Adel's Thesis Presentation Final

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بسم الله الرحمن الرحيم

In the Name of Allah The Most

Compassionate, The Most Merciful.

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Presented by:

For partial fulfillment of the requirements for Master degree in

Islamic FinanceSupervisor:

EFFECT OF STRATEGIC

MANAGEMENT PRACTICES ON

ISLAMIC BANKS’ PERFORMANCE EVIDENCE FROM QATAR

Adel Mohammed Abou Dahab Mohammed

Prof. Dr. ElSayed El Siefy

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1. Preface• There are many studies have been conducted to explore the relation/impact between strategic management practice and performance but there is no research investigated this relation in the GCC region. • In this research, we examined the strategic management practices in the Islamic Banks and its impact on their performance within the state of Qatar. • This includes to what extent it is applicable, what are the implications of applying it, and the consequences of the no-application. •We combined in our research between both strategic management framework and financial ratios analysis.

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2. Research Problem

• A study has been conducted by K.K. Siraj and P. Sudarsanan Pillai during 2005-2010 showed that Islamic banks net profit ratio is lower than the conventional banks even though both market shares and asset growth have increased in the same period.• Similarly, a study conducted by El Siefy 2013 during 2006 – 2010 showed that Islamic banks’ market share has increased and maintained stronger asset growth, credit growth comparing to the conventional banks before and after the financial crisis. In addition, he stated that there was a slowdown in Islamic banks’ profitability after the crisis and a significant low performance over most of the period of the research comparing to the conventional.

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2. Research Problem

• Another study by Linet Njagi and Henry Kombo, 2014 showed that there is a moderately strong relationship between strategy implementation and organizational performance in commercial banks in KENYA.• This has led to the following questions; what are the

performance intra Islamic banks? How is it? Based on what? Whether Islamic banks are systemically applying strategic management in their policies or not?• Since It is clear that Islamic banks show low performance,

and there is an impact/relation between the performance and strategic management.• This has led to make an attempt to find whether there is a

negative or positive relationship between the performance and the practice of the strategic management or not in Islamic banks.

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3. Research Questions ???• The research tried to answer the questions of:-• Do Islamic banks apply and practice the strategic management or not?• Do Islamic banks’ performance affected by the implementation of strategic management or not?•What are the implications of applying strategic management?

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4. Importance and Aim of the Research

• First, Academic dimension;

• The researcher has observed no study related or investigated the

application of strategic management practice in Islamic banks

and its effect on performance in “Qatar as one of the world’s

main hubs for Islamic financial “ (QCB Governor).

• In addition, will provide an important benchmark for future

research and the replication of this research would enhance and

contribute in providing a considerable understanding of strategic

practices in Islamic banks.

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4. Importance and aim of the Research

• Second, Practical dimension;

• The study will participate in the development and enhancement of Islamic banks’ performance.

• Moreover, will give an insight knowledge and experience on how Islamic banks practice strategic management and will highlight the effect of it in this emerging industry.

• Explore the idea of the application of strategic management in Islamic banks to be more competitive and improve its performance and profitability to strengthen the fact the more the Islamic banks expand and grow the more their impact in the national economy and GDP. Eventually this leads to the optimal welfare of the whole society and meet the objectives of the Sharia’.

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5. Hypothesis• In This Research We Tested the Following Hypothesis:-

• H1: Islamic banks don’t practice strategic management.

• H2: There is no effect of the strategic management on

banks’ performance.

• H3: Strategic Management is not an important tool to be

used in Islamic banks?

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6. Source of Data• In this research we adopted the data available through the below sources:-• Secondary data;

• Islamic Banks reports and statistical data• Central Bank data statistics• Stock Market reports• Primary data;

• Literature Review• Close-ended questionnaire (Derived from Elbanna 2013 &

Pachsiry).• Personal interviews with Islamic banks’ CEOs.

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7. Limitation of the research•This research is confined to the State of Qatar and we cannot generalize its results. •The sample in this study is limited to four banks only, as a result we couldn’t use regression analysis or any other advanced analysis and we used only the mean (average).•During the research we faced difficulties to meet the CEOs of the Islamic banks due to their busy agenda and limited time which consume about more than 6 months to get the answers for the questionnaire.

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8. Research Process• The total population of the Islamic banks in Qatar is four

Islamic banks which is limited but give an indication for the total industry. This research selected all of them. • The process in this research pursued three steps;• Firstly, is the primary data through the literature review and theoretical framework in order to understand the definition and strategic management process.• Secondly, Interviews conducted with respondents who

are senior executives responsible for strategic planning or others who are considered suitable to respond on their behalf. In addition to a questionnaire answered by the same respondents.• Thirdly, this research calculated the financial ratios

which are measuring the performance of Islamic banks from 2010 - 2014.

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STRATEGIC MANAGEMENT PROCESS

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9. Strategic Management Process

Thomson (2012), Wheelen &Hungers (2006), Marten , F. (2010)

Strategic

Management

Process

STRATEGIC

ANALYSIS

STRATEGIC

FOURMULATION

STRATEGIC

IMPLEMENTATION

STRATEGIC

CONTROL AND

EVAULATION

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9.1 STRATEGIC ANALYSISExternal

Environment

Internal

Environment

VisionMission

Values

Lead to the appropriate identification of bank’s

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9.1.1 External Environment Factors: Remote Environment • PESTEL

Operating Environment

• Competitors• Creditors• Customers• Labor• Suppliers

Industry Environment

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9.1.1.1 Remote Environment (PESTEL)

ORGANIAZATION

POLITICAL

ECONOMICS

SOCIOCULTURE

TECHNOLOGICAL

ENVIRONMENTAL

LEGAL

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9.1.1.2 Industry Environment

COMPETITIVE

RIVLARLY

POTENTIAL ENTRANTS

BUYERS

SUBSTITUTES

SUPPLIERS

Bargaining Power

Threats of entry

Threats of Substitutes

Bargaining Power

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9.1.2 Internal Environment:- 1. ResourcesoTangible:- Financial, Organizational, Physical and Technologicalo Intangible Human, Innovation and Reputation

2. Capabilities used to fulfill the entity required tasks to produce and distribute the goods or services provided to the customer by the entity to create value for them.

3. Core competence1. Valuable, Rare, Costly to Imitate, Non-substitutable.2. Value chain analysis: the path upon which products or services

as value are added prior to reaching the end consumer o Inbound logistics: raw material, handling and warehousingoOutbound logistics (warehousing and distribution)oMarketing and salesoService: installation, repair, and sale of parts.

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9.1.2 Internal Environment:-

OutsourceValuable

Rare

Costly to Imitate

Non Substitutable

Strategic Competitiveness

Competitive Advantage

Core Competence

Capabilities

Resources

Tangible

Intangible

Four Criteria of Sustainable Advantage

Value Chain Analysis

Discovering Core competencies

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9.1.3 Vision: “What do we want to become?”“To be the UK’s first choice ethical, Sharia compliant bank” Rayan

The vision statement explains the characteristics of the business in the

future.

oThere should be three aspects to be included in the vision statement;

1. A core ideology which consists of a statement about the firm’s values and

“Reason for Being.”,

2. An envisioned future describes what the business will be like if it

achieves its most important goals, and

3. The recognition of service to stakeholders which shows how the

business serves and maximizes the benefits of its stakeholders

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9.1.4 Mission: “To provide innovative Sharia’ compliant financial solutions and quality services to our customers. To maximize returns for our shareholders and partners. To nurture an internal environment of qualified professionals and cutting-edge technology.” QIB

a) It determines, clarifies and describes the central purpose and the basic principles

that guide the actions of employees, partners, and management.

b) It illuminates which strategy you will use to polish off your goals and objectives.

c) For a good mission statement;

1. It will consist a formulation of objectives that enables progress towards them to be

measured,

2. It differentiate the entity from rivals,

3. It defines the business that the entity wants to be in, not necessarily is in,

4. It is relevant to all stakeholders in the firm.

5. It is exciting and inspiring

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9.1.5 Values

Values Define What Business Stands For

I. They are core rules.

II. They are entities ethical and moral that management holds

dear.

III. They are the compass guiding for staff, management,

decision making, and leadership in performing their duties.

IV. They are constantly referred to in the decision making

process

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9.1.5 Values Examples:

I. Principles or Standards

I. Sharia’ Compliance - Service Above Self – Be Prepared –Do a Good Turn Daily

II. Personal Qualities

I. Honesty – Communication – Being Organized

III. Character Traits

I. Islamic - Loyalty – Enthusiasm – Openness To Others – Dedicated – Prestigious -

Progressive

IV. Codes of ethics

I. Hippocratic Oath - Ten Commandments

V. Goals

I. Living a healthy Life - Caring for Others

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STRATEGIC FORMULATION

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9.2 STRATEGIC Formulation

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9.2.1 Business Level StrategyTo create distinction between the entity’s position and those of its competitorsCost leadership:To outperform competitors by doing everything it can to

produce goods or services at the lowest possible cost.• Low-cost-position relative to a firm’s peers.• Manage relationships throughout the entire value chain.

Differentiation:The differentiated product has the ability to satisfy a

customer’s need in a way that competitors cannot.Focus strategy:Directed toward serving the needs of a limited

customer group or segment.Cost Leadership and Differentiation Flexible manufacturing strategies make the choice between these two

strategies less clear-cut. The new flexible manufacturing technologies makes diversification

inexpensive for firms, allowing firms to obtain benefits of both strategies.

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9.2.1 Business Level Strategy

Bro

ad

Mar

ket

Nar

row

M

arke

t

Cost Leadership

Differentiation

Focused Cost leadership

Focused Differentiation

Integrated CostLeadership/

Differentiation

Cost Uniqueness

Com

petit

ive

Scop

e

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9.2.2 Corporate Level Strategy• Specifies actions a firm takes to gain a

competitive advantage by selecting and managing a group of different businesses competing in different product markets and applied levels of diversification.

Levels of diversifica

tions

Low Levels Of

Diversification

Moderate To High Level Of

Diversification

Very High Level Of

Diversification

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9.2.2 Corporate Level Strategy

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9.2.3 Functional Strategy• Functional strategy is the approach of functional area takes to achieve entity and business unit objectives and strategies by maximizing resource productivity.

Leadership Qualities:

Marketing Strategy

Financial Strategy

Research and Development

Strategy

Operation Strategy

Purchasing Strategy

Logistics Strategy

Human Resources Strategy Information

Technology Strategy.

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9.2.4 Co-operative Strategy: Strategy in which firms work together to achieve a shared objectives.

•Two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage

Joint Venture

•Two or more firms own a portion of the equity in the venture they have created

Equity Strategic Alliances

•Two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage.

Non-equity Strategic Alliances

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9.2.5 Sharia’ Compliance

Sharia’ Complia

nce

Laws

RulesRegulations

Policies and

Procedures

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STRATEGIC IMPLEMENTAT

ION

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9.3 STRATEGIC IMPLEMENTATION

STRATEGIC

Implementation

Corporate

Governance

Strategic

Leadership

Organizational

Strategy

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9.3.1 Corporate GovernanceEstablishing the roles of the board and senior executives

• Experience with a balance of skills and independence on the board appropriate to the nature and extent of company operations.

• There is a basic need for integrity among those who can influence a company’s strategy and financial performance, together with responsible and ethical decision-making which takes into account not only legal obligations but also the interests of stakeholders.

• Meeting the information needs of a modern investment community is also paramount in terms of accountability and attracting capital, presenting a company’s financial and nonfinancial position requires processes that safeguard, both internally and externally, the integrity of company reporting.

• Provide a timely and balanced picture of all material matters. • The rights of company owners, that are shareholders, need to be clearly

recognized and upheld. • Every business decision has an element of uncertainty and carries a risk

that can be managed through effective oversight and internal control.

• Rewards are also needed to attract the skills required to achieve the performance expected by shareholders.

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9.3.2 Strategic Leadership

Senior level management involved in quality

improvement efforts.

Strategic leadershi

p

Planning

Communicating

Changing

Measuring

Monitoring

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9.3.2 Strategic Leadership: Leaders Qualities

Leadership

Qualities:

Navigator

Strategists

Talent Advocate

Captivator

Global Thinker

Change Driver

Enterprise Guardian

Mobilize

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9.3.4 Organizational Strategy

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STRATEGIC CONTROL

AND EVAULATION

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9.4 STRATEGIC CONTROL AND EVAULATIONCompare actual performance with the expected

performanceo Benefits of strategic evaluation and control:-• They provide direction by enabling management to

make sure that the organization in heading in the right direction and corrective actions are taken when needed.• They provide guidance to everyone either the

managers or workers showing what is happening, performance to the expected and performance improvement needs.• They inspire confidence, information about good

performance inspires confidence in everyone and leads to better performance.

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FINDINGS OF

FINANCIAL RATIOS

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10. Financial RatiosoReturn on Assets: Net Income/Total Assets

Return on assets is the ratio of annual net income to average total assets of a bank during a financial year.

oReturn on Equity: Net Income/Total Equity Return on equity or return on capital is the ratio of net income of

a bank during a year to its stockholders' equity during that yearoReturn on Investment: EBIT/Total Assets

Return on investment is the benefit to the investor resulting from an investment of some resource

oDebt to Equity Ratio: Total Debt/Total Equity The debt-to-equity ratio is a financial ratio indicating the relative

proportion of shareholders' equity and debt used to finance a company's assets.

oTotal Debt Ratio: Total Debt/Total Assets Debt ratio is a solvency ratio that measures a bank’s total liabilities as a

percentage of its total assets.

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11.2.2 Findings of Financial Ratios

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FINDINGS OF STRATEGIC

MANAGEMENT PROCESS

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11.1 Findings of Strategic Management Process

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Findings of Strategic Management Process

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OVERALL FINDINGS

STRATEGIC MANAGEMEMENT

& RATIOS

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11.1 Findings of Financial Ratios

PARTICULARS ROE ROA ROI D/E TDR

OVERALL STRATEGIC

MANAGEMENT PRACTICE

RAYAN 14.94% 2.93% 4.00% 62.12% 12.21

% 87%

QIIB 14.63% 2.73% 3.87% 126.13% 22.76

% 56

QIB 12.59% 2.15% 2.85% 232% 39.73

% 79

BARWA 7.02% 1.48% 2.27% 135% 30.67% 77

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11. Findings & Results

• Performance Indicators and strategic management practice process

show that there is a clear positive relation between the practice of

the strategic management and the performance. This relation can

be observed clearly in Rayan bank which has the highest score 87%

in terms of overall strategic management practice, and also the

highest score with regard to financial indicators, return on equity,

return on assets, and return on investment. In addition it has the

lowest score in terms of debt to equity, and total debt ratio.

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• The result of QIIB is not matching with the aforesaid

result and we return this to a non-specialist answers

to our questionnaire because we received the answers

through the email and we have doubt that the person

who answered it seems not from the senior

management or a decision maker. In addition, we

wouldn’t be able to meet anyone of the bank’s neither

the CEO or any senior management representative.

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• By excluding QIIB from our sample due to the aforementioned

reason the results shows clearly that there is also a clear

positive relation between the practice of strategic management

and the financial performance for QIB and Barwa. QIB bank

ranked in the second place in both overall strategic

management practice and return on equity, return on assets,

and return on investments ( which are the most significant

indicators when measure the performance), Whereas, Barwa

ranked in the third place for the same indicators.

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• The result of this research is compatible with the study of

Robert Arasa, (2012), David (1997), Greenley, Hofer, (1986),

Henderson, (1979), and Schendel, (1978) that companies

record improved performance once they effectively

embrace strategic planning.

• study by Linet Njagi and Henry Kombo, 2014 showed that

there is a moderately strong relationship between

strategy implementation and organizational

performance in commercial banks in KENYA.

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12. Recommendations

• As long as all Islamic banks except for QIB don’t have a specific department

for strategic planning, we recommend highly Islamic banks to have an

assigned department to carry over the responsibility of strategic

management within each bank.

• Moreover, provide this department with the talented personnel in order to

attain the most benefit from practicing strategic management which will be

translated into the bank’s performance. This will lead to attract more

sectors and clients. Ultimately, this for sure will enhance the whole

industry.

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12. Recommendations

• In addition, expand the research to include Islamic banks in the

GCC region to have clearer vision on the practice of the strategic

management within the working emerging banks in this territory.

Since we can’t generalize the results of this research because of

the small sample included in the study.

• Similarly, explore if there are any other factors affecting the

performance of the Islamic Banks in addition to the strategic

management.

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Thank You

Documents

Adel's Thesis Presentation Final