Strategic

Management

2016

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Acknowledgement

This would not have become a success without the contribution of many. And I make this the

opportunity to thank all of them who gave the support.

I would like to extend my sincere gratitude to ………………………. for her guidance and

constant supervision in completing the project.

Also I like to express my special gratitude and thanks to industry persons for giving me such

attention and time by providing necessary information regarding the project.

My thanks and appreciations also go to my colleague in developing the project and people

who have willingly helped me out with their abilities.

Thank you.

………………

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Table of Contents

Acknowledgement ..................................................................................................................... 1

List of Tables & Figures ............................................................................................................ 3

Introduction ................................................................................................................................ 4

1. Demand change in the organizational Environment .............................................................. 4

2. Early signs demand change in the ABC Bank ....................................................................... 7

3. Internal organizational changes needed to benefit from the demand change. .................... 10

04. Influence of the organizational culture and leadership in change management ................ 12

4.1 How to implement the change effectively...................................................................... 12

4.2 Recommendations for a better change management plan .............................................. 13

05. Critical review of various schools of thought on strategic management ........................... 13

06. Conclusion ......................................................................................................................... 15

References ................................................................................................................................ 15

Books .................................................................................................................................... 15

Journal article ....................................................................................................................... 16

Web ...................................................................................................................................... 16

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List of Tables & Figures

Figure 1 - No of Domestic banks in Sri Lanka .......................................................................... 5

Figure 2 - Increase of Import activities during last 5 years ....................................................... 7

Figure 3 - Increased of inflation rate.......................................................................................... 8

Figure 4 - US Dollar per 1 Sri Lankan Rupee ........................................................................... 8

Figure 5 - the GDP of the country. ............................................................................................ 9

Table 1 - Advancement of Technology ..................................................................................... 6

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Introduction

ABC Bank is a leading government bank which established in 1961.It operates in order to

increase the economic development of the nation and it has won several awards for its

excellent service over last five decades. For example, it has awarded with Slim Nielsen

Award as the best bank of Sri Lanka since 2007 continuously. Bank is having AA+ credit

rating according to the Fitch rating .ABC bank’s vision is to “To be the bank of the aspiring

people of Sri Lanka empowering people to become value creating competitive and self-

reliant.”

ABC Bank is operating all over the country by operating about 739 Branches. Widely spread

branch network act as a core competency for the bank. Bank provide many services like

maintenance of various accounts, pawning facilities, loan facilities, consultancy services etc.

(ABC Bank, Annual Report 2014/15)

Bank’s current brand position is in a good situation where most of the customers holding

hands together with the bank for their daily banking needs like paying utility bills, Depositing

money etc. Among other banks available in Sri Lanka ABC bank is having a good brand

image over customers because of the fully government owned bank. Because of this bank has

been able to gain the trust of the customers and to become the pulse of the people.

When consider the growth bank has recorded the highest profit before tax of 17.2 billion in

2014. It is a 61.3% incensement when compared to year 2013.Reason for this incensement is

introduction of mobile banking, new savings methods like wealth planner, Introduction of

green banking and diversification of its branch and ATM network.

The strategic purpose of the AB Cbank is to being the pulse of the people with great customer

focus, empowerment of employees and building integrity towards its customers

1. Demand change in the organizational Environment

ABC bank is having more competition over finance market from various banks like Sampath

bank, Commercial bank and from the financial institutions which operates within the country.

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And also with the globalization and the technology advancement diversification of the bank

activities by establishing foreign branches has been increased. Some of the competitors of the

ABC bank like Bank of Ceylon, HSBC, and Standard Chartered are already operating in

other foreign countries as well. (ABC Bank, Annual Report 2014/15)

In order to compete with the challenging environment, the factors for the change in demand

should be identified carefully. (Hill, Jones, 2012)

Increase of number of competitors in the market.

Banking and fiancé industry is highly competitive and the barriers to enter are very low. With

that there are lot of competitors compete with in the same market for the same customer base.

With the increase of competition, the value of the customer’s increase and the expectations of

the customers may increase. At the end of 2014 Sri Lanka had 25 licensed commercial banks,

9 specialized banks and 48 finance companies. (senergyy.com)

Figure 1 - No of Domestic banks in Sri Lanka

Advancement of Technology

Technology is changing rapidly and in order to survive in the industry bank

should response to the technology advancements quickly. Customers in the

22

22.5

23

23.5

24

24.5

25

25.5

2011 2012 2013 2014

No of Domestic banks in Sri Lanka

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foreign countries also try to fulfill their needs with the advancement of

technology. With the technology the demand for the new and innovative

services will increase.

Table 1 - Advancement of Technology - (ABC Bank, Annual Report 2014/15)

Source:

Increase of customer expectations

Not like in the past today customer expectations are very high and they are

engaged in lot of foreign activities and businesses. They like to work with the

diversified bank all over the world in order to fulfill their requirements quickly

and easily. It is difficult and time consuming to do banking activities with a

locally developed bank when they are doing business internationally.

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Figure 2 - Increase of Import activities during last 5 years - (ABC Bank, Annual Report 2014/15)

Increase of educational level of the customers

Unlike in the past today customers are well educated and they also completed

with the knowledge on the banking activities, process and the technology

advancements. With that they tend to do international transactions and travel

from country to country in order to do business transactions and other

transactions. Because of that the demand for an international branch increase.

Mergers and Acquisitions

Government proposed some mergers and acquisitions with in the finance

market in order to strength the finance market in Sri Lanka in order to survive

in the mergers and acquisitions banks introduced advanced services to its

customers and internationally accepted facilities to its customers. This will

lead to increase the demand further.

Emerging trends in the banking industry

The trend in the banking sector is to spread bank’s ATM and branch network.

Banking industry is highly competitive and banks are competing for the same

customer base. In order to survive in the banking industry banks should spread

its branch network locally as well as internationally. ABC bank is having the

largest branch network in Sri Lanka so it is good to look at the international

market in order to grow further

2. Early signs demand change in the ABC Bank

Effect of globalization

Under the theme of globalization, the world became to a one global platform. With that the

communication, change of money, goods became an easy task. With the globalization the

demand for internationally spread banks increased.

Increased off inflation rate and the Exchange rate

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Figure 3 - Increased of inflation rate

At the end of December 2015 the inflation rate is 2.8% and it is expected to rise further to

2.97% during next 4 years. With the higher rate of inflation rate the Sri Lankan rupee is

depreciating rapidly compared to US $.

Figure 4 - US Dollar per 1 Sri Lankan Rupee

Because of the higher inflation and the deprecating rupee, both local and foreign investors not

like to invest in the Si Lankan banks because they will not be able to get a proper and

adequate return for their investment. And also for the businessmen who are engaged in

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import activities they will have to pay large amounts of rupees for their transactions and they

will face many risks like transaction risk and translation risk when they going to convert the

rupees to foreign currency. (Hill, Jones, 2012)

If the ABCbank is having international branches across the globe those importers can

maintain their accounts in foreign currency in the international branches and then it will help

to eliminate the transaction and translation risk.

Increase of economic growth of the country

After the war Sri Lanka was able to keep its economic growth rate in between 5%-7% .At the

first quarter of 2015 has recorded a growth rate of 6.4% and the expectation of the Central

bank is to increase this to 7% at the end of 2015.

Figure 5 - the GDP of the country.

With the increasing economic growth rates ABCbank can diversify its business to

international stage and it will help to develop the bank as well as the GDP of the country.

Government Support

Since ABCbank is a government bank the government will always provide the back support

for its growth. Not only that by being a state owned bank ABCbank will be able to enter

easily to the international market and foreign governments will always give its fullest support

to the bank in order to establish in the market. (Hill, Jones, 2012)

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3. Internal organizational changes needed to benefit from the demand change.

In order to implement the new international branch network ABCbank needs to do many

internal changes to its system. First it should select suitable counties to develop its market

internationally. With the global economic crisis in 2008 many well established foreign banks

like Lehman Brothers bankrupted. So the diversification to a new geographical region is a

challenging task. Because of that it should develop a proper strategic plan.

Bank should develop strategies at each level in order to implement the new strategy

successfully. That is 3 levels of strategies should be planed and decide carefully .Business

strategy is about how an organization approach a particular product or market area (CMA

Study text,2014).Under this it get the basic depictions like what are the facilities going to

develop and offer etc.

Under the functional level it needs to develop functional level plans like marketing plans and

budgets for the international branch development ,HR plans for the human resource

recruitment and development, Information and technology developments that needs to

develop in order to facilitate the communication and connection between local branches

should be developed.

In the corporate level strategy the scope and the activities that needs to understand how the

strategic change impact to the bank as a whole will decide .Further the time scale, resource

need and funding requirements also decide at the corporate level.

Because of that, ABCbank need to develop the three strategies carefully in order to

successfully implement the international branch in order to response to the demand

incensement.

The organizational structure also need to change. It needs to create a divisional structure

based on the geographical structure. Because ABCbank is having many branches in Sri Lanka

and when it going to open up branches in the international market it is good to establish

divisional structure. Where, each geographical division has access to a full set of functions

that it needs to provide its services (CMA Study text, 2014) .Because of this divisional

structure it will facilitate the team work and enable quick decision making. But the local and

the international divisions should be connected to the head office in Colombo and the both

divisions should be monitored continuously and should keep a strong communication with

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them. In the International divisions it needs to establish separate functional areas like HR,

Marketing, IT in order to keep and facilitate a smooth service to its customers. (Hill, Jones,

2012)

ABCbank has to implement the change using the McKinsey’s 7S model. Where, it needs to

manage the hard and soft elements appropriately.7S model stands for Strategy, Structure,

system, and shared values, Skills, Styles and the Staff.

In those the Soft elements are difficult to manage and it needs to manage wisely. Out of 7

shared values, Skills, Styles and the Staff are considered as Soft elements. Since ABCbank is

very much adopted to the local culture, with the expansion there can be some impact to the

shared values of the bank like culture, goals etc. So the change should be mange carefully.

And also the employees will not be like for the expansion and them many resist against the

expansion. Staff should be managed carefully and the resistance should be managed. The

leadership style also needs a change and the leadership style should also develop in line with

the foreign counties environment and the culture.

Other hard elements also managed carefully in order to implement the change successfully. In

order to implement the change successfully using the 7S model first ABCbank should

identify the Seven elements according to the current situation and then needs to identify the

expected situation in the future and the gap between expected and the current situation should

be adjust by making changes to the hard and soft elements.

Entering to the foreign market

This is a key factor that needs to heavily consider about. When entering to a foreign market

ABCbank should consider about the political situations, financial market and the rules and

regulations of the countries. It should enter to the agreements with the foreign governments

and other financial and legal bodies in those counties.

Evaluate the change implementation

After the change has been implemented then it need to evaluate whether the change

implementation done correctly or not before going further. Because if the change not

implemented successfully there can be resistance and failures happen.

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04. Influence of the organizational culture and leadership in change

management

Because of the suggested strategic change in order to cater the increase of demand there can

be some cultural and leadership changes needed within the bank.

Opening up branches in foreign countries is a huge task and because of that ABCbank need to

change its existing leadership structure. Currently its leadership style is centralized and

decisions taken by the top management will be communicated to branches around the country

via divisional and regional heads. With the new strategy it is difficult to communicate with

the Colombo head office all the time when it needs to take an immediate decision. The

decision making power should delegate to foreign entities and a separate team should appoint

in order to monitor and coordinate activities in the foreign branches.

The culture of the ABCbank is very much related with the rural and traditional cultural

values. For example ABCbank is not recommended to wear professional attars to its female

employees instead of that they need to wear sarees. The cultural values of the ABCbank will

contradict with the foreign culture and it will need to do cultural changes to the ABCbank

existing culture. (Hill, Jones, 2012)

Bank needs to collaborate with the foreign governments, regulatory bodies and the Central

bank of Sri Lanka, in order to successfully establish the foreign branches in foreign countries.

It needs to create an effective communication between the all the branches of Sri Lanka and

foreign entities in order to avoid any resistances and other misunderstandings.

4.1 How to implement the change effectively

The change is a big turning point of ABCbank. In order to effectively implement the change

it needs to plan the change properly. To identify the countries where ABCBank is going to

establish branches a though environmental analysis should be done using PESTEL, SWOT,

Resource analysis etc.

For the project implementation a separate project team should be establish with the

knowledgeable people in the fields of finance, marketing, risk, legal, HR etc. The project

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meetings should be conducted frequently with the board of directors and with the top

management of the Bank.

Funding for the project is a big issue and ABCbank should negotiate with the Sri Lankan

government and the foreign governments for the funding needs. And also bank can consider

strategic growth options like entering to joint venture activities with foreign banks or

governments, mergers etc.

A separate risk committee should be establishing in order to assess the risk of the new

strategy implementation and to avoid the failures of strategy implementation.

4.2 Recommendations for a better change management plan

In order to implement the change management plan effectively bank needs to get some

actions. One is implementation of a proper communication system .By establishing an

effective communication system it will help to understand and get to know the difficulties of

new strategy development. With an effective two way communication it will help to provide

better understanding and better communication between the top management, employees and

the foreign branch network.

Get participation of employees for the new strategy implementation and planning is another

way to manage the change effectively. Employees of the local branches may resist against the

change because they will think that their bonuses and the job security will be compromised.

In order to avoid and manage the resistance of employee’s bank can get the participation of

the employees by getting their ideas on the strategy development.

Management of culture effectively is another way to plan the cultural change. By adopting to

the different cultural situations without harming to the designed values of the bank cultural

change can be done. By adapting and adjusting activities according to the cultural

requirements it will lead to create the cultural fit between countries.

05. Critical review of various schools of thought on strategic management

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There are many schools of thought that suggest how strategies should be formulated in order

to successfully run a business. There are many gurus who have formulated school of thoughts

on strategic management like Mintzburg, Whittington etc.

Mintzburg has introduced 10 schools of thoughts.

Design school is a concept about strategy should be formulated using tools and techniques

like SWOT analysis. The Planning School and position schools focus on analysis of the

current business situation and the current position. Descriptive school suggests how strategies

are actually made. The Entrepreneurial School suggests organizations following this concept

have a visionary leader .The Cognitive school suggests that organizations should formulate

strategies by considering psychological needs of the customers. Learning School suggests

that organizations following this concept formulate their strategies by learning from their

mistakes.

Power and culture schools state that when developing a strategy organizations should develop

in accordance with the power of the organization and its culture. (Nabil, 2013)

Whittington also developed school of thought for strategic management in four different

perspectives. They are classical, procession, evolutionary and systemic.

Classical thought suggests that strategies are formulated very formally with the objective of

profit-maximization .Procession strategies are formulated with unclear objectives. This

strategy is more suitable for the risky organizations. Evolutionary strategies are formulated

with survival as their objectives. Systemic strategies are formulated with local adoption as

their objectives. Strategy is a one of the main aspect that can lead organization to success or

failure. So the correct strategic formulation is very important. If the strategic formulation not

done correctly it will lead to incur huge losses and cost for the organizations. Strategy is one

of the critical success factors of and organizations. There are many schools of thoughts

designed by many gurus in order to help organizations to formulate a strategy successfully.

The ten schools of Mintzberg which consists of both Prescriptive and descriptive schools

show different ways that strategy can be formulated in a successful way. Whittington’s

perspective of strategies shows what are the factors and things that should consider when

creating a strategy. This different school of thoughts is very important and that school of

thoughts can be use as a guideline for strategy formulation.

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06. Conclusion

ABCbank has identified that there is demand for the foreign branches from the businessmen

who are doing international transactions frequently and from the employees in foreign

counties in order to fulfill their banking needs. In order to cater this demand ABCbank is

going to establish foreign branches in selected countries. This is a very huge project and it

needs lot of capital, structural, leadership, and cultural change. Bank first needs to identify

the demand forces and should successfully develop strategies to cater the demand forces and

the strategic change should be done carefully with an effective change management practices.

There are number of schools of thoughts on strategic management and each thought of

schools concerns on specific aspect related to strategy formulation.

References

Books

Hill, C. and Jones, G., W.L, (2012), Strategic Management: An Integrated Approach. 5th ed.

USA: Cengage Learning.

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Smillie, I. and Hailey, J.M., M, (2001), Managing for Change: Leadership, Strategy, and

Management, 1st ed. USA: Earthscan Publication.

Thompson, J.L. and Martin, F., (2010), Management: Awareness & Change. 6th ed. UK:

Cengage Learning EMEA.

Tichy, N.M., 2000, Managing Strategic Change: Technical, Political, and Cultural

Dynamics, 4th ed. UK: John Wiley & Sons

Varbanova, L, 2013. Strategic Management in the Arts, 1st ed. Oxon: Simultaneously

published in the UK by Routledge

Journal article

Covin, J. G. and Slevin, D. P (1999), Strategic management of small firms in hostile and

benign environments Strat, Mgmt. J., 10: 75–87.

Ketchen, D. J. and Shook, C. L., S, 2000, Strategic Management, The Application of Cluster

Analysis in Strategic Management, Volume 17, Issue 6, pages 441–458.

Hulland, J. (2005), Use of partial least squares (PLS) in strategic management research: a

review of four recent studies. Strat. Mgmt. J., 20: 195–204

Web

Introduction to Management, 2015, Strategic Management: Formulation and Implementation.

[ONLINE] Available at: http://www.introduction-to-management.24xls.com/. [Accessed 09

July 15].

Management Study Guide, 2015, Strategic Management - Meaning and Important Concepts,

[ONLINE] Available at: http://www.managementstudyguide.com/strategic-management.htm.

[Accessed 08 July 15].

ABC Bank. 2015, Annual Report 2014/15 People's Bank. [ONLINE] Available

at:http://www.ABCbank.lk/. [Accessed 08 January 16].

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