptual framework to examine the multifaceted relationships linking

firm capabilities and corporate diversification across dissimilar country resource

environments (see table 3.5). Thus, companies need to choose the appropriate firm

capabilities (market capability and non market capability) and corporate

diversification strategy (product diversification and international diversification) to be

successful in their markets.

Table 3.5: Firm capabilities and diversification strategies for different country resource environments Country resource environment

Firm capabilities Performance implications of corporate diversification strategy

Developed economies In developed economies, firms are more likely to emphasise developing market capabilities than non market capabilities.

Product diversification will be negatively related to firm performance and international diversification will be positively related to firm performance.

Emerging economies In emerging economies, firms are more likely to emphasize developing non market capabilities than market capabilities.

In emerging economies, product diversification will be positively related to firm performance and international diversification will be negatively related to firm performance.

Institution-driven high growth emerging economies

In institution-driven high growth emerging economies, firms are more likely to emphasize developing (1) internal market capabilities than political capabilities and (2) production capabilities than innovation capabilities.

In institution driven-driven high growth emerging economies, (1) gradual decrease in product diversification will improve firm performance and (2) international diversification will be negatively related to firm performance

Factor-driven high growth emerging economies

In factor-driven high growth emerging economies, firms are more likely to emphasize developing (1) innovation capabilities than production capabilities and (2) political capabilities than internal market capabilities.

In factor-driven high growth emerging economies, (1) product diversification will be positively related to firm performance and (2)gradual increase in international diversification will be improve firm performance.

Source: Wan (2005): Country resource environments, form capabilities and corporate diversification strategies.

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3.10.2 International strategy

The most profound business phenomenon of the 20th century was the

internationalization of companies (Hitt, Bierman, Uhlenbruck & Shimizu 2006).

Geographical expansion is one of the ways firms can grow and by leveraging

resources in different markets, firms can capitalize on market imperfections and gain

higher returns on their resources (Lu & Beamish 2001). Hitt, Hoskisson & Kim

(1997) define internationalization as “bringing new foreign operations within the

boundaries of a firm rather than using arm’s length market transactions”, and

international diversification as “expansion across the borders of global regions and

countries into different geographic locations, or markets”. Internationalisation of a

firm can be seen in a number of different ways such as in international joint ventures,

in licensing agreements, in international advertising campaigns, in international trade,

exhibitions and multitude of other events and actions etc (Johanson & Vahlne 1990).

The process theory of internationalization and the theory of the growth of the firm

consider internationalization as an incremental process and argue that the companies

need to start international entries when the firm is relatively older and the firm has

enough managerial experience about the foreign market (Erikkson, Johanson,

Majkgard & Sharna 1997, Johanson & Vahlne 1990). However, the study of

Sapienza, Autio, George & Zahra (2006) found that the effects of internationalisation

on firm’s age, managerial experience, and resource fungibility are moderate and

therefore, concluded internationalization as a potential strategic choice for the young

companies who seek growth. Thus, the research findings about when is the best time

for the internationalization of a firm are inconclusive.

Several researchers attempt to find the relationship between internationalization and

company performance. The research of Brewer (1981) finds that there is no

significant difference in risk adjusted performance between multinational companies

and US national companies in US. The study conducted by Denis, Denis & Yost

(2002) by using 44,288 companies between the years of 1984 and 1997 find a

negative relationship between performance and global diversification. However, the

research studies of Delios & Beamish (1999) and Lu & Beamish (2001) reported a

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positive relationship between internationalization and company performance. The

results of the study of Lu & Beamish (2004) conclude that high and low levels of

internationalization and the extent of geographic diversification were negatively

associated with firm performance. Lu & Beamish (2004) further find that moderate

levels of internationalization and greater geographic diversity were accompanied by

higher performance.

Lynch (2006) asserts that the international expansion involves both benefits as well as

costs, and the companies with international expansion believe that the benefits

outweigh the costs. Lu & Beamish (2004) categorise the benefits that a company can

gain through international diversification into two categories such as exploration and

exploitation. Exploitation benefits include economies of scale and scope, reduced

costs and increased revenues by increasing a firm’s market power over its suppliers,

distributors and customers, and lower costs due to arbitrage of differences in inputs

and output markets. Exploration benefits include enhanced knowledge base,

capabilities, and competitiveness as a result of firm’s subsidiaries in host countries

(Lu & Beamish 2004). The costs of international expansion include the need to

acquire foreign market knowledge, the early administrative costs of developing an

international operation, the later costs of the complexity, the governance of

international operations, and the legal, cultural, and other barriers that exist in the

foreign market (Lynch 2006).

Other researchers focused on the modes of foreign market entries from several

perspectives. Madhok (1997) looks at entry modes from a transaction cost and

organizational capability perspective. Transaction cost perspective in

internationalization is mainly concerned about the minimising of transaction cost and

also the conditions underlying market failure (Rugman 1986), and organizational

capability perspective is mainly concerned about the historical dimensions of firm’s

critical activities that can gain competitive advantage for the company (Madhok

1997). The study of Madhok (1997) concludes that organizational capability

perspective is more helpful for the companies to decide their entry mode than the

transaction cost perspectives of internationalization. The research of Zahra, Ireland &

Hitt (2000) find that foreign start-ups and acquisitions increase the speed of

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technological learning and the lower level of ownership entry modes have negative

effects on the speed of technological learning.

3.10.3 Acquisitions and merger strategies

Mergers and acquisitions continue to be a popular growth strategy during 1980’s and

1990s (Lubatkin & Michael 1988, Richey, Kiessling, Tokman & Dalela2007). Even

in 2004, global mergers and acquisitions were worth 1.95 trillion USD and that was a

41% growth from 2003 (Richey et al 2007). The main reasons for an increased

number of mergers and acquisitions were competition, deregulation, market

liberalization, technological change, globalization of world economies, and

availability of capital for the companies (Schweiger & Very 2001, Romanek 2002).

Mergers and acquisitions have a unique potential to transform firms and to contribute

to corporate renewal (Salama, Holland & Vinten 2003) and the substantial changes

that a company can have due to mergers and acquisitions include changes in the

company size, scope of operations, and level of involvement by market participants

(Lipson & Mortal 2007). According to Salama, Holland & Vinten (2003) mergers and

acquisitions help companies to renew their market position at a speed that cannot be

achieved through internal developments.

A merger is a combination of two companies in which only one company can survive

and the merged company goes out of existence, and an acquisition typically refers to

one company (the buyer) which purchases the assets or shares of the seller or other

assets of value to the seller (Romanek 2002). Value creation is the most important

objective in acquisition (Salama, Holland & Vinten 2003) as well as the merger

(Lubatkin & O’Neill 1988) processes.

A company can merge with or acquire firms which are in a related industry (similar

industry or product line) or in an unrelated industry. By studying 343 mergers and

acquisitions, the study of Richey et al (2007) indicate that most of the companies

prefer to make mergers and acquisitions related to their industry. Bergh (1997) asserts

that companies making unrelated acquisitions can have financial synergy, governance

efficiency, managerialism, and coinsurance. However, Bergh (1997) further claims

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that a high portion of unrelated acquisitions are divested shortly after their purchase

and it bring losses to the acquiring company.

Several research studies focus on the relationship between company performance and

value creation with the acquisitions and mergers. After studying long term

performance of 69 mergers in Tokyo stock exchange from 1969 to 1999, the study of

Kruse, Park, Park & Suzuki (2007) finds a high correlation between the pre merger

and post merger performance. Kruse, Park, Park & Suzuki (2007) also found that

those improvements in performance are greatest among the diversifying mergers and

moreover, the merger companies operating in different industries had significantly

greater performance. According to Lubatkin & O’Neill (1988) even related mergers

theoretically offer the greatest potential for value creation, in practice this great

potential was not easily obtained. In contrast to Lubatkin & O’Neill (1988) the

research of Cummins and Xie (2007) find that mergers and acquisitions in US

property liability insurance industry during the period of 1994-2003 were value

enhancing. The results of Anand & Singh (1997) point out consolidation oriented

acquisitions outperform diversification oriented acquisitions in the decline phase of

their industries in terms of both the stock market based and operating performance

measures. Thus, the research findings about the relationship between mergers and

acquisitions with the company performance and value creation were inconclusive.

3.10.4 Research and development strategies

The spending on company’s R & D activities in the companies has been increased

during recent years (Scinta 2007). According to Tirpak, Miller, Schwartz & Kashdan

(2006) “research and development activities has a large impact on a company’s ability

to execute its business and technology strategy”. Ikoma (2005) asserts that the

ultimate goals of R & D are the evolution, strengthening, and expansion of the

company’s core capabilities which were needed to cultivate new businesses. The

study of Tubbs (2007) finds a positive relationship between R & D activities and

company business performance. Scinta (2007), Cassiman & Veugelers (2006), and

Blau (2007) explained the importance of R & D was to create innovation within a

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company. Thus, it is worth noting that R & D strategies seek to create innovation in

the company and finally, to lift the company financial performance.

Chiang (2006) identifies the relationship between product life cycle of the high tech

products and the R & D activities of the firm. According to Chiang (2006), much of

the R & D precedes a product’s introduction before any income was generated. In the

introduction and growth stages, R & D effort is dedicated to product enhancement,

fixing problems, and resolving conflicts with newly developed equipment or software.

Chiang (2006) further asserts that only little R & D is needed at the maturity stage

because most of the problems were fixed at the earlier stages and products features

have been enhanced to a satisfactory level.

Cossiman & Veugelers (2006) highlighted the importance of having external

knowledge in addition to companies internal R & D. Firms can gain external

knowledge from licensing, R & D outsourcing, company acquisition, or the hiring of

qualified researchers with relevant knowledge. The results of Cassiman & Veugelers

(2006) further found that internal R & D and external knowledge acquisitions are

complementary activities that lead to increase company’s innovation.

3.10.5 Turnaround strategies

In 1970s research was initiated to investigate how firms reverse threatening

performance declines and this research considered firm performance declines as a

strategic decision problem to be solved by a turnaround strategy (Barker & Duhaime

1997). Furman & McGahan (2002) define turnaround as a “change in business

segment profitability from lowest quintile among all businesses in a specific year to

the highest quintile among all the businesses in any subsequent year”. Rasheed (2005)

sees the number of factors that influence the turnaround strategy of a firm in two

perspectives namely external and internal. External perspective includes the firm’s

competitive environment and the maturity of the industry and internal perspective

includes financial deterioration and management failures.

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There are a number of turnaround strategic options available for firms. The study of

Frost & Joson (1998) proposes change of management, business process re-

engineering, asset sale, strategic alliances, service improvements, cost reduction as

turnaround strategies for the electric utilities in New Zealand and Philippines.

Similarly, Rasheed (2005) identifies growth and retrenchment as turnaround strategies

for the small sized companies.

3.10.6 Divestiture strategy

Capron, Mitchell & Swaminathan (2001) define asset divestiture as the “partial or

complete sale or disposal of physical and organizational assets, shut down of

facilities, and reduction of work forces of target or acquirer businesses”. According to

Capron, Mitchell & Swaminathan (2001) asset divestiture is a logical consequence of

a process in which firms often use acquisitions to reconfigure the structure of

resources within firms.

Unsuccessful acquisitions can lead to divestitures (Bergh 1997) and the choice to

organize a transaction as an alliance instead of as a divestiture is similar to the choice

between an alliance and an acquisition (Villalonga & Mcgahan 2005). Villalonga &

Mcgahan (2005) further explain that by stating “when two companies agree to transfer

rights for operating a business, the choice between an acquisition and an alliance for

one of the firms amounts to a choice between a divestiture and an alliance for the firm

on the other side of the transaction”.

The study of Duhaime & Grant (2006) finds that in large diversified companies,

corporate divestment decisions were mainly influenced by their business unit’s

strengths, its relationship to other units in its firm and its parent firm’s financial

position compared to its competitors. According to Bergh (1997) unrelated

acquisitions led to significant amount of divestments during last two decades.

However, Bergh (1997) further claims that confirm that most of the unrelated

acquisitions that were divested could have been avoided if the companies properly

understood their motives for the acquisitions.

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3.11 Chapter Summary This chapter has discussed the literature review for this research study and it has come

to number of conclusions. First it demonstrates that the only way of understanding the

philosophy of strategy is to understand the diversity of definitions given by so many

outstanding thinkers in the field of strategic management. Then the literature review

came to the conclusion that the definition for the strategy can be changed according to

the formation process of the strategy and the purposes of the business. Then the

literature asserts that study of the evolution of the field of strategic management helps

to understand some of the conflicting views in the field of strategic management.

There were four levels of strategy identified in a diversified company namely

corporate, business, functional, and operational .Strategic management process were

divided in to three major parts such as strategic analysis, strategic choice, and strategy

implementation. Strategic analysis includes the environment, expectations and

purpose, resources, competencies and capabilities of the company. Strategic choice

includes bases of strategic choice, strategic options, and strategy evaluation and

selection. Strategy implementation includes organization structure and design,

managing strategic change, and resource allocation and control.

The environment of the company falls into two categories namely the internal and

external environments. External environment consists of three major environments

namely the general, industry, and competitor environments. General environment is

divided into six major dimensions namely demographic, sociocultural, political/legal,

technological, economic, and global environments. There were five competitive

forces that affect the competition in an industry namely entry of new competitors, the

threat of substitutes, the bargaining power of suppliers, the bargaining power of

buyers, and the rivalry among the existing competitors. Competitor environment

consists of the competitor’s actions and increased rivalry between companies leads

companies to pay more attention to competitor analysis. The internal environment of a

company consists of dimensions such as company structure, ownership, size, culture,

management style, stakeholder expectations, company resources, capabilities,

competencies, and core competencies.

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In 1990’s prominent authors in the strategic management field fell into two categories

in the way they look at strategy namely strategic thinking and strategic planning.

Strategic planners think of the strategy management process as a planning process

while the scholars who support the strategic thinking think of strategic management as

a learning process. The major criticism of strategic planning of the 1960s was it does

not work in changing environments. However, it was found that strategic planning has

gone through substantial changes during last two decades to respond well to changing

environments. A number of scholars have found that strategic planning still has a

major role in large companies. Under the strategic planning framework, the vision and

mission, goals and objectives and the major analytical tools and techniques that are

used for strategic planning have been described. Liedtka (1998) proposes five discrete

but, inter related elements for the strategic thinking viewpoint such as system

perspective, intent focused, intelligent opportunism, thinking in time, and hypothesis

driven. The scholars who support strategic thinking believe strategic thinking work

better in changing environments than strategic planning.

The literature review also demonstrates the different ways that the various authors in

the strategic management use the terms of strategic thinking and strategic planning.

One of the way is strategic planning can provide a supportive context for the

employees to think strategically. Thus, organizations can have strategic planning

systems and also encourage the employees to create strategic thinking within the

organization.

Finally, the major corporate strategies that were discussed in the literature review

include diversification, internationalization, acquisitions and mergers, R & D,

turnarounds, and divestitures strategies.

The next chapter will present the theoretical framework and research questions of this

study.

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PART TWO

THEORETICAL FRAMEWORK AND METHODOLOGY Chapter 4: Theoretical framework and research questions Chapter 5: Methodology

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Chapter 4: Theoretical framework and research questions 4.1 Introduction The previous chapter presented the theoretical foundation for this research and it

described the history and evolution of the field of strategic management and its major

relevant issues which are important for this research study. This chapter aims to develop

a theoretical framework to explore the strategic management practices of the Sri Lankan

commercial banks and it will cover all the major features of banks strategic

management activities. The theoretical frame work is based predominately on the

previous studies conducted by Christodoulou (1984), Bonn (1996), Nimmanphatcharin

(2002), Kakanamveetil (2004), and Angkasuvana (2005) but, adapted to the Sri Lankan

banking industry and in accord with the major research questions of this study. The

major research questions of the study will also be stated in this chapter.

4.2 Theoretical framework

Previous research has investigated the strategic management practices of large

organizations such as Christodoulou (1984), Bonn (1996) for Australian manufacturing

companies, Nimmanphatcharin (2002) for Thai financial companies, Kakanamveetil

(2004) for Indian manufacturing companies, and Angkasuvana (2005) for Thai hotel

companies. But no one has attempted to investigate the strategic management practices

of Sri Lankan commercial banks previously and therefore, this research aims to explore

the strategic management practices in Sri Lankan commercial banks. The theoretical

framework developed for this study is based predominately on the previous research

conducted by Christodoulou (1984), Bonn (1996), Nimmanphatcharin (2002),

Kakanamveetil (2004), and Angkasuvana (2005) but, adapted to the Sri Lankan banking

industry and in accord with the major research questions of this research study. The

theoretical framework for this study is shown in the figure 4.1 and the key features of

the theoretical framework are described:

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1. Banks environment categorized into two major environments namely the

internal environment and the external environment.

2. Major variables of internal environment include company structure, company

size, company ownership, organizational culture, management styles,

stakeholder expectations, key capabilities and the key success factors of the

commercial banks.

3. Major variables of the external environment include the demand and competitive

environments, company customers and competitors, company suppliers and

business sector, political, legal, economic, social and technological

environments.

4. Analytical tools and techniques which are used to scan the banks environments

include PEST, five forces, SWOT, key success factors, product life cycles,

BCG, total quality management etc.

5. Investigating strategic management practices in Sri Lankan Commercial Banks

includes investigating both the strategic planning and strategic thinking

capabilities of the banks.

6. This framework recognizes the importance of vision and mission statements, and

establishing long term goals at the corporate and second levels.

7. The corporate strategies investigated include product and market growth,

research and development, international, acquisitions, divestitures, mergers, and

turnaround strategies.

8. This framework identifies the three major steps in the strategy development

process namely strategy formulation, strategy implementation and strategy

evaluation.

The theoretical framework developed for this study was designed to explore the

strategic management practices in Sri Lankan commercial banks and will be used as a

guide for this research study.

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Figure 4.1 Theoretical Framework (strategic management processes)

Vision and

Mission statement

Internal environment

External environment

Key opportunities, threats, streangths and weaknesses

Establish Long-term goals

Strategic planning and its extended strategic thinking capabilities

Company strategies

Establish policies Long term resource allocation

Establish procedures

Measure & evaluate performance

Environmental Scaning

Environmental Scaning

Analysing Tools & Techniques

Analysing Tools & Technique

Strategy Evaluation

Strategy Implementation

Strategy Formulation

Feed

back

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4.3 Research questions There were two major reasons to develop major research questions instead of research

hypothesis. First, this research plans to investigate a large number of variables that can

affect the strategic management practices in Sri Lankan commercial banks and

therefore, it is hard to develop hypotheses for all these variables. The other reason is

without any prior research it is difficult to develop hypotheses for the variables because

it is hard to imagine how these variables behave in the banking environment of Sri

Lanka. The literature review and the major research objectives of this research study led

to the development of six major research questions namely:

1. What are the overall strategic management characteristics of Sri Lankan

commercial banks?

2. What are the internal environmental factors which influence the strategic

management practices of Sri Lankan commercial banks?

3. What are the external environmental factors which influenced the strategic

management practices of Sri Lankan commercial banks?

4. What are the strategic planning practices (of formal planning companies) and

strategic thinking capabilities of the Sri Lankan commercial banks?

5. Do the strategic management practices of the banks differ due to ownership,

size and planning system aspects?

6. Without a formalised strategic planning system, how do the commercial banks

strategically manage their banks? 4.4 Summary The theoretical framework developed for this study is designed to explore the strategic

management practices of Sri Lankan commercial banks and it will be used as a guide

for this entire research study. The theoretical framework of this study recognizes the

importance of vision and mission statements; establishment of long term goals,

environmental variables, two theoretical views of strategic management namely the

strategic planning and the strategic thinking capabilities, and three stages of strategic

management process namely strategy formulation, strategy implementation and strategy

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evaluation. Finally, six major research questions were established for this research

study.

The next chapter will explain the methodology adapted for this research study.

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Chapter 5: Methodology

5.1 Introduction

The previous chapter discussed the theoretical framework and the major research

questions developed for this study and this chapter will explain the methodology

adopted for it. The methodology will be explained under the major headings of

population definition, survey approach, instrument development, pre test of

questionnaire, final questionnaire, data collection procedure, data analysis and the

framework for data analysis of the entire research study.

5.2 Population definition

The Sri Lankan financial system has a Central bank, licensed commercial banks,

licensed specialised banks, registered finance companies, primary dealers, leasing

establishments, merchant banks, savings and loan associations, contractual savings

institutions, and individual money lenders. Even though there are large numbers of

institutions in the financial system of Sri Lanka, the licensed commercial banks

dominate the financial industry of Sri Lanka. For this reason, this research chose all the

commercial banks as the population for this study. As at 31st December 2005, there

were twenty two commercial banks operating in Sri Lanka and among those 22 banks 2

were government owned, 9 were locally owned and 11 were foreign owned banks.

5.3 Survey Approach

5.3.1 Primary data

Researchers have a number of options to collect their primary data such as personal

interviews, self administered surveys, telephone surveys, mail, the internet and other

means of distributing self administered questionnaires etc. The size of the sample and

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its geographical diffusion has a high impact on researcher’s decision about how

respondents are to be contacted and the required information to be collected (Gill 2002).

If the research objectives require an extremely lengthy questionnaire, personal interview

may be the only alternative and that can take longer to administer perhaps an hour and a

half (William 2003). Because of the length of the research questionnaire, this research

chose the personal interview approach as the main primary data collection method. Two

other major reasons also influenced for this decision. Firstly, personal interviews

increase the possibility of collecting confidential data through face to face interviews

rather than mail surveys. Secondly, personal interviews increase the chance the

respondents will answer all the questions in the questionnaire rather than mail surveys.

When considering the previous studies of a similar nature, Nimmanphatcharin (2002)

and Angkasuvana (2005) reported a higher response rate by choosing personal

interviews as their primary data collection method than the Kakanamveetil (2004) study

which adopted the mail survey method. Therefore, this research chose the personal

interview as the most appropriate method to collect primary data from the Sri Lankan

commercial banks. All the interviews will be conducted by the same researcher to avoid

any possible differences in the recording process.

5.3.2 Secondary data

Secondary data mainly gathered from the published annual reports and the journals of

the Central Bank of Sri Lanka. In addition to that annual reports of commercial banks,

articles written about the commercial banks and the banking industry of Sri Lanka,

internet web sites of commercial banks of Sri Lanka and other published papers

regarding the commercial banks and the banking industry of Sri Lanka on internet web

sites were used as secondary information for this research study.

5.4 Instrument development

In previous research, Christodoulou (1984), Bonn (1996), Nimmanphatcharin (2002),

and Angkasuvana (2005) used questionnaires as their survey instruments and similarly,

a questionnaire has been developed for this research study. The newly developed

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questionnaire is mainly based on the questions developed in Christodoulou (1984),

Bonn (1996), Nimmanphatcharin (2002), Kakanamveetil (2004) and Angkasuvana

(2005) studies but, redeveloped for the Sri Lankan banking industry and the major

research questions of the study. New variables such as stakeholder expectations, sub

cultures, internal politics, banks capabilities and key success factors have been added to

the research questionnaire to explore the strategic management practices of Sri Lankan

commercial banks more thoroughly. In addition elements of Liedtka’s strategic thinking

model (1998) were included to investigate the strategic thinking capabilities. The

questionnaire developed for this study will be used to conduct personal interviews with

the senior executives who are responsible for corporate planning of their commercial

banks.

The questionnaire consists of both the open ended and closed ended questions with open

ended questions designed to capture the responses when the range of responses is not

known. The questionnaire of this study consists of 280 questions and 19% of the

questions were open ended questions. The questionnaire was designed to fulfil the

following requirements.

1. Avoid complexity of language

2. Avoid leading and loaded questions

3. Minimise the ambiguity of the questionnaire

4. Avoid double-barrelled items and burdensome questions in the questionnaire

5. To provide data meaningful for analysis and interpretation

5.4.1 Pre-test of the questionnaire and the final questionnaire

The questionnaire designed for this study was pre tested with 2 persons, one was a

retired DGM at a private commercial bank who had more than 20 years experience in

corporate planning and the other person was a respondent of a government owned bank

who lectures in strategic management at the Open University of Colombo. The pre-test

concluded that,

1. The questions were clear, short and easy to understand

2. The format was clear and logical

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3. The questionnaire had high credibility

4. The questionnaire could be completed within 2 hours

5. The questionnaire can be used with out doing any amendments

The final questionnaire consists of three major parts (Appendix 1). Part 1 includes the

assessment of internal and external environments and part 2 includes the assessment of

the company’s mission and vision statements, long term objectives and strategic

planning and it’s extended strategic thinking capabilities. Part 3 consists of the

assessment of analytical tools/techniques which are used for corporate planning,

corporate level strategies and the management of quality of the company.

5.5 Data collection procedure

All the 22 commercial banks of the Sri Lankan banking industry were set as the

population for this study and those 22 commercial banks include government owned,

locally owned and foreign owned banks. Because of the smaller number of banks in the

population, this study had to design its data collection process very carefully to

encourage the banks to participate in this research. The main reason for that was

rejection of the offer by one bank will reduce the response rate of the whole study by

4.5%. The previous studies conducted by Nimmanphatcharin (2002), Kakanamveetil

(2004) and Angkasuvana (2005) reported a lower level of response rate from the foreign

owned companies than the locally owned companies. Thus, a major priority was given

to encourage foreign owned banks to participate in this research so as to keep the

response rate at a higher level for the whole study.

The first task of the data collection procedure was to establish a good network of people

who have access to senior management levels in the Sri Lankan commercial banks.

Long distance calls and emails were used to create the network and the researcher’s 5

years experience in the banking industry in Sri Lanka helped to find out the important

persons in the industry. Once the researcher found the senior executives who were

responsible for their corporate planning then the introductory letters were sent to the

respondent banks about the study. It is worth noting that finding senior executives

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through personal contacts was the only way to reach them rather sending introductory

letters to the respondent banks.

5.5.1 Introductory letter and the letter of consent

In the introductory letter (Appendix 2) the reasons for conducting the research, the

importance of participating in this kind of research for the banks and also for the

banking industry, the primary data collection method, and the requirements to be a

respondent of the research were clearly mentioned. To satisfy the university

requirements a letter of consent (Appendix 2) also was attached to the introductory

letter to get the permission to enter into the premises of the bank where the personal

interviews were to be held. The researcher of this study arrived in Sri Lanka on 15th of

February 2006 to collect the primary data through personal interviews with the senior

executives who are responsible for Banks corporate planning and he had to stay three

months to complete the primary data collection.

5.5.2 Interview process

Before arriving in Sri Lanka, the researcher of the study had approached 8 banks

through personal contacts and all 8 banks had promised to participate in the study.

Those 8 banks included 6 locally owned and 2 foreign owned banks. After arriving in

Sri Lanka, the researcher had to expand his personal network to find senior executives

of the other 14 banks. First, the personal interviews of the eight promised banks were

conducted while approaching the other 14 banks. It took another 3 weeks to approach

all the other 14 banks through personal contacts. Research questionnaires were handed

over to the respondents before conducting the personal interviews (usually 3-4 days

before) with them. The main purpose of that was to provide an opportunity for the

respondents to familiarize themselves with the questions that were going to be asked in

the personal interviews.

Only one foreign owned bank refused to participate in this study and the given reason

for the refusal was their senior management decision not to provide internal information

for any kind of research study conducted by an outsider. Within 3 months the researcher

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of this study was able to complete 19 personal interviews. To complete one interview

the researcher usually had to spend one and half to two hours with each respondent.

Most of the time researcher had to meet each respondent three to four times to

complete the whole interview and the reason for that was the inability to spend 2 hours

straightaway with the researcher due to busy time schedule of the senior executives.

Two interviews had to be conducted over the phone due to unavailability of the

promised respondents of two foreign owned banks during the researcher’s stay in Sri

Lanka. Those interviews were conducted over the phone when the researcher returned

to Melbourne.

5.6 Response rate

Except for one foreign owned bank all the other banks have participated in this research

study. Locally and government owned banks represented a 100% response rate while

foreign owned banks represented 90.9%. Thus, the response rate of all the banks for this

study was 95.5%.

5.7 Data analysis

The research questionnaire consisted of both quantitative and qualitative research

questions and therefore, to analyse the primary data both the quantitative and qualitative

data analysis methods were adopted. The qualitative data analysis methods were used to

analyse the data that consists of descriptions of events and the quantitative analysis

methods were used to analyse the data that consists of numerical figures.

Both the descriptive and inferential statistical methods were used in this study. The

descriptive analyses include calculating averages, frequency distribution, and

percentage distributions etc. The inferential statistics were used to generalize the sample

results to the population and these include Cramer’s V and its statistical significant

value P when it is less than 0.05.

The SPSS data analysing software was used to do all the data analyses and also to create

the data base of the primary data to satisfy one of the major objectives of this research.

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5.8 Framework for analysis

The theoretical framework and the major research questions that were described in

chapter 4 put the foundation for development of a framework for the data analysis of the

entire research. The framework for data analysis explains how the sample was analysed

to answer the major research questions, and it will also identify the major analysis steps

for the entire research study. The framework developed for the data analysis is shown in

figure 5.1 and it consists of six major parts.

1. Categorize the sample companies according to size, ownership and planning

system aspects.

2. Analysis of the elements of internal environment such as size, ownership,

organizational culture, management style (also power distance and internal

politics), stakeholder expectation, capabilities, and key success factors.

3. Analysis of the external environment which consist of demand environment,

competitive environment, and general environment.

4. Analysis of the company’s mission and vision, long term goals at corporate level

and second level.

5. Analysis of strategic management practices by analysing the strategic planning

and strategic thinking capabilities.

6. Analysis of banks strategies, tools and techniques that are used to develop

strategies and the management of quality.

When analysing the data of the entire research according to the above mentioned six

major steps, significant differences of the variables either by size, ownership or

planning system aspects will be highlighted. To consider the size aspects, all the sample

companies were divided into three categories namely large, medium and small.

Similarly, ownership aspects of the sample companies were divided into three

categories namely government owned, locally owned, and foreign owned companies.

Planning system aspects were concerned with the companies who have a formalized

strategic planning system (FSP) and the companies who have a non formalized strategic

planning system (NFSP).

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Figure 5.1 Framework for analysis

Mission & Vision

Long term goals at corporate and second level

Planning practices at FSP banks

Planning practices at NFSP banks

Strategic thinking capabilities

Strategies and processes

Organizational Culture

Management style, Power and internal politics

Stake holder expectations

Capabilities, Key success factors


Competitive environment

Size

Ownership

Planning system

Large

Medium

Small

Government owned

Locally owned

Foreign owned

FSP companies

NFSP companies

General environment

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5.9 Chapter Summary

All the 22 commercial banks in the Sri Lankan banking industry were chosen as the

population for this research study. Except for one foreign owned bank all the other

banks participated in this research study and therefore, the response rate of the whole

study was 95.5%. Because of the length of the research questionnaire personal

interviews were used as the main primary data collection method. Secondary data was

mainly collected from the Central bank of Sri Lanka, and the web sites and annual

reports of Sri Lankan commercial banks. A research questionnaire was used to conduct

all the interviews and the research questionnaire was mainly based on the questionnaires

used by the previous research studies of Christodoulou (1984), Nimmanphatcharin

(2002), Kakanamveetil (2004), Angkasuvana (2005) but, redeveloped for the Sri

Lankan banking industry and the major research questions of the study. Establishment

of personal contacts with the senior executives was more vital than sending introductory

letters to gain participation from the responding banks. Once the researcher contacted

the respondents through personal contacts then the introductory letter was sent to them.

In the introductory letter the importance of participating in this kind of research study,

primary data collection method, interview duration, and the requirements to be a

respondent of the research were clearly mentioned.

Both the quantitative and qualitative analysis methods were used to analyse the primary

data. This includes descriptive and interferential statistical analysis methods. Both the

univariate and bivariate statistics were used to find out the results of one variable and

two variables respectively. The SPSS data analysis software was used to do all the data

analysis of this research and also to create the data base for the research study.

The next chapter will explain the characteristics of the sample companies.

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PART THREE

DATA ANALYSIS Chapter 6 : Characteristics of sample companies Chapter 7 : Company structure, company ownership and company size Chapter 8 : Organizational culture, management style and stakeholder expectations Chapter 9 : External environment Chapter 10: Mission, vision and long term goals at corporate and second levels Chapter 11: Planning and planning systems Chapter 12: Strategic thinking capabilities Chapter 13: Analytical tools/ techniques, corporate strategies and the management of quality

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Chapter 6: Characteristics of sample companies 6.1 Introduction This chapter will discuss the major characteristics of the sample companies such as the

industry participation, respondents’ aspects, ownership aspects, size aspects and

planning system aspects and all the sample companies will be categorised according to

the size, ownership and planning system aspects. The major considerations for the

categorizations of sample companies in terms of size, ownership and planning system

aspect will be discussed. A summary of the major findings of the characteristics of the

sample companies will be provided at the end of the chapter.

6.2 Industry participation As at 31st December 2005, there were 22 commercial banks operating in Sri Lanka and

all the banks were invited to participate in this study. Except for one foreign owned

bank, all the other banks participated in this study. Therefore, the participation rate for

this study was 95.45%. Table 6.1 reveals the names of the commercial banks which

participated in this study.

Table 6.1: Banks that participated in this study

Bank Name Number of branches Domestic banks People’s Bank (Government owned) 324 Bank of Ceylon (Government owned) 304 NDB Ltd 24 Hatton National Bank 140 Commercial Bank 114 Sampath Bank 85 Pan Asia Bank 20 Seylan Bank 102 Nations trust Bank 27 DFCC Vardhana 14 Union Bank of Colombo 11

Total No: of Banks: 11 Total No: of branches 1165

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Table 6.1: Banks that participated in this study (continued) Foreign Bank Branches Number of branches

HSBC 11 MCB 3 State Bank of India 2 Indian Overseas Bank 2 Indian bank 1 Union Bank of Pakistan 1 Habib Bank 2 Deutsche bank Ag 1 Citibank 1 Public Bank Berhad 1

Total No: of Banks: 10 Total No: of branches 25 {Standard chartered bank which has 14 branches in Sri Lanka did not participate in this study} 6.3 Respondent aspects The major concern about the respondents was to find a person who was responsible for

corporate planning in their banks. All of the twenty one banks which participated in this

study nominated a person who was responsible for their corporate planning and the

respondent’s job titles are shown in the table 6.2.

Table 6.2: Respondents job titles Position No: of participants Chief Executive Officer (CEO) 1 Deputy General Manager (DGM) 1 Director –Research & development 1 Director –Training 1 Assistant General Manager (AGM) 1 Financial controller 2 Head of finance & planning 3 Head of finance 1 Assistant vice president 1 Head of treasury 1 Head of audit 1 Head of department 2 Senior Manager 2 Manager –Finance & planning 1 Assistant Manager –Finance & planning 1 Strategic Planning Unit 1 Total 21

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6.4 Ownership Aspects On the basis of ownership, all the participating banks were divided into three categories

namely, Sri Lankan government banks, locally owned banks and foreign owned banks.

The major considerations for this classification was who owns more than fifty percent

of the total shares and table 6.3 further explains the three categories in ownership

aspects. Table 6.3: Description of the three categorise in ownership aspects Government owned banks: Sri Lankan government holding more than 50 percent of the total shares Locally owned banks : Sri Lankan companies and Sri Lankans holding more than 50 percent of the

total shares Foreign owned banks : Foreign companies and foreigners holding more than 50 percent of the total

shares Table 6.4 shows the industry participation for this study in terms of ownership aspects.

All the government owned banks and the locally owned banks participated in this study

and therefore, both the government and locally owned banks reported a 100%

participation rate. Except for one foreign owned bank all the other foreign bank’s

branches participated in this study and hence, the participation percentage of foreign

owned banks was 90.90%. Thus, the participation percentage of all the commercial

banks in the Sri Lankan banking sector for this study was 95.45%. More analysis about

the ownership aspects will be discussed in chapter 7.

Table 6.4: Ownership characteristics of the participating companies in terms of ownership aspects Banks Industry

(N) Participants

(N) Participation rate

(N) Government owned banks 2 2 100.0 Locally owned banks 9 9 100.0 Foreign owned bank’s branches 11 10 90.90 Total 22 21 95.45

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6.5 Size aspects

Several questions were included in the questionnaire to capture the size measures of the

Sri Lankan commercial banks . Figure 6.1 shows the calculated means of the responses

received from the participating banks about their size measures. Profitability, asset base

and revenue had higher means than the other size measures and only four banks

considered their deposit base as a major measurement of their bank size.

Figure 6.1: Size measures Not at all To a great extent 1 2 3 4 5 П=3.85 N=21 Size is measured by revenue •_______•________•________•_______• П=4.0 N=21 Size is measured by assets •_______•________•________•_______• П=2.85 N=21 Size is measured by number of employees •_______•________•________•_______• П=4.09 N=21 Size is measured by the profitability •_______•________•________•_______• П=3.66 N=21 Size is measured by the customer base •_______•________•________•_______• П=3.14 N=21 Size is measured by the number of branches •_______•________•________•_______• П=4.25 N=4 Deposit base •_______•________•________•_______•

18 of the total of 21 banks identified they had a most important measure to determine

their bank size and only 3 banks reported not having an important measurement to

determine their banks size (refer table 6.5).

98

Table 6.5: Of these size measures, is one of these considered most important? Is one of these size measures considered most important?

Frequency Percent

Yes 18 85.7 No 3 14.3

Total 21 100.0

Table 6.6 reveals the most important size measures of the participating banks. 7 banks

considered asset base as their most important size measure and, 5 and 3 banks

mentioned profitability and revenue as their most important size measures respectively.

These findings suggest that there was no clear measure adopted by the Sri Lankan

banking sector to determine its size. Central Bank of Sri Lanka identified six large

important banks, which together represented 81 percent of the commercial banking

sector assets (Central Bank 2006). These banks comprised the two government owned

banks and the four large domestic private commercial banks. However, the Central

Bank did not mention the way they categorized these banks as large banks.

Table 6.6: Most important size measures of the participating bank

Size measure

Frequency Percent Valid Percent Cumulative Percent

Revenue 3 14.3 16.7 16.7 Assets 7 33.3 38.9 55.6 Profitability 5 23.8 27.8 83.3 Customer base 1 4.8 5.6 88.9 Number of branches 1 4.8 5.6 94.4 Deposit base 1 4.8 5.6 100.0 Total 18 85.7 100.0

Data of all the size measures of all the participating banks were available for this study

and therefore, this study had a number of options to categorize banks by size. As most

number of banks reported assets as their most important measure of size, this study also

adopted asset base as the most appropriate measure to determine bank size because

profitability can be negative and it depends on company performances. Table 6.7

describes the classification of the size measures that were adopted for this study.

99

Table 6.7: Classification for size aspects Size aspects Asset range (Sri Lankan rupees/millions) Large > 100,000 Medium, 50,000- 100,000 Small 0-50,000 According to the classification identified in table 6.7, all the participating banks were

divided into three categories namely large, medium and small sized banks and the

categorised banks in terms of size aspects are shown in the table 6.8.

Table 6.8: Participating banks in terms of size aspects

Bank Name Assets (As at 31st of December 2005) Size

(Sri Lankan rupees/millions) Category Domestic banks

People’s Bank >100,000 Large

Bank of Ceylon >100,000 Large NDB Ltd 50,000- 100,000 Medium Hatton National Bank > 100,000 Large Commercial Bank > 100,000 Large Sampath Bank 50,000- 100,000 Medium

Pan Asia Bank 0-50,000 Small Seylan Bank > 100,000 Large

Nations trust Bank 0-50,000 Small DFCC Vardhana 0-50,000 Small Union Bank of Colombo 0-50,000 Small

Foreign Bank Branches HSBC 50,000- 100,000 Medium

MCB 0-50,000 Small State Bank of India 0-50,000 Small

Indian Overseas Bank 0-50,000 Small Indian Bank 0-50,000 Small Union Bank of Pakistan 0-50,000 Small Habib Bank 0-50,000 Small Deutsche bank Ag 0-50,000 Small Citibank 0-50,000 Small Public Bank Berhad 0-50,000 Small

6.6 Planning system aspects By considering the planning system aspects, all the participating banks were divided

into two categories such as the banks who had a formalized strategic planning system

(FSP) and the banks who did not have a formalized strategic planning system (NFSP).

100

When the question was asked about the formalised strategic planning systems, the

responses of the participants confirmed that the sample companies in this study consist

of 20 FSP banks and one NFSP bank. Table 6.9 shows the responses received in this

study about the participants planning systems in terms of ownership aspects and the

only bank who had a NFSP system was a government owned bank.

Table 6.9: Does your company have a formalized strategic planning system at the corporate level?

Strategic Formalized Planning

Ownership aspects Yes No Total Government owned 1 1 2Locally owned

9 - 9

Foreign owned 10 - 10Total 20 1 21

6.7 Characteristics of the sample companies by ownership, planning and size aspects

Table 6.10 shows the characteristics of the participating companies in terms of size,

ownership and planning system aspects. Among the 21 banks participating in this study,

5 were large, 3 were medium and 13 were small sized banks. 12 of the 13 foreign

owned banks were small sized banks and only one foreign owned bank was included in

the medium size category. 5 large banks consisted of two government and three locally

owned banks.

Table 6.10: Characteristics of the sample companies by ownership, planning and size aspects

Size aspects

Planning system aspects Ownership aspects

L (%) M (%) S (%) FSP (%) NFSP (%) Government owned

2 40.0 - - - - 1 5.0 1 100

Locally owned

3 60.0 2 66.7 4 30.8 9 45.0 - -

Foreign owned

- - 1 33.3 9 69.2 10 50.0 - -

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6.8 Chapter Summary As at 31st December 2005 there were 22 commercial banks operating in Sri Lanka and

all the banks were invited to participate in this study. Except for one foreign owned

bank all the other banks participated in this study and therefore, this study reported an

overall participation rate of 95.45%. All the respondents were the persons who are

responsible for the corporate planning in their organizations. By considering the

ownership aspects all the participating banks were categorised as either government

owned, locally owned or foreign owned and the major consideration for this

classification was who owns more than 50% of total shares of the bank. The results

found that sample of the participating banks for this study consists of 2 governments

owned, 9 locally owned and 10 foreign owned banks. Even though the different banks

used different measure to determine their size, this study uses the asset base as the

major measurement to determine the bank size. By considering the asset base of the

participating banks, this study categorize all the banks as large, medium or small sized

banks and the results found that the sample banks of this study consist of 5 large, 3

medium and 13 small sized banks. When considering the planning system aspects only

one government owned bank did not have a FSP system at their corporate level and all

the other banks reported having a FSP system.

The next chapter will analyse the company structure, company ownership and company

size of the commercial banks.

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Chapter 7: Company structure, company ownership and company size 7.1 Introduction

This chapter will investigate the three major internal environmental characteristics of

the Sri Lankan commercial banks, these being the company structure, the company size

and the company ownership. Throughout the course of this chapter the results for every

question asked in the questionnaire regarding the structure, ownership and the size, will

be provided in summary format. In addition to the analysis in chapter 6 about the

ownership and size aspects, this chapter aims to analyse those variables more

thoroughly. At the end of this chapter a summary will be provided based on the major

findings of the company structure, ownership and size.

7.2 Organizational Structure

Several questions were designed to capture the important features of the organizational

structures of the Sri Lankan commercial banks. Firstly, this study has requested a chart

of an organizational structure from all the participating banks and only two banks

agreed to provide their charts. All the other banks preferred to describe their structures

rather than providing their organizational charts. Table 7.1 reveals the details of the

banks that agreed to provide charts of their organizational structures for this study.

Table 7.1 Could you please provide us with an organization chart of your company?

Total Ownership aspects Size aspects

Response

N (%) G (%) LO (%) F (%) L (%) M (%) S (%)

Yes 2 9.5 1 50.0 - - 1 10.0 1 20 - - 1 7.7

No 19 90.5 1 50.0 9 100.0 9 90.0 4 80.0 3 100.0 12 92.3

Size: Cramer’s V 0.219 P=0.606 Ownership: Cramer’s V=0.476, P=0.093 Planing system: Cramer’s V=0.689, P=0.002

103

7.2.1 Organizational structure

All the company structures were divided into three categories namely structures which

have single strategic business units (SSBU), structures which have multiple strategic

business units (MSBU), and structures which have a mix of single and multiple strategic

business units. Table 7.2 shows the structural types of the participating banks in terms

of size and ownership aspects. It was found that 52.4%, 28.65, and 19.0% had MSBU,

SSBU, and mix of MSBU and SSBU structures respectively. All the large and the

medium sized banks had MSBU structures and only three small banks reported having

MSBU and, most of the small banks reported having SSBU structures. The higher

number of products and services of large and medium sized banks over the small banks

probably led them to adopt MSBU structures. Similarly, all the government owned

banks and 88.9% of the locally owned banks reported having MSBU structures and the

main reason for that finding is also probably the higher number of products and services

of government and locally owned banks over the foreign owned banks. There were

significant differences in the company structures both by size and ownership aspects

but, results found that ownership aspects were more significant than the size aspects for

the company structures in the Sri Lankan banking sector.

Table 7.2 Organizational structure

Total Ownership aspects Size aspects Company structure N (%) G (%) LO (%) F (%) L (%) M (%) S (%)

Single business units

6 28.6 - - - - 6 60.0 - - - - 6 46.2

Multiple business units

11 52.4 2 100.0 8 88.9 1 10.0 5 100.0 3 100.0 3 23.1

Mix of multiple & single business units

4 19.0 - - 1 11.1 3 30.0 - - - - 4 30.8

Size Cramer’s V=0.529 P=0.019, Ownership Cramer’s V=0.587, P=0.006, 7.2.2 Organizational levels Table 7.3 shows the organizational levels of the participating commercial banks. All the

commercial banks had first and second levels and 71.4% of the banks had a third level

and only 9.5% of the banks had a fourth level. All the banks recognized their first level

as the corporate level. A third level was found in all the large and medium sized banks

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and also in 53% of the small banks. When considering the ownership aspects, all the

government and locally owned banks had a third level and only the government owned

banks had a fourth level. The results found that there were statistically significant

differences in the third level and fourth level by ownership aspects. Surprisingly, size

aspects were not associated with the number of organizational levels.

Table 7.3 Organizational levels

Total Ownership aspects Size aspects Level N (%) G (%) LO (%) F (%) C Sig L (%) M (%) S (%) C Sig

Corporate 21 100 2 100 9 100.0 10 100 n.a n.s 5 100 3 100 13 100 n.a n.a

Second 21 100 2 100 9 100.0 10 100 n.a n.s 5 100 3 100 13 100 n.a n.s

Third 15 71.4 2 100 9 100.0 4 40.0 .633 * 5 100 3 100 7 53.8 496 n.s

Fourth 2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 7.2.3 Number of units at corporate level Table 7.4 displays the number of units at corporate level in Sri Lankan commercial

banks. Only one medium sized locally owned bank had 12 units in their corporate level

and all the other banks considered their corporate level as one unit. Table 7.4 Number of units at corporate level


Number of units

N (%) G (%) LO (%) F (%) L (%) M (%) S (%) 1 unit

20

95.2

2

100

8

88.9

10

100

5

100

2

66.7

13

100

12 units

1

4.8

-

-

1

11.1

-

-

-

-

1

33.3

-

-

7.2.4 Highest positions at corporate level In 18 of the 21 banks, a CEO (chief executive officer) or a GM (general manager)

headed their corporate levels. The other three banks corporate levels were headed by a

DGM (deputy general manager), an AGM (assistant general manager) and a head of the

105

corporate planning respectively (see table 7.5). There were no significant differences in

the highest positions at the corporate level either by size or ownership aspects.

Table 7.5: Highest positions at corporate level

Total Ownership aspects Size aspects Title N % G (%) LO (%) F (%) L (%) M (%) S (%)

CEO/GM 18 85.7 2 100 9 100 7 70.0 5 100 3 100 10 76.9

DGM 1 4.8 - - - - 1 10.0 - - - - 1 7.7

AGM 1 4.8 - - - - 1 10.0 - - - - 1 7.7

Head of the corporate planning

1 4.8 - - - - 1 10.0 - - - - 1 7.7

Ownership: Cramer’s V=.303 P=0.697 Size: Cramer’s V=0.226 p=.905 7.2.5 Organizational units at second level Table 7.6 shows the organizational units at second level. 52.4% of the banks recognize

their second level as a business level while 19.0% as a operational and 14.3% as a

functional level. Only three banks considered their second level also as a corporate

level. The banks which considered their second level as operational and functional level

were small sized banks.

Table 7.6: Organizational units at second level

Total Ownership aspects Size aspects Unit N (%) G (%) LO (%) F (%) L (%) M (%) S (%)

Corporate 3 14.3 1 50.0 1 11.1 1 10.0 1 20.0 1 33.3 1 7.7

Business 11 52.4 1 50.0 7 77.8 3 30.0 4 80.0 2 66.7 5 38.5

Operational 4 19.0 - - - - 4 40.0 - - - - 4 30.8

Functional 3 14.3 - - 1 11.1 2 20.0 - - - - 3 23.1

7.2.6 Highest positions at second level Table 7.7 reveals the highest positions at second level in participant banks. The highest

number of banks reported the highest position at their second level was DGM following

the positions of senior manager and manager. Highest positions of SDGM (senior

deputy general manager) and DGM were in the large banks while most of the small

banks reported having a DGM. Highest positions such as manager, operational officer,

and head of the business were only seen in the foreign owned banks and there were no

106

significant differences in the positions of second level either by size or ownership

aspects.

Table 7.7: Highest positions at the second level

Total Ownership aspects Size aspects Job Title N % G % LO % F % L % M % S %

SDGM 2 9.5 1 50.0 1 11.1 - - 2 40.0 - - - -

DGM 7 33.3 1 50.0 5 55.6 1 10.0 3 60.0 - - 4 30.8

Manager 3 14.3 - - - - 3 30.0 - - - - 3 23.1

Vice president

2 9.5 - - 1 11.1 1 10.0 - - 1 33.3 1 7.7

Senior Manager

4 19.0 - - 2 22.2 2 20.0 - - 1 33.3 3 23.1

Operational officer

1 4.8 - - - - 1 10.0 - - - - 1 7.7

Head of the business units

2 9.5 - - - - 2 20.0 - - 1 33.3 1 7.7

7.2.7 Highest positions at third level

Table 7.8 displays the highest positions at third level of the Sri Lankan banking

industry. Branch manager was the highest position at third level in most of the banks

following the positions of AGM and manager. There were no significant differences

found in the highest positions at third level either by size or ownership aspects.

Table 7.8: Highest positions at the second level

Total Ownership aspects Size aspects Job Title N % G % LO % F % L % M % S %

CEO 1 6.7 - - - - 1 25.0 - - - - 1 14.3

DGM 1 6.7 1 50.0 - - - - 1 20.0 - - - -

AGM 3 20.0 1 50.0 2 22.2 - - 3 60.0 - - - -

Manager 3 20.0 - - 1 11.1 2 50.0 1 20.0 - - 2 28.6

Asst. Vice president

1 6.7 - - 1 11.1 - - - - 1 33.3 - -

Br Manager 6 40.0 - - 5 55.6 1 25.0 - - 2 66.7 4 57.1

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7.2.8 Second management level units Table 7.9 shows the details of the second management level units. 90.5% of the second

management level units were defined as profit centres and there were no significant

differences found in the second management level units in terms of profit centres either

by ownership or size aspects.

Table 7.9: Are the second management level units defined as profit centres?

Total Ownership aspects Size aspects Response N % G % LO % F % L % M % S %

Yes 19 90.5 2 100 8 88.9 9 90.0 5 100 3 100 11 84.6

No 2 9.5 - - 1 11.1 1 10.0 - - - - 2 15.4

Ownership Cramer’s V=0.107 P=0.887, Size Cramer’s V=0.255 P=0.507 7.2.9The lowest level of profit centre When the question was asked about the lowest level of profit centre, 17 banks (81% of

the total banks) responded the operational level was their lowest level of profit centre.

The details of the responses received about the lowest level of profits in terms of

ownership and size aspects are shown in the table 7.10. Results also found that there

were no significant differences in the lowest level of profit centre either by size or

ownership aspects. Table 7.10: The lowest level of profit centre

Total Ownership aspects Size aspects Level N % G % LO % F % L % M % S %

Second level 1 4.8 - - 1 11.1 - - - - 1 33.3 - -

Operational level

17 81.0 2 100 7 77.8 8 80.0 5 100 2 66.7 10 76.9

Upper level 1 4.8 - - - - 1 10.0 - - - - 1 7.7

Functional level

2 9.5 - - 1 11.1 1 10.0 - - - - 2 15.4

Ownership Cramer’s V=0.256 P=0.839, Size Cramer’s V= 0.441 P=0.226

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7.2.10 Structural types Table 7.11 reveals the structural types of the Sri Lankan commercial banks. The results

found that 14 of the total of 21 banks had a hybrid form of centralized and decentralized

structures, whilst six and one bank reported having centralized and decentralized

structures respectively. Five of the six banks which have centralized structures were

small sized banks. Results of the table 7.11 demonstrate that when the size becomes

bigger structural type tend to have a hybrid form of centralized and decentralized

structures. It is worth noting that even the large banks did not have fully decentralized

structures and their banks operations were centralized to a great extent. It was also

found that there were no statistically significant differences in the structural type either

by size or ownership aspects.

Table 7.11: Structural type

Total Ownership aspects Size aspects Structural type N % G % LO % F % L % M % S %

Centralized structure 6 28.6 - - 3 33.3 3 30.0 - - 1 33.3 5 38.5

Decentralized structure 1 4.8 - - - - 1 10.0 - - - - 1 7.7

Hybrid form of centralized

& decentralized structure

14 66.7 2 100 6 66.7 6 60.0 5 100 2 66.7 7 53.8

Ownership: Cramer’s V=0.226 P=0.708 Size: Cramer’s V=0.295 P=0.453 7.2.11 Structural changes in last five years Nine banks had changed their organizational structures during last five years and those

nine banks included both the government owned banks, four Sri Lankan owned banks

and, three foreign owned banks. Table 7.12 shows the details of 9 banks which had

changed their structures in terms of size and ownership aspects. There were no

significant differences in the banks which changed their structures either by size or

ownership aspects.

109

Table 7.12: Organizational structure changed during last five years


Yes 9 42.9 2 100 4 44.4 3 30.0 3 60.0 2 66.7 4 30.8

No 12 57.1 - - 5 55.6 7 70.0 2 40.0 1 33.3 9 69.2

Ownership: Cramer’s V=0.399 P=0.187 Size: Cramer’s V= 0.314 P=0.355

Table 7.13 details the years in which the structural changes took place in the banks

which changed their organizational structures. It was found that 4 banks changed their

structures in 2002 while 3 and 2 banks in 2005 and 2004 respectively. Table 7.13: Year of structural change

Total Ownership aspects Size aspects Year N % G % LO % F % L % M % S %

2005 3 33.3 - - 2 50.0 1 33.3 1 33.3 2 100 - -

2004 2 22.2 - - 1 25.0 1 33.3 - - - - 2 50.0

2002 4 44.4 2 100 1 25.0 1 33.3 2 66.7 - - 2 50.0

Total 9 100 2 100 4 100 3 100 2 100 4 100 4 100

Ownership: Cramer’s V=0.437 P=0.487, Size: Cramer’s V=0.656 P=0.101 7.2.12 Important structural changes made (during last five years) Table 7.14 describes the important structural changes made by the Sri Lankan

commercial banks during the last five years. The highest numbers of reported structural

changes made by the banks were the introduction of new positions, introduction of new

procedures and policies, establishment of new profit centres, and new areas of activities

respectively. Introduction of new positions was associated with the size aspects and that

was mostly seen in the small sized banks. It is worth noting that most of the structural

changes were due to the growth of the banks and the banking industry in Sri Lanka. The

results also found that ownership aspect was not associated with any structural changes.

110

Table 7.14: Important structural changes made (during the last five years)


Changes made

N % G % LO % F % C Sig L % M % S % C Sig Establishment of new profit centres

2 22.2 1 50.0 1 25.0 - - .443 n.s 1 33.3 - - 1 25.0 .299 n.s

Organized the business units under heads/DGMs

1 11.1 1 50.0 - - - - .661 n.s 1 33.3 - - - - .500 n.s

Structural changes at corporate level positions

1 11.1 1 50.0 - - - - .661 n.s 1 33.3 - - - - .500 n.s

Appointment of chief financial officer above the DGM

1 11.1 1 50.0 - - - - .661 n.s 1 33.3 - - - - .500 n.s

Combining two structures into one

1 11.1 - - 1 25.0 - - .395 n.s - - 1 50.0 - - .661 n.s

Harmonizing the HR function

1 11.1 - - 1 25.0 - - .395 n.s - - 1 50.0 - - .661 n.s

Appointment of a single CEO

1 11.1 - - 1 25.0 - - .395 n.s - - 1 50.0 - - .661 n.s

Opening of new departments

1 11.1 - - 1 25.0 - - .395 n.s - - 1 50.0 - - .661 n.s

Introduction of new position

5 55.6 - - 3 75.0 2 66.7 .602 n.s 1 33.3 - - 4 100 .837 *

Decentralization of operations

1 11.1 - - - - 1 33.3 .500 n.s - - - - 1 25.0 .395 n.s

Linked all branches

1 11.1 - - - - 1 33.3 .500 n.s - - - - 1 25.0 .395 n.s

Created a centralized operation unit

1 11.1 - - - - 1 33.3 .500 n.s - - 1 50.0 - - .661 n.s

Create market product development units

1 11.1 - - - - 1 33.3 .500 n.s - - 1 50.0 - - .661 n.s

Introduction of new procedures and policies

3 33.3 - - 2 50.0 1 33.3 .408 n.s 1 33.3 - - 2 50.0 .408 n.s

New products and branches

1 11.1 - - 1 25.0 - - .395 n.s - - - - 1 25.0 .395 n.s

New areas of activities

2 22.2 - - 1 25.0 1 33.3 .299 n.s - - - - 2 50.0 .598 n.s

Redesigning the job definitions

1 11.1 - - - - 1 33.3 .500 n.s - - - - 1 25.0 .395 n.s

Note that: T (N) = 9, *=p < 0.05, **= p<0.01, ***=p<0.001 7.2.13 Main reasons for the structural changes Table 7.15 summarises the main reasons for the above mentioned structural changes.

The most common reasons for the structural changes were to improve efficiency, a

change of CEO/GM, to expand the business, and the rapid growth of the bank and the

111

banking industry in Sri Lanka respectively. The reason of “improve efficiency” was

associated with ownership aspect and that reason was reported from both the

government owned banks. Thus, efficiency was a major concern in both the government

owned banks during last five years. Results also found that there were no significant

differences in the reasons for structural changes by size aspects. Table 7.15: The main reasons for the structural changes


Main reason N % G % LO % F % C Sig L % M % S % C Sig

To improve efficiency

3 33.3 2 100 - - 1 33.3 .816 * 2 66.7 - - 1 25.0 .540 n.s

To empower the mangers

1 11.1 1 50.0 - - - - .661 n.s 1 33.3 - - - - .500 n.s

Merger with another company

1 11.1 - - 1 25.0 - - .395 n.s - - 1 50.0 - - .661 n.s

Change of CEO/GM

3 33.3 - - 2 50.0 1 33.3 .408 n.s 1 33.3 - - 2 50.0 .408 n.s

To expand the business

2 22.2 - - - - 2 66.7 .756 n.s - - - - 2 50.0 .598 n.s

Rapid growth of the bank and the banking industry in Sri Lanka

2 22.2 - - - - 2 66.7 .756 n.s - - 1 50.0 1 25.0 .443 n.s

To take the bank ahead

1 11.1 - - 1 25.0 - - .395 n.s - - - - 1 25.0 .395 n.s

To make the bank profit

1 11.1 - - 1 25.0 - - .395 n.s - - - - 1 25.0 .395 n.s

Economy in the country

1 11.1 - - - - 1 33.3 .500 n.s - - - - 1 25.0 .395 n.s

Note that: Total (N) = 9 7.2.14 Applicability of the current organization structure for the next five years

When the question was asked about the applicability of the current organization

structure for the next five years, 14 of the total of 21 banks mentioned that their current

structures would need to be changed in the next five years. However, 7 banks, which

include 3 locally and 4 foreign owned banks, mentioned that their current structures will

still be applicable for the next five years. The results of table 7.16 show that there were

112

no significant differences with the applicability of the current bank structures for the

next five years either by size or ownership aspects.

Table 7.16: Applicability of the current organizational structure


Yes 7 33.3 - - 3 33.3 4 40.0 2 40.0 1 33.3 4 30.8 No 14 66.7 2 100 6 66.7 6 60.O 3 60.0 2 66.7 9 69.2 Ownership: Cramer’s V=.239 P=0549 Size: Cramer’s V= .081 P=.933 7.2.15 Major structural changes expected by the banks for the next five years Table 7.17 reveals the major structural changes expected by the Sri Lankan banking

sector for the next five years. 12 of the total of 14 banks mentioned that their structures

needed to be adjusted according to the business and the competitive environments. New

positions, new branches, introduction of new business units were the other reported

changes which they expected to be completed in the next five years. These expected

changes suggest an expected industry growth within the banking industry in Sri Lanka.

It was found that higher proportion of small banks is expecting to introduce new

positions, open new branches and, also to expand their size within the next five years.

The results in the table show that there were no significant differences in the expected

structural changes either by size or ownership aspects.

113

Table 7.17: Major structural changes expected by the banks for the next five years

Note that: Total (N): 14

Total Ownership aspects

Size aspects Structural change

N % G % LO % F % C Sig L % M % S % C Sig Depending on the business and competitive environment it needs to be adjusted

12 85.7 2 100 6 100 4 66.7 .471 n.s 3 100 2 100 7 77.8 .304 n.s

New positions

7 50.0 - - 3 50.0 4 66.7 .436 n.s - - 1 50.0 6 66.7 .535 n.s

New branches

5 35.7 - - 4 66.7 1 16.7 .571 n.s - - 1 50.0 4 44.4 .391 n.s

Expand the operational level

2 14.3 - - 1 16.7 1 16.7 .167 n.s - - - - 2 22.2 .304 n.s

Innovations

1 7.1 - - - - 1 16.7 .320 n.s - - - - 1 11.1 .207 n.s

Introduction of money market operations

1 7.1 - - - - 1 16.7 .320 n.s - - - - 1 11.1 .207 n.s

Introduction of new products and markets

1 7.1 - - - - 1 16.7 .320 n.s - - - - 1 11.1 .207 n.s

Introduction of high technology for the banking operations

1 7.1 - - 1 16.7 - - .320 n.s 1 33.3 - - - - .531 n.s

Introduction of new business units

3 21.4 - - 2 33.3 1 16.7 .284 n.s 1 33.3 1 50.0 1 11.1 .358 n.s

Expand the size

3 21.4 - - 2 33.3 1 16.7 .284 n.s - - - - 3 33.3 .389 n.s

Introduction of credit cards and personal loans

1 7.1 - - - - 1 16.7 .320 n.s - - - - 1 11.1 .207 n.s

7.3 Ownership

Several questions were included in the questionnaire to thoroughly analyse the

ownership aspects of the Sri Lankan commercial banks. Firstly, this study examined the

banks which were listed on the Sri Lankan stock market (SLSM). When the question

was asked about the selling shares in SLSM, the responses in terms of size and

ownership aspects are shown in the table 7.18. Participants confirmed that only six

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banks were listed under SLSM and it was reported that all of those six banks were

locally owned banks. The results also found that there were significant differences in the

banks which listed under SLSM either by size or ownership aspects, and ownership

aspects had a higher influence over the size aspects.

Table 7.18 Bank sell its shares in SLSM


Yes 6 28.6 - - 6 66.7 - - 3 60.0 2 66.7 1 7.7 No 15 71.4 2 100 3 33.3 10 100 2 40.0 1 33.3 12 92.3 Ownership: Cramer’s V=.730 P=.004 Size: Cramer’s V=.591 P= .026

Table 7.19 shows the pattern of the shareholding of the locally owned banks which

listed under SLSM in terms of size aspects. Among those six banks, there were four

widely held and two subsidiaries of Sri Lankan company’s banks. There were no

significant differences in the pattern of the share holding by size aspects.

Table 7.19: Shareholder pattern of the commercial banks listed under SLSM

Total Size aspects Shareholder pattern

N % L % M % S %

Widely held 4 66.7 1 33.3 2 100 1 100

Subsidiary of Sri Lankan companies

2 33.3 2 66.7 - - - -

Size: Cramer’s V=.707 P=.223

Table 7.20 reveals the banks which sell their shares in overseas stock markets. 50% of

the foreign owned banks were selling their shares overseas and it was reported that none

of the government and locally owned banks were selling shares in the overseas stock

markets. The results also found that only ownership aspects were related to selling

shares in overseas markets.

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Table 7.20: Company sell its shares in overseas stock market Response Total Ownership aspects Size aspects N % G % LO % F % L % M % S % Yes 5 23.8 - - - - 5 50.0 - - 1 33.3 4 30.8No 16 76.2 2 100 9 100 5 50.0 5 100 2 66.7 9 69.2 Size: Cramer’s V=0.373 p=0.357 Ownership: Cramer’s V=0.586 P=0.027 7.3.1 Changes in company ownership (during last five years)

Table 7.21 displays the major ownership changes that occurred during last five years. 17

of the 21 banks reported no changes to their ownership while four banks made changes

to their ownership. Those four banks include 3 locally owned banks and one foreign

owned bank. The major changes in ownership among those four banks include two

mergers and one transfer of ownership and one change of major shareholders. It was

found that among the four banks which made changes to their ownership three were

small sized banks. According to Central Bank of Sri Lanka, a company can acquire a

maximum of up to 10% of the total shares of a bank. Therefore, the Central Bank

restrictions on takeovers would be the main reason for small number of reported changes

in ownership in Sri Lankan banking sector. There were no statistically significant

differences in the ownership changes either by size or ownership aspects.

Table 7.21: Changes in company ownership (during last five years)

Total Ownership aspects Size aspects Ownership change N % G % LO % F % L % M % S % No change 17 81.0 2 100 6 66.7 9 90.0 5 100 2 66.7 10 76.9 Merge with another company

2 9.5 - - 2 22.2 - - - - 1 33.3 1 7.7

Transfer of ownership- limited liability

1 4.8 - - - - 1 10.0 - - - - 1 7.7

Changed major shareholders

1 4.8 - - 1 11.1 - - - - - - 1 7.7

Size: Cramer’s V=.303 P=.695 Ownership: Cramer’s V=.362 P=.479

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7.3.2 The main reasons for the changes in your company’s ownership Table 7.22 reveals the major reasons for the ownership changes of the above mentioned

four banks. Capital requirement was a major reason for two small banks and all the

other major reasons stated in the table 7.22 were reported by one bank each.

Table 7.22: The main reasons for the changes in your company’s ownership

Total Ownership aspects Size aspects Main reason N % G % LO % F % L % M % S %

Shares changed hands to make capital gains

1 25.0 - - 1 33.3 - - - - 1 100 - -

Capital requirements

2 50.0 - - 2 66.7 - - - - - - 2 66.7

Company not listed in the share market

1 25.0 - - 1 33.3 - - - - - - 1 33.3

Enhancing Shareholder value

1 25.0 - - - - 1 100 - - - - 1 33.3

Unsatisfactory performance of the bank (big losses)

1 25.0 - - 1 33.3 - - - - - - 1 33.3

Note that: T (N) =4

7.3.3 The major factors that supported the above ownership changes

The major factors that supported the above ownership changes for the four banks are

given in the table 7.23. Good earning potential of the bank and the Central Bank capital

requirements were the most reported factors by the banks.

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Table 7.23: The major factors that supported the above ownership changes

Total Ownership aspects Size aspects Major factor N % G % LO % F % L % M % S %

Good earning potential of the bank

2 50.0 - - 1 33.3 1 100 - - 1 100 1 33.3

Satisfactory past performance

1 25.0 - - 1 33.3 - - - - 1 100 - -

Appreciation of share value

1 25.0 - - 1 33.3 - - - - 1 100 - -

Central Bank intervention to find capital

1 25.0 - - 1 33.3 - - - - - - 1 33.3

Bank’s unsatisfactory performance

1 25.0 - - 1 33.3 - - - - - - 1 33.3

Central Bank capital requirement

2 50.0 - - 2 66.7 - - - - - - 2 66.7

Note that: T (N) = 4

7.3.4 Successful rate of the ownership changes

All the banks that changed their ownership mentioned that they did not face any

problems when they changed ownership. The successful rate of ownership changes are

summarised in figure 7.1. Overall, all the four banks think their ownership changes

were successful. However, the small banks reported a higher success rate than the

medium sized banks. Similarly, foreign owned bank had a higher success rate than the

three locally owned banks.

Figure 7.1: Successful rate of ownership change (over the last five years) Unsuccessful Very Unsuccessful Very

Successful Successful ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 ПT=3.75 ПT=3.75

•_____•______•______•_____• •_____•______•______•_____• ПLO=3.7 ПF=4.0 ПM=3.0 ПS=4.0

N=3 N=1 N=1 N=3 Government Local Foreign Large Medium Small

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7.3.5 Strategic importance of the ownership changes Overall, banks think their ownership changes strategically helped their companies to a

reasonably high extent. However, it was found that ownership changes in small banks

helped them strategically to a greater extent than the medium sized bank. Similarly,

foreign owned bank reported a higher strategically importance of their ownership

changes than the 3 locally owned banks.

Figure 7.2: Strategic importance of the ownership changes (over the last five years)

Unsuccessful Very Unsuccessful Very

Successful Successful ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 ПT=3.75 ПT=3.75

•_____•______•______•_____• •_____•______•______•_____• ПLO=3.7 ПF=4.0 ПM=3.0 ПS=4.0

N=3 N=1 N=1 N=3 Government Local Foreign Large Medium Small

7.3.6 Expected ownership changes in next five years

When the question was asked about the expected ownership changes in the next five

years, 19 of the 21 commercial banks state that they do not want to change their

ownership (refer table 7.24). However, there were two foreign owned banks which are

expecting to change their ownership, and these include one Indian government owned

bank which is planning to sell 40% of its shares to the Indian stock market and another

foreign owned bank which is planning to change their large share owners. It also found

that none of the government and locally owned commercial banks want to make any

changes to their ownership for the next five years. There were no significant differences

in the expected ownership changes either by ownership or size aspects.

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Table 7.24: Changes in company ownership (For the next five years)

Total Ownership aspects Size aspects Ownership change N % G % LO % F % L % M % S % No change 19 90.5 2 100 8 88.9 9 90.0 5 100.0 2 66.7 12 92.3 Changes in large ownership

1 4.8 - - 1 11.1 - - - - 1 33.3 - -

Planning to sell 40% overseas market

1 4.8 - - - - 1 10.0 - - - - 1 7.7

Size: Cramer’s V=0.404 P=0.144 Ownership: Cramer’s V=0.242 P=0.653 7.4 Size of the Banks

7.4.1 Bank satisfaction on company performance compared to their size

When the question was asked about the satisfaction of the banks performance compared

to their size, this study received mix responses from the participating banks and the

means of the satisfaction rates in terms of size and ownership aspects are shown in

figure 7.3. Medium sized banks reported a higher satisfaction rate than the large and

small sized banks. Similarly, government banks reported the lowest level of satisfaction

compared with locally owned and foreign owned banks. Even for government owned

banks who have reported the highest profits than any other bank in Sri Lanka, their

lower levels of performance satisfaction suggests the need for them to further increase

profits.

Figure 7.3: Bank satisfaction level on company performance compared to their size

Dissatisfied Very Dissatisfied Very

satisfied satisfied ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 ПT=3.62 ПT=3.62 •_____•______•______•_____• •_____•______•______•_____• * ПG=3.5 ПF=3.6 ПLO=3.7 ПL=3.6 ПS=3.4 ПM=4.7 N=2 N=10 N=9 N=5 N=13 N=3

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

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17 of the 21 banks believe they need to enhance the size of their banks to gain more

profits and the details of those banks in terms of size and ownership and aspects are

shown in the table 7.25. It is worth noting that 90.0% of the foreign banks think they

need to enhance their size to gain more profits. Currently foreign banks operate only in

Colombo and this trend will change if foreign banks decide to expand their size by

opening new branches in outstations. No significant differences were found in the need

for banks to enhance the size by size and ownership aspects.

Table 7.25: Do you think you need to enhance the size of your bank to gain more profits?


Yes 17 81 1 50.0 7 77.8 9 90.0 3 60.0 3 100 11 84.6 No 4 19 1 50.0 2 22.2 1 10.0 2 40.0 - - 2 15.4

Size: Cramer’s V=.327 P=.326 Ownership: Cramer’s V= .295 P=.400

7.4.2 The main barriers faced by the banks to enhance their bank size

Table 7.26 summarises the main barriers that the banks faced to enhance their size.

Capital requirements, government policies, lack of managerial and employee skills were

the most reported barriers to enhance their size respectively. Results found that lack of

technology was associated with the ownership aspects and reported from one

government and two foreign owned banks. Surprisingly, only two banks considered

ethnic war in Sri Lanka as a barrier to enhance their banks size. There were no

significant differences in the barriers to enhance the bank size by size aspects.

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Table 7.26: The main barriers that you have to enhance your bank’s size


Size aspects Response

N % G % LO % F % C Sig L % M % S % C Sig Government policies

7 41.2 1 100 2 28.6 4 44.6 .337 n.s 1 33.3 1 33.3 5 45.5 .118 n.s


8 47.1 1 100 3 42.9 4 44.9 .266 n.s 2 66.7 1 33.3 5 45.5 .203 n.s

Lack of managerial and employee skills

6 35.3 1 100 3 42.9 2 22.2 .397 n.s 2 66.7 1 33.3 3 27.3 .308 n.s

Lack of technology

3 17.6 1 100 - - 2 22.2 .609 * 1 33.3 - - 2 18.2 .260 n.s

Head office credit policies

1 5.9 - - - - 1 11.1 .236 n.s - - - - 1 9.1 .185 n.s

RBI approval

1 5.9 - - - - 1 11.1 .236 n.s - - - - 1 9.1 .185 n.s

Unstable economy due to war

2 11.8 - - 2 28.6 - - .436 n.s 1 33.3 1 33.3 - - .494 n.s

No barriers 1 5.9 - - 1 14.3 - - .299 n.s - - 1 33.3 - - .540 n.s Note that: Total (N)= 17, *=p < 0.05, **= p<0.01, ***=p<0.001

7.5 Chapter Summary

This chapter has discussed the primary data analysis of banks structure, ownership and

size more thoroughly and highlighted the significant differences either by size, and

ownership aspects. Planning system aspects were ignored due to there been only one

respondent in the NFSP category.

Company structure

More than half of the banks had multiple business units’ structures and those banks

included all the large and medium sized banks and 3 small sized banks. Surprisingly

results found that ownership aspects were more associated with the organizational

structures than the size aspect. Only government owned banks reported having a fourth

level and for 17 of the total of 21 banks the lowest level of profit centre was the

operational level. 14 banks reported having a hybrid form of centralized and

decentralized structures while 6 and 1 banks reported having centralized and

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decentralized structures respectively. Only 9 banks had changed their organizational

structures during last five years and most of the structural changes were due to the

growth of the banks and the banking industry in Sri Lanka. It was found that one of the

reasons for both the government owned banks structural changes was to improve their

efficiency and therefore, lack of efficiency was a major concern in both the government

banks during last five years. Only 7 banks think their current structures applicable for

the next five years and the other 14 banks think that they need to change their structures

in the next five years. It was found that the banks which expected to change their

organizational structure during next five years did so due to their expected bank growth

and the industry growth in Sri Lanka.

Ownership

Only 6 of the 21 banks were selling shares in Sri Lankan stock market and all of these

banks were locally owned banks. Among the six banks which were selling shares in

SLSM, 4 were widely held and 2 were subsidiary of Sri Lankan companies. Only four

banks had changed their ownership during last five years and those changes included 2

mergers, 1 transfer of ownership and 1 change of major shareholders. It was found that

all the ownership changes were successful and strategically helped their banks. It was

also found that 19 of the 21 banks were not planning to do any kind of ownership

changes for their companies during next five years.

Size

Overall, banks were satisfied with their company performances compared to their size

but, government banks reported the lowest level of satisfaction compared to the locally

and foreign owned banks. Therefore, we can assume that government banks are wanting

to improve company performance in the next five years. 17 of the 21 banks think they

need to enhance their size to gain more profits. Most banks reported the major barriers

to enhance their size were capital requirements, government policies and the lack of

managerial and employee skills.

The next chapter will analyse the organizational culture, management style and

stakeholder expectations of the Sri Lankan commercial banks.

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Chapter 8: Organizational culture, management style and stakeholder expectations

8.1 Introduction This chapter will investigate the organizational culture, management styles and

stakeholder expectations of the participating Sri Lankan commercial banks and also

report whether there are any significant differences either by ownership or size aspects.

Planning system aspects will be ignored due to lack of respondents in the NFSP

category.

8.2 Organizational culture 8.2.1 The importance of the management of the organizational culture

All the participating banks considered that the management of their organizational

culture is important and the calculated means in this study in terms of size and

ownership aspects are given in the figure 8.1. Medium sized banks reported a higher

level of importance than the large and small sized banks. Similarly, government owned

banks reported a higher level of importance than the locally and foreign owned banks.

The results also found that there were no significant differences in the importance of the

management of culture either by size or ownership aspects.

Figure 8.1: Importance of the management of company culture Not at all Very Not at all Very Important important important important Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______• ПT=4.33 ПT=4.33 ПG=5.0 ПF=4.2 ПLO=4.3 ПL4.4 ПM=5.0 ПS=4.1 N=2 N=10 N=9 N=5 N=3 N=13 Ownership: Cramer’s V=0.368 P=0.223 Size: Cramer’s V=0.367 P=0.226 Government Local Foreign Large Medium Small

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8.2.2 Top management satisfaction with the current organizational culture

When asked about the satisfaction level with the current organizational cultures, this

study received mix responses from the participating banks and the results are shown in

figure 8.2. Overall, the banks’ satisfaction level was at 3.62 and but, medium sized

banks had a higher level of satisfaction rate than the large and small sized banks.

Government banks reported the lowest level of satisfaction compared to locally and

foreign owned banks. These findings suggest that the top management of number of

banks are expecting more developments from their organizational cultures. There were

no significant differences in the satisfaction level with the current organizational

cultures either by size or ownership aspects.

Figure 8.2: Top management satisfaction with the current organizational culture Dissatisfied Very Dissatisfied Very Satisfied satisfied Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______• ПT=3.62 ПT=3.62 ПG=3.0 ПF=3.6 ПLO=3.8 ПL=3.6 ПM=4.0 ПS=3.5 N=2 N=10 N=9 N=5 N=3 N=13 Ownership: Cramer’s V=0.399 P=0.351 Size: Cramer’s V=0.381 P=0.413 Government Local Foreign Large Medium Small

8.2.3The groups who influenced the company culture (over the last five years)

Company CEO and the corporate level management had the most influence on company

culture in Sri Lankan commercial banks (see figure 8.3). Second level management and

the other lower levels of management also had a reasonable influence on company

cultures. Overall, the government influence on banks cultures remained at a very low

level but, government influence on the government banks remained at a high level.

Trade unions had a high influence on cultures in one government and one locally owned

banks. Results also found that ownership aspects were associated with “Sri Lankan

government” and this was due to a higher influence on government banks. There were

no significant differences in the groups which influenced the company culture by size

aspects.

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Figure 8.3: The groups who influenced the culture (over the last five years) No influence Very great No influence Very great influence influence

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5

Corporate level management •_______•________•________•_______• •_______•________•________•_______• (N=21, ПT=4.0) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0

Chief executive officer •_______•________•________•_______• •_______•________•________•_______•

(N=21, ПT=4.3) ПG=4.0 ПLO=4.2 ПF=4.4 ПL=4.4 ПM=4.3 ПS=4.2

Outside members of the •_______•________•________•_______• •_______•________•________•_______•

board of directors (N=21, ПT=2.4) ПG=3.0 ПLO=2.7 ПF=2.1 ПL=2.4 ПM=2.0 ПS=2.5

Second level line managers •_______•________•________•_______• •_______•________•________•_______•


Sri Lankan government •_______•________•________•_______• * •_______•________•________•_______•


Other lower levels of •_______•________•________•_______• •_______•________•________•_______•

Management (N=21, ПT=2.9) ПG=2.5 П LO=3.1 ПF=2.9 ПL=3.0 ПM=3.3 ПS=2.8

Trade unions •_______•________•________•_______• •_______•________•________•_______•

(N=2 ПT=4.0) ПG=4.0 ПLO=4.0 ПL=4.0 ПM=4.0


8.2.4 The major characteristics of company culture

Table 8.1 summarizes the major characteristics of the organizational cultures in the Sri

Lankan commercial banks. Loyalty, team spirit and commitment were the major

characteristics reported by the highest number of banks. Concentrate more on self

development along with the development of organization, influence on country politics,

reacting nature and slow adaptation to the culture, and informal groups prefer their

values, norms beliefs contribute to the culture were all associated with ownership

aspects namely a government owned bank. Diversity is associated with the size aspects

and was reported in a medium sized bank. Results also found that ownership aspects

were more associated with characteristics of company cultures than the size aspects.

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Table 8.1: The major characteristics of company culture

Total Ownership aspects Size aspect

Changes made

N % G % LO % F % C Sig L % M % S % C Sig Commitment 16 76.2 1 50.0 7 77.8 8 80.0 .201 n.s 3 60.0 2 66.7 11 84.6 .256 n.s Loyalty 19 90.5 2 100 9 100 8 80.0 .349 n.s 5 100 2 66.7 12 92.3 .340 n.s Team spirit 17 81.0 1 50.0 7 77.8 9 90.0 .295 n.s 3 60.0 3 100 11 84.6 .326 n.s Concentrate more on self development along with the development of organization

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Influence on country politics

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Reacting nature and slow adaptation to the culture

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Informal group prefer their values, norms beliefs contribute to the culture

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Mutual respect

2 9.5 - - - - 2 20.0 .340 n.s - - 1 33.3 1 7.7 .349 n.s

Diversity 1 4.8 - - - - 1 10.0 .235 n.s - - 1 33.3 - - .548 * Multicultural 1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s Spirit of giving best To the customer and to the organization

2 9.5 - - 1 11.1 1 10.0 .107 n.s - - - - 2 15.4 .255 n.s

Less rigid 1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s Flexible 2 9.5 - - 2 22.2 - - .375 n.s 2 40.0 - - - - .580 n.s Overall knowledge

6 28.6 - - 4 44.4 2 20.0 .329 n.s 2 40.0 1 33.3 3 23.1 .161 n.s

More than 20 years of experience

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Corporative 2 9.5 - - - - 2 20.0 .340 n.s - - - - 2 15.4 .255 n.s Conservative 1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s Blend of government and private sector

1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

Young staff 2 9.5 - - 2 22.2 - - .375 n.s 1 20.0 1 33.3 - - .435 n.s Very transparent

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Approachable 1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

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Table 8.1: The major characteristics of company culture (continued)

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 8.2.5 Most important actions on company culture The most important actions on company culture in the banks were to encourage

communication and co-operation between different departments followed by the

encouraging team work rather than individual contributions (see figure 8.4).

Development of new ideas and communicating the bank’s mission, goals and strategies

to the employees were also reported as important. The encouragement of team work

rather than individual work was less important in government banks than the foreign

owned and locally owned banks and this was a significant difference by ownership

aspects. The results also found that there were no significant differences in the action on

company cultures by size aspects.

Figure 8.4 Most important actions on company culture

Strongly Strongly Strongly Strongly disagree agree disagree agree

ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 1.Our company encourages •_______•________•________•_______• •_______•________•________•_______• the development and ПG=3.0 ПLO= 4.1 ПF=3.5 ПL=3.6 ПM=4.3 ПS=3.6 implementation of new ideas N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.7) 2.Our company encourages •_______•________•________•_______• •_______•________•________•_______•

communication and co-operation ПG=3.5 ПLO=4.1 ПF=4.2 ПL=3.8 ПM=4.0 ПS=4.2 between different departments N=2 N=9 N=10 N=5 N=3 N=13 (ПT=4.1) Government Local Foreign Large Medium Small


Size aspect Changes made

N % G % LO % F % C Sig L % M % S % C Sig Reacting market practices

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Parent’s company influence

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Very motivated

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

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Figure 8.4 Most important actions on company culture (continued)

Strongly Strongly Strongly Strongly disagree agree disagree agree ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 3.Our company encourages an •_______•________•________•_______• •_______•________•________•_______•

open discussion of conflicts ПG=3.0 ПF=3.6 ПLO=3.5 ПL=3.0 ПM=3.7 ПS=3.7 and differences N=2 N=10 N=9 N=5 N=3 N=13 (ПT=3.5) 4.Our company encourages •_______•________•________•_______• •_______•________•________•_______• participative Decision- making ПG=3.0 ПF=3.3 ПLO=3.7 ПL=3.4 ПM=3.7 ПS=3.4 processes in and between N=2 N=10 N=9 N=5 N=3 N=13 organizational levels (ПT=3.4) 5.Our company encourages •_______•________•________•_______• •_______•________•________•_______•

informal conversation Between ПG=3.6 ПF=2.9 ПLO=3.3 ПL=3.6 ПM=3.3 ПS=2.9 senior and subordinate personnel N=2 N=10 N=9 N=3 N=3 N=13 (ПT=3.1) * 6.Our company encourages •_______•________•________•_______• •_______•________•________•_______•

teamwork rather than individual ПG=2.5 ПF=3.9 ПLO=4.0 ПL=3.4 ПM=4.0 ПS=3.9 contributions N=2 N=10 N=9 N=5 N=3 N=13 (ПT=3.8) 7.In our company the emphasis is •_______•________•________•_______• •_______•________•________•_______• on getting thing done, even if ПG=3.0 ПF=2.1 ПLO=1.8 ПL=2.2 ПM=2.7 ПS=1.8 this means disregarding N=2 N=10 N=9 N=5 N=3 N=13 formal procedures (ПT=2.0)

8.In our company our mission, •_______•________•________•_______• •_______•________•________•_______• strategy and goals are widely ПG=4.0 ПF=3.6 ПLO=3.7 ПL=3.8 ПM=3.7 ПS=3.6 communicated to the employees N=2 N=10 N=9 N=5 N=3 N=13 (ПT=3.7) 9.In our company managers provide •_______•________•________•_______• •_______•________•________•_______• a great deal of support to their ПG=3.5 ПF=3.5 ПLO=3.7 ПL=3.8 ПM=3.3 ПS=3.6 subordinates N=2 N=10 N=9 N=5 N=3 N=13 (ПT=3.6) 10.In our company people are •_______•________•________•_______• •_______•________•________•_______• rewarded in Proportion to the ПG=2.5 ПLO=3.6 ПF=3.2 ПL=3.2 ПM=3.7 ПS=3.2 excellence of their performance N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.3)

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small 13 of the total of 21 banks made major attempts to change their organizational culture

during the last five years. This included the two government owned banks, 66.7% of the

local banks and 50% of the foreign owned banks. The results of the table 8.2 also found

that there were no significant differences in the top management attempts to change

their culture either by size or ownership aspects.

130

Table 8.2 The banks which changed their company cultures (over the last five years)


Yes 13 61.9 2 100 6 66.7 5 50.0 3 60.0 2 66.7 8 61.5 No 8 38.1 - - 3 33.3 5 50.0 2 40.0 1 33.3 5 38.5 Size aspects: Cramer’s V=.042 Ownership aspects: Cramer’s V=.302

8.2.6 The nature of the cultural changes

9 of the 13 banks categorized their cultural changes as incremental changes, whilst 4

banks identified their cultural changes as both incremental and revolutionary (see table

8.3). All the large and medium sized banks that changed their culture had incremental

changes and 4 small sized banks had both incremental and revolutionary changes. It is

worth noting that most of the revolutionary and incremental changes happened in the

foreign owned banks. But, the results found that there were no statistically significant

differences in the nature of the cultural changes either by size or ownership aspects.

Table 8.3 The nature of the cultural changes

8.2.7 The main reasons for the cultural changes Table 8.4 summarizes the major reasons given by the banks for their cultural changes.

The highest number of banks reported the main reasons for cultural changes were to be

competitive in the market, customer orientation, the development took place in the

banking sector, and survival of the company. It is worth noting that most of the cultural

changes were due to the growth and the expansion of the banks and the banking


Size aspect

Changes made

N % G % LO % F % C Sig L % M % S % C Sig Incremental changes

9 69.2 2 100 5 83.3 2 40.0 .516 n.s 3 100 2 100 4 50.0 .433 n.s

Revolutionary changes

- - - - - - - - - - - - - - - - - -

Both incremental and revolutionary changes

4 30.8 - - 1 16.7 3 60.0 .516 n.s - - - - 4 50.0 .527 n.s

131

industry in Sri Lanka and, only 3 banks reported having cultural changes due to the

survival of their company. There were no significant differences in the main reasons for

the cultural changes either by size or ownership aspects.

Table 8.4 The main reasons for the company culture changes


Response

N % G % LO % F % C Sig L % M % S % C Sig In order to improve the financial viability in the market

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

To be competitive in the market

3 23.1 1 50.0 2 33.3 - - .453 n.s 2 66.7 - - 1 12.5 .576 n.s

Decline of market share of the organization

2 15.4 1 50.0 - - 1 20.0 .481 n.s 1 33.3 - - 1 12.5 .298 n.s

Migration to modern IT systems

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

M OU and the government’s signal for the importance of performance

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

In order to harmonize two different cultures that existed before the merger

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Not having job descriptions

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Need for decentralization of the powers

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Diversity of the human resources of the bank

1 7.7 - - - - 1 20.0 .365 n.s - - 1 50.0 - - .677 n.s

Emphasis on mutual respect & team work

1 7.7 - - - - 1 20.0 .365 n.s - - 1 50.0 - - .677 n.s

The belief of head office that the Sri Lankan banking system is too risky

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Customer orientation

3 23.1 - - 3 50.0 - - .592 n.s 1 33.3 - - 2 25.0 .247 n.s

132

Table 8.4 The main reasons for the company culture changes (continued)


Response

N % G % LO % F % C Sig L % M % S % C Sig Opening of new branches

2 15.4 - - 2 33.3 - - .461 n.s - - - - 2 25.0 .337 n.s

To enhance the morale of the staff

1 7.7 - - 1 16.7 - - .312 n.s 1 33.3 - - - - .527 n.s

Staff are required from different banks

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Had a different culture

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Survival of the company

3 23.1 - - 1 16.7 2 40.0 .345 n.s - - - - 3 37.5 .433 n.s

Development took place in the banking sector

3 23.1 - - 1 16.7 2 40.0 .345 n.s - - - - 3 37.5 .433 n.s

Environmental changes in the banking sector

2 15.4 - - - - 2 40.0 .539 n.s - - - - 2 25.0 .337 n.s

Growth of the bank

2 15.4 - - - - 2 40.0 .539 n.s - - - - 2 25.0 .337 n.s

Unsatisfactory performance of the bank

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Note that: Total (N) = 13

8.2.8 Major cultural changes made by the banks

Table 8.5 summarizes the major cultural changes made by the banks during last five

years. Change of values to core customers, introduction of new tasks and job

descriptions, and recruitment of new staff were the most reported major cultural

changes respectively. Introduction of new tasks and job descriptions were associated

with the ownership aspects and, were seen in foreign owned banks. There were no

significant differences in the cultural changes by size aspects.

133

Table 8.5 Major cultural changes made by the banks over the last five years

Total Ownership aspects Size aspects Cultural change N % G % LO % F % C Sig L % M % S % C Sig

Goal oriented action

1 7.7 1 50.0 - - - - .527 n.s 1 33.3 - - - - .677 n.s

Planning 1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Evaluation with financial achievements / ratios

2 15.4 1 50.0 1 16.7 - - .461 n.s 1 33.3 - - 1 12.5 .298 n.s

Performance management / evaluation

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Change of values to core customers

3 23.1 1 50.0 1 16.7 1 20.0 .275 n.s 1 33.3 - - 2 25.0 .247 n.s

Induction of business sense and change of attitude

1 7.7 1 50.0 - - 1 20.0 .481 n.s 1 33.3 - - 1 12.5 .298 n.s

Address people by the first name

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Open door policy of managers and supervisors

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Acceptance of younger people at management grade

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Changed the CEO/GM

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Introduction of new tasks

3 23.1 - - - - 3 60.0 .693 * - - - - 3 37.5 .433 n.s

Introduction of job descriptions

3 23.1 - - - - 3 60.0 .693 * - - - - 3 37.5 .433 n.s

Emphasis on team work

1 7.7 - - - - 1 20.0 .365 n.s - - 1 50.0 - - .677 n.s

Diversity respecting

1 7.7 - - - - 1 20.0 .365 n.s - - 1 50.0 - - .677 n.s

Open communications and exchange of views

1 7.7 - - - - 1 20.0 .365 n.s - - 1 50.0 - - .365 n.s

Cut down the staff to work with the minimum capacity

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Change the policies and procedures of company

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Recruitment of new staff

3 23.1 - - 2 33.3 1 20.0 .275 n.s - - - - 3 37.5 .433 n.s

134

Table 8.5 Major cultural changes made by the banks over the last five years (continued)

Total Ownership aspects Size aspects Cultural change N % G % LO % F % C Sig L % M % S % C Sig

New uniforms to the staff

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .225 n.s

Dialog between staff & management

1 7.7 - - 1 16.7 - - .312 n.s 1 33.3 - - - - .527 n.s

Marketing orientation

1 7.7 - - 1 16.7 - - .312 n.s 1 33.3 - - - - .527 n.s

Bring the team spirit

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Changed of senior management

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Recruited senior managers from various other banks in Sri Lanka

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Concerned about cost efficiency of the bank

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Note that: Total (N) = 13, *=p < 0.05, **= p<0.01, ***=p<0.001 8.2.9 The major factors which supported the cultural changes

The major factors that supported the above mentioned cultural changes are summarized

in the table 8.6. Introduction of new products by the Sri Lankan banking sector, growth

of the bank, low profitability and the economic changes were the major factors that

supported the cultural changes in most banks respectively. Low profitability, economic

changes, introduction of new products by the banking sector were associated with

ownership aspects and mostly seen in foreign owned banks. Surprisingly, the size

aspects were not associated with any factor.

135

Table 8.6 The major factors which supported the cultural changes

Total Ownership aspects Size aspects Major factor N % G % LO % F % C Sig L % M % S % C Sig

Govt support

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Commitment of corporate management and the board

2 15.4 1 50.0 1 16.7 - - .461 n.s 1 33.3 1 50.0 - - .557 n.s

Trade union’s support

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

External forces (competitors, owners)

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Induction of network banking

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Recruitment of new employees with professional background

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Appointment of consultants to key areas to inject new culture

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Acceptance of change by majority of staff

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Unsatisfactory performances of the bank

2 15.4 - - 1 16.7 1 20.0 .187 n.s - - - - 2 25.0 .337 n.s

Low profitability

3 23.1 - - - - 3 60.0 .693 * - - - - 3 37.5 .433 n.s

Opening of new branches

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Appreciation of effort

1 7.7 - - 1 16.7 - - .312 n.s 1 33.3 - - - - .527 n.s

Rewards 1 7.7 - - 1 16.7 - - .312 n.s

1 33.3 - - - - .527 n.s

Manage to recruit young staff

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Let the staff by example

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Introduction of new Products by the banking sector in Sri Lanka

5 38.5 - - 1 16.7 4 80.0 .685 * - - 1 50.0 4 50.0 .433 n.s

136

Table 8.6 The major factors which supported the cultural changes (continued)

Total Ownership aspects Size aspects Major Factor N % G % LO % F % C Sig L % M % S % C Sig

Economic changes

3

23.1 - - - - 3 60.0 .693 * - - 1 50.0 2 25.0 .365 n.s

Growth of the bank

4

30.8 - - 1 16.7 3 60.0 .516 n.s - - 1 50.0 3 37.5 .377 n.s

To meet capital requirements of central bank

1

7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

The change of main shareholders

1 7.7 - - 1 16.7 - - .312 n.s - - - - 1 12.5 .228 n.s

Note that: Total (N) = 13, *=p < 0.05, **= p<0.01, ***=p<0.001

8.2.10 Major factors which made cultural changes difficult Table 8.7 shows the major factors which made the cultural changes difficult. 6 of the 13

banks who had cultural changes mentioned that they did not have any factors which

made their cultural changes difficult. Influence of trade unions and informal groups

negatively affected in 2 government owned banks and it was associated with ownership

aspects rather than the size aspects. Small banks reported difficulties were long term

planning, high expenses, huge turn overs of staff, low profitability, capital requirements,

lack of skills etc.

Table 8.7 Major factors which made cultural changes difficult


Influence of trade unions and informal groups

2 15.4 2 100 - - - - 1.00 ** 2 66.7 - - - - .778 *

Age structure of the staff

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Lack of commitment from the leadership

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Mechanistic organizational structure

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Barriers in bottom to top communication

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

137

Table 8.7 Major factors which made cultural changes difficult (continued)


Lack of a link between performance and rewarding

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Major share of free riders in work force

1 7.7 1 50.0 - - - - .677 n.s 1 33.3 - - - - .527 n.s

Previous structure of the bank

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Large number of employees who had been with the other bank

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Different views of two organizational cultures

1 7.7 - - 1 16.7 - - .312 n.s - - 1 50.0 - - .677 n.s

Long term planning

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

High expenses

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Huge turnovers of staff

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Low profitability

1 7.7 - - - - 1 20.0 .330 n.s - - - - 1 12.5 .238 n.s

Decrease staff moral

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s


1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Lack of skills

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

Monitoring authority of central bank

1 7.7 - - - - 1 20.0 .365 n.s - - - - 1 12.5 .228 n.s

There were no major factors which made these changes difficult

6 46.2 - - 4 66.7 2 40.0 .465 n.s 1 33.3 1 50.0 4 50.0 .141 n.s

Note that: Total (N) =13, *=p < 0.05, **= p<0.01, ***=p<0.001

138

8.2.11 The banks that experienced problems when implementing cultural changes

9 of the total of 13 banks mentioned that they did not experience any problems when

implementing cultural changes in their banks. Only four banks reported having

problems and this included both the government owned banks, one foreign owned bank

and one locally owned bank (see table 8.8).

Table 8.8 The banks which experienced the problems when implementing cultural changes


Yes 4 30.8 2 100 1 16.7 1 20.0 2 66.7 1 50.0 1 12.5

No 9 69.2 - - 5 83.3 4 80.0 1 33.3 1 50.0 7 87.5

Table 8.9 summarizes the difficulties faced by the banks when implementing their

cultural changes. Both the government owned banks struggled to get the required trade

union support. Decrease in staff morale was experienced by a foreign owned bank and

resistance to change employee’s role and location was experienced by a locally owned

medium sized bank.

Table 8.9 The problems experience by the banks when implemented cultural changes

Total Ownership aspects Size aspects The

problem N % G % LO % F % C Sig L % M % S % C Sig

Obtaining required TU’s support

2 50.0 2 100 - - - - 1.00 n.s 2 100 - - - - 1.00 n.s

Change the attitude of staff

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Age structure and qualification of the staff

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

139

Table 8.9 The problems experience by the banks when implemented cultural changes (Continued)

Total Ownership aspects Size aspects The

problem N % G % LO % F % C Sig L % M % S % C Sig

Barriers in language (poor English)

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Resistance to change in roles, location

1 25.0 - - 1 100 - - 1.00 n.s - - 1 100 - - 1.00 n.s

Staff morale has decreased

1 25.0 - - - - 1 100 1.00 n.s - - - - 1 100 1.00 n.s

Note that: Total (N) = 4 8.2.12 Success of the company’s culture changes

The average success of the banks cultural changes was 3.53 and overall, the banks who

made cultural changes think that their changes have been successful (see figure 8.5).

However, small banks had a lower level of success than the medium and large banks.

Similarly, locally owned banks reported a higher success rate than the government and

foreign owned banks but these were not significant differences either by size or

ownership aspects.

Figure 8.5 Success of the company’s culture changes Un successful Very Un successful Very successful successful Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 ПT=3.53 ПT=3.53 •_______•________•________•_______• •_______•________•________•_______• ПG=3.5 ПF=3.4 ПLO=3.7 ПL=3.7 ПM=4.0 ПS=3.4 N=2 N=5 N=6 N=3 N=2 N=8 Ownership: Cramer’s V=.355 P=.513 Size: Cramer’s V=.314 P=.634

Government Local Foreign Large Medium Small

140

8.2.13 Expected cultural changes by the commercial banks

9 of the total of 21 banks were expecting to introduce new changes to their company

culture in the next five years (see table 8.10). Those nine banks include the two

government owned banks, two locally owned and five foreign owned banks. There were

no statistically significant differences in the banks which were planning to introduce

changes for their company cultures in the next five years either by size or ownership

aspects.

Table 8.10 Do you expect any major changes in your company’s culture in the next five years?

Total Ownership aspects Size aspects Response

N % G % LO % F % L % M % S %

Yes 9 42.9 2 100 2 22.2 5 50.0 2 40.0 1 33.3 6 46.2

No 12 57.1 - - 7 77.8 5 50.0 3 60.0 2 66.7 7 53.8

Size: Cramer’s V=.178 P=.728, Ownership: Cramer’s V=.394 P=.212 Table 8.11 shows the expected major cultural changes of the Sri Lankan commercial

banks for the next five years. The most expected major cultural changes in the next five

years were new positions at corporate and operational level, new staff recruitments and

changes to the bank hierarchy respectively. Changes to the bank hierarchy were

associated with ownership aspect and were reported from the two government owned

banks, and also from a locally owned bank. It was also found that need to change

culture to attract the best talent in the market was associated with size aspects and have

been seen in a medium sized bank.

141

Table 8.11 Expected major culture changes by the Sri Lankan commercial banks

Total Ownership aspects Size aspects Expected

change N % G % LO % F % C Sig L % M % S % C Sig

Introduction of performance evaluation & reward system

1 11.1 1 50.0 - - - - .661 n.s 1 50.0 - - - - .661 n.s

Changes to the bank hierarchy

3 33.3 2 100 1 50.0 - - .866 * 2 100 - - 1 16.7 .764 n.s

New positions at corporate and operational level

6 66.7 1 50.0 2 100 3 60.0 .387 n.s 1 50.0 - - 5 83.3 .577 n.s

New staff recruitments

6 66.7 1 50.0 2 100 3 60.0 .387 n.s 1 50.0 - - 5 83.3 .577 n.s

Need to change the culture to attract the best talent in the market

1 11.1 - - - - 1 20.0 .316 n.s - - 1 100 - - 1.00 *

Administrative changes

2 22.2 - - - - 2 40.0 .478 n.s - - - - 2 33.3 .378 n.s

Note that: Total (N) = 9, *=p < 0.05, **= p<0.01, ***=p<0.001 8.2.14 Presence of sub cultures

Surprisingly, only 8 banks identified that their cultures had subcultures. These 8 banks

included all the large banks, two medium sized and 1 small sized banks (see table 8.12).

It was found that 92.3% of the small sized banks did not have sub cultures in their

banks. There were significant differences in the presence of sub cultures either by size

or ownership aspects but, the size aspects were more associated with the sub cultures

than the ownership aspects.

Table 8.12 Do you have sub cultures in your company?


Yes 8 38.1 2 100 5 55.6 1 7.7 5 100 2 66.7 1 7.7 No 13 61.9 - - 4 44.4 9 90.0 - - 1 33.3 12 92.3 Size: Cramer’s V=.824 P=.001, Ownership: Cramer’s V=.608 P=.021,

142

8.2.15 The major reasons for development of sub cultures

Table 8.13 displays the major reasons for the development of sub cultures. Working

within a department, presence of different societies, geographical distribution of

operations, trade unions and connected mechanisms were the main reasons respectively.

It was found that trade unions and connected mechanisms was a major reason for the

creation of sub cultures in two government owned banks. Working within a department

was associated with ownership aspects and was seen in locally owned banks. Working

culture of Sri Lanka was associated with ownership and size aspects and was seen in a

foreign owned small sized bank. Thus, there were significant differences found in the

major reasons for the development of sub cultures both by size or ownership aspects.

Table 8.13: The major reasons for development of sub cultures

Total Ownership aspects Size aspects Reason N % G % LO % F % C Sig L % M % S % C Sig

Traditionally used systems 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

Trade unions and connected mechanisms

3 37.5 2 100 1 20.0 - - .757 n.s 3 60.0 - - - - .600 n.s

Presence of different societies

4 50 1 50.0 3 60.0 - - .387 n.s 3 60.0 1 50.0 - - .387 n.s

Geographical distributions of operations

3 37.5 1 50.0 2 40.0 - - .306 n.s 3 60.0 - - - - .600 n.s

Working within a department

5 62.5 - - 5 100 - - 1.00 * 3 60.0 2 100 - - .600 n.s

Working culture of Sri Lanka

1 12.5 - - - - 1 100 1.00 * - - - - 1 100 1.00 *

Note that: Total (N) = 8, *=p < 0.05, **= p<0.01, ***=p<0.001

8.2.16 Top management perception about the sub cultures 15 of the total of 21 banks think the presence of sub cultures weaken or undermine their

organization. Thus, 15 banks preferred to have one culture in their banks. There were no

significant differences in the top management perception about the sub cultures either

by size or ownership aspects (see table 8.14).

143

Table 8.14 Do you think development of subcultures weaken or undermine the organization?


N % G % LO % F % L % M % S %

Yes 15 71.4 2 100 6 66.7 7 70.0 3 60.0 3 100 9 69.2

No 6 28.6 - - 3 33.3 3 30.0 2 40.0 - - 4 30.8

Ownership aspects: Cramer’s v=.208 p=.634 Size aspects: Cramer’s V=.272 P=.461

8.2.17 Top management preferences on company culture

17 of the total of 21 banks preferred to have a flexible culture and only 4 banks

preferred to have a strong culture. The 17 banks who wanted to have a flexible culture

include one government owned bank, 8 locally owned banks and 8 foreign owned banks

(see table 8.15). There were no significant differences in the top management

preferences of organizational cultures either by size or ownership aspects.

Table 8.15 Preferred types of company cultures

Total Ownership aspects Size aspects Type N % G % LO % F % L % M % S %

Strong culture

4 19 1 50.0 1 11.1 2 20.0 1 20.0 1 33.3 2 15.4

Flexible culture

17 81 1 50.0 8 88.9 8 80.0 4 80.0 2 66.7 11 84.6

Size aspects: Cramer’s V=0.277 P=0.446 Ownership aspects: Cramer’s V=0.156 P= 0.774 8.2.18 The influence of company culture on company strategies Figure 8.6 shows the influence of company culture on company strategies. The

results found that the cultures in every bank had an influence on their company

strategies. Government owned banks reported a greater influence on company

strategies than locally and foreign owned banks. Similarly, medium and large

banks’ cultures had a greater influence on their strategies than the small sized

banks. The results found that there were significant differences in the influence of

culture on company strategies by ownership aspects but, not by size aspects.

144

Figure 8.6: The influence of company culture on company strategies

No Very great No Very great influence influence influence influence

Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.8 ** ПT=3.8 •_______•________•________•_______• •_______•________•________•_______• ПG=5.0 ПF=3.5 ПLO=3.9 ПL=4.2 ПM=4.3 ПS=3.5

N=2 N=10 N=9 N=5 N=3 N=13

Ownership: Cramer’s V=.636 P=.009 Size: Cramer’s V=.415 P=.300 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small 8.3 Management style 8.3.1 Key characteristics of management style Table 8.16 summarises the key management styles of the banks. Top to bottom

approach, bureaucratic, and participatory decision making were the most reported

key characteristics in their management styles respectively. Individual

performance rather than group performance, power motives rather than

achievement motives were associated with ownership aspects and were seen in a

government owned bank. Surprisingly, one foreign owned bank had autocratic

characteristics in their management style. There were no significant differences in

the management styles by size aspects.

145

Table 8.16 Key characteristics of management style

Total Ownership aspects Size aspects Characteristic N % G % LO % F % C Sig L % M % S % C Sig

Bureaucratic 19 90.5 2 100 8 88.9 9 90.0 .107 n.s 5 100 3 100 11 84.6 .255 n.s Top to bottom approach

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Individual performance rather than group performance

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Power motives rather than achievement motives

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Participatory 13 61.9 - - 6 66.7 7 70.0 .415 n.s 2 40.0 3 100 8 61.5 .369 n.s Autocratic 1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s Collective 2 9.5 - - 1 11.1 1 10.0 .107 n.s 1 20.0 - - 1 7.7 .219 n.s Decisions are made by a committee

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Collective decisions by the board of directors

1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

People friendly 1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

Honest, sincere transparent culture

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

8.3.2 The groups who influenced the management style

Corporate level management had the most influence on company management style,

followed by second level management and other lower levels of management (see figure

8.7). It was found that trade unions had a reasonable level of influence in the two

government owned banks. Outside members of the board of directors and corporate

planning department had very little influence. One foreign owned bank reported that

their chairman of the head office has a great influence on their company’s management

style. Corporate management in locally owned banks had a greater influence on their

management styles than the government and foreign owned banks and this was a

significant difference.

146

Figure 8.7 The groups who influenced the management style

No Very great No Very great influence influence influence influence


1 2 3 4 5 1 2 3 4 5 ПT=4.0 * ПT=4.0 Corporate level •_______•________•________•_______• •_______•________•________•_______• management ПG=4.0 ПLO=4.1 ПF=3.9 ПL=4.0 ПM=4.0 ПS=4.0 (ПT=4.0) N=2 N=9 N=10 N=5 N=3 N=13 Outside members of •_______•________•________•_______• •_______•________•________•_______• the board of directors ПG=2.5 ПLO=2.6 ПF=1.6 ПL=2.2 ПM=1.7 ПS=2.1 (ПT=2.1) N=2 N=9 N=10 N=5 N=3 N=13

Second level line •_______•________•________•_______• •_______•________•________•_______• managers ПG=3.0 ПLO=3.2 ПF=3.2 ПL=3.0 ПM=3.0 ПS=3.3 (ПT=3.2) N=2 N=9 N=10 N=5 N=3 N=13

Corporate planning •_______•________•________•_______• •_______•________•________•_______• department ПLO=2.3 ПL=1.5 ПM=2.5 ПS=2.7 (ПT=2.3) N=7 N=2 N=2 N=3

Other lower levels •_______•________•________•_______• •_______•________•________•_______• of management ПG=3.0 ПF=2.7 ПLO=3.0 ПL=3.2 ПM=3.0 ПS=2.7 (ПT=2.9) N=2 N=10 N=9 N=5 N=3 N=13

Trade unions •_______•________•________•_______• •_______•________•________•_______• (ПT=3.0) ПG=3.0 ПL=3.0 N=2 N=2 Chairman of the •_______•________•________•_______• •_______•________•________•_______• head office ПF=4.0 ПS=4.0 (ПT=4.0) N=1 N=1 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small 8.3.3 The effect of management style on follower’s performance and job satisfaction

Top managements of all the banks believed that the management style has an influence

on the follower’s performance and job satisfaction. Figure 8.8 shows the means of the

responses received in terms of size and ownership aspects. Government bank’s

management styles had a greater effect on follower’s performance and job satisfaction

than the foreign and locally owned banks. Similarly, medium size banks reported a

higher effect than the small and large banks. Significant differences were found by

ownership aspects but not by size aspects.

147

Figure 8.8 The effect of management style on follower’s performance and job satisfaction

Not at all To a great Not at all To a great extent extent Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.6 * ПT=3.6 •_______•________•________•_______• •_______•________•________•_______• ПG=4.5 ПF=3.7 ПLO=3.3 ПL=3.6 ПS=3.5 ПM=4.0 N=2 N=10 N=9 N=5 N=13 N=3 Ownership: Cramer’s V=0.560 P=0.011 Size: Cramer’s V=0.413, P=0.127 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

8.3.4 The influence of management style on company performance

Figure 8.9 shows to what extent management style has an influence on company

performances. It was found that management styles had a greater influence on company

performances in government owned banks than the locally and foreign owned banks.

Similarly, large banks reported a greater level of influence than the medium and small

sized banks. There were no significant differences found in the influence level of

management styles on company performance either by size or ownership aspects.

Figure 8.9 The influence of management style on company performance


1 2 3 4 5 1 2 3 4 5 ПT=3.8 ПT=3.8 •_______•________•________•_______• •_______•________•________•_______• ПG=4.5 ПF=3.8 ПLO=3.7 ПL=4.0 ПS=3.8 ПM=3.7 N=2 N=10 N=9 N=5 N=13 N=3 Ownership aspects: Cramer’s V=0.346 P=0.284 Size aspects: Cramer’s V=0.162 P=0.895 Government Local Foreign Large Medium Small

148

8.3.5 The influence of management style on company strategies

Overall, the banks management style had an influence on the company strategies (see

figure 8.10). However, the medium sized banks management styles had a greater level

of influence on their company strategies than the large and small sized banks and

similarly, government owned banks reported a greater influence than the locally and

foreign owned banks. There were no significant differences in the influence level of

management style on company strategies either by size or ownership aspects.

Figure 8.10 The influence of management style on company strategies


1 2 3 4 5 1 2 3 4 5 ПT=3.7 ПT=3.7 •_______•________•________•_______• •_______•________•________•_______• ПG=4.0 ПF=3.8 ПLO=3.6 ПL=3.8 ПS=3.6 ПM=4.0 N=2 N=10 N=9 N=5 N=13 N=3 Ownership: Cramer’s V=0.252 P=0.615 Size: Cramer’s V=0.309 P=0.404 Government Local Foreign Large Medium Small

8.3.6 The problems faced by the banks in their current management style (over the last five years) Four of the total of twenty one banks mentioned that they had significant problems with

their current management style over the last five years (see table 8.17). These four

banks included the two government owned banks and two foreign owned banks. There

were significant differences in the banks which were having problems in their key

management style on the basis of ownership aspects.

Table 8.17: The banks which are having significant problems with its current management style


Yes 4 19.0 2 100 - - 2 20.0 2 40.0 - - 2 15.4 No 17 81.0 - - 9 100 8 80.0 3 60.0 3 100 11 84.6 Size: Cramer’s V=0.327 P=0.326 Ownership: Cramer’s V=0.711 P=0.005

149

8.3.7 The major problems faced by the banks in their current management style

Table 8.18 summarises the major problems faced by the above mentioned four banks in

their current management style. Too much listening to trade union’s views was reported

from a government owned bank and, problems such as decreasing of profitability, high

turnovers of staff and dissatisfaction of the employees were reported from foreign

owned banks.

Table 8.18: The major problems faced by the banks in their current management style


N % G % LO % F % C Sig L % M % S % C Sig

Too much listening to TU’s views

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Lack of strategic planning

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Inequity on policy decisions

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Poor practice and use of modern management techniques

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Low concentrations on human aspects

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Non existence of clear management style

1 25.0 1 50.0 - - - - .577 n.s 1 50.0 - - - - .577 n.s

Decreasing of profitability

1 25.0 - - - - 1 50.0 .577 n.s - - 1 100 - - .577 n.s

High turnovers of staff

1 25.0 - - - - 1 50.0 .577 n.s - - 1 50.0 - - .577 n.s

Dissatisfaction of the employees

1 25.0 - - - - 1 50.0 .577 n.s - - 1 10.0 - - .577 n.s

Note that: Total (N) =4

150

8.3.8 The power distance between managers and subordinates

The means of the power distance between managers and their subordinates are shown in

figure 8.11. It was found that government owned banks had a higher power distance

between managers and their subordinates than the foreign and locally owned banks.

Similarly, large banks had a higher power distance than the small and medium sized

banks. Overall, the gap between managers and their subordinates in terms of power

remained at a reasonably high level. The results also found that there were no

statistically significant differences in the power distance between managers and

subordinates either by size or ownership aspects.

Figure 8.11: The power distance between managers and subordinates

Low High Low High Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.2 ПT=3.2 •_______•________•________•_______• •_______•________•________•_______• ПG=4.0 ПF=3.4 ПLO=2.9 ПL=3.4 ПS=3.3 ПM=2.7 N=2 N=10 N=9 N=5 N=13 N=3 Ownership: Cramer’s V=0.547 P=0.050 Size: Cramer’s V=0.288 P=0.747 Government Local Foreign Large Medium Small 8.3.9 Internal politics

Government banks had a higher level of internal politics than the locally and foreign

owned banks (see figure 8.12). Similarly, large banks reported a higher level of internal

politics than the small and medium sized banks. Overall the levels of internal politics in

Sri Lankan commercial banks remained at a low level, but were seen in every bank. The

results also found that there were no significant differences in the internal politics either


151

Figure 8.12: The level of internal politics in Sri Lankan commercial banks

Not at all To a great Not at all To a great

extent extent Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=2.6 ПT=2.6 •_______•________•________•_______• •_______•________•________•_______• ПG=4.5 ПLO=2.4 ПF=2.4 ПL=3.6 ПS=2.2 ПM=2.7 N=2 N=9 N=10 N=5 N=13 N=3 Ownership: Cramer’s V=0.586 P=0.071 Size: Cramer’s V=0.527 P=0.167 Government Local Foreign Large Medium Small

8.3.10 Top management perception about the internal politics

Figure 8.13 shows the top management’s perception about the internal (organizational)

politics. Overall, the top managements of banks think that the internal politics is bad

because political behaviour is undertaken for personal gains rather than for

organizational gains.

Figure 8.13: Top management perception about the internal politics

Disagree Strongly Disagree Strongly

agree agree

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Organizational politics is bad •_______•________•________•_______• •_______•________•________•_______•

because that political behaviour ПG=4.5 ПLO=4.0 ПF=4.2 ПL=4.2 ПM=3.7 ПS=4.2 is undertaken for personal rather N=2 N=9 N=10 N=5 N=3 N=13 than organizational gain (ПT=4.1) Organizational politic is good •_______•________•________•_______• •_______•________•________•_______•

because it achieves positive ПG=2.5 ПLO=2.0 ПF=1.8 ПL=2.0 ПM=2.3 ПS=1.8 outcomes for organization that N=2 N=9 N=10 N=5 N=3 N=13 can not be achieved through formal measures (ПT=1.9) Organizational politics is neither •_______•________•________•_______• •_______•________•________•_______• good nor bad but rather is ПG=2.0 ПLO=2.3 ПF=2.2 ПL=2.4 ПM=2.3 ПS=2.1 neutral (ПT=2.2) N=2 N=9 N=10 N=5 N=3 N=13 Organizational politics is good •_______•________•________•_______• •_______•________•________•_______• but too much politics can be ПG=2.5 ПLO=2.8 ПF=2.7 ПL=2.2 ПM=4.0 ПS=2.6 bad (ПT=2.7) N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small

152

8.4 Stakeholder expectations

8.4.1 Major Stakeholder groups of the banks Table 8.19 summarises the major stakeholder groups of the sample banks. Depositors

and other customers, employees, Sri Lankan community and Sri Lankan government

were the most reported major stakeholder groups in Sri Lankan commercial banks

respectively. Groups such as cooperatives, Strategic enterprise management agency

were associated with ownership aspects and were stakeholders in a government owned

bank. One medium sized bank categorized their top management as one of the major

stakeholder group and that was associated with size aspects. Shareholders of the

company were associated with ownership aspects, and were stakeholders in 8 locally

and 3 foreign owned banks.

Table 8.19: Major Stakeholder groups

Total Ownership aspects Size aspects Stakeholder

group N % G % LO % F % C Sig L % M % S % C Sig

Depositors and other customers

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Sri Lankan govement

18 85.7 2 100 9 100 7 70.0 .428 n.s 5 100 3 100 10 76.9 .320 n.s

Cooperatives 5 23.8 2 100 - - 3 30.0 .670 ** 2 40.0 1 33.3 2 15.4 .256 n.s

Strategic enterprise management agency

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Employees 21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Sri Lankan community

19 90.5 2 100 8 88.9 9 90.0 .107 n.s 5 100 2 66.7 12 92.3 .490 n.s

Shareholders of the company

11 52.4 - - 8 88.9 3 30.0 .655 * 3 60.0 2 66.7 6 46.2 .164 n.s

Directors 2 9.5 - - 1 11.1 1 10.0 .107 n.s - - 1 33.3 1 7.7 .349 n.s

Top Management

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Shareholders of the parent bank

3 14.3 - - - - 3 30.0 .428 n.s - - 1 33.3 2 15.4 .287 n.s

Chairman of the bank

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Overseas head office

3 14.3 - - - - 3 30.0 .428 n.s - - - - 3 23.1 .320 n.s

Individual share companies

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

153

8.4.2 Stakeholder expectations of the Sri Lankan banks Table 8.20 summarises the expectations of the major stakeholder groups. Excellent

service, time lines, higher interest benefits, career opportunities, job security, rewards,

good working conditions, return on equity, financial support, revenue through taxes

were the most reported stakeholder expectations respectively. Assisting government

development programmes, funding, and provision of employment opportunities were

associated with the ownership aspects and were seen in a government owned banks. It

was found that ownership aspects were associated with more stakeholder expectations

than the size aspects.

Table 8.20 Stakeholder expectations

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

Total Ownership aspects Size aspects Expectation N % G % LO % F % C Sig L % M % S % C Sig

Excellent service, time lines,higher interests benefits

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Assisting government development programmes, funding, provision of employment opportunities

2 9.5 2 100 _ _ - - 1.00 *** 2 40.0 - - - - .580 *

Financial support 18 85.7 2 100 8 88.9 8 80.0 .179 n.s 5 100 2 66.7 11 84.6 .287 n.s

Viable financial organization

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Career opportunities, job security, rewards, good working conditions

21 100 2 10.0 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Assistance to develop the country & economy

5 23.8 2 100 - - 3 30.0 .670 ** 2 40.0 1 33.3 2 15.4 .256 n.s

Return on equity 19 90.5 - - 1 11.1 - - .258 n.s 3 60.0 3 100 13 100 .580 *

Good management

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Revenues through taxes

17 81 - - 9 100 8 80.0 .711 ** 3 60.0 3 100 11 84.6 .327 n.s

More profits and to be in the top 25 leading banks in the world

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

154

8.4.3 The level of top management interests aligned with the overall stakeholders’ interests

Figure 8.14 shows to what extent top management interests were aligned with the

overall stakeholder expectations of the sample companies. It was found that overall,

banks top management interests were aligned with the overall stakeholder expectations

to a reasonable extent but, not to a great extent. Government banks reported a higher

level of alignment with the top management interests and their stakeholder interests

than the locally owned and foreign owned banks, and similarly, large banks reported a

higher level of alignment than the medium and small sized banks. Results also found

that there were no statistically significant differences either by size or ownership

aspects.

Figure 8.14: The level of top management interests aligned with the overall stakeholders’ interests


extent extent Ownership aspects ПT=3.6 Size aspects ПT=3.6

1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______•

ПG=4.5 ПLO=3.6 ПF=3.4 ПL=3.8 ПM=3.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13

Ownership: Cramer’s V=0.377 P=0.427 Size: Cramer’s V=0.251 P=0.853


8.4.4 Company action on stakeholder groups

Figure 8.15 shows how the company action on stakeholders varies in terms of

ownership and size aspects. The banks agreed on the statement that “our top

management team decides how much stakeholder interests we must take into account”.

Most of the banks did not agree with the statement that “we are trying to meet the

minimum obligations of stakeholders”. However, banks agreed that “when we are

giving priorities for the stakeholders we consider the level of power they have”.

.

155

Figure 8.15: Company action on stakeholder groups


agree agree Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.3 ПT=3.3 When we are giving priorities •_______•________•________•_______• •_______•________•________•_______•

for stakeholder’s we consider ПG=4.0 ПF=3.4 ПLO=3.1 ПL=3.6 ПM=2.7 ПS=3.4 the level of power they have N=2 N=10 N=9 N=5 N=3 N=13

We are trying to meet minimum •_______•________•________•_______• •_______•________•________•_______• obligations of stakeholders ПG=1.5 ПF=2.2 ПLO=2.3 ПL=2.0 ПM=2.0 ПS=2.3 N=2 N=10 N=9 N=5 N=3 N=13 Our top management team •_______•________•________•_______• •_______•________•________•_______• decides how much stakeholder ПG=3.5 ПF=3.6 ПLO=3.9 ПL=3.8 ПM=3.7 ПS=3.7 interests we must take into N=2 N=10 N=9 N=5 N=3 N=13 account Government Local Foreign Large Medium Small

8.4.5 Stakeholder expectation influence on company strategies

Figure 8.16 displays to what extent stakeholder expectations influenced the company

strategies. Results found that stakeholder expectations had an influence on company

strategies but, not to a great extent. The influence of stakeholder expectations on

company strategies in government banks was greater than for locally and foreign owned

banks. Similarly, medium sized banks had a greater influence over small and large

banks. There were no statistically significant differences in the influence of stakeholder

expectations on company strategies either by size or ownership aspects.

Figure 8.16: influence of stakeholder expectations on company strategies


extent extent Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.6 ПT=3.6 •_______•________•________•_______• •_______•________•________•_______•

ПG=4.0 ПLO=3.4 ПF=3.6 ПL=3.8 ПM=4.0 ПS=3.4 N=2 N=9 N=10 N=5 N=3 N=13 Ownership: Cramer’s V=0.288 P=0.481 Size: Cramer’s V=0.461 P=0.063


156

8.5. Current resources of the commercial banks

Table 8.21 summarises the current resources of the Sri Lankan commercial banks in

terms of physical, intellectual and cultural assets. All the banks recognized their location

and buildings as physical assets. Computer systems were more associated with size

aspects and were in the large and medium sized banks. ATM networks were more

associated with the ownership aspects and were in all the government banks and in 7

locally owned banks. It is worth mentioning that computer systems and ATM networks

were only in one foreign owned bank and that the other foreign owned banks had not

expanded enough to start an ATM network within the country.

Most banks reported intellectual assets were their professional skills of the staff, brand

name, reputation and the brand name of their parent bank. Government owned banks

considered their state ownership as an intellectual asset and it was more associated with

the ownership aspects than the size aspects. History of the bank was associated with the

size aspects and was seen in the 4 large banks and in two small banks (foreign owned).

Most of the foreign owned banks think the brand name of the parent company as an

intellectual asset and similarly, most of locally owned banks considered their brand

name as an intellectual asset. It was found that both the brand name and brand name of

the parent bank are associated with the ownership aspects.

Implementation of professional banking and the brand image of a local bank were the

two most reported cultural assets of the banks. Strong commitment of some fraction of

staff was seen in a government owned bank and it was associated with the ownership

aspects. Six foreign owned banks believed the implementation of international banking

facilities as a cultural asset and, all the locally and government owned banks considered

their brand image of a local bank as a cultural asset. The results also found that

ownership aspects were associated with more resources than the size aspects.

157

Table 8.21: Current resources of the commercial banks


N % G % LO % F % C Sig L % M % S % C Sig

Physical assets Location 21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a Buildings 21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a Computer systems

6 28.6 2 100 3 33.3 1 10.0 .569 * 4 80.0 2 66.7 - - .811 **

ATM network 10 47.6 2 100 7 77.8 1 10.0 .729 ** 5 100 2 66.7 3 23.1 .657 * Intellectual assets State ownership 2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 * Professional skills of the staff

17 81 2 100 9 100 6 60.0 .509 n.s 5 100 3 100 9 69.2 .381 n.s

History of the bank

6 28.6 2 100 2 22.2 2 20.0 .514 n.s 4 80.0 - - 2 15.4 .647 *

Reputation 11 52.4 - - 6 66.7 5 50.0 .375 n.s 3 60.0 3 100 5 38.5 .428 n.s Brand name 12 57.1 - - 9 100 3 30.0 .769 ** 3 60.0 3 100 6 46.2 .372 n.s Brand of the parent bank

9 42.9 - - 1 11.1 8 80.0 .718 ** - - 1 33.3 8 61.5 .522 n.s

Cultural assets Strong commitment of some fraction of the staff

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Implementation of professional banking

20 95.2 2 100 9 100 9 90.0 .235 n.s 5 100 3 100 12 92.3 .175 n.s

Strong culture developed over the years

3 14.3 1 50.0 2 22.2 - - .448 n.s 2 40.0 1 33.3 - - .524 n.s

Religion bank 2 9.5 - - - - 2 20.0 .340 n.s - - - - 2 15.4 .255 n.s Implementing International banking facilities

6 28.6 - - - - 6 60.0 .663 * - - 1 33.3 5 38.5 .356 n.s

Brand image of a local bank

11 52.4 2 100 9 100 - - 1.00 *** 5 100 2 66.7 4 30.8 .587 *

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

8.5.1 Major capabilities of the commercial banks

Table 8.22 displays the major capabilities of the banks. Professional staff, up to date

technology, service excellence, and brand image were the most reported capabilities

respectively. Capabilities such as outreach, state ownership were seen in government

owned banks and were associated with the ownership aspects. Service excellence was

seen in 90% of the foreign owned and 56% of the locally owned banks and it was

associated with the ownership aspects. Capabilities such as product innovation and

young staff were associated with the size aspects and were identified by two medium

sized banks. Capabilities such as up to date technology, professional staff and service

excellence were mostly seen in foreign owned banks and capabilities such as up to date

158

technology, professional staff and brand image were seen in the majority of the locally

owned banks. Results also found that there were significant differences in the

capabilities both by size or ownership aspects.

Table 8.22: Major capabilities of the commercial banks

Total Ownership aspects Size aspects Response N % G % LO % F % C Sig L % M % S % C Sig

Outreach

1 4.8 1 50.0 - - - - .689 ** 1 100 - - - - .400 n.s

Commitment

5 23.8 1 50.0 3 33.3 1 10.0 .328 n.s 1 20.0 1 33.3 3 23.1 .096 n.s

Brand image

12 57.1 2 100 6 66.7 4 40.0 .380 n.s 5 100 2 66.7 5 38.5 .522 n.s

State ownership

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Island wide branch

network

4 19 1 50.0 3 33.3 - - .477 n.s 3 60.0 1 33.3 - - .651 *

Strong asset base

3 14.6 1 50.0 1 11.1 1 10.0 .331 n.s 2 40.0 - - 1 7.7 .418 n.s

Up-to-date

technology

17 81 1 50.0 7 77.8 9 90.0 .295 n.s 3 60.0 2 66.7 12 92.3 .372 n.s

Professional staff

19 90.5 1 50.0 9 100 9 90.0 .476 n.s 4 80.0 3 100 12 92.3 .219 n.s

Expertise in development and commercial banking

2 9.5 - - 2 22.2 - - .375 n.s 1 20.0 1 33.3 - - .435 n.s

Product innovations

1 4.8 - - - - 1 10.0 .235 n.s - - 1 33.3 - - .548 *

Service excellency

14 66.7 - - 5 55.6 9 90.0 .575 * 2 40.0 2 66.7 10 76.9 .325 n.s

Global reach 3 14.3 - - - - 3 30.0 .428 n.s - - 1 33.3 2 15.4 .287 n.s

Strong balance sheet

3 14.3 - - 2 22.2 1 10.0 .212 n.s 2 40.0 1 33.3 - - .524 n.s

More than 100 years

of history

1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

High credit rating

1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

Young staff

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Strong asset base of the head office

4 19.0 - - - - 4 40.0 .509 n.s - - - - 4 30.8 .381 n.s

Business network

3 14.3 - - 3 33.3 - - .471 n.s 1 20.0 - - 2 15.4 .175 n.s

Vast experience of the CEO

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

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Table 8.22: Major capabilities of the commercial banks (continued)


High calibre senior

management

2 9.5 - - 2 22.2 - - .375 n.s - - - - 2 15.4 .255 n.s

One stop shop concept

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Finance

conglomerate

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Centralized

operational system

2 9.5 - - 2 22.2 - - .375 n.s - - - - 2 15.4 .255 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

8.5.2 The capabilities which are crucial to the success of the business

The capabilities which are crucial to the success of the business in the banking industry

(key success factors) are shown in table 8.23. Up to date technology, professionalism of

the staff, service excellence and brand image were the most reported capabilities that

were crucial to success in the industry. Results also found that there were statistically

significant differences in the key success factors such as brand image and branch

networks by size aspects and the key success factors such as outreach and service

excellence by ownership aspects.

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Table 8.23: The capabilities which are crucial to the success of the business in the Sri Lankan banking sector

Total Ownership aspects Size aspects N % G % LO % F % C Sig L % M % S % C Sig

Outreach

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Brand image

10 47.6 2 100 4 44.4 4 40.0 .343 n.s 5 100 1 33.3 4 30.8 .587 *

Branch network

4 19 1 50.0 3 33.3 - - .477 n.s 3 60.0 1 33.3 - - .651 *

Professionalism of the staff

17 81 1 50.0 8 88.8 8 80.0 .277 n.s 4 80.0 2 66.7 11 84.6 .156 n.s

Up to date technology

16 76.2 1 50.0 6 66.7 9 90.0 .328 n.s 3 60.0 1 33.3 12 92.3 .517 n.s

Service excellence

15 71.4 - - 6 66.7 9 90.0 .569 * 2 40.0 2 66.7 11 84.6 .412 n.s

Strong balance sheet

2 9.5 - - 1 11.1 1 10.0 .107 n.s 1 20.0 1 33.3 - - .435 n.s

High credit rating

1 4.8 - - 1 11.1 - - .258 n.s 1 20.0 - - - - .400 n.s

Business understanding

2 9.5 - - 2 22.2 - - .375 n.s - - - - 2 15.4 .255 n.s

Low costs of funds

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 1.75 n.s

Responsiveness to client’s requirements

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 1.75 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 8.6 Chapter summary This chapter discussed the primary data analysis of organizational culture, management

style and the stakeholder expectations of the participating Sri Lankan commercial banks

and highlighted the significant differences either by size or ownership aspects.

Organizational culture

All the banks considered the management of culture as important. Chief executive

officer and the corporate level management were the most influential groups on

company culture in Sri Lankan commercial banks. It was found that the major

characteristics of most banks culture were loyalty, team spirit and commitment

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respectively. Ownership aspects were associated with more cultural characteristics of

the banks than the size aspects.

Encourage communication and co-operation between different departments, and

encourage team work rather than individual work were the most important actions on

company culture. Only 13 banks changed their company culture during the last five

years and 9 banks categorized those changes as incremental while the other 4 banks

categorized those changes as both the incremental and revolutionary changes. The main

reasons for their cultural changes were to be competitive in the market, customer

orientation and the developments which took place in the banking sector etc. The major

cultural changes made by most banks were the change of values to core customers,

introduction of job descriptions, introduction of new tasks and recruitment of new staff.

Introduction of new products by the banking sector in Sri Lanka, growth of the bank,

economic changes and the low profitability were the major factors that supported the

cultural changes in most banks respectively.

Only 4 banks experienced problems when implementing their cultural changes and it

was found that both the government owned banks struggled to get the required trade

union support for their cultural changes. 9 of the 21 banks think their company culture

needs to be changed during next five years. 8 of the 21 banks reported having sub

cultures in their banks and those banks included all the large banks 2 medium and 1

small sized banks and results found that it was more associated with the size aspects

than the ownership aspects. 15 of the 21 banks top management think the presence of

sub cultures weaken or undermine their organization and 17 of the 21 banks preferred to

have a flexible culture for their organization. It was also found that organizational

culture had an influence on banks company strategies whereas the government banks

reported a greater influence on their strategies and the foreign owned banks reported a

lower level of influence on their strategies.

Management style

Top to bottom approach, bureaucratic, and participatory decision making were the most

reported key management styles in the banks and corporate level management was the

most influential group on their management style. It was found that management style

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had an influence on follower’s performance and job satisfaction and also had a high

effect on company performances. Results also found that management style had an

influence on banks strategies to a high extent. Only four banks were having significant

problems with their current management style and those four banks included the two

government banks and another two foreign owned banks. Problems such as too much

listening to trade union views, lack of strategic planning, inequity on policy decision

were seen in government banks and problems such as high turn overs of staff,

decreasing profitability and dissatisfaction of the employees were seen in the foreign

owned banks. It was found that the power distance between managers and their

subordinates remained at a reasonably high level and not surprisingly government banks

reported a higher power distance than the locally and foreign owned banks. Overall, the

level of internal politics in Sri Lankan commercial banks remained at a low level but,

internal politics were seen in every bank. Government owned banks reported a higher

level of internal politics in their banks than the locally and foreign owned banks. It was

also found that overall banks think organizational politics are bad because that political

behaviour is undertaken for personal rather than organizational gain.

Stakeholder expectations and key success factors

Depositors and other customers, employees, Sri Lankan community, Sri Lankan

government and shareholders were the most reported major stakeholders of the banks

and most reported major stakeholder’s expectations were excellent service, time lines,

higher interest benefits; career opportunities, job security, rewards, good working

conditions; return on equity; financial support; revenue through taxes respectively. It

was found that top management interests in commercial banks were aligned with

stakeholder expectations to a reasonable extent but, not to a great extent. It was also

found that when giving priorities for the stakeholders banks consider the level of power

they have and then top management decides how much stakeholder interests they must

take into account. Stakeholder expectations had an influence on banks strategies to a

high level.

The banks major physical assets were their location, buildings, computer systems and

ATM net works and intellectual assets were professional skills of the staff, reputation,

brand name etc. Most banks considered implementation of professional banking, brand

163

image of a local bank, and implementing international facilities as their cultural assets.

Professional staff, up to date technology, service excellence, brand image were the most

reported major capabilities of banks and the major capabilities that were crucial to the

success of the business in the banking industry (key success factors) in most were up to

date technology, professionalism of the staff, service excellence, and brand image etc.

The next chapter will analyse the external environments of the Sri Lankan commercial

banks.

Chapter 9 External environment 9.1 Introduction This chapter will investigate the external environment of the Sri Lankan commercial

banks by examining their demand environment, market competition, market share,

company customers, company competitors, company business and the government

policies which impact the banking sector, major sources of funds, company business

sector, and bank’s political, social, economic and technological environments. When

examining the above mentioned elements in the external environment of the Sri Lankan

commercial banks, this chapter will also try to find the statistically significant

differences of these elements either by size or ownership aspects. Planning system

aspects will be ignored due to only one respondent in the NFSP category.

9.2. Demand environments Except for one foreign owned bank all the other participants agreed to make comments

about their demand environments. The responses about the predictability of demand

environments of the banks are shown in the table 9.1. Over the last five years bank

revenues fell into the demand environments which were 25% highly predictable, 31%

predictable, 14% fairly predictable, 22% unpredictable and 9% highly unpredictable.

The results in table 9.1 demonstrate that during last five years large and medium sized

banks revenues fell in to the demand environments which were highly predictable and

predictable more than for the small banks. These findings suggest the stability of the

large and the medium sized banks was greater than for the small banks during last five

years. The results also found statistically significant differences in the predictability of

the revenues/sales of the banks by size aspects but not by the ownership aspects.

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Table 9.1 Predictability of bank’s revenues/sales (during last five years)

Total Ownership aspects Size aspects Predictability % G LO F C Sig L M S C Sig

Highly predictable

25.0 27.0 23.0 26.0 .299 n.s 26.0 23.0 25.0 .471 n.s

Predictable 31.0 30.0 32.0 29.0 .554 n.s 30.0 52.0 26.0 .847 * Fairly predictable

14.0 20.0 11.0 15.0 .471 n.s 15.0 12.0 14.0 .386 n.s

Unpredictable 22.0 12.0 25.0 21.0 .670 n.s 21.0 9.0 25.0 .610 n.s Highly unpredictable

9.0 10.0 9.0 9.0 .593 n.s 8.0 4.0 11.0 .681 *

Note that: T(N)=20, L(N)=5, M(N)=3, S(N)=12, G(N)=2, SLC (N)=9, F(N)=9, *=p<0.05, **=p<.01, ***=p<0.001 Over the next five years banks are expecting that their revenues will fall in to the

demand environments which are 23% highly predictable, 31% predictable, 16% fairly

predictable, 21% unpredictable and 11% highly unpredictable (see table 9.2). Therefore,

banks can not see any major changes in the demand environments for the next five

years. The results also found that there were no significant differences in the demand

environments for the next five years either by size or ownership aspects.

Table 9.2 Predictability of bank’s revenues/sales (for the next five years)

Total Ownership aspects Size aspects Predictability % G LO F C Sig L M S C Sig

Highly predictable

23.0 17.0 19.0 28.0 .672 n.s 19.0 22.0 25.0 .505 n.s

Predictable 31.0 35.0 32.0 31.0 .560 n.s 31.0 50.0 27.0 .662 n.s Fairly predictable

16.0 17.0 11.0 21.0 .486 n.s 14.0 12.0 17.0 .254 n.s

Unpredictable 21.0 12.0 27.0 18.0 .577 n.s 24.0 12.0 23.0 .436 n.s Highly unpredictable

11.0 17.0 11.0 9.0 .577 n.s 12.0 5.0 12.0 .616 n.s

Note that: T(N)=20, L(N)=5, M(N)=3, S(N)=12, G(N)=2, SLC (N)=9, F(N)=9 Table 9.3 reveals the market growth rates of the markets in which banks sales/revenues

fell during last five years. Over the last five years, overall 9% of the total revenues came

from the markets which have a growth rate of over 20% while 26%, 37%, 18%, and 8%

of the banks revenues came from the markets which had growth rates of 0-20%, 5-10%,

0-5%, and from declining markets respectively. It is worth noting that government

owned banks revenues felt into the higher growth markets than the locally and foreign

owned banks and similarly, medium sized banks revenues felt into the higher growth

markets than for the large and small sized banks. There were significant differences

165

found in the banks sales/revenues that felt into markets that had over 20% market

growth rate by ownership aspects.

Table 9.3 Market growth rates of the banks sales/revenues (last five years)

Total Ownership aspects Size aspects Market growth rate % G LO F C Sig L M S C Sig

Over 20% per year 9.0 12.0 9.0 9.0 .658 * 10.0 12.0 9.0 .465 n.s 10-20% per year 26.0 32.0 27.0 23.0 .782 n.s 26.0 28.0 25.0 .752 n.s 5-10% per year 37.0 45.0 40.0 34.0 .764 n.s 42.0 43.0 34.0 .714 n.s 0-5% per year 18.0 5.0 17.0 23.0 .726 n.s 16.0 12.0 21.0 .619 n.s Declining market 8.0 5.0 8.0 9.0 .262 n.s 6.0 5.0 10.0 .448 n.s Note that: T(N)=20, L(N)=5, M(N)=3, S(N)=12, G(N)=2, SLC (N)=9, F(N)=9, *=p<0.05, **=p<.01, ***=p<0.001

For the next five years Sri Lankan banks expect that 15% of the total revenues from

over 20% market growth environments while 30%, 31%, 17% and 6% of the total

revenues from the 10-20%, 5-10%, 0-5% market growth environments, and declining

market respectively (see table 9.4). Thus, banks expect more revenues from over 20%

and 10-20% growth markets for the next five years than the past five years. Overall,

there is a slight reduction in banks revenues from the 0-5% growth markets and

declining markets for the next five years. Government banks expect 60% of their

revenues from over 20% and 10-20% growth markets while locally and foreign owned

banks expects 42% and 45% respectively. Ownership aspects were associated with the

market growth rate over 20% and size aspects were associated with the market growth

rate 0-5%.

Table 9.4 Market growth rates of the banks sales/revenues (next five years)

Total Ownership aspects Size aspects Market growth rate % G LO F C Sig L M S C Sig

Over 20% per year 15.0 10.0 14.0 17.0 .580 * 12.0 15.0 16.0 .516 n.s 10-20% per year 30.0 50.0 28.0 28.0 .741 n.s 34.0 27.0 30.0 .713 n.s 5-10% per year 31.0 22.0 36.0 28.0 .616 n.s 33.0 40.0 28.0 .640 n.s 0-5% per year 17.0 10.0 16.0 21.0 .582 n.s 14.0 13.0 20.0 .767 ** Declining market 6.0 7.0 6.0 7.0 .310 n.s 7.0 5.0 6.0 .283 n.s Note that: T(N)=20, L(N)=5, M(N)=3, S(N)=12, G(N)=2, SLC (N)=9, F(N)=9, *=p<0.05, **=p<.01, ***=p<0.001

166

9.3 Competitive environment Table 9.5 reveals what percentage of banks sales/revenues were in given competitive

environments during last five years. The three competitive environments include the

environments which have 1-2 major competitors, 3-7 major competitors and, more than

the 7 major competitors. Only 4 banks reported being market leaders in the

environments which have 1-2 major competitors and their average revenue in those

markets was 19% of their total revenue. In 5 banks 12% of their total revenues came

from 1-2 major competitor environments but not as the market leaders. Most of the

banks operated in the environments which have more than 7 major competitors and their

average revenues from those environments were 48% of total revenues (not as the

market leaders). 13 and 7 banks were reported being the leaders in the markets which

have 3-7 and more than 7 major competitors respectively. Results also found that size

and ownership aspects were not associated with any competitive environment.

Table 9.5 Competitive environment during the last five years 1 TO 2 Major competitors

Total Ownership aspects Size aspects G LO F L M S

% N

(%) N (%) N (%) N C Sig

(%) N (%) N (%) N C Sig

You are the market leader

19.0 4 15.0 1 17.0 2 25.0 1 1.00 n.s 10.0 2 30.0 1 25.0 1 1.00 n.s

You are not the market leader

12.0 5 12.0 2 12.0 2 10.0 1 .707 n.s 10.0 3 20.0 1 10.0 1 .816 n.s

3 to 7 major competitors % N G % LO % F % C Sig L % M % S % C SigYou are the market leader

19.0 13 25.0 2 16.0 5 19.0 6 .632 n.s 20.0 5 17.0 3 19.0 5 .506 n.s


29.0 18 20.0 1 22.0 8 37.0 9 .506 n.s 20.0 4 20.0 3 35.0 11 .449 n.s

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Table 9.5 Competitive environment during the last five years (continued)

Total Ownership aspects Size aspects G LO F L M S

% N

(%) N (%) N (%) N C Sig

(%) N (%) N (%) N C Sig

More than 7 major competitors % N G % SLC % F % C Sig L % M % S % C SigYou are the market leader

22.0 7 25.0 1 20.0 5 30.0 1 .837 n.s 24.0 4 20.0 3 - - .565 n.s


48.0 19 32.0 2 51.0 9 49.0 8 .754 n.s 31.0 5 27.0 3 62.0 11 .729 n.s

Table 9.6 shows the banks’ revenues which were into categories in which their major

competitors’ actions were highly predictable, predictable, fairly predictable,

unpredictable and highly unpredictable. Banks average revenues of 24%, 31%, 16%,

21%, 8% fell into environments which their competitors actions were highly predictable,

predictable, fairly predictable, unpredictable, and highly unpredictable respectively. It

was found that locally owned banks sales revenues fell into more unpredictable

competitor environments than the government and foreign owned banks.

Table 9.6 Predictability of the banks competitor environments (last five years)

Ownership aspects Size aspects Total G LO F L M S

Predictability

% N % N % N % N C Sig

% N % N % N C Sig

Highly predictable

24.0 20 25.0 2 22.0 9 25.0 9 .436 n.s 25.0 5 23.0 3 23.0 12 .466 n.s

Predictable 31.0 20 40.0 2 28.0 9 33.0 9 .519 n.s 30.0 5 47.0 3 28.0 12 .652 n.s

Fairly predictable

16.0 20 17.0 2 14.0 9 17.0 9 .403 n.s 16.0 5 15.0 3 16.0 12 .258 n.s

Unpredictable 21.0 20 12.0 2 26.0 9 18.0 9 .571 n.s 20.0 5 12.0 3 24.0 12 .674 n.s

Highly unpredictable

8.0 19 5.0 2 10.0 9 7.0 8 .560 n.s 9.0 5 5.0 2 9.0 12 .548 n.s

168

For the next five years banks predict that their revenues will fall into environments in

which their competitor’s actions are 23% highly predictable, 29% predictable, 16%

fairly predictable, 21% unpredictable, and 11% highly unpredictable. Therefore, banks

do not expect any significant changes in the predictability of competitive environments

for the next five years when compared with last five years.

Table 9.7 Predictability of the banks competitor environments (next five years)


Predictability

% N % N % N % N C Sig

% N % N % N C Sig

Highly predictable

23.0 20 17.0 2 22.0 9 26.0 9 .398 n.s 21.0 5 22.0 3 25.0 12 .340 n.s

Predictable 29.0 20 32.0 2 27.0 9 31.0 9 .822 * 26.0 5 42.0 3 27.0 12 .734 n.s

Fairly predictable

16.0 20 15.0 2 13.0 9 19.0 9 .628 n.s 14.0 5 12.0 3 18.0 12 .449 n.s

Unpredictable 21.0 20 20.0 2 24.0 9 17.0 9 .655 n.s 24.0 5 17.0 3 20.0 12 .548 n.s

Highly unpredictable

11.0 20 15.0 2 13.0 9 7.0 9 .837 ** 15.0 5 8.0 3 10.0 12 .564 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

9.4 Competition and market share

Table 9.8 shows the most important markets of the Sri Lankan commercial banks.

Customer deposits, corporate, and retail were the most important markets for a high

number of banks. Development project loans and credit cards were associated with size

aspects and were associated with medium sized banks. Pawning was associated with

ownership aspects and it was a most important market for a government owned bank.

Results also found that government owned banks had a market share of more than 20%

from their most important markets while other banks had a market share of 10-20%.

169

Table 9.8 Most important markets (during last five years)


Size aspects

Market

N % G % LO % F % C Sig L % M % S % C Sig Development project loans

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Pawning 1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Customer deposits

4 19.0 1 50.0 3 33.3 - - .477 n.s 1 20.0 1 33.3 2 15.4 .156 n.s

Loan and advances

1 4.8 - - - - 1 10.0 .175 n.s - - - - 1 7.7 .175 n.s

Retail (small and medium enterprises)

2 9.5 - - 1 11.1 1 10.0 .107 n.s 1 20.0 - - 1 7.7 .219 n.s

Trade and imports

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Credit cards 1 4.8 - - - - 1 10.0 .235 n.s - - 1 33.3 - - .548 *

Corporate 3 14.3 - - 1 11.1 2 20.0 .179 n.s - - - - 3 23.1 .320 n.s

Retail 3 14.3 - - 2 22.2 1 10.0 .212 n.s 2 40.0 - - 1 7.7 .418 n.s

Treasury 1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Imports and exports

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Service level oriented Sri Lankan upper middle class

1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Trade & finance

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Table 9.9 shows the banks expected most important markets for the next five years.

Retail, deposits and corporate will be the most important markets for a high number of

Sri Lankan commercial banks within the next five years respectively. It was found that

development project loans and credit cards were most important markets for two

medium sized banks and therefore, those markets were associated with size aspects. It

was also found that government owned banks expected to keep their market share above

20% in their most important markets in the next five years while other banks expected to

keep their market share of 10% - 20%.

170

Table 9.9 Most important markets (during next five years)


Size aspects

Market

N % G % LO % F % C Sig L % M % S % C Sig Consumer banking

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Development project loans

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Pawing 1 4.8 1 50.0 - - - - .689 n.s 1 20.0 - - - - .400 .186

Deposits 4 19.0 1 50.0 3 33.3 - - .477 n.s 1 20.0 1 33.3 2 15.4 .156 n.s

Loan and advances

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Credit cards 1 4.8 - - - - 1 10.0 .235 n.s - - 1 33.3 - - .548 *

Corporate 3 14.3 - - 1 11.1 2 20.0 .179 n.s - - - - 3 23.1 .320 n.s

Retail 5 23.8 - - 4 44.4 1 10.0 .425 n.s 3 60.0 - - 2 15.4 .491 n.s

Treasury 1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Imports & exports

2 9.5 - - - - 2 20.0 .340 n.s - - - - 2 15.4 .255 n.s

Trade & Finance

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001 9.5 Company customers Table 9.10 displays the major customer groups of the Sri Lankan commercial banks.

Over the last five years the major customer groups for a high number of banks were

manufacturing, export, wholesale and retail trade, and service sector respectively. All the

large banks considered manufacturing, wholesale and retail business as their major

customer groups while all the medium sized banks considered manufacturing, export and

wholesale and retail businesses as their major customer groups. Most of the foreign

owned company’s major customer groups were the export sector, manufacturing sector,

wholesale and retail trade sector respectively. A high number of locally owned banks

reported manufacturing, export, and wholesale and retail trade as their major customer

groups.

Agricultural sector was more associated with the ownership aspects and was a major

customer group for the 2 government owned and 2 locally owned banks. Even though

Sri Lanka is an agricultural country, only 4 banks considered agricultural sector as one

of their major customer group and therefore, this finding confirms the lack of

contribution from the banking sector to the agricultural sector in Sri Lanka. All the small

171

sized and foreign owned banks considered export as their major customer group and it

was associated with ownership and size aspects.

Table 9.10 Major customer groups (last five years)


Size aspects

Customer group

N % G % LO % F % C Sig L % M % S % C Sig Agriculture 4 20.0 2 100 2 22.2 - - .717 ** 3 60.0 1 33.3 - - .645 *

Manufacturing 18 90.0 2 100 8 88.9 8 88.9 .111 n.s 5 100 3 100 10 83.3 .272 n.s

Construction 3 15.0 - - 2 22.2 1 11.1 .203 n.s 1 20.0 - - 2 16.7 .181 n.s

Real estate business

2 10.0 - - - - 2 22.2 .369 n.s - - - - 2 16.7 .272 n.s

Property business

1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Export 17 85.0 - - 8 88.9 9 100 .807 ** 2 40.0 3 100 12 100 .728 **

Wholesale and retail trade

17 85.0 2 100 8 88.9 7 77.8 .203 n.s 5 100 3 100 9 75 .343 n.s

Public utilities 2 10.0 1 50.0 - - 1 11.1 .478 n.s 1 20.0 - - 1 8.3 .215 n.s

Service 11 55.0 2 100 4 44.4 5 55.6 .320 n.s 3 60.0 1 33.3 7 58.3 .183 n.s

Personal consumption

8 40.0 1 50.0 3 33.3 4 44.4 .127 n.s 1 20.0 2 66.7 5 41.7 .295 n..s

Leasing business

7 35.0 - - 4 44.1 3 33.3 .268 n.s 2 40.0 2 66.7 3 25 .309 n.s

Trade & finance

3 15.0 - - 3 33.3 - - .464 n.s 1 20.0 - - 2 16.7 .181 n.s

Mining 1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Commercial 1 5.0 - - 1 11.1 - - .254 n.s - - - - 1 8.3 .187 n.s

Garments 1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Financial institutions

1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Transport 1 5.0 - - 1 11.1 - - .254 n.s - - - - 1 8.3 .187 n.s

Note that: Total (N)=20, *=p<0.05, **=p<.01, ***=p<0.001

The banks’ expected major customer groups for the next five years are shown in table

9.11. It is reported that the major customer groups for the next five years for a high

number of banks will be the export, manufacturing and the wholesale and retail trade

sectors respectively. Except for a few banks, overall most of the banks were not planning

to change their major customer groups for the next five years. The changes of banks

major customer group caused slight increases in service, export, construction and

personal consumption sectors and also a slight decrease in manufacturing sector. It was

also found that agriculture and export business sectors were associated with size aspects

and only agriculture sector was associated with ownership aspects.

172

Table 9.11 Major customer groups for the next five years

Total Ownership aspects Size aspects Customer group N % G % LO % F % C Sig L % M % S % C Sig Agriculture 4 20.0 2 100 2 22.2 - - .717 ** 3 60.0 1 33.3 - - .645 *

Manufacturing 17 85.0 2 100 8 88.9 7 35.0 .203 n.s 5 100 3 100 9 75.0 .343 n.s

Construction 4 20.0 - - 2 22.2 2 22.2 .167 n.s 1 20.0 - - 3 25.0 .217 n.s

Real estate business

3 15.0 - - - - 3 33.3 .464 n.s - - - - 3 25.0 .343 n.s

Property business

1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Export business

18 90.0 1 50.0 8 88.9 9 100 .478 n.s 3 60.0 3 100 12 100 .577 *

Wholesale and retail trade

17 85.0 2 100 9 100 6 66.7 .464 n.s 5 100 3 100 9 75.00 .343 n.s

Service 12 60.0 2 100 4 44.4 6 66.7 .347 n.s 3 60.0 1 33.3 8 66.7 .236 n.s

Personal consumption

9 45.0 1 50.0 4 44.4 4 44.4 .034 n.s 2 40.0 2 66.7 5 41.7 .183 n.s

Leasing business

7 35.0 - - 4 44.4 3 33.3 .268 n.s 2 40.0 2 66.7 3 25.0 .309 n.s

Mining 1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Commercial 2 10.0 - - 2 22.2 - - .369 n.s - - - - 2 16.7 .272 n.s

Garments 1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Financial institutions

1 5.0 - - - - 1 11.1 .254 n.s - - - - 1 8.3 .187 n.s

Transport 1 5.0 - - 1 11.1 - - .254 n.s - - - - 1 8.3 .187 n.s

Note that: Total (N) = 20, *=p<0.05, **=p<.01, ***=p<0.001 9.5.1 Company dependence on its major 100 customers

When the question was asked about the company dependence on its 100 major

customers, the means in terms of size, ownership and planning system aspects are

shown in the figure 9.1. The average dependency level of all the banks remained at 3.4

on the given scale for the last five years and 3.3 for the next five years. Thus, banks are

predicting a slight decrease in their dependency level in the next five years. It is worth

noting that overall banks were not very dependent on their 100 major customers, and

also they are expecting to reduce the dependency level further more in the next five

years.

Medium sized banks reported the lowest dependency level on their 100 major customers

compared with the large and small banks, both for the last and coming five years.

Similarly, Government owned banks reported the highest dependency level compared

with locally and foreign owned banks. The results also found that there were no

173

significant differences in the company dependency level either by size or ownership

aspects. Figure 9.1 Company dependence on its major 100 customers Not Very Not Very Dependent Dependent Dependent Dependent Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• •_____•______•______•_____• (ПT=3.4, N=21) ПG=4.0 ПLO=3.1 ПF=3.5 ПL=3.4 ПM=2.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____• (ПT=3.3, N=21) ПG=3.5 ПLO=3.2 ПF=3.4 ПL=3.4 ПM=2.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Over the last five years- Ownership: Cramer’s V=0.328 P=0.608 Size: Cramer’s V=0.332 P=0.593 Over the next five years- Ownership: Cramer’s V=0.137 P=0.939 Size: Cramer’s V=0.331 P=0.332 Government Local Foreign Large Medium Small 9.5.2 The percentage of banks revenues from their 100 largest customers Table 9.12 reveals the average percentage of banks revenues from their 100 largest

customers. Government owned banks had the lowest percentage of revenue from their

100 largest customers which was 30% compared to locally and foreign owned banks. It

is interesting to mention that even the government banks reported the lowest percentage

of revenues from their 100 largest customers they considered that they are more

dependent on their 100 biggest customers than the other locally and foreign owned

banks. Not surprisingly, small banks reported the highest average percentage of

revenues from their 100 largest customers than the medium and large banks. There were

no statistically significant differences in the percentage of banks revenues from their

100 largest customers either by size or ownership aspects.

174

Table 9.12 The percentages of average banks revenues from their 100 largest customers in terms of ownership and size aspects Ownership aspects (N) The percentage of

average banks revenues from 100 largest customers

Government owned 2 30.0 Locally owned 9 46.7 Foreign owned 10 52.5 Size aspects Large 5 41.0 Medium 3 43.3 Small 13 51.5 Ownership: Cramer’s V=0.700 P=0.301 Size: Cramer’s V=0.732 P=0.210 9.6 Company competitors Table 9.13 shows the major competitors of the Sri Lankan commercial banks for the last

five years. Local commercial banks, foreign owned banks and the government owned

banks were the three major competitors for the Sri Lankan commercial banks. All the

commercial banks considered local banks as their major competitors while 20 and 18

banks considered foreign owned and government owned banks as their competitors

respectively. Therefore, it is worth mentioning that most of the commercial banks think

of the government banks as their major competitors. In addition to the commercial

banks, leasing companies and credit finance companies were the other two major

competitors in the industry. Only two banks considered the foreign exchange black

market as one of their major competitors. Results also found that leasing companies

were more associated with the size aspects than the ownership aspects and was a major

competitor for all the medium sized banks and 80% of the large banks.

175

Table 9.13 Banks major competitors (for the last five years)

Total Ownership aspects Size aspects Major competitor N % G % LO % F % C Sig L % M % S % C SigGovernment banks

18 85.7 2 100 8 88.9 8 80.0 .179 n.s 5 100 3 100 10 76.9 .320 n.s

Foreign Banks

20 95.2 2 100 8 88.9 10 100 .258 n.s 5 100 3 100 12 92.3 .175 n.s

Local commercial banks

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Leasing companies

8 38.1 2 100 5 55.6 1 10.0 .608 * 4 80.0 3 100 1 7.7 .808 **

Credit finance companies

5 23.8 - - 2 22.2 3 30.0 .201 n.s - - 2 66.7 3 23.1 .468 n.s

Foreign exchange black market

2 9.5 1 50.0 - - 1 10.0 .476 n.s 1 20.0 - - 1 7.7 .219 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

For the next five years banks do not expect any new type of major competitors and table

9.14 shows the expected major competitors. Even the type of competitors remain the

same, whereas a higher number of banks expect leasing companies and the credit finance

companies as their major competitor groups for the next five years than the previous five

years. This may because of the expectation of a higher number of banks will get

involved in the leasing businesses sector in next five years. Competitors like leasing

companies was associated with the size aspects and, all the large and medium banks and

38.5% of the small banks think leasing companies will be a major competitor for the

next five years. Foreign exchange black market is associated with ownership aspects and

only one government owned bank thinks of it as a major competitor.

176

Table 9.14 Banks major competitors (for the next five years)

Note that: *=p<0.05, **=p<.01, ***=p<0.001 9.6.1 Competitors influence on company strategies Figure 9.2 examines to what extent the competitors have an influence on the banks

strategies. Over the last five years the average influence of major competitors on

company strategies was reported as 3.5 on the given scale and banks also expect the

figure will increase further to 3.8 in the next five years. Large banks had a higher

influence from major competitors on their company strategies than the medium and

small sized banks and similarly, government owned banks had a higher influence from

their major competitors on their company strategies than the locally and foreign owned

banks. All the banks felt that their major competitors influence on their company

strategies will increase in the next five years. Therefore, the banking industry in Sri

Lanka is expecting a higher level of competition among the banks in the next five years.

However, the level of influence of the major competitors on company strategies can be

categorized as moderate and not to a very great extent. There were no statistically

significant differences in the major competitor’s influence on their company strategies

either by size or ownership aspects.

Total Ownership aspects Size aspects Competitor group N % G % LO % F % C Sig L % M % S % C SigGovernment banks

16 76.2 2 100 6 66.7 8 80.0 .235 n.s 3 60.0 3 100 10 76.9 .281 n.s

Foreign Banks

21 100 2 100 9 100 10 100 na na 5 100 3 100 13 100 na na

Local commercial banks

21 100 2 100 9 100 10 100 na na 5 100 3 100 13 100 na na

Insurance companies

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Leasing companies

13 61.9 2 100 7 77.8 4 40.0 .449 n.s 5 100 3 100 5 38.5 .615 *

Credit finance companies

6 28.6 - - 2 22.2 4 40.0 .278 n.s - - 2 66.7 4 30.8 .445 n.s

Foreign exchange black market

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

177

Figure 9.2 Competitors influence on company strategies No Very No Very influence great influence great influence influence Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• •_____•______•______•_____•

ПG=4.0 ПF=3.4 ПLO=3.4 ПL=3.6 ПM=3.3 ПS=3.5 (ПT=3.5) N=2 N=10 N=9 N=5 N=3 N=13 Over the •_____•______•______•_____• •_____•______•______•_____• next five years

ПG=4.5 ПLO=3.7 ПF=3.7 ПL=4.0 ПM=3.7 ПS=3.7 (ПT=3.8) N=2 N=9 N=10 N=5 N=3 N=13 Over the last five years- Ownership: Cramer’s V=0.343 P=0.291 Size: Cramer’s V=0.164 P=0.754 Over the next five years- Ownership: Cramer’s V=0.357 P=0.253 Size: Cramer’s V=0.180 P=0.852 Government Local Foreign Large Medium Small 9.7 Company business and the government Overall, the banks’ revenues has been in the businesses which were 49.0% highly

government regulated, 28.0% somewhat government regulated and 23.0% not at all

government regulated over the last five years (see table 9.15). It was reported that large

banks were more in highly government regulated environments than the medium and

small sized banks and similarly, foreign owned banks were in highly regulated

businesses more than the government and locally owned banks. There were no

statistically significant differences in the government regulation of businesses either by

size or ownership aspects.

Table 9.15 Government regulations on banks businesses

Total Ownership aspects Size aspects % N G % LO % F % C Sig L % M % S % C Sig

Highly government regulated

49.0 21 2 45.0 9 46.2 10 52.0 .650 n.s 5 57.0 3 27.0 13 50.8 .654 n.s

Somewhat government regulated

28.0 21 2 30.0 9 26.6 10 29.0 .543 n.s 5 24.0 3 28.0 13 29.6 .684 n.s

Not at all government regulated

23.0 21 2 25.0 9 27.2 9 18.9 .475 n.s 5 19.0 3 45.0 12 19.6 .552 n.s

178

Participating banks predict that there will be a 19% increase, 65% no change, and 15%

decrease in their current business environments regulated by the Sri Lankan government

(see table 9.16). Therefore, it is worth noting that banks expect not only more regulation

but also deregulation in some business environments. Government banks expected that

government regulations on their business environments will be decreased by 35% but,

locally and foreign owned banks think that will reduce by only 14% and 15.6 %

respectively.

Table 9.16 Changes expected by the banks in the government regulations

Total Ownership aspects Size aspects Response % N G % LO % F % C Sig L % M % S % C Sig

Increase 19.0 21 2 25.0 9 17.8 10 19.5 .524 n.s 5 16.0 3 13.3 13 21.0 .621 n.s

No change

65.0 21 2 40.0 9 69.4 10 66.5 .660 n.s 5 64.0 3 75.0 13 63.5 .677 n.s

Decrease 15.0 21 2 35.0 9 14.0 9 15.6 .699 * 5 20.0 3 11.7 12 15.0 .544 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

Figure 9.3 shows the banks satisfaction level with the government’s rules and

regulations on the banking industry. The average satisfaction level of banks remained at

3.0 and government owned banks reported the highest satisfaction compared to locally

and foreign owned banks. Foreign banks reported the lowest level of satisfaction level

on government rules and regulations. Similarly, small banks had the lowest level of

satisfaction over large and medium sized banks. Results also found that there were no

significant differences in the satisfaction level of banks on government rules and

regulations either by size or ownership aspects.

Figure 9.3 Satisfaction levels of the banks on government regulations Dissatisfied Very Dissatisfied Very

satisfied satisfied Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5

ПT=3.0 ПT=3.0 •_____•______•______•_____• •_____•______•______•_____•

N=2 N=9 N=5 N=3 ПG=4.0 ПLO=3.0 ПL=3.4 ПM=3.7

ПF=2.9 ПS=2.8

N=10 N=13

Ownership: Cramer’s V=0.368 p=0.224 Size: Cramer’s V=0.375 P=0.206 Government Local Foreign Large Medium Small

179

9.8 Company suppliers (Sources of funds) Table 9.17 reveals the major sources of funds and the average percentages of the total

funds of the participating banks. Government and domestic customers provided 30% and

65% of average total funds to the government banks and only one government bank

received 10% of their total funds from foreign organizations. It was reported that major

sources of funds in most of the banks were the domestic customers in Sri Lanka.

Domestic customers funded large, medium and small banks 70%, 65%, and 46.7%

respectively. The average of 45% of the foreign banks total funds came from their

overseas head offices and seven locally owned banks received 42.1% of their total funds

from the domestic organizations. Results also found that size aspects were more

associated with the major sources of funds than the ownership aspects.

Table 9.17 Major sources of funds (last five years)


Funds from government

2 30.0 2 30.0 - - - - 1.00 *** 2 30.0 - - - - .577 *

Funds from foreign organizations

4 12.5 1 10.0 3 13.3 - - .582 * 2 7.5 2 17.5 - - .585 *

Funds from domestic organizations

8 38.1 - - 7 42.1 1 10.0 .585 n.s 2 27.5 1 30.0 5 44.0 .492 n.s

Funds from domestic customers

20 55.2 2 65.0 9 58.3 9 50.0 .577 n.s 5 70.0 3 65.0 12 46.7 .777 n.s

Funds from investments in domestic financial market

4 16.2 - - 3 11.7 1 30.0 .363 n.s 1 15.0 2 10.0 1 30.0 .633 *

Funds from investment in overseas financial market

2 27.5 - - 1 50.0 1 50.0 .248 n.s 1 50.0 - - 1 50.0 .307 n.s

Funds from overseas head office

8 45.0 - - - - 8 45.0 .638 n.s - - 1 20.0 7 48.6 .556 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

180

Table 9.18 displays the major sources of funds of the banks for the next five years.

Overall, banks are expecting more funds from the domestic customers in the next five

years than the previous five years. It was found that foreign banks are also expecting to

slightly reduce their average funds from their overseas head offices in the next five

years. Results also found that there were significant differences in the major sources of

funds such as funds from government by size and ownership aspects and funds from

investments in domestic financial markets by size aspects.

Table 9.18 Major sources of funds (next five years)


Funds from government

2 20.0 2 20.0 - - - - 1.00 *** 2 20.0 - - - - .577 *

Funds from foreign organizations

4 7.5 1 10.0 3 6.7 - - .431 n.s 2 7.5 2 7.5 - - .456 n.s

Funds from domestic organizations

8 31.2 - - 7 33.6 1 15.0 .585 n.s 2 22.5 1 30.0 5 35.0 .487 n.s

Funds from domestic customers

20 62.2 2 75.0 9 67.2 9 54.4 .748 n.s 5 75.0 3 76.7 12 53.3 .785 n.s

Funds from investments in domestic financial market

4 15.0 - - 3 10.0 1 30.0 .363 n.s 1 15.0 2 7.5 1 30.0 .633 *

Funds from investment in overseas financial market

2 22.5 - - 1 10.0 1 35.0 .248 n.s 1 10.0 1 35.0 - - .307 n.s

Funds from overseas head office

8 41.2 - - - - 8 41.2 .638 n.s - - 1 10.0 7 45.7 .556 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

Figure 9.4 shows the dependency levels of the banks on their major sources of funds.

Small banks had the highest dependency level in relation to their major sources of funds

over the last five years and surprisingly, large banks expected the highest level of

dependence over small and medium sized banks for the next five years. Similarly,

government owned banks reported the highest level of dependence rather than the

foreign and locally owned banks, both for the last and coming five years. Overall, banks

181

showed a higher level of dependency on their major sources of funds during last five

years and they are expecting a slight reduction in it in the next five years. There were no

significant differences found in the dependency levels of banks on their major sources

of funds either by size or ownership aspects.

Figure 9.4: Dependency levels of the banks on their major sources of funds Not at all Very Not at all Very dependent dependent dependent dependent Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• •_____•______•______•_____• ПG=4.5 ПLO=3.7 ПF=4.2 ПL=4.0 ПM=3.7 ПS=4.1 (ПT=4.0, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years ПG=4.5 ПLO=3.7 ПF=4.0 ПL=4.0 ПM=3.7 ПS=3.9

•_____•______•______•_____• •_____•______•______•_____• (ПT=3.9, N=21) N=2 N=9 N=10 N=5 N=3 N=13

Over the last five years- Ownership: Cramer’s V=0.424 P=0.109 Size: Cramer’s V=0.217 P=0.739 Over the next five years- Ownership: Cramer’s V=0.319 P=0.371 Size: Cramer’s V=0.131 P=0.949 Government Local Foreign Large Medium Small

Table 9.19 reveals the categories which banks major sources of funds fell into during

last five years. It was reported that none of the banks had severe availability problems in

their major sources of funds during last five years. Medium sized banks had 88.3% of

their banks with no availability problems when compared with large and small sized

banks 83.0% and 83.4% respectively. Only three banks were having significant

availability problems in their major sources of funds and these three banks included two

locally and one foreign owned banks. There were no significant differences found in the

categories that the banks major sources of funds felt during last five years either by size

or ownership aspects.

182

Table 9.19 Main categories which banks major sources of funds felt into (last five years)

Total Ownership aspects Size aspects Main category N % G % LO % F % C Sig L % M % S % C Sig No availability problems

21 84.0 2 70.0 9 82.2 10 88.5 .563 n.s 5 83.0 3 88.3 13 83.4 .539 n.s

Some availability problems

16 19.4 2 30.0 8 18.1 6 17.5 .731 n.s 4 20.0 2 17.5 10 19.5 .569 n.s

Significant availability problems

3 8.3 - - 2 7.5 1 10.0 .200 n.s 1 5.0 - - 2 10.0 .328 n.s

Severe availability problems

- - - - - - - - n.a n.a - - - - - - n.a n.a

Table 9.20 shows the banks expected categories where their major sources of funds will

fall into in the next five years. Average percentages of all the large, medium and small

sized banks in the category of no availability problems have increased up to 79.0%,

93.3%, and 86.9% respectively. However, government owned banks expected 10%

reduction in the category of no availability problems in their major sources of funds for

the next five years. It was also found that one government bank expected to have 20%

significant availability problems in their major sources of funds while one locally owned

banks expected to have 5%.

Table 9.20 Main categories which banks major sources of funds felt into (next five years)

Total Ownership aspects Size aspects Main category N % G % LO % F % C Sig L % M % S % C Sig No availability problems

21 86.0 2 60.0 9 87.2 10 90.0 .723 n.s 5 79.0 3 93.3 13 86.9 .516 n.s

Some availability problems

16 16.9 2 30.0 8 13.7 6 16.7 .686 n.s 4 21.2 2 10.0 10 16.5 .516 n.s

Significant availability problems

2 12.5 1 20.0 1 5.0 - - .519 n.s 1 20.0 - - 1 5.0 .305 n.s

Severe availability problems

- - - - - - - - n.a n.a - - - - - - n.a n.a

Note that: *=p<0.05, **=p<.01, ***=p<0.001

183

9.9 Company’s business sector When the question was asked about major new possible entrants into the Sri Lankan

banking industry, all the responses received in this study are shown in the table 9.21.

Most of the banks reported possible new entrants as Indian banks with the back office in

India, Islamic banks, private local banks and the non banking corporate lending

institutions. One government owned bank thinks capital market institutions and non

banking corporate lending institutions would be new entrants and two large and two

medium sized banks think non banking financial institutions would be a new entrant in

to the banking sector in Sri Lanka and these were significant differences by ownership

and size aspects.

Table 9.21 Possible new entrants to the banking industry

Total Ownership aspects Size aspects New entrant N % G % LO % F % C Sig L % M % S % C Sig Private local banks

8 38.1 1 50.0 3 33.3 4 40.0 .103 n.s 2 40.0 2 66.7 4 30.8 .253 n.s

Corporative banks

5 23.8 1 50.0 - - 4 40.0 .489 n.s 1 20.0 1 33.3 3 23.1 .096 n.s

Foreign banks (except India and Pakistan)

4 19.0 1 50.0 1 11.1 2 20.0 .277 n.s 2 40.0 - - 2 15.4 .327 n.s

Indian banks with back office in India

18 85.7 1 50.0 9 100 8 80.0 .428 n.s 4 80.0 3 100 11 84.6 .175 n.s

Islamic banks

8 38.1 - - 3 33.3 5 50.0 .302 n.s 1 20.0 2 66.7 5 38.5 .287 n.s

Non banking corporate lending institutions

8 38.1 1 50.0 6 66.7 1 10.0 .560 * 3 60.0 1 33.3 4 30.8 .253 n.s

Capital market institutions

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Non banking financial institutions

4 19.0 1 50.0 2 22.2 1 10.0 .298 n.s 2 40.0 2 66.7 - - .651 *

Note that: *=p<0.05, **=p<.01, ***=p<0.001

184

When the question was asked about how difficult it is to enter into the Sri Lankan

banking industry, this study received mix reactions from the banks. Government banks

think it is a bit difficult to enter into the banking industry while foreign and local banks

think it is not too difficult to enter and therefore, there were significant differences found

in the ownership aspects. Overall, the banks considered it is not difficult to enter into the

banking industry.

Figure 9.5 Difficulty of entry into banking businesses Easy to Difficult Easy to Difficult Enter to enter enter enter Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 ПT=2.7 ** ПT=2.7 How difficult is entry •_____•______•______•_____• •_____•______•______•_____• into your company’s ПG=4.0 ПF=2.7 ПLO=2.4 ПL=3.2 ПM=2.7 ПS=2.5 business sector N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

9.10 Political and legal environments

Figure 9.6 shows to what extent the Sri Lankan government policies have impacted on

the banks operations over the last five years, at present and in the next five years.

Overall, during the last five years government policies have had an impact on banks

operations to a reasonable extent (3.6 on the given scale) and it has gone up slightly to

3.8 at present and is expected to increase further to 3.9 on the given scale during the

next five years. Therefore, banks are expecting a slight increase in the impact of the

government policies on their operations. It is worth highlighting that the small banks

perception over the large and medium sized banks and, also foreign banks perception

over government and locally owned banks that their operations have been more

impacted due to government policies. However, results found that only ownership

aspect was a significant difference at present.

185

Figure 9.6: The extent government policies impact on banks operations No Severe No Severe impact impact impact impact Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• •_____•______•______•_____• ПG=3.5 ПF=4.1 ПLO=3.1 ПL=3.2 ПM=3.3 ПS=3.8 (ПT=3.6) N=2 N=10 N=9 N=5 N=3 N=13 At present •_____•______•______•_____• * •_____•______•______•_____• (ПT=3.8) ПG=4.0 ПF=4.2 ПLO=3.3 ПL=3.4 ПM=3.3 ПS=4.1 N=2 N=10 N=9 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____• (ПT=3.9) ПG=4.0 ПF=4.1 ПLO=3.8 ПL3.8 ПM=3.3 ПS=4.1

N=2 N=10 N=9 N=5 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

Table 9.22 reveals the current impacts of the Sri Lankan government policies on the

banks operations. Capital requirements, increase of taxes in financial services, interest

rate controls, and CBSL regulations with government policies were the most common

policies that impacted on banks current operations. Government policies such as

Assisting government programmes/ organizations, fiscal policies of government, CBSL

regulations with government policies, economic development policies were associated

with ownership aspects and all have impacted on the government banks. On sight and

off sight examination reported by six foreign owned banks and this impact was

associated with ownership aspects. It was also found that ownership aspects were more

associated with the government policies that impacted the banks operation than the size

aspects.

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Table 9.22: Current impacts of the Sri Lankan government policies on bank’s operations

Total Ownership aspects Size aspects Impact N % G % LO % F % C Sig L % M % S % C Sig


21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Monetary contacts

2 9.5 1 50.0 1 11.1 - - .482 n.s 1 20.0 1 33.3 - - .435 n.s

Assisting government programmes/ organizations

2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 *

Fiscal policies of government

6 28.6 2 100 3 33.3 1 10.0 .569 * 3 60.0 - - 3 23.1 .426 n.s

CBSL regulations with government policies

10 47.6 2 100 6 66.7 2 20.0 .559 * 5 100 1 33.3 4 30.8 .587 *

Economic development policies

2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 *

Re-introduce of stamp duty from 01/04/2006

3 14.3 - - 1 11.1 2 20.0 .179 n.s - - 1 33.3 2 15.4 .287 n.s

Increase of taxes in financial services

15 71.4 - - 7 77.8 8 80.0 .514 n.s 2 40.0 3 100 10 76.9 .426 n.s

On sight and off sight examinations

6 28.6 - - - - 6 60.0 .663 * - - - - 6 46.2 .496 n.s

Internal controls

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Interest rate controls

12 57.1 - - 6 66.7 6 60.0 .380 n.s 3 60.0 1 33.3 8 61.5 .197 n.s

Money lending policy

5 23.8 - - 1 11.1 4 40.0 .370 n.s - - - - 5 38.5 .439 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

Figure 9.7 shows to what extent the government is involved in the banks’ operations in

the Sri Lankan commercial banks. Not surprisingly, the government banks reported a

higher involvement by the government on their bank operations than the locally and

foreign owned banks. Foreign owned banks think government involvement in their

operations is to a reasonable extent and locally owned banks considered it as minimal. It

was also found that government owned banks expect a reduction in the government

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involvement on their banks operations in the next five years while locally and foreign

owned banks are expecting an increase.

Large banks reported a higher involvement of the government in their operations over

the small and medium sized banks and that maybe due to the higher involvement in both

the government owned banks (considered as large banks). Results also found that there

were significant differences in the government involvement over the last five years by

ownership aspects.

Figure 9.7 Government involvements in banks operations

No very high No very high

Involvement involvement Involvement involvement Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• * •_____•______•______•_____• (ПT=2.6, N=21) ПG=4.0 ПF=2.8 ПLO=2.0 ПL=2.8 ПM=1.7 ПS=2.7 N=2 N=10 N=9 N=5 N=3 N=13 At present •_____•______•______•_____• •_____•______•______•_____• (ПT=2.7, N=21) ПG=4.0 ПF=2.8 ПLO=2.2 ПL=3.0 ПM=2.0 ПS=2.7 N=2 N=10 N=9 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____• (ПT=2.8, N=21) ПG=3.5 ПF=3.0 ПLO=2.4 ПL=3.0 ПM=2.0 ПS=2.9 N=2 N=10 N=9 N=5 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

9.10.1 Current government’s involvement on bank’s operations

Table 9.23 reveals the current government’s involvement on banks operations. Banking

act and the monetary policy were reported by the highest number of banks as

government involvement on their banks operations and those factors seem to be common

in banking industries in all countries. Government involvement on appointment of board

of directors, sometimes on recovery issues, only for restricting issues were associated

with the ownership aspects and only seen in the government banks. Discouraging the

recruitment of foreign employees and central bank approval when appointing the

country head were reported as government involvement in their banks operations by four

and three foreign banks respectively. There were significant differences for government

involvement such as only for restricting processes, sometimes on recovery issues, and

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appointment of board of directors and these were associated with ownership aspects

rather than size aspects.

Table 9.23 Current government’s involvement on bank’s operations

Total Ownership aspects Size aspects Government involvement N % G % LO % F % C Sig L % M % S % C Sig Only for restricting processes

2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 *

Sometimes on recovery issues

2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 *

Appointment of board of directors

2 9.5 2 100 - - - - 1.00 *** 2 40.0 - - - - .580 *

Central bank approval when appointing the country head

3 14.3 - - - - 3 30.0 .428 n.s - - - - 3 23.1 .320 n.s

Discouraging the recruitment of foreign employees

4 19.0 - - - - 4 40.0 .509 n.s - - - - 4 30.8 .381 n.s

Banking act 21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Monetary policy

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Note that: *=p<0.05, **=p<.01, ***=p<0.001

9.10.2 Impact of Sri Lankan laws and regulations on bank’s operations

Figure 9.8 shows the impact level of Sri Lankan laws and regulations on banks

operations during the given three periods. Overall, during the last five years banks

reported a reasonably high level of impact of Sri Lankan laws and regulations on their

operations and they think it is higher at present than in the last five years and will

increase further in the next five years. However, the expected increase was at a low

magnitude. There were significant differences found in the impact level of Sri Lankan

laws and regulations by ownership aspects (over the last five years, at present and over

the next five years). Similarly, there were significant differences found in the impact

level of Sri Lankan laws and regulations at present by size aspects.

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Figure 9.8 Impact of Sri Lankan laws and regulations on bank’s operations No Severe No Severe

impact impact impact impact Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____• * •_____•______•______•_____• (ПT=3.9 N=21) ПG=4.5 ПLO=3.9 ПF=3.9 ПL=4.2 ПM=3.7 ПS=3.9 N=2 N=9 N=10 N=5 N=3 N=13 At present •_____•______•______•_____• * •_____•______•______•_____• * (ПT=4.0 N=21) ПG=4.5 ПLO=3.9 ПF=4.0 ПL=4.2 ПM=3.7 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____•* •_____•______•______•_____• (ПT=4.1 N=21) ПG=4.0 ПF=4.1 ПLO=4.3 ПL=4.4 ПM=4.0 ПS=4.1


Table 9.24 reveals the current impacts of the Sri Lankan laws and regulations on banks

operations. Capital requirement was reported by all the banks as the major impact on

their operations and other major impacts include single borrowing limit, government

audit requirements, for recovery matters and CBSL regulations respectively. Single

borrowing limit was a major impact on 84.6% of the small sized banks and it was

associated with size aspects. It was also found that ownership aspects were associated

with more impacts than the size aspects.

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Table 9.24 Current impacts of the Sri Lankan laws and regulations on bank’s operations

Total Ownership aspects Size aspects Current impact N % G % LO % F % C Sig L % M % S % C Sig For recovery matters

9 42.9 2 100 5 55.6 2 20.0 .507 n.s 4 80.0 2 66.7 3 23.1 .516 n.s

Staff promotions & fundamental issues

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

BIS standards

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

CBSL regulations

9 42.9 - - 9 100 - - 1.00 *** 3 60.0 2 66.7 4 30.8 .314 n.s

Government audit requirement

11 52.4 1 50.0 5 55.6 5 50.0 .055 n.s 3 60.0 2 66.7 4 30.8 .314 n.s

Ownership to be public quoted, Maximum shareholding for a party capped at 10% of shares

6 28.6 - - 6 66.7 - - .730 ** 2 40.0 1 33.3 3 23.1 .161 n.s

Directors to be “fit and proper” individuals

6 28.6 - - 6 66.7 - - .730 ** 2 40.0 1 33.3 3 23.1 .161 n.s

Single borrowing limit

14 66.7 - - 6 66.7 8 80.0 .478 n.s 1 20.0 2 66.7 11 84.6 .568 *

Lack of laws to protect investors

3 14.3 - - - - 3 30.0 .428 n.s - - - - 3 23.1 .320 n.s


21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Note that: *=p<0.05, **=p<.01, ***=p<0.001

9.11 Impact of Sri Lankan economy on banks operations

Figure 9.9 displays the level of impact that the Sri Lankan economy has on the bank’s

operations. It was found that overall, the Sri Lankan economy had an impact on the

banks’ operations to a high extent during last five years and at present and the banks

expect a slight increase in the impact over the next five years. There were significant

differences found in the level of impact during the last five years by ownership aspects.

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Figure 9.9 The impact of the Sri Lankan economy on bank’s operations

No Severe No Severe impact impact impact impact

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____•* •_____•______•______•_____• (ПT=3.9 N=21) ПG=4.5 ПLO=3.8 ПF=3.8 ПL=4.0 ПM=4.0 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 At present •_____•______•______•_____• •_____•______•______•_____• (ПT=3.9 N=21) ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 ПS=3.9 N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____• (ПT=4.1 N=21) ПG=4.0 ПLO=4.4 ПF=3.9 ПL=4.4 ПM=4.3 ПS=4.0


Table 9.25 describes the current impacts of the Sri Lankan economy on the banks

operations. Profitability, low investment opportunities due to political uncertainty and

deposit mobilization were the most reported impacts of the Sri Lankan economy on their

operations respectively. Two medium sized banks mentioned low consumption pattern

as an impact and it was associated with size aspects. There were no significant

differences found in the impacts of the Sri Lankan economy on banks operations by

ownership aspects.

Table 9.25 Current impact of the Sri Lankan economy on bank’s operations


Low investment opportunities due to political uncertainty

21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Deposit mobilization

14 66.7 2 100 7 77.8 5 50.0 .362 n.s 4 80.0 1 33.3 9 69.2 .304 n.s

Profitability 21 100 2 100 9 100 10 100 n.a n.a 5 100 3 100 13 100 n.a n.a

Branch expansion

6 28.6 2 100 2 22.2 2 20.0 .514 n.s 3 60.0 1 33.3 2 15.4 .412 n.s

Low consumption pattern

2 9.5 - - 1 11.1 1 10.0 .107 n.s - - 2 66.7 - - .795 **

Low rates of borrowings

4 19.0 - - 1 11.1 3 30.0 .277 n.s - - - - 4 30.8 .381 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

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9.12 Impact of Sri Lankan social/cultural environments on banks operations

Figure 9.10 shows to what extent the Sri Lankan social/cultural environments impact on

the banks operations. Results found that social cultural environments had very little

impact on the banks operations over the last five years and at present. Participants also

expected that the impact level will remain at the same level for the next five years

compared with the present level. Government banks reported the highest level of

impact, while foreign banks have the lowest level of impact. There were significant

differences found in the impact level of social cultural environments on banks

operations by ownership aspects but, not by size aspects.

Figure 9.10 The impact of Sri Lankan social/cultural environment on bank’s operations

No Severe No Severe

impact impact impact impact Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____•* •_____•______•______•_____• (ПT=2.2 N=21) ПG=3.0 ПLO=2.3 ПF=1.9 ПL=2.4 ПM=2.3 ПS=2.1 N=2 N=9 N=10 N=5 N=3 N=13 At present •_____•______•______•_____•** •_____•______•______•_____• (ПT=2.4 N=21) ПG=3.0 ПLO=2.7 ПF=2.0 ПL=2.6 ПM=2.7 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____•** •_____•______•______•_____• (ПT=2.4 N=21) ПG=3.0 ПLO=2.7 ПF=2.0 ПL=2.6 ПM=2.7 ПS=2.2


Table 9.26 describes the major impacts of social cultural environments on the banks

operations. 17 of the 21 banks mentioned the peace/war situations in the country as a

major impact while 6 and 4 banks were considering technology driven delivery channels

and demography (more youngsters in the market) as major impacts on their operations

respectively. Ownership aspects were associated with demography and size aspects were

not associated with any social/cultural impact.

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Table 9.26: Current impacts of the Sri Lankan social cultural environment on bank’s operations


Especially peace/war situation in the country

17 81.0 2 100 8 66.7 9 90.0 .323 n.s 4 80.0 3 100 10 76.9 .201 n.s

Demography(more youngsters in the market)

4 19.0 - - 4 44.4 - - .560 * 1 20.0 2 66.7 1 7.7 .512 n.s

Technology driven delivery channels

6 28.6 - - 5 55.6 1 10.0 .521 n.s 1 20.0 2 66.7 3 23.1 .345 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001 9.13 The impact of technology available in Sri Lanka on banks operations

Figure 9.11 explains to what extent technology available in Sri Lanka impacted on the

banks operations .It was found that technology had a high effect on the banks operations

during the last five years and at present and banks also expected that the impact level

will increase further over the next five years. Large and medium sized banks had a

higher impact of technology than the small banks and similarly, locally and government

owned banks reported a higher impact of technology than the foreign owned banks.

There were significant differences found in the impact of technology over the last five

years and at present by ownership aspects.

Figure 9.11: The impact of technology available in Sri Lanka on bank’s operations

No Severe No Severe impact impact impact impact Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Over the last five years •_____•______•______•_____•* •_____•______•______•_____• (ПT=3.4 N=21) ПG=4.5 ПLO=3.2 ПF=3.3 ПL=3.6 ПM=3.7 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 At present •_____•______•______•_____•* •_____•______•______•_____• (ПT=3.9 N=21) ПG=4.5 ПLO=3.9 ПF=3.8 ПL=4.0 ПM=4.0 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____• (ПT=4.4 N=21) ПG=4.5 ПLO=4.8 ПF=4.0 ПL=4.6 ПM=4.7 ПS=4.2


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Table 9.27 reveals the current impacts of the available technology in Sri Lanka on the

banks operations. Technology had an impact on new products, customer services,

network banking and link with global networks such as Cirrus and Maestro in the

highest number of banks. Office automation, network banking reported from the

government banks and link with global network such as Cirrus and Maestro were

reported from the locally owned banks and these were significant differences by

ownership aspects.

Table 9.27: Current impacts of the available technology in Sri Lanka on bank’s operations


New products

20 95.2 2 100 9 100 9 90.0 .235 n.s 5 100 3 100 12 92.3 .175 n.s

Customer services

20 95.2 2 100 9 100 9 90.0 .235 n.s 5 100 3 100 12 92.3 .175 n.s

Planning & management

4 19.0 1 50.0 1 11.1 2 20.0 .277 n.s 2 40.0 - - 2 15.4 .327 n.s

Network banking

10 47.6 2 100 6 66.7 2 20.0 .559 * 4 80.0 3 100 3 23.1 .638 *

Office automation

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Centralized operation

2 9.5 1 50.0 1 11.1 - - .482 n.s 1 20.0 - - 1 7.7 .219 n.s

Link with global network such as Cirrus and Maestro

5 23.8 - - 5 55.6 - - .645 * 2 40.0 1 33.3 2 15.4 .256 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

9.14 Chapter Summary

The demand environments of the banks were fairly predictable up to 70% during last

five years and banks expected that it will not change during next five years. It was also

found that overall, 90% of the banks revenues felt into markets that were growing and

banks expected that their 93% of the revenues will fall into growing environment in the

next five years. Only four banks reported them as the market leaders in the markets

where there were 1-2 major competitors and 19% of the total revenues came from those

markets.13 banks reported them as the market leaders in the markets where there were

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3-7 major competitors and 19% of the total revenues came from those markets.

Similarly, 7 banks reported them as market leaders in markets where there were more

than 7 major competitors and 22% of the total revenues came from those markets. It

was also found that banks competitor environments were fairly predictable up to 71%

and banks expected that it will reduce to 68% in the next five years.

Customer deposits, corporate and retail were the most reported most important markets

respectively. It was found that size and ownership aspects were associated with some of

the most important markets. For the next five years most important markets for most

banks will be retail, deposits and corporate respectively. The major customer group for

most banks during last five years were manufacturing, export, wholesale and retail trade

and service sector respectively. Most of the foreign and locally owned banks major

customer groups were export, manufacturing, and wholesale and retail trade. Even

though Sri Lanka is an agricultural country, it was found that only 4 banks considered

agricultural sector as their most important customer group and these four banks

included two government owned banks and two locally owned banks. It was also found

that export, manufacturing, and wholesale and retail will be the most important

customer groups for most banks in the next five years. Overall, banks dependence on

their major 100 customers remained reasonably high over the last five years but, banks

expecting a slight reduction during next five years (3.4 Vs 3.3 on the given scale).

The major competitors of the Sri Lankan commercial banks during last five years were

local commercial banks, foreign owned banks and the government owned banks. Most

of the commercial banks think government banks as their major competitor. It was also

found that 8 banks (including all the medium sized banks and 80% of the large banks)

considered leasing companies as a major competitor for the last five years but, 13 banks

considered leasing companies as a major competitor for the next five years. Thus, we

can expect that more banks will get into leasing businesses in the next five years. It was

also found that competitors influence on company strategies remained reasonably high

during last five years and banks expected a slightl increase in the next five years.

Overall, Banks were in the businesses that were 49% highly government regulated, 28%

somewhat government regulated and 23% not at all government regulated. It was found

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that banks were overall reasonably satisfy with the government regulations but not to a

great extent.

Domestic customers were the major source of funds for most banks during the last five

years. It was found that domestic customers funded 65%, 58.3% and 50% for

government banks, local banks and foreign banks respectively. Eight of the foreign

owned banks received 45% of their total funds from their overseas head offices and the

two government owned banks received 30.0% of their total funds from the Sri Lankan

government. It was also found that banks are expecting to find more funds from the

domestic customers in the next five years. Banks dependency level of their major

sources of funds remained relatively high during last five years and banks are expecting

a slight reduction in the next five years (4.0 vs 3.9). Overall, for banks 84.0% of the

total funds felt into category that was no availability problems. 16 banks reported that

19.4% of the total funds had some availability problems and only 3 banks reported that

8.3% of the total funds had significant availability problems during last five years. In

the next five years banks expect that 86.0% of the total funds will not have any

availability problems and only two banks 12.5% of the total funds expect to have

significant availability problems.

Most reported new possible entrants to Sri Lankan banking industry were Indian banks

with the back office in India, Islamic banks, private local banks and non banking

corporate lending institutions. It was found that overall, banks think entry into Sri

Lankan banking industry is not difficult.

Most reported current impacts of government policies were capital requirements,

increase taxes in financial services, and interest rate controls. It was found that the

impact of the government policies on banks operations over the last five years was

reasonably high and it has increased slightly at present and is expected to further

increase slightly in the next five years. Overall, the government involvements on banks

operations were relatively low but, in government banks it was remained reasonably

high. Banking act and monetary policy were the most reported government

involvements on banks operations and these involvements seem to be common in

banking industries in every country. The impact of Sri Lankan laws and regulations on

banks operations remained reasonably high in the last five years and it has increased

197

slightly at present and is expected to further increase slightly in the next five years. It

was found that most reported impacts of laws and regulations were capital requirements,

single borrowing limit, government audit requirements, CBSL regulations, and for

recovery matters respectively.

The impact of Sri Lankan economy on banks operations remained relatively high during

last five years and is expected to increase slightly in the next five years. Profitability,

low investment opportunities due to political uncertainty and deposit mobilization were

the most reported impacts of Sri Lankan economy on banks operations. Impacts of

social cultural environments on banks operations were less over the last five years, then

at present and also in the next five years. 17 banks reported Peace/war situation in the

country as an impact of social/cultural environments on banks operations. The impacts

of technology on banks operations were relatively low during last five years but,

relatively high at present and expected to further increase in the next five years. Most

reported impacts of technology on banks operations were new products, customer

service, and network banking.

The next chapter will analyse the mission, vision, and long term goals at corporate and

second levels of the commercial banks.

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Chapter 10 Mission, vision and long term goals at corporate and second levels

10.1 Introduction This chapter will discuss the mission, vision, long term goals at the corporate and

second levels of the participating commercial banks. The significant differences either

by ownership or size aspects will be highlighted. Planning system aspects will be

ignored due to lack of respondents in the NFSP category.

10.2 Company mission statement

When the question was asked about having a mission statement, except for one locally

owned bank all the other banks reported having a mission statement. Table 10.1 shows

the banks which had a mission statement in terms of ownership and size aspects. There

were significant differences in the banks which had mission statements by size aspects

but, not by ownership aspects.

Table 10.1 Does your banks have a mission statement?


Response

N (%) G (%) LO (%) F (%) L (%) M (%) S (%)

Yes

20 95.2 2 100 8 88.9 10 100 5 100 2 66.7 13 100

No

1 4.8 - - 1 11.1 - - - - 1 33.3 - -

Size: Cramer’s V=0.548 P=.043 Ownership: Cramer’s V=0.258 P=0.497

10.2.1 Stated elements in the mission statement

All the foreign owned banks did not develop a separate mission statement for the Sri

Lankan banking environment and they mentioned that only their head offices have

mission statements. Therefore, this research will not concentrate on foreign banks

mission statements and only concentrate on government and locally owned banks. The

elements included in the government and locally owned banks mission statements are

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shown in the table 10.2 in terms of the size aspects. A large number of banks reported

elements in their mission statements were employees, customers, and banks financial

services respectively. Service excellence was reported from 1 medium and 3 small

banks and it was associated with size aspects.

Table 10.2 Stated elements in the mission statement

Total Size aspects Levels N (%) L (%) M (%) S (%) C Sig

Customers 6 60.0 3 60.0 - - 3 75.0 .433 n.s

Owners 2 20.0 2 40.0 - - - - .500 n.s

employees 7 70.0 3 60.0 - - 4 100 .655 n.s

Society 3 30.0 2 40.0 - - 1 25.0 .267 n.s

To be dominant in the financial sector

1 10.0 - - 1 100 - - 1.00 **

Shareholders 2 20.0 - - 1 100 1 25.0 .729 n.s

Service excellence

4 40.0 - - 1 100 3 75.0 .829 *

Stakeholder expectations

2 20.0 1 20.0 - - 1 25.0 .177 n.s

Technology 3 30.0 1 33.3 - - 2 50.0 .378 n.s

Financial services

4 40.0 2 40.0 - - 2 50.0 .289 n.s

Financial goals

1 10.0 - - - - 1 25.0 .408 n.s

Note that: N (T) =10, *=p<0.05, **=p<.01, ***=p<0.001

10.2.2 Influential groups on banks mission statements

Figure 10.1 displays the level of influence of different groups on formulating the banks

present mission statements. Results found that corporate level management had the

most influence on formulating banks current mission statement followed by chief

executive officer and outside members of the board of directors. In large and small sized

banks corporate level management, CEO’s, and outside members of the board of

director’s influence were higher than the medium sized banks. There were statistically

significant differences found in the influence level of corporate level management,

CEO, outside members of the board of directors, and second level line managers by size

aspects.

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Figure 10.1: Influential groups on formulating banks current mission statement No Very great

influence Influence Size aspects 1 2 3 4 5

Corporate level management •_______•________•________•_______• * (ПT=4.1, N=10) ПL=4.2 ПM=3.0 ПS=4.2 N=5 N=1 N=4 Chief executive officer •_______•________•________•_______• ** (ПT=3.9, N=10) ПL=4.0 ПM=3.0 ПS=4.0 N=5 N=1 N=4 Outside members of the board •_______•________•________•_______• ** of directors ПL=2.8 ПM=1..0 ПS=3.2 (ПT=2.8, N=10) N=5 N=1 N=4 Second level line managers •_______•________•________•_______• * (ПT=2.6, N=10) ПL=2.2 ПM=3.0 ПS=3.0 N=5 N=1 N=4 Corporate planning department •_______•________•________•_______• (ПT=2.7, N=6) ПL=2.7 ПM=3.0 ПS=2.5 N=3 N=1 N=2 Sri Lankan government •_______•________•________•_______• (ПT=1.2, N=10) ПL=1.2 ПM=1.0 ПS=1.2 N=5 N=1 N=4 Other lower levels of •_______•________•________•_______• management ПL=2.0 ПM=3.0 ПS=2.5 (ПT=2.3, N=10) N=5 N=1 N=4

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Large Medium Small

8 of the 10 of government and locally owned banks did change their mission statements

during last five years and table 10.3 shows the changes made by those 8 banks. It was

found that 7 of the 8 banks stated the mission more specifically, 3 banks expanded their

mission and one bank completely changed their mission statements. There were no

significant differences in the banks which changed their mission statements by size

aspects.

201

Table 10.3 Changes made by the banks

Total Size aspects Changes made N (%) L (%) M (%) S (%) C Sig

Mission was stated more specifically

7 87.5 4 100 1 100 2 66.7 .488 n.s

Mission statement was expanded

3 37.5 2 50.0 - - 1 33.3 .333 n.s

Mission was completely changed

1 12.5 - - - - 1 33.3 .488 n.s


Figure 10.2 displays the major factors that influence the changes in banks mission

statements during last five years. It was found that strategic considerations had the

highest influence for changes of banks mission statements followed by banks newly

developed capabilities, and economic and technological factors. There were significant

differences according to size aspects found in the factors such as mission changed

because of top management teams, economic factors, social factors, and technological.

Figure 10.2: Major factors that influenced the changes in banks mission statements

No Very great influence influence Size aspects

1 2 3 4 5

Mission changed because of new •_______•________•________•_______• * chief executive officer(ПT=2.0, N=8) ПL=2.0 ПM=1.0 ПS=2.3 N=4 N=1 N=3 Mission changed because owner •_______•________•________•_______• or main shareholders changed (ПT=2.0, N=8) ПL=2.0 ПM=1.0 ПS=2.3 N=4 N=1 N=3 Mission changed because of top •_______•________•________•_______• * management teams changed (ПT=2.1, N=8) ПL=2.0 ПM=1.0 ПS=2.7 N=4 N=1 N=3 Mission changed because of joint •_______•________•________•_______• venture with other organizations (ПT=1.6, N=8) ПL=2.0 ПM=1.0 ПS=1.3 N=4 N=1 N=3 Mission changed because of merger •_______•________•________•_______• with other organizations (ПT=2.0, N=8) ПL=1.7 ПM=5.0 ПS=1.3 N=4 N=1 N=3 Mission changed because of Sri Lankan •_______•________•________•_______• politics (ПT=1.6, N=8) ПL=2.0 ПM=1.0 ПS=1.3 N=4 N=1 N=3 Mission changed because of economic •_______•________•________•_______• * factors (ПT=2.4, N=8) ПL=2.0 ПM=1.0 ПS=3.3 N=4 N=1 N=3

202

Figure 10.2: Major factors that influence the changes in banks mission statements (continued)

No Very great influence influence Size aspects

1 2 3 4 5 Mission changed because of social •_______•________•________•_______• * factors (ПT=2.1, N=8) ПL=2.0 ПM=1.0 ПS=2.7 N=4 N=1 N=3 Mission changed because of •_______•________•________•_______• * technological factors (ПT=2.3, N=8) ПL=2.0 ПM=1.0 ПS=3.3 N=4 N=1 N=3 Mission changed because of law and •_______•________•________•_______• regulations (ПT=1.7, N=8) ПL=1.7 ПM=1.0 ПS=2.0 N=4 N=1 N=3 Mission changed because company •_______•________•________•_______• developed new capabilities(ПT=2.7, N=8) ПL=2.0 ПM=5.0 ПS=3.0 N=4 N=1 N=3 Mission changed because of strategic •_______•________•________•_______• considerations (ПT=4.2, N=8) ПL=4.0 ПM=5.0 ПS=4.3 N=4 N=1 N=3 Mission changed as new plans •_______•________•________•_______• introduced ПL=4.0 (ПT=4.0, N=1) N=1

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Large Medium Small

10.2.3 Appropriateness of mission statements for the next five years

The appropriateness of mission statements of government and locally owned banks for

the next five years are shown in figure 10.3. It was found that large banks reported

having the lowest level of appropriateness than the medium and small sized banks.

There were no significant differences in the appropriateness of mission statements for

the next five years by size aspects.

Figure 10.3 Appropriateness of mission statements for the next five years

Not Very Appropriate Appropriate

Size aspects 1 2 3 4 5 •_______•________•________•_______• ПT=3.8, N=10 ПL=3.6 ПM=4.0 ПS=4.0 N=5 N=1 N=4

Cramer’s V=0.500 P=0.287 Large Medium Small

203

Table 10.4 shows the average years that the banks will continue to follow their current

mission statements. Results found that large, medium and small sized banks expected to

continue their current mission statements for an average of 2.8, 10.0, and 3.0 years

respectively. One medium sized bank expected to follow their mission statement for the

next 10 years and there were no statistically significant differences for the average years

that the banks expected to continue their mission statements by size aspects.

Table 10.4: Average years that the banks will continue their current mission statements

Size aspects Average years N Large banks 2.8 5

Medium banks 10.0 1 Small banks 3.0 4

Total 3.8 10 Size aspects: Cramer’s V=0.859 P=0.064 10.3 Vision statement

When the question was asked about having a vision statement, all the banks reported

having a vision statement. Table 10.5 shows the major characteristics of the vision

statements of government and locally owned banks in terms of size aspects. It was

found that 5 of the 11 banks vision was to be the best bank of the people in Sri Lanka

and 3 banks vision was to dominate the financial sector in Sri Lanka. There were no

significant differences in the characteristics of the vision statements by size aspects.

204

Table 10.5 Characteristics of vision statement

Total Size aspects Major factor

N (%) L (%) M (%) S (%) C Sig

To be the best bank of the people

5

45.5

3

60.0

-

-

2

50.0

.440

n.s

Have an international presence in the future

1

9.1

1

20.0

-

-

-

-

.440

n.s

Dominate the financial sector in Sri Lanka

3

27.3

2

40.0

1

50.0

-

-

.470

n.s

Provide exceptional banking services

1

9.1

-

-

-

-

1

25.0

.418

n.s

To be the premium retail focused Sri Lankan bank

1

9.1

-

-

-

-

1

25.0

.418

n.s

To be a world class Sri Lankan bank

1

9.1

-

-

1

50.0

-

-

.671

n.s

10.3.1 Influential groups on formulating banks current vision statement

Figure 10.4 shows the influential groups on formulating banks current vision

statements. Corporate level management had the most influence on formulating banks

vision followed by the CEO, and outside members of the board of directors

respectively. Second level management and corporate planning department also had a

lower influence on formulating banks vision. There were significant differences found

in the influence level of corporate planning department and other lower levels of

managements by size aspects.

205

Figure 10.4: Influential groups on formulating banks current vision statement No influence Very great influence

Size aspects 1 2 3 4 5 Founders of the company •_______•________•________•_______• (ПT=2.3, N=11) ПL=2.4 ПM=2.0 ПS=2.2 N=5 N=2 N=4 Corporate level management •_______•________•________•_______• (ПT=4.4, N=11) ПL=4.4 ПM=4.0 ПS=4.5 N=5 N=2 N=4 Chief executive officer •_______•________•________•_______• (ПT=4.2, N=11) ПL=4.2 ПM=3.5 ПS=4.5 N=5 N=2 N=4 Outside members of the board •_______•________•________•_______• of directors (ПT=2.9, N=11) ПL=3.0 ПM=1.5 ПS=3.5 N=5 N=2 N=4 Second level line managers •_______•________•________•_______• (ПT=2.6, N=11) ПL=2.4 ПM=3.0 ПS=2.7 N=5 N=2 N=4 Corporate planning department •_______•________•________•_______• * (ПT=2.7, N=7) ПL=2.0 ПM=3.0 ПS=3.0 N=2 N=2 N=3 Sri Lankan government •_______•________•________•_______• (ПT=1.5, N=11) ПL=1.8 ПM=1.0 ПS=1.2 N=5 N=2 N=4 Other lower levels of management •_______•________•________•_______• * (ПT=2.4, N=11) N=5 N=2 N=4

ПL=2.0 ПM=3.0 ПS=2.5 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Large Medium Small

Table 10.6 shows the average years that the banks will continue their current vision

statements. Medium sized banks reported the highest average of 6.5 years followed by

small and large banks. There were no significant differences found in the average years

by size aspects.

Table 10.6: Average years that the banks will continue their current vision statements Size aspects Average years N Large banks 2.8 5 Medium banks 6.5 2 Small banks 3.0 4 Total 3.5 11 Size aspects: Cramer’s V=0.707 P=0.202 10.4 Corporate long term goals 19 of the total of 21 banks had corporate long terms goals and only two small sized

banks reported not having their long term corporate goals (see table 10.7). There were

206

no significant differences in the banks which had corporate long terms goals either by


Table 10.7 Does your bank has corporate long term goals


Yes 19 90.5 2 100 8 88.9 9 90.0 5 100 3 100 11 84.6 No 2 9.5 - - 1 11.1 1 10.0 - - - - 2 15.4 Ownership: Cramer’s V=.107 P=.887 Size: Cramer’s V=.255 P=.507 All the 19 banks which had long term corporate goals reported having quantitative goals

and table 10.8 shows the major quantitative goals of the banks in terms of size and

ownership aspects. It was found that goals such as return, profit, income, cash flow,

deposits were goals for all the banks. Stock market goals and dividend maintenance

were associated with ownership aspects and were goals in locally owned banks.

Similarly, loans and staffing were associated with ownership aspects and were goals in

government owned bank and market share was associated with size aspects and were

goals in large and medium sized banks.

Table 10.8 Quantitative long term goals

Total Ownership aspects Size aspects Quantitative goal N % G % LO % F % C Sig L % M % S % C Sig

Return goals

19 100 2 100 8 100 9 100 n.a n.a 5 100 3 100 11 100 n.a n.a

Stock market goals

5 26.3 - - 5 62.5 - - .701 ** 3 60.0 1 33.3 1 9.1 .497 n.s

Number of new branches per year

3 15.8 - - 2 25.0 1 11.1 .233 n.s - - 1 33.3 2 18.2 .297 n.s

Profits, income, cash flow

19 100 2 100 8 100 9 100 n.a n.a 5 100 3 100 11 100 n.a n.a

Dividend maintenance

5 26.3 - - 5 62.5 - - .701 ** 3 60.0 1 33.3 1 9.1 .497 n.s

Financial ratio controls

18 94.7 2 100 8 100 8 88.9 .248 n.s 5 100 3 100 10 90.9 .201 n.s

Deposits 19 100 2 100 8 100 9 100 n.a n.a 5 100 3 100 11 100 n.a n.a

Loans 1 5.3 1 50.0 - - - - .687 * 1 20.0 - - - - .394 n.s

207

Table 10.8 Quantitative long term goals (continued)

Total Ownership aspects Size aspects Quantitative goal N % G % LO % F % C Sig L % M % S % C Sig

NPL 19 100 2 100 8 100 9 100 n.a n.a 5 100 3 100 11 100 n.a n.a

Staffing 1 5.3 1 50.0 - - - - .687 * 1 20.0 - - - - .394 n.s

Market

share

4 21.1 1 50.0 3 37.5 - - .498 n.s 3 60.0 1 33.3 - - .639 *

Note that: Total (N) =19, *=p<0.05, **=p<.01, ***=p<0.001

Among the 19 banks which had long term goals, except for one foreign owned small

sized bank all the other 18 banks reported having qualitative goals with no statistically

significant differences either by size or ownership aspects (see table 10.9).

Table 10.9 Does your bank has qualitative goals?


Yes 18 94.7 2 100 8 100 8 88.9 5 100 3 100 10 90.9

No 1 5.3 - - - - 1 11.1 - - - - 1 9.1

Ownership: Cramer’s V=.248 P=.556 Size: Cramer’s V=.201 P=.681

Table 10.10 shows the qualitative long term goals of the participating banks. Customer

focus, focus on market segments and leadership in quality and service were the most

reported qualitative goals. Societal goals were associated with the ownership aspects

and were goals in the two government owned banks, 6 locally owned and 1 foreign

owned bank. It is also found that most of the foreign owned banks did not have societal

goals.

Table 10.10 Qualitative long term goals

Total Ownership aspects Size aspects Long term goal N % G % LO % F % C Sig L % M % S % C Sig

Technological leadership and advantage

4 22.2 - - 1 12.5 3 37.5 .341 .n.s - - - - 4 40.0 .478 n.s

Leadership in quality and service

14 77.8 2 100 6 75 6 75.0 .189 n.s 5 100 3 100 6 60.0 .478 n.s

Maintain acceptable financial posture/ control cost

9 50.0 2 100 3 37.5 4 50.0 .373 n.s 3 60.0 1 33.3 5 50.0 .172 n.s

208

Table 10.10 Qualitative long term goals (continued)

Total Ownership aspects Size aspects Long term goal N % G % LO % F % C Sig L % M % S % C Sig

Leadership in reputation and image

10 55.6 2 100 4 50.0 4 50.0 .316 n.s 4 80.0 2 66.7 4 40.0 .361 n.s

Focus on market segment

15 83.3 1 50.0 7 87.5 7 87.5 .316 n.s 4 80.0 2 66.7 9 90.0 .231 n.s

Customer focus

16 88.9 1 50.0 7 87.5 8 100 .476 n.s 4 80.0 2 66.7 10 100 .418 n.s

Societal goals

9 50.0 2 100 6 75.0 1 12.5 .687 * 4 80.0 2 66.7 3 30.0 .455 n.s

Note that: Total (N) = 18, *=p<0.05, **=p<.01, ***=p<0.001

Figure 10.5 displays the major groups which influence the banks current long term

goals. The chief executive officer and the corporate level management had the most

influence on banks long term goals. Six banks which had a corporate planning

department reported that their corporate planning department also had a high influence

on their long term goals. It was found that the influence of outside board of directors in

foreign owned banks were very low compared to government and locally owned banks

and the Central Bank had a higher influence on the goals of government banks than the

locally and foreign owned banks. Both the outside members of the board of directors

and Central Banks were associated with ownership aspects.

Figure 10.5: Groups influence on the formulation of banks long-term goals

No Very great No Very great

influence influence influence influence Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Corporate level management •_______•________•________•________• •_______•________•________•_______• (ПT=4.3, N=19) ПG=4.5 ПLO=4.2 ПF=4.2 ПL=4.2 ПM=4.0 ПS=4.4 N=2 N=8 N=9 N=5 N=3 N=11 Chief executive officer •_______•________•________•________• •_______•________•________•_______• (ПT=4.3, N=19) ПG=4.5 ПLO=4.1 ПF=4.4 ПL=4.2 ПM=4.0 ПS=4.6 N=2 N=8 N=9 N=5 N=3 N=11 * Outside members of the •_______•________•________•________• •_______•________•________•_______• board directors ПG=3.0 ПLO=3.1 ПF=2.1 ПL=3.2 ПM=2.7 ПS=2.4 (ПT=2.6, N=19) N=2 N=8 N=9 N=5 N=3 N=11 Second level line managers •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=19) ПG=3.0 ПLO=3.0 ПF=3.0 ПL=3.0 ПM=3.0 ПS=3.0 N=2 N=8 N=9 N=5 N=3 N=11

209

Figure 10.5: Groups influence on the formulation of banks long-term goals (continued)

No Very great No Very great influence influence influence influence Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Corporate planning department •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=6) ПLO=3.7 ПL=3.5 ПM=3.5 ПS=4.0 N=6 N=2 N=2 N=2 * Central bank of Sri Lanka •_______•________•________•________• •_______•________•________•_______• (ПT=2.0, N=19) ПG=3.5 ПLO=1.6 ПF=2.0 ПL=2.4 ПM=1.7 ПS=1.9 N=2 N=8 N=9 N=5 N=3 N=11

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

Table 10.11 shows the processes of formulating banks long term goals. In 6 of the 19

banks long term corporate goals were created through a negotiation process between the

CEO and the corporate level management and those 6 banks included 3 locally and 3

foreign owned banks. It was found that in 5 banks long term corporate goals were

created through a negotiation process between the corporate level, board of directors

and second level management and in 2 foreign owned banks corporate long terms goals

were created through a negotiation process between corporate management, CEO

overseas and the country manager.

Table 10.11 Processes of formulating banks long-term goals


Formulated for the company by the chief executive officer

1 5.3 - - - - 1 11.1 - - - - 1 9.1

Formulated for the company by the board of directors

1 5.3 - - 1 12.5 - - 1 20.0 - - - -

Aggregation of the goals developed by second level management

1 5.3 1 50.0 - - - - 1 20.0 - - - -

Negotiation process between the corporate level/board of directors group and second level management

5 26.3 1 50.0 4 50.0 - - 2 40.0 1 33.3 2 18.2

210

Table 10.11 Processes of formulating banks long-term goals (continued)


Negotiation process between the chief executive officer and corporate level management

6 31.6 - - 3 37.5 3 33.3 1 20.0 2 66.7 3 27.3

GM of the Sri Lankan branch within the limits given by the overseas head office

1 5.3 - - - - 1 11.1 - - - - 1 9.1

Negotiation process between country manager and committee members given the limits by the overseas head office

1 5.3 - - - - 1 11.1 - - - - 1 9.1

Negotiation process between corporate management, CEO overseas and country manager

2 10.5 - - - - 2 22.2 - - - - 2 18.2

Negotiation process between head of the corporate planning and the senior management

1 5.3 - - - - 1 11.1 - - - - 1 9.1

Note that: Total (N) = 19, Ownership: Cramer’s V=0.757 P=0.151, Size: Cramer’s V=0.564 P=0.737

Figure 10.6 reveals to what extent banks corporate goals serve an important role in each

of the following areas. The most important roles of banks corporate long term goals

were to evaluate their past performance, monitor current performance and provide

challenge and motivation. The results also found that there were no significant

differences in the importance of the roles of banks corporate long term goals either by


211

Figure 10.6: Important roles of corporate long term goals Not Very Not Very important important important important Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Evaluation of its past performance •_______•________•________•________• •_______•________•________•_______• ПT=4.2, N=19 ПG=4.0 ПLO=4.4 ПF=4.1 ПL=4.2 ПM=4.3 ПS=4.2 N=2 N=8 N=9 N=5 N=3 N=11 Communication to external public •_______•________•________•________• •_______•________•________•_______• ПT=2.4, N=19 ПG=3.0 ПLO=2.5 ПF=2.2 ПL=2.4 ПM=2.7 ПS=2.4 N=2 N=8 N=9 N=5 N=3 N=11 Evaluation of second level objectives •_______•________•________•________• •_______•________•________•_______• ПT=3.6, N=19 ПG=3.0 ПLO=3.7 ПF=3.7 ПL=3.6 ПM=3.3 ПS=3.7 N=2 N=8 N=9 N=5 N=3 N=11 Evaluation of other lower levels objectives •_______•________•________•________• •_______•________•________•_______• ПT=3.5, N=19 ПG=3.0 ПLO=3.7 ПF=3.4 ПL=3.4 ПM=3.3 ПS=3.6 N=2 N=8 N=9 N=5 N=3 N=11 Monitor current performance •_______•________•________•________• •_______•________•________•_______• ПT=4.2, N=19 ПG=4.0 ПLO=4.2 ПF=4.2 ПL=4.2 ПM=4.0 ПS=4.3 N=2 N=8 N=9 N=5 N=3 N=11 Activate contingencies •_______•________•________•________• •_______•________•________•_______• ПT=3.6, N=19 ПG=3.0 ПLO=3.5 ПF=3.8 ПL=3.4 ПM=3.0 ПS=3.8 N=2 N=8 N=9 N=5 N=3 N=11 Provide challenge and motivation •_______•________•________•________• •_______•________•________•_______• ПT=3.8, N=19 ПG=3.5 ПLO=4.1 ПF=3.7 ПL=4.0 ПM=4.0 ПS=3.7 N=2 N=8 N=9 N=5 N=3 N=11 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

Table 10.12 reveals the banks which changed their corporate long term goals during the

last five years. The 14 banks which had changed their corporate long term goals include

the two government owned banks, 6 locally owned and 6 foreign owned banks. There

were no significant differences in the banks which changed their goals either by size or

ownership aspects.

Table 10.12 Have your corporate level goals changed in the last five years?


Yes 14 73.7 2 100 6 75.0 6 66.7 5 100 2 66.7 7 63.6

No 5 26.3 - - 2 25.0 3 33.3 - - 1 33.3 4 36.4 Ownership: Cramer’s V=.224 P=.622 Size: Cramer’s V=.358 P=.296

Table 10.13 describes the major changes made by the participating banks in their

corporate long term goals. It was found that 13 banks had updated or upgraded their

goals while 7 and 4 banks instituted new goals and focused on philosophy respectively.

212

There were significant differences found in the major changes such as upgrade or

update goals, and formalization or explicitness of goals by size aspects.

Table 10.13 Major changes made by the banks

Total Ownership aspects Size aspects Major change N % G % LO % F % C Sig L % M % S % C Sig

Focus on philosophy

4 28.6 1 50.0 2 33.3 1 16.7 .258 n.s 2 40.0 1 50.0 1 14.3 .324 n.s

Upgrade or update of goals

13 92.9 2 100 5 83.3 6 100 .320 n.s 5 100 1 50.0 7 100 .679 *

Change of financial factors

3 21.4 1 50.0 - - 2 33.3 .471 n.s 1 20.0 - - 2 28.6 .234 n.s

Formalization or explicitness of goals

1 7.1 - - 1 16.7 - - .320 n.s - - 1 50.0 - - .679 *

General qualitative additions

2 14.3 1 50.0 - - 1 16.7 .471 n.s 1 20.0 - - 1 14.3 .183 n.s

Instituted new goals

7 50 1 50.0 4 66.7 2 33.3 .309 n.s 3 60.0 2 100 2 28.6 .499 n.s

Note that: Total (N) = 14, *=p<0.05, **=p<.01, ***=p<0.001

Figure 10.7 reveals the factors that influenced the changes of banks long term corporate

level goals. Overall, changes in economic environments and technological

breakthroughs had the most influence on banks long term corporate goals. However,

unsatisfactory performance had a greater influence on government banks. It was also

found that changes in ownership and unsatisfactory performance were associated with

ownership aspects.

213

Figure 10.7 Factors influenced the changes of banks corporate level goals

No Very great No Very great Influence influence Influence influence


1 2 3 4 5 1 2 3 4 5

Changes in ownership •_______•________•________•________•* •_______•________•________•_______• (ПT=1.2 N=14) ПG=2.5 ПLO=1.0 ПF=1.0 ПL=1.6 ПM=1.0 ПS=1.0 N=2 N=6 N=6 N=5 N=2 N=7 Changes in top management •_______•________•________•________• •_______•________•________•_______• (ПT=1.9 N=14) ПG=3.0 ПLO=1.3 ПF=2.2 ПL=2.0 ПM=1.5 ПS=2.0 N=2 N=6 N=6 N=5 N=2 N=7 Unsatisfactory performance •_______•________•________•________• * •_______•________•________•_______• (ПT=2.3 N=14) ПG=4.0 ПLO=1.7 ПF=2.3 ПL=2.4 ПM=2.0 ПS=2.3 N=2 N=6 N=6 N=5 N=2 N=7 Technological breakthroughs •_______•________•________•________• •_______•________•________•_______• (ПT=3.4 N=14) ПG=3.5 ПLO=3.5 ПF=3.3 ПL=3.6 ПM=3.5 ПS=3.3 N=2 N=6 N=6 N=5 N=2 N=7 Changes in economic environment •_______•________•________•________• •_______•________•________•_______• (ПT=3.9 N=14) ПG=4.0 ПLO=4.0 ПF=3.8 ПL=4.0 ПM=4.0 ПS=3.9 N=2 N=6 N=6 N=5 N=2 N=7 Changes in government policies •_______•________•________•________• •_______•________•________•_______• (ПT=2.8 N=14) ПG=4.0 ПLO=2.7 ПF=2.5 ПL=3.0 ПM=4.0 ПS=2.3 N=2 N=6 N=6 N=5 N=2 N=7


Table 10.14 describes the number of years which the banks expected to continue their

current long term corporate goals. It was found that 6 banks each expected to continue

their current long term goals for 2, 3, 5 years and only one bank expected to continue

their current long term goals for only another year.

Table 10.14 Banks continuation periods of the current goals

Total Ownership aspects Size aspects Period N % G % LO % F % L % M % S %

One year

1 5.3 - - 1 12.5 - - - - - - 1 9.1

Two years

6 31.6 2 100 1 12.5 3 33.3 2 40.0 1 33.3 3 27.3

Three years

6 31.6 - - 2 25.0 4 44.4 1 20.0 1 33.3 4 36.4

Four years

6 31.6 - - 4 50.0 2 22.2 2 40.0 1 33.3 3 27.3

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Figure 10.8 shows the banks achievement of their corporate long term goals. It was

found that except for 2 foreign owned banks all the other banks met or exceeded their

corporate long term goals during the last five years. Overall, locally owned banks and

medium sized banks reported the highest level of goal achievement. There were no

significant differences in the goal achievement levels either by size or ownership

aspects.

Figure 10.8 Banks achievement of their corporate goals (during last five years) Failed to Met Exceeded Failed to Met Exceeded achieve goals goals achieve goals goals goals goals Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.2 N=19 ПT=3.2 N=19 •_______•________•________•_______• •_______•________•________•_______• ПG=3.0 ПLO=3.2 ПF=3.1 ПL=3.2 ПM=3.3 ПS=3.1 N=2 N=8 N=9 N=5 N=3 N=11 Ownership: Cramer’s V=0.326 P=0.402 Size: Cramer’s V=0.227 P=0.745 Government Local Foreign Large Medium Small

Figure 10.9 shows the major reasons for banks achievement of their corporate long term

goals. Overall, appropriateness of goals and managerial competence were the major

reasons for the achievements of corporate goals for most banks during the last five

years. However, reasons such as use of high technology, inappropriate corporate policy,

and opening of new branches were reported from 3 small sized banks as the major

reasons for their achievements. Competition was associated with ownership aspects and

was a major reason for government owned banks goal achievement rather than the

locally and foreign owned banks. It was also found that size aspects were not associated

with any reasons.

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Figure 10.9 Major reasons for banks achievements

. Not at all Very Not at all Very important important important important Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Appropriateness of goals •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=19) ПG=3.0 ПLO=3.7 ПF=3.4 ПL=3.4 ПM=3.7 ПS=3.5 N=2 N=8 N=9 N=5 N=3 N=11 Managerial competence •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=19) ПG=3.5 ПLO=3.9 ПF=3.2 ПL=3.8 ПM=4.0 ПS=3.3 N=2 N=8 N=9 N=5 N=3 N=11 Competition •_______•________•________•________• * •_______•________•________•_______• (ПT=3.2, N=19) ПG=4.0 ПLO=3.1 ПF=3.1 ПL=3.6 ПM=3.0 ПS=3.1 N=2 N=8 N=9 N=5 N=3 N=11 Economic environment •_______•________•________•________• •_______•________•________•_______• (ПT=3.4, N=19) ПG=3.5 ПLO=3.2 ПF=3.4 ПL=3.4 ПM=3.0 ПS=3.5 N=2 N=8 N=9 N=5 N=3 N=11 Technological change •_______•________•________•________• •_______•________•________•_______• (ПT=3.4, N=19) ПG=3.0 ПLO=3.6 ПF=3.2 ПL=3.0 ПM=4.0 ПS=3.4 N=2 N=8 N=9 N=5 N=3 N=11 Use of high technology •_______•________•________•________• •_______•________•________•_______• (ПT=5.0, N=1) ПF=5.0 ПS=5.0 N=1 N= 1 Inappropriate corporate policy •_______•________•________•________• •_______•________•________•_______• in head office ПF=4.0 ПS=4.0 (ПT=4.0, N=1) N=1 N=1 Opening of new branches •_______•________•________•________• •_______•________•________•_______• (ПT=5.0, N=1) ПF=1.0 ПS=5.0 N=1 N=1 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

10.5 Second level long term goals Table 10.15 reveals the banks which had second level corporate long term goals in

terms of size and ownership aspects. 8 of the 21 banks had second level long term goals

and these 8 banks included 4 large, 2 medium and 2 small sized banks. Second level

long term goals were associated with the size aspects and are more likely in the large

and medium sized banks than the small sized banks.

Table 10.15 Does your banks have second level long term goals


Yes 8 38.1 2 100 4 44.4 2 20.0 4 80.0 2 66.7 2 15.4

No 13 61.9 - - 5 55.6 8 80.0 1 20.0 1 33.3 11 84.6

Ownership: Cramer’s V=.478 P=.091 Size: Cramer’s V=.602 P=.022

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7 of the 8 banks mentioned that all second level operating units have the same goals

with respect to units of measurement and only one medium sized locally owned bank

reported having different units of measurements. The main reasons for having different

units of measurements in that bank were the type of work done by departments were

different, hence the methodology of measurements were differ. Table 10.16 displays the

major units of measurements for the second level long term goals. Sales growth and

profits were the most reported units of measurements respectively and it was also found

that return ratios and cash flows were associated with ownership aspects and more

likely in the locally and foreign owned banks.

Table 10.16 Units of measurements

Total Ownership aspects Size aspects Measurement N % G % LO % F % C Sig L % M % S % C Sig

Return on investment, return on assets, return on capital

5 71.4 - - 3 100 2 100 1.00 * 2 50.0 1 100 2 100 .548 n.s

Profits 6 85.7 2 100 2 66.7 2 100 .471 n.s 3 75.0 1 100 2 100 .354 n.s

Cash flow 5 71.4 - - 3 100 2 100 1.00 * 2 50.0 1 100 2 100 .548 n.s

Sales growth 7 100 2 100 3 100 2 100 n.a n.a 4 100 1 100 2 100 n.a n.a

Return on sales

5 71.4 1 50.0 2 66.7 2 100 .428 n.s 2 50.0 1 100 2 100 .548 n.s

Productivity Measurements

1 14.3 1 50.0 - - - - 1.00 n.s 1 25.0 - - - - .500 n.s

Note that: Total (N)=7, *=p<0.05, **=p<. 01, ***=p<0.001 Figure 10.10 shows the groups which influence the formation of banks long term

second level goals. Corporate level management had the highest influence on second

level long term goals followed by the chief executive officer and second level line

managers. There were no significant differences in the groups which influence the

banks second level long term goals either by size or ownership aspects.

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Figure 10.10 The groups who influenced the formulation of second level long term goals

No Very great No Very great Influence influence influence influence


1 2 3 4 5 1 2 3 4 5 Corporate level management •_______•________•________•________• •_______•________•________•_______• ПT=3.7, N=8 ПG=4.0 ПLO=3.5 ПF=4.0 ПL=4.0 ПM=3.0 ПS=4.0 N=2 N=4 N=2 N=4 N=2 N=2 Chief executive officer •_______•________•________•________• •_______•________•________•_______• ПT=3.6, N=8 ПG=3.5 ПLO=3.5 ПF=4.0 ПL=3.7 ПM=3.0 ПS=4.0 N=2 N=4 N=2 N=4 N=2 N=2 Outside members of the board of directors •_______•________•________•________• •_______•________•________•_______• ПT=2.1, N=8 ПG=2.5 ПLO=2.5 ПF=1.0 ПL=2.5 ПM=2.5 ПS=1.0 N=2 N=4 N=2 N=4 N=2 N=2

Corporate planning department •_______•________•________•________• •_______•________•________•_______• ПT=3.5, N=4 ПLO=3.5 ПL=3.5 ПM=3.5 N=4 N=2 N=2 Second level line managers •_______•________•________•________• •_______•________•________•_______• ПT=3.6, N=8 ПG=4.0 ПLO=3.7 ПF=3.0 ПL=3.7 ПM=4.0 ПS=3.0 N=2 N=4 N=2 N=4 N=2 N=2 Other lower levels of managers •_______•________•________•________• •_______•________•________•_______• ПT=3.1, N=8 ПG=3.5 ПLO=3.0 ПF=3.0 ПL=3.0 ПM=3.5 ПS=3.0 N=2 N=4 N=2 N=4 N=2 N=2 Government Local Foreign Large Medium Small Table 10.17 reveals the banks processes for formulating their second level long term

goals. In 4 of the 8 banks second level goals were created through a negotiation process

between the corporate level and the second level management, and in 2 banks it was a

result of aggregation of the goals developed by third level management. There were no

significant differences in the bank’s processes for formulating second level long-term

goals either by size or ownership aspects.

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Table 10.17 Banks processes for formulating second level long term goals

Total Ownership aspects Size aspects Process N % G % LO % F % C Sig L % M % S % C Sig

Aggregation of the goals developed by third level management

2 25.0 1 50.0 1 25.0 - - .513 n.s 1 25.0 1 50.0 - - .408 n.s

Negotiation process between the corporate level/ and second level management

4 50.0 1 50.0 3 75.0 - - .612 n.s 3 75.0 1 50.0 - - .612 n.s

Negotiation process between country head, corporate level management and the second level management

1 12.5 - - - - 1 50.0 .655 n.s - - - - 1 50.0 .655 n.s

Formulated by the second Level management and the country manager

1 12.5 - - - - 1 50.0 .655 n.s - - - - 1 50.0 .655 n.s


Figure 10.11 shows the major roles of the banks second level long term goals. Overall,

the most important roles of the second level long term goals were to evaluate business

unit performances, and use as a major influence on final corporate plan of the banks.

The banks considered their second level goals important as rationing devices for capital

and other resources and also as a basis for formally determining an incentive portion of

managerial compensation. There were no statistically significant differences in the

importance of the roles of the second level long term goals either by size or ownership

aspects.

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Figure 10.11 Major roles of the second level long term goals Not Very Not Very Important important Important important Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 As a major influence on final •_______•________•________•________• •_______•________•________•_______• corporate goals (ПT=3.6, N=8) ПG=4.0 ПLO=3.5 ПF=3.5 ПL=3.7 ПM=3.5 ПS=3.5 N=2 N=4 N=2 N=4 N=2 N=2 As rationing devices for capital and •_______•________•________•________• •_______•________•________•_______• other resources (ПT=3.1, N=8) ПG=2.5 ПLO=3.2 ПF=3.5 ПL=3.0 ПM=3.0 ПS=3.5 N=2 N=4 N=2 N=4 N=2 N=2 As standards to evaluate business •_______•________•________•________• •_______•________•________•_______• unit performance ПT=4.0, N=8 ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=2 N=4 N=2 N=4 N=2 N=2 As a basis for formally determining an •_______•________•________•________• •_______•________•________•_______• incentive portion of managerial ПG=3.5 ПLO=3.2 ПF=2.5 ПL=3.5 ПM=3.0 ПS=2.5 compensation (ПT=3.1, N=8) N=2 N=4 N=2 N=4 N=2 N=2 Government Local Foreign Large Medium Small

Figure 10.12 displays the quality of the banks second level long term goals in terms of

size and ownership aspects. Locally and foreign owned banks reported having higher

quality second level long term goals than the government owned banks and similarly,

medium and small sized banks reported having higher quality second level long term

goals than the large banks. There were no significant differences in the quality of the

second level long term goals either by size or ownership aspects.

Figure 10.12 Quality of the second level long term goals

Very poor Very good Very poor Very good Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=3.8 ПT=3.8 •_______•________•________•_______• •_______•________•________•_______• ПG=3.5 ПLO=4.0 ПF=4.0 ПL=3.7 ПM=4.0 ПS=4.0 N=2 N=4 N=2 N=4 N=2 N=2 Ownership: Cramer’s V=0.655 P=0.180 Size: Cramer’s V=0.378 P=0.565 Government Local Foreign Large Medium Small

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10.6 Chapter summary This chapter has analysed the mission and vision statements and the long term goals at

the corporate and second levels of the sample banks.

20 of the total of 21 banks reported having mission statements for their banks and only

one medium sized locally owned bank did not have a mission statement. It was found

that foreign owned banks did not develop mission statements for the Sri Lankan

banking sector and they just follow their head office mission statements. Thus, this

study only concentrates on locally and government owned banks mission statements.

High number of banks reported major elements in their mission statements were

employees, customers, financial services and service excellence respectively. It was

found that corporate level management had the most influence on formulating banks

current mission statements followed by the chief executive officer and outside members

of the board of directors with significant differences by size aspects. 8 of the 10

government and locally owned banks had changed their mission during last five years

and it was found that 7 banks stated their mission more specifically, 3 banks expanded

their mission and one bank completely changed their mission statement. It was also

found that overall, banks changed their mission because of strategic considerations and

newly developed capabilities. Large banks reported the lowest level of appropriateness

of their mission statements for the next five years than the medium and small sized

banks. It was also found that overall banks were expecting to follow their mission

statement for the next 3.8 years.

All the banks reported having a vision statement for their banks. Major characteristics

of vision in most banks were to be the best bank of the people, and dominate the

financial sector in Sri Lanka respectively. Corporate level management had the most

influence on formulating banks vision followed by the CEO, and outside members of

the board of directors. Overall, banks were expected to follow their current vision for

the next 3.5 years.

19 of the total of 21 banks had corporate long term goals and only 2 small banks

reported not having long term corporate goals. All the 19 banks had quantitative long

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term corporate goals such as return, profit, income, cash flow and deposits. 18 of the 19

banks had qualitative goals and the most reported qualitative goals were customer focus,

focus on market segments, leadership in quality and service respectively. It was found

that chief executive officer and corporate level management had the most influence on

banks corporate long term goals. In government and locally owned banks the influence

of outside members of the board of directors on corporate long term goals was greater

than the foreign owned banks.

In 6 of the 19 banks corporate long term goals were developed through a negotiation

process between the CEO and the corporate level management and in 5 banks it was a

negotiation process between the corporate level, board of directors, and second level

management. Most important roles of corporate long term goals were evaluation of its

past performance, monitor current performance and provide challenge and motivation

respectively. It was found that 14 banks had changed their corporate long term goals

during last five years and these banks included 2 government owned, 6 locally owned

and 6 foreign owned banks. The major changes made by those 14 banks were upgrade

or update of goals, instituted new goals respectively. The major factors that influenced

the corporate goals were changes in the economy, and technological breakthroughs. It

was also found that except for 2 foreign owned banks all the other banks met or

exceeded their corporate long term goals during last five years. It was also found that

overall, the major reasons for those achievements were appropriateness of goals and

managerial competence.

Only 8 banks had second level long term goals and these were 2 government owned, 4

locally owned and 2 foreign owned banks. Seven of the eight banks mentioned that all

second level operating units have the same goals with respect to units of measurement.

Sales growth and profits were the most reported units of measurements of banks second

level long term goals. Corporate level management had the highest influence followed

by CEO and second level line management on their second level goals. In most banks

their second level long term goals were developed through a negotiation process

between the corporate level and second level management. It was found that overall, the

most important roles of the second level long term goals were to evaluate business unit

performances and use as a major influence on final corporate plan of the banks. Overall,

banks reported that they were satisfied with the quality of their second level long term

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goals. However, locally and foreign owned banks reported having higher quality second

level long term goals than the government banks but it was not a significant difference.

The next chapter will investigate the planning and planning systems at the corporate and

the second levels of the banks which had a formalized strategic planning system.

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Chapter 11 Planning and planning systems

11.1 Introduction

This chapter will investigate the planning and planning systems at the corporate and the

second levels of the banks which had a formalized strategic planning system. The

significant differences either by size or ownership aspects will also be highlighted.

11.2 Planning systems

Table 11.1 shows the banks which had formalized strategic planning system at their

corporate level. It was found that 20 of the total of 21 banks had a formalized strategic

planning system at their corporate level and only one government owned bank reported

not having a formalized planning system at their corporate level.

Table 11.1 the banks which had planning systems at corporate level


Yes 20 95.2 1 50.0 9 100 10 100 4 80.0 3 100 12 100

No 1 4.8 1 50.0 - - - - 1 20.0 - - - -


Table 11.2 shows the banks which had a formalized strategic planning system at the

second level. Only four banks reported having a formalized planning system at the

second level and those banks included one government and three locally owned banks.

It was found that size aspects were associated with the banks which had a formalized

planning system at second level with second level planning only in large and medium

sized banks.

Table 11.2 Banks which had a planning system at second level


Yes 4 19.0 1 50.0 3 33.3 - - 2 40.0 2 66.7 - -

No 17 81.0 1 50.0 6 66.7 10 100 3 60.0 1 33.3 13 100


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11.2.1 Relationship between plans

Table 11.3 reveals the relationship between the longer term and shorter term plans of

the banks. It was found that in 18 of the total of 21 banks longer term plans were

prepared first and shorter term plans then fitted into long term plans. In one locally

owned large bank short term and long term plans were prepared simultaneously and,

one locally owned small bank prepared short term plans for 1-3 years. There were no

significant differences in the relationship between the long term and short term plans

either by size or ownership aspects. It was also found that most of the banks developed

their first formal corporate long term plans in the 1980’s and a few banks in the 1990’s

(with the opening of their banks) and one bank in the 1950’s.

Table 11.3 Relationship between the plans

Total Ownership aspects Size aspects Relationship N % G % LO % F % L % M % S %

Longer term plan prepared first, shorter term plan then fitted into long term plan

18 90.0 1 100 7 77.8 10 100 3 75.0 3 100 12 92.3

Short term and long term plans prepared simultaneously

1 5.0 - - 1 11.1 - - 1 25.0 - - - -

Prepared short term plans one to three years

1 5.0 - - 1 11.1 - - - - - - 1 7.7


11.3 Corporate plans

11.3.1 Update and progress review of corporate plan

Table 11.4 shows how often corporate plans are updated by the banks. 10 of the 20

banks updated their corporate plans every year and 4 banks reported updating their

corporate plans every six months. Banks which update their corporate plans every six

months included 1 government and 3 foreign owned banks and were associated with the

ownership aspects.

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Table 11.4 Update of corporate plans

Total Ownership aspects Size aspects Period N % G % LO % F % C Sig L % M % S % C Sig

Six monthly

4 20.0 1 100 - - 3 30.0 .586 * 1 25.0 - - 3 23.1 .211 n.s

Every year

10 50.0 - - 4 44.4 6 60.0 .275 n.s 1 25.0 3 100 6 46.2 .451 n.s

Every 1-2 years

2 10.0 - - 2 22.2 - - .369 n.s 1 25.0 - - 1 7.7 .266 n.s

Every 3 years

2 10.0 - - 2 22.2 - - .369 n.s - - - - 2 15.4 .245 n.s

Every 5 years

2 10.0 - - 1 11.1 1 10.0 .079 n.s 1 25.0 - - 1 7.7 .266 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Table 11.5 reveals the frequencies of reviewing the progress of the banks corporate

plans. It was found that 7, 7, 4 and 2 banks review the progress of their corporate plans

monthly, quarterly, six monthly and every year respectively. There were significant

differences in the banks which reviewed their progress of corporate plans quarterly by

ownership aspects in that 6 locally owned and 1 foreign owned bank reviewed progress

of the corporate plan quarterly.

Table 11.5 Frequency of reviewing the progress of corporate plans

Total Ownership aspects Size aspects Frequency N % G % LO % F % C Sig L % M % S % C Sig

Monthly 7 35.0 - - 2 22.2 5 50.0 .33 n.s - - 2 66.7 5 38.5 .421 n.s

Quarterly 7 35.0 - - 6 66.7 1 10.0 .602 * 3 75.0 1 33.3 3 23.1 .426 n.s

Six monthly

4 20.0 1 100 1 11.1 2 20.0 .471 n.s 1 25.0 - - 3 23.1 .211 n.s

Every year

2 10.0 - - - - 2 20.0 .333 n.s - - - - 2 15.4 .245 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001 11.3.2 Effort spent on the types of planning activities Figure 11.1 shows the degree of effort spent on the planning activities by the banks. It

was found that most effort was spent on action planning or operational planning for the

next 1 to 3 years followed by short term emergency planning and formalized

contingency planning. Overall banks did not concentrate on “what the company wants

to be in the next 10 to 20 years” planning and divestitures and banks spent a small

degree of effort on activities such as international expansions and acquisitions. Results

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also found that government banks spent a higher degree of effort on contingency

planning than the locally and foreign owned banks and as a result contingency planning

was associated with ownership aspects.

Figure 11.1 Effort spent on the types of planning activities

No effort High degree No effort High degree of effort of effort Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Short term emergency planning •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=20) ПG=4.0 ПLO=3.7 ПF=3.7 ПL=3.2 ПM=3.7 ПS=3.8 N=1 N=9 N=10 N=4 N=3 N=13 Action planning or operational planning •_______•________•________•________• •_______•________•________•_______• for the next 1 to 3 years ПG=3.0 ПLO=4.0 ПF=3.9 ПL=3.7 ПM=3.3 ПS=4.1 (ПT=3.9, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Formalized contingency planning •_______•________•________•________•*** •_______•________•________•_______• (ПT=3.7, N=20) ПG=5.0 ПLO=3.6 ПF=3.8 ПL=3.7 ПM=4.0 ПS=3.7 N=1 N=9 N=10 N=4 N=3 N=13 Long-term planning for the next 5 to 10 years •_______•________•________•________• •_______•________•________•_______• (ПT=2.6, N=20) ПG=3.0 ПLO=2.7 ПF=2.6 ПL=3.0 ПM=3.0 ПS=2.5 N=1 N=9 N=10 N=4 N=3 N=13 “What the company wants to be in the next •_______•________•________•________• •_______•________•________•_______• 10-20years” planning (ПT=2.0, N=20) ПG=2.0 ПLO=2.4 ПF=1.7 ПL=2.5 ПM=3.0 ПS=1.7 N=1 N=9 N=10 N=4 N=3 N=13 Acquisitions •_______•________•________•________• •_______•________•________•_______• (ПT=2.1, N=20) ПG=1.0 ПLO=2.3 ПF=2.1 ПL=2.0 ПM=2.7 ПS=2.1 N=1 N=9 N=10 N=4 N=3 N=13 Divestitures •_______•________•________•________• •_______•________•________•_______• (ПT=2.0, N=20) ПG=1.0 ПLO=2.3 ПF=1.9 ПL=2.0 ПM=2.7 ПS=1.9 N=1 N=9 N=10 N=4 N=3 N=13 International expansion •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=20) ПG=1.0 ПLO=2.6 ПF=2.3 ПL=2.7 ПM=2.7 ПS=2.2 N=1 N=9 N=10 N=4 N=3 N=13


11.3.3 Forecast development

Figure 11.2 displays the effort which was expended by corporate planning on forecast

development. It was found that overall, banks spent a high degree of effort on forecast

development in areas of competitive analysis, laws and regulations for financial

services, industry level demand, and domestic economy respectively. Government

banks spent a higher degree of effort to develop forecasts in the areas of social and or

cultural than the locally and foreign owned banks and it was more associated with

ownership aspects than the size aspects. Similarly, locally owned banks spent more

227

effort to develop forecasts of industry level demand than the foreign and government

owned banks and this was a significant difference.

Figure 11.2 Effort expended by corporate planning in forecast development

No effort High degree No effort High degree of effort of effort Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Domestic economy •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=20) ПG=4.0 ПLO=4.1 ПF=4.0 ПL=4.2 ПM=4.0 ПS=4.0 N=1 N=9 N=10 N=4 N=3 N=13 Foreign economies •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=20) ПG=3.0 ПLO=2.8 ПF=3.3 ПL=3.2 ПM=2.7 ПS=3.1 N=1 N=9 N=10 N=4 N=3 N=13 Technological •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=20) ПG=4.0 ПLO=3.9 ПF=3.9 ПL=3.5 ПM=4.0 ПS=4.0 N=1 N=9 N=10 N=4 N=3 N=13 Sri Lankan politics •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=20) ПG=4.0 ПLO=2.6 ПF=2.8 ПL=2.7 ПM=2.7 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Laws and regulations for •_______•________•________•________• •_______•________•________•_______• financial services sector ПG=4.0 ПLO=4.1 ПF=4.1 ПL=4.0 ПM=4.0 ПS=4.2 (ПT=4.1, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Social and /or cultural •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=20) ПG=4.0 ПLO=2.9 ПF=2.1 ** ПL=3.2 ПM=2.7 ПS=2.3 * N=1 N=9 N=10 N=4 N=3 N=13 Financial markets •_______•________•________•________• •_______•________•________•_______• (ПT=3.8, N=20) ПG=4.0 ПLO=4.0 ПF=3.6 ПL=4.2 ПM=4.0 ПS=3.6 N=1 N=9 N=10 N=4 N=3 N=13 Human resources •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=20) ПG=4.0 ПLO=4.0 ПF=3.5 ПL=4.2 ПM=3.7 ПS=3.6 N=1 N=9 N=10 N=4 N=3 N=13 Industry level demand •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=20) ПG=3.0 ПLO=4.2 ПF=4.0 * ПL=4.0 ПM=4.3 ПS=4.0 N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis •_______•________•________•________• •_______•________•________•_______• (ПT=4.2, N=20) ПG=4.0 ПLO=4.4 ПF=4.0 ПL=4.2 ПM=4.7 ПS=4.1 N=1 N=9 N=10 N=4 N=3 N=13 Suppliers requirements •_______•________•________•________• •_______•________•________•_______• (Sources of fund) ПG=3.0 ПLO=4.0 ПF=3.9 ПL=3.5 ПM=3.7 ПS=4.1 (ПT=3.9, N=20) N=1 N=9 N=10 N=4 N=3 N=13

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small Table 11.6 shows the number of banks which purchased external forecasts. It was found

that highest number of banks purchased external forecasts in the areas of laws and

regulations for financial services sector and technology. It is worth noting that forecast

228

developments of industry level demand and supplier requirements were done by all the

banks by themselves without purchasing any external forecasts.

Table 11.6 Banks which purchased external forecasts

Total Ownership aspects Size aspects External Forecast N % G % LO % F % C Sig L % M % S % C Sig

Domestic economy

6 30.0 1 100 3 33.3 2 20 .378 n.s 3 75.0 - - 3 23.1 .522 n.s

Foreign economies

2 10.0 - - - - 2 20.0 .333 n.s - - - - 2 15.4 .245 n.s

Technological 14 70.0 - - 8 88.9 6 60.0 .466 n.s 3 75.0 2 66.7 9 69.2 .058 n.s

Sri Lankan politics

- - - - - - - - - - - - - - - - - -

Laws and regulations for financial services sector

15 75.0 1 100 6 66.7 8 80.0 .200 n.s 4 100 1 33.3 10 76.9 .455 n.s

Social and / or cultural

- - - - - - - - - - - - - - - - - -

Financial markets

2 10.0 - - 1 11.1 1 10.0 .079 n.s - - 1 33.3 1 7.7 .342 n.s

Human resources

3 15.0 1 100 2 22.2 - - .624 * 1 25.0 1 33.3 1 7.7 .287 n.s

Industry level demand

- - - - - - - - - - - - - - - - - -

Competitive analysis

2 10.0 1 100 1 11.1 - - .711 ** 1 25 1 33.3 - - .461 n.s

Suppliers requirements

- - - - - - - - - - - - - - - - - -

Figure 11.3 displays the transmission of forecasts which were developed or purchased

by corporate planning, from corporate level to the second level by the banks. Overall,

the higher degrees of forecast transmission were for domestic economy, technological,

laws and regulations for financial services, and human resources. Except for supplier

requirements government banks had a higher level of transmission in all the other areas

shown in figure 11.3 than the other banks. The level of transmission of forecasts in

social and or cultural area was relatively higher in government owned banks than the

locally and foreign owned banks and therefore, it was associated with ownership

aspects. Similarly, medium sized banks transmitted supplier requirements forecasts

more to the second level than the large and small sized banks and this was a significant

difference.

229

Figure 11.3 Transmission of forecasts from corporate level to second level

Never Regular Never Regular transmitted transmitted transmitted transmitted


Domestic economy •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=20) ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 ПS=3.9 N=1 N=9 N=10 N=4 N=3 N=13 Foreign economies •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=20) ПG=3.0 ПLO=2.4 ПF=3.0 ПL=2.5 ПM=2.7 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Technological •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=20) ПG=4.0 ПLO=4.0 ПF=3.8 ПL=3.7 ПM=4.3 ПS=3.8 N=1 N=9 N=10 N=4 N=3 N=13 Sri Lankan politics •_______•________•________•________• •_______•________•________•_______• (ПT=2.6, N=20) ПG=3.0 ПLO=2.6 ПF=2.6 ПL=2.2 ПM=3.0 ПS=2.6 N=1 N=9 N=10 N=4 N=3 N=13 Laws and regulations for •_______•________•________•________• •_______•________•________•_______• financial services sector ПG=4.0 ПLO=3.9 ПF=3.7 ПL=3.5 ПM=4.3 ПS=3.8 (ПT=3.8, N=20) N=1 N=9 N=10 N=4 N=3 N=13 * Social and/ or cultural •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=20) ПG=4.0 ПLO=2.7 ПF=2.6 ПL=2.7 ПM=3.0 ПS=2.6 N=1 N=9 N=10 N=4 N=3 N=13 Financial markets •_______•________•________•________• •_______•________•________•_______• (ПT=3.4, N=20) ПG=4.0 ПLO=3.4 ПF=3.3 ПL=3.2 ПM=3.7 ПS=3.4 N=1 N=9 N=10 N=4 N=3 N=13 Human resources •_______•________•________•________• •_______•________•________•_______• (ПT=3.8, N=20) ПG=4.0 ПLO=3.8 ПF=3.8 ПL=3.7 ПM=4.0 ПS=3.8 N=1 N=9 N=10 N=4 N=3 N=13 Industry level demand •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=20) ПG=4.0 ПLO=3.4 ПF=3.6 ПL=3.7 ПM=3.3 ПS=3.5 N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=20) ПG=4.0 ПLO=3.7 ПF=3.6 ПL=3.5 ПM=4.3 ПS=3.5 N=1 N=9 N=10 N=4 N=3 N=13 Suppliers requirements (sources of fund) •_______•________•________•________• •_______•________•________•______ • ** _(ПT=3.1, N=20) ПG=3.0 ПLO=3.0 ПF=3.2 ПL=2.5 ПM=3.7 ПS=3.2 N=1 N=9 N=10 N=4 N=3 N=13

Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small Figure 11.4 shows the impact on banks corporate planning if the external forecasts

purchased by corporate planning were not available. Overall, banks did not report a

severe impact on quality of corporate planning, second level planning and other lower

level planning efforts. However, government banks reported that they would have a

higher impact on the quality of their corporate, second level, and other lower levels

planning efforts than the locally and foreign owned banks but this was not statistically

significant.

230

Figure 11.4 Impact on the corporate planning if external forecasts purchased were not available No Severe No Severe impact impact impact impact Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Quality of corporate planning effort •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=20) ПG=4.0 ПLO=2.8 ПF=3.0 ПL=2.7 ПM=3.3 ПS=2.9 N=1 N=9 N=10 N=4 N=3 N=13 Quality of second level planning effort •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=20) ПG=3.0 ПLO=2.6 ПF=2.8 ПL=2.5 ПM=3.0 ПS=2.7 N=1 N=9 N=10 N=4 N=3 N=13 Quality of other lower levels planning effort •_______•________•________•________• •_______•________•________•_______• (ПT=2.6, N=20) ПG=3.0 ПLO=2.4 ПF=2.7 ПL=2.5 ПM=2.7 ПS=2.6 N=1 N=9 N=10 N=4 N=3 N=13

Large Medium Small Government Local Foreign

Figure 11.5 reveals the difficulty faced by the second level units to obtain the

information they currently receive from the corporate planning in terms of ownership

and size aspects. It was found that government banks second level units reported it

would be more difficult than the locally and foreign owned banks and similarly,

medium sized banks second level claimed it would be more difficult than the large and

small sized banks. Overall, there were no significant differences found either by size or

ownership aspects. Figure 11.5 Difficulty faced by the second level units to obtain information they currently receive from the corporate planning Not Very Not Very difficult difficult difficult difficult Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 ПT=2.4 ПT=2.4 •_______•________•________•_______• •_______•________•________•_______• ПG=3.0 ПLO=2.4 ПF=2.4 ПL=2.5 ПM=2.7 ПS=2.4 N=1 N=9 N=10 N=4 N=3 N=13 Ownership: Cramer’s V=0.299 P=0.465 Size: Cramer’s V=0.422 P=0.130 Government Local Foreign Large Medium Small

231

11.3.4 Major headings of corporate plan Table 11.7 shows the major headings of corporate long range plans of the participating

banks. Headings such as goals and objectives, corporate strategies, deposit

mobilizations, implementation and monitoring and feedbacks were included in the

corporate plans of all the banks. Policies and procedures, and customer demand were

seen in 17 of the 20 banks and associated with size aspects. Vision and mission were

associated with ownership aspects and were headings in most of the locally owned

banks rather than the foreign owned banks. Action plan and the customer analysis were

reported from 15 and 18 banks respectively and were associated with the ownership

aspects and were headings in all the locally owned banks. Table11.7 Major headings of corporate long range plan

Total Ownership aspects Size aspects Major heading N % G % LO % F % C Sig L % M % S % C Sig

Vision 11 55.0 1 100 8 88.9 2 20.0 .708 ** 4 100 2 66.7 5 38.5 .494 n.s

Mission 13 65.0 1 100 9 100 3 30.0 .734 ** 4 100 3 100 6 46.2 .538 n.s

Objective 20 100 1 100 9 100 10 100 n.a n.a 4 100 3 100 13 100 n.a n.a

Goals 20 100 1 100 9 100 10 100 n.a n.a 4 100 3 100 13 100 n.a n.a


19 95.0 1 100 9 100 9 90.0 .229 n.s 4 100 3 100 12 92.3 .168 n.s

Action plans 15 75.0 1 100 9 100 5 50.0 .577 * 4 100 3 100 8 61.5 .424 n.s

Customer analyses

18 90.0 - - 9 100 9 90.0 .707 ** 3 75.0 3 100 12 92.3 .266 n.s

Political environment

2 10.0 - - 1 11.1 1 10.0 .079 n.s 1 25.0 - - 1 7.7 .266 n.s

Shareholder requirements in overseas head office

1 5.0 - - - - 1 10.0 .229 n.s - - - - 1 7.7 .168 n.s.-

Corporate strategies

20 100 1 100 9 100 10 100 n.a n.a 4 100 3 100 13 100 n.a n.a

Environmental analyses

19 95.0 1 100 9 100 9 90.0 .229 n.s 4 100 3 100 12 92.3 .168 n.s

Policies and procedures

17 85.0 1 100 8 88.9 8 80.0 .155 n.s 4 100 1 33.3 12 92.3 .614 *

Customer demand

17 85.0 1 100 7 77.8 9 90.0 .192 n.s 4 100 1 33.3 12 92.3 .614 *

Deposit mobilizations

20 100 1 100 9 100 10 100 n.a n.s 4 100 3 100 13 100 n.a n.a

Implementation and monitoring

20 100 1 100 9 100 10 100 n.a n.s 4 100 3 100 13 100 n.a n.a

Feedbacks 20 100 1 100 9 100 10 100 n.a n.s 4 100 3 100 13 100 n.a n.a

Note that: *=p<0.05, **=p<.01, ***=p<0.001

232

11.3.5 Access to corporate plan

Table 11.8 reveals the organizational personnel of the participating banks who had

access to their current corporate plan. It was found that in 15 of the total of 20 banks,

only senior management had the access to their current corporate plan. In 4 banks

second level and up, and in 2 banks operating managers and head of department and

above had the access to their corporate plan. There were no significant differences in the

personnel groups which had the access to banks corporate plans either by size or

ownership aspects.

Table 11.8 Organizational personnel who have access to banks corporate plan

Total Ownership aspects Size aspects Organizational personal N % G % LO % F % C Sig L % M % S % C Sig

Second level and up

4 20.0 1 100 - - 3 30.0 .586 * 1 25.0 - - 3 23.1 .211 n.s

Third level and up

- - - - - - - - - - - - - - - - - -

Senior management only

15 75.0 - - 8 88.9 7 70.0 .451 n.s 3 75.0 3 100 9 69.2 .248 n.s

Operating managers

1 5.0 - - - - 1 10.0 .229 n.s - - - - 1 7.7 .168 n.s

Head of department and above

1 5.0 - - 1 11.1 - - .254 n.s - - - - 1 7.7 .168 n.s

Figure 11.6 displays the areas in corporate plan which added value over the second level

plans in the participating banks. It was found that overall, financial and sources and uses

of funds had the highest added values over the second level plans. Areas such as

research and development and operations were found to have statistically significant

differences by ownership aspects with the government owned bank having higher added

value than the locally and foreign owned banks. It was also found that size aspects were

not associated with any of the areas.

233

Figure 11.6 Added value of the corporate plan over the second level plans

No Major No Major added added added added Value value value value


Financial •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=20) ПG=4.0 ПLO=4.0 ПF=3.9 ПL=3.7 ПM=4.3 ПS=3.9 N=1 N=9 N=10 N=4 N=3 N=13 Human resources •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=20) ПG=4.0 ПLO=2.8 ПF=3.0 ПL=3.0 ПM=2.7 ПS=3.0 N=1 N=9 N=10 N=4 N=3 N=13 ** Research and development •_______•________•________•________• •_______•________•________•_______• (ПT=2.2, N=20) ПG=4.0 ПLO=2.2 ПF=2.1 ПL=2.7 ПM=2.7 ПS=2.0 N=1 N=9 N=10 N=4 N=3 N=13 Markets •_______•________•________•________• •_______•________•________•_______• (ПT=3.3, N=20) ПG=4.0 ПLO=3.6 ПF=3.0 ПL=4.0 ПM=3.7 ПS=3.0 N=1 N=9 N=10 N=4 N=3 N=13 Technology •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=20) ПG=4.0 ПLO=3.0 ПF=2.8 ПL=3.2 ПM=3.0 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 ** Operations •_______•________•________•________• •_______•________•________•_______• (ПT=3.2, N=20) ПG=5.0 ПLO=3.2 ПF=3.1 ПL=3.7 ПM=3.0 ПS=3.2 N=1 N=9 N=10 N=4 N=3 N=13 Sources and uses of funds •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=20) ПG=4.0 ПLO=4.2 ПF=3.6 ПL=4.2 ПM=4.3 ПS=3.7 N=1 N=9 N=10 N=4 N=3 N=13 Organization structure •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=20) ПG=3.0 ПLO=3.2 ПF=2.7 ПL=3.0 ПM=3.3 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=20) ПG=3.0 ПLO=3.8 ПF=3.5 ПL=3.5 ПM=4.0 ПS=3.6 N=1 N=9 N=10 N=4 N=3 N=13


11.3.6 Computer models/systems to support corporate planning

Figure 11.7 shows to what extent participating banks used computer models/systems to

support their corporate planning. Overall, banks did not have an extensive use of

computer models/systems for their corporate planning. The government bank reported

the least level of use of computer models/systems and similarly, large banks reported

the least level of use of computer models/systems for their corporate planning. There

were no significant differences in the use of computer models/system either by size or

ownership aspects.

234

Figure 11.7 Use of computer models/systems to support corporate planning No use Extensive No use Extensive use use Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 (ПT=2.8) (ПT=2.8) •_______•________•________•_______• •_______•________•________•_______• ПG=2.0 ПLO=2.9 ПF=2.9 ПL=2.5 ПM=3.3 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Ownership aspects: Cramer’s V=0.448 P=0.090 Size aspects: Cramer’s V=0.318 P=0.400 Government Local Foreign Large Medium Small

Table 11.9 reveals the models and systems used by the banks for their corporate

planning. It was found that 18 of the total of 20 banks used forecasting and financial

models and strategic decision support systems for their corporate planning activities.

However, none of the government banks used financial models and only one foreign

owned bank reported using planning models for their corporate planning and these were

significant differences by ownership aspects.

Table 11.9 The models and systems used by the banks for their corporate planning

Total Ownership aspects Size aspects Models N % G % LO % F % C Sig L % M % S % C Sig

Forecasting models

18 90.0 1 100 7 77.8 10 100 .369 n.s 3 75.0 3 100 12 92.3 .266 n.s

Financial models

18 90.0 - - 8 88.9 10 100 .711 ** 3 75.0 3 100 12 92.3 .266 n.s

Econometric models

- - - - - - - - - - - - - - - - - -

Planning models

9 45.0 1 100 7 77.8 1 10.0 .710 ** 3 75.0 1 33.3 5 38.5 .304 n.s

Simulation models

4 20.0 - - 2 22.2 2 20.0 .118 n.s - - 2 66.7 2 15.4 .513 n.s

Systems N % G % LO % F % C Sig L % M % S % C Sig

Group decision support systems

11 55.0 - - 6 66.7 5 50.0 .302 n.s 2 50.0 2 66.7 7 53.8 .103 n.s

Strategic decision support systems

18 90.0 1 100 8 88.9 9 90.0 .079 n.s 4 100 2 66.7 12 92.3 .342 n.s

Note that: *=p<0.05, **=p<.01, ***=p<0.001

235

Figure 11.8 shows the usefulness of the models/systems identified in table 11.9.

Overall, banks think computer models/systems have been useful but, not very useful for

their corporate planning. However, government banks reported a higher usefulness over

the locally owned and foreign owned banks. There were significant differences in the

usefulness of computer models and systems by ownership aspects. It was also found

that only two banks (locally owned) had computer systems, which link the corporate

planning system with the second level units.

Figure 11.8 The usefulness of computer models/systems for corporate planning

Not at all Very Not at all Very useful useful useful useful


ПT=3.0 ПT=3.0 •_______•________•________•_______• * •_______•________•________•_______• ПG=4.0 ПLO=3.0 ПF=3.0 ПL=3.0 ПM=3.3 ПS=3.0 N=1 N=9 N=10 N=4 N=3 N=13


11.3.7 Corporate planning department

Table 11.10 reveals the banks which had a corporate planing department. Only 7 of the

20 banks reported having a corporate planning department and those banks included 2

large, 2 medium and 3 small sized banks and all of them were locally owned banks. It is

worth noting that in most of the banks corporate planning is done by the corporate level

management and they did not have a separate corporate planning department. Results

also found that there were significant differences in the banks which had a corporate

planning department by ownership aspects.

When asked about the number of professional personnel in the corporate planning

departments, it was found that there were 2-3 personnel in 2 banks, 8-10 personnel in 4

banks and 15 personnel in 1 bank.

236

Table 11.10 Banks which had a corporate planning department


Yes 7 35.0 - - 7 77.8 - - 2 50.0 2 66.7 3 23.1

No 13 65.0 1 100 2 22.2 10 100 2 50.0 1 33.3 10 76.9

Size: Cramer’s V=0.356 P=0.282 Ownership: Cramer’s V=0.811 P=0.001 Figure 11.9 shows to what extent line personnel were rotated through the corporate

planning department. Banks reported having a very low level (1.9) of rotation of the line

personnel in the planning department with no significant differences by size aspects.

Figure 11.9 The extent that line personnel were rotated through the corporate planning department

No rotation Extensive No rotation Extensive rotation rotation

Ownership aspects Size aspects ПT=1.9, N=7 ПT=1.9, N=7

1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______• ПLO=1.9 ПL=1.5 ПM=2.5 ПS=1.7 N=7 N=2 N=2 N=3

Size: Cramer’s V=0.500 P=0.478 Government Local Foreign Large Medium Small

Figure 11.10 displays the extent to which the chief corporate planner attends meetings.

It was found that chief corporate planner was more likely to attend capital budgeting

meetings than divisional planning meetings and group planning meetings with no

statistically significant differences by size aspects. The attendance to board meetings by

the chief corporate planner was very low compared to capital budgeting, divisional

planning and group planning meetings.

237

Figure 11.10 Extent of chief corporate planner attend meetings Never Always Never Always


Board meetings •_______•________•________•________• •_______•________•________•_______• ПT=2.9, N=7 ПLO=2.9 ПL=3.5 ПM=3.5 ПS=2.0 N=7 N=2 N=2 N=3 Capital budgeting meetings •_______•________•________•________• •_______•________•________•_______• ПT=4.4, N=7 ПLO=4.4 ПL=4.5 ПM=4.5 ПS=4.3 N=7 N=2 N=2 N=3 Divisional planning meeting •_______•________•________•________• •_______•________•________•_______• ПT=3.4, N=7 ПLO=3.4 ПL=3.5 ПM=3.0 ПS=3.7 N=7 N=2 N=2 N=3 Group planning meetings •_______•________•________•________• •_______•________•________•_______• ПT=3.3, N=7 ПLO=3.3 ПL=3.5 ПM=3.0 ПS=3.3 N=7 N=2 N=2 N=3 Government Local Foreign Large Medium Small Figure 11.11 shows the authority of the corporate planning department. It was found

that overall, corporate planning department had the authority to obtain substantive

revisions in second level plans, obtain procedural revisions in second level plans and

review and criticise second level plans to a higher extent but not to accept or reject

second level plans. There were no significant differences in the level of authority that

the corporate planning department had either by size or ownership aspects.

Figure 11.11 The authority of the corporate planning department

No Complete No Complete authority authority authority authority


Obtain substantive revisions in •_______•________•________•________• •_______•________•________•_______• second level plans ПLO=3.7 ПL=3.5 ПM=3.0 ПS=4.3 (ПT=3.7, N=7) N=7 N=2 N=2 N=3 Obtain procedural revisions in •_______•________•________•________• •_______•________•________•_______• second level plans ПLO=3.6 ПL=3.5 ПM=3.0 ПS=4.0 (ПT=3.6, N=7) N=7 N=2 N=2 N=3 Review and criticize second •_______•________•________•________• •_______•________•________•_______• level plans ПLO=3.6 ПL=3.5 ПM=3.0 ПS=4.0 (ПT=3.6, N=7) N=7 N=2 N=2 N=3 Accept and reject second •_______•________•________•________• •_______•________•________•_______• level plans ПLO=2.4 ПL=2.0 ПM=2.0 ПS=3.0 (ПT=2.4, N=7) N=7 N=2 N=2 N=3 Government Local Foreign Large Medium Small

238

Figure 11.12 displays the performance of the corporate planning group. It was found

that overall, all the banks agreed to a high extent that for their corporate planning

department specific performance goals have been clearly established, and numerical or

quantitative procedures are extensively used to measure performance.

It was also found that six banks prepared detailed reports once a year and only one

medium sized bank prepared detailed reports 2 times per year.

Figure 11.12 The performance of the corporate planning group

Disagree Strongly Disagree Strongly agree agree


Specific performance goals have •_______•________•________•________• •_______•________•________•_______• been clearly established ПLO=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=7 N=2 N=2 N=3 Numerical or quantified procedures •_______•________•________•________• •_______•________•________•_______• are use extensively to ПLO=4.0 ПL=4.0 ПM=4.0 ПS=4.0 measure performance N=7 N=2 N=2 N=3 Government Local Foreign Large Medium Small Table 11.11 reveals the documents used by the corporate planning departments. It was

found that all the 7 banks used documents specifying roles and responsibilities for

corporate planning, written schedules for the corporate planning process, and standard

forms for the evaluation of strategic proposals. There were no significant differences in

the documents used by the corporate planning department either by ownership or size

aspects.

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Table 11.11 Document used by the corporate planning department

Total Ownership aspects Size aspects Document used N % G % LO % F % C Sig L % M % S % C Sig

Documents describing the planning procedures

6 85.7 - - 6 85.7 - - n.a n.a 1 50.0 2 100 3 100 .645 n.s

Documents specifying roles and responsibilities for corporate planning

7 100 - - 7 100 - - n.a n.a 2 100 2 100 3 100 n.a n.a

Written schedules (time tables) for the corporate planning process

7 100 - - 7 100 - - n.a n.a 2 100 2 100 3 100 n.a n.a

Standard forms for the collection of planning data

5 71.4 - - 5 71.4 - - n.a n.a 2 100 1 50.0 2 66.7 .428 n.a

Standard forms for the evaluation of strategic proposals

7 100 - - 7 100 - - n.a n.a 2 100 2 100 3 100 n.a n.a

Note that: Total (N) = 7 11.4 Second level planning 4 of the 20 banks reported having second level long term plans and table 11.12

describes the banks which had second level long term plans in terms of size and

ownership aspects. These four banks included 2 large and 2 medium sized banks and it

was found that none of the small bank reported having second level long term plans.

Results found that size aspects were more associated with the banks which had second

level long term plans than the ownership aspects.

Table 11.12 Does your bank has second level long term plans?


Yes 4 20.0 - - 4 44.4 - - 2 50.0 2 66.7 - -

No 16 80.0 1 100 5 55.6 10 100 2 50.0 1 33.3 13 100

Size: Cramer’s V=.692 P=.008 Ownership: Cramer’s V=.553 P=.047

240

11.4.1 Major headings of second level long term plans

Table 11.13 displays the major headings of the banks second level long term plans. It

was found that the major headings for these four banks in their second level long term

plans were environmental analysis (internal and external), business strategies, forecasts

and budgets, revenue targets, time frames for assessments and volume targets for

products and services. One medium sized bank reported having headings such as

number of employees with grades and individual targets.

Table 11.13 Major headings of second level long term plans


Size aspects Major heading

N % G % LO % F % L % M % S % Environmental analysis (Internal and external)

4 100 - - 4 100 - - 2 100 2 100 - -

Business strategies

4 100 - - 4 100 - - 2 100 2 100 - -

Forecasts and budgets

4 100 - - 4 100 - - 2 100 2 100 - -

Revenue targets

4 100 - - 4 100 - - 2 100 2 100 - -

Number of employees with grades

1 25.0 - - 1 25.0 - - - - 1 50.0 - -

Individual targets

1 25.0 - - 1 25.0 - - - - 1 50.0 - -

Time frames for assessment

4 100 - - 4 100 - - 2 100 2 100 - -

Volume targets for products and services

4 100 - - 4 100 - - 2 100 2 100 - -


These four banks grouped their second level units for planning, the same way they were

grouped for operations and their major long term plans at the second level were revenue

targets, volume targets and the time frames for the assessments. It was found that all

these major plans were reviewed at the corporate level. It was also found that except for

one medium sized bank all the other three banks second level planning units were profit

centres. All the four banks updated their second level long term plans yearly and they

reviewed the progress against their second level plans every three months.

241

Figure 11.13 shows to what extent the annual budgets for the second level units were

integrated with the long term plans of these units and these were integrated to a

reasonable extent (П=3.7). All four banks had standardized formats for their second

level plans and except for one large bank all the other banks 100 percent of the plans

conformed to a standardized format and for the one large bank 80 percent of the second

level plans conformed to standardized formats. It was also found that none of the banks

had specialized planning personnel at the second level.

Figure 11.13: The extent annual budgets for the second level units were integrated with the long term plans of these units

Not at all Very integrated Size aspects 1 2 3 4 5

•_______•________•________•_______• ПT=3.7, N=4 ПL=4.0 ПM=3.5 N=2 N=2

Large Medium 11.4.2 Computer models/system to support second level planning

Figure 11.14 displays to what extent computer models/systems were used by the banks

for their second level planning. It was found that computer models/systems were used to

some extent but, not to a high extent. There were no statistically significant differences

either by size or ownership aspects. Except for one large bank all the other banks

models/systems used for their second level planning were different from the

models/systems they used for their corporate planing. It was found that all the banks

used forecasting models for their second level planning while 2 banks were using

econometric models. Interestingly, all the banks had developed in house software

models for their second level planning.

Figure 11.14 Use of computer models/system to support second level planning

No use Extensive use

Size aspects 1 2 3 4 5

•_______•________•________•_______• ПT=3.0, N=4 ПL=3.0 ПM=3.0 N=2 N=2

Large Medium

242

Figure 11.15 shows to what extent computer models/systems have been useful for banks

second level planning and it was found that computer models were useful to a

reasonable degree.

Figure 11.15 Usefulness of computer models/systems

Not at all Very useful useful Size aspects 1 2 3 4 5

•_______•________•________•_______• ПT=3.2, N=4 ПL=3.0 ПM=3.5 N=2 N=2

Large Medium 11.5 Third level and fourth level long term business plans

2 of the 20 banks had third level long term business plans and none of the banks

reported having fourth level long term business plans.2 banks which had third level

business plans were locally owned one large and one medium sized bank.

11.6 Contingency planning

All the banks which had a formalized strategic planning system developed formal

contingency plans as part of their long term planning effort. Table 11.14 shows the

organizational levels for which the banks developed formal contingency plans. It was

found that in 9 banks contingency plans were developed only for corporate level and 11

banks had contingency planning both for the corporate and second level. Major

variables in all the banks contingency planning were uncontrollable environmental

factors and 14 banks also considered unpredictable strategic actions as their major

variables.

243

Table 11.14 organizational levels that has contingency planning

Total Ownership aspects Size aspects Level N % G % LO % F % C Sig L % M % S % C Sig

Corporate level only

9 45.0 1 100 4 44.4 4 40.0 .257 n.s 3 75.0 1 33.3 5 38.5 .304 n.s

Both corporate and second level

11 55.0 - - 5 55.6 6 60.0 .304 n.s 1 25.0 2 66.7 8 61.5 .304 n.s

11.7 Various functions of corporate planning Figure 11.16 shows the various functions of corporate planning namely the specific

planning tasks, overall planning responsibility, assistance at corporate level, assistance

at second level and improving planning performances. Government banks expended

more effort on preparing specific studies than the locally and foreign owned banks and

this was a significant difference by ownership aspects. Medium sized banks spent more

effort to monitor and control progress versus plans than the large and small sized banks

and this was a statistically significant difference by size aspects. Help corporate

management with merger and joint venture plans were associated with ownership

aspects and mostly seen in the government banks. It was also found that more effort was

spent in small sized banks to help corporate management with sources and uses of fund

plans than the large and medium sized banks. There were no significant differences

found in the activities of assistance at second level and improving planning

performances by ownership and size aspects.

244

Figure 11.16 Various functions of corporate planning No High No High effort degree effort degree of effort of effort


Specific planning tasks: Define guidelines, formats •_______•________•________•________• •_______•________•________•_______• and timetables for planning ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 ПS=3.9 activity (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 Develop macro forecasts •_______•________•________•________• •_______•________•________•_______• of the economy, financial markets, ПG=4.0 ПLO=3.9 ПF=3.6 ПL=3.7 ПM=4.0 ПS=3.7 political environment and etc (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 * Prepare specific studies •_______•________•________•________• •_______•________•________•_______• (ПT=2.6) ПG=4.0 ПLO=2.9 ПF=2.2 ПL=2.7 ПM=3.3 ПS=2.4 N=1 N=9 N=10 N=4 N=3 N=13 Develop improved accounting and •_______•________•________•________• •_______•________•________•_______• financial data for strategic planning ПG=4.0 ПLO=3.8 ПF=3.6 ПL=3.7 ПM=3.7 ПS=3.7 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 Identify areas of new business •_______•________•________•________• •_______•________•________•_______• opportunity (ПT=3.8 ПG=4.0 ПLO=3.9 ПF=3.8 ПL=4.0 ПM=3.7 ПS=3.8 N=1 N=9 N=10 N=4 N=3 N=13 Reorganize the company around •_______•________•________•________• •_______•________•________•_______• more clearly defined business units ПG=4.0 ПLO=3.9 ПF=3.7 ПL=4.0 ПM=3.7 ПS=3.8 (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 No High No High effort degree effort degree of effort of effort


Overall planning responsibility: Develop and write the corporate plans •_______•________•________•________• •_______•________•________•_______• (ПT=3.5) ПG=4.0 ПLO=3.6 ПF=3.5 ПL=3.2 ПM=4.0 ПS=3.5 N=1 N=9 N=10 N=4 N=3 N=13 * Monitor and control progress versus plans •_______•________•________•________• •_______•________•________•_______• (ПT=3.9) ПG=3.0 ПLO=4.0 ПF=3.9 ПL=3.5 ПM=4.3 ПS=3.9 N=1 N=9 N=10 N=4 N=3 N=13

245

Figure 11.16 Various functions of the corporate planning (continued) No High No High effort degree effort degree of effort of effort


Assistance at corporate level: Help corporate management formulate •_______•________•________•________• •_______•________•________•_______• goals and objectives ПG=4.0 ПLO=4.0 ПF=3.8 ПL=4.0 ПM=4.0 ПS=3.8 (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management •_______•________•________•________• •_______•________•________•_______• formulate strategy ПG=4.0 ПLO=4.0 ПF=3.8 ПL=4.0 ПM=4.0 ПS=3.8 (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• acquisition plans ПG=3.0 ПLO=2.8 ПF=2.3 ПL=2.7 ПM=3.3 ПS=2.3 (ПT=2.5) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• divestiture plans ПG=3.0 ПLO=2.4 ПF=2.2 ПL=2.5 ПM=3.0 ПS=2.2 (ПT=2.3) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• identification of financing needs ПG=4.0 ПLO=3.8 ПF=3.5 ПL=3.5 ПM=4.0 ПS=3.6 (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• non- performing loans plans ПG=4.0 ПLO=3.4 ПF=3.4 ПL=3.5 ПM=2.7 ПS=3.6 (ПT=3.4) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• merger plans ПG=3.0 ПLO=2.4 ПF=2.1 * ПL=2.2 ПM=2.7 ПS=2.2 (ПT=2.3) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management •_______•________•________•________• •_______•________•________•_______• with joint venture plans ПG=3.0 ПLO=2.2 ПF=2.1 * ПL=2.2 ПM=2.7 ПS=2.1 (ПT=2.2) N=1 N=9 N=10 N=4 N=3 N=13 Help corporate management with •_______•________•________•________• •_______•________•________•_______• sources and uses of fund plans ПG=3.0 ПLO=3.7 ПF=3.7 ПL=3.2 ПM=3.3 ПS=3.8 * (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 Assistance at second level: Help Second level management •_______•________•________•________• •_______•________•________•_______• formulate goals and objectives ПG=3.0 ПLO=3.6 ПF=3.3 ПL=3.2 ПM=3.3 ПS=3.5 (ПT=3.4) N=1 N=9 N=10 N=4 N=3 N=13 Help second level management •_______•________•________•________• •_______•________•________•_______• formulate strategy ПG=3.0 ПLO=3.3 ПF=3.1 ПL=3.0 ПM=3.3 ПS=3.2 (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13 Review and evaluate second •_______•________•________•________• •_______•________•________•_______• level plans ПG=3.0 ПLO=3.6 ПF=3.4 ПL=3.2 ПM=3.7 ПS=3.5 (ПT=3.4) N=1 N=9 N=10 N=4 N=3 N=13 Integrate second level plans with •_______•________•________•________• •_______•________•________•_______• the corporate plan ПG=3.0 ПLO=3.3 ПF=3.2 ПL=3.0 ПM=3.7 ПS=3.2 (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13

246

Figure 11.16 Various functions of the corporate planning (continued) No High No High effort degree effort degree of effort of effort


Improving planning performance: Improve the quality of strategic •_______•________•________•________• •_______•________•________•_______• thinking of corporate management ПG=4.0 ПLO=3.8 ПF=2.9 ПL=4.0 ПM=3.3 ПS=3.2 (ПT=3.3) N=1 N=9 N=10 N=4 N=3 N=13 Improve the quality of strategic •_______•________•________•________• •_______•________•________•_______• thinking of second level management ПG=3.0 ПLO=3.8 ПF=2.9 ПL=3.5 ПM=3.7 ПS=3.2 (ПT=3.3) N=1 N=9 N=10 N=4 N=3 N=13 Assess the overall effectiveness •_______•________•________•________• •_______•________•________•_______• of the planning process ПG=3.0 ПLO=4.0 ПF=3.6 * ПL=3.7 ПM=4.0 ПS=3.7 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001 Government Local Foreign Large Medium Small

11.8 Nature of the banks planning process

Figure 11.17 shows the nature of the banks planning process in terms of roles, conflict

resolution, uncertainty and risk resolution, and resource allocation. It was found that

overall, banks planning process plays an important role in strategically managing banks

organizational structure, to sequence future activities, and it has a measurable positive

effect on sale and profits to a high extent. In lage and small banks their planning process

plays an important role in auditing ongoing activities compared with the medium sized

banks and this was a significant difference by size aspects. Similarly, roles such as

encourages the development of new business by combining expertise and resources

from lower level units, and helps to focus the R& D activities were associated with

ownership aspects and were reported from a government owned bank to a great extent.

Overall, banks agreed with the statements that planning process is a means for

systematically dealing with uncertainty, enables the company to avoid unacceptably

high levels of risks, and has constrained the strategic risk taking behaviour of lower

level managers to a high extent. However, government owned banks did not agree with

the statement that planning process is a means for systematically dealing with

uncertainty and this was a significant difference by ownership aspects.

247

It was found that planning process is a key device for allocating corporate resources

through out the company and has improved the company’s long term resource

allocation decisions to a high extent.

Figure 11.17 Nature of the banks planning process


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Roles: The planning process plays an •_______•________•________•________• •_______•________•________•_______• important role in the organization’s ПG=4.0 ПLO=4.0 ПF=3.3 ПL=4.0 ПM=3.3 ПS=3.6 communication network (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 * The planning process plays an •_______•________•________•________• •_______•________•________•_______• important role in auditing ongoing ПG=3.0 ПLO=3.7 ПF=3.6 ПL=3.7 ПM=3.0 ПS=3.8 activities (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 The planning process plays an important •_______•________•________•________• •_______•________•________•_______• role in strategically managing our ПG=3.0 ПLO=4.1 ПF=3.8 ПL=4.0 ПM=3.7 ПS=3.9 company’s organization’s structure N=1 N=9 N=10 N=4 N=3 N=13 (ПT=3.9) The planning process plays an important •_______•________•________•________• •_______•________•________•_______• role in strategically managing our ПG=3.0 ПLO=3.7 ПF=3.5 ПL=3.5 ПM=3.0 ПS=3.7 company’s quality issues (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 The planning process play an important •_______•________•________•________• •_______•________•________•_______• role in strategically managing our ПG=4.0 ПLO=3.4 ПF=2.8 ПL=3.5 ПM=3.0 ПS=3.1 company’s culture (ПT=3.1) N=1 N=9 N=10 N=4 N=3 N=13 The planning process plays an important •_______•________•________•________• •_______•________•________•_______• role in strategically managing our ПG=4.0 ПLO=3.2 ПF=2.8 ПL=3.2 ПM=2.7 ПS=3.1 company’s managerial styles (ПT=3.0) N=1 N=9 N=10 N=4 N=3 N=13 The planning process is necessary to •_______•________•________•________• •_______•________•________•_______• sequence future activities ПG=4.0 ПLO=3.9 ПF=3.8 ПL=3.7 ПM=4.0 ПS=3.8 (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 * The planning process encourages the •_______•________•________•________• •_______•________•________•_______• development of new business by ПG=4.0 ПLO=4.0 ПF=3.4 ПL=4.0 ПM=4.0 ПS=3.5 combining expertise and resources N=1 N=9 N=10 N=4 N=3 N=13 from lower level units (ПT=3.7)

248

Figure 11.17 Nature of the banks planning process (continued)

Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects Roles 1 2 3 4 5 1 2 3 4 5 The planning process is a means of •_______•________•________•________• •_______•________•________•_______• ensuring that specialized knowledge is ПG=4.0 ПLO=3.4 ПF=3.1 ПL=3.5 ПM=3.3 ПS=3.2 stored and available to the whole N=1 N=9 N=10 N=4 N=3 N=13 organization (ПT=3.3) The planning process has had a measurable •_______•________•________•________• •_______•________•________•_______• positive effect on sale and profits ПG=4.0 ПLO=4.0 ПF=3.7 ПL=4.0 ПM=3.7 ПS=3.8 (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 The planning process acts mainly as an •_______•________•________•________• •_______•________•________•_______• agency for assembling financial reports ПG=3.0 ПLO=3.3 ПF=3.1 ПL=3.0 ПM=2.7 ПS=3.4 (ПT=3.3) N=1 N=9 N=10 N=4 N=3 N=13 *** The planning process helps to focus the •_______•________•________•________• •_______•________•________•_______• company’s R & D efforts around defined ПG=4.0 ПLO=2.3 ПF=2.3 ПL=2.7 ПM=2.3 ПS=2.3 opportunity areas (ПT=2.4) N=1 N=9 N=10 N=4 N=3 N=13 Conflicts resolution: The planning process is a device to assure •_______•________•________•________• •_______•________•________•_______• that conflicting expectations are resolved ПG=3.0 ПLO=3.9 ПF=3.1 ПL=3.5 ПM=3.7 ПS=3.4 (ПT=3.4) N=1 N=9 N=10 N=4 N=3 N=13 The planning process is a means of •_______•________•________•________• •_______•________•________•_______• organizational conflict resolution ПG=3.0 ПLO=3.4 ПF=2.7 ПL=3.2 ПM=2.7 ПS=3.1 (ПT=3.0) N=1 N=9 N=10 N=4 N=3 N=13 The planning process involves a great •_______•________•________•________• •_______•________•________•_______• deal of bargaining ПG=2.0 ПLO=3.3 ПF=2.7 ПL=3.0 ПM=2.7 ПS=3.0 (ПT=2.9) N=1 N=9 N=10 N=4 N=3 N=13 Uncertainty and risk resolution: ** The planning process is a means for •_______•________•________•________• •_______•________•________•_______• systematically dealing with uncertainty ПG=2.0 ПLO=4.0 ПF=4.0 ПL=3.2 ПM=4.0 ПS=4.1 (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 The planning process enables the •_______•________•________•________• •_______•________•________•_______• company to avoid unacceptably high ПG=3.0 ПLO=3.9 ПF=3.8 ПL=3.7 ПM=3.3 ПS=3.9 levels of risks (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 The planning process has constrained •_______•________•________•________• •_______•________•________•_______• the strategic risk taking behaviour of ПG=3.0 ПLO=3.8 ПF=3.9 ПL=3.5 ПM=3.7 ПS=3.9 lower level managers (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 Resource allocation: The planning process is a key device for •_______•________•________•________• •_______•________•________•_______• allocating corporate resources ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 ПS=3.9 throughout the company (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 The planning process assures that scarce •_______•________•________•________• •_______•________•________•_______• resources are allocated to high yield uses ПG=4.0 ПLO=3.9 ПF=3.5 ПL=3.7 ПM=3.7 ПS=3.7 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 The planning process has improved the •_______•________•________•________• •_______•________•________•_______• company’s long-term resource allocation ПG=4.0 ПLO=3.9 ПF=3.9 ПL=3.7 ПM=4.0 ПS=3.9 decisions (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 Long-term resource allocation decisions •_______•________•________•________• •_______•________•________•_______• are made as an integral part of the planning ПG=4.0 ПLO=3.8 ПF=3.7 ПL=3.7 ПM=4.0 ПS=3.7 process (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001


249

11.9 Planning process and external analysis

Figure 11.18 displays the planning process and its external analysis of the banks.

Overall, banks agreed that their planning effort is an adaptive, evolving, learning

activity to a reasonably high extent while the government bank strongly agreed. It was

found that a reasonably high effort is expended in attempting to identify competitors

cost structures and it was a major activity of corporate level management. Overall,

banks agreed with the statement that a great deal of effort is expended in attempting to

identify the sources of funds to a high extent and overall it was a major activity of

corporate level management and finance people. It was also found that locally owned

and foreign owned banks considered supplier analysis as a major activity of corporate

management and finance people to a higher extent than the government bank and these

were significant differences by ownership aspects.

A great deal of effort is expended in attempting to identify the customer demand and it

was found that customer analysis is a major activity of marketing people and corporate

management. Small banks reported that the customer analysis is a major activity of

second level management more than the medium and large banks and this was a

significant difference by size aspects. It was also found that for banks overall, a

reasonable effort is expended in attempting to identify the possible impacts of the

government on their business operations and that was a major activity of corporate level

management. Similarly for banks a great deal of effort is expended in economic analysis

and that was a major activity of corporate level management.

Not much effort is expended on social and cultural analysis and responses confirmed

that social and cultural analysis is a major activity of corporate and second level

managements. Banks agreed with the statement that a great deal of effort is expended in

attempting to identify the technological developments to a high extent. It was found that

technological analysis is a major activity of operations people rather than the corporate

and second level management.

250

Figure 11.18 Planning process and external analysis



1 2 3 4 5 1 2 3 4 5 Planning process ** Our planning effort is an adaptive, •_______•________•________•________• •_______•________•________•_______• evolving, learning activity ПG=5.0 ПLO=3.6 ПF=2.9 ПL=3.7 ПM=4.3 ПS=2.9 (ПT=3.3) N=1 N=9 N=10 N=4 N=3 N=13 * Our planning effort is a fairly •_______•________•________•________• •_______•________•________•_______• routinised activity ПG=3.0 ПLO=2.8 ПF=2.9 ПL=2.2 ПM=2.7 ПS=3.1 (ПT=2.8) N=1 N=9 N=10 N=4 N=3 N=13 In our planning process, all key personnel •_______•________•________•________• •_______•________•________•_______• contribute their fair share of effort ПG=3.0 ПLO=3.4 ПF=3.1 ПL=3.2 ПM=3.3 ПS=3.2 (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13 In our company daily routine drives out •_______•________•________•________• •_______•________•________•_______• planning effort (ПT=2.6) ПG=2.0 ПLO=2.8 ПF=2.6 ПL=2.5 ПM=3.0 ПS=2.6 N=1 N=9 N=10 N=4 N=3 N=13 Planning is often characterized by distortion •_______•________•________•________• •_______•________•________•_______• of data (ПT=2.8) ПG=3.0 ПLO=3.0 ПF=2.7 ПL=3.0 ПM=2.7 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis: In our company, a great deal of effort is •_______•________•________•________• •_______•________•________•_______• expended in attempting to identify ПG=4.0 ПLO=3.7 ПF=3.4 ПL=3.7 ПM=3.0 ПS=3.6 competitors cost structure (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 Our company focuses its competitive •_______•________•________•________• •_______•________•________•_______• analysis on competitive products analysis ПG=4.0 ПLO=3.7 ПF=3.6 ПL=3.7 ПM=3.3 ПS=3.7 (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 * Competitive analysis is primary the •_______•________•________•________• •_______•________•________•_______• responsibility of our sales and marketing ПG=2.0 ПLO=3.7 ПF=2.9 ПL=3.0 ПM=3.7 ПS=3.2 people (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO=2.7 ПL=2.7 ПM=2.5 ПS=3.0 (ПT=2.7) N=7 N=2 N=2 N=3 Competitive analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate level management ПG=3.0 ПLO=3.9 ПF=3.8 ПL=3.7 ПM=3.3 ПS=3.9 (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 Competitive analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of our second level management ПG=2.0 ПLO=2.7 ПF=2.7 ПL=2.5 ПM=2.3 ПS=2.8 (ПT=2.6) N=1 N=9 N=10 N=4 N=3 N=13

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Figure 11.18 Planning process and external analysis (continued)



Supplier analysis: * A great deal of effort is expended in •_______•________•________•________• •_______•________•________•_______• attempting to identify the sources of funds ПG=3.0 ПLO=4.0 ПF=3.8 ПL=3.7 ПM=3.7 ПS=3.9 (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 *** The supplier analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our financial people ПG=2.0 ПLO=3.9 ПF=3.6 ПL=3.5 ПM=3.3 ПS=3.8 (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 The supplier analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO=3.0 ПL=3.0 ПM=3.0 ПS=3.0 (ПT=3.0) N=7 N=2 N=2 N=3 ** The supplier analysis is a major activity of •_______•________•________•________• •_______•________•________•_______• the corporate level management ПG=3.0 ПLO=3.9 ПF=4.0 ПL=3.7 ПM=3.7 ПS=4.0 (ПT=3.9) N=1 N=9 N=10 N=4 N=3 N=13 The supplier analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the second level management ПG=2.0 ПLO=2.6 ПF=2.2 ПL=2.2 ПM=2.3 ПS=2.4 (ПT=2.3) N=1 N=9 N=10 N=4 N=3 N=13 Customer analysis In our company, a great deal of effort is •_______•________•________•________• •_______•________•________•_______• expended in attempting to identify the ПG=3.0 ПLO=3.9 ПF=3.9 ПL=3.7 ПM=3.7 ПS=3.9 customer demands (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 The customer analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our marketing people ПG=3.0 ПLO=3.9 ПF=3.3 ПL=3.7 ПM=3.7 ПS=3.5 (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 The customer analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO=3.2 ПL=3.0 ПM=3.0 ПS=3.5 (ПT=3.2) N=7 N=2 N=2 N=3 The customer analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate level management ПG=3.0 ПLO=3.7 ПF=3.4 ПL=3.5 ПM=3.0 ПS=3.6 (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 * The customer analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the second level management ПG=2.0 ПLO=3.2 ПF=3.4 ПL=2.7 ПM=2.7 ПS=3.5 (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13


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Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Political analysis A great deal of effort is expended in •_______•________•________•________• •_______•________•________•_______• attempting to identify the possible impacts ПG=3.0 ПLO=3.4 ПF=3.4 ПL=3.2 ПM=3.3 ПS=3.5 of the government on our business N=1 N=9 N=10 N=4 N=3 N=13 operations (ПT=3.4) The political analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our operations people ПG=2.0 ПLO=2.7 ПF=2.2 ПL=2.7 ПM=2.7 ПS=2.2 (ПT=2.4) N=1 N=9 N=10 N=4 N=3 N=13 The political analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO=3.0 ПL=3.0 ПM=3.0 ПS=3.0 (ПT=3.0) N=7 N=2 N=2 N=3 The political analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate level management ПG=4.0 ПLO=3.7 ПF=3.8 ПL=4.0 ПM=3.3 ПS=3.8 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 The political analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the second level management ПG=2.0 ПLO=2.3 ПF=2.1 ПL=2.0 ПM=2.3 ПS=2.2 (ПT=2.2) N=1 N=9 N=10 N=4 N=3 N=13 Economic analysis: A great deal of effort is expended in •_______•________•________•________• •_______•________•________•_______• attempting to identify the possible impacts ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 of the economy on our business operations N=1 N=9 N=10 N=4 N=3 N=13 (ПT=4.0) The economic analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our operations people ПG=3.0 ПLO=3.6 ПF=2.8 ПL=3.0 ПM=3.0 ПS=3.2 (ПT=3.1) N=1 N=9 N=10 N=4 N=3 N=13 The economic analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO=3.6 ПL=3.7 ПM=3.5 ПS=3.5 (ПT=3.6) N=7 N=2 N=2 N=3 The economic analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate level management ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 (ПT=4.0) N=1 N=9 N=10 N=4 N=3 N=13 The economic analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the second level management ПG=2.0 ПLO=2.8 ПF=2.8 ПL=2.7 ПM=2.7 ПS=2.8 (ПT=2.7) N=1 N=9 N=10 N=4 N=3 N=13

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Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Social and cultural analysis: A great deal of effort is expended in •_______•________•________•________• •_______•________•________•_______• Attempting to identify the possible impacts ПG=3.0 ПLO=3.0 ПF=2.7 ПL=2.7 ПM=3.0 ПS=2.8 of the Sri Lankan culture on our business N=1 N=9 N=10 N=4 N=3 N=13 operations (ПT=2.8) The cultural analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our operations people ПG=3.0 ПLO=3.1 ПF=2.8 ПL=3.2 ПM=2.7 ПS=2.9 (ПT=2.9) N=1 N=9 N=10 N=4 N=3 N=13 The cultural analysis is a major activity of •_______•________•________•________• •_______•________•________•_______• the corporate planning department (ПT=2.6) ПLO=2.6 ПL=3.0 ПM=2.5 ПS=2.5 N=7 N=2 N=2 N=3 The cultural analysis is a major activity of •_______•________•________•________• •_______•________•________•_______• the corporate level management (ПT=3.4) ПG=3.0 ПLO=3.3 ПF=3.5 ПL=3.2 ПM=3.3 ПS=3.5 N=1 N=9 N=10 N=4 N=3 N=13 The cultural analysis is a major activity of •_______•________•________•________• •_______•________•________•_______• the second level management (ПT=3.0) ПG=3.0 ПLO=3.1 ПF=3.0 ПL=3.2 ПM=2.7 ПS=3.1 N=1 N=9 N=10 N=4 N=3 N=13 Technology analysis A great deal of effort is expended in •_______•________•________•________• •_______•________•________•_______• Attempting to identify technological ПG=3.0 ПLO=4.0 ПF=3.8 ПL=3.7 ПM=4.0 ПS=3.8 Developments (ПT=3.8) N=1 N=9 N=10 N=4 N=3 N=13 The technology analysis is primarily the •_______•________•________•________• •_______•________•________•_______• responsibility of our operations people ПG=3.0 ПLO=3.9 ПF=3.7 ПL=3.7 ПM=3.7 ПS=3.8 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 The technology analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate planning department ПLO =2.7 ПL=2.7 ПM=3.5 ПS=2.0 (ПT=2.7) N=7 N=2 N=2 N=3 The technology analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the corporate level management ПG=3.0 ПLO=3.8 ПF=3.6 ПL=3.5 ПM=3.3 ПS=3.8 (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 The technology analysis is a major activity •_______•________•________•________• •_______•________•________•_______• of the second level management ПG=3.0 ПLO=3.8 ПF=3.5 ПL=3.5 ПM=3.3 ПS=3.7 (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001


11.10 Coordination issues involved in the banks planning process

Figure 11.19 shows the coordination issues involved in the planning process in terms of

coordination of planning, quality of information, and resistance to planning. It was

254

found that overall, banks agreed that their corporate planning coordinated with financial

planning, operations planning, marketing planning, human resource planning, and

technology planning to a reasonably high extent with no significant differences either


Overall, banks agreed to a reasonably high extent that their finance, operation,

marketing, and human resource departments provide very high quality information for

their corporate planning. It was found that locally owned banks received high quality

information from finance department more than the foreign and government owned

banks and this was a significant difference by ownership aspects.

Responses also confirmed that overall, banks were not getting a great deal of resistance

from the finance, operations, marketing, and human resource departments for their

corporate planning. However, the government bank was getting a great deal of

resistance from their finance, operations and human resource people compared with the

local and foreign banks and this was a significant difference by ownership aspects.

Figure 11.19 Coordination issues involved in the banks planning process


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Coordination of planning: The financial planning is closely •_______•________•________•________• •_______•________•________•_______• coordinated with corporate planning ПG=4.0 ПLO=4.1 ПF=4.0 ПL=4.2 ПM=4.0 ПS=4.0 (ПT=4.0) N=1 N=9 N=10 N=4 N=3 N=13 The operations planning is closely •_______•________•________•________• •_______•________•________•_______• coordinated with corporate planning ПG=4.0 ПLO=3.7 ПF=3.7 ПL=3.5 ПM=3.7 ПS=3.8 (ПT=3.7) N=1 N=9 N=10 N=4 N=3 N=13 The marketing planning is closely •_______•________•________•________• •_______•________•________•_______• coordinated with corporate planning ПG=4.0 ПLO=3.7 ПF=3.3 ПL=3.5 ПM=3.7 ПS=3.5 (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 The human resource planning is closely •_______•________•________•________• •_______•________•________•_______• coordinated with corporate planning ПG=4.0 ПLO=3.6 ПF=3.5 ПL=3.5 ПM=3.7 ПS=3.5 (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 The technology planning is closely •_______•________•________•________• •_______•________•________•_______• coordinated with corporate planning ПG=4.0 ПLO=3.6 ПF=3.5 ПL=3.5 ПM=3.7 ПS=3.5 (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13

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Figure 11.19 Coordination issues involved in the banks planning process (continued)


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Quality of information * Your company gets very high quality •_______•________•________•________• •_______•________•________•_______• information from the finance department ПG=3.0 ПLO=3.9 ПF=3.4 ПL=3.7 ПM=3.3 ПS=3.6 for corporate planning (ПT=3.6) N=1 N=9 N=10 N=4 N=3 N=13 Your company gets very high quality •_______•________•________•________• •_______•________•________•_______• information from the operations department ПG=3.0 ПLO=3.7 ПF=3.5 ПL=3.2 ПM=3.7 ПS=3.6 for corporate planning (ПT=3.5) N=1 N=9 N=10 N=4 N=3 N=13 Your company gets very high quality •_______•________•________•________• •_______•________•________•_______• information from the marketing department ПG=2.0 ПLO=3.7 ПF=2.9 ПL=3.0 ПM=3.7 ПS=3.2 for corporate planning (ПT=3.2) N=1 N=9 N=10 N=4 N=3 N=13 Your company gets very high quality •_______•________•________•________• •_______•________•________•_______• information from the human resource ПG=2.0 ПLO=3.8 ПF=2.9 ПL=3.0 ПM=4.0 ПS=3.2 department for corporate planning N=1 N=9 N=10 N=4 N=3 N=13 (ПT=3.2) Your company gets very high quality •_______•________•________•________• •_______•________•________•_______• information from technology development ПG=3.0 ПLO=2.7 ПF=2.7 ПL=2.7 ПM=3.0 ПS=2.6 (R & D) for corporate planning N=1 N=9 N=10 N=4 N=3 N=13 (ПT=2.7) Resistance to planning: *** Your company gets a great deal of •_______•________•________•________• •_______•________•________•_______• resistance from its finance people ПG=4.0 ПLO=2.6 ПF=2.3 ПL=3.0 ПM=1.7 ПS=2.5 (ПT=2.5) N=1 N=9 N=10 N=4 N=3 N=13 * Your company gets a great deal of •_______•________•________•________• •_______•________•________•_______• resistance from its operations people ПG=3.0 ПLO=1.9 ПF=2.1 ПL=2.2 ПM=1.7 ПS=2.1 (ПT=2.0) N=1 N=9 N=10 N=4 N=3 N=13 Your company gets a great deal of •_______•________•________•________• •_______•________•________•_______• resistance from its marketing people ПG=2.0 ПLO=1.9 ПF=2.0 ПL=2.0 ПM=1.7 ПS=2.0 (ПT=2.0) N=1 N=9 N=10 N=4 N=3 N=13 *** * Your company gets a great deal of •_______•________•________•________• •_______•________•________•_______• resistance from its human resource people ПG=4.0 ПLO=1.9 ПF=2.0 ПL=2.5 ПM=1.7 ПS=2.0 (ПT=2.0) N=1 N=9 N=10 N=4 N=3 N=13

Note that: *=p<0.05, **=p<.01, ***=p<0.001


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11.11 Personal involvement in the corporate planning process

Figure 11.20 shows the involvement of the CEO/GM in the corporate planning process

in the banks. It was found that CEO/GM’s were involved in the development of

corporate goals, missions, objectives, alternative strategies, and evaluation and approval

of the corporate plans, and having planning as a philosophy in the bank to a great extent

with no statistically significant differences either by ownership or size aspects.

Figure 11.20 CEO’s personal involvement in the corporate planning process Not at all Very Not at all Very

Involved involved involved involved Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 The development of corporate •_______•________•________•________• •_______•________•________•_______• goals, missions, objectives ПG=4.0 ПLO=4.2 ПF=4.3 ПL=4.0 ПM=4.0 ПS=4.4 N=1 N=9 N=10 N=4 N=3 N=13 The development of alternative •_______•________•________•________• •_______•________•________•_______• corporate strategies ПG=4.0 ПLO=4.3 ПF=4.3 ПL=4.2 ПM=4.0 ПS=4.4 N=1 N=9 N=10 N=4 N=3 N=13 The evaluation and approval of •_______•________•________•________• •_______•________•________•_______• the corporate plans ПG=4.0 ПLO=4.2 ПF=4.1 ПL=4.0 ПM=4.0 ПS=4.2 N=1 N=9 N=10 N=4 N=3 N=13 Having planning as a philosophy •_______•________•________•________• •_______•________•________•_______• in the company ПG=4.0 ПLO=4.2 ПF=4.1 ПL=4.0 ПM=4.0 ПS=4.2 N=1 N=9 N=10 N=4 N=3 N=13 Government Local Foreign Large Medium Small

The board of director’s involvement in the corporate planning process in foreign owned

banks was low compared with the government and locally owned banks and similarly,

large banks reported a higher involvement than the small and medium sized banks (see

figure 11.21. There were statistically significant differences found by ownership aspects

but, not by size aspects. Figure 11.21 Board of director’s involvement in the corporate planning process

Not Very Not Very Involved involved involved involved


1 2 3 4 5 1 2 3 4 5 ** •_______•________•________•_______• •_______•________•________•_______• ПG=3.0 ПLO=3.1 ПF=1.7 ПL=3.2 ПM=2.3 ПS=2.2 N=2 N=9 N=10 N=4 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001


257

It was found that board of directors in government banks were more supportive than the

board of directors in locally and foreign owned banks for their corporate planning

process and similarly, board of directors in large banks reported higher support for than

the medium and small sized banks (see figure 11.22). There were no significant

differences found either by ownership or size aspects.

Figure 11.22 How supportive the board of directors regarding corporate planning activities

Not Very Not Very Supportive supportive supportive supportive


1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______• ПG=4.0 ПLO=3.2 ПF=2.9 ПL=3.5 ПM=3.0 ПS=3.0 N=2 N=9 N=10 N=4 N=3 N=13 Government Local Foreign Large Medium Small 11.11.1 Roles of various personnel in the planning process Figure 11.23 explores the roles of various personnel in the corporate planning process.

It was found that chief executive officer had a strong influence in format of corporate

plan, assumption used in the final corporate plan, objectives embodied in the final

corporate plan, approval of the final corporate plan, and development of missions for

second level units with no significant differences either by size or ownership aspects.

Overall, the influence of outside members of board of directors on their format of

corporate plan, assumption used in the final corporate plan, objectives embodied in the

final corporate plan, approval of the final corporate plan was lower but, government and

locally owned banks reported a greater influence than the foreign owned banks and

these were significant differences by ownership aspects. The influence of corporate planning department on banks format of corporate plan,

assumption used in the final corporate plan, objectives embodied in the final corporate

plan, approval of the final corporate plan, and development of missions for second level

units were reasonably high with no significant differences either by size or ownership

aspects. It was also found that overall banks top second level line managers had a

reasonably high influence on development of missions for their second level units but

258

had less influence for the format of corporate plan, assumption used in the final

corporate plan, objectives embodied in the final corporate plan, approval of the final

corporate plan

Figure 11.23 Roles of various personnel in the planning process No Very great No Very great influence influence influence influence Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Chief executive officer: Format of corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=4.2, N=20) ПG=4.0 ПLO=4.2 ПF=4.2 ПL=4.2 ПM=4.0 ПS=4.2 N=1 N=9 N=10 N=4 N=3 N=13 Assumptions used in the •_______•________•________•________• •_______•________•________•_______• final corporate plan ПG=4.0 ПLO=4.2 ПF=4.2 ПL=4.2 ПM=4.0 ПS=4.2 (П T=4.2, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Objectives embodied in the •_______•________•________•________• •_______•________•________•_______• final corporate plan ПG=4.0 ПLO=4.2 ПF=4.2 ПL=4.2 ПM=4.0 ПS=4.2 (П T=4.2, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Approval of the final •_______•________•________•________• •_______•________•________•_______• corporate plan ПG=4.0 ПLO=4.1 ПF=4.2 ПL=4.0 ПM=4.0 ПS=4.2 (П T=4.1, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Development of missions •_______•________•________•________• •_______•________•________•_______• for second level units ПG=3.0 ПLO=4.0 ПF=4.1 ПL=3.7 ПM=3.7 ПS=4.2 (П T=4.0, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Outside members of the board of directors: * Format of corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=2.5, N=20) ПG=3.0 ПLO=3.3 ПF=1.8 ПL=3.2 ПM=2.7 ПS=2.3 N=1 N=9 N=10 N=4 N=3 N=13 * Assumptions used in the final corporate •_______•________•________•________• •_______•________•________•_______• plan ПG=2.0 ПLO=3.0 ПF=1.8 ПL=3.0 ПM=2.3 ПS=2.2 (П T=2.3, N=20) N=1 N=9 N=10 N=4 N=3 N=13 * Objectives embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan ПG=3.0 ПLO=3.0 ПF=1.8 ПL=3.2 ПM=2.3 ПS=2.2 (П T=2.4, N=20) N=1 N=9 N=10 N=4 N=3 N=13 * Strategies embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan ПG=3.0 ПLO=3.0 ПF=1.8 ПL=3.2 ПM=2.3 ПS=2.2 (П T=2.4, N=20) N=1 N=9 N=10 N=4 N=3 N=13 * Approval of the final corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=2.6, N=20) ПG=3.0 ПLO=3.4 ПF=1.8 ПL=3.5 ПM=2.7 ПS=2.3 N=1 N=9 N=10 N=4 N=3 N=13 Development of missions for second •_______•________•________•________• •_______•________•________•_______• level units ПG=1.0 ПLO=2.4 ПF=1.8 ПL=2.0 ПM=2.0 ПS=2.1 (П T=2.0, N=20) N=1 N=9 N=10 N=4 N=3 N=13

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Figure 11.23 Roles of various personnel in the planning process (continued) No Very great No Very great influence influence influence influence Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Corporate planning department: Format of corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=3.6, N=7) ПLO=3.6 ПL=3.5 ПM=4.0 ПS=3.5 N=7 N=2 N=2 N=3 Assumptions used in the final corporate •_______•________•________•________• •_______•________•________•_______• Plan (П T=3.5, N=7) ПLO=3.5 ПL=3.5 ПM=3.5 ПS=3.5 N=7 N=2 N=2 N=3 Objectives embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan (П T=3.7, N=7) ПLO=3.7 ПL=3.5 ПM=3.5 ПS=4.0 N=7 N=2 N=2 N=3 Strategies embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan (П T=3.5, N=7) ПLO=3.5 ПL=3.5 ПM=3.5 ПS=3.5 N=7 N=2 N=2 N=3 Approval of the final corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=3.0, N=7) ПLO=3.0 ПL=3.0 ПM=3.5 ПS=2.5 N=7 N=2 N=2 N=3 Development of missions for second •_______•________•________•________• •_______•________•________•_______• level units ПLO=3.0 ПL=3.0 ПM=3.0 ПS=3.0 (П T=3.0, N=7) N=7 N=2 N=2 N=3 Top second level line managers: Format of corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=2.8, N=20) ПG=2.0 ПLO=2.9 ПF=2.8 ПL=2.7 ПM=3.3 ПS=2.7 N=1 N=9 N=10 N=4 N=3 N=13 Assumptions used in the final corporate •_______•________•________•________• •_______•________•________•_______• plan (П T=2.8, N=20) ПG=2.0 ПLO=3.0 ПF=2.8 ПL=3.0 ПM=3.0 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Objectives embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan (П T=2.7, N=20) ПG=2.0 ПLO=2.8 ПF=2.7 ПL=2.5 ПM=3.0 ПS=2.7 N=1 N=9 N=10 N=4 N=3 N=13 ** * Strategies embodied in the final corporate •_______•________•________•________• •_______•________•________•_______• plan (П T=2.7, N=20) ПG=1.0 ПLO=2.9 ПF=2.7 ПL=2.2 ПM=3.0 ПS=2.8 N=1 N=9 N=10 N=4 N=3 N=13 Approval of the final corporate plan •_______•________•________•________• •_______•________•________•_______• (П T=1.9, N=20) ПG=1.0 ПLO=2.0 ПF=1.9 ПL=1.7 ПM=2.3 ПS=1.9 N=1 N=9 N=10 N=4 N=3 N=13 Development of missions for second •_______•________•________•________• •_______•________•________•_______• level units ПG=2.0 ПLO=3.7 ПF=3.4 ПL=3.2 ПM=3.7 ПS=3.5 (П T=3.4, N=20) N=1 N=9 N=10 N=4 N=3 N=13 Note that: *=p<0.05, **=p<.01, ***=p<0.001


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11.12 Major problems of current planning process

Only two banks reported experiencing problems specifically as a result of using their

current planning systems and those two banks include one government owned bank and

one foreign owned bank. The major problems they experienced were lack of

participative decision making processes and lack of strategic thinking at the top level.

Both banks believed that their planning system needs to be changed in order to deal

with the problems they experienced and these banks think their planning process should

be an on-going process and there should be a system to discuss the changes.

11.13 Expected changes in the strategic management approach

Table 11.15 summarises the banks expected changes in their strategic management

approach in the next five years. 8 banks mentioned that they will continue with

participatory decision making process for strategic planning while 8 banks expect no

change during the next five years. 7 of the 20 banks were expected to develop strategic

thinking capabilities in all levels of their banks in the next five years. It was found that

applying participatory techniques and methods in planning process was associated with

ownership aspects and was an expected change in one government owned bank and two

foreign owned banks.

Table 11.15 Banks expected changes in the strategic management approaches in the next five years

Total Ownership aspects Size aspects Expected change N % G % LO % F % C Sig L % M % S % C Sig

Apply participating techniques and methods in planning process

3 15.0 1 100 - - 2 20.0 .610 * 1 25.0 - - 2 15.4 .206 n.s

We expect no changes during the next five years

8 40.0 - - 3 33.3 5 50.0 .250 n.s 1 25.0 1 33.3 6 46.2 .178 n.s

Possibility of hiring a private company to consult

1 5.0 - - - - 1 10.0 .229 n.s - - - - 1 7.7 .168 n.s

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Table 11.15 Banks expected changes in the strategic management approaches in the next five years (continued)

Total Ownership aspects Size aspects Expected change N % G % LO % F % C Sig L % M % S % C Sig

Develop strategic thinking capabilities in all levels of the bank

7 35.0 - - 5 55.6 2 20.0 .400 n.s 2 50.0 2 66.7 3 23.1 .356 n.s

Continue the participatory decision making process for strategic planning

8 40.0 - - 6 66.7 2 20.0 .500 n.s 2 50.0 1 33.3 5 38.5 .108 n.s

Concern more on cost efficiency within the bank

2 10.0 - - 2 22.2 - - .369 n.s 1 25.0 - - 1 7.7 .266 n.s

11.14 Importance of informal planning

Informal planning with respect to strategic management was believed to be important

with no statistically significant differences either by ownership or size aspects (see

figure 11.24).

Figure 11.24 Importance of informal planning

Not Very Not Very

important important important important Ownership aspects Size aspects ПT=3.6, N=20 ПT=3.6, N=20

1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______• ПG=4.0 ПLO=3.9 ПF=3.3 ПL=4.0 ПM=4.3 ПS=3.3 N=1 N=9 N=10 N=4 N=3 N=13 Government Local Foreign Large Medium Small

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11.15 Planning effectiveness

Figure 11.25 shows the effectiveness of the banks planning process. It was found that

government owned banks had the lowest level of planning effectiveness compared with

locally and foreign owned banks. Results also found there were significant differences

by the ownership aspects but, not by the size aspects.

Figure 11.25: Planning effectiveness of the banks Not Very Not Very


1 2 3 4 5 1 2 3 4 5 ПG=3.0 ПLO=4.0 ПF=3.7 ПL=3.7 ПM=4.0 ПS=3.8

•_______•________•________•_______• * •_______•________•________•_______•

N=1 N=9 N=10 N=4 N=3 N=13


11.16 Contribution of formal planning Overall, banks formal planning process made a reasonably high contribution to their

strategic management process (see figure 11.26). There were no significant differences

found in the contribution of formal planning either by size or ownership aspects.

Figure 11.26 contribution of formal planing No Major No Major

contribution contribution contribution contribution Ownership aspects Size aspects ПT=4.0, N=20 ПT=4.0, N=20

1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______•

ПG=4.0 ПLO=4.1 ПF=3.9 ПL=4.0 ПM=3.7 ПS=4.1 N=1 N=9 N=10 N=4 N=3 N=13 Government Local Foreign Large Medium Small

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11.17 The extent that the banks strategically managed

Figure 11.27 shows to what extent the banks were strategically managed. It was found

that overall, banks were strategically managed to a high extent with no significant

differences either by size or ownership aspects.

Figure 11.27 The extent that the banks strategically managed

Not Very Not Very


1 2 3 4 5 1 2 3 4 5 •_______•________•________•_______• •_______•________•________•_______•

ПG=4.0 ПLO=3.9 ПF=4.0 ПL=4.0 ПM=4.0 ПS=3.9 N=1 N=9 N=10 N=4 N=3 N=13 Government Local Foreign Large Medium Small

11.18 Chapter summary

Except for one government owned bank all the other banks reported having a

formalized strategic planning system at their corporate level. It was found that only 4

banks had a formalized strategic planning system at their second level and these four

banks included one government and three locally owned banks. It was also found that in

18 of the 20 banks the longer term plan was prepared first and the shorter term plan then

fitted into long term plan.

Most of the banks corporate plans were updated yearly and they reviewed the progress

of corporate plans monthly or quarterly. Overall, most banks corporate planning efforts

were spent on action planning or operational planning for the next 1-3 years followed

by short term emergency planning and formalized contingency planning. It was also

found that overall, banks did not think about what the bank wants to be in the next 10-

20 years.

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The areas most banks purchased external forecasts were laws and regulations for

financial services sector and technology. The areas where forecasts were most

transmitted from corporate level to second level were domestic economy, technological,

laws and regulations for financial services, and human resources. Banks overall, felt that

there would not be a severe impact on their quality of corporate planning, second level

planning, and other lower levels planning efforts if the external forecasts purchased by

corporate planning were not available.

Goals and objectives, corporate strategies, deposit mobilization, implementation and

monitoring, and feedback were all included in the banks corporate long range plans. It

was found that ownership aspects were more associated with the major headings in the

banks corporate plans than the size aspects. 15 of the 20 banks senior management only

had the access to their corporate plan and only in 4 banks personnel in the second level

and up had access to their corporate plan. Financial, and sources and uses of funds had

the highest added values in corporate plans over the banks second level plans. It was

also found that banks did not have an extensive use of computer models/systems for

their corporate planning. 18 of the 20 banks used forecasting and financial models and

strategic decision support systems for their corporate planning but, reported these

models and systems were not used extensively.

Only 7 locally owned banks reported having a corporate planning department in their

banks and the rotation of the line personnel in corporate planning departments was low.

It was found that the chief corporate planner was more likely to attend capital budgeting

meetings than divisional planning meetings and group planning meetings. It was also

found that corporate planning department had the authority to obtain substantive

revisions, to obtain procedural revisions, and to review and criticize second level plans

to a reasonably high extent.

The major headings of most of the 4 banks that had second level long term plans were

environmental analysis, business strategies, forecasts and budgets, revenue targets, time

frames for assessment, and volume targets for products and services. All the banks

grouped their second level units for planning, the same way they were grouped for

operations. The annual budget for the second level units was integrated to a reasonably

high extent with the long term plans of these units. It was also found that computer

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models/systems were used for second level planning to some extent but, not to a high

extent.

Only two locally owned banks reported having long term plans at the third level and

these two banks included one large and one medium sized bank. None of the banks had

a long term plan at their fourth level.

It was found that 9 banks had contingency planning only for corporate level and 11

banks had contingency planning both for the corporate and second level. There were

significant differences found in the specific planning task by ownership aspects and to

prepare specific studies was greater in government bank than the locally and foreign

owned banks. Overall, banks planning process plays an important role in strategically

managing banks organizational structure, sequence future activities, and have

measurable positive effect on sales and profits. Banks also think the planning process is

a device to assure that conflicting expectations are resolved. It was also found that

locally and foreign owned banks think the planning process is a means for

systematically dealing with uncertainty to a greater extent than the government bank.

While the government bank strongly agreed to the statement that their planning effort is

an adaptive, evolving, learning activity other locally and foreign owned banks agreed to

a high extent. Overall, banks put effort into identifying possible impacts of the

economy, the sources of funds, the customer demands, technological developments,

competitors cost structure, and the impacts of the government on banks operations

respectively. It was also found that banks competitive analysis, supplier analysis,

economic analysis, and political analysis were major activities of corporate level

management, customer analysis was a major activity of marketing people and corporate

level management, and technology analysis was a major activity of operations people.

The banks corporate planning was coordinated with financial planning to a great extent.

It was also found that their finance, operations, marketing, and human resource

departments provide very high quality information for their corporate planning.

Furthermore, Banks were not getting any great deal of resistance from their finance,

operations, marketing, and human resource departments for their corporate planning.

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CEO/GM’s were involved to a great extent in the development of corporate goals,

missions, objectives, alternative corporate strategies, and evaluation and approval of the

corporate plans, and having planning as a philosophy in the bank. The involvement of

the board of directors in the corporate planning process in foreign banks was low

compared to government and locally owned banks. Furthermore, the board of directors

in the government bank were more supportive than the board of directors in locally

owned and foreign owned banks.

It was found that chief executive officer had the greatest influence on the format of

corporate plan, assumption used in the final corporate plan, objectives embodied in the

final corporate plan, approval of the final corporate plan, and development of missions

for second level units while corporate planning department had a reasonably high

influence and the outside board of directors had less influence. It was also found that

top second level line managers had a reasonably high influence only for development of

missions for second level units.

The banks expected major changes in their strategic management process and these

were to continue the participatory decision making process for strategic planning, and to

develop strategic thinking capabilities in all levels of the banks. Eight banks were not

expecting to introduce any changes to their strategic management process in the next

five years.

Informal planning with respect to strategic management was believed to be important.

Similarly, it was found that government owned banks had the lowest level of planning

effectiveness compared to locally and foreign owned banks. It was also found that

overall, formal planning process made a reasonably high contribution to their strategic

management process. Finally, the responses of the banks confirmed that the banks felt

they were strategically managed to a great extent.

The next chapter will analyse the strategic thinking capabilities of the banks.

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Chapter 12 Strategic thinking capabilities 12.1 Introduction This chapter will analyse the strategic thinking capabilities of the banks in terms of

employee participation and their risk taking behaviours, system perspective, strategic

intent, thinking in time, and intelligent opportunism. The significant differences either

by size or ownership aspects will be highlighted. Then the sample companies will be

categorized under three major categories such as strong strategic thinkers, moderate

strategic thinkers, and the weak strategic thinkers to identify which companies had the

highest level of strategic thinking.

12.2 Employee participation and risk taking behaviour

Figure 12.1 shows to what extent employees participate in the strategy making process

and also their risk taking behaviours. Overall, banks agreed with the statement that

strategy is made on an iterative basis, involving managers, staff and executives in an on

going dialogue to a reasonably high extent. Overall, the banks employees were not

willing to take risks. The major reason for that may be that banking operations are more

structured than other company’s operations and therefore, employees do not have an

environment in which to experiment. However medium sized banks encouraged their

employees more to do experiments than the other banks and similarly, locally owned

banks encouraged their employees more to do experiments than the government and

foreign owned banks. Furthermore, in locally owned banks their employees had more

input into decisions that affect them than the foreign owned and government owned

banks.

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Figure 12.1 Employee’s participation and their risk taking behaviour Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Strategy is made on an iterative •_____•______•______•_____• •_____•______•______•_____• basis, involving managers staff and ПG=4.5 ПLO=3.7 ПF=3.1 ПL=3.8 ПM=4.0 ПS=3.2 executive in an on-going dialogue N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.5, N=21) Business planning in our company •_____•______•______•_____• •_____•______•______•_____• is ongoing, involving everyone in the ПG=3.0 ПLO=3.4 ПF=3.2 ПL=3.2 ПM=3.7 ПS=3.2 process to some degree N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.3, N=21) Most people in this company have •_____•______•______•_____• •_____•______•______•_____• * input into decisions that affect them ПG=2.5 ПLO=3.3 ПF=3.1 ПL=2.8 ПM=4.0 ПS=3.1 (ПT=3.1, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company continually adopts its •_____•______•______•_____• ** •_____•______•______•_____• strategy based upon feedback from the ПG=3.0 ПLO=4.0 ПF=3.5 ПL=3.6 ПM=4.0 ПS=3.6 market (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Most people in this organization are •_____•______•______•_____• •_____•______•______•_____• willing to take risks (ПT=2.4,N=21) ПG=2.5 ПLO=2.4 ПF=2.3 ПL=2.2 ПM=3.3 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 People are encouraged to experiment in •_____•______•______•_____• •_____•______•______•_____• this company so as to identify new, more ПG=2.5 ПLO=3.1 ПF=2.6 ПL=2.6 ПM=3.3 ПS=2.8 innovative approaches or products N=2 N=9 N=10 N=5 N=3 N=13 (ПT=2.9 N=21) Employees in this company understand what •_____•______•______•_____• * •_____•______•______•_____• needs to be accomplished in order for the ПG=3.5 ПLO=4.0 ПF=3.2 ПL=3.8 ПM=4.0 ПS=3.2 organization to survive and prosper N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.6 N=21) Government Local Foreign Large Medium Small 12. 3 Systems perspective Figure 12.2 shows the relationship of the interdependencies included in the banks value

creation process. Banks overall, reasonably agreed with all the statements that were

identified in figure 12.2. Banks think strategically about which of these competing

networks of suppliers we join and how we position ourselves within this ecosystem to a

high extent and that was seen in a locally owned banks to a greater extent. It was found

that medium sized banks and locally owned banks reported the strategic thinking

capabilities in systems perspectives than other banks. Government banks overall did not

clarify each individual about the effects of their behaviour in the whole system and also

not appreciate the inter relationships among the internal pieces in their organizations

like locally owned and foreign owned banks and these were significant differences by

ownership aspects.

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Figure 12.2 The relationship of the interdependencies included in the banks value creation process Disagree Strongly Disagree Strongly agree agree


We view our company not as a member •_____•______•______•_____• * •_____•______•______•_____• of a single industry but as part of a business ПG=3.5 ПLO=4.1 ПF=2.9 ПL=4.0 ПM=4.0 ПS=3.2 system that crosses a variety of industries N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.5, N=21) We co-evolve capabilities around a new •_____•______•______•_____• ** •_____•______•______•_____• innovation and work co-operatively and ПG=3.5 ПLO=3.9 ПF=2.6 ПL=3.8 ПM=4.0 ПS=2.8 competitively to support new products N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.2, N=21) Our company think strategically about which •_____•______•______•_____• * •_____•______•______•_____• of these competing networks of suppliers we ПG=3.5 ПLO=4.1 ПF=3.3 ПL=4.0 ПM=4.0 ПS=3.5 join and how we position ourselves within N=2 N=9 N=10 N=5 N=3 N=13 this ecosystem (ПT=3.7, N=21) Our company knows the importance of fit •_____•______•______•_____• •_____•______•______•_____• between corporate, business, functional, and ПG=3.0 ПLO=3.9 ПF=3.4 ПL=3.4 ПM=4.0 ПS=3.5 the personal level which may be the most N=2 N=9 N=10 N=5 N=3 N=13 critical of all levels (ПT=3.6, N=21) Our company also appreciate the •_____•______•______•_____• •_____•______•______•_____• inter-relationships among the internal pieces that, ПG=2.5 ПLO=3.8 ПF=3.2 ПL=3.2 ПM=4.0 ПS=3.4 taken together, comprise the whole N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.4, N=21) Our company clarifies each individual about the •_____•______•______•_____• ** •_____•______•______•_____• effects of their behaviour on other parts of the ПG=2.5 ПLO=3.9 ПF=3.3 ПL=3.4 ПM=3.7 ПS=3.5 whole system and its final outcome N=2 N=9 N=10 N=5 N=3 N=13 (ПT=3.5, N=21) Government Local Foreign Large Medium Small 12.4 Strategic intent

Figure 12.3 displays to what extent the banks adopted the concept of strategic intent. It

was found that overall; banks did not focus on their strategic intent to a high degree.

However, government banks focused organization’s attention on the essence of winning

the intent, and motivating people by communicating the value of the intent more than

the locally and foreign owned banks and these were significant differences. It was also

found that small banks had the lowest level of focus on strategic intent than the large

and medium sized banks and therefore, there were significant differences found in all

the elements identified in the figure 12.3 by size aspects.

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Figure 12.3 strategic intent Disagree Strongly Disagree Strongly


1 2 3 4 5 1 2 3 4 5 Our company has a long term corporate dream •_____•______•______•_____• •_____•______•______•_____• * (intent) about the competitive position that our ПG=3.5 ПLO=3.1 ПF=2.5 ПL=3.6 ПM=3.7 ПS=2.4 company hopes to build over the coming decade N=2 N=9 N=10 N=5 N=3 N=13 (ПT=2.9, N=21) Our company is focusing the organization’s •_____•______•______•_____• * •_____•______•______•_____• * attention on the essence of winning the intent ПG=4.0 ПLO=3.0 ПF=2.4 ПL=3.6 ПM=3.3 ПS=2.4 (ПT=2.8, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company is motivating people by •_____•______•______•_____• * •_____•______•______•_____• * communicating the value of the intent ПG=3.5 ПLO=2.9 ПF=2.2 ПL=3.2 ПM=3.3 ПS=2.2 (ПT=2.6, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company is leaving room for individual •_____•______•______•_____• •_____•______•______•_____• * and team contributions to achieve the intent ПG=2.5 ПLO=2.9 ПF=2.2 ПL=2.8 ПM=3.3 ПS=2.2 (ПT=2.5, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company is sustaining enthusiasm by •_____•______•______•_____• •_____•______•______•_____• * providing new operational definitions as ПG=3.0 ПLO=2.9 ПF=2.3 ПL=3.0 ПM=3.3 ПS=2.3 circumstances change N=2 N=9 N=10 N=5 N=3 N=13 (ПT=2.6, N=21) Our company is using intent consistently to •_____•______•______•_____• •_____•______•______•_____• * guide resource allocations ПG=3.5 ПLO=2.8 ПF=2.3 ПL=3.2 ПM=3.3 ПS=2.3 (ПT=2.6, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small 12.5 Thinking in time

Figure 12.4 shows to what extent “thinking in time” is important for the banks in their

strategic management. It was found that overall banks agreed with the statement that

strategic thinking, is always thinking in time and it connects past, present and future to a

high extent. However, it was found that locally owned banks considered thinking in

time as a more important factor in their strategic thinking process than the government

and foreign owned banks and therefore, all the statements that identified in the figure

12.4 were associated with the ownership aspects. There were no significant differences

found in by size aspects.

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Figure 12.4 Banks thinking in time



1 2 3 4 5 1 2 3 4 5 Strategic thinking, is always “thinking in time” •_____•______•______•_____• ** •_____•______•______•_____• and it connects past, present, and future ПG=3.0 ПLO=4.0 ПF=3.6 ПL=3.6 ПM=4.0 ПS=3.7 (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Thinking in time uses an organization’s memory •_____•______•______•_____• * •_____•______•______•_____• to think well about creating its future ПG=3.0 ПLO=4.0 ПF=3.6 ПL=3.6 ПM=4.0 ПS=3.7 (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Oscillation between the past, present and, •_____•______•______•_____• •_____•______•______•_____• future is essential for the execution of strategy ПG=3.5 ПLO=4.0 ПF=3.4 ПL=3.8 ПM=4.0 ПS=3.5 as well as its formulation (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company believes strategic question is not •_____•______•______•_____• * •_____•______•______•_____• only “what does the future that we want”, but ПG=3.5 ПLO=4.0 ПF=3.5 ПL=3.8 ПM=4.0 ПS=3.6 also what must we keep and loose from N=2 N=9 N=10 N=5 N=3 N=13 our past and create in our present to go there (ПT=3.7, N=21) Government Local Foreign Large Medium Small 12.6 Intelligent opportunism

Figure 12.5 reveals the elements of intelligent opportunism in the banks. It was found

that overall; banks did not leave much room for emergent strategies. However, locally

owned banks had more room for their emergent strategies than the government and

locally owned banks and this was a significant difference by ownership aspects.

Similarly, medium sized banks had encouraged more of their lower level employees to

practise alternative strategies better suited for changing environments than the large and

small banks and this was a significant difference by size aspects. It was also found that

employees rely more on their top management foresight and they were not willing to

take risk.

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Figure 12.5 Intelligent opportunism



1 2 3 4 5 1 2 3 4 5 Our company always leave room for emerging •_____•______•______•_____• * •_____•______•______•_____• Strategies in addition to intended strategies ПG=3.0 ПLO=3.4 ПF=2.6 ПL=3.2 ПM=3.7 ПS=2.8 (ПT=3.0, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company always encourage lower level •_____•______•______•_____• •_____•______•______•_____• * employees to practice alternative strategies better ПG=2.0 ПLO=2.7 ПF=2.5 ПL=2.6 ПM=3.3 ПS=2.3 suited for changing environments N=2 N=9 N=10 N=5 N=3 N=13 (ПT=2.5, N=21) Our employees not rely on top management •_____•______•______•_____• •_____•______•______•_____• foresight and they are willing to take risk ПG=2.5 ПLO=2.2 ПF=2.3 ПL=2.4 ПM=3.0 ПS=2 .1(ПT=2.3, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small 12.7 Classification for strategic thinkers

All the banks were categorized as either strong, moderate, or weak strategic thinkers

and table 12.1 shows the classification for strategic thinkers. The average scores of 4 to

5 was categorized as strong strategic thinkers and the average scores of 3 to 3.9 was

categorized as moderate strategic thinkers. Similarly, the average scores below 3 was

categorized as weak strategic thinkers.

Table 12.1: Classification for the strategic thinkers

Size aspects Average Score

Strong strategic thinkers (SST) Between 4 - 5

Moderate strategic thinkers (MST) Between 3 - 3.9

Weak strategic thinkers (WST) Below 3

Table 12.2 displays the categorization of the strategic thinking capabilities of the banks

by ownership and size aspects. It was found that medium sized banks had the highest

averages for all the strategic thinking capabilities that are identified in the table 12.2

compared with the large and small sized banks. However, overall medium and large

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banks fell in to the category of moderate strategic thinkers. Even though large banks had

higher profits and revenues and also the higher number of employees and branches than

medium sized banks, medium sized banks had a higher level of strategic thinking

capabilities than the large banks. Small banks fell in to the category of weak strategic

thinkers and this was due to their lack of the strategic thinking capabilities such as

strategic intent and intelligent opportunism.

Except for strategic intent locally owned banks reported the highest averages for all the

other elements that are identified in the table 12.2. However, both the locally owned

banks and government banks fell in to the category of moderate strategic thinkers.

Foreign owned banks were weak strategic thinkers and thinking capabilities such as

intelligent opportunism and strategic intent were low for these banks.

Table 12.2 categorized strategic thinking capabilities of size and ownership aspects

Ownership aspects Size aspects Elements of strategic thinking G LO F L M S Employee participation & their risk taking behaviour

3.1 (MST)

3.4 (MST)

3.0 (MST)

3.1 (MST)

3.8 (MST)

3.0 (MST)

System perspective 3.1 (MST)

3.9 (MST)

3.1 (MST)

3.6 (MST)

3.9 (MST)

3.3 (MST)

Strategic intent 3.3 (MST)

2.9 (WST)

2.3 (WST)

3.2 (MST)

3.4 (MST)

2.3 (WST)

Thinking in Time 3.2 (MST)

4.0 (SST)

3.5 (MST)

3.7 (MST)

4.0 (SST)

3.6 (MST)

Intelligent opportunism 2.5 (WST)

2.8 (WST)

2.5 (WST)

2.7 (WST)

3.3 (MST)

2.4 (WST)

Overall 3.0 (MST)

3.4 (MST)

2.8 (WST)

3.3 (MST)

3.7 (MST)

2.9 (WST)

Table 12.3 shows the overall strategic thinking capabilities in terms of ownership and

size aspects. It was found that locally owned banks and government owned banks fell

into the category of moderate strategic thinkers and small sized banks were fell into the

category of weak strategic thinkers. Similarly, medium sized and large banks were

moderate strategic thinkers and foreign owned banks were weak strategic thinkers. No

banks fell into the category of strong strategic thinkers.

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Table 12.3 Overall strategic thinking capabilities of the banks

Ownership aspects Size aspects Category G LO F L M S

Weak strategic thinkers -

- × - - ×

Moderate strategic thinkers

× × - × × -

Strong strategic thinkers -

- - - - -

Note that: Total (N)=21, G(N)=2, LO(N)=9, F(N)=10, L(N)=5, M(N)=3, S(N)=13 12. 8 Chapter summary

This chapter has discussed the strategic thinking capabilities of the banks in terms of

employee participation and their risk taking behaviours, systems perspective, strategic

intent, thinking in time, and intelligent opportunism.

Overall, banks strategy is made on an iterative basis, involving managers, staff and

executives in an on going dialogue to a reasonably high extent and the banks employees

were not willing to take risks. Medium sized banks encouraged their employees more to

experiment than the other banks and similarly, locally owned banks encouraged their

employees to experiment more than the government and foreign owned banks.

Furthermore, locally owned banks employees had more input into decisions that affect

them than the foreign owned and government owned banks.

Banks considered they were just a part of a business system that crosses a variety of

industries and they think strategically about which of these competing networks of

suppliers they join and how they position within that ecosystem to a reasonable high

extent. Similarly, banks identified to a reasonably high extent the importance of fit

between corporate, business, functional, and personnel levels. Thus, overall, banks had

a reasonably high understanding about the relationship of the interdependencies of their

value creation process.

It was found that, overall banks did not focus much on strategic intent. However,

government banks focused organization’s attention on the essence of winning the intent,

and motivating people by communicating the value of the intent more than the locally

275

and foreign owned banks. Small banks had the least level of focus on their strategic

intent than the large and medium banks.

Overall, banks agreed with the statement that strategic thinking is always thinking in

time and it connects past, present and future to a high extent. However, it was found that

locally owned banks considered thinking in time as a more important factor in their

strategic thinking process than the government and foreign owned banks. Thus, banks

overall had a high understanding about the importance of “thinking in time” in their

strategic management.

It was found that overall, banks did not leave much room for emergent strategies.

However, locally owned banks had more room for their emergent strategies than the

government and foreign owned banks. Similarly, medium sized banks had encouraged

more of their lower level employees to practise alternative strategies better suited for

changing environments than the large and small banks. It was also found that employees

rely more on their top management foresight and they were not willing to take risks.

Thus, the intelligent opportunism of banks lower levels was low.

The results show that medium sized banks had a higher level of strategic thinking

capabilities than the large and small sized banks. However, large and medium sized

banks fell in to the category of moderate strategic thinkers and small sized banks fell in

to the category of weak strategic thinkers. Similarly, locally owned banks had a higher

level of strategic thinking capabilities than the government and foreign owned banks.

Government and locally owned banks were moderate strategic thinkers and foreign

owned banks were weak strategic thinkers. Furthermore, no banks category reported

having strong strategic thinking capabilities.

The next chapter will analyse the analytical tools/techniques, corporate strategies and

the management of quality of the banks.

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Chapter 13: Analytical tools/ techniques, corporate strategies and the management of quality

13.1 Introduction

This chapter mainly focuses on the analytical tools and techniques which were used in

the strategy development processes, corporate strategies, and the management of quality

of the Sri Lankan commercial banks. Under corporate strategies, the formation of the

corporate strategies and the procedures and processes used for their development by the

commercial banks will be analysed. The major corporate strategies analysed in this

chapter include strategies such as product and market growth, research and

development, international, acquisition, divestiture, merger and turnaround. In addition

to the analyses, the significant differences either by size and ownership aspects will be

highlighted. A summary of the analyses of analytical tools and techniques, corporate

strategies and the management of quality will be provided at the end of the chapter.

13.2 Analytical tools and techniques which influence bank’s strategies

Analytical tools and techniques that influence banks corporate strategies will be

discussed under two categories namely the environment and resource analysis

techniques, and planning techniques.

13.2.1 Environment and resource analysis techniques (over the last five years)

Figure 13.1 shows to what extent the environment and resource analysis techniques

influenced the banks corporate strategies during the last five years. According to the

banks, SWOT analysis had the greatest influence on bank’s corporate strategies over the

last five years followed by five forces and PEST analysis. Results also found that key

success factors, product life cycle, driving forces, product market, portfolio and strategy

analysis also had a reasonable influence on banks corporate strategies. Surprisingly,

277

PEST and five forces analysis did not have a greater influence in government bank’s

corporate strategies.

Figure 13.1 The influence of environment and resource analysis techniques (over the last five years)

No influence Very great No influence Very great Influence Influence

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 PEST analysis •_______•________•________•________• •_______•________•________•_______• (political, economic, social, technological) ПG=3.0 ПLO=4.2 ПF=4.3 ** ПL=4.2 ПM=4.0 ПS=4.2 * (ПT=4.1, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Five forces analysis •_______•________•________•________• •_______•________•________•_______• (supplier, buyer, competitor, new entrant, ПG=3.0 ПLO=4.3 ПF=4.3 ** ПL=4.2 ПM=4.3 ПS=4.2 substitute) (ПT=4.2, N=21) N=2 N=9 N=10 N=5 N=3 N=13 SWOT analysis •_______•________•________•________• •_______•________•________•_______• (strengths, weaknesses, opportunities, threats) ПG=4.5 ПLO=4.3 ПF=4.4 ПL=4.6 ПM=4.7 ПS=4.2 (ПT=4.4, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Driving forces analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=21) ПG=3.0 ПLO=3.8 ПF=3.3 ПL=3.4 ПM=4.0 ПS=3.4 N=2 N=9 N=10 N=5 N=3 N=13 Key success factors •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=21) ПG=4.0 ПLO=3.9 ПF=3.5 ПL=4.0 ПM=4.0 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Product life cycle analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=3.0 ПLO=3.9 ПF=3.4 ПL=3.8 ПM=3.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Product market fit analyses •_______•________•________•________• •_______•________•________•_______• (ПT=3.1, N=21) ПG=3.5 ПLO=3.2 ПF=3.0 ПL=3.4 ПM=3.3 ПS=3.0 N=2 N=9 N=10 N=5 N=3 N=13 Portfolio and strategy analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=21) ПG=3.5 ПLO=3.2 ПF=2.8 ПL=3.2 ПM=3.7 ПS=2.8 N=2 N=9 N=10 N=5 N=3 N=13 ETOP and SAP analysis •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=21) ПG=2.0 ПLO=2.7 ПF=2.4 ПL=2.4 ПM=2.7 ПS=2.5 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

13.2.2 Planning techniques (over the last five years)

Figure 13.2 displays to what extent planning techniques influenced the banks strategies

during the last five years. Results found that total quality management had the highest

influence on banks strategies followed by the BCG service portfolio matrix. All the

other planning techniques identified in figure 13.2 were reported as having very little

influence on bank’s corporate strategies. BCG service portfolio matrix, General Electric

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matrix, and service and market portfolio matrix had a reasonable influence on large

banks corporate strategies but not in the medium and small sized banks. TOWS

technique had a reasonable influence in government owned and locally owned banks but

did not have a reasonable influence in foreign owned banks. Similarly, 7-S framework

had no influence on government banks corporate strategies.

Figure 13.2 The influence of Planning techniques (over the last five years)


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 BCG service portfolio matrix •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=21) ПG=2.0 ПLO=3.4 ПF=2.6 * ПL=3.2 ПM=2.7 ПS=2.8 N=2 N=9 N=10 N=5 N=3 N=13 General Electric matrix •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=2.5 ПLO=2.9 ПF=2.0 ПL=3.2 ПM=2.7 ПS=2.1 * N=2 N=9 N=10 N=5 N=3 N=13 Service and market portfolio matrix •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=21) ПG=3.5 ПLO=2.9 ПF=2.0 ПL=3.2 ПM=2.7 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Grand strategy technique •_______•________•________•________• •_______•________•________•_______• (ПT=2.3, N=21) ПG=2.5 ПLO=2.4 ПF=2.1 ПL=2.4 ПM=2.0 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 TOWS technique •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=3.0 ПLO=2.8 ПF=2.0 ** ПL=3.0 ПM=1.7 ПS=2.4 * N=2 N=9 N=10 N=5 N=3 N=13 7-S framework (7S- Mickinsey excellent •_______•________•________•________• •_______•________•________•_______• factors) (ПT=2.1, N=21) ПG=1.0 ПLO=2.3 ПF=2.2 ** ПL=1.8 ПM=2.0 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 PIMS (profit impact of market strategy) •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=3.0 ПLO=2.4 ПF=2.3 ПL=2.6 ПM=2.3 ПS=2.4 N=2 N=9 N=10 N=5 N=3 N=13 TQM (total quality management) •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=3.5 ПLO=3.7 ПF=3.5 ПL=3.8 ПM=3.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Strategy centre concept (A.D. Little) •_______•________•________•________• •_______•________•________•_______• (ПT=2.1, N=21) ПG=2.0 ПLO=2.1 ПF=2.1 ПL=2.2 ПM=1.7 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small 13.2.3 Environment and resource analysis techniques (over the next five

years) Figure 13.3 shows the expected influence of the environment and resource analysis

techniques on the banks corporate strategies in the next five years. It was found that

279

SWOT, PEST, five forces analysis, and key success factors expected to have a greater

influence on banks corporate strategies in the next five years respectively. Driving

forces, product life cycle, product market fit, portfolio and strategy, ETOP & SAP

analysis are also expected to have a reasonable influence on banks corporate strategies

over the next five years. PEST analysis had a greater influence on large banks corporate

strategies than the medium and small sized banks, similarly SWOT analysis had a

greater influence on medium sized banks than the large and small banks and these all

were significant differences by size aspects. Furthermore, ETOP & SAP analysis had a

greater influence in medium sized banks than the small and large banks and this was a

significant difference by size aspects.

Figure 13.3 The influence of environment and resource analysis techniques (over the next five years)


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 PEST analysis •_______•________•________•________• •_______•________•________•_______• (political, economic, social, ПG=4.0 ПLO=4.3 ПF=4.5 ПL=4.6 ПM=4.3 ПS=4.3 * -technological) (ПT=4.4, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Five forces analysis •_______•________•________•________• •_______•________•________•_______• (supplier, buyer, competitor, ПG=4.0 ПLO=4.4 ПF=4.4 ПL=4.6 ПM=4.7 ПS=4.2 - new entrant, substitute) (ПT=4.4, N=21) N=2 N=9 N=10 N=5 N=3 N=13 SWOT analysis •_______•________•________•________• •_______•________•________•_______• (strengths, weaknesses, ПG=4.5 ПLO=4.6 ПF=4.5 ПL=4.8 ПM=5.0 ПS=4.3 * -opportunities, threats)( ПT=4.5, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Driving forces analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=21) ПG=3.0 ПLO=3.9 ПF=3.7 ПL=3.8 ПM=3.3 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Key success factors •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=4.5 ПLO=4.1 ПF=3.8 ПL=4.4 ПM=4.0 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Product life cycle analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=21) ПG=3.0 ПLO=3.8 ПF=3.7 ПL=3.6 ПM=3.7 ПS=3.7 N=2 N=9 N=10 N=5 N=3 N=13 Product market fit analyses •_______•________•________•________• •_______•________•________•_______• (ПT=3.2, N=21) ПG=3.5 ПLO=3.2 ПF=3.1 ПL=3.4 ПM=3.3 ПS=3.1 N=2 N=9 N=10 N=5 N=3 N=13 Portfolio and strategy analysis •_______•________•________•________• •_______•________•________•_______• (ПT=3.3, N=21) ПG=3.5 ПLO=3.4 ПF=3.1 ПL=3.4 ПM=4.0 ПS=3.1 N=2 N=9 N=10 N=5 N=3 N=13 ETOP and SAP analysis •_______•________•________•________• •_______•________•________•_______•

ПG=3.0 ПLO=3.4 ПF=2.8 ПL=3.2 ПM=4.0 ПS=2 8 * (ПT=3.1, N=21) . N=2 N=9 N=10 N=5 N=3 N=13


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13.2.4 Planning techniques (over the next five years)

Figure 13.4 displays the expected influence of planning techniques on banks corporate

strategies over the next five years. According to the banks, TQM and the BCG portfolio

matrix will be the most influential techniques on banks corporate strategies and all the

other techniques that identified in the figure 13.4 will have low influence on banks

corporate strategies over the next five years. It is worth noting that total quality

management will be adapted by all most all the banks as part of their corporate planning

to a great extent over the next five years. There were no significant differences found in

the planning techniques that influence banks corporate strategies over the next five

years either by ownership or size aspects.

Figure 13.4 The influence of Planning techniques (over the next five years)


Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 BCG service portfolio matrix •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=21) ПG=3.5 ПLO=3.8 ПF=3.3 ПL=3.8 ПM=3.7 ПS=3.4 N=2 N=9 N=10 N=5 N=3 N=13 General Electric matrix •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=21) ПG=3.0 ПLO=3.0 ПF=2.4 ПL=3.4 ПM=2.7 ПS=2.5 N=2 N=9 N=10 N=5 N=3 N=13 Service and market portfolio matrix •_______•________•________•________• •_______•________•________•_______• (ПT=2.6, N=21) ПG=3.0 ПLO=2.8 ПF=2.3 ПL=3.0 ПM=2.7 ПS=2.4 N=2 N=9 N=10 N=5 N=3 N=13 Grand strategy technique •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=3.0 ПLO=2.4 ПF=2.2 ПL=2.8 ПM=2.0 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 TOWS technique •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=2.5 ПLO=2.6 ПF=2.2 ПL=2.6 ПM=2.0 ПS=2.4 N=2 N=9 N=10 N=5 N=3 N=13 7-S framework (7S- Mickinsey excellent •_______•________•________•________• •_______•________•________•_______• factors) (ПT=2.4, N=21) ПG=2.0 ПLO=2.3 ПF=2.5 ПL=2.4 ПM=2.3 ПS=2.4 N=2 N=9 N=10 N=5 N=3 N=13 PIMS (profit impact of market strategy) •_______•________•________•________• •_______•________•________•_______• (ПT=2.4, N=21) ПG=3.0 ПLO=2.4 ПF=2.3 ПL=2.8 ПM=2.3 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 TQM (total quality management) •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=3.0 ПLO=4.0 ПF=4.0 ПL=3.6 ПM=4.0 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13 Strategy centre concept (A.D. Little) •_______•________•________•________• •_______•________•________•_______• (ПT=2.2, N=21) ПG=2.5 ПLO=2.0 ПF=2.3 ПL=2.4 ПM=2.0 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

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13.3 Benchmarking

Figure 13.5 shows the influence of benchmarking on banks corporate strategies over the

last five years and also in the next five years in terms of ownership and size aspects.

Government banks had a higher influence of benchmarking on their corporate strategies

than the locally and foreign owned banks and similarly, large banks reported having a

greater influence than the medium and small sized banks. Results also found that there

were no significant differences in the influence of benchmarking on banks strategies

either by size or ownership aspects. In the next five years there is a slight increase in

overall influence from benchmarking (4.0 vs 3.9).

Figure 13.5 Influence of benchmarking on banks strategies (over the last five- -years)

No Very great No Very great

influence influence influence influence


In the last five years •_____•______•______•_____• •_____•______•______•_____• (ПT=3.9, N=21) ПG=4.0 ПLO=3.8 ПF=3.9 ПL=4.0 ПM=3.7 ПS=3.8

N=2 N=9 N=10 N=5 N=3 N=13 Over the next five years •_____•______•______•_____• •_____•______•______•_____•

(ПT=4.0, N=21) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13


13.3.1 Benchmark groups

Figure 13.6 displays to what extent Sri Lankan banks benchmark with other groups.

Three major benchmark groups of the banks were domestic banks in Sri Lanka, foreign

owned banks in Sri Lanka and government owned banks respectively and banks

reported having a lower level of benchmarking with the other groups identified in the

figure 13.6. It was also found that government banks benchmark with each other to a

greater extent than the locally owned and foreign owned banks benchmark with

government banks. Furthermore, government banks benchmark with the groups such as

domestic finance and security, and credit financial companies in Sri Lanka, companies

outside financial service sector in Sri Lanka and overseas to a reasonable level and do

so more than the locally owned and foreign owned banks.

282

Figure 13.6 Benchmark groups and the level of benchmarking

Not at all Significant Not at all Significant Bench marking Bench marking

1 2 3 4 5 1 2 3 4 5


Domestic banks in Sri Lanka •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13 Foreign banks in Sri Lanka •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=21) ПG=3.5 ПLO=3.2 ПF=3.7 ПL=3.6 ПM=3.7 ПS=3.4 N=2 N=9 N=10 N=5 N=3 N=13 Sri Lankan government banks •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=21) ПG=4.5 ПLO=2.7 ПF=2.9 * ПL=3.4 ПM=2.3 ПS=2.9 N=2 N=9 N=10 N=5 N=3 N=13 Domestic finance and security companies in •_______•________•________•________• •_______•________•________•_______• Sri Lanka (ПT=2.1, N=21) ПG=3.0 ПLO=2.0 ПF=2.1 * ПL=2.6 ПM=1.7 ПS=2.1 * N=2 N=9 N=10 N=5 N=3 N=13 Foreign finance and security companies in •_______•________•________•________• •_______•________•________•_______• Sri Lanka ПG=2.5 ПLO=2.0 ПF=2.1 ПL=2.4 ПM=1.7 ПS=2.1 * (ПT=2.1, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Government finance and security companies •_______•________•________•________• •_______•________•________•_______• in Sri Lanka (ПT=2.1, N=21) ПG=2.5 ПLO=2.1 ПF=2.1 ПL=2.4 ПM=2.0 ПS=2.1 * N=2 N=9 N=10 N=5 N=3 N=13 Domestic credit financial companies in Sri Lanka •_______•________•________•________• •_______•________•________•_______• (ПT=2.2, N=21) ПG=3.0 ПLO=2.0 ПF=2.2 ПL=2.4 ПM=2.0 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Companies outside financial sector in Sri Lanka •_______•________•________•________• •_______•________•________•_______• (ПT=2.1, N=21 ) ПG=3.0 ПLO=1.8 ПF=2.3 * ПL=2.4 ПM=1.7 ПS=2.2 N=2 N=9 N=10 N=5 N=3 N=13 Companies outside financial service sector in •_______•________•________•________• •_______•________•________•_______• overseas (ПT=2.0, N=21) ПG=3.0 ПLO=1.8 ПF=2.1** ПL=2.4 ПM=2.0 ПS=1.9 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

13.3.2 Major dimensions of banks benchmark process

Table 13.1 shows the three major dimensions that the banks considered in their

benchmarking process. Most banks reported three major dimensions in their

benchmarking process were Profitability, asset quality, and the NPL. Competitiveness

and market leadership were associated with ownership aspects and were dimensions in a

government owned bank. It was also found that major dimensions such as profitability,

market share and type of client were associated with size aspects.

283

Table 13.1 Three major dimensions of banks benchmarking process

Total Ownership aspects Size aspects Major dimension N % G % LO % F % C Sig L % M % S % C Sig

Profitability 20 95.2 2 100 8 88.9 10 100 .258 n.s 5 100 2 66.7 13 100 .548 *

Productivity 6 28.6 1 50.0 1 11.1 4 40.0 .340 n.s 2 40.0 - - 4 30.8 .272 n.s

Cost/Income 5 23.8 1 50.0 - - 4 40.0 .489 n.s 1 20.0 - - 4 30.8 .251 n.s

Competitiveness 1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Market leadership

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Market share 3 14.3 - - 3 33.3 - - .471 n.s 1 20.0 2 66.7 - - .655 *

Type of Client 1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

Service Quality 3 14.3 - - 2 22.2 1 10.0 .212 n.s 1 20.0 1 33.34 1 7.7 .266 n.s

NPL 7 33.3 - - 4 44.4 3 30.0 .272 n.s 1 20.0 1 33.3 5 38.5 .162 n.s

Deposit mobilizations

3 14.3 - - 2 22.2 1 10.0 .212 n.s 1 20.0 - - 2 15.4 .175 n.s

Asset Quality 9 42.9 - - 3 33.3 6 60.0 .380 n.s 1 20.0 1 33.3 7 53.8 .294 n.s

ROE 4 19 - - 2 22.2 2 20.0 .160 n.s 1 20.0 1 33.3 2 15.4 .156 n.s

Liquidity 1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

ROA 1 4.8 - - 1 11.1 - - .258 n.s - - - - 1 7.7 .175 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 13.4 Resource allocation decisions When the question was asked about the budgetary distinction between resources

required to maintain current activities and those, which will provide the long term

benefits for the four areas in figure 13.7, it was found that budgetary distinction in

capital expenditure was the most important decision followed by market development,

people development, and research and development respectively. Research and

development expenditures in government banks was reported as having a higher

importance than in the locally and foreign owned banks and similarly, large banks had a

higher importance on research and development expenditures than the medium and

small sized banks. Locally owned banks had a greater budgetary distinction than

government and foreign owned banks for the people development, and government

banks had a greater distinction for the market development expenditures than the locally

and foreign owned banks. There were statistically significant differences found in the

research and development expenditures by ownership aspects but, there were no

statistically significant differences found in the expenditures that were identified in

figure 13.7 by size aspects.

284

Figure 13.7 The importance of the long-term resource allocation decisions

No Very clear No very clear Distinction distinction distinction distinction Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5

Capital expenditures •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=4.0 ПLO=4.1 ПF=4.0 ПL=4.0 ПM=4.3 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13 Research and development expenditures •_______•________•________•________• •_______•________•________•_______• (ПT=2.3, N=21) ПG=3.0 ПLO=2.8 ПF=1.8 ** ПL=2.8 ПM=2.7 ПS=2.0 N=2 N=9 N=10 N=5 N=3 N=13 Market development expenditures •_______•________•________•________• •_______•________•________•_______• (ПT=3.2, N=21) ПG=3.5 ПLO=3.4 ПF=3.0 ПL=3.4 ПM=3.7 ПS=3.1 N=2 N=9 N=10 N=5 N=3 N=13 People development expenditures •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=21) ПG=3.0 ПLO=3.3 ПF=2.8 ПL=3.2 ПM=3.7 ПS=2.8 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

13.4.1 The importance of criteria in evaluating expenditure proposals

Figure 13.8 shows the importance of criteria in evaluating banks expenditure proposals.

It was found that forecast return on investment, forecast net operating profit, discounted

cash flow analysis were the most important criteria in evaluating expenditure proposals

which are expected to yield banks long-term benefits. Government banks were more

concerned with market share position and forecast market share growth than the locally

and foreign owned banks. Overall, banks were not very much concerned about the short

term cash flow benefits and also the impact on earnings per share. However, locally

owned banks were more concerned with the impact on earnings per share, and short

term cash flow benefits than the government and foreign owned banks. It was also

found that both the track record of the unit requesting funds and the track record of

manager of unit requesting funds were important to banks. There were statistically

significant differences found in the criteria of forecast net operating profit, short term

cash flow benefits, discounted cash flow analysis, present market share position,

forecast market share growth, growth of market for which expenditure is required,

impact on earnings per share, and impact on company resource needs by ownership

aspects.

285

Figure 13.8 The importance of criteria in evaluating expenditure proposals

Not Very Not Very

Important Important Important Important


1 2 3 4 5 1 2 3 4 5

Financial criteria Forecast return on investment •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=4.0 ПLO=4.1 ПF=3.9 ПL=4.2 ПM=4.0 ПS=4.1 N=2 N=9 N=10 N=5 N=3 N=13 Forecast net operating profit •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=3.5 ПLO=4.1 ПF=4.0 * ПL=3.8 ПM=4.0 ПS=4.1 N=2 N=9 N=10 N=5 N=3 N=13 Short-term cash flow benefit •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=3.0 ПLO=3.7 ПF=3.6 * ПL=3.2 ПM=3.3 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Discounted cash flow analysis •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=2.5 ПLO=4.2 ПF=4.0 ** ПL=3.4 ПM=4.3 ПS=4.1 N=2 N=9 N=10 N=5 N=3 N=13 Market criteria Present market share position •_______•________•________•________• •_______•________•________•_______• (ПT=3.1, N=21) ПG=4.5 ПLO=3.7 ПF=2.4 ** ПL=4.2 ПM=3.3 ПS=2.7 * N=2 N=9 N=10 N=5 N=3 N=13 Forecast market share growth •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=21) ПG=4.0 ПLO=3.9 ПF=3.0 ** ПL=3.8 ПM=4.0 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 Growth of market for which expenditure •_______•________•________•________• •_______•________•________•_______• is required (ПT=3.4, N=21) ПG=2.5 ПLO=3.9 ПF=3.2 ** ПL=3.2 ПM=3.7 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Forecast sales growth •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=21) ПG=4.0 ПLO=3.8 ПF=3.9 ПL=3.6 ПM=4.0 ПS=3.9 N=2 N=9 N=10 N=5 N=3 N=13 Personality criteria Track record of unit requesting funds •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=21) ПG=3.5 ПLO=3.7 ПF=3.7 ПL=3.6 ПM=3.3 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Track record of manager of unit requesting •_______•________•________•________• •_______•________•________•_______• funds (ПT=3.5, N=21 ) ПG=.3.0 ПLO=3.6 ПF=3.5 ПL=3.0 ПM=3.3 ПS=3.7 N=2 N=9 N=10 N=5 N=3 N=13 Other criteria Impact on earnings per share •_______•________•________•________• •_______•________•________•_______• (ПT=3.1, N=21) ПG=2.5 ПLO=3.8 ПF=2.7 ** ПL=3.4 ПM=3.3 ПS=3.0 N=2 N=9 N=10 N=5 N=3 N=13 Impact on company resource needs •_______•________•________•________• •_______•________•________•_______• (ПT=3.9, N=21) ПG=3.0 ПLO=4.0 ПF=3.9 ** ПL=3.6 ПM=4.0 ПS=3.9 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

286

13.5 Corporate strategies Figure 13.9 displays the extent that the participants formalize their corporate strategies

in terms of size, and ownership. It was found that banks formulate their strategies to a

reasonable extent with no statistically significant differences either by size or ownership

aspects.

Figure 13.9 Formalization of corporate strategies Not at all To a Not at all To a

great great extent extent

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 To what extent do you formalise •_____•______•______•_____• •_____•______•______•_____• your corporate strategies ПG=3.5 ПF=3.6 ПLO=3.7 ПL=3.4 ПM=4.0 ПS=3.6 (ПT=3.6) N=2 N=10 N=9 N=5 N=3 N=13 Ownership: Cramer’s V=0.195 P=0.808 Size aspects: Cramer’s V=0.409 p=0.134 Government Local Foreign Large Medium Small

Figure 13.10 shows the explicit nature of the Sri Lankan commercial banks corporate

strategies. The most explicit part of the banks corporate strategy was entering in to high

growth markets. The other two most important considerations were to enter or develop

service business and to enter in to the markets where technology is important. Overall,

banks did not want to find markets where joint ventures and mergers were feasible. The

importance of markets where technology is important was associated with the size and

ownership aspects and was seen in locally owned banks and the medium sized banks to

a greater degree. It was also found that entering in to the markets with small number of

competitors and also to exit from markets with large number of competitors were not

explicit for most banks in their corporate strategies.

287

Figure 13.10 The explicit part of banks corporate strategies Disagree Strongly Disagree Strongly agree agree agree agree

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 To enter high growth markets •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=21) ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 ПS=3.9 N=2 N=9 N=10 N=5 N=3 N=13 To enter markets with small number of •_______•________•________•________• •_______•________•________•_______• competitors (ПT=2.6, N=21 ) ПG=2.5 ПLO=2.4 ПF=2.8 ПL=2.4 ПM=2.0 ПS=2.8 N=2 N=9 N=10 N=5 N=3 N=13 To enter or develop service business •_______•________•________•________• •_______•________•________•_______• (ПT=3.5, N=21) ПG=3.5 ПLO=3.6 ПF=3.5 ПL=3.6 ПM=3.0 ПS=3.6 N=2 N=9 N=10 N=5 N=3 N=13 Markets where it can attain large shares of •_______•________•________•________• •_______•________•________•_______• served markets (ПT=3.1, N=21) ПG=3.5 ПLO=3.2 ПF=3.0 ПL=3.4 ПM=3.0 ПS=3.1 N=2 N=9 N=10 N=5 N=3 N=13 Markets, which require low capital intensity •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=21) ПG=3.0 ПLO=3.1 ПF=2.8 ПL=2.6 ПM=2.3 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 Markets where technology is important •_______•________•________•________• •_______•________•________•_______• (ПT=3.4, N=21) ПG=3.5 ПLO=3.7 ПF=3.1 * ПL=3.6 ПM=4.0 ПS=3.1 * N=2 N=9 N=10 N=5 N=3 N=13 To exit from markets with large numbers •_______•________•________•________• •_______•________•________•_______• of competitors (ПT=2.4, N=21) ПG=3.0 ПLO=2.2 ПF=2.4 ПL=2.6 ПM=2.0 ПS=2.4 N=2 N=9 N=10 N=5 N=3 N=13 Markets where joint ventures are feasible •_______•________•________•________• •_______•________•________•_______• (ПT=2.1, N=21) ПG=2.5 ПLO=2.0 ПF=2.1 ПL=2.4 ПM=2.0 ПS=2.0 N=2 N=9 N=10 N=5 N=3 N=13 Markets where mergers are feasible •_______•________•________•________• •_______•________•________•_______• (ПT=2.0, N=21) ПG=2.0 ПLO=2.0 ПF=2.1 ПL=2.2 ПM=2.0 ПS=2.0

N=2 N=9 N=10 N=5 N=3 N=13


13.5.1 Product/market growth strategies Figure 13.11 reveals the banks product/market growth strategies for the last and next

five years. During last five years overall, banks seek growth mainly through introducing

existing products in to existing markets and introducing existing products in to new

markets. This finding suggests that there are still available opportunities and good rate

of returns in existing markets in Sri Lanka. However, it was found that medium sized

banks mainly seek their growth by introducing new products in to existing markets and

also introducing new products in to new markets. Small banks seek their growth mainly

by introducing existing products in to existing markets and to the new markets.

Government owned banks seek their growth mainly by introducing existing products in

288

to new markets and new products in to new markets. Introducing new products in to

new markets was associated with the size aspects and was more important in medium

and large banks than the small sized banks.

In the next five years Sri Lankan banks will mainly seek their growth through

introducing new products in to existing markets and also by introducing new products

into new markets. Government banks will try to introduce new products in to new

markets more than the foreign and locally owned banks. There were significant

differences found in the introducing new products into new markets by size aspects and

that it was more important for small and medium sized banks than the large banks. Figure 13.11 Product/market growth strategies Not at all Very Not at all Very important important important important


Our company seeks growth through: (Over the last five years) Existing products in existing markets (a) •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=3.5 ПLO=3.7 ПF=3.5 ПL=3.6 ПM=3.0 ПS=3.7 N=2 N=9 N=10 N=5 N=3 N=13 Introducing existing products into new markets (b) •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=4.0 ПLO=3.7 ПF=3.4 ПL=3.8 ПM=3.0 ПS=3.6 N=2 N=9 N=10 N=5 N=3 N=13 Introducing new products into existing markets (c) •_______•________•________•________• •_______•________•________•_______• (ПT=3.2, N=21) ПG=3.5 ПLO=3.2 ПF=3.2 ПL=3.6 ПM=4.0 ПS=2.9 N=2 N=9 N=10 N=5 N=3 N=13 Introducing new products into new markets (d) •_______•________•________•________• •_______•________•________•_______• (ПT=3.1, N=21) ПG=4.0 ПLO=3.1 ПF=2.9 ПL=3.8 ПM=4.0 ПS=2.6 * N=2 N=9 N=10 N=5 N=3 N=13 Our company seeks growth through: (For the next five years) Existing products in existing markets (a) •_______•________•________•________• •_______•________•________•_______• (ПT=3.1, N=21) ПG=2.5 ПLO=3.3 ПF=3.1 ПL=2.8 ПM=2.7 ПS=3.4 N=2 N=9 N=10 N=5 N=3 N=13 Introducing existing products into new markets (b) •_______•________•________•________• •_______•________•________•_______• (ПT=3.2, N=21) ПG=4.0 ПLO=3.1 ПF=3.2 ПL=3.4 ПM=3.0 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 Introducing new products into existing markets (c) •_______•________•________•________• •_______•________•________•_______• (ПT=3.8, N=21) ПG=3.5 ПLO=3.8 ПF=3.9 ПL=3.8 ПM=3.7 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Introducing new products into new markets (d) •_______•________•________•________• •_______•________•________•_______• (ПT=3.7, N=21) ПG=4.0 ПLO=3.8 ПF=3.6 ПL=4.0 ПM=4.3 ПS=4.5 *

N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

289

13.5.1.1 Company’s strategies concerning new products and service introductions Figure 13.12 displays the banks strategies concerning new products and service

introductions. Banks responses confirm that overall, banks preferred to be an entrant

into mature, stable markets and also a later entrant into still growing markets. However,

government banks preferred to be first to market with new products and services and an

early follower of initial entrants in fast growing new markets while foreign and locally

owned banks preferred to be a later entrant in established but still growing markets and

an entrant in mature stable markets. When considering the size aspects, large banks

preferred to be first to market with new products and services and an early follower of

initial entrants in fast growing markets where as small banks preferred to be later

entrants in established but still growing markets. It was found that no banks wanted to

enter into declining markets. There were significant differences found in the banks

strategic concerns about new products and service introductions both by size and

ownership aspects.

Figure 13.12 Company’s strategies concerning new products and service introductions Disagree Strongly Disagree Strongly agree agree

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Our company attempts to be: First to market with new products and services •_______•________•________•________• •_______•________•________•_______• (ПT=2.9, N=21) ПG=4.0 ПLO=2.9 ПF=2.6 ПL=3.8 ПM=3.3 ПS=2.4*** N=2 N=9 N=10 N=5 N=3 N=13 An early follower of initial entrants in fast •_______•________•________•________• •_______•________•________•_______•

growing new markets (ПT=3.0, N=21) ПG=4.0 ПLO=2.8 ПF=2.9 ПL=3.2 ПM=2.0 ПS=3.1 N=2 N=9 N=10 N=5 N=3 N=13 A later entrant in established but still growing •_______•________•________•________• •_______•________•________•_______• markets (ПT=3.6, N=21) ПG=2.5 ПLO=3.7 ПF=3.8 ПL=2.8 ПM=3.0 ПS=4.1 * N=2 N=9 N=10 N=5 N=3 N=13 An entrant in mature, stable markets •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=21) ПG=2.0 ПLO=3.9 ПF=3.7 *** ПL=3.0 ПM=4.0 ПS=3.8 N=2 N=9 N=10 N=5 N=3 N=13 An entrant in declining markets •_______•________•________•________• •_______•________•________•_______• (ПT=1.9, N=21) ПG=1.5 ПLO=1.9 ПF=2.0 ПL=1.8 ПM=1.7 ПS=2.0 N=2 N=9 N=10 N=5 N=3 N=13 At the cutting edge of technological innovation •_______•________•________•________• •_______•________•________•_______• (ПT=3.0, N=21) ПG=3.5 ПLO=3.0 ПF=2.8 * ПL=3.2 ПM=3.0 ПS=2.8

N=2 N=9 N=10 N=5 N=3 N=13


290

13.5.1.2 Organizational responsibility for new products and markets

Figure 13.13 shows the organizational responsibility for new products and markets.

Banks overall, agree with the comment that new product development was part of the

responsibility of their second level operating units. In addition to the new product

development, the responses confirmed that screening of new product ideas,

development of new markets for existing products, and screening of new market ideas

were part of the responsibility of their second level operating units rather than the

responsibility of special organizational units. In government banks screening of new

product ideas, development of new markets for existing products, and screening of new

market ideas were the responsibility of a special organizational unit to a higher extent

than the locally owned and foreign owned banks and these were significant differences.

Figure 13.13 Organizational responsibility for new products and markets Disagree Strongly Disagree strongly agree agree

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 New product development is: Part of the responsibility of our second level •_______•________•________•________• •_______•________•________•_______• operating units (ПT=3.1, N=21 ) ПG=3.0 ПLO=3.0 ПF=3.2 ПL=3.0 ПM=3.0 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 The responsibility of a special organizational unit •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=21) ПG=3.5 ПLO=2.8 ПF=2.1 ПL=3.0 ПM=3.0 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 Screening of new product ideas is: Part of the responsibility of our second level •_______•________•________•________• •_______•________•________•_______• operating units (ПT=3.2, N=21 ) ПG=4.0 ПLO=3.1 ПF=3.2 ПL=3.8 ПM=2.7 ПS=3.2 N=2 N=9 N=10 N=5 N=3 N=13 The responsibility of a special organizational unit •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=21) ПG=3.5 ПLO=2.7 ПF=2.2 * ПL=2.6 ПM=3.3 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 Development of new markets for existing products is: Part of the responsibility of our second level •_______•________•________•________• •_______•________•________•_______• operating units (ПT=3.0, N=21) ПG=4.0 ПLO=2.9 ПF=3.0 ПL=3.8 ПM=2.7 ПS=2.8 * N=2 N=9 N=10 N=5 N=3 N=13 The responsibility of a special organizational unit •_______•________•________•________• •_______•________•________•_______• (ПT=2.6, N=21) ПG=3.5 ПLO=2.9 ПF=2.2 **ПL=3.0 ПM=3.3 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 Screening of new market ideas is: part of the responsibility of our second level •_______•________•________•________• •_______•________•________•_______• operating units (ПT=3.0, N=21) ПG=3.0 ПLO=3.0 ПF=3.0 ПL=3.4 ПM=2.7 ПS=2.9 N=2 N=9 N=10 N=5 N=3 N=13 the responsibility of a special organizational unit •_______•________•________•________• •_______•________•________•_______• (ПT=2.7, N=21) ПG=4.5 ПLO=2.8 ПF=2.2 * ПL=3.2 ПM=3.3 ПS=2.3 N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

291

13.5.2 Research and development strategies

Figure 13.14 explains the reasons for banks research and development strategies. When

the question was asked about the research and development strategies (R & D) except

for one foreign owned bank all the other foreign owned banks mentioned that they were

not involved with the research and development strategies in their corporate planning

for their Sri Lankan branches. Therefore, only 12 banks responded to the research and

development questions.

The most important aspects of the research and development strategies were to be

highly service innovative, technologically innovative and to avoid high risk activities

respectively. It was also found that the emphasis of banks R & D expenditures was not

highly applied. Large and medium sized banks wanted to be more technology

innovative through their R & D strategies than the small banks. Similarly, locally and

foreign owned banks wanted more to avoid the high risks of their activities through R&

D activities than the government owned banks. There were statistically significant

differences in the R & D strategies by size aspects but, not by the ownership aspects.

Figure 13.14 Research and development strategies Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5

Our company considers itself to be •_______•________•________•________• •_______•________•________•_______• highly technology innovative (ПT=3.6, N=12) ПG=4.0 ПLO=3.4 ПF=4.0 ПL=3.8 ПM=4.0 ПS=3.2 * N=2 N=9 N=1 N=5 N=2 N=5 Our company considers itself to be •_______•________•________•________• •_______•________•________•_______• highly service innovative (ПT=3.9, N=12) ПG=3.5 ПLO=4.0 ПF=4.0 ПL=3.8 ПM=4.5 ПS=3.8 N=2 N=9 N=1 N=5 N=2 N=5 The emphasis of our R& D expenditures is •_______•________•________•________• •_______•________•________•_______• highly applied (ПT=2.0, N=12) ПG=2.0 ПLO=1.9 ПF=3.0 ПL=2.0 ПM=2.0 ПS=2.0 N=2 N=9 N=1 N=5 N=2 N=5 Our R & D effort tends to avoid high risk activity •_______•________•________•________• •_______•________•________•_______• (ПT=3.6, N=12) ПG=2.5 ПLO=3.8 ПF=4.0 ПL=3.2 ПM=4.0 ПS=3.8 N=2 N=9 N=1 N=5 N=2 N=5 Our company prefers to seek growth via •_______•________•________•________• •_______•________•________•_______• acquisitions rather than internal R & D ПG=3.0 ПLO=2.0 ПF=2.0 ПL=2.6 ПM=2.5 ПS=1.6 (ПT=2.2, N=12) N=2 N=9 N=1 N=5 N=2 N=5 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small

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13.5.2.1 Support staff for R& D strategies Table 13.2 reveals the support staff for R & D strategies. According to the respondents,

internal and both the internal and external staff supported the R& D strategies in 2 and

10 banks respectively. All the locally owned banks R & D activities were supported by

both the internal and external staff and in one government bank R & D activities were

supported only by their internal staff. Results also found that there were significant

differences in the support staff for the R & D strategies by ownership aspects but, not by

size aspects.

Table 13.2 Supporting staff of R& D strategies

Total Ownership aspects Size aspects Supporting staff N % G % LO % F % L % M % S % Internal staff 2 16.7 1 50.0 - - 1 100 1 20.0 - - 1 20.0 Both internal and external staff

10 83.3 1 50.0 9 100 - - 4 80.0 2 100 4 80.0

Ownership: Cramer’s V=.837 P=.015, Size: Cramer’s V=.200 P=.787

When information was requested about the percentages of corporate revenues allocated

to R & D activities, only 7 banks were in a position to give the figures and it was found

that 1.42% of the total corporate revenue was allocated to R & D activities in those 7

banks. It was also found that none of the banks allocated more than 2% of their total

corporate revenues to their R & D activities. Table 13.3 shows the percentage of R & D

allocations to new products and services and to new processes. Results found that 51%

of the R & D allocations were going to develop new products and services, and the

other 49% was going to develop new processes. There were no statistically significant

differences found in the R & D allocations to the above mentioned two areas either by

size or ownership. It was also found that 25% of the R & D budget was expended on the

development of new information technology in the above mentioned 7 commercial

banks with no statistically significant differences either by size or ownership aspects.

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Table 13.3 Percentage of revenue allocations


Revenue allocation

% N % N % N % N % N % N % N New products and services

51.0 7 55.0 2 50.0 4 50.0 1 51.0 5 50.0 1 50.0 1

New processes

49.0 7 45.0 2 51.0 4 50.0 1 49.0 5 50.0 1 50.0 1

Size aspects: Cramer’s V=0.283 P=0.891 Ownership aspects: Cramer’s V=0.500 P=0.478 13.5.3 International strategies Among the 11 locally owned and government owned banks, 8 banks reported having

international operations and information about the banks which had international

operations is shown in the table 13.4. All the government owned banks and 6 of the 9

locally owned banks had international operations and similarly, all the large banks, one

medium sized bank and 2 small banks reported having international operation in their

banks. The banks which did not have international operations mentioned that they do

not want to start international operations in their banks in the next five years. It was also

found that there were no significant differences in the banks which had international

operations either by size or ownership aspects.

Table 13.4 Does your company have international operations?


Yes 8 72.7 2 100 6 66.7 - - 5 100 1 50.0 2 50.0 No 3 27.3 - - 3 33.3 - - - - 1 50.0 2 50.0


Table 13.5 reveals the average sales revenues which take place outside Sri Lanka. It was

found that 13.8% of average revenues of the 8 banks which had international operations

took place outside Sri Lanka with no statistically significant differences either by size or

ownership aspects. For the next five years banks expect that 18.7% of their total

revenues will come from outside Sri Lanka. Therefore, banks expect more revenues

from outside markets in the next five years. It was also found that there were no

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significant differences in the revenues which will take place outside Sri Lanka in the

next five years either by size or ownership aspects.

Table 13.5: Bank’s revenues take place outside Sri Lanka


Revenue outside Sri Lanka % N % N % N % N % N % N % N

At present 13.8 8 12.5 2 14.2 6 - - 11.0 5 20.0 1 17.5 2

In the next five years

18.7 8 17.5 2 19.1 6 - - 16.0 5 25.0 1 22.5 2

At present: Ownership: Cramer’s V=0.428 P=0.733 Size: Cramer’s V=0.661 P=0.409 In the next five years: Ownership: Cramer’s V=1.000 P=0.221 Size: Cramer’s V=0.901 P=0.329

Table 13.6 displays the bank’s three major types of overseas revenues. Trade services,

imports, treasury related transactions, exports and remittance were the most reported

major business types for the banks overseas revenues respectively. It is worth noting

that most of the large banks overseas revenues came from the trade services.

Table 13.6 Three major business types of overseas revenues

Total Ownership aspects Size aspects Business type N % G % LO % F % C Sig L % M % S % C Sig

Trade services

5 62.5 1 50.0 4 66.7 - - .149 n.s 4 80.0 - - 1 50.0 .554 n.s

Banking 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

Treasury related transaction

2 25.0 - - 2 33.3 - - .333 n.s 1 20.0 - - 1 50.0 .635 n.s

Imports 3 37.5 - - 3 50.0 - - .447 n.s 1 20.0 1 100 1 50.0 .554 n.s

NRFC 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

Exports 2 25.0 - - 2 33.3 - - .333 n.s - - 1 100 1 50.0 .816 n.s

Travel 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

Investments 1 12.5 - - 1 16.7 - - .218 n.s - - - - 1 50.0 .655 n.s

Dealings 1 12.5 - - 1 16.7 - - .218 n.s - - 1 100 - - 1.00 *

Remittance 2 25.0 - - 2 33.3 - - .333 n.s - - - - 2 100 1.00 -

Note that: Total (N)=8, *=p < 0.05, **= p<0.01, ***=p<0.001

Japan, India, and Europe were reported as the three most important overseas markets for

the Sri Lankan banks during last five years (see table 13.7). All the government owned

banks considered UK as one of their major overseas market and 5 of the 6 locally

owned banks considered Europe as their most important major markets and these were

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significant differences by ownership aspects. Most of the locally owned banks

considered their most important overseas markets were Japan, India, and Europe.

Table 13.7 Three most important overseas markets of the banks (Over the last five years)

Total Ownership aspects Size aspects Overseas market N % G % LO % F % C Sig L % M % S % C Sig

Japan 6 75.0 1 50.0 5 83.3 - - .333 n.s 3 60.0 1 100 2 100 .447 n.s

UK 2 25.0 2 100 - - - - 1.00 ** 2 40.0 - - - - .477 n.s

India 6 75.0 1 50.0 5 83.3 - - .333 n.s 3 60.0 1 100 2 100 .447 n.s

USA 1 12.5 - - 1 16.7 - - .218 n.s 1 20.0 - - - - .293 n.s

Middle East 2 25.0 1 50.0 1 16.7 - - .333 n.s 2 40.0 - - - - .447 n.s

Maldives 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

Europe 5 62.5 - - 5 83.3 - - .745 * 3 60.0 1 100 1 50.0 .306 n.s

China 1 12.5 - - 1 16.7 - - .218 n.s - - - - 1 50.0 .655 n.s

Note that: *=p < 0.05, **= p<0.01, ***=p<0.001

Table 13.8 reveals the major reasons why overseas markets were chosen. The

established business and transactions was the main reason for the all banks. Six banks

mentioned attractive rate of return as a reason to choose overseas markets and reasons

such as larges economies in the globe, and growing economies were reported by one

bank each. There were no significant differences in the reasons to choose overseas

markets either by size or ownership aspects.

Table 13.8 Major reasons overseas markets were chosen

Total Ownership aspects Size aspects Major reason N % G % LO % F % C Sig L % M % S % C Sig

Established business and transactions

8 100 2 100 6 100 - - n.a n.a 5 100 1 100 2 100 n.a n.a

Attractive rate of returns

6 75.0 1 50.0 5 83.3 - - .333 n.s 3 60.0 1 100 2 100 .447 n.s

Larges economies in the globe

1 12.5 - - 1 16.7 - - .218 n.s - - - - 1 50.0 .655 n.s

Growing economies

1 12.5 - - 1 16.7 - - .218 n.s - - - - 1 50.0 .655 n.s

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Table 13.9 shows the three major overseas markets expected for the next five years.

According to the respondents, India, China and Middle East will be the three major

overseas markets for a high number of commercial banks in Sri Lanka. The high

earning potential in the world’s most growing markets such as India and China may be

the reason why they chose to consider them as the major overseas markets in the next

five years. Surprisingly, only one bank expected Japan as their major market in the next

five years given that this was a major market for 75% of the banks during the last five

years. There were no significant differences found in the future overseas markets either

by size, or ownership aspects.

Table 13.9 Three most important overseas markets of the banks (Over the next five years)

Total Ownership aspects Size aspects Overseas market N % G % LO % F % C Sig L % M % S % C Sig

US 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

India 8 100 2 100 6 100 - - n.a n.a 5 100 1 100 2 100 n.a n.a

China 5 62.5 1 50.0 4 66.7 - - .149 n.s 3 60.0 - - 2 100 .600 n.s

Middle East 4 50.0 - - 4 66.7 - - .577 n.s 2 40.0 1 100 1 50.0 .387 n.s

Europe 2 25.0 - - 2 33.3 -- - .333 n.s 1 50.0 1 100 - - .683 n.s

Pakistan 2 25.0 1 50.0 1 16.7 - - .333 n.s 2 40.0 - - - - .447 n.s

Japan 1 12.5 - - 1 16.7 - .218 n.s - - - - 1 50.0 .655 n.s

UK 1 12.5 1 50.0 - - - - .655 n.s 1 20.0 - - - - .293 n.s

For the international operations of the above 8 banks, it was found that in all the banks

the international division head reported to the banks CEO about their international

operations. Figure 13.15 shows the global orientation and the international strategies of

the Sri Lankan commercial banks. It was found that, overall, Sri Lankan commercial

banks corporate planning; second level planning, procurement strategies, and marketing

strategies were not conducted or developed on a world wide basis. Banks preferred to

introduce new products and services to the overseas markets after they had done so in

Sri Lanka. It was also found that banks overall seek foreign markets in which they can

market existing products and technologies, and also joint ventures in overseas

operations. There were no significant differences found in the international strategies

and the global orientation of the banks either by ownership or size aspects.

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Figure 13.15 Global orientation and the international strategies

Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Global orientation: Our corporate planning is conducted on a •_______•________•________•________• •_______•________•________•_______• worldwide basis (ПT=1.5, N=8) ПG=2.0 ПLO=1.3 ПL=1.6 ПM=2.0 ПS=1.0 N=2 N=6 N=5 N=1 N=2 Our second level planning is conducted •_______•________•________•________• •_______•________•________•_______• on a worldwide basis (ПT=1.5, N=8) ПG=2.0 ПLO=1.3 ПL=1.6 ПM=2.0 ПS=1.0 N=2 N=6 N=5 N=1 N=2 Our procurement strategies are developed •_______•________•________•________• •_______•________•________•_______• on a worldwide basis (ПT=1.6, N=8) ПG=2.0 ПLO=2.5 ПL=2.6 ПM=3.0 ПS=1.5 N=2 N=6 N=5 N=1 N=2 Our investment strategies are developed •_______•________•________•________• •_______•________•________•_______• On a worldwide basis (ПT=2.4, N=8) ПG=3.0 ПLO=1.5 ПL=2.0 ПM=2.0 ПS=1.5 N=2 N=6 N=5 N=1 N=2 Our marketing strategies are developed on •_______•________•________•________• •_______•________•________•_______• a worldwide basis (ПT=1.9, N=8) ПG=2.0 ПLO=1.3 ПL=1.6 ПM=2.0 ПS=1.0 N=2 N=6 N=5 N=1 N=2 International strategies: We introduce new products in overseas •_______•________•________•________• •_______•________•________•_______• markets after we have done so in Sri Lanka ПG=2.5 ПLO=3.3 ПL=1.6 ПM=2.0 ПS=1.0 (ПT=3.1, N=8) N=2 N=6 N=5 N=1 N=2 We seek foreign markets in which we can •_______•________•________•________• •_______•________•________•_______• market existing products and technologies ПG=3.5 ПLO=3.2 ПL=3.4 ПM=3.0 ПS=3.0 (ПT=3.2, N=8) N=2 N=6 N=5 N=1 N=2 We develop new products and technologies •_______•________•________•________• •_______•________•________•_______• especially for overseas markets (ПT=1.9, N=8) ПG=1.5 ПLO=2.0 ПL=1.8 ПM=2.0 ПS=2.0 N=2 N=6 N=5 N=1 N=2 We actively seek joint ventures in •_______•________•________•________• •_______•________•________•_______• overseas operations (ПT=3.0, N=8) ПG=3.5 ПLO=2.8 ПL=3.2 ПM=3.0 ПS=2.5 N=2 N=6 N=5 N=1 N=2 We actively seek mergers in •_______•________•________•________• •_______•________•________•_______• overseas operations ПG=2.5 ПLO=2.2 ПL=2.4 ПM=2.0 ПS=2.0 (ПT=2.2, N=8) N=2 N=6 N=5 N=1 N=2

Government Local Foreign Large Medium Small 13.5.4 Acquisition strategies When the question was asked about the significant acquisitions made by the banks

during last five years, the responses confirmed that only four banks had made

significant acquisitions during last five years (note: this study did not focus on the

acquisitions made by the foreign banks outside the Sri Lankan markets). The details of

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the banks which made acquisitions during last five years are shown in the table 13.10.

These four banks include 3 locally owned banks and one foreign owned bank.

Table 13.10 Did your bank make any significant acquisitions during last five year?


Yes 4 19.0 - - 3 33.3 1 10.0 1 20.0 1 33.3 2 15.4 No 17 81.0 2 100 6 66.7 9 90.0 4 80.0 2 66.7 11 84.6


It was found that all of those acquisitions were within the Sri Lankan markets. It was

found that the large bank’s acquired revenues which were 100% from the products in

decline stage and the medium size bank’s acquired revenues which were 100% from the

products in maturity stage while two small sized banks 100% revenues were from the

products in growth and introductory stages each. Figure 13.16 displays the acquisition

strategies of the above mentioned four banks. To develop new business lines and to

expand in to new markets with a new configuration of business lines were the banks

major acquisition strategies during last five years. However, the foreign owned bank’s

major strategies were to extend their core business activities and to develop a new

configuration of business lines through acquisitions.

Figure 13.16 Acquisition strategies Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Our company intends to extend its core •_______•________•________•________• •_______•________•________•_______• business activities (ПT=3.0, N=4) ПLO=2.7 ПF=4.0 ПL=3.0 ПM=3.0 ПS=3.0 N=3 N=1 N=1 N=1 N=2 Our company intends to develop a new •_______•________•________•________• •_______•________•________•_______• configuration of business lines (ПT=3.5, N=4) ПLO=3.3 ПF=4.0 ПL=3.0 ПM=4.0 ПS=3.5 N=3 N=1 N=1 N=1 N=2 Our company intends to expand into •_______•________•________•________• •_______•________•________•_______• new markets with our existing businesses ПLO=2.3 ПF=3.0 ПL=2.0 ПM=3.0 ПS=2.5 (ПT=2.5, N=4) N=3 N=1 N=1 N=1 N=2 Our company intends to expand into new markets •_______•________•________•________• •_______•________•________•_______• with a new configuration of business lines ПLO=3.0 ПF=3.0 ПL=3.0 ПM=3.0 ПS=3.0 (ПT=3.0, N=4) N=3 N=1 N=1 N=1 N=2 Government Local Foreign Large Medium Small

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Figure 13.17 shows to what extent acquisitions are expected to play a role in banks

corporate planning over the next five years. Overall, banks were not expecting

acquisitions to play a significant role in their corporate strategies in the next five years.

However, Acquisitions will play a greater role in medium sized banks than the small

and large banks, and similarly, government owned banks also expecting acquisitions to

play a slightly greater role in their banks over the locally and foreign owned banks.

There were significant differences found in the acquisition strategies of the banks over

the next five years by size aspects but, not by ownership aspects.

Figure 13.17 Acquisition strategies (next five years) No role Significant No role Significant role role


1 2 3 4 5 1 2 3 4 5

The role of acquisitions in •_____•______•______•_____• •_____•______•______•_____• * corporate strategies over the ПG=3.0 ПLO=2.8 ПF=2.7 ПL=2.8 ПM=4.0 ПS=2.5 next five years (ПT=2.8, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Note that: *=p < 0.05, **= p<0.01, ***=p<0.001 Government Local Foreign Large Medium Small 13.5.5 Divestiture strategies Four of the twenty one banks have divested, liquidated or eliminated important

operations during last five years and these banks are shown in the table 13.11. These

four banks include one government, two locally owned and one foreign owned banks.

Table 13.11 Banks which divested, liquated or eliminated any important operations


Yes 4 19.0 1 50.0 2 22.2 1 10.0 1 20.0 1 33.3 2 15.4 No 17 81.0 1 50.0 7 77.8 9 90.0 4 80.0 2 66.7 11 84.6

Ownership: Cramer’s V=0.295 P=.400, Size: Cramer’s V=.156 P=.774

300

The government bank divested 3 important operations in overseas markets while the

other two locally owned banks divested 1 and 4 of their important operations in Sri

Lankan markets. The only foreign bank that divested had divested 2 of their important

operations. According to the four banks which divested mentioned that all the

divestitures revenues were in the maturity and declining stages. One locally owned and

one government banks divested revenues which were 100% in the maturity stage and

the other locally and foreign owned bank had divested revenues which were 100% in

the decline stage. Figure 13.18 reveals the major reasons for divestiture strategies for

the banks which divested their important operations during last five years. Overall,

major reasons for divestitures strategies of the banks were to refocus their business

portfolio on their core businesses and to dispose/retrench unprofitable lines of

businesses. However, the government bank’s major reason was to meet corporate

liquidity requirements.

Figure 13.18 Major reasons for divestitures strategies


1 2 3 4 5 1 2 3 4 5 Our company intends to: Refocus the business portfolio on its •_______•________•________•________• •_______•________•________•_______• core businesses (ПT=4.0, N=4) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=1 N=2 N=1 N=1 N=1 N=2 Dispose/ retrench unprofitable lines of business •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=4) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=4.0 ПM=4.0 ПS=4.0 N=1 N=2 N=1 N=1 N=1 N=2 Eliminate production inefficiency •_______•________•________•________• •_______•________•________•_______• (ПT=2.5, N=4) ПG=1.0 ПLO=3.5 ПF=2.0 ПL=1.0 ПM=4.0 ПS=2.5 N=1 N=2 N=1 N=1 N=1 N=2 Eliminate business peripheral to our firm’s •_______•________•________•________• •_______•________•________•_______• strategy (ПT=2.0, N=4) ПG=1.0 ПLO=3.0 ПF=1.0 ПL=1.0 ПM=4.0 ПS=1.5 N=1 N=2 N=1 N=1 N=1 N=2 Withdraw from geographic area •_______•________•________•________• •_______•________•________•_______• (ПT=1.7, N=4) ПG=4.0 ПLO=1.0 ПF=1.0 ПL=4.0 ПM=1.0 ПS=1.0 N=1 N=2 N=1 N=1 N=1 N=2 Meet corporate liquidity requirements •_______•________•________•________• •_______•________•________•_______• (ПT=2.0, N=4) ПG=5.0 ПLO=1.0 ПF=1.0 ПL=5.0 ПM=1.0 ПS=1.0 N=1 N=2 N=1 N=1 N=1 N=2 Finance new acquisitions •_______•________•________•________• •_______•________•________•_______• (ПT=1.0, N=4) ПG=1.0 ПLO=1.0 ПF=1.0 ПL=1.0 ПM=1.0 ПS=1.0 N=1 N=2 N=1 N=1 N=1 N=2 Raise money quickly •_______•________•________•________• •_______•________•________•_______• (ПT=1.5, N=4) ПG=1.0 ПLO=2.0 ПF=1.0 ПL=1.0 ПM=3.0 ПS=1.0 N=1 N=2 N=1 N=1 N=1 N=2 Government Local Foreign Large Medium Small

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Figure 13.19 shows the extent those divestiture strategies are expected to play a role in

banks corporate strategies in the next five years. Overall, banks expect that divestiture

strategies will not play a major role in their corporate strategies and therefore, most of

the banks will continue their current operations for the next five years. Government

banks reported a higher role for divestiture strategies in their corporate strategies

compared to locally and foreign owned banks but, it was not statistically significant.

Figure 13.19 Future roles of divestiture strategies No role Significant No role Significant

role role

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 The role of divestitures in •_____•______•______•_____• •_____•______•______•_____• corporate strategies over the ПG=3.0 ПLO=1.8 ПF=2.5 ПL=2.2 ПM=1.7 ПS=2.4 next five years(ПT=2.2, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small

13.5.6 Merger strategies

Table 13.12 shows the banks which had merged with other companies during last five

years. Only three banks reported having mergers with no significant differences either

by size or ownership aspects. Only four significant individual mergers were made by

these three banks and all of these mergers were made with Sri Lankan companies in Sri

Lanka. These four mergers include two mergers by one locally owned small sized bank

and one merger each by the other two locally owned banks.

Table 13.12 Banks which merge with other companies


Yes 3 14.3 - - 3 33.3 - - - - 1 33.3 2 15.4No 18 85.7 2 100 6 66.7 10 100 5 100 2 66.7 11 84.6 Ownership: Cramer’s V=.471 P=.097, Size: Cramer’s V=.287 P=.420

The main objectives banks tried to achieve through their mergers were to extend the

banks core business activities and to develop new configuration of business lines (see

302

figure 13.20). However, for one medium sized bank to meet the central bank’s

minimum capital requirements was a major aim.

Figure 13.20 Major aims of mergers


1 2 3 4 5 1 2 3 4 5 Our company intends to:

Extend its core business activities •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=3) ПLO=4.0 ПM=4.0 ПS=4.0 N=3 N=1 N=2 Develop a new configuration of business lines •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=3) ПLO=4.0 ПM=5.0 ПS=3.5 N=3 N=1 N=2 Expand into new markets with our existing •_______•________•________•________• •_______•________•________•_______• businesses (ПT=2.7, N=3) ПLO=2.7 ПM=3.0 ПS=2.5 N=3 N=1 N=2 Expand into new markets with a new •_______•________•________•________• •_______•________•________•_______• configuration of ПLO=3.0 ПM=3.0 ПS=3.0 business lines (ПT=3.0, N=3) N=3 N=1 N=2 Meet the minimum capital requirement policy •_______•________•________•________• •_______•________•________•_______• of the Sri Lankan government ПLO=3.3 ПM=4.0 ПS=3.0 (ПT=3.3, N=3) N=3 N=1 N=2 Solve the non-performing loans problem •_______•________•________•________• •_______•________•________•_______• Others (please specify) (ПT=1.3, N=3) ПLO=1.3 ПM=1.0 ПS=1.5 N=3

N=1 N=2


Figure 13.21 displays to what extent mergers will play a role in the banks corporate

strategies in the next five years. Overall, mergers will not play a major role in banks

corporate strategies in the next five years but, in locally owned banks mergers will play

a greater role in their corporate strategies than for foreign and government owned banks.

Similarly, large banks reported a greater role for the mergers than the medium and small

sized banks. It was also found that there were no significant differences in the role of

mergers in banks corporate strategies either by size or ownership aspects.

303

Figure 13.21 Future roles of merger strategies

No role Significant No role Significant role role


1 2 3 4 5 1 2 3 4 5 The role of mergers in •_____•______•______•_____• •_____•______•______•_____• corporate strategies over the ПG=2.0 ПLO=2.4 ПF=2.2 ПL=2.4 ПM=2.0 ПS=2.3 next five years (ПT=2.3, N=21) N=2 N=9 N=10 N=5 N=3 N=13

Government Local Foreign Large Medium Small 13.5.7 Turnaround strategies Nine of the twenty one banks made significant turnarounds in the last five years and the

details of the banks which made turnaround are shown in the table 13.13. The 9 banks

which made turnarounds included 1 government, 5 locally owned and 3 foreign owned

banks and it was found that there were no significant differences in the banks which

made turnarounds either by size or ownership aspects.

Table 13.13 Has your company made any significant turnarounds in the last five years?


Yes 9 42.9 1 50.0 5 55.6 3 30.0 2 40.0 - - 7 53.8No 12 57.1 1 50.0 4 44.4 7 70.0 3 60.0 3 100 6 46.2 Ownership: Cramer’s V=.250 P=.520, Size: Cramer’s V=.372 P=.234

The banks major objective for their turnaround strategies was to restore money losing

businesses to profitability rather than to divest (see figure 13.22). It was found that one

government owned bank sought to strengthen management and culture, two locally

owned banks sought to pursue merger and acquisitions and one locally owned bank

wanted to be more careful in their lending. No significant differences were found in the

turnarounds either by size or ownership aspects.

304

Figure 13.22 Turnaround strategies Disagree Strongly Disagree Strongly agree agree Ownership aspects Size aspects

1 2 3 4 5 1 2 3 4 5 Our company intends to: Pursue merger strategies instead of acquisition •_______•________•________•________• •_______•________•________•_______• strategies (ПT=1.7, N=9) ПG=1.0 ПLO=1.8 ПF=1.7 ПL=1.5 ПS=1.7 N=1 N=5 N=3 N=2 N=7 Pursue joint venture strategies instead of •_______•________•________•________• •_______•________•________•_______• acquisition Strategies (ПT=1.7, N=9) ПG=1.0 ПLO=1.8 ПF=1.7 ПL=1.5 ПS=1.7 N=1 N=5 N=3 N=2 N=7 Restore money-losing business to profitability •_______•________•________•________• •_______•________•________•_______• rather than divest (ПT=3.3, N=9) ПG=3.0 ПLO=3.0 ПF=4.0 ПL=3.5 ПS=3.3 N=1 N=5 N=3 N=2 N=7 Strengthen management and culture •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=1) ПG=4.0 ПL=4.0 N=1 N=1 Merger and acquisition •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=2) ПLO=4.0 ПS=4.0 N=2 N=2 Be careful in lending •_______•________•________•________• •_______•________•________•_______• (ПT=4.0, N=1) ПLO=4.0 ПS=4.0 N=1 N=1 Government Local Foreign Large Medium Small

Figure 13.23 reveals to what extent turnaround strategies will play a role in banks

corporate strategies over the next five years. It was found that turnaround strategies will

play a reasonable role in banks corporate strategies with no statistically significant

differences either by size or ownership aspects.

Figure 13.23 Future roles of turnaround strategies

No role Significant No role Significant

role role


1 2 3 4 5 1 2 3 4 5 The role of turnarounds in •_____•______•______•_____• •_____•______•______•_____• corporate strategies over the ПG=3.5 ПLO=3.1 ПF=2.9 ПL=3.0 ПM=2.3 ПS=3.2 (ПT=3.0, N=21) N=2 N=9 N=10 N=5 N=3 N=13


305

13.6 Management of quality

Figure 13.24 shows how important the management of quality was for the banks during

the last five years and in the next five years. It was found that management of quality

was considered significant to a great extent during last five years with no significant

differences either by size or ownership aspects. It was also found that management of

quality was expected to be more significant for the banks in the next five years than the

last five years (4.0 Vs 4.3).

Figure 13.24 The importance of management of quality

No role Significant No role Significant role role


1 2 3 4 5 1 2 3 4 5 During last five years •_____•______•______•_____• •_____•______•______•_____• (ПT=4.0, N=21) ПG=4.0 ПLO=4.0 ПF=4.0 ПL=3.8 ПM=4.3 ПS=4.0 N=2 N=9 N=10 N=5 N=3 N=13

During next five years _____•______•______•_____• •_____•______•______•_____• •(ПT=4.3, N=21) ПG=4.5 ПLO=4.2 ПF=4.4 ПL=4.2 ПM=4.7 ПS=4.3 N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small Figure 13.25 shows the extent that the management of quality was addressed as a

strategic issue in the banks. Responses confirmed overall, the banks considered

management of quality as a strategic issue to a reasonably great extent with no

statistically significant differences either by size or ownership aspects.

Figure 13.25 The extent that the management of quality addressed as a strategic issue Not at all To a Not at all To a great great extent extent Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 •_____•______•______•_____• •_____•______•______•_____• ПG=4.0 ПLO=3.6 ПF=3.7 ПL=3.6 ПM=4.0 ПS=3.6 N=2 N=9 N=10 N=5 N=3 N=13 Note that: ПT=3.7 N=21 Government Local Foreign Large Medium Small

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13.6.1 Strategic approaches towards the quality in banks

Table 13.14 reveals the strategic approach towards quality in the banks. Customer care

and staff training for every level of the organization were the most reported strategic

approaches towards quality by the banks. Incentives/rewards for quality services, re-

engineering programmes, and physical importance of workplaces were seen as strategic

approaches in government banks and were associated with ownership aspects. Train and

monitor of operational staff was seen in 6 locally owned, and 1 foreign owned banks

and was also associated with ownership aspects.

Table 13.14 Strategic approach towards quality in the banks

Total Ownership aspects Size aspects Strategic approach N % G % LO % F % C Sig L % M % S % C Sig

Awareness building and training to change the attitude

3 14.3 1 50.0 1 11.1 1 10.0 .331 n.s 1 20.0 1 33.3 1 7.74 .266 n.s

incentives/ rewards for quality services

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Re-engineering programmes

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Technological upgrading programmes

2 9.5 1 50.0 1 11.1 - - .482 n.s 2 40.0 - - - - .400 n.s

Customer care

15 71.4 1 50.0 7 77.8 7 70.0 .174 n.s 4 80.0 - - 11 84.6 .647 *

Physical importance of work places

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Operational level staff is trained in quality and monitored

7 33.3 - - 6 66.7 1 10.0 .615 * 3 60.0 1 33.3 3 23.1 .325 n.s

A complementary step is successfully begin ISO certified in trade and central processing operations

1 4.8 - - 1 11.1 - - .258 n.s - - 1 33.3 - - .548 *

307

Table 13.14 Strategic approach towards quality in the banks (continued)

Total Ownership aspects Size aspects Strategic approach N % G % LO % F % C Sig L % M % S % C Sig

Staff training for every level of the organization

15 71.4 - - 7 77.8 8 80.0 .514 n.s 2 40.0 2 66.7 11 84.6 .412 n.s

Brainstorming 2 9.5 - - 1 11.1 1 10.0 .107 n.s - - 2 66.7 - - .795 **

Customer survey

3 14.3 - - 2 22.2 1 10.0 .212 n.s 1 20.0 1 33.3 1 7.7 .266 n.s

Improve product efficiency while retaining only in the essential services

1 4.8 - - - - 1 10.0 .235 n.s - - 1 33.3 - - .548 *

Strict adhering to the guidelines

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

Practical involvements

1 4.8 - - - - 1 10.0 .235 n.s - - - - 1 7.7 .175 n.s

13.6.2 Personnel responsible for addressing the major strategic quality issues

Table 13.15 displays the personnel responsible for addressing the banks major strategic

quality issues. It was found that chief executive officer and corporate level management

were the most reported personnel responsible for addressing major strategic issues. In a

government owned bank outside members of the board of directors and other lower

levels of management also were responsible for their major strategic quality issues and

these were significant differences by ownership aspects.

Table 13.15 Personnel responsible for addressing the major strategic quality issues

Total Ownership aspects Size aspects Personnel responsible N % G % LO % F % C Sig L % M % S % C Sig

Corporate level management

19 90.5 2 100 9 100 8 80.0 .340 n.s 5 100 3 100 11 84.6 .255 n.s

Chief executive officer

19 90.5 2 100 8 88.9 9 90.0 .107 n.s 5 100 2 66.7 12 92.3 .349 n.s

Outside members of the board of directors

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - -- .400 n.s

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Table 13.15 Personnel responsible for addressing the major strategic quality issues (continued)

Total Ownership aspects Size aspects Personnel responsible N % G % LO % F % C Sig L % M % S % C Sig

Second level line mangers

8 38.1 2 100 4 44.4 2 20.0 .478 n.s 3 60.0 3 100 2 15.4 .645 *

Other lower levels of management

1 4.8 1 50.0 - - - - .689 ** 1 20.0 - - - - .400 n.s

Assistant general manager

1 4.8 - - - - 1 10.0 .175 n.s - - - - 1 7.7 .175 n.s

13.6.3 The extent that the employees are involved in the quality approach

Figure 13.26 shows the extent that the employees are involved in the banks quality

approach. Overall, banks employees were involved in their quality approach to a

reasonable extent. Locally owned banks reported a greater extent of involvement than

the government and foreign banks and similarly, medium sized banks reported a greater

extent of involvement than the large and small sized banks. There were no significant

differences found in the level of extent that the employees involved in quality approach

either by size or ownership aspects.

Figure 13.26 The extent that the employees are involved in the quality approach

Not Very Not Very Involved involved Involved involved Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 •_____•______•______•_____• •_____•______•______•_____•

ПG=3.5 ПLO=3.8 ПF=3.5 ПL=3.6 ПM=4.0 ПS=3.5 N=2 N=9 N=10 N=5 N=3 N=13 Ownership: Cramer’s V=0.283 p=0.431 Size: Cramer’s V=0.325 P=0.331 Note that: ПT=3.7 N=21 Government Local Foreign Large Medium Small

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13.6.4 Total quality management strategies Figure 13.27 shows the total quality management strategies of the sample banks in

terms of importance of total quality management, top management involvement,

employee involvement, quality assessment, and customer relationship. Overall, banks

agreed to a high degree that quality is the responsibility of everyone in the bank, the

quality of customer service is a key issue, and the management of quality is a major

philosophy that pervades the whole organization.

It was also found that CEO seeks to establish the total quality management philosophy

within the company to a high degree. Furthermore, the company training of employees

in quality issues plays an important role in the banks to a high degree. It was also found

that banks overall continually try to improve the relationship with their customers to a

great degree and determine future customer requirements and expectations on a regular

basis, and regularly measure customer satisfaction to a reasonably high degree.

Figure 13.27 Total quality management strategies Disagree Strongly Disagree Strongly Agree agree Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Importance of total quality management: The management of quality is a major philosophy •_____•______•______•_____• •_____•______•______•_____• that pervades the whole organization ПG=4.0 ПLO=3.8 ПF=3.5 ПL=3.6 ПM=4.0 ПS=3.6 (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Continuous quality improvement is a major •_____•______•______•_____• •_____•______•______•_____• factor in the strategic management of our company ПG=3.5 ПLO=3.6 ПF=3.5 ПL=3.4 ПM=3.7 П S=3.5 (ПT=3.5, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Quality is the responsibility of everyone in the •_____•______•______•_____• •_____•______•______•_____• organization ПG=3.5 ПLO=4.0 ПF=3.7 ПL=3.8 ПM=4.0 П S=3.8 (ПT=3.8, N=21) N=2 N=9 N=10 N=5 N=3 N=13 ** The quality of customer service is a key issue •_____•______•______•_____• •_____•______•______•_____• (ПT=3.9, N=21) ПG=4.5 ПLO=4.0 ПF=3.7 ПL=4.2 ПM=4.0 П S=3.8 N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small

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Figure 13.27 Total quality management strategies (continued) Disagree Strongly Disagree Strongly Agree agree

Ownership aspects Size aspects 1 2 3 4 5 1 2 3 4 5 Top management involvement: * The CEO seeks to establish the total quality •_____•______•______•_____• •_____•______•______•_____• Management philosophy within the company ПG=4.5 ПLO=3.8 ПF=3.7 ПL=4.0 ПM=3.3 П S=3.8 (ПT=3.8, N=21) N=2 N=9 N=10 N=5 N=3 N=13 ** The senior management commits the resources for •_____•______•______•_____• •_____•______•______•_____• continuous quality improvements ПG=3.5 ПLO=4.0 ПF=3.3 ПL=3.8 ПM=4.0 П S=3.5 (ПT=3.6, N=21) N=2 N=9 N=10 N=5 N=3 N=13 * The senior management provides the leadership for •_____•______•______•_____• •_____•______•______•_____• continuous quality improvements ПG=3.5 ПLO=3.9 ПF=3.3 ПL=3.8 ПM=4.0 П S=3.4 (ПT=3.6, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Employee involvement: The company has special rewards and incentives for •_____•______•______•_____• •_____•______•______•_____• employees who make contributions to quality ПG=3.5 ПLO=3.0 ПF=2.7 ПL=3.4 ПM=3.0 П S=2.7 improvements (ПT=2.9, N=21) N=2 N=9 N=10 N=5 N=3 N=13 The company training of employees in quality •_____•______•______•_____• •_____•______•______•_____• Issues plays an important role ПG=3.5 ПLO=3.9 ПF=3.5 ПL=3.8 ПM=4.0 П S=3.5 (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Quality assessment: * Our company regularly assesses the quality •_____•______•______•_____• •_____•______•______•_____• of its tangible products ПG=2.0 ПLO=3.4 ПF=3.1 ПL=2.6 ПM=3.5 П S=3.2 (ПT=3.1, N=21) N=2 N=9 N=10 N=5 N=3 N=13 ** Our company regularly assesses the quality of its •_____•______•______•_____• •_____•______•______•_____• services production processes ПG=4.0 ПLO=3.8 ПF=3.2 ПL=3.6 ПM=4.0 П S=3.4 (ПT=3.5, N=21) N=2 N=9 N=10 N=5 N=3 N=13 *** Our company regularly assess the quality of its •_____•______•______•_____• •_____•______•______•_____• intangible products ПG=2.0 ПLO=3.3 ПF=3.0 ПL=3.0 ПM=3.3 П S=3.1 (ПT=3.1, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Customer relationship: Our company continually tries to improve •_____•______•______•_____• •_____•______•______•_____• the relationship with its customers ПG=4.0 ПLO=4.0 ПF=3.9 ПL=4.0 ПM=4.0 П S=3.9 (ПT=3.9, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company regularly measures customer •_____•______•______•_____• •_____•______•______•_____• satisfaction ПG=3.0 ПLO=3.8 ПF=3.4 ПL=3.6 ПM=3.7 П S=3.5 (ПT=3.5, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Our company determines future customer •_____•______•______•_____• •_____•______•______•_____• requirements and expectations on a regular basis ПG=3.5 ПLO=3.9 ПF=3.5 ПL=3.8 ПM=3.7 П S=3.6 (ПT=3.7, N=21) N=2 N=9 N=10 N=5 N=3 N=13 Government Local Foreign Large Medium Small It was also found that only one foreign owned small size bank was having problems in

their quality management approach and mentioned that their head office policies were

not suited to the local market (Sri Lankan market).

311

13.7 Chapter Summary This chapter has discussed the analytical tools and techniques which are used in the

strategy development process, the formation of the corporate strategies and the

procedures and processes used for their development, corporate strategies and the

management of quality of the commercial banks.

SWOT, PEST and five forces analysis had the strongest influence on company

strategies and TQM was adopted more extensively by the banks for their corporate

planning during last five years. Over the next five years banks expected that SWOT,

PEST and five forces analysis and total quality management will all have a greater

influence on the banks corporate strategies.

Benchmarking also had a reasonable influence on banks strategies during last five years

and the banks preferred benchmarking groups were domestic banks in Sri Lanka,

foreign banks in Sri Lanka and Sri Lankan government banks respectively. The major

benchmarking dimensions for most banks were profitability, asset quality, NPL, and

productivity respectively.

It was found that capital expenditures and market development expenditures were more

important to the banks than the research and development, and people development

expenditures. The banks most important criteria in evaluating expenditure proposals

were forecast return on investments, forecast net operating profits, discount cash flow

analysis, forecast sales growth and impact on company resource needs respectively.

The banks formalize their corporate strategies to a reasonably high extent. The most

explicit parts of banks corporate strategies were to enter high growth markets and to

enter or develop service business respectively. During last five years banks have sought

growth through introducing existing products into new markets and introducing existing

products into existing markets to a high extent. Over the next five years banks will seek

their growth through introducing new products into existing markets to a high extent. It

was also found that banks overall attempt to be entrants in mature, stable markets and

also later entrants in established but still growing markets.

312

The major objectives of the banks research and development strategies were to be

highly service innovative, technologically innovative and to avoid high risk activities.

None of the banks allocated more than 2% of their total corporate revenues to their

R & D activities.

Only 8 of the 11 locally and government owned banks reported having international

operations and 13.8% of their average revenues came from these international

operations and these banks also expected that the average revenues from the

international operations will increase up to 18.7% in the next five years. The three major

overseas markets for most banks were Japan, India and Europe during last five years

and in the next five years the three most important markets for most banks will be India,

China, and Middle East respectively.

Only four banks made acquisitions during the last five years and the main objective of

those acquisitions was to develop a new configuration of business lines. Banks do not

expect that the acquisitions will play a significant role in their corporate strategies in the

next five years.

Only four banks divested, liquidated or eliminated important operations during the last

five years and the main reasons for these divestures was to refocus the business

portfolio on its core business and to dispose/retrench unprofitable lines of business.

Overall, banks think divestitures will not play a major role in their corporate strategies

in the next five years.

It was found that only 3 mergers occurred during last five years and the banks intended

to extend their core business activities, develop a new configuration of business lines

and also to meet the minimum capital requirements of the Central bank by these

mergers. Surprisingly, banks think mergers will not play a major role in their corporate

strategies in the next five years.

9 of the 21 banks made significant turnarounds during last five years and major

objective of their turnarounds was to restore money losing businesses to profitability

313

rather than to divest and banks overall, believe turnarounds will play a reasonable role

in their corporate strategies in the next five years.

Overall, banks considered management of quality was important to a great extent during

last five years and will be so in the next five years. It was also found that banks overall

considered management of quality as a strategic issue in their banks to a reasonably

high degree. Most reported strategic approaches towards quality in the banks were

customer care, and staff training for every level of the organization. Corporate

management and CEO were responsible for quality issues in 19 banks and in 8 banks

second level management were also responsible. It was also found that bank employees

were involved with management of quality to a reasonable extent but, not to a great

extent.

Overall, banks agreed to a high extent that quality is the responsibility of everyone in

the bank, the quality of customer service is a key issue, and the management of quality

is a major philosophy that pervades the whole organization. It was also found that the

CEO seeks to establish the total quality management philosophy within the banks to a

high degree. Furthermore, the company training of employees in quality issues plays an

important role in the banks. It was also found that banks overall continually try to

improve the relationship with their customers to a high extent and determine future

customer requirements and expectations, and measure customer satisfaction on a regular

basis to a reasonably high degree.

The next chapter will compare the strategic management practices of Sri Lankan

commercial banks with the strategic management practices in the companies of other

countries such as India, Thailand and Australia.

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PART FOUR

DISCUSSION: COMPARISON WITH PREVIOUS STUDIES AND THE MAJOR RESEARCH FINDINGS Chapter 14: Comparison with previous studies Chapter 15: The major research findings and further research directions

315

Chapter 14 Comparison with previous studies 14.1 Introduction

This chapter will compare the major research findings of strategic management

practices of Sri Lankan commercial banks with the major research findings of other

selected research studies previously conducted about strategic management practices in

other countries. The previous studies will include the studies of Nimmanphatcharin

(2002), Kakanamveetil (2004), and Bonn (1996). This study will not consider the

major research findings of Angkasuvana (2005) because of the nature of its population

(Thai hotel companies).

14.2 Background of the previous studies

Table 14.1 displays the population and the sample sizes of the current and previous

selected research studies. The study of Kakanamveetil (2004) includes 30

manufacturing companies in India and the study of Nimmanphatcharin (2002) includes

71 banking and financial companies in Thailand. Similarly the study of Bonn (1996)

includes 35 manufacturing companies in Australia. The major research findings of

Angkasuvana (2005) will not consider for the comparison because of its nature of the

population (Thai hotel companies). As stated earlier this study consists with 21 Sri

Lankan commercial banks in Sri Lanka.

Table 14.1 Population and the sample size of the current and previous studies

Name of the research study

Description of the Population Sample size

Current study

Sri Lankan commercial banks 21

Kakanamveetil (2004)

Indian large manufacturing companies

30

Nimmanphatcharin (2002) Thai banking and financial institutions

71

Bonn (1996) Australian large manufacturing companies

35

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14.3 Formalized strategic planning

Table 14.2 shows the percentages of the non formal planners and the formal planners in

the current and previous research studies. The research study of Sri Lankan banking

industry reported the highest percentage for the formal planners than the Thai, Indian,

and Australian studies respectively. Thus, formal planning plays a major role in Sri

Lankan banks. However, all these studies confirmed that formal strategic planning plays

an important role in their strategic management practices.

Table 14.2 Percentages of formal and non formal planners

Name of the research study Percentage of non formal planners

Percentage of formal planners

Current study 4.8 95.2

Indian study (2004) 26.7 73.3

Thai study (2002) 19.7 80.3

Australian study (1996) 28.6 71.4

14. 3.1 Relationship between plans

Table 14.3 reveals the relationship between corporate and short term plans of three

developing countries namely the Sri Lanka, India, and Thailand. In Sri Lanka and

Thailand most companies prepared their long term plan first and then short term plan

fitted into long term plans. However, in India most of the companies prepared their

short term and long term plans simultaneously.

317

Table 14.3 Relationship between corporate and short term plans

Relationship Current study/ (%) Indian study/ (%) Thai study/ (%)

Long term plan prepared first, shorter term plan then fitted into long term plan

90.0 35.0 72.0

Shorter term plan prepared first, longer term plans are then extended

- 9.0 5.0

Short term and long term plans prepared simultaneously

5.0 52.0 21.0

14.3.2 Corporate planning effort

Table 14.4 shows the corporate planning effort spent on different type of planning in the

companies of Sri Lanka, India, Thailand, and Australia. In all four studies most of the

efforts was spent on action planning or operational planning for the next 1 to 3 years.

However, Sri Lankan companies reported the lowest level of effort for the action

planning or operational planning for the next 1 to 3 years compared with the other three

countries. All the three developing countries spent more effort on short term emergency

planning than the Australian companies. Indian and Australian companies spent more

efforts on 10-20 years planning than the Sri Lankan and Thai companies but it was not a

greater effort compared with the efforts they spent on short term emergency and 1-3

years planning. The major highlight of the table 14.3 is the Sri Lankan companies’

lower level of efforts on long term planning for the next 5-10 years than the Thai,

Australian, and Indian companies.

318

Table 14.4 Corporate planning effort spent on different planning activities

Type of planning Current study Indian study Thai study Australian study

Short term emergency planning

3.7 3.0 4.0 2.3

Action planning or operational planning for the next 1 to 3 years

3.9 4.1 4.2 4.2

Long term planning for the next 5-10 years

2.6 3.3 3.5 3.4

“what the company wants to be in the next 10-20 years” planning

2.0 3.1 2.3 2.9

Note that: 1 represent disagree and 5 represent strongly agree in the given scale

14.3.3 Corporate planning effort spent on Forecasting

Table 14.5 shows the means of corporate plan effort spent on different forecasting areas

by the companies in the four different studies. Not surprisingly, companies in all the

four countries spent a greater effort in the areas of competitive analysis and industry

level demand than the other areas. Interestingly, Sri Lankan companies spent a higher

level of effort in the forecasting area of human resource than the other four countries.

Similarly, Thai companies spent a high effort in the forecasting area of foreign

economies.

Table 14.5 Corporate plan effort spent in forecasting areas

Forecasting area Current study Indian study Thai study Australian study


4.2 4.3 4.3 4.2


4.0 4.4 4.2 3.6

Domestic economy

4.0 4.0 4.2 3.1

Financial markets 3.8 3.8 3.9 3.2

Human resources 3.7 3.6 3.2 3.3

Governmental - 3.8 3.7 3.0

Foreign economies 3.0 3.1 3.6 2.8

Social and or cultural

2.5 3.1 2.8 2.4


319

Table 14.6 displays means of the transmission of forecasts which were developed or

purchased by corporate planning, from corporate level to the second level by the

companies in the four studies. Sri Lankan companies reported the lowest level of

transmission in the areas of competitive analysis, industry level demand, foreign

economies, and social and or cultural compared with the Indian, Thai and Australian

companies. However, Sri Lankan companies reported a higher degree of forecast

transmission in the area of human resources than the other three countries.

Table 14.6 Forecast transmission from corporate to second level

Area Current study Indian study Thai study Australian study


3.6 3.9 3.9 4.2


3.5 4.1 3.9 4.1

Domestic economy

3.9 3.6 3.7 4.2

Financial markets 3.4 3.3 3.7 4.0

Human resources 3.8 3.0 2.9 3.7

Governmental - 3.5 3.0 3.7

Foreign economies 2.7 2.8 3.2 3.7

Social and or cultural

2.7 3.0 2.8 3.3

Technological 3.9 3.5 3.2 3.7

Note that:1 represent never transmitted and 5 represent regular transmitted in the given scale

14.3.4 Use of computer models/systems

Table 14.7 shows percentages of the models and systems used by the companies in four

different studies for their corporate planning. Smaller percentage of Sri Lankan

companies used simulation models for their corporate planning than the Indian, Thai,

and Australian companies. However, higher percentage of Sri Lankan companies used

the strategic decision models and the group decision support models than the Indian,

Thai, and Australian companies.

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Table 14.7 The models and systems used by the companies for their corporate planning

Model Current study/ (%) Indian study/ (%) Thai study/ (%) Australian study/ (%)

Financial models 90.0 95.0 95.0 79.1 Forecasting models

90.0 89.0 79.0 66.6

Simulation models 20.0 47.0 93.0 37.5 Planning models 45.0 63.0 18.0 45.9 Econometric models

- 32.0 11.0 8.3

Strategic decision support models

90.0 53.0 40.0 20.9

Group decision support models

55.0 53.0 9.0 16.7

14.3.5 Nature of corporate planning

Table 14.8 displays the means of the responses received in three different studies about

the company’s nature of the corporate planning process. Planning process plays a

greater role in organization’s communication network in Thai companies but a

reasonably high role in Sri Lankan and Indian companies. Similarly, the planning

process was more necessary to sequence future activities for Thai and Indian companies

than the Sri Lankan companies. Furthermore, the planning process in Sri Lankan

companies plays a high role in systematically dealing with uncertainty, and as a key

device to allocate corporate resources throughout the company. Table 14.8 also

highlights that the planning process in Indian and Thai companies enable them to avoid

high levels of risk to a greater extent but in Sri Lankan companies to a reasonably high

extent.

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Table 14.8 Nature of corporate planning process

Nature of corporate planning process

Current study/(Mean) Indian study/(Mean) Thai study/(Mean)

Planning process plays an important role in organization’s communication network

3.6 3.5 4.2

Planning process plays an important role in strategically managing the company’s structure

3.9 3.8 3.6

Planning process is necessary to sequence future activities

3.8 4.1 4.3

Planning process systematically deals with uncertainty

3.9 3.8 3.9

Planning process enables the company to avoid high levels of risk

3.8 4.0 4.0

Planning process is a key device which allocates corporate resources throughout the company

3.9 4.1 3.8


Table 14.9 displays the means of responses in the three studies regarding the co-

ordination of corporate planning with other planning. In Sri Lankan companies

corporate planning was co-ordinated with financial planning to a greater extent than the

marketing, operational, and HR planning. In Indian companies, their corporate planning

was co-ordinated with financial, marketing, operational, and HR to a greater extent than

the Sri Lankan and Thai companies.

Table 14.9 Corporate planning co-ordination with other planning

Corporate planning is Co-ordinated with:

Current study / (Mean) Indian study/(Mean) Thai study/(Mean)

Financial planning 4.0 4.4 4.4 Marketing planning 3.5 4.5 2.3 Operational planning 3.7 4.2 3.0 HR planning 3.5 3.8 3.1 Note that: 1 represent disagree and 5 represent strongly agree in the given scale Table 14.10 reveals the various functions of the corporate planning of companies in

three research studies in three different countries. It was revealed that Sri Lankan

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companies spent a lower degree of effort in preparing specific studies than the Indian

and Thai companies. Similarly, Sri Lankan companies spent a lower degree of effort on

identifying areas of new business opportunity than Thai and Indian companies.

However, effort spent on define guidelines, formats, and timetables for planning

activities, and develop macro forecasts of the economy, financial markets, political

environments etc were relatively equal in the companies in all three countries.

Table 14.10Various functions of the corporate planning

Current study/mean Indian study/mean Thai study/mean

Define guidelines, formats, and timetables for planning activities

3.9 4.0 3.9

Develop macro forecast of the economy, financial markets, political environment and etc

3.7 3.8 3.9

Prepare specific studies

2.6 3.7 3.6

Develop improved accounting and financial data for strategic planning

3.7 3.7 4.0

Identify areas of new business opportunity

3.8 4.1 4.2

Reorganize the company around more clearly defined business units

3.8 - 4.1

Note that: 1 represents no effort and 5 represents high degree of effort in the given scale

Table 14.11 shows the corporate planning effort put on external analyses in the

companies in the three research studies. Possible impact of economy was the most

important external analysis of the corporate planning in Sri Lankan and Thai companies

and in Indian companies it was technological developments. Identifying the possible

impacts of the government on company’s business operations was less important in Sri

Lankan companies but, it was very important in Thai companies. Furthermore, a lower

degree of effort was spent on identifying the possible impacts of the culture on

company’s business operation in both the Sri Lankan and Thai companies.

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Table 14.11 Corporate Planning effort put on external analysis

In our company, a great deal of effort is expended in attempting to identify:

Current study/mean Indian study/mean Thai study/mean

competitors cost structure

3.5 3.6 3.4

The sources of funds

3.8 - 4.0

The customer demands

3.8 3.9 4.1

The possible impacts of the government on our business operations

3.4 - 4.1

The possible impacts of the economy on our business operations

4.0 - 4.3

The possible impacts of the culture on our business operations

2.8 - 2.6

Technological developments

3.8 4.0 4.0

Not that: 1 represent disagree and 5 represent strongly agree in the given scale

Table 14.12 reveals the quality of information received from the various departments

for the company’s corporate planning in the three different studies. Indian companies

received higher quality information from the departments such as finance,

operations/production, and marketing for their corporate planning than the Sri Lankan

and Thai companies. Overall, Sri Lankan companies did not receive very high quality

information from the departments that were identified in the table 14.12. However, Sri

Lankan companies did receive higher quality information for their corporate planning

from the marketing and operations departments than the Thai companies.

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Table 14.12 Quality of information received from various departments for corporate planning Our company gets very high quality information for the corporate planning from the:

Current study Indian study Thai study

Finance department

3.6 4.2 3.7

Operation/production department

3.5 4.1 3.2

Marketing department

3.2 4.3 3.1

Human resource department

3.2 - 3.4

Technology development (R & D)

2.7 - 3.3

Not that: 1 represent disagree and 5 represent strongly agree in the given scale

14.4 Chapter summary

The current research study reported the highest percentage of companies with formal

strategic planning compared with the Australian, Indian and Thai studies. Thus, it is

worth noting that formal planning plays a major role in most of the Sri Lankan

companies whether it is large, medium, or small.

In Sri Lanka and Thailand most of the companies prepared long term plans first and

shorter term plans were then fitted into long term plans. However, in India more than

half of the companies prepared short term and long term plans simultaneously. In all the

four studies most of the efforts were spent on the action planning or operational

planning for the next 1 to 3 years. However, Sri Lankan companies reported the lowest

level of effort for the action planning or operational planning for the next 1 to 3 years

compared with the Australian, Indian, and Thai companies. It was also found that all the

three developing countries spent more effort on short term emergency planning than the

Australian companies. Overall, Sri Lankan companies did not spend effort on “what the

company wants to be in the next 10-20 years” planning.

Overall, companies in all the four countries spent a greater effort in the forecasting areas

of competitive analysis, and industry level demand than the other areas. Interestingly,

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Sri Lankan companies spent a greater effort in the forecasting area of human resources

than the other three countries. Regarding the transmission of forecasts from corporate

level to second level, Sri Lankan companies reported the lowest level of transmission

from corporate level to second level in the areas of competitive analysis, industry level

demand, foreign economies, and social and or cultural compared with the other three

countries.

Most used models for corporate planning in the companies in the studies of Sri Lanka,

India, and Australia were financial, and forecasting models and in Thailand those were

financial and simulation models. It was also found that a higher percentage of Sri

Lankan companies used strategic decision support models and group decision support

models than the other three countries.

In Sri Lankan companies their planning process, plays an important role in strategically

managing the company’s structure, is a key device which allocates corporate resources

throughout the company, and for systematically dealing with uncertainty to a high

extent. For Thai companies their planning process is necessary to sequence future

activities and plays an important role in organization’s communication network to a

great extent. In Indian companies their planning process is necessary to sequence future

activities, and is a key device which allocated corporate resources throughout the

company to a great extent.

Corporate planning in Sri Lankan companies was coordinated with financial planning to

a great extent but, marketing, operational, and HR planning to a reasonably high extent.

In Indian companies their corporate planning was coordinated with financial, marketing,

and operational planning to a great extent and in Thailand companies their corporate

planning was only coordinated with financial planning to a great extent. Possible impact

of economy was the most important external analysis of the corporate planning in Sri

Lankan and Thai companies but Indian companies it was technological developments.

Sri Lankan companies get very high quality information for their corporate planning

from the finance and operation departments to a reasonable extent. However, Indian

companies received very high quality information for their corporate planning from the

finance, operation, marketing to a great extent. It is worth noting that for the item very

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high quality information received from the technology development for corporate

planning in Sri Lankan companies was relatively low.

The comparison of the major research findings of these four studies shows that overall

the strategic management practices in these four studies were remarkably alike and also

formal strategic planning is still alive well. Thus, it is worth noting that formal strategic

planning is still not dead and plays a major role in company’s strategic management

process.

The next chapter will discuss the major research findings of this research, the unique

features of the strategic management practices by ownership and size aspects and also

the unique features of the strategic management practices in Sri Lankan commercial

banks. Furthermore, the significance of this research, future research directions and also

the limitations of the research will be stated.

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Chapter 15 Major research findings and further research directions 15.1 Introduction This chapter will discuss the major research findings of this study in terms of the major

research questions developed in chapter 4. Then the unique features of the strategic

management practices by ownership and size aspects and also the unique features of the

strategic management practices in Sri Lankan commercial banks will be summarized.

Then the significance of this research study for the field of strategic management will be

discussed. Finally, further research directions and the limitations of this research study

will be stated.

15.2 Major Research findings of the research No one has attempted to investigate the strategic management practices in any industry

in Sri Lanka and therefore, this study was designed to analyse the strategic management

practices of Sri Lankan commercial banks. Because of the large number of variables

that were expected to be investigated in this study, and also with no prior knowledge

about how the variables behave in the Sri Lankan banking industry this study was

developed around key the research questions. There were six major research questions

developed to seek answers in this study (in chapter 4) and therefore, the major research

finding of this study will be discussed under these six major research questions.

15.2.1 Research question 1: The overall strategic management characteristics of Sri Lankan commercial banks

The overall strategic management characteristics of the Sri Lankan commercial banks

will be discussed in terms of respondents characteristics, vision and mission, corporate

and second level long term goals, corporate strategies and processes, and management

of quality.

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15.2.1.1 Respondents characteristics

There were twenty one commercial banks who participated in this research study and all

the participating banks were categorized according to their size, ownership, and

planning systems aspects. The major consideration for the ownership aspects was who

owns more than fifty percent of the total shares and ownership aspects were classified

into three categories namely government owned, locally owned, and foreign owned. The

major consideration for size aspects was the asset base of the banks and size aspects

were classified into three categories namely large, medium, and small. By considering

the planning system aspects all the banks were divided into two categories namely

banks which had formalized strategic planning system and the banks which did not have

a formalized strategic planning system.

Large banks reported having higher profits, revenues, assets, and number of branches

and it was found that all the large banks were locally owned and government owned

banks. There were two government owned banks and both were large banks. It was also

found that two government banks reported the highest profit for the year of 2005 and

reported having the most number of branches. Except for one medium sized bank all the

other foreign owned banks were small sized banks. It was also found that except for one

government owned bank all the other banks had a formalized strategic planning system.

15.2.1.2 Vision and mission statements

Except for one locally owned medium sized bank all the other banks had a mission

statement for their banks. Most government and locally owned banks included

statements about the employees, customers, service excellence, and their financial

services in their mission statements. Banks mission statements were influenced by the

corporate level management followed by CEO and outside members of the board of

directors. Eight of the ten locally and government owned banks had changed their

mission statements during last five years and most of the banks had stated their mission

more specifically. The factors that affected banks mission statements were strategic

considerations, introduction of new plans, and development of new capabilities. Banks

also believe that their mission statements are appropriate for the next five years to a

high degree.

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All the locally and government owned banks had a vision and most reported major

characteristics of banks vision include to be the best bank of the people, and to

dominate the financial sector in Sri Lanka. Corporate management had the most

influence on their vision followed by the CEO and outside members of the board of

directors.

15.2.1.3 Long term goals at corporate and second level

19 of the 21 banks had long term goals at corporate level. All the banks which had

corporate long term goals had quantitative goals and similarly, except for one foreign

owned bank all the other banks had qualitative goals. Most banks quantitative goals

include goals such as return, profits, income, cash flows, deposits and financial ratio

controls. Customer focus, focus on market segments, and leadership in quality and

service were the qualitative goals reported by most banks. Overall, banks corporate

level long term goals were mostly influenced by corporate level management and the

bank CEO. In 6 banks formulating long term goals at corporate level was a negotiation

process between the CEO and corporate level management and in 5 banks it was a

negotiation process between the corporate level/board of directors group and second

level management. The most important roles of banks corporate goals were the

evaluation of its past performance and to monitor current performance. 14 banks had

changed their corporate goals and 13 banks had upgraded or updated their goals and 7

banks instituted new goals. Major factors that influenced the changes of banks corporate

goals were changes in economic environment and technological breakthroughs. Except

for two foreign owned banks all the other banks met or exceeded their corporate goals

during the last five years. The major reasons for these performances were

appropriateness of goals and managerial competencies.

Only 8 banks had long term goals at their second level. Banks second level long term

goals were mostly influenced by the corporate level management followed by the CEO

and second level line managers. Most of the banks second level long term goals were

formulated through a negotiation process between the corporate level and second level

managements. The major roles of banks second level long term goals were to be used as

standards to evaluate business unit performance, and also as a major influence on final

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corporate goals. Overall, banks believe that they have good quality second level long

term goals.

15.2.1.4 Corporate strategies and processes

The major analytical tools and techniques that influenced the banks corporate strategies

during the last five years were SWOT, five forces and PEST respectively.

Benchmarking had a reasonable influence on corporate strategies during the last five

years and the banks preferred benchmarking groups were domestic banks, foreign

banks, and government banks in Sri Lanka. The major benchmarking dimensions for

most banks were profitability, asset quality, NPL, and productivity respectively. Capital

expenditures and market expenditures were the most important expenditures to the

banks and the most important criteria in evaluating expenditure proposals were forecast

return on investments, forecast net operating profits, and discount cash flow analysis.

The banks formulate their corporate strategies to a reasonably high degree and the most

explicit part of the banks corporate strategies were to enter high growth markets and to

enter or develop service business. Banks sought growth through introducing existing

products into existing and new markets and they attempt to be entrants in mature, stable

markets and also later entrants in established but still growing markets.

The major objectives of the banks research and development strategies were to be

highly service and technologically innovative and also to avoid high risk activities. But,

none of the banks allocated more than 2% of their total revenues to their R & D

activities. 8 of the 11 locally owned and government owned banks had international

operations and 13.8% of their revenues came from these international operations. Only

four banks made acquisitions during the last five years and only three banks had

mergers during that period. It was also found that only four banks divested, liquidated

or eliminated important operations during the last five years. Therefore, acquisitions,

mergers and divestitures did not play a major role in banks corporate strategies.

However, 9 of the 21 banks had significant turnarounds during the last five years.

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15.2.2 Research question 2: Internal environmental factors that affect strategic management practices of the Sri Lankan commercial banks

The internal environmental factors that affect the banks strategic management practices

will discuss under 7 major parts namely, organizational structure, ownership, size,

culture, management style, stakeholder’s expectation, and resources, capabilities and

key success factors.

15.2.2.1 Organizational structure

52.4% of the banks had MSBU structures, and 28.6% and 19.0% reported have SSBU

and mix of MSBU and SSBU structures respectively. All the banks had corporate and

second levels and only 15 and 2 banks had a third level and fourth level respectively. In

18 of the 21 banks their corporate levels were headed by a CEO or a GM. Most banks

reported the highest position at their second level was a DGM followed by the senior

manager and the manager. Similarly the most reported senior position at third level was

a branch manager. In 19 banks second management level units were defined as profit

centres and the lowest level of profit centre in most banks was operational level. 14

banks had a hybrid form of centralized and decentralized structures and 6 banks had

centralized structures.

Only 9 banks had changed their structures during the last five years and the important

structural changes of most banks include the introduction of new positions, introduction

of new procedures and policies, establishment of new profit centres, and new areas of

activities respectively. The major reasons for most structural changes were to improve

efficiency and the change of their CEO/GM. Furthermore, 14 banks believe that they

need to change their structures in the next five years. Twelve of these 14 banks think

that their structures need to be adjusted according to the business and competitive

environments. Seven banks expected to introduce new positions and 5 banks expected

to open new branches in the next five years. The main reason banks expected structural

changes was due to the expected growth of the banking industry in Sri Lanka.

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15.2.2.2 Ownership

It was found that 2 government owned banks, 9 locally owned banks and 10 foreign

owned banks were included in the sample of this research study. Only 6 locally owned

banks were selling shares in the SLSM and among these six banks 4 were widely held

and 2 were subsidiaries of Sri Lankan companies. Seventeen of the 21 banks did not

change their ownership during the last five years. The major changes of ownership in

the 4 banks included two mergers, 1 transfer of ownership limited liability and 1 change

of major shareholders. The major reasons for these changes were capital requirements,

to make capital gains, company not listed in the share market, to enhance shareholder

value, and unsatisfactory performance of the bank. Good earning potential and the

Central Bank capital requirements were the major factors that supported the above

ownership changes in most banks. These 4 banks think their ownership changes were

successful and helped them strategically. Furthermore, 19 banks do not expect to

change their ownership in the next five years.

15.2.2.3 Size

Overall banks were reasonably satisfied with their performance compared to their size.

But 17 banks believed that they need to enhance their size to gain more profits. Most of

the banks had the barriers to growth such as capital requirements, government policies,

and lack of managerial and employee skills to enhance their bank’s size.

15.2.2.4 Organizational Culture

All the banks considered that the management of their culture was important and

overall, all the banks were satisfied with their organizational cultures. Company CEO

and corporate level management had the most influence on the banks culture. The most

reported major characteristics of organizational culture were loyalty, team spirit, and

commitment. The most important actions of banks culture were to encourage

communication and co-operation between different departments, and encourage team

work rather than individual contribution. Only 13 banks had a change to their

organizational culture during the last five years and among these banks 9 banks had

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incremental changes and the other 4 banks had both the incremental and revolutionary

changes. The main reasons for changes of most cultures were to be competitive in the

market, customer orientation, survival of the company, and the development which took

place in the banking sector. Major cultural changes made by most were change of

values to core customers, introduction of new tasks, introduction of job descriptions,

and recruitment of new staff etc. The major factors that supported those cultural changes

were introduction of new products by the banking sector in Sri Lanka, growth of the

banks and low profitability respectively. Only 7 banks reported having factors which

made cultural changes difficult such as influence of trade unions and informal groups,

age structure of the staff, and barriers in bottom to top communication etc. Furthermore,

only 4 banks had difficulties when they had implemented cultural changes such as to

obtain the required trade union support, to change the attitude of the staff, and the age

structure and qualification of the staff etc.

Overall, banks rated their cultural changes successful. Only 9 banks expected to change

their cultures during the next five years and these expected changes included new

positions at corporate and operational level, new staff recruitments, and changes to the

bank hierarchy respectively. Only 8 banks reported have subcultures in their banks and

the main reasons for the development of subcultures were working within a department,

presence of different societies, and geographic distributions of operations respectively.

Most of the banks believe development of subcultures weaken or undermine their

organization. It was also found that 17 of the 21 banks needed to have flexible culture

for their organization. The banks also think their culture have a strong influence on their

strategies.

15.2.2.5 Management style

Top to bottom approach, bureaucratic, and participatory decision making were the key

characteristics of most banks. The banks management styles were influenced by

corporate level management to the greatest extent followed by second level

management and other lower levels of management. Overall banks believe that

management style has an effect on their follower’s performance and job satisfaction.

Similarly, banks believe that their management style has an influence on company

performance and their strategies to a reasonably high extent. Only four banks reported

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having problems in their management styles and their major problems included too

much listening to trade union views, lack of strategic planning, low concentration on

human aspects, high turnovers of staff etc. There was a reasonably high power distance

between managers and their subordinates. Furthermore, there were some internal

politics seen in the banks but not to a great extent and top management think internal

politics are bad because that political behaviour is undertaken for personal rather than

organizational gain.

15.2.2.6 Stakeholder’s expectation

The major stakeholder groups of most banks were depositors and customers, employees,

Sri Lankan community, and Sri Lankan government etc. The most reported

stakeholder’s expectations were excellent service, timelines, higher interest benefits,

career opportunities, job security, rewards, good working conditions, return on equity,

revenue through taxes etc. The top management interests were aligned with

stakeholder’s interest to a reasonable extent. The banks top management decides how

much stakeholder interests they must take into account and banks consider stakeholder

power when they are giving priorities. Finally, stakeholder expectations had a

reasonably high influence on banks strategies.

15.2.2.7 Resources, capabilities and key success factors

Banks most reported physical assets were their location, buildings, ATM networks, and

computer systems and their intellectual assets were professional skills of the staff, brand

name, and reputation and cultural assets were implementation of professional banking,

implementing international banking facilities, and brand image of a local bank etc.

Professional staff, up to date technology, service excellence, brand image were the most

reported major capabilities of banks and the major capabilities that were crucial to the

success of the business in the banking industry (key success factors) in most were up to

date technology, professionalism of the staff, service excellence, and brand image etc.

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15.2.3 Research question 3: The external environmental factors which influenced the strategic management practices of Sri Lankan commercial banks

The major findings of the external environmental factors that influenced the banks

strategic management practices will be discussed under three major headings namely

demand environment, competitive environment, and industrial and general

environmental factors.

15.2.3.1 Demand environment

The demand environments of the banks that 70% of revenues were fairly predictable

during the last five years and banks expected that it will not change during next five

years. Overall, 90% of the banks revenues felt into markets that were growing and

banks expected that their 93% of the revenues will fall into growing environment in the

next five years.

15.2.3.2 Competitive environment

Only four banks reported being market leaders in markets where there were 1-2 major

competitors and 19% of the total revenues came from those markets.13 banks reported

being market leaders in the markets where there were 3-7 major competitors and 19% of

the total revenues came from those markets. Similarly, 7 banks reported being market

leaders in markets where there were more than 7 major competitors and 22% of the total

revenues came from those markets. The major competitors of the banks were locally

owned banks, foreign owned banks, government banks, leasing companies, and credit

finance companies respectively and their expected competitors in the next five years

will be the same. Overall, bank’s competitors had a reasonable influence on their

strategies during the last five years and banks expected a slight increase in the influence

of competitors on their strategies in the next five years. Overall, banks were in the

markets where their competitor’s actions were fairly predictable for up to 71% of their

revenues and banks expected that it will reduce up to 68% in the next five years.

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15.2.3.3 Industrial factors

Industrial factors will be explained under the heading of competition and market share,

major customers, company suppliers, and new entrants.

15.2.3.3.1 Competition and market share

Customer deposits, corporate, and retail were the most important markets for most

banks during the last five years. Government banks had a market share of more than

20% from their most important markets while other banks reported having a market

share of 10-20%. Most important markets of most banks in the next five years will be

retail, deposits, and corporate and government banks expected to keep their market

share over 20% while other banks expected to keep their market share of 10%-20% in

their most important markets.

15.2.3.3.2 Major customers

Major customer groups of the most banks were manufacturing, export, wholesale and

retail, and service sector respectively. The most expected customer groups for the next

five years will be export, manufacturing, and wholesale and retail trade sectors

respectively. Overall, banks were dependent on their 100 major customers to a

reasonable extent but, not to a great extent and 48% of their total revenues came from

their 100 major customers.

15.2.3.3.3 Company suppliers

Major sources of funds for the commercial banks were domestic customers, foreign

bank’s overseas head offices, and domestic organizations etc. For the next five years

banks expected to obtain more funds from the domestic customers. The banks had a

great dependence on their major sources of funds during the last five years but, they

expected a slight decrease in the next five years. Overall, 84.0% of the funds for banks

felt into the category of no availability problems in the last five years and banks

expected that this will increase up to 86.0% in the next five years.

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15.2.3.3.4 New entrants

Possible new entrants to the Sri Lankan banking industry were Indian banks with back

office in India, Islamic banks, and non banking corporate lending institutions

respectively. Banks also believe entry into the banking industry in Sri Lanka is not

difficult.

15.2.3.4 General environmental factors

The major research findings about the general environmental factors will be discussed

under the headings of political and legal factors, economic factors, social cultural

factors, and technology factors.

15.2.3.4.1 Political and legal factors

Government policies impacted on banks operations to a reasonably high level during the

last five years and at present and banks expected that this will increase slightly in the

next five years. Current impacts of government policies on banks environment were

capital requirements, increase of taxes, interest rate controls, and Central Bank

regulations with government policies etc. However, government involvement in banks

operations remained low. Similarly, Sri Lankan laws and regulations had a reasonably

high impact on banks operations and these impacts include capital requirements, single

borrowing limit, government audit requirements, for recovery matters, and CBSL

regulations respectively.

15.2.3.4.2 Economic factors

Sri Lankan economy had an impact on banks operations to a great extent during the last

five years and at present and it was expected to increase slightly in the next five years.

The major economic impacts on banks operations include profitability, low investment

opportunities due to political uncertainty, and deposit mobilization etc.

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15.2.3.4.3 Social cultural factors

The social cultural environment did not have a major impact on bank’s operations and

banks expected it will also not change in the next five years. The major impacts of

social cultural environment on bank’s operations were peace/war situation in the

country, demography (more youngsters in the market), and technology driven delivery

channels.

15.2.3.4.4 Technology factors

Technology did have a reasonably high impact on banks operation during the last five

years, it has a high impact at present and also is expected to have a greater impact in the

next five years. The current impacts of technology on banks operations include new

products, customer services, network banking, link with global network such as Cirrus

and Maestro etc.

15.2.4.1 Research question 4 part1:Strategic planning practices of the banks which had a formalized strategic planning system

Except for one government owned bank all the other banks had a formalized strategic

planning system at their corporate level and therefore, strategic planning plays a major

role in the Sri Lankan commercial bank’s strategic management.

15.2.4.1.1 Strategic planning at corporate level

In 18 of the 20 banks the longer term plan was prepared first then the shorter term plan

was fitted into long term plan. Most of the banks update their corporate plans every year

and review the progress of corporate plans monthly or quarterly (more than half of the

banks). Most effort was spent on action planning or operational planning for the next 1

to 3 years followed by short term emergency planning and formalized contingency

planning.

The banks spent a higher degree of effort on forecast development in the areas of

competitive analysis, laws and regulations for financial services sector, industry level

339

demand, and domestic economy respectively. Overall, most of the banks purchased

external forecasts in the areas of laws and regulations for financial services sector, and

technology. The highest degree of forecast transmission from corporate level to second

level were for domestic economy, technological, laws and regulations for financial

services and human resources. Overall banks did not report a severe impact on quality

of corporate planning, second level planning, and other lower levels of planning efforts

if external forecasts purchased by corporate planning were not available.

The most reported major headings of the banks corporate plans were goals, objectives,

corporate strategies, deposit mobilizations, implementation and monitoring, feedbacks,

competitive analysis, and environmental analysis etc. In most of the banks only senior

management had access to their corporate plan. The areas of corporate plan which had

the highest added values over the second level plans were financial, sources and uses of

funds.

The banks did not have an extensive use of computer models/systems for their corporate

planning. However, almost all the banks used forecasting models, financial models, and

strategic decision support systems for their corporate planning.

Only 7 locally owned banks reported having a corporate planning department and these

banks also had a very low level of rotation of the line personnel through the corporate

planning department. The chief corporate planner was more likely to attend capital

budgeting meetings than divisional planning meetings and group planning meetings.

Furthermore, the corporate planning department had the authority to obtain substantive

revisions in second level plans, obtain procedural revisions in second level plans, and

review and criticise second level plans to a high extent.

Banks spent a reasonably high amount of effort to define guidelines, formats and time

tables for planning activity, in identifying areas of new business opportunities, and

reorganize the company around more clearly defined business units. Similarly a high

amount of effort was given to help corporate management formulate goals and

objectives, and to help corporate management formulate strategy.

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Overall, the banks planning process plays an important role in strategically managing

banks organizational structure, to sequence future activities, and have measurable

positive effect on sales and profits. The banks planning process is a device to assure that

conflicting expectations are resolved and is a means for systematically dealing with

uncertainty, and a key device for allocating corporate resources throughout the

company.

Overall, banks put a high amount of effort to identify possible impacts of the economy,

the sources of funds, the customer demands, technological developments, competitors

cost structure, and the impacts of the government on banks operations respectively.

Banks competitive analysis, supplier analysis, economic analysis, and political analysis

were major activities of corporate level management, customer analysis was a major

activity of marketing people and corporate level management, and technology analysis

was a major activity of operations people.

The banks corporate planning were coordinated with financial planning, operations

planning, marketing planning, human resource planning, and technology planning to a

reasonably high extent. Furthermore, the banks finance, operations, marketing, and

human resource departments provide high quality information for their corporate

planning. It was also found that banks were not getting a great deal of resistance from

their finance, operations, marketing, and human resource departments to their corporate

planning.

CEO/GM’s were involved to a great extent in the development of corporate goals,

missions, objectives, alternative strategies, and evaluation and approval of the corporate

plans, and having planning as a philosophy in the bank. Furthermore, the CEO had a

greater influence on the format of the corporate plan, assumptions used in the final

corporate plan, objectives embodied in the final corporate plan, approval of the final

corporate plan, and development of missions for second level units while corporate

planning department had a reasonably high influence and the outside board of directors

had less influence. The top second level line managers had a reasonably high influence

only for development of missions for second level units.

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Eight banks were not expecting to introduce any changes to their strategic management

process and the other banks expected major changes in their strategic management

process were to continue participatory decision making process for strategic planning,

and develop strategic thinking capabilities in all levels of the banks.

15.2.4.1.2 Strategic planning at second level

Only four banks reported have second level long term plans. The major headings of

second level plans in most banks were environmental analysis, business strategies,

forecasts and budgets, revenue targets, time frames for assessment and volume targets

for products and services etc. Banks grouped their second level units for planning the

same way they were grouped for operations and their major long term plans at the

second level were revenue targets, volume targets, and the time frames for the

assignments.

The banks used computer models, systems for their second level planning to some

extent but not to a high extent. It was also found that computer models/systems have

been useful to a reasonable degree.

15.2.4.1.3 Contingency planning

All the banks with formalized strategic planning developed formal contingency plans as

part of their long term planning effort. Nine banks had contingencies only for corporate

level and the other 11 banks had contingency plans both for the corporate and second

level

15.2.4.1.4 Third level and fourth level planning

Only 2 banks had third level business plans and none of the banks reported have fourth

level long term planning.

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15.2.4.2 Research question 4 part 2: Strategic thinking capabilities of the banks

Overall, banks strategy is made on an iterative basis, involving managers, staff and

executives in an on going dialogue to a reasonably high extent and the banks employees

were not willing to take risks.

Banks considered they just a part of a business system that crosses a variety of

industries and they think strategically about which of these competing networks of

suppliers they join and how they position within that ecosystem to a reasonable high

extent. Similarly, banks identified the importance of fit between corporate, business,

functional, and personal may be the most critical at all levels to a reasonably high

extent. Thus, overall, banks had a reasonably high understand about the relationship of

the interdependencies of their value creation process.

It was found that, overall banks did not focus much about the strategic intent. It was

also found that size aspects were more associated with the strategic intent than the

ownership aspects.

Overall, banks agreed with the statement that strategic thinking is always thinking in

time and it connects past, present and future to a high extent. Thus, banks overall had a

high understand about the importance of “thinking in time” in their strategic

management.

It was found that overall, banks did not leave much room for emergent strategies.

However, It was also found that employees rely more on their top management

foresight and they were not willing to take risks. Thus, the intelligent opportunism of

banks lower levels remained low.

The results show that medium sized banks had the higher level of strategic thinking

capabilities than the large and small sized banks and locally owned banks had the higher

level of strategic thinking capabilities than the government and foreign owned banks.

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15.2.5 Research question 5: Differences in the strategic management practices by size and ownership aspects

The differences in the strategic management practices either by size or ownership

aspects were highlighted throughout the data analyses in chapters 7-13. To answer

research question 5 the significant differences of key strategic management practices

either by size or ownership aspects will be briefly explained in terms of company

structure, culture and management style, mission and vision, long term goals, planning

and planning systems, corporate strategies and processes, and management of quality.

15.2.5.1 Company structure

All the large and medium sized banks had MSBU structures and most of the small sized

banks reported have SSBU structures. Similarly, all the government and 88.9% of the

locally owned banks reported have MSBU structures and 60% of the foreign owned

banks had SSBU structures. Surprisingly, ownership aspects were more associated with

company structures than the size aspects. More products and services of the government

owned and the locally owned banks caused locally and government banks to have more

MSBU structures than the foreign owned banks.

All the locally owned and government banks had a third level and only government

banks reported have a fourth level.

15.2.5.2 Organizational culture and management style

The influence of Sri Lankan government on government banks organizational cultures

was significantly higher than for the locally owned and foreign owned banks. The

cultural characteristics such as concentrate more on self development along with the

development of organization, influence on country politics, reacting nature and slow

adaptation to the culture, informal group prefer their values, norms beliefs contribute to

the culture were seen in a government bank and were associated with ownership

aspects. Furthermore, the most important action such as encouragement of team work

rather than individual contributions was seen as of low importance in government

banks.

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Some of the major cultural changes made by the banks during the last five years such as

introduction of new job descriptions, and introduction of new tasks were associated with

ownership aspects and were seen only in foreign owned banks. Similarly, 3 foreign

owned banks reported low profitability and economic changes as major factors that

supported their major cultural changes during the last five years. Influence of trade

unions and informal groups was a major factor that made government banks cultural

changes difficult. It was also found that two government banks and a locally owned

bank expected to introduce changes for their bank hierarchy in the next five years.

The presence of sub cultures was seen in all the large banks, 2 medium and 1 small

sized banks. Working within a department was a major reason for the development of

sub cultures in 5 locally owned banks.

Key management characteristics such as individual performance, and power motives

rather than achievement motives were seen only in a government owned bank.

Furthermore, corporate management in locally owned banks had a greater influence on

their management styles than the government and foreign owned banks. It was also

found that government bank’s management styles had a greater effect on follower’s

performance and job satisfaction than the foreign and locally owned banks. The

government owned banks and two foreign owned banks reported have problems in their

current management styles.

15.2.5.3 Mission and Vision statements

This study investigated the mission and vision statements of only government and

locally owned banks and therefore, only the significant differences by size aspects will

be mentioned.

Corporate level management, CEO, outside members of the board of directors in large

and small sized banks had a greater influence on their current mission statement than the

medium sized bank. However, second level managers in large banks had a significantly

lower level of influence on their current mission statement than the medium and small

sized banks.

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Regarding the vision statement, corporate planning department, and other lower levels

of managements in large banks had a significant lower level of influence than the

medium and small sized banks.

15.2.5.4 Long term goals

Quantitative long term goals such as stock market goals and dividend maintenance

goals were reported only from 5 locally owned banks and similarly goals such as loans,

and staffing were reported only from a government bank. Market share was a

quantitative long term goal of 3 large and 1 medium sized banks but not reported from

any of the small sized banks. Most of the foreign owned banks did not have the societal

goals but those were qualitative goals for all the government banks and most of the

locally owned banks. Furthermore, Central Bank of Sri Lanka had a significantly higher

influence on government banks corporate long term goals than for the locally owned

and foreign owned bank’s corporate long term goals.

All the large and small sized banks which changed their corporate long term goals had

upgraded or updated the goals during the last five years and only one medium sized

bank reported the formalization or explicitness of goals. Unsatisfactory performance of

government banks played a greater role to change their corporate long term goals than

for locally owned and foreign owned banks.

Only 8 banks had long term goals at their second level and these include 4 large, 2

medium and 2 small sized banks. The banks which had second level long term goals

were associated with size aspects. The units of measurements of second level long term

goals such as return ratios and cash flows were associated with ownership aspects and

were seen in the locally owned and foreign owned banks.

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15.2.5.5 Planning and planning systems

Only one government bank did not have a formalized strategic planning system at their

corporate level and all the other banks reported have a formalized strategic planning

system. However, only 4 banks reported have a formalized planning system at second

level and these banks included 2 large and 2 medium sized banks.

Most of the banks updated their corporate plans every year but the government banks

and the other 3 foreign owned banks updated their corporate plans every six months.

Similarly, most of the locally owned banks reviewed the progress of corporate plans

quarterly.

Regarding contingency planning, the government owned bank spent a higher degree of

effort on formulating contingency planning than the locally owned and foreign owned

banks.

The government bank spent a significantly higher degree of effort on forecast

development in the area of social and or cultural than the locally owned and foreign

owned banks and similarly, large banks reported a significantly higher effort on social

and or cultural than the small and medium sized banks. Furthermore, government banks

had a significantly higher level of transmission of forecasts in the area of social and or

cultural from corporate level to second level and similarly, medium sized banks had a

significantly higher transmission in the area of suppliers requirements than the large and

small sized banks.

The major headings of corporate plan such as vision, mission, and action plans, were

seen in the government and most of the locally owned banks and the major heading

such as customer analysis was seen in all the locally owned and most of the foreign

owned banks. Similarly policies and procedures, and customer demand were major

headings of corporate plan in all the large and most of the small sized banks. The

government bank reported a significantly higher added value of the corporate plans over

the second level plans in the areas of operations and research and developments.

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Most of the locally and foreign owned banks used financial models while the

government banks and most of the locally owned banks used planning models for their

corporate planning. Government banks reported a significantly higher usage of

computer models/systems for their corporate planning than the locally owned and

foreign owned banks.

Only 7 banks had a corporate planning department and all these were locally owned

banks.

Regarding the various functions of corporate planning, government banks put a

significantly higher degree of effort on preparing specific studies, help corporate

management with merger plans, and help corporate management with joint venture

plans than for the locally owned and foreign owned banks. However, locally owned

banks put a higher degree of effort on assessing the overall effectiveness of the planning

process than the government and foreign owned banks. Similarly, medium sized banks

put a higher degree of effort on monitor and control progress versus plans than large and

small banks, and small banks put a higher degree of effort on help corporate

management with sources and uses of fund plans than the large and medium sized

banks.

Regarding the nature of the banks planning process, in large and small sized banks

planning process plays an important role in auditing ongoing activities rather than for

the medium sized banks. Similarly, in government and locally owned banks the

planning process encourages the development of new business by combining expertise

and resources from lower level units to a greater extent than for the foreign owned

banks. It was also found that government bank’s planning process helps to focus the

company’s R & D efforts around defined opportunity areas more than for the locally

owned and foreign owned banks. Locally owned and foreign owned banks considered

their planning process is a means of systematically dealing with uncertainty than for the

government banks.

In the government bank their planning process is more adaptive, evolving, learning

activity than for the locally owned and foreign owned banks. Small banks considered

their planning effort is a more routinised activity than for the large and medium sized

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banks. Sales and marketing people in locally owned banks were more responsible for

their competitive analysis than the sales and marketing people in government owned

and foreign owned banks. Furthermore, government bank did not put a great deal of

effort to identify the sources of funds than for the other banks and the financial people

in locally owned and foreign owned banks were more responsible for their supplier

analysis than the financial people in government banks. Corporate level management

were also more responsible for the supplier analysis in locally owned and foreign owned

banks than for the government banks. It was also found that customer analysis was a

major activity of the second level management in small banks but, not in large and

medium sized banks.

Regarding the coordination issues involved in the banks planning process, locally

owned banks get very high quality information from the finance department for

corporate planning than for the government and foreign owned banks. Furthermore,

government banks get a great deal of resistance from their finance people and

operations people than do the locally owned and foreign owned banks from their

finance and operations people.

The board of directors involvement in corporate planning processes in foreign owned

banks were significantly lower than for the locally owned and government owned

banks. The influence of outside members of the board of directors in foreign owned

banks on the format of the corporate plan, assumptions used in the final corporate plan,

objectives and strategies embodied in the final corporate plan, and approval of the

corporate plan was also significantly lower than for the government and locally owned

banks. Furthermore, there was no influence of top second level line managers in the

government owned bank on the strategies embodied in their final corporate plan and the

approval of their final corporate plan.

The planning effectiveness of the government bank was lower when compared with the

locally owned and foreign owned banks.

Only 4 banks reported have formalized long term plans at second level and these

include 2 large and 2 medium sized banks. Thus, the banks which had second level

planning systems were associated with size aspects.

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15.2.5.6 Corporate strategy and processes

PEST and five forces analysis were used in locally owned and foreign owned banks to a

greater extent than the government banks during the last five years. The government

banks benchmarked with each other to a greater extent than the locally owned and

foreign owned banks benchmarked with the government banks. Competitiveness and

market leadership were major dimensions of a government bank’s benchmarking

process and similarly market share was a major dimension of most of the medium sized

banks.

Regarding the importance of criteria in evaluating expenditure proposals, government

banks reported a lower importance in forecast net operating profit, short term cash flow

benefits, and discounted cash flow analysis than the locally owned and foreign owned

banks. The foreign owned banks considered the forecast of market share growth less

important than for the government and locally owned banks. Locally owned banks

considered growth of market for which expenditure is required as more important than

the government and foreign owned banks.

The explicit part of the medium sized banks and also the locally owned banks corporate

strategies was to enter markets where technology is important. Large and medium sized

banks seek growth through introducing new products into new markets more than for

the small sized banks during the last five years. Surprisingly, in the next five years small

banks expected to introduce new products into new markets more than for the large and

medium sized banks. Furthermore, large banks attempted to be first to market with new

products and services and small sized banks attempted to be a later entrant in

established but still growing markets to a great extent. Similarly, locally and foreign

owned banks attempted to be an entrant in mature, stable markets to a greater extent

than the government banks.

Regarding acquisition strategies, medium sized banks expected that acquisition

strategies will play more of a major role in their corporate strategies than the large and

small sized banks in the next five years.

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15.2.5.7 Management of quality

There were significant differences found in the strategic approach towards quality in the

banks either by size or ownership aspects. Awareness building and training to change

the attitude, incentives/rewards for quality services, re-engineering programmes, and

physical importance of work places were strategic approaches towards quality in a

government bank. Similarly customer care was a strategic approach in most of the large

and small sized banks but, not in the medium sized banks. Medium sized banks reported

strategic approaches were brainstorming, and improve product efficiency and these

were not reported by the small and large banks.

In addition to the corporate level management and the CEO, in a government owned

bank outside members of the board of directors, corporate planning department, and

other lower levels of management were also responsible for addressing their major

strategic quality issues. In all the medium sized and most of the large banks second

level line managers were also responsible for addressing their strategic quality issues.

Government owned banks considered the quality of customer service more than for the

locally owned and foreign owned banks. Similarly, the CEO in government banks seek

to establish the total quality management philosophy within the company to a greater

extent than for the locally owned and foreign owned banks but, senior managements in

local banks commit the resources for continuous quality improvements to a greater

extent than the government and foreign owned banks. Furthermore, locally owned and

foreign owned banks regularly assess the quality of its tangible assets, and the quality of

its intangible products more than for the government banks.

15.2.6 Research question 6: Without a formalised strategic planning system, how do the commercial banks strategically manage their banks?

There was only one bank which did not have a formalized strategic planning system at

their corporate level. Thus, this research study has ignored the planning system aspects

because to compare one bank with other 20 banks which had formalized strategic

planning system will not provide a meaningful comparison for the reader. For this

reason, this study did not explore research question number six.

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15.3 The unique features associated with different categories of banks

The major findings of the current study demonstrate a number of unique features for the

strategic management practices associated with different categories of Sri Lankan

commercial banks. These features will be discussed under the six different categories

namely government owned, locally owned, foreign owned, large, medium, and small

banks.

15.3.1 Government banks

The research findings reveal the number of unique features that were associated with the

government banks. Government banks reported the maximum profits for the year of

2004 when compared with the other commercial banks in Sri Lanka. The only bank

which had a NFSP in this study was a government owned bank. However, that

government bank which had a NFSP system mentioned that they are planning to re-

establish a formalized planning system in their bank within the next two years.

The government banks had the most number of branches and employees compared to

other commercial banks. The only banks which had a fourth level of organization

structure were government owned banks. All the government banks had changed their

structures during the last five years and to improve their efficiency was the main reason

for their structural changes. Thus, it is worth noting that efficiency was a major

consideration for the government banks during the last five years.

The government banks had the lowest level of satisfaction with their current

organizational culture compared with the locally owned and foreign owned banks. Their

trade union actions negatively affected the banks culture. They also reported having

problems in their current management styles such as lack of strategic planning, too

much listening to trade union’s views, and inequity on policy decisions. It also found

that government banks had the highest power distance between managers and their

subordinates and also more internal politics compared with the other banks.

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Two different processes were used by the two government banks to develop their

corporate goals. One government bank developed their corporate goals by aggregating

the goals developed by second level management and the other government bank

developed their corporate goals through a negotiation process between the corporate

level/board of directors group and second level management.

The government bank which had a FSP system spent a high degree of effort on

contingency planning. They also purchased the external forecasts in the areas of

domestic economy, laws and regulations for financial services sector, and competitive

analysis. Furthermore, they transmitted forecasts of social and or cultural, financial

markets, human resources, industry level demand, technological, competitive analysis

from corporate level to second level to a great extent. However, this government bank’s

second level units had difficulties to obtain information if they had to purchase from

external sources which they currently receive from the corporate level. It was also found

that the second level and up had access to the government bank’s corporate plan.

Furthermore, the areas of operations, technology, financial, human resources, research

and development, markets had a greater added value to the corporate plan than for the

second level plans.

The government bank developed contingencies only for the corporate level. They

prepared specific studies in their corporate planning to a higher degree and helped

corporate level management with non performing loan plans than for the locally owned

and foreign owned banks. However, the government bank’s planning process did not

play a greater role in auditing ongoing activities, strategically managing their

company’s organizational structure, and strategically managing their quality issues. The

government bank gets a higher level of resistance from the finance and operations

people for their corporate planning than for the other banks.

The government bank that had a FSP system experienced problems in their strategic

planning process and these problems included lack of participative decision making

processes and a lack of strategic thinking at the top level. Therefore, the government

bank expected to apply more participatory techniques and methods in their strategic

management approaches in the next five years.

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Overall, the government banks were categorized as moderate strategic thinkers and

except for intelligent opportunism all the other thinking capabilities such as employee’s

participation and risk taking behaviours, systems perspective, strategic intent, and

thinking in time remained at moderate levels.

Surprisingly, PEST and five forces analysis did not have a great influence on

government banks corporate strategies and they used service and market portfolio

matrix to a higher extent than the other banks. The government banks benchmarked

with each other to a greater extent and their major dimensions of benchmarking process

were profitability, productivity, cost/income, competitiveness, and market leadership.

Furthermore, the government banks seek the growth through introducing existing

products into new markets and introducing new products into new markets both during

the last five years and also for the next five years to a great extent. They also attempt to

be first to market with new products and services, and also an early follower of initial

entrants in fast growing new markets to a great extent.

15.3.2 Locally owned banks

There were nine locally owned banks who were operating in Sri Lanka and these

include 3 large, 2 medium and 4 small sized banks. Most of the locally owned banks

had multiple business unit structures. All the locally owned banks had a corporate,

second, and third levels and this may be due to their high number of products and

services. More than 60 percent of the locally owned banks had a hybrid form of

centralized and decentralized structures and more than 50 percent of the locally owned

banks did not change their structures during the last five years.

Six of the nine locally owned banks were listed in the Sri Lankan stock market and

among them 4 were widely held and 2 were subsidiary of Sri Lankan companies. Three

locally owned banks had changed their ownership during the last five years and these

include two mergers and 1 change of major shareholders. Except for one locally owned

bank all the other banks did not expect to change their ownership in the next five years.

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Locally owned banks reported the highest level of satisfaction with their current

organizational culture and CEO and corporate level management had the highest

influence on their organizational culture. Regarding the management style, none of the

locally owned banks reported any significant problem in their management style.

Over the last five years for locally owned banks most of the revenues came from 5-10%

market growth environments. Their sales revenues fell into more unpredictable

competitor environments than the government and foreign owned banks and their most

important markets were deposits and retail. Furthermore, the major customer groups of

most of the locally owned banks were manufacturing, export, wholesale and retail trade.

Locally owned banks reported the lowest level of company dependence on their major

100 customers and their major sources of funds were domestic customers and domestic

organizations respectively.

Except for one locally owned bank all the other locally owned banks had corporate long

term goals. Most of the locally owned banks developed their corporate long term goals

through the negotiation process between the corporate level/board of directors group

and second level management and through the negotiation process between the chief

executive officer and corporate level management respectively. These banks also

reported the highest level of corporate goal achievement than for the other banks.

All the locally owned banks reported having a formalized planning system at their

corporate level and for most their longer term plan was prepared first and the shorter

term plan then fitted into long term plan. These banks spent a high degree of effort on

action planning or operational planning for the next 1 to 3 years and short term

emergency planning and also they spent a high degree of effort on forecast development

in the areas of competitive analysis, industry level demand, laws and regulations for

financial services sector, and domestic economy. Most of these banks purchased

external forecasts in the areas of technological and laws and regulations for financial

services sector. High degrees of forecast transmission were in the areas of domestic

economy and technological aspects from corporate level to second level. In most of the

locally owned banks only senior management had the access to their corporate plan. The

areas of financial, and sources and uses of funds had a higher added value to the

corporate plan than for the second level plans. 77.8% of the locally owned banks had a

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corporate planning department and only 4 locally owned banks reported having second

level long term plans.

In locally owned banks their planning process plays a greater role in their

communication network and also managing their organizational structure. In these

banks the planning process plays a greater role in allocating corporate resources

throughout the company and systematically dealing with uncertainty. All key personnel

in locally owned banks contribute their fair share of effort for their corporate planning

to a great extent than the other banks. Their corporate management were more

responsible for the competitor analysis, supplier analysis, political analysis, economic

analysis, and social and or cultural analysis than the other personnel in their banks and

operations people were more responsible for the technology analysis and marketing

people were more responsible for the customer analysis. Furthermore, locally owned

banks financial planning was closely coordinated with corporate planning than the other

banks. They also received high quality information from the finance, operations,

marketing, and human resources departments for their corporate planning than for the

other banks. Most of the locally owned banks expected to continue their participatory

decision making process for strategic planning, and develop strategic thinking

capabilities in all levels of the bank in the next five years.

Locally owned banks benchmark with domestic banks to a great extent and major

dimensions of most of their benchmark process were profitability and NPL. The most

important criteria in their evaluating expenditure proposals were discounted cash flow

analysis, forecast return on investment and net operating profit. The explicit parts of

locally owned banks corporate strategies were to enter high growth markets and to enter

markets where technology is important. These banks sought growth through introducing

existing products into new markets and also introducing existing products into existing

markets during the last five years and expected the growth through introducing new

products into existing markets and also to the new markets for the next five years.

Furthermore, they preferred to be an entrant in mature, stable markets and a later entrant

in established but, still growing markets.

Regarding the strategic thinking capabilities, these banks reported the highest level of

thinking capabilities than for the government and foreign owned banks. Employee’s

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participation and their risk taking behaviours, systems perspectives remained at

moderate level and thinking in time was strong in these banks. However, capabilities

such as strategic intent and intelligent opportunism were low in these banks.

These banks considered management of quality as a strategic issue more than the other

banks and most of the locally owned banks reported strategic approaches towards

quality were customer care, staff training for every level of the organization etc.

15.3.3 Foreign owned banks

There were only one medium sized foreign owned bank and all the other banks were

small sized. Most of the foreign owned banks had single business unit structures and

only 4 foreign owned banks reported having a third level.

Foreign owned banks considered important the management of their culture but it was

less important than for the other banks. Corporate level management and chief

executive officer had the highest influence on their company culture and half of the

foreign owned banks had changed their cultures during the last five years. Their most

important action on their company culture was to encourage the communication and co-

operation between different departments. Half of the foreign owned banks expected to

change their cultures in the next five years and most of these changes were due to the

expected growth in the banking industry of Sri Lanka. Most of foreign owned banks

reported having characteristics such as bureaucratic, top to bottom approach, and

participatory decision making in their management style.

For foreign owned banks most of the revenues came from the 5-10% market growth

markets. Most of these banks major customer groups were export, manufacturing, and

wholesale and retail trade and their major sources of funds were from domestic

customers and overseas head offices respectively. Government policies had an impact

on their banks operations to a greater extent than for the other banks and capital

requirements, increase of taxes in financial services, on sight and off sight

examinations, and interest rate controls were the government policies that most affected

their operations.

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All the foreign owned banks just follow their mission and vision of their head office and

did not develop separate missions or visions for the Sri Lankan banking industry.

Ninety percent of the foreign owned banks had long term corporate goals and all of

them reported having quantitative corporate goals and 89% of them reported having

qualitative corporate goals. Most of these banks developed their long term corporate

goals through a negotiation process between the chief executive officer and corporate

level management. Furthermore, 80% of the foreign owned banks did not have long

term goals at the second level.

All the foreign owned banks had formalized strategic planning system at their corporate

level. In these banks the longer term plan was prepared first, and the shorter term plan

was then fitted into the long term plan. Most of the foreign owned banks update their

corporate plans every year and review the progress of corporate plans monthly. Their

most effort was spent on action planning or operational planning for the next 1 to 3

years and the most of the effort spent on the forecasts development was in the area of

laws and regulations for financial services sector. Most of these banks purchased

external forecasts in the area of laws and regulations for financial services sector. In

70% of the foreign owned banks only senior management had the access to their

corporate plan. All of them used forecasting models and financial models and 90% of

them used strategic decision support systems for their corporate planning. None of the

foreign owned bank reported having a corporate planning department.

A high degree of effort was spent on defining guide lines, formats and timetables for

planning activities and identifying areas of new business opportunities in the foreign

owned banks. Their planning process plays an important role in strategically managing

their organization’s structure and it has had a measurable positive effect on their sales

and profits. In these banks corporate level management were more responsible for their

competitive, supplier, customer, political and economic analysis than the other people in

their banks. Furthermore, in these banks financial planning was closely coordinated

with corporate planning and these banks get very high quality information from the

operations department for corporate planning to a reasonably high extent. The CEO had

a great influence on the format of corporate plan, the assumptions used in the final

corporate plan, and the approval of the final corporate plan but their outside members of

the board of directors had a low influence on these aspects.

358

Foreign owned banks benchmark with domestic banks and other foreign owned banks

to a great extent. Most of these banks major dimensions for the benchmarking process

were profitability, asset quality, productivity, and cost/income respectively. Discounted

cash flow analysis, forecast net operating profit and return on investment, forecasts sales

growth, and track record of manager of unit requesting funds were considered more

important for these banks in evaluating expenditure proposals. The explicit part of their

corporate strategies was to enter high growth markets. These banks sought growth

through introducing existing products into existing markets over the last five years and

they expected to seek the growth through introducing new products into existing

markets in the next five years. Overall, foreign owned banks preferred to be a later

entrant in established but still growing markets.

Foreign owned banks were weak strategic thinkers and these banks were lacking the

strategic thinking capabilities such as strategic intent and intelligent opportunism.

However, capabilities such as employees’ participation and their risk taking behaviours,

and thinking in time remained at moderate level.

Management of quality was considered significant in all the foreign owned banks and

strategic approaches towards management of quality in most of these banks were

customer care, staff training for every level of the organization etc. The employees of

these banks were involved in the quality approach to a reasonably high extent.

15.3.4 Large banks

There were 5 large banks in the sample of this study and these were two government

owned and 3 locally owned banks. Large banks had the higher revenues, profits and

employees than the other banks and except for one large bank all the other banks had a

formalized strategic planning system at their corporate level. All the large banks

reported having multiple business unit structures and all of them had corporate, second,

and third levels. All of these banks categorized their structural type as hybrid form of

centralized and decentralized structures.

359

In large banks their mission, strategy and goals were widely communicated to the

employees and managers provided a greater deal of support to their subordinates than

for the other banks. Only two large banks had significant problems in their management

style and these were the government owned banks.

Major capabilities of most of the large banks were brand image, professional staff, up to

date technology, and island wide branch network and most of the large banks

categorized these capabilities as crucial to the success of their business in the Sri

Lankan banking sector.

Most of the revenues of large banks came from the markets that have a growth rate of 5-

10% and 10-20% respectively. Furthermore, for these banks 25% and 30% of revenues

fell into environments which their competitor’s actions were highly predictable and

predictable. Major customer groups of most of the large banks were manufacturing,

wholesale and retail trade, services and agriculture respectively. Overall, 70% of these

banks funds came from the domestic customers and 83% of their major sources of funds

had no availability problems.

All the large banks had missions, visions, and corporate long term goals. Corporate

level management and CEO had the greatest influence on corporate long term goals and

most important roles of these banks corporate long term goals were to evaluate their

past performance and monitor current performance. Except for one large bank all the

other banks had second level long term goals and for most of these banks second level

goals were created through a negotiation process between the corporate level/and

second level management.

Large banks spent most of their effort on action planning or operational planning for the

next 1 to 3 years and formalizing contingency planning. Similarly these banks spent

most effort on forecast development in areas of domestic economy, financial markets,

human resources, and competitive analysis. Most of these banks purchased external

forecasts in the areas of laws and regulations for financial services sector. The higher

degrees of forecast transmission from corporate level to second level were for domestic

economy, technological, human resources, and industry level demand. Most of the large

banks developed contingencies only for the corporate level. Identify areas of new

360

business opportunity and recognize the company around more clearly defined business

units, and define guidelines, formats, and timetables for planning activities were the

major specific planning tasks in these banks corporate planning. Corporate level was

most responsible for the competitive, supplier, political and economic analyses and

marketing people were most responsible for the customer analysis and operational

people were most responsible for the technology analysis in these banks. Thus, in large

banks the responsibilities of external analyses were decentralized to other departments

to a great extent. Furthermore, in these banks financial planning is closely coordinated

with corporate planning to a great extent and they get very high quality information

from the finance department for corporate planning to a great extent. In large banks the

board of directors had a greater involvement in their corporate planning process and

they were more supportive than for the other banks.

SWOT, five forces, and PEST analyses had a great influence on corporate planning and

benchmarking also played a major role on their corporate strategies. The major

dimensions of most of these banks benchmarking process were profitability and

productivity. Budgetary distinction in capital expenditure were considered most

important in the long term resource allocation decisions and forecasts return on

investment and present market share position were the most important criteria in

evaluating expenditure proposals.

The explicit part of these banks corporate strategies was to enter high growth markets.

Overall, large banks preferred to be first to market with new products and services. All

these banks had international operations and 11% of their revenues came from outside

Sri Lanka. These banks also seek foreign markets to a high extent in which they can

market existing products and technologies.

Large banks were moderate strategic thinkers and except for intelligent opportunism

their thinking capabilities such as systems perspective, strategic intent, and thinking in

time remained at a moderate level.

Overall, large banks considered the management of quality as a strategic issue to a

reasonably high extent and for most of these banks the strategic approach towards

quality in their banks were customer care and operational level staff are trained in

361

quality and monitored. Sixty percent of these banks reported their second level line

managers and up were responsible for addressing their major strategic quality issues.

15.3.5 Medium sized banks

There were 3 medium sized banks in the sample and these include 2 locally owned

banks and one foreign owned bank. All these banks had multiple business unit

structures and also they had corporate, second, and third levels. Medium sized banks

reported a higher level of importance about the management of culture than the other

banks. The CEO had the greatest influence on their company culture and most

important action on their company culture was to encourage the development and

implementation of new ideas. The major characteristics of these banks management

style were bureaucratic, top to bottom approach, participatory and it was corporate

management who had the greatest influence on their management style. None of these

banks had any problem with their management style.

Most of the sales/revenues came from the markets which had a market growth rate of 5-

10% during the last five years. Similarly, most of their revenues fell into environments

which their major competitor’s actions were predictable. Major customer groups of

these medium sized banks were manufacturing, export, wholesale and retail trade.

Medium sized banks reported the lowest level of dependence on their major 100

customers. Overall, 65% of the funds came from the domestic customers.

Only two medium sized banks had mission statements and all the medium sized banks

had a vision, and corporate long term goals. Corporate level management and CEO had

the most influence on these banks corporate long term goals. In one bank corporate long

term goals were formulated by the corporate level, board of directors and second level

management and in other two banks it was a negotiation process between the chief

executive officer and corporate level management. The most important roles of these

banks corporate long term goals were the evaluation of past performance and monitor

current performance. Only two banks in this category reported having second level long

term goals.

362

All the medium sized banks had a planning system at their corporate level. In these

banks longer term plan was prepared first, and the shorter term plan was then fitted into

long term plan. They update their corporate plan every year. More effort was spent on

contingency planning than the other planning activities. Furthermore, these banks spent

the most effort on forecast development in the areas of competitive analysis and

industry level demand. Most of these banks purchased external forecasts in the area of

technological. The higher level of forecasts transmission from corporate level to second

level were in the areas of technological, laws and regulations for financial services

sector, and competitive analysis. Only two of these banks had a formalized planning

system at their second level.

Define guidelines, formats and timetables for planning activity, and develop macro

forecast of the economy, financial markets, political environments etc were the major

planning tasks of these banks corporate planning. In medium sized banks the planning

process was necessary to sequence future activities, and it encouraged the development

of new business by combining expertise and resources from lower level units to a great

extent. Marketing people were most responsible for the competitive analysis and

customer analysis in these banks and corporate people were most responsible for the

supplier analysis, political analysis, economic analysis, and social cultural analysis.

Furthermore, operational people were most responsible for the technology analysis. It

was also found that financial planning was more coordinated with corporate planning

than the operations, marketing, human resources, and technology planning. Two of the

medium sized banks expected to develop strategic thinking capabilities in all levels of

their banks in the next five years.

SWOT and five forces analysis had the greatest influence on corporate strategies in the

medium sized banks. Benchmarking also had a high influence on corporate strategies

and these banks benchmark with domestic banks to a great extent. The major

dimensions for most of these banks benchmarking process were profitability and market

share. Budgetary distinction in capital expenditure was considered most important in the

long term resource allocation decisions. Discounted cash flow analysis, forecast return

on investment and net operating profit were the most important financial criteria in

evaluating expenditure proposals.

363

The most explicit parts of these banks corporate strategies were to enter high growth

markets and also to enter markets where technology is important. These banks expected

the growth through introducing new products into new markets in the next five years to

a great extent. Furthermore, these banks preferred to be an entrant in mature, stable

markets. Medium sized banks considered management of quality as a strategic issue

more than the other banks and brainstorming and staff training for every level of the

organization were the strategic approaches towards quality in most of these banks.

Personnel at second level and up were responsible for addressing their major strategic

issues.

Medium sized banks reported the highest level of strategic thinking capabilities than for

the other banks. Thinking in time was strong in these banks and other capabilities such

as employee participation, strategic intent, and intelligent opportunism remained at

moderate levels. Thus, these banks were moderate strategic thinkers.

15.3.6 Small sized banks

There were 13 small sized banks in the sample and 4 were locally owned and 9 were

foreign owned. Most of the small sized banks had single business unit structures and

most of them did not change their structures during the last five years. Similarly 90% of

these banks did not change their ownership during the last five years.

In the small sized banks the CEO had the greatest influence on their company culture.

The most important action on these banks company culture was to encourage

communication and co-operation between departments. The majority of these banks did

not expect to change their cultures in the next five years. Corporate management had the

greatest influence on small banks management style and only 2 banks reported having

problems in their management style. Internal politics in these banks were minimal

compared with the large and medium sized banks.

The most reported major capabilities of these banks were up to date technology,

professional staff, and service excellence and most of these banks considered those

three capabilities are crucial to the success of their business in the Sri Lankan banking

industry.

364

Most of the small banks revenues came from the markets that had a 5-10% and 10-20%

growth rates respectively. Overall, 62% of their sales/revenues fell in to environments

that had more than 7 major competitors and these banks were not market leaders in

these markets. Major customer groups of most of these banks were export,

manufacturing, and wholesale and retail trade. Small banks reported a higher

dependence on their major 100 customers than the other banks.

All the small banks reported having a mission, vision and except for 2 small sized banks

all the other banks had corporate level long term goals. Most of these banks reported

having quantitative goals such as return goals, profits, income, cash flows, NPL, and

deposits and the qualitative goals such as customer focus, and focus on market segments

etc. The most important roles of corporate long term goals in these banks were monitor

current performance, and evaluate past performance. Not surprisingly only 2 small sized

banks had second level long term goals.

All the small banks had a formalized strategic planning system at their corporate level

and none of these banks had a formalized strategic planning system at their second

level. Except for one bank all these banks prepared their longer term plan first, and the

shorter term plans was then fitted into long term plan. Most of the effort was spent on

action planning or operational planning for the next 1 to 3 years rather than the other

planning activities. Overall, these banks spent a higher degree of effort on forecast

development in areas of laws and regulations for financial services sector, competitive

analysis, and supplier requirements. The higher degrees of forecasts transmission from

corporate level to second level were for domestic economy, laws and regulations for

financial services sector, technological and human resources. In most of these banks

only senior management had access to their corporate plan.

The major roles of these banks planning process were to strategically manage

company’s organizational structure, auditing ongoing activities, and sequence future

activities. In these banks corporate management was most responsible for the

competitive analysis, supplier analysis, customer analysis, political analysis, economic

analysis, and social and cultural analysis. Furthermore, in these banks financial planning

was coordinated with corporate planning to a great extent.

365

PEST, SWOT, and five forces analysis had the greatest influence on small sized banks

corporate strategies. Benchmarking had only a reasonably high influence on their

corporate strategies during the last five years. Major dimensions of most of these banks

benchmarking process were profitability, asset quality, and NPL. Budgetary distinction

in capital expenditures was considered most important in the long term resource

allocation decisions and forecast return on investment, forecast net operating profit and

discounted cash flow analysis were the most important criteria in evaluating these banks

expenditure proposals.

Small sized banks preferred to enter high growth markets and these banks sought

growth through introducing existing products in existing markets to a great extent in the

last five years. Among the 3 banks who made significant mergers there were two small

sized banks and the main objective of those two mergers was to extend their core

business activities. Seven small sized banks made significant turnarounds during the last

five years and they intend to restore money losing business to profitability rather than

divest.

These banks were weak strategic thinkers and were lacking strategic thinking

capabilities such as strategic intent and intelligent opportunism.

15.4 The unique features associated with strategic management practices in Sri Lankan banks

The major research findings reveal a number of important aspects of the strategic

management practices of the Sri Lankan commercial banks. First, whether it is large,

medium, or small, almost all these banks had formalized strategic planning systems at

their corporate level. It was also revealed that banks were also concerned about the

development of strategic thinking capabilities within their companies.

Overall, corporate level management were most responsible for the competitive,

supplier, economic and political analyses and marketing people were most responsible

for the customer analysis and operations people were most responsible for the

technology analysis. Therefore, banks responsibilities were decentralized to different

366

departments. Furthermore, the higher degrees of forecast transmission from corporate

level to second level were seen in the areas of domestic economy and technological

aspects.

The use of computer models/systems to support corporate planning remained at a lower

level but almost all the banks had used the models such as forecasting and financial

models and also strategic decision support systems.

There were no strong strategic thinkers found in the Sri Lankan commercial banks. The

strategic thinking capabilities such as strategic intent and intelligent opportunism were

not seen in most of the banks to a high extent. However, a high number of banks

expected to continue their participatory decision making process for strategic planning,

and also to seek to develop strategic thinking capabilities in all levels of their banks.

15.5 Significance of the study

15.5.1 Contribution to theory

This study provides a number of significant contributions to strategic management

theory. First, this study has investigated the strategic management practices of a

particular industry in a developing country which no one has attempted earlier.

Secondly, this study has investigated the strategic management practices of Sri Lankan

commercial banks by examining in depth a large number of variables that can affect

their strategic management practices. This study identifies how these variables operate

in the banking industry in Sri Lanka. Thirdly, the theoretical framework developed for

this study provides the foundation for other studies that want to investigate the strategic

management practices of other industries in Sri Lanka or in other developing countries.

Finally, this study highlights the importance of strategic planning for most of the banks

of Sri Lanka.

367

15.5.2 Contribution to practice

This study provides a number of contributions to the strategic management practices of

the Sri Lankan banking industry. First, this study has identified and discussed the

overall strategic management characteristics of the commercial banks. This will help the

corporate level managers to compare their strategic management characteristics with

other banks and to find out the strengths and weaknesses of their strategic management

practices. Secondly, this study investigates the number of internal and external factors

that can potentially affect the strategic management practices of the Sri Lankan banking

industry in the next five years. This will help corporate level managers to identify the

critical factors in their strategic management practices that need to be addressed in the

next five years. Finally, this study will provide insight knowledge about the strategic

management practices of the Sri Lankan banking sector and this will help both the local

and foreign investors who are willing to invest in this industry.

15.5.3 Contribution to the methodology

This study provides the methodology for the researchers who are willing to do research

on strategic management in Sri Lanka. This study reveals the importance of having

personal contacts with potential responding companies to achieve their participation in

research. This study also demonstrates the most applicable data collection method as

personal interviews for this type of research as most of the executives in Sri Lanka

preferred to give details in face to face interviews rather in writing especially for

confidential information. An introductory letter about the project that highlights the

importance of the research to the companies as well as to the Sri Lankan banking

industry may also help influence the companies to participate.

15.6 Limitations of the study

There are some limitations of this research. First, this study collected primary data from

the respondents in February 2006 and at that time most of the banks did not have final

annual reports for the year 2005. Thus, this research had to use the financial figures of

banks for the year 2004.

368

Secondly, due to time limits this study interviewed only one respondent from each of

the banks and therefore, the responses received for this study may be affected by

personal biases. Thus, the lack of interviews with lower level managers can be

highlighted as a limitation of this research.

15.7 Future directions

There are number of future directions possible to build on this study. First, a similar

kind of questionnaire and research approach can be used to investigate the strategic

management practices of other financial institutions in the Sri Lankan financial sector

such as specialized banks, insurance companies, non banking lending companies,

leasing companies etc.

Secondly, the theoretical framework and the major research questions of this study can

be redeveloped to investigate the strategic management practices of other industries in

Sri Lanka as well as in the other developing countries.

Finally, the database developed from this study provides valuable information on Sri

Lankan commercial banks for other researchers who are willing to do further research

into the Sri Lankan commercial banks.

15.8 Chapter Summary

First, this chapter has discussed the major research findings of this research according to

the major research questions developed for this study. Secondly, the unique features of

the strategic management practices by ownership and size aspects and also the unique

features of the strategic management practices in Sri Lankan commercial banks have

been discussed. Then this chapter states the significance of the study in terms of

contribution to theory, contribution to practice, and contribution to methodology.

Finally, this chapter highlights the limitations and possible future research directions.

369

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370

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388

APPENDIX 1

Research questionnaire

389

Survey of the Strategic Management Practices of the Sri Lankan Commercial Banks

Thank you for your participating in this survey of the strategic management practices of the Sri

Lankan commercial banks. This questionnaire consists of three major parts and in this

questionnaire we shall be asking a series of questions about your strategic management practices

in respect to the following aspects:

• Assessment of internal and external environments

• Assessment of company’s mission statement, long-term objectives and strategic planning

and it’s extended strategic thinking capabilities.

• Assessment of company’s analytical tools/techniques, corporate level strategies and the

management of quality.

All responses that you provide will be strictly confidential and all analyses will be undertaken

with aggregated data from all respondents. The data will be coded to ensure that no unauthorized

person can identify or interpret an organization’s return. This questionnaire will be used for

academic purposes only. Once again, when the results are published, it will not be possible to

identify any individual company data.

Company: ________________________________________________________ Date: ____________________________________________________________

390

Internal environments

First we would like to know some information about your company structure.

1.1 Could you please provide us with an organization chart of your company?

Yes (enclosed) No

1.2 If no, could you please select one of the following choices which best matches your company structure?

і)

Corporate Level

Functional Level

Marketing Operation Human Resource

Financial Information Technology

іі) Corporate Level

Business Unit A

Business Unit B

Marketing Operation Financial Human Resource

Information Technology

Functional level of unit A

Functional level of unit BFunctional level of unit C

Business Unit C

391

ііі) Corporate Level

Two business types (A & B)

Functional level for both A and B

Marketing for A & B

Operation For A & B

Human Resource for A & B

Financial for A& B

IT for A & B

Other type of structures, please specify:

392

2. Please identify the various organizational levels of operating responsibility that exist in your company. For your convenience, an example is given below to show the information we are seeking. Example Level number Organizational unit Number of units Highest position At each level 1 Corporate 1 CEO 2 Business 5 DGM 3 Functional 7 Senior manager Your company Level number Organizational unit Number of units Highest position At each level …1……….. ……………….. …………… ……………. …2……….. ……………….. …………… ……………. …3……….. ……………….. …………… ……………. …4……….. ……………….. …………… ……………. 3. Are the second management level units, defined as profit centres?

Yes No

4. What is the lowest level of profit centre? (Please select one)

Second level Third level Operational level Others (please specify) __________________________________________________

5. Which structural type best describes your bank’s organizational structure?

Centralized structure Decentralized structure Hybrid form or combination of centralized and decentralized structure Others (please specify) ____________________________________________

6. Did you change the organizational structure of your company substantially over the last five years? 6.1

Yes No (Go to question 9)

6.2 If yes when was the last major change? In 200_ _

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7. Could you please specify the most important changes made at that time?

8. What were the main reasons for these changes? 9. Do you expect that your current organizational structure will still be applicable in the next five years?

Yes No

If no, please specify the major changes you expect.

7.1 Establishment of new profit centres 7.2 Organized the business units under heads/DGMs 7.3 Structural changes at corporate level positions 7.4 Appointment of chief financial officer above the DGM 7.5 Combining two structures into one 7.6Harmonizing the HR function 7.7 Appointment of a single CEO 7.8Opening of new departments 7.9 Introduction of new positions 7.10 Decentralization of operations 7.11 Linked all branches 7.12 Created a centralized operation unit 7.13 Created market product development units 7.14. Introduction of new procedures and policies 7.15 New products and branches 7.16 New areas of activities 7.17 Redesigning the job definitions

8.1 To improve efficiency 8.2 To empower the managers 8.3 Merger with another company 8.4 Change of CEO/GM 8.5 To expand the businesses 8.6 Rapid growth of the bank and the banking industry in Sri Lanka 8.7 To take the bank ahead 8.8 To make the bank profit 8.9 Economy in the country

9.1 Depending on the business and competitive environment it needs to be adjusted 9.2 New positions 9.3 New branches 9.4 Expand the operational level 9.5 Innovations 9.6 Introduction of money market operations 9.7 Introduction of new products and markets 9.8 Introduction high technology for the banking operations 9.9 Introduction of new business units 9.10 Expand the size 9.11 Introducing credit cards and personal loans

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In this section we are seeking information about the ownership of your company.

10. Does your company sell its shares in the “Sri Lankan stock market”?

Yes, started in year ---------- No (Please go to question 13 )

If yes, what approximate Sri Lankan Rupees is traded as shares on the Sri Lankan stock market per year? Sri Lankan rupees 11. Which best describes your company shareholders (ownership)?

All Sri Lankans Sri Lankan holding more than foreigners Foreigners holding more than Sri Lankans All foreign shareholders Sri Lankan government holding almost 100% Sri Lankan government holding more than 50% and the remainder held by Sri Lankans Sri Lankan government holding more than 50% and the remainder held by foreigners Sri Lankan government holding less than 50% and the remainder held by Sri Lankans Sri Lankan government holding less than 50% and the remainder held by foreigners Others (Please specify)

12. Based on the pattern of shareholding, how would classify your company?

Widely held Subsidiary of Sri Lankan companies Subsidiary of foreign companies Family owned Government owned Others (Please specify)

13. Does your company sell its shares in “overseas stock markets (overseas stock exchange)”?

yes No

If yes to both question 10 and 13 please go to question 16 14. Does your company plan to sell its shares in the stock market in the next five years?

Yes No

If yes which market?

Sri Lankan stock market Overseas markets Both the Sri Lankan and overseas markets

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15. If your company is not selling shares in the Sri Lankan stock market how can you categorize the ownership of your company?

Government owned Foreign owned Sri Lankan companies owned Foreign government owned

16. From 2000 until year 2005, which of the following best describes changes in your company’s ownership? (Please select one of the following)

No change Merger with another company Joint venture with another company Others (please specify) Changed the main share holders of the bank

17. What do you think is likely to happen to your bank in terms of ownership in the next five years? (Please select one of the following)

No change Joint venture with another company Transfer of ownership-limited libility Planning to sell 40% to the overseas market

18. Since 2000, has your bank changed owners/ main shareholders?

Yes No (Go to question 24)

19. What were the main reasons for the changes in your company’s ownership?

19.1 Shares changed hands to make capital gains 19.2 Capital requirements 19.3 Company not listed in the share market 19.4 Enhancing shareholder value 19.5 Unsatisfactory performance of the bank (Big losses)

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20. What are the major factors that supported these changes?

20.1 Good earning potential of the bank 20.2 Satisfactory past performance 20.3 Appreciation of share value 20.4 Central bank intervention to find capital 20.5 Bank’s unsatisfactory performances

21. Did your company face any problem when the ownership changed?

Yes No

If yes, what were the major problems you faced?

22. In your opinion, how successful have the ownership changes been? Unsuccessful Very successful

1 2 3 4 5 23. To what extent did your company’s ownership changes strategically help your company? Not at all To a great extent 1 2 3 4 5

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24. Do you expect that your company will change ownership/ main shareholders in the next five years?

Yes No (if no please go to question 26) Others (please specify) ___________________________________________________________

__________________________________________________________________________________ If yes, what are the main reasons for these expected changes?

24.2.1 Privatization

If yes, which group is likely to become a major owner?

Sri Lankan people Foreigners Sri Lankan government Others (Please specify) ___________________________________________________________

25. How much do the following groups influence any potential change of ownership/ main shareholding in your company? No influence Very great influence Corporate level management 1 2 3 4 5 Chief executive officer 1 2 3 4 5 Outside members of the board of directors 1 2 3 4 5 Second level line managers 1 2 3 4 5 Sri Lankan government 1 2 3 4 5 Current main shareholders 1 2 3 4 5 Other lower levels of management 1 2 3 4 5 Others (Please specify) 1 2 3 4 5 Indian government

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In this section we are seeking information about your company size

26. To what extent does your company measure its size from the following? Not at all To a great extent Size is measured by revenue 1 2 3 4 5 Size is measured by assets 1 2 3 4 5 Size is measured by number of employees 1 2 3 4 5 Size is measured by the profitability 1 2 3 4 5 Size is measured by the customer base 1 2 3 4 5 Size is measured by the number of branches 1 2 3 4 5 Others (Please specify)__Deposit base 1 2 3 4 5 Of these size measures, is one of these considered most important?

Yes If yes, please specify ____________________________________________ No

27. What are your company’s current Profit after tax (For the year 2005): _____________________________ Sri Lankan Rupees Assets (As at 31 December 2005): __________________________________Sri Lankan Rupees Return on equity ratio ______________________ Number of employees (Full time or full time equivalent): ____________________________ Number of branches :_____________________________________ 28. To what extent are you satisfied with your company’s current performance compared to its size? Dissatisfied Very satisfied 1 2 3 4 5

29. Do you think you need to enhance the size of your bank to gain more profits?

Yes No

If yes, what are the main barriers that you have to enhancing your bank’s size? (You may select more than one)

Government policies Capital requirements Lack of managerial and employee skills Lack of technology No barriers Head office credit policies RBI approval Unstable economy due to war

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In this section we are seeking information about the Organization culture of your company.

30. How important is the management of culture in your company? Not at all Very important Important 1 2 3 4 5 31. To what extent are you satisfied with the current culture of your company? Dissatisfied Very satisfied 1 2 3 4 5 32. How much did the following groups influence the culture in your company over the last five years? No influence Very great influence

Corporate level management 1 2 3 4 5

Chief executive officer 1 2 3 4 5

Outside members of the board of directors 1 2 3 4 5

Second level line managers 1 2 3 4 5

Sri Lankan government 1 2 3 4 5

Other lower levels of management 1 2 3 4 5

Others (Please specify) Trade unions____________ 1 2 3 4 5

______________________________________

33. Could you please describe the key characteristics of your company’s culture? (e.g. our employees have good team spirit, our employees have a strong culture of loyalty etc.)

33.1 Commitment 33.2 Loyalty 33.3 Team spirit 33.4 Concentrate more on self development along with the development of organization 33.5 Influence on country politics 33.6 Reacting nature and slow adaptation to the culture 33.7 Informal group prefer their values, norms beliefs contribute to the culture 33.8 Mutual respect 33.9 Diversity 33.10 Multicultural 33.11 Spirit of giving best to the customer and to the organization 33.12 Less rigid 33.13 Flexible 33.17 Conservative 33.14 Overall knowledge 33.18 Blend of government and private sector 33.15 More than 20 years of experience 33.19 Young staff 33.16 Corporative 33.20 Very transparent 33.21 Approachable 33.22 Reacting market practices 33.23 Parents company influence 33.24 Very motivated

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34. To what extent do you agree with the following? Disagree Strongly agree Our company encourages the development and 1 2 3 4 5 implementation of new ideas Our company encourages communication and 1 2 3 4 5 co-operation between different departments Our company encourages an open discussion 1 2 3 4 5 of conflicts and differences Our company encourages participative decision-making 1 2 3 4 5 processes in and between organizational levels Our company encourages informal conversation between 1 2 3 4 5 senior and subordinate personnel Our company encourages teamwork rather than 1 2 3 4 5 individual contributions In our company the emphasis is on getting thing done, 1 2 3 4 5 even if this means disregarding formal procedures In our company our mission, strategy and goals are 1 2 3 4 5 widely communicated to the employees In our company managers provide a great deal of 1 2 3 4 5 support to their subordinates In our company people are rewarded in proportion 1 2 3 4 5 to the excellence of their performance 35. Has your top management made any major attempts to change your company’s culture during the last five years?

Yes No (If no, please go to question 42)

If yes, how can you categorize those changes?

Incremental changes Revolutionary changes Both incremental and revolutionary changes

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36. What were the main reasons for these attempts to change your company’s culture?

36.1 In order to improve the financial viability in the market 36.2 To be competitive in the market 36.3 Decline of market share of the organization 36.4 Migration to modern IT systems 36.5 M OU and the government’s signal for the importance of performance 36.6 In order to harmonize two different cultures that existed before the merger 36.7 Not having job descriptions 36.8 Need of decentralization of the powers 36.9 Diversity of the human resources of the bank 36.10 Emphasis on mutual respect & team work 36.11 The belief of head office that the Sri Lankan banking system is too risky 36.12 Customer orientation 36.13 Opening of new branches 36.14 To enhance the moral of the staff 36.15 Staff are required from different banks 36.16 Had a different culture 36.17 Survival of the company 36.18 Development took place in the banking sector 36.19 Environmental changes in the banking sector 36.20 Growth of the bank 36.21 Unsatisfactory performance of the bank

37. What were the main changes in your company’s culture?

37.1Goal oriented action 37.2 Planning 37.3 Evaluation with financial achievements/ratios 37.4 Performance management/evaluation 37.5 Change of values to core customers 37.6 Induction of business sense and change of attitude 37.7 Address people by the first name 37.8 Open door policy of managers and supervisors 37.9 Acceptance of younger people at management grade 37.10 Changed the CEO/GM 37.11 Introduction of new task 37.12 Introduction of job descriptions 37.13 Emphasis on team work 37.14 Diversity respecting 37.15 Open communications and exchange of views 37.16 Cut down the staff to work with the minimum capacity 37.17 Change the policies and procedures of company 37.18 Recruitment of new staff 37.19 New uniforms to the staff 37.20 Dialog between staff and management 37.21 Marketing orientation 37.22 Bring the team spirit 37.23 Changed of senior management 37.24 Recruited senior managers from various other banks in Sri Lanka 37.25 Concerned about cost efficiency of the bank

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38. What were the major factors that supported these changes?

38.1 Govt support 38.2 Commitment of corporate management and the board 38.3 Trade union’s support 38.4 External forces (competitors, owners) 38.5 Induction of network banking 38.6 Recruitment of new employees with professional background 38.7 Appointment of consultants to key areas to inject new culture 38.8 Acceptance of change by majority of staff 38.9 Unsatisfactory performances of the bank 38.10 Low profitability 38.11 Opening of new branches 38.12 Appreciation of effort 38.13 Rewards 38.14 Manage to recruit young staff 15 Let the staff by example 16 Introduction of new products by the banking sector in Sri Lanka 17 Economic changes 18 Growth of the bank 19 To meet capital requirements of central bank 20 The change of main shareholders

39. What were the major factors that you had to consider which made these changes difficult?

39.1 Influence on trade union and informal groups 39.2 Age structure of the staff 39.3 Lack of commitment from the leadership 39.4 Mechanistic organizational structure 39.5 Barriers in bottom to top communication 39.6 Lack of a link between performance and rewarding 39.7 Major share of free riders in work force 39.8 Previous structure of the bank 39.9 Large number of employees who had been with the other bank 39.10 Different views of two organizational cultures 39.11 Long term planning 39.12 High expenses 39.13 Huge turnovers of staff 39.14 Low profitability 39.15 Decrease staff moral 39.16 Capital requirements 39.17 Lack of skills 39.18 Monitoring authority of central bank 39.19 There were no major factors which made these changes difficult

403

40.1 Did your company experience any problems when you implemented these changes? Yes No

40.2 If yes, what were the major problems you faced?

40.2.1 Obtaining required TUs corporation 40.2.2 Change of attitude of staff 40.2.3 Age structure and qualification of staff 40.2.4 Barriers in language (poor English) 40.2.5 Resistance to change in roles, location 40.2.6 Staff moral has decreased

41. In your opinion, how successful have the changes in culture been? Unsuccessful Very successful 1 2 3 4 5 42.1 Do you expect any major changes in your company’s culture in the next five years?

Yes No

42.2 If yes, what kind of changes do you expect?

42.2.1 Introduction of performance evaluation & reward system 42.2.2 Changes to the bank hierarchy 42.2.3 New positions at corporate and operational level 42.2.4 New staff recruitments 42.2.5 Need to change the culture to attract the best talent in the market 42.2.6 Administrative changes

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43.1Do you have subcultures in your company? Yes No

43.2 If, yes what are the main reasons for the development of sub cultures?

43.2.1 Traditionally used systems 43.2.2 Trade unions and connected mechanisms 43.2.3 Presence of different societies 43.2.4 Geographical distributions of operations 43.2.5 Working within a department 43.2.6 Working culture of Sri Lanka

44. Do you think development of subcultures weaken or undermine the organization?

Yes No

45. According to your opinion the banking culture should be,

Strong Flexible Weak Others (please specify) _____________________________________________________________

46. In your opinion, to what extent does your organization’s culture influence your company strategies? No influence Very great influence 1 2 3 4 5

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In this section we are seeking information about management styles, power and internal politics of your company.

47. Could you please describe your company’s key management style?

47.1 Bureaucratic 47.2 Top to bottom approach 47.3 Individual performance rather than group performance 47.4 Power motives rather than achievement motives 47.5 Participatory 47.6 Autocratic 47.7 Collective 47.8 Decisions are made by a committee 47.9 Collective decisions by the board of directors 47.10 People friendly 47.11 Honest, sincere transparent culture

48. How much do the following groups influence the management style of your company? No influence Very great influence

Corporate level management 1 2 3 4 5 Outside members of the board of directors 1 2 3 4 5 Second level line managers 1 2 3 4 5 Corporate planning department 1 2 3 4 5 Other lower levels of management 1 2 3 4 5 Others (please specify) _Trade unions__________ 1 2 3 4 5 _Chairman of the head office________________________________________ 49. In your opinion, to what extent does the management style of your company have an effect on the follower’s performance and job satisfaction? Not at all To a great extent 1 2 3 4 5

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50. To what extent does the management style of your company have an effect on the company performance? Not at all To a great extent

1 2 3 4 5 51. To what extent company key management style influences the company strategies? Not at all To a great extent

1 2 3 4 5 52.1 Did your company face any significant problems with its current management style over the last five years?

Yes No

52.2 If yes, what are major problems of the current management style?

52.2.1 Too much listening to TUs views 52.2.2 Lack of strategic planning 52.2.3 Inequity on policy decisions 52.2.4 Poor practice and use of modern management techniques 52.2.5 Low concentrations on human aspects 52.2.6 Non existence of clear management style 52.2.7 Decreasing of profitability 52.2.8 High turnovers of staff 52.2.9 Dissatisfaction of the employees

53. How would you describe the gap between managers and subordinates in terms of the power in your company?

Low High 1 2 3 4 5

54. To what extent does your company have internal politics? Not at all To a great extent 1 2 3 4 5

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55. To what extent do you agree or disagree with the following statements. Disagree Strongly agree Organizational politics is bad because that political 1 2 3 4 5 behaviour is undertaken for personal rather than organizational gain Organizational politic is good because it achieves positive 1 2 3 4 5 outcomes for organization that can not be achieved through formal measures Organizational politics is neither good nor bad 1 2 3 4 5 but rather is neutral Organizational politics is good but too much politics 1 2 3 4 5 can be bad

408

In this section we are seeking information about stakeholder expectations of your company.

56. Who are the top six stakeholders of your company?

56.1 Depositors and other customers 56.2 Sri Lankan government 56.3Cooperatives 56.4 Strategic enterprise management agency 56.5 Employees 56.6 Sri Lankan community 56.7 Shareholders 56.8 Directors 56.9 Managers 56.10 Shareholders of the parent bank 56.11 Chairman of the bank 56.12 Overseas head office 56.13 Individual share companies

57. Could you please briefly explain their expectations? (e.g. customers: satisfaction with interest rate, fast service, use of high technology)

57.1 Excellent service+timelines+higher interests benefits 57.2 Assisting government development programmes, funding, provision of employment opportunities 57.3 Financial support 57.4 Viable financial organization 57.5 Career opportunities, job security, rewards, good working conditions 57.6 Assistance to develop the country & economy 57.7 ROE 57.8Good management 57.9 Revenues through taxes 57.10 More profits and to be in the top 25 leading banks in the world

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58. To what extent are your company’s top level management interests aligned with the overall stakeholders’ interests? Not at all To a great extent

1 2 3 4 5 59. To what extent do you agree or disagree with the following statements?

Disagree Strongly agree

When we are giving priorities for stakeholder’s 1 2 3 4 5 we consider the level of power they have We are trying to meet minimum obligations of stakeholders 1 2 3 4 5 Our top management team decides how much stakeholder 1 2 3 4 5 interests we must take into account 60. To what extent do stakeholder expectations influence your company strategies? Not at all To a great extent

1 2 3 4 5

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In this section we are seeking information about capabilities and key success factors of your company.

61. Could you please describe the current resources of your company? (For your convenience we have divided the resources into three categories such as physical assets: e.g. Location, building, intellectual assets: e.g. brand name, reputation, cultural assets: e.g. working ethics such as a belief in empowerment)

61.1 Physical assets: 61.1.1 Location 61.1.2 Buildings 61.1.3 Computer system 61.1.4 ATM network 61.2 Intellectual assets: 61.2.1 State ownership 61.2.2 Professional skills of the staff 61.2.3 History of the bank 61.2.4 Reputation 61.2.5 Brand name 61.2.6 Brand name of the parent bank 61.3 Cultural assets: 61.3.1 Strong commitment of some fraction of the staff 61.3.2 Implementation of professional banking 61.3.3 Strong culture developed over the years 61.3.4 Religion bank 61.3.5 Implementing international banking facilities 61.3.6 Brand image as a Local bank

62. Could you please mention the major capabilities of your company in terms of enabling the firm to deliver a fundamental customer benefit? .

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62.1 Outreach 62.2 Commitment 62.3 Brand image 62.4 State ownership 62.5 Island wide branch network 62.6 Strong asset base 62.7 Up-to-date technology 62.8 Professional staff 62.9 Expertise in development and commercial banking 62.10 Product innovations 62.11 Service Excellency 62.12 Global reach 62.13 Strong balance sheet 62.14 More than 100 years of history 62.15 High credit rating 62.16 Young staff 62.17 Strong asset base of the head office 62.18 Business network 62.19. Vast experience of the CEO 62.20 High calibre senior management 62.21 One stop shop concept 62.22 Finance conglomerate 62.23 Centralized operation system

63. Among the capabilities you mentioned in question 62; could you identify the capabilities which are crucial to the success of the business in the Sri Lankan banking sector?

63.1Outreach 63.2Brand image 63.3Branch network 63.4Professionalism of the staff 63.5Up to date technology 63.6Service Excellency 63.7Strong balance sheet 63.8High credit rating 63.9Business understanding 63.10 Low costs of funds 63.11 Responsiveness to client’s requirements

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In this section we are seeking information about the demand environment of your company.

64. Could you please assess what approximate percentage of your company’s revenues fell into each of the following categories over the last five years? The demand environment has been: 64.1Highly predictable % 64.2Predictable % 64.3Fairly predictable % 64.4Unpredictable % 64.5Highly unpredictable % 100 % 65 Over the next five years, what approximate percentage of your company’s revenues do you expect to fall into each of the following categories? The demand environment will be 65.1Highly predictable % 65.2Predictable % 65.3Fairly predictable % 65.4Unpredictable % 65.5Highly unpredictable % 100 % 66. Over the last five years, what approximate percentage of your company’s revenues fell into markets growing at real rates of: 66.1 Over 20% per year % 66.2 0-20% per year % 66.3 5-10% per year % 66.4 0-5% per year % 66.5 Declining market % 100 % 67. Over the next five years, what approximate percentage of your company’s revenues do you expect to fall into markets growing at real rates of? 67.1 Over 20% per year % 67.2 10-20 % per year % 67.3 5-10% per year % 67.4 0-5% per year % 67.5 Declining market % 100%

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In this section we are seeking information about the competitive environment of your company.

68. What approximate percentage of your sales is achieved in each of the following competitive environment in your business type? 1 to 2 major competitors:

You are the market leader % You are not the market leader %

3 to 7 major competitors:


More than 7 major competitors


100% 69. Over the last five years, approximately what percentage of your revenues fell into categories in which your major competitors’ actions were? 69.1Highly predictable % 69.2 Predictable % 69.3 Fairly predictable % 69.4 Unpredictable % 69.5 Highly unpredictable % 100 % 70. Over the next five years, approximately what percentage of your revenues do you expect to fall into categories in which your major competitor’s actions are? 70.1Highly predictable % 70.2 Predictable % 70.3 Fairly predictable % 70.4 Unpredictable % 70.5 Highly unpredictable % 100 %

414

In this section we are seeking information about the competition and market share of your company.

71. Over the last five years, what was your company’s market share in your three most important markets? 71.1 Most important market: 71.1.1Name of the market: __________________________ 71.1.2 Market share (Please select one)

Over 20% 10-20% 5-10% 0-5%

71.2 Second most important market: 71.2.1 Name of the market: __________________________ 71.2.2 Market share (please select one)

Over 20% 10-20% 5-10% 0-5%

71.3 Third most important market: 71.3.1 Name of the market :______________________ 71.3.2 Market share (please select one)

Over 20% 10-20% 5-10% 0-5%

72. Over the next five years, what do you expect your share to be in your three most important markets? 72.1 Most important market 72.1.1 Name of the market _____________________________ 72.1.2 Market share (please select one)

Over 20% 10-20% 5-10% 0-5%

72.2 Second most important market 72.2.1 Name of the market: _____________________________ 72.2.2 Market share (please select one)

Over 20% 10-20% 5-10% 0-5%

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72.3 Third most important market 72.3.1 Name of the market: _________________________ 72.3.2 Market share (please select one)

Over 20% 10-20% 5-10% 0-5%

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The following questions deal with your company customers.

73. Over the last five years, who were five major customer groups of your company?

Agriculture sector Manufacturing sector Construction sector Real estate business sector Property business sector Export business sector Wholesale and retail trade sector Public utilities sector Service sector Personal consumption Leasing business sector Others (Please specify) _trade and finance, mining, Commercial, garments, financial intstitutions__,

Transport__________ 74. Over the next five years, who do you expect to be your five major customer groups?

Agriculture sector Manufacturing sector Construction sector Real estate business sector Property business sector Export business sector Wholesale and retail trade sector Public utilities sector Service sector Personal consumption Leasing business sector Others (Please specify) _mining, Commercial, garments, financial institutions, transport, imports______

75. To what extent is your company dependent on its 100 major customers? Not dependent Very dependent 75.1 Over the last five years 1 2 3 4 5 75.2 Over the next five years 1 2 3 4 5 75.What approximate percentage of your revenue is from your 100 largest customers? Approximate percentage: _______________ %

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The following questions deal with your company competitors.

76. Over the last five years, who were five major competitor groups of your company? (You may select more than one)

Government Banks Foreign Banks Local commercial banks Insurance companies Leasing companies Credit finance companies Foreign exchange black market Others (Please specify) ____________________________________

77. Over the next five years, who do you expect to be the five major competitor groups? (You may select more than one)

Government Banks Foreign Banks Local commercial banks Insurance companies Leasing companies Credit finance companies Foreign exchange black market Others (Please specify) ____________________________________

78. To what extent do the major competitors influence your company strategies? No influence Very great influence Over the last five years 1 2 3 4 5 Over the next five years 1 2 3 4 5

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The following questions deal with your company business and the government.

79. Over the last five years, what percentage of your sales has been in businesses which are? Highly government regulated % Somewhat government regulated % Not at all government regulated % 100% 80. Over the next five years, what percentage of your sales do you expect to fall into categories for which government regulation will? Increase % No change % Decrease % 100% 81. To what extent are you satisfied with the current government rules and regulations on the banking industry? Dissatisfied Very satisfied

1 2 3 4 5

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The following question deal with your company suppliers (Sources of funds).

82. Over the last five years, what were the three major sources of funds for your company? (Please also specify approximate percentage of your three major sources of funds)

Funds from government ________ % Funds from foreign organizations ________ % Funds from domestic organizations ________ % Funds from domestic customers ________ % Funds from investments in domestic financial market ________ % Funds from investment in overseas financial market ________ % Others (please specify)_Overseas head office _____________________ % Funds from other banks

83. Over the next five years, what do you expect will be the three major sources of funds for your company? (Please also specify approximate percentage of your three major sources of funds)

Funds from government _______ % Funds from foreign organizations ________% Funds from domestic organizations ________% Funds from domestic customers ________% Funds from investments in domestic financial market ________% Funds from investment in overseas financial market ________% Others (please specify) ___ Head office of parent bank _______________%

84. How dependent is your company on its major sources of funds? Not at all dependent Very dependent Over the last five years 1 2 3 4 5 Over the next five years 1 2 3 4 5 85. Over the last five years, what percentage of your major fund sources fell into the following categories? No availability problems _______% Some availability problems _______% Significant availability problems _______% Severe availability problems _______%

100%

86. Over the next five years, what approximate percentage of your major fund sources do you expect to fall into the following categories? No availability problems _______% Some availability problems _______% Significant availability problems _______% Severe availability problems _______% 100%

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The following questions deal with new entrants to your company’s business sector.

87. Over the next five years, who are three possible major new entrants into your business sector that you expect?

1. Private local banks 2. Corporative banks 3. Foreign banks (except India and Pakistan) 4. Indian banks with back office in India 5. Islamic banks 6. Non banking corporate lending institutions 7. Capital market institutions 8. Non banking financial institutions

88. In your opinion, how difficult is entry into your company’s business sector for these three possible new entrants? Easy to enter Difficult to enter

1 2 3 4 5

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Our next question deals with political, economic, social, and technological environments.

89. To what degree have the Sri Lankan government policies impacted on your company’s operations in the following time period? No impact Severe impact Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5 90. Could you please describe the current impacts of the Sri Lankan government policies on your company’s operations? (e.g. interest rate controls, capital requirements etc.)

1 Capital requirements 2 Monetary contacts 3 Assisting government programmes/organizations 4 Fiscal policies of government 5 CBSL regulations with government policies 6 Economic development policies 7 Re-introduce of stamp duty from 01/04/2006 8 Increase of taxes in financial services 9 On sight and off sight examinations 10 Internal controls 11 Interest rate controls 12 Money lending policy

91. To what degree has the Sri Lankan government been involved in your company’s operation in the following time periods? No involvement Very high involvement Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5

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92. Could you please describe the current government’s involvement on your company’s operations? (e.g. management controls, appoint top management teams etc.)

1. Only for restricting processes 2. Sometimes on recovery issues 3. Appointment of board of directors 4. Central bank approval when appointing the country head 5. Discouraging the recruitment of foreign employees 6. Banking act 7. Monitory policy

93. To what degree has the Sri Lankan laws and regulations (particularly for financial services sector) impacted on your company’s operations in the following time periods? No impact Severe impact Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5 94. Could you please describe the current impacts of the Sri Lankan laws and regulations on your company’s operations? (e.g. capital requirements, ownership etc.)

1 For recovery matters 2 Staff promotions & fundamental issues 3 BIS standards and regulations 4CBSL regulations 5Government audit requirement 6 Ownership to be public quoted, Maximum shareholding for a party capped at 10% of shares 7 Directors to be “fit and proper” individuals 8 Single borrowing limit 9 Lack of laws to protect investors 10 Capital requirements

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95. To what degree has the Sri Lankan economy impacted on your company’s operations in the following time periods?

No impact Severe impact Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5 96. Could you please describe the current impacts of the Sri Lankan economy on your company’s operations? (e.g. investment opportunities, profitability etc)

96.1 Low Investment opportunities due to political uncertainty 96.2 Deposit mobilization 96.3 Profitability 96.4 Branch expansion 96.5 Low consumption pattern 96.6 Low rates of borrowings

97. To what degree has the Sri Lankan social/cultural environment impacted on your company’s operations in the following time periods?

No impact Severe impact Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5

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98. Could you please describe the current impacts of the Sri Lankan social cultural environment on your company’s operations?

98.1 Specially peace/war situation in the country 98.2 Demography (more youngsters in the market) 98.3 Technology driven delivery channels

99. To what degree has the innovative technology available in Sri Lanka impacted on your company’s operations in the following time periods?

No impact Severe impact Over the last five years 1 2 3 4 5 At present 1 2 3 4 5 Over the next five years 1 2 3 4 5 100. Could you please describe the current impacts of the new technology on your company’s operations? (e.g. customer service, new products etc.)

100.1 New products 100.2 Customer services 100.3 Planning & management 100.4 Network banking 100.5 Office automation 100.6 Centralized operation 100.7 Link with global network such as Cirrus and maestro

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Part 2

The Assessment of Company’s:

• Mission and vision statements • Long-term goals • Strategic planning and strategic thinking capabilities

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In this section we are seeking information about the mission statement and the vision of your company.

101. Does your company have a formal mission statement as a whole?

Yes No (If no please go to question 109)

102. Could you please describe your current company’s mission statement?

102.1 Customers 102.2 Owners 102.3 Employees 102.4 Society 102.5 To be dominant in the financial sector 102.6 Shareholders 102.7 Service excellence 102.8 Stakeholder expectations 102.9 Technology 102.10 Financial services 102.11 Financial goals

103. How much have the following groups influenced the formulation of your present corporate mission? No influence Very great influence Corporate level management 1 2 3 4 5




Corporate planning department 1 2 3 4 5



104. Has your company changed its mission statement in the last five years?

Yes It was changed in 19 _ _ No (Please go to question 107)

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105. What changes were made in your mission statement at that time? (You may select more than one)

Mission stated for the first time Mission was stated more specifically Mission statement was expanded Others Mission was completely

changed______________________________________________________________________________ 106. How much did the following factors influence the change in your company’s mission statement? No influence Very great influence Mission changed because of new chief executive officer 1 2 3 4 5 Mission changed because owner or main shareholders changed 1 2 3 4 5 Mission changed because of top management teams changed 1 2 3 4 5 Mission changed because of joint venture with other organizations 1 2 3 4 5 Mission changed because of merger with other organizations 1 2 3 4 5 Mission changed because of Sri Lankan politics 1 2 3 4 5 Mission changed because of economic factors 1 2 3 4 5 Mission changed because of social factors 1 2 3 4 5 Mission changed because of technological factors 1 2 3 4 5 Mission changed because of law and regulations 1 2 3 4 5 Mission changed because company developed new capabilities 1 2 3 4 5 Mission changed because of strategic considerations 1 2 3 4 5 Others (Please specify) ___As new plans introduced _______ 1 2 3 4 5 __________________________________________________ 107. To what extent does your company consider its mission statement to have been appropriate over the last five years? Not appropriate Very appropriate 1 2 3 4 5 108. How long do you expect that your company will continue to follow its current mission statement? Approximately _____________ years

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109. Does your company have a vision?

Yes No (If no, please go to question 113 )

110. What is the vision of your company?

1. To be the best bank of the people 2. Have an international presence in the future 3. Dominate the financial sector 4. Provide exceptional banking services 5. To be the premium retail focused Sri Lankan bank 6. A world class Sri Lankan bank

111. How much have the following groups influenced the formulation of your present vision of the company? No influence Very great influence Founders of the company 1 2 3 4 5

Corporate level management 1 2 3 4 5




Corporate planning department 1 2 3 4 5



Others (please specify) __________________ 1 2 3 4 5 _____________________________________ 112. How long do you expect that your company will continue to follow its current vision of the company? Approximately _____________ years

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In this section we are seeking information about the setting of corporate long- term goals in your company.

113. Does your company have formal corporate long-term goals, which it seeks to achieve?


114. Could you please indicate the quantitative goals, which serve guiding roles in decisions that are strategic for the bank as a whole? (You may select more than one)

Return goals Stock market goals Number of new branches per year Profits, income, cash flow Dividend maintenance Financial ratio controls Others (Please specify) Deposit Loans NPL Staffing Market share

115. Does your bank also have formal qualitative long- term goals?

Yes No

If yes, Please indicate the main ones: (You may select more than one)

Technological leadership and advantage Maintain acceptable financial posture/control cost Leadership in quality and service Leadership in reputation and image Focus on market segment Customer focus Societal goals Others (Please specify) __________________________________________________

_______________________________________________________________ 116. How much have the following groups influenced the formulation of your present company long term- goals? No influence Very great influence Corporate level management 1 2 3 4 5 Chief executive officer 1 2 3 4 5 Outside members of the board directors 1 2 3 4 5 Second level line managers 1 2 3 4 5 Corporate planning department 1 2 3 4 5

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Central bank of Sri Lanka 1 2 3 4 5 Others (Please specify) ____SEMA ___ 1 2 3 4 5 _________________________________ 117. Which of the following best reflects the process for formulating company long-term goals? (Please select one of the following)

Formulated for the company by the chief executive officer Formulated for the company by the corporate level management Formulated for the company by the board of directors Aggregation of the goals developed by second level management Negotiation process between the corporate level/board of directors group and second level management Negotiation process between the chief executive officer and key advisors Negotiation process between the chief executive officer and corporate level management Others (Please specify)________________________________________________________________

___________________________________________________________________________________ 118. To what extent do your corporate goals serve an important role in each of the following area? Not important Very important Evaluation of its past performance 1 2 3 4 5 Communication to external public 1 2 3 4 5 Evaluation of second level objectives 1 2 3 4 5 Evaluation of other lower levels objectives 1 2 3 4 5 Monitor current performance 1 2 3 4 5 Activate contingencies 1 2 3 4 5 Provide challenge and motivation 1 2 3 4 5 119. Have your corporate level goals changed in the last five years?


If yes, in year 200 _ _ 120. What corporate goals changed at that time? (You may select more than one)

Focus on philosophy Upgrade or update of goals Change of financial factors Formalization or explicitness of goals General qualitative additions Instituted new goals Others (Please specify) ______________________________________________________

_____________________________________________________________________________

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121. How much do the following factors influence changes in the goals of the corporate level? No influence Very great influence Changes in ownership 1 2 3 4 5 Changes in top management 1 2 3 4 5 Unsatisfactory performance 1 2 3 4 5 Technological breakthroughs 1 2 3 4 5 Changes in economic environment 1 2 3 4 5 Changes in government policies 1 2 3 4 5 Others (Please specify) ____________________ 1 2 3 4 5 _______________________________________ 122. How long will your corporate level continue following the current goals? Approximately years 123. Over the last five years, would you say your company had, in general, exceeded, met or failed to achieve its key goals? Failed to Met Exceeded goals achieve goals goals 1 2 3 4 5 124. In your opinion, what are the reasons for that performance and how important were those reasons? Not at all important Very important Appropriateness of goals 1 2 3 4 5

Managerial competence 1 2 3 4 5

Competition 1 2 3 4 5

Economic environment 1 2 3 4 5

Technological change 1 2 3 4 5

Others (please specify) use of high technolgy __ 1 2 3 4 5

_ In appropriate corporate policy in head office

Opening of new branches

______________________________________

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Next section, we would like some information about the setting of second level’s long-term goals of your company.

125. Does your company have formal second level long term goals, which it seeks to achieve?


126. Do all second level operating units have the same goals with respect to units of measurement?

Yes No

If yes, what is the unit of measurement? (You may select more than one)

Return on investment, return on assets, return on capital Profits Cash flow Sales growth Return on sales Other (please specify) Productivity measurements

If no; why they are different?

126.3.1 The type of work done by departments remain different, hence the methodology of measurement will differ

What is the unit of measurement? (You may select more than one) Return on investment, return on assets, return on capital Profits Cash flow Sales growth Return on sales Other (please specify) _________________________________________________

___________________________________________________________

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127. How much do the following groups influence the formulation of the second level long-term goals? No influence Very great influence Corporate level management 1 2 3 4 5 Chief executive officer 1 2 3 4 5 Outside members of the board of directors 1 2 3 4 5 Corporate planning department 1 2 3 4 5 Second level line managers 1 2 3 4 5 Other lower levels of managers 1 2 3 4 5 Others (Please specify) ___________________ 1 2 3 4 5 ________________________________ 128. Which of the following best reflects your company’s process for formulating second level long-term goals? (Please select one of the following)

Formulated for second level by the corporate level management Formulated for second level by the CEO Aggregation of the goals developed by third level management Negotiation process between the corporate level/ and second level management Formulated by second level management Others (Please specify) _______________________________________________________

______________________________________________________________ 129. To what extent do your second level goals serve an important role in your company? Not important Very important As a major influence on final 1 2 3 4 5 corporate goals As rationing devices for capital and 1 2 3 4 5 other resources As standards to evaluate business 1 2 3 4 5 unit performance As a basis for formally determining an 1 2 3 4 5 incentive portion of managerial compensation 130. How do you assess the quality of your second level management long-term goals? Very poor Very good 1 2 3 4 5

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In this section we are seeking information about the planning and planning systems of your company.

131. Does your company have a formalized strategic planning system at? Corporate level Yes No Second level Yes No If no to both, please go to question 197 132. For what time horizons does your company develop a formal corporate plan? Years ____________________ Years ____________________ Years ____________________ 133. Which of the plans noted in question 132 would you consider the key guiding long-term plan for your company? Years _________________ 134. What is the relationship between these plans? (Please select one)

Prepared independently and not coordinated Longer term plan prepared first, shorter term plan then fitted into long-term plan Shorter-term plan prepared first, longer-term plan then extended Shorter term plan prepared first, longer term plans are then modified from previous year. Short and long term plans prepared simultaneously

135. When did your company first develop a formal corporate long term plan? Year_________________ 136. How often is your corporate plan updated? (e.g. six monthly, every year, every 1-2 years etc.) _________________________________ 137. How frequently is progress reviewed against this plan? (Please select one of the followings) (e.g. monthly, quarterly, six monthly etc.) ________________________________

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138. How would you characterize the extent to which corporate planning effort is spent on the following types of activity?

No effort High degree of effort Short term emergency planning 1 2 3 4 5 Action planning or operational planning 1 2 3 4 5 For the next 1 to 3 years Formalized contingency planning 1 2 3 4 5 Long-term planning for the next 5 to 10 years 1 2 3 4 5 “What the company wants to be in the next 1 2 3 4 5 10-20years” planning Acquisitions 1 2 3 4 5 Divestitures 1 2 3 4 5 International expansion 1 2 3 4 5 Others (Please specify) __________________________ 1 2 3 4 5 ______________________________________ 139. How much efforts (in terms of time and/or financial resources) were expended by corporate planning in each of the following forecast areas over the last five years? Please indicate also whether or not external forecasts were purchased. No effort High degree of effort Purchase of

external forecasts

Domestic economy 1 2 3 4 5 Yes No Foreign economies 1 2 3 4 5 Yes No Technological 1 2 3 4 5 Yes No Sri Lankan politics 1 2 3 4 5 Yes No Laws and regulations for 1 2 3 4 5 Yes No financial services sector Social and /or cultural 1 2 3 4 5 Yes No Financial markets 1 2 3 4 5 Yes No Human resources 1 2 3 4 5 Yes No Industry level demand 1 2 3 4 5 Yes No Competitive analysis 1 2 3 4 5 Yes No Suppliers requirements 1 2 3 4 5 Yes No (Sources of fund)

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140. To what extent are forecasts, which were developed or purchased by corporate planning, transmitted to the second level in one form or another for each of the following areas? Never transmitted Regular transmitted

Domestic economy 1 2 3 4 5

Foreign economies 1 2 3 4 5

Technological 1 2 3 4 5

Sri Lankan politics 1 2 3 4 5

Laws and regulations for financial services sector 1 2 3 4 5

Social and/ or cultural 1 2 3 4 5

Financial markets 1 2 3 4 5

Human resources 1 2 3 4 5

Industry level demand 1 2 3 4 5

Competitive analysis 1 2 3 4 5

Suppliers requirements (sources of fund) 1 2 3 4 5

141. If the external forecasts purchased by corporate planning were not available, how severe would be the impact on the:

No impact Severe impact

Quality of corporate planning effort 1 2 3 4 5 Quality of second level planning effort 1 2 3 4 5 Quality of other lower levels planning effort 1 2 3 4 5 142. How difficult would it be for the second level units to obtain for themselves the information they currently receive from corporate planning? Not difficult Very difficult 1 2 3 4 5

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143. Would you please provide us with a copy of the table of contents of your latest corporate long-range plan?

Yes (enclosed) No

If no, alternatively, would you please list the major headings of your latest corporate long-range plan? (e.g missions, goals and objectives, customer analysis, competitor analysis, corporate strategies etc.)

143.2.1 Vision 143.2.2 Mission 143.2.3 Objectives 143.2.4 Goals 143.2.5 Competitive analysis 143.2.6 Action plans 143.2.7 Customer analyses 143.2.8 Political environment 143.2.9 Shareholder requirements in overseas head office 143.2.10 Corporate strategies 143.2.11 Environmental analyses 143.2.12 Policies and procedures 143.2.13 Customer demand 143.2.14 Deposit mobilizations 143.2.15 Implementation and monitoring 143.2.16 Feedbacks

144. Which organizational personnel have access to the current corporate plan? (You may select more than one)

Second level and up Third level and up Senior management only Senior staff Operating managers Others (please specify) _Head of department and above________________________________________

_______________________________________________________

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145. To what extent do the efforts at corporate level in developing a corporate plan, provide added value over and above the second level plans in each of the following areas? No added value Major added value Financial 1 2 3 4 5


Research and development 1 2 3 4 5

Markets 1 2 3 4 5

Technology 1 2 3 4 5

Operations 1 2 3 4 5

Sources and uses of funds 1 2 3 4 5

Organization structure 1 2 3 4 5

Competitive analysis 1 2 3 4 5

146. To what extent does your company use computer models/systems to support corporate planning?

No use Extensive use 1 2 3 4 5

147. Which models/systems are used regularly to support your corporate planning? Models: Forecasting models Yes No

Financial models Yes No

Econometric models Yes No

Planning models Yes No

Simulation models Yes No

Others (Please specify) ___________________ Yes No

______________________________________ Systems Strategic decision support systems Yes No

Group decision support systems Yes No

Others (Please specify)_____________________ Yes No

____________________________________

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148. How useful have these models/systems been? Not at all useful Very useful

1 2 3 4 5 149. Does your company have any computer systems, which link the corporate planning system with second level units?

Yes No

150. Does your company have a corporate planning department?

Yes No (If no go to question 162)

151. What, in rough terms, is the annual direct cash budget (excluding allocations) of the corporate planning department? ________________________ Sri Lankan Rupees 152. How many professional (non-clerical) personnel comprise the corporate planning department? Number: ______________________ 153. Could please classify these professional personnel in terms of their current skills? (Give full-time equivalents if applicable) Number Planning specialists __________________

Economists __________________

Business forecast specialists __________________

Computer/information specialists __________________

Marketing specialists __________________

Financial specialists __________________

Legal specialists __________________

Services and products specialists __________________

International business specialists __________________

Research and development specialists __________________

Others (please specify) ________________________ __________________

____________________________________ 154. On average, how long do corporate planning personnel stay in corporate planning jobs? Years_______________

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155. To what extent are line personnel rotated through the corporate planning department? No rotation Extensive rotation

1 2 3 4 5 156. Who is the immediate supervisor of the chief corporate planner?

Chairman Chief executive officer/managing director Treasure/controller/finance director Executive general manager Others (Please specify) ________________________

157. To what extent does the chief corporate planner attend: Never Always

Board meetings 1 2 3 4 5

Capital budgeting meetings 1 2 3 4 5

Divisional planning meeting 1 2 3 4 5

Group planning meetings 1 2 3 4 5

158. To what extent does the corporate planning department have the authority to:

No authority Complete authority Obtain substantive revisions in second level plans 1 2 3 4 5

Obtain procedural revisions in second level plans 1 2 3 4 5

Review and criticize second level plans 1 2 3 4 5

Accept and reject second level plans 1 2 3 4 5

159. To what extent do you agree or disagree with each of the following statement regarding the performance of the corporate planning group? Disagree Strongly agree Specific performance goals have been clearly established 1 2 3 4 5

Numerical or quantified procedures are use extensively to 1 2 3 4 5 measure performance Are detailed reports of the performance of corporate planning prepared?

Yes No

If yes, how frequently? ________________ Times per year

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160. Which of the following documents are used by the corporate planning group? (You may select more than one)

Documents describing the planning procedures Documents specifying roles and responsibilities for corporate planning Written schedules (time tables) for the corporate planning process Standard forms for the collection of planning data Standard forms for the evaluation of strategic proposals

161. Is your corporate planning process written up in a planning manual?

Yes No

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In this section we are seeking information about the second level planning of your company.

162. Does your company prepare second level long term business plans?

Yes No

If no, please go to question 179 163. Would you please provide us with a copy of the table of contents of your current most common type of the second level business plan?

Yes (enclosed) No

If no, alternatively, would you please list the major headings of your current most common type of second level business plans?

163.2.1 Environmental analysis 163.2.2 Business strategies 163.2.3 Forecasts and budgets 163.2.4 Revenue targets 163.2.5 Number of employees with grades 163.2.6 Individual targets 163.2.7 Time frames for assessment 163.2.8 Volume targets for products and services

164. Do you group second level units for planning, the same way as they are grouped for operations?

Yes No (If no please go to question 166)

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165. Could you please specify and describe three major long term plans at the second level: Type of plan No of plans of Reviewed at corporate This type levels 1_Revenue Target_____________ _____________ Yes No 2._Volume targets______ _____________ Yes No 3.__Time frames_______ _____________ Yes No When did you first start formal long-term planning at the second level? Year: _________________ with this configuration of plans? Year:_________________ Are these second planning units profit centres

Yes No

Please go to question 167 166. How do you group your business planning units, what are the bases for their definition and what is the number of units of each type? Example of names: SBU, division, sector Example of bases for definition: product, market, function, resource. Type of second level planning unit Bases for definition Number of units ___________________________ _______________ ____________ ___________________________ _______________ ____________ ___________________________ _______________ ____________ What are the major reasons why this particular configuration was chosen? (e.g: common competitors, customers, and facilities)

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When did you first start formal long-term planning at the second level? Year:_____________ And with this configuration of plans? Year_____________ Are these second planning units profits centres

Yes No

167. How often are you second level plans updated? (Please select one of the following)

Monthly Quarterly Six monthly Yearly More than once a year

168. How frequently is progress reviewed against the second level plan? (Please select one of the following)

Monthly Quarterly Six monthly Yearly More than once a year

169. To what extent are the annual budgets for the second level units integrated with the long term plans of these units?

Not at all Very integrated

1 2 3 4 5 170. Has your company developed a standardized format for the second level?

Yes No

If yes, approximately what percentages of the plans in fact conform to this format? Per cent: ___________ 171. Does your company have specialized planning personnel at the second level?

Yes No (go to question 176)

If yes, how many second level planning units are there in your company? Number ___________________

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Across all second level units, how many specialized planning personnel does your company have? Number _____________ 172. What are the three most frequent functional backgrounds of second level planners in your company? 1. ______________________ 2. ______________________ 3. ______________________ 173. On average, how long do personnel stay in second level planning jobs? Years: ________________ 174. To what extent are line personnel rotated through the second level planning units?

No rotation Extensive rotation

1 2 3 4 5 175. Who is the immediate supervisor of the top second level planner?

Senior second level operating officer Subordinate of the top corporate level planner Corporate planner Second level controller Other (please specify) ____________________________________________

176. To what extent does your company use computer models/systems to support second level planning?


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177. Do the models/systems used to support your second level planning similar to models/systems used at your corporate level planning?

Yes No

If no, which models/systems are used regularly to support your second level planning? Models: Forecasting models Yes No Financial models Yes No Econometric models Yes No Planning models Yes No Simulation models Yes No Others (Please specify)__________________ Yes No Systems Strategic decision support systems Yes No Group decision support systems Yes No Others (Please specify)In house develop__________ Yes No Model in excel 178. How useful have these models/systems been?

Not at all Very useful

1 2 3 4 5 179. Does your company develop third level long-term business plans?

Yes No

180. Does your company develop fourth level long term business plans?

Yes No

181. Does your company develop formal contingency plans as part of its long-term planning effort?

Yes No

If yes, at what levels are major contingencies developed?

Corporate level only Second level only Both corporate and second level

Which are the major variables in your contingency plans?

Uncontrollable environmental factors Unpredictable strategic actions

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The following question deals with the various functions of corporate planning in your company. If no corporate planning, please go to question 183.

182. Could you please asses how much effort is expended by corporate planning in each of the following activities? The following statements are focused on activities at corporate level. No effort High degree of effort Specific planning tasks: Define guidelines, formats and timetables for planning activity 1 2 3 4 5 Develop macro forecasts of the economy, financial 1 2 3 4 5 markets, political environment and etc Prepare specific studies 1 2 3 4 5 Develop improved accounting and financial data for strategic planning 1 2 3 4 5 Identify areas of new business opportunity 1 2 3 4 5 Reorganize the company around more clearly defined business units 1 2 3 4 5 Overall planning responsibility: Develop and write the corporate plans 1 2 3 4 5 Monitor and control progress versus plans 1 2 3 4 5 Assistance at corporate level: Help corporate management formulate goals and objectives 1 2 3 4 5 Help corporate management formulate strategy 1 2 3 4 5 Help corporate management with acquisition plans 1 2 3 4 5 Help corporate management with divestiture plans 1 2 3 4 5 Help corporate management with identification of financing needs 1 2 3 4 5 Help corporate management with non- performing loans plans 1 2 3 4 5 Help corporate management with merger plans 1 2 3 4 5 Help corporate management with joint venture plans 1 2 3 4 5 Help corporate management with sources and uses of fund plans 1 2 3 4 5 Assistance at second level: Help Second level management formulate goals and objectives 1 2 3 4 5 Help second level management formulate strategy 1 2 3 4 5 Review and evaluate second level plans 1 2 3 4 5 Integrate second level plans with the corporate plan 1 2 3 4 5

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No effort High degree of effort Improving planning performance: Improve the quality of strategic thinking of corporate management 1 2 3 4 5 Improve the quality of strategic thinking of second level management 1 2 3 4 5 Assess the overall effectiveness of the planning process 1 2 3 4 5

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The following questions deal with the nature of the planning process in your company

183. To what extent do you agree or disagree with each of the following statements? In the case of no corporate planning, please answer for planning that exists. Disagree Strongly agree

Roles: The planning process plays an important role in the 1 2 3 4 5 organization’s communication network The planning process plays an important role 1 2 3 4 5 in auditing ongoing activities The planning process plays an important role in strategically 1 2 3 4 5 managing our company’s organization’s structure The planning process plays an important role in strategically 1 2 3 4 5 managing our company’s quality issues The planning process play an important role in strategically 1 2 3 4 5 managing our company’s culture The planning process plays an important role in strategically 1 2 3 4 5 managing our company’s managerial styles The planning process is necessary to sequence future activities 1 2 3 4 5 The planning process encourages the development of new 1 2 3 4 5 business by combining expertise and resources from lower level units The planning process is a means of ensuring that specialized 1 2 3 4 5 knowledge is stored and available to the whole organization The planning process has had a measurable positive effect 1 2 3 4 5 on sale and profits The planning process acts mainly as an agency for assembling 1 2 3 4 5 financial reports The planning process helps to focus the company’s R & D 1 2 3 4 5 efforts around defined opportunity areas Conflicts resolution: The planning process is a device to assure that conflicting 1 2 3 4 5 expectations are resolved The planning process is a means of organizational 1 2 3 4 5 conflict resolution The planning process involves a great deal of bargaining 1 2 3 4 5

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Disagree Strongly agree Uncertainty and risk resolution: The planning process is a means for systematically 1 2 3 4 5 dealing with uncertainty The planning process enables the company to avoid 1 2 3 4 5 unacceptably high levels of risks The planning process has constrained the strategic 1 2 3 4 5 risk taking behaviour of lower level managers Resource allocation: The planning process is a key device for allocating 1 2 3 4 5 corporate resources throughout the company The planning process assures that scarce resources 1 2 3 4 5 are allocated to high yield uses The planning process has improved the company’s 1 2 3 4 5 long-term resource allocation decisions Long-term resource allocation decisions are made as an 1 2 3 4 5 integral part of the planning process 184. To what extent do you agree or disagree with each of the following statements? Disagree Strongly agree

Planning process Our planning effort is an adaptive, evolving, learning activity 1 2 3 4 5 Our planning effort is a fairly routinised activity 1 2 3 4 5 In our planning process, all key personnel contribute 1 2 3 4 5 their fair share of effort In our company daily routine drives out planning effort 1 2 3 4 5 Planning is often characterized by distortion of data 1 2 3 4 5 Competitive analysis: In our company, a great deal of effort is expended in 1 2 3 4 5 attempting to identify competitors cost structure Our company focuses its competitive analysis on 1 2 3 4 5 competitive products analysis Competitive analysis is primary the responsibility of 1 2 3 4 5 our sales and marketing people Competitive analysis is a major activity of the corporate 1 2 3 4 5 planning department Competitive analysis is a major activity of the corporate 1 2 3 4 5 level management Competitive analysis is a major activity of our second 1 2 3 4 5 level management

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Disagree Strongly agree Supplier analysis: A great deal of effort is expended in attempting to 1 2 3 4 5 identify the sources of funds The supplier analysis is primarily the responsibility 1 2 3 4 5 of our financial people The supplier analysis is a major activity of the corporate 1 2 3 4 5 planning department The supplier analysis is a major activity of the corporate 1 2 3 4 5 level management The supplier analysis is a major activity of the second 1 2 3 4 5 level management Customer analysis In our company, a great deal of effort is expended in 1 2 3 4 5 attempting to identify the customer demands The customer analysis is primarily the responsibility 1 2 3 4 5 of our marketing people The customer analysis is a major activity of the corporate 1 2 3 4 5 planning department The customer analysis is a major activity of the corporate 1 2 3 4 5 level management The customer analysis is a major activity of the second 1 2 3 4 5 level management Political analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the government on our business operations The political analysis is primarily the responsibility of our 1 2 3 4 5 operations people The political analysis is a major activity of the corporate 1 2 3 4 5 planning department The political analysis is a major activity of the corporate 1 2 3 4 5 level management The political analysis is a major activity of the second 1 2 3 4 5 level management Economic analysis: A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the economy on our business operations The economic analysis is primarily the responsibility of our 1 2 3 4 5 operations people The economic analysis is a major activity of the corporate 1 2 3 4 5 planning department

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Disagree Strongly agree The economic analysis is a major activity of the corporate 1 2 3 4 5 level management The economic analysis is a major activity of the second 1 2 3 4 5 level management Social and cultural analysis: A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the Sri Lankan culture on our business operations The cultural analysis is primarily the responsibility of our 1 2 3 4 5 operations people The cultural analysis is a major activity of the corporate 1 2 3 4 5 planning department The cultural analysis is a major activity of the corporate 1 2 3 4 5 level management The cultural analysis is a major activity of the second 1 2 3 4 5 level management Technology analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 technological developments The technology analysis is primarily the responsibility of our 1 2 3 4 5 operations people The technology analysis is a major activity of the corporate 1 2 3 4 5 planning department The technology analysis is a major activity of the corporate 1 2 3 4 5 level management The technology analysis is a major activity of the second 1 2 3 4 5 level management

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Our next question deals with some of the coordination issues involved in planning

185. To what extent do you agree or disagree with each of the following statements? Note; if no corporate planning, answer for planning that exists. Disagree Strongly agree Coordination of planning: The financial planning is closely coordinated 1 2 3 4 5 with corporate planning The operations planning is closely coordinated 1 2 3 4 5 with corporate planning The marketing planning is closely coordinated 1 2 3 4 5 with corporate planning The human resource planning is closely 1 2 3 4 5 coordinated with corporate planning The technology planning is closely coordinated with 1 2 3 4 5 Quality of information Your company gets very high quality information 1 2 3 4 5 from the finance department for corporate planning Your company gets very high quality information 1 2 3 4 5 from the operations department for corporate planning Your company gets very high quality information from 1 2 3 4 5 the marketing department for corporate planning Your company gets very high quality information from 1 2 3 4 5 the human resource department for corporate planning Your company gets very high quality information from 1 2 3 4 5 technology development (R & D) for corporate planning Resistance to planning: Your company gets a great deal of resistance from 1 2 3 4 5 its finance people Your company gets a great deal of resistance from 1 2 3 4 5 its operations people Your company gets a great deal of resistance from 1 2 3 4 5 its marketing people Your company gets a great deal of resistance from 1 2 3 4 5 its human resource people

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The following questions deal with the roles of various corporate personnel in the planning process.

186. To what extent is the CEO personally involved in the following? Not at all involved Very involved

The development of corporate goals, missions, objectives 1 2 3 4 5 The development of alternative corporate strategies 1 2 3 4 5 The evaluation and approval of the corporate plans 1 2 3 4 5 Having planning as a philosophy in the company 1 2 3 4 5 187. To what extent is the board of directors involved in corporate planning? Not involved Very involved

1 2 3 4 5 188. How supportive is the board of directors regarding corporate planning activities? Not supportive Very supportive

1 2 3 4 5 189. How influential are the following groups in the six corporate planning areas listed? No influence Very great influence Chief executive officer: Format of corporate plan 1 2 3 4 5

Assumptions used in the final corporate plan 1 2 3 4 5

Objectives embodied in the final corporate plan 1 2 3 4 5

Approval of the final corporate plan 1 2 3 4 5

Development of missions for second level units 1 2 3 4 5

Outside members of the board of directors: Format of corporate plan 1 2 3 4 5



Strategies embodied in the final corporate plan 1 2 3 4 5



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No influence Very great influence Corporate planning department: Format of corporate plan 1 2 3 4 5






Top second level line managers: Format of corporate plan 1 2 3 4 5






190. Do you currently experience any problems specifically as a result of using the planning system you have described?

Yes No (If no, go to question 192)

If yes could you please specify the major problems you experience?

190.2.1 Lack of participative decision making processes 190.2.2.Lack of strategic thinking at the top level

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191. Do you expect planning system changes to be made in order to deal with these problems? Yes No

If yes what kind of changes do you expect? 192. In your opinion, what are going to be the major changes in the way your company approaches strategic management in the next five years?

191.2.1 It should be an on-going process 191.2.2 There should be a system to discuss the changes

192.1 Apply participating techniques and methods in planning process 192.2 We expect no changes during the next five years 192.3 Possibility of hiring a private company to consult 192.4 Develop strategic thinking capabilities in all levels of the bank 192.5 Continue the participatory decision making process for strategic planning 192.6 Concern more on cost efficiency within the bank

193. How important do you believe informal planning is with respect to strategic management of your company? Not important Very important

1 2 3 4 5

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194. How would you rate the effectiveness of the planning process in your company?

Not at all Very effective effective 1 2 3 4 5

195. What contribution does the formal planning process make to the strategic management process in your company? No contribution Major contribution

1 2 3 4 5 196. To what extent do you think that your bank is strategically managed?

Not at all To a great extent 1 2 3 4 5

Now please go to question 219.

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If no to question 131, please answer the following questions

197. What are your main reasons for not having a formalised strategic planning system? 144. To what extent do you believe your bank is strategically managed? Not at all To a great extent 1 2 3 4 5 198. Could you describe the procedures and process you use for managing your company strategically?

197.1 Low value on strategic planning 197.2 Lack of knowledge on strategic planning techniques 197.3 Strategic planning processes perceived as a cost not as an investment 197.4 None concentration on annual financial objects targets for monitoring and performance

199. Does your company address strategic issues?

On a regular time cycle Ad hoc As required Not at all Others (Please specify) ___________________________

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If strategic issues are address on a regular time cycle, how often are these strategic issues addressed? (Please select one)

Monthly Quarterly Six monthly Every year More than once a year

200. Who is responsible for addressing these strategic issues? 201. What time horizon does your company use to develop its main strategies? (Please select one)

Less than one year 1 to 3 years 4 to 10years not applicable

202. Could you please specify the main areas where key strategic decisions have been made during the last five years?

200.1 ALCO 200.2 PPC 200.3 Audit policy committee 200.4 Corporate management

202.1 Technology 202.2 Profitability 202.3 Compliance to international and CBSL standards 202.4 Customer service 202.5 Asset management/cost management

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203. To what extent do you agree or disagree with each of the following descriptions? Disagree Strongly agree Our strategies emerge from the vision of the CEO 1 2 3 4 5 The CEO defines overall targets and boundaries 1 2 3 4 5 within which lower management formulates the strategies Our strategies evolve through a bargaining and negotiation 1 2 3 4 5 process among the different groups in our company The environment dictates our strategies 1 2 3 4 5 Our strategies emerge from an incremental process of 1 2 3 4 5 adapting to external events Our strategies emerge from solving day to day 1 2 3 4 5 problems 204. To what extent do you agree or disagree with the following descriptions of your strategic decision making process? Disagree Strongly agree

It is a continuing process of incremental steps 1 2 3 4 5

It is largely intuitive 1 2 3 4 5

It is based on objective criteria and analysis 1 2 3 4 5

205. How would you describe the strategic decisions in your company? (Please select one)

They are integrated They are disjointed They are loosely coupled

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206. What effort is expended by your corporate management in each of the following activities? No effort high degree of effort

Develop macro forecast of the external factors 1 2 3 4 5 (e.g. economy, financial market, political and, etc) Prepare specific studies 1 2 3 4 5 Develop improved accounting and financial data for 1 2 3 4 5 strategic decisions Identify areas of new business opportunity 1 2 3 4 5 Reorganize the company around more clearly 1 2 3 4 5 defined business units Improve the quality of strategic thinking in the company 1 2 3 4 5 Formulate goals and objectives 1 2 3 4 5 Formulate missions 1 2 3 4 5 Formulate strategy 1 2 3 4 5 Prepare acquisition plans 1 2 3 4 5 Prepare divestiture plans 1 2 3 4 5 Prepare international expansion plans 1 2 3 4 5 Identify financing needs 1 2 3 4 5 Prepare non-performing loan plans 1 2 3 4 5 Prepare merger plans 1 2 3 4 5 Prepare joint venture plans 1 2 3 4 5 Prepare sources and uses of fund plans 1 2 3 4 5

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207. How much effort is expended by your second level management in each of the following activities? No effort high degree of effort Develop macro forecast of the external factors 1 2 3 4 5 (e.g. economy, financial market, political etc) Prepare specific studies 1 2 3 4 5 Develop improved accounting and financial data for strategic decisions 1 2 3 4 5 Identify areas of new business opportunity 1 2 3 4 5 Reorganize the company around more clearly defined business units 1 2 3 4 5 Improve the quality of strategic thinking in the company 1 2 3 4 5 Formulate goals and objectives 1 2 3 4 5 Formulate missions 1 2 3 4 5 Formulate strategy 1 2 3 4 5 Prepare acquisition plans 1 2 3 4 5 Prepare divestiture plans 1 2 3 4 5 Prepare international expansion plans 1 2 3 4 5 Identify financing needs 1 2 3 4 5 Prepare non-performing loan plans 1 2 3 4 5 Prepare merger plans 1 2 3 4 5 Prepare joint venture plans 1 2 3 4 5 Prepare sources and uses of fund plans 1 2 3 4 5

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208. How much effort was made regarding the following forecast areas over the last five years of your company?

No effort High degree of effort Domestic economy 1 2 3 4 5

Foreign economies 1 2 3 4 5

Technological 1 2 3 4 5

Sri Lankan politics 1 2 3 4 5

Laws and regulations for financial services sector 1 2 3 4 5

Government policies 1 2 3 4 5

Social/and or cultural 1 2 3 4 5

Financial markets 1 2 3 4 5


Industry level demand 1 2 3 4 5

Competitive 1 2 3 4 5

Suppliers requirements 1 2 3 4 5

209. Does your company purchase the following forecasts from external sources? Domestic economy Yes No

Foreign economies Yes No

Technological Yes No

Sri Lankan politics Yes No

Laws and regulations for financial services sector Yes No

Government policies Yes No

Social/and or cultural Yes No

Financial markets Yes No

Human resources Yes No

Industry level demand Yes No

Competitive Yes No

Suppliers requirements Yes No

210. Who is responsible for developing or purchasing these forecasts? (Please select one of the following)

Corporate level management Second level management Chief executive officer Outside member of the board of directors Other lower levels management Corporate level management and chief executive officer Others (Please specify) ______________________________________________________

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211. To what extent do you agree or disagree with the following descriptions? Disagree Strongly agree Competitive analysis: In our company, a great deal of effort is expended 1 2 3 4 5 in attempting to identify competitor’s cost structure Our company focuses its competitive analysis on 1 2 3 4 5 competitive products analysis Competitive analysis is primarily the responsibility of 1 2 3 4 5 our sales and marketing people Competitive analysis is a major activity of the corporate 1 2 3 4 5 management Competitive analysis is a major activity of our second 1 2 3 4 5 level management Supplier analysis: A great deal of effort is expended in attempting to identify 1 2 3 4 5 the sources of funds The supplier analysis is primarily the responsibility of our 1 2 3 4 5 financial people The supplier analysis is a major activity of the corporate 1 2 3 4 5 level management The supplier analysis is a major activity of the second 1 2 3 4 5 level management Customer analysis: A great deal of effort is expended in attempting to identify 1 2 3 4 5 the customer demands The customer analysis is primarily the responsibility of our 1 2 3 4 5 marketing people The customer analysis is a major activity of the corporate 1 2 3 4 5 level management The customer analysis is a major activity of the second 1 2 3 4 5 level management Political analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the government on our business The political analysis is primarily the responsibility of our 1 2 3 4 5 operations people The political analysis is a major activity of the corporate 1 2 3 4 5 level management The political analysis is a major activity of the second 1 2 3 4 5 level management

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Disagree Strongly agree Economic analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the economy on our business The economic analysis is primarily the responsibility of our 1 2 3 4 5 operations people The economic analysis is a major activity of the corporate 1 2 3 4 5 level management The economic analysis is a major activity of the second 1 2 3 4 5 level management Social and cultural analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 the possible impacts of the Sri Lankan culture on our business The cultural analysis is primarily the responsibility of our 1 2 3 4 5 human resource people The cultural analysis is a major activity of the corporate 1 2 3 4 5 level management The cultural analysis is a major activity of the second 1 2 3 4 5 level management Technological analysis A great deal of effort is expended in attempting to identify 1 2 3 4 5 technological developments The technology analysis is primarily the responsibility of our 1 2 3 4 5 technical specialists The technology analysis is a major activity of the corporate 1 2 3 4 5 level management The technology analysis is a major activity of the second 1 2 3 4 5 level management 212. To what extent does your company use computer models/systems to support your strategic management efforts?


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213. Which models/systems are used regularly to support your company strategic management effort? Models Forecasting models Yes No Financial models Yes No Econometric models Yes No Planning models Yes No Simulation models Yes No Others (please specify)___________________ Yes No _____________________________________ Systems

Strategic decision support systems Yes No Group decision support systems Yes No Others (please specify) __________________________ Yes No ______________________________________ 214. How useful have these models/systems in your company been?

Not useful Very useful 1 2 3 4 5

215. Do you currently experience any problems with the strategic management procedures/ processes you described?

Yes No

If yes, could you please specify the major problems?

215.2.1 No strategic management unit 215.2.2 Given no value to external information 215.2.3 Poor knowledge on strategic management 215.2.4 Poor use of IT on decision making

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216. Do you expect any changes are likely to be made in order to deal with these problems? Yes No

If yes, what kind of changes do you expect? 217. In your opinion, what are going to be the major changes in the way your company approaches strategic management in the next five years?

216.2.1 Form of separate strategic management unit

217.1 Link IT to strategic management process 217.2 Strategic thinking culture to be introduced at all levels of management

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218. Does your company intend to implement a formalized planning system within the next five years?

Yes No

If yes, what are the reasons for this intention?

218.2.1 Competitiveness 218.2.2 Decline of market share in key businesses 218.2.3 Request made by the owner (the government)

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In this section we are seeking information about the extended strategic thinking capabilities of your company

219. To what extent do you agree or disagree with the following statements.

Disagree Strongly agree Strategy is made on an iterative basis, involving 1 2 3 4 5 managers staff and executive in an on-going dialogue Business planning in our company is ongoing, 1 2 3 4 5 involving everyone in the process to some degree Most people in this company have input into 1 2 3 4 5 decisions that affect them Our company continually adopts its strategy based 1 2 3 4 5 upon feedback from the market Most people in this organization are willing to 1 2 3 4 5 take risks People are encouraged to experiment in this company 1 2 3 4 5 so as to identify new, more innovative approaches or products Employees in this company understand what needs to be 1 2 3 4 5 accomplished in order for the organization to survive and prosper 220. To what extent do you agree or disagree with the following statements about your company’s value creation process and understanding of the interdependencies within it? Disagree Strongly agree We view our company not as a member of a single industry 1 2 3 4 5 but as part of a business system that crosses a variety of industries We co-evolve capabilities around a new innovation and work 1 2 3 4 5 co-operatively and competitively to support new products Our company think strategically about which of these competing 1 2 3 4 5 networks of suppliers we join and how we position ourselves within this ecosystem Our company knows the importance of fit between corporate, 1 2 3 4 5 business, functional, and the personal level which may be the most critical of all levels Our company also appreciate the inter-relationships among the 1 2 3 4 5 internal pieces that, taken together, comprise the whole Our company clarifies each individual about the effects of their 1 2 3 4 5 behaviour on other parts of the whole system and its final outcome

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221. To what extent do you agree or disagree with the following statements about your company’s strategic intent? Disagree Strongly agree Our company has a long term corporate dream (intent) about the 1 2 3 4 5 competitive position that our company hopes to build over the coming decade Our company is focusing the organization’s attention on the 1 2 3 4 5 essence of winning the intent Our company is motivating people by communicating the value 1 2 3 4 5 of the intent Our company is leaving room for individual and team contributions 1 2 3 4 5 to achieve the intent Our company is sustaining enthusiasm by providing new 1 2 3 4 5 operational definitions as circumstances change Our company is using intent consistently to guide resource 1 2 3 4 5 Allocations 222. To what extent do you agree or disagree with the following statements about your company’s “thinking in time”? Disagree Strongly agree Strategic thinking, is always “thinking in time” and it connects 1 2 3 4 5 past, present, and future Thinking in time uses an organization’s memory to think 1 2 3 4 5 Well about creating its future Oscillation between the past, present and, future is essential for 1 2 3 4 5 the execution of strategy as well as its formulation Our company believes strategic question is not only “what does the 1 2 3 4 5 future that we want”, but also what must we keep and loose from our past and create in our present to go there 223. To what extent do you agree or disagree with the following statements about your company’s intelligent opportunism? Disagree Strongly agree Our company always leave room for emerging strategies 1 2 3 4 5 in addition to intended strategies Our company always encourage lower level employees to practice 1 2 3 4 5 alternative strategies better suited for changing environments Our employees not rely on top management foresight and 1 2 3 4 5 they are willing to take risk

471

Part 3 Assessment of the Company’s:

• Analytical tools/techniques • Corporate level strategies • Management of quality

472

In this section we are seeking information about the analytical tools and techniques which influence your company strategies.

224. To what extent have the following analytical tools/ techniques influenced your company strategies in the last five years?

No influence Very great Influence

Environment and resource analysis techniques: PEST analysis (political, economic, social, technological) 1 2 3 4 5 Five forces analysis (supplier, buyer, competitor, new entrant, substitute) 1 2 3 4 5 SWOT analysis 1 2 3 4 5 (strengths, weaknesses, opportunities, threats) Driving forces analysis 1 2 3 4 5

Key success factors 1 2 3 4 5

Product life cycle analysis 1 2 3 4 5

Product market fit analyses 1 2 3 4 5

Portfolio and strategy analysis 1 2 3 4 5

ETOP and SAP analysis 1 2 3 4 5

Other analysis techniques (please specify) 1 2 3 4 5

Planning techniques: BCG service portfolio matrix 1 2 3 4 5

General electric matrix 1 2 3 4 5

Service and market portfolio matrix 1 2 3 4 5

Grand strategy technique 1 2 3 4 5

TOWS technique 1 2 3 4 5

7-S framework (7S- Mickinsey excellent factors) 1 2 3 4 5

PIMS (profit impact of market strategy) 1 2 3 4 5

TQM (total quality management) 1 2 3 4 5

Strategy centre concept (A.D. Little) 1 2 3 4 5

Other techniques (Please specify) 1 2 3 4 5

Balance score card

473

225. In your opinion, to what extent will the following analytical tools/ techniques influence your corporate strategies in the next five years?

No influence Very great influence Environment and resource analytical techniques: PEST analysis 1 2 3 4 5 (political, economic, social, technological) Five forces analysis 1 2 3 4 5 (supplier, buyer, competitor, new entrant, substitute) SWOT analysis 1 2 3 4 5 (strengths, weaknesses, opportunities, threats)

Driving forces analysis 1 2 3 4 5

Key success factors 1 2 3 4 5

Product life cycle analysis 1 2 3 4 5

Product market fit analyses 1 2 3 4 5

Portfolio and strategy analysis 1 2 3 4 5

ETOP and SAP analysis 1 2 3 4 5

Other analysis techniques (please specify) 1 2 3 4 5

Planning techniques: BCG service portfolio matrix 1 2 3 4 5

General electric matrix 1 2 3 4 5

Service and market portfolio matrix 1 2 3 4 5

Grand strategy technique 1 2 3 4 5

TOWS technique 1 2 3 4 5

7-S framework (7S- Mickinsey excellent factors) 1 2 3 4 5

PIMS (profit impact of market strategy) 1 2 3 4 5

TQM (total quality management) 1 2 3 4 5

Strategy centre concept (A.D. Little) 1 2 3 4 5

Other techniques (Please specify)___________________ 1 2 3 4 5

__balance score card____________________________________________ 226. To what extent has benchmarking influenced your corporate strategies in the last five years? No influence Very great influence 1 2 3 4 5

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227. To what extent will benchmarking influence your corporate strategies in the next five years? No influence Very great influence 1 2 3 4 5 228. To what extent does your company benchmark with the following groups?

Not at all Significant benchmarking

Domestic banks in Sri Lanka 1 2 3 4 5

Foreign banks in Sri Lanka 1 2 3 4 5

Sri Lankan government banks 1 2 3 4 5

Domestic finance and security companies in Sri Lanka 1 2 3 4 5

Foreign finance and security companies in Sri Lanka 1 2 3 4 5

Government finance and security companies in Sri Lanka 1 2 3 4 5

Domestic credit foncier companies in Sri Lanka 1 2 3 4 5

Companies outside financial sector in Sri Lanka 1 2 3 4 5

Companies outside financial service sector overseas 1 2 3 4 5

229. Could you please indicate the three major dimensions that you consider as part of your benchmarking process?

229.1 Profitability 229.2 Productivity 229.3 Cost/Income 229.4 Competitiveness 229.5 Market leadership 229.6 Market share 229.7 Type of client 229.8 Service quality 229.9 NPL 229.10 Deposit mobilizations 229.11 Asset quality 229.12 ROE 229.13 Liquidity 229.14 ROA

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Our Next questions deal with the long-term resource allocation decisions in your company.

230. Does your company make a budgetary distinction between resources required to maintain current activities and those, which will provide long term benefits for the following areas?

No distinction Very clear distinction Capital expenditures 1 2 3 4 5

Research and development expenditures 1 2 3 4 5

Market development expenditures 1 2 3 4 5

People development 1 2 3 4 5

231 . How important are the following criteria in evaluating expenditure proposals, which are expected to yield long-term benefits?

Not important Very important Financial criteria Forecast return on investment 1 2 3 4 5

Forecast net operating profit 1 2 3 4 5

Short-term cash flow benefit 1 2 3 4 5

Discounted cash flow analysis 1 2 3 4 5

Market criteria Present market share position 1 2 3 4 5

Forecast market share growth 1 2 3 4 5

Growth of market for which expenditure is required 1 2 3 4 5

Forecast sales growth 1 2 3 4 5 Personality criteria Track record of unit requesting funds 1 2 3 4 5

Track record of manager of unit requesting funds 1 2 3 4 5

Other criteria Impact on earnings per share 1 2 3 4 5

Impact on company resource needs 1 2 3 4 5

Others (please specify) 1 2 3 4 5

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The following section deals with your corporate strategy including the formalization of your corporate strategies and the procedures/ processes used for their development.

232. To what extent do you formalise your corporate strategies? Not at all To a great extent

1 2 3 4 5

233. Could you please describe how corporate strategy is developed in your company? (e.g : our corporate strategies formulated by our corporate level management)

233.1 Our corporate strategies formulated by corporate level management 233.2 Through workshops/brainstorming methods to a certain extent 233.3 Corporate strategy developed by a committee consists of corporate management and financial department officers 233.4 Strategy developed by senior managers with the input of second line managers 233.5 Our corporate strategies formulated by the corporate level management (specially the head of the Sri Lankan branch) under the approval of the overseas head office. 233.6 Corporate strategy formulated by the CEO in overseas head office with the consultation of country head in Sri Lanka 233.7 Senior management through participation by various levels 233.8 Our corporate strategies developed by the corporate level management with consultation of second level management 233.9 Corporate strategies formulated by the AGM with consultation of our senior management given limits of overseas head office 233.10 Our corporate strategies are formulated by the country manager and the committee members with the approval of overseas head office 233.11. Corporate strategies are formulated by the corporate level management with the board of directors 233.12 Our corporate strategies are formulated by our corporate level mgmt with the information acquired from the operational and business level managers 233.13 Negotiation process between corporate level mgmt and country head of Sri Lanka and the CEO of the overseas head office 233.14 Negotiation process between the head of the corporate planning and the senior mgmt of the Sri Lankan branch 233.15 Negotiation process between CEO and the corporate level management 233.16 Negotiation process between CEO and all the head of departments

234. To what extent do you agree or disagree with the following statements? Disagree Strongly agree

An explicit part of our corporate strategy is to seek: To enter high growth markets 1 2 3 4 5 To enter markets with small number of competitors 1 2 3 4 5 To enter or develop service business 1 2 3 4 5 Markets where it can attain large shares of served markets 1 2 3 4 5 Markets, which require low capital intensity 1 2 3 4 5 Markets where technology is important 1 2 3 4 5 To exit from markets with large numbers of competitors 1 2 3 4 5 Markets where joint ventures are feasible 1 2 3 4 5 Markets where mergers are feasible 1 2 3 4 5

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Our next questions deal with your Product/market growth strategies.

235.One way to classify strategies for seeking growth is shown below: New Products Existing (to the

company) Products

a

c

b

d

Existing markets

New markets (to the company)

(1) How important was each of these product/ market combinations in your corporate strategy over the last five years, regardless of whether they were pursued internally or via acquisition?

Not at all important Very important Our company seeks growth through: Existing products in existing markets (a) 1 2 3 4 5 Introducing existing products into new markets (b) 1 2 3 4 5 Introducing new products into existing markets (c) 1 2 3 4 5 Introducing new products into new markets (d) 1 2 3 4 5 (∏) How important do you think each of these will be in your corporate strategy in the next five years? Not at all important Very important Our company seeks growth through: Existing products in existing markets (a) 1 2 3 4 5 Introducing existing products into new markets (b) 1 2 3 4 5 Introducing new products into existing markets (c) 1 2 3 4 5 Introducing new products into new markets (d) 1 2 3 4 5

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Our next question deals with your company’s strategies concerning new products and service introductions.

236. To what extent do you agree or disagree with the following statements? Disagree Strongly agree Our company attempts to be: First to market with new products and services 1 2 3 4 5 An early follower of initial entrants in fast growing new markets 1 2 3 4 5 A later entrant in established but still growing markets 1 2 3 4 5 An entrant in mature, stable markets 1 2 3 4 5 An entrant in declining markets 1 2 3 4 5 At the cutting edge of technological innovation 1 2 3 4 5

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Our next question deals with the organizational responsibility for new products and markets

237. To what extent do you agree or disagree with the following statements? Disagree Strongly agree New product development is: Part of the responsibility of our second level 1 2 3 4 5 operating units The responsibility of a special organizational unit 1 2 3 4 5 Screening of new product ideas is: Part of the responsibility of our second level 1 2 3 4 5 operating units The responsibility of a special organizational unit 1 2 3 4 5 Development of new markets for existing products is: Part of the responsibility of our second level operating units 1 2 3 4 5 The responsibility of a special organizational unit 1 2 3 4 5 Screening of new market ideas is: part of the responsibility of our second level 1 2 3 4 5 operating units the responsibility of a special organizational unit 1 2 3 4 5

480

Our next questions deal with the your company’s research and development (R & D) strategies. (If you do not have any research and development strategies pls. go to question 243)

238. To what extent do you agree or disagree with the following descriptions for the research and development strategies of your company? Disagree Strongly agree Our company considers itself to be 1 2 3 4 5 highly technology innovative Our company considers itself to be 1 2 3 4 5 highly service innovative The emphasis of our R& D expenditures is 1 2 3 4 5 highly applied Our R & D effort tends to avoid high risk activity 1 2 3 4 5 Our company prefers to seek growth via 1 2 3 4 5 acquisitions rather than internal R & D Others (please specify) _________________________ 1 2 3 4 5 ____________________________________________

239. When did you commence the R & D activity in your company? Year: ___________________ Is your company’s R & D activities supported by?

Internal staff External groups or companies Both the external and internal researchers

240. What percentage of your corporate revenue has been allocated to R & D activities over the last five years? Approximate percentage: ________________________ % 241. Of your corporate revenue which has been allocated to R & D activities, what was the split between R & D for the development of new products and services, and R & D for the development of new processes? New products and services Approximate percentage: _____________________ % New processes Approximate percentage: ____________________ % Total 100%

481

242 . What approximate percentage of your R & D budget was expended on the development of new information technology? Approximate percentage: ____________________ %

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Our next questions deal with your company’s international strategies. (If your company is a foreign company, please go to question 252)

243. Do you have any international operations?

Yes No

If no, are you considering any international operations within the next five years? Yes No

If you don’t have any international operations, Please go to question 252 244. What percentage of your revenues takes place outside Sri Lanka? Approximate percentage: ______________________ Of your overseas revenue, what is the percentage of overseas revenue by the three major business types? Business type Percentage 1. _Trade service_______________ ___70_______ 2. _Nrfc______________________ ___20_______ 3. _Travel_____________________ ___10_______ 4. ___banking, treasury, imports, exports, Personal finance, Corporate banking, global markets 245. What percentage of your revenues do you expect to take place outside Sri Lanka in next 5 years? Approximate percentage: ___________________% 246. When did you first start international operations? Year: _________________ 247. Which countries are currently your three most important overseas markets? 1. __Japan________________________ 2. __Middle east region________________________ 3. ___UK______________________

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248. What are the main reasons for these choices?

248.1 Established business and transactions 248.2 Attractive rate of returns 248.3 Larges economies in the globe 248.4 Growing economies

249. Which countries do you expect to be the three most important overseas markets in next five years? 1._______________________________________ 2._______________________________________ 3._______________________________________ 250. Which description best describe your companies organization for international operations? (Please select one of the following)

International business department National subsidiary CEO’s report to company CEO Worldwide functional heads report to company CEO International division head reports to company CEO Geographic region heads report to company CEO Worldwide product division heads report to company CEO International operations report to line management (not CEO) Others (please specify) _______________________________

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251. To what extent do you agree or disagree with the following statements about your company’s international strategies? Disagree Strongly agree Global orientation: Our corporate planning is conducted on a 1 2 3 4 5 worldwide basis n.a Our second level planning is conducted 1 2 3 4 5 on a worldwide basis n.a Our procurement strategies are developed 1 2 3 4 5 on a worldwide basis Our investment strategies are developed 1 2 3 4 5 On a worldwide basis Our marketing strategies are developed on 1 2 3 4 5 a worldwide basis International strategies: We introduce new products in overseas 1 2 3 4 5 markets after we have done so in Sri Lanka We seek foreign markets in which we can 1 2 3 4 5 market existing products and technologies We develop new products and technologies 1 2 3 4 5 especially for overseas markets We actively seek joint ventures in 1 2 3 4 5 overseas operations We actively seek mergers in 1 2 3 4 5 overseas operations

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Our next questions deal with your company’s acquisition strategies.

252. Has your company made any significant acquisitions in the last five years?

Yes No

If no, please go to question 257 253. How many individual significant acquisitions has your company made in the last five years? Number in Sri Lanka _____________________ Number overseas _____________________ 254. Of those acquisitions, what percentages of their revenue when acquired were from products in the following categories? Revenue from products in introductory stage _______________________________ % Revenue from products from growth stage _______________________________ % Revenue from products in maturity stage _______________________________ % Revenue from products in decline stage _______________________________ % Total 100 % 255. What sales revenue would you attribute to those acquisitions in the present year? Sri Lankan rupees 256. To what extent do you agree or disagree with the following descriptions of your acquisition strategies? Disagree Strongly agree Our company intends to extend its core 1 2 3 4 5 business activities Our company intends to develop a new 1 2 3 4 5 configuration of business lines Our company intends to expand into 1 2 3 4 5 new markets with our existing businesses Our company intends to expand into new markets 1 2 3 4 5 with a new configuration of business lines Others (please specify) 1 2 3 4 5 257. Do you expect acquisitions to play a role in your corporate strategy over the next five years?

No role Significant role 1 2 3 4 5

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The following questions deal with your company’s divestiture strategies

258. Has your company divested, liquidated or eliminated any important operation in the last five years?

Yes No

If no please go to question 263 259. How many individual significant divestitures has your company made in the last 5 years? Number in Sri Lanka __________________ Number overseas __________________ 260. Of those divestitures, what percentage of their revenue when divested were products in the following categories? Revenue from products in introductory stage ______________________ % Revenue from products in growth stage ______________________ % Revenue from products in maturity stage ______________________ % Revenue from products in decline stage ______________________ %

Total 100%

261. If you retained those units, what would you expect their 2006 sales revenue to have been? ________________________ Sri Lankan Rupees 262. To what extent do you agree or disagree with the following statements about your company’s divestiture strategies?

Disagree Strongly agree Our company intends to: Refocus the business portfolio on its core businesses 1 2 3 4 5

Dispose/ retrench unprofitable lines of business 1 2 3 4 5

Eliminate production inefficiency 1 2 3 4 5

Eliminate business peripheral to our firm’s strategy 1 2 3 4 5

Withdraw from geographic area 1 2 3 4 5

Meet corporate liquidity requirements 1 2 3 4 5

Finance new acquisitions 1 2 3 4 5

Raise money quickly 1 2 3 4 5

Act against declining profits as a result of economic 1 2 3 4 5 recession Others (please specify) 1 2 3 4 5

487

263.Do you expect divestitures to play a role in your corporate strategy in the next five years? No role Significant role 1 2 3 4 5

488

Our next questions deal with merger strategies in your company.

264. Has your company merged with another company in the last five years? Yes No (If no please go to question 267)

265. How many significant individual mergers has your company made in the last five years? Number in Sri Lanka ______________________ Number in Overseas _______________________ 266. To what extent do you agree or disagree with the following statements about your company’s merger strategies? Disagree Strongly agree Our company intends to: Extend its core business activities 1 2 3 4 5

Develop a new configuration of business lines 1 2 3 4 5

Expand into new markets with our existing businesses 1 2 3 4 5

Expand into new markets with a new configuration of 1 2 3 4 5 business lines Meet the minimum capital requirement policy of the 1 2 3 4 5 Sri Lankan government

Solve the non-performing loans problem 1 2 3 4 5

Others (please specify) ____________________________ 1 2 3 4 5 267. Do you expect mergers to play a role in your corporate strategy in the next five years? No role Significant role 1 2 3 4 5

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Our next questions deal with turnaround strategies

268. Has your company made any significant turnarounds in the last five years? Yes No (If no, please go to question 270)

269. To what extent do you agree or disagree with the following statements about turnaround strategies in your company? Disagree Strongly agree Our company intends to: Pursue merger strategies instead of acquisition 1 2 3 4 5 strategies Pursue joint venture strategies instead of acquisition 1 2 3 4 5 strategies Restore money-losing business to profitability 1 2 3 4 5 rather than divest Others (please specify) _Strengthen management___ 1 2 3 4 5 And culture Merger and acquisition Be careful in lending 270. Do you expect turnaround to play a role in your corporate strategy in the next five years? No role Significant role 1 2 3 4 5

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Our next questions deal with the quality management of your company

271. In a strategic sense, how important has the management of quality been in your company over the last five years? Not important Very important 1 2 3 4 5 272. How important do you believe the management of quality will be in the next five years? Not important Very important 1 2 3 4 5 273. To what extent is the management of quality currently addressed as a strategic issue in your company? Not al all To a great extent 1 2 3 4 5 274. Could you please describe the strategic approach towards quality in your company?

274.1 Awareness building and training to change the 274.2 incentives/ rewards for quality services 274.3 Re-engineering programmes 274.4 Technological upgrading programmes 274.5 Customer care 274.6 Physical importance of work places 274.7 Operational level staff is trained in quality and monitored 274.8 A complementary step is successfully being ISO certified in trade and central processing operations 274.9 Staff training for every level of the organization 274.10 Brain storming 274.11 Customer survey 274.12 Improve product efficiency while retaining only in the essential services 274.13 Strict adhering to the guide lines 274.14 Practical involvements

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275. Which level is responsible for addressing the major strategic quality issues? (You may select more than one)

Corporate level management Chief executive officer Outside members of the board of directors Second level line managers Specialist unit at second level Corporate planning department Other lower levels of management Other (please specify)__AGM____________________________________

276. To what extent are the employees in your company involved in the quality approach? Not involved Very involved 1 2 3 4 5 277. Do the employees have responsibility for the quality of their products?

Yes No

278. To what extent do you agree or disagree with the following statements? Disagree Strongly agree Importance of total quality management: The management of quality is a major philosophy 1 2 3 4 5 that pervades the whole organization Continuous quality improvement is a major factor in the 1 2 3 4 5 strategic management of our company Quality is the responsibility of everyone in the organization 1 2 3 4 5 The quality of customer service is a key issue 1 2 3 4 5 Top management involvement: The CEO seeks to establish the total quality management 1 2 3 4 5 philosophy within the company The senior management commits the resources for 1 2 3 4 5 continuous quality improvements The senior management provides the leadership for 1 2 3 4 5 continuous quality improvements Employee involvement: The company has special rewards and incentives for 1 2 3 4 5 employees who make contributions to quality improvements The company training of employees in quality issues 1 2 3 4 5 plays an important role

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Disagree Strongly agree Quality assessment: Our company regularly assesses the quality 1 2 3 4 5 of its tangible products Our company regularly assesses the quality of its 1 2 3 4 5 services production processes Our company regularly assess the quality of its 1 2 3 4 5 intangible products Customer relationship: Our company continually tries to improve 1 2 3 4 5 the relationship with its customers Our company regularly measures customer satisfaction 1 2 3 4 5 Our company determines future customer requirements 1 2 3 4 5 and expectations on a regular basis 279. Is your company currently facing any problems with its quality management approach?

Yes No

If yes, please specify your three major problems

279.1 Does not suit the local market

280. Did your company win any awards involving quality management? Yes No

If yes, please specify_____________________________________ ______________________________________________________ ______________________________________________________ __________________________

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Thank you for your participation and valuable cooperation in completing this survey. We will send you copies of all papers developed from this study and at the end of the study you will receive a final paper on the major research findings.

Copyright by Professor Chris Cristodoulou and E.M.H.B.Edirisinghe, 2005.

All rights reserved.

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APPENDIX 2

Introductory letter and letter of consent

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Strictly private And confidential

Mr. ≥Position≤ ≤Name of Company≥ ≥Address of the Company≤ Dear Mr. We are conducting a research project titled “strategic management practices of Sri Lankan commercial banks”. The fieldwork will be done by Mr. E.M.H.B.Edirisinghe, a full time doctoral research student of the School devoted to this project, under the supervision of Professor Chris Christodoulou of the Australian Graduate School of Entrepreneurship. For this research, the survey will be based upon the research questions developed in the Christodoulou (1984) and Nut-tapon (2002) studies. The survey has been adapted to recognize the unique aspects of the Sri Lankan banking industry and the culture of Sri Lanka. A comprehensive investigation into the strategic management practices of the Sri Lankan banking industry has not been previously undertaken, and therefore we believe, ours will be a pioneering endeavour of great importance. The survey will be conducted by personal interviews and all the commercial banks in Sri Lanka will be invited to participate in this study. In terms of this research, it will be requested that the respondent should be a senior executive responsible for corporate planning for the bank. On completion of the study, we will provide the participating companies with a report of the most important research findings. The information gathered through the interviews will be treated as confidential. The information that is provided will be coded to ensure that no unauthorised person can gain access to identify, or interpret the data in respect of any particular organization. The identity of the participants will also be shrouded in the results that are published, so that it will not be possible to decipher individual company data. Only aggregated data will be used for publication purposes. We look forward to your support and participation in this research study and we would appreciate if you could pass on the name and phone number of an appropriate person whom we could contact to arrange an interview, which is expected to take approximately two to three hours. We need your written consent to participate and we would appreciate your signing the attached consent form and returning it to me before the interview. Mr E.M.H.B.Edirisinghe will be in Sri Lanka for three months to undertake this research. He will arrive on the 15th February 2006 and his contact particulars are given below. Telephone number: 0777309702 E-mail address: [email protected] Postal address: 19/513, Buddhagaya Mawatha, Anuradhapura

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mailto:[email protected]

If you have any concerns please contact either myself or Mr.E.M.H.B.Edirisinghe. Should there be any unresolved concerns with the conduct of this survey your complaints can be directed to: The Chair Human Research Ethics Committee Swinburne University of Technology PO Box 218, Hawthorn, Victoria 3122, Australia Phone:+(613)92145223 We look forward to your support and participation in this study. Thank you. Professor Chris Christodoulou Australian Graduate School of Entrepreneurship Swinburne University of Technology PO Box 218 Hawthorn, Victoria 3122, Australia. Phone: + (613) 92145863 Email: [email protected]

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Letter of consent I _____________________________________________________have read and understood the information provided to me about this research project titled “Strategic management practices of Sri Lankan commercial banks”. Any questions I have asked have been answered to my satisfaction. I agreed to participate in this activity, realising that I may withdraw at any time. I agree that the research data collected for the study may be published or provided to other researchers on the condition that anonymity is preserved and that I cannot be identified. I also grant permission to the researcher to enter into the bank premises as necessary for the purpose of conducting a personal interview. Name of Bank: _____________________________________________ Name of participant: _________________________________________ Signature: ________________________________________________ Date: _____________________________________________________

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