An Evaluation of Strategies for Achieving Competitive
Advantage in the Banking Industry. The Case of Ghana
Commercial Bank Limited.
By
Lawrence Awuah (BSc. Hons.)
A Thesis submitted to the Institute of Distance Learning,
Kwame Nkrumah University of Science and Technology in
partial fulfillment of the requirements for the degree of
Commonwealth Executive Master of Business
Administration
Institute of Distance Learning
September 2011
1
CERTIFICATION
I hereby declare that this submission is my own work towards the Commonwealth
EMBA and that to the best of my knowledge, it contains no material previously
published by another person nor material which has been accepted for the award of
any other degree of the University, except where due acknowledgement has been
made in the text.
Student
……………….
Date:
Lawrence Awuah
…………….
Supervisor:
………………………..
Date:
Stephen Akwasi Kyeremateng
………………
Professor I.K. Dontwi:
……………………..
Date:
Dean, Institute of Distance Learning
…………………
2
ABSTRACT
Competition is a fact of business life, unless a business can develop strategies to
compete successfully in the market place, it has practically no chance of growth and
would remain a tiny firm performing far below its potential. In an increasingly
competitive banking industry in Ghana, the absence of well-defined competitive
strategies leads to weak competitive positions and hence performance below the
industry average. The purpose of this study is to examine the competitive strategies
adopted by banks to achieve competitive advantage in the banking industry in Ghana
with Ghana Commercial Bank as a case study. Both primary and secondary data were
sourced and used for the analysis of the study. Primary data was collected using
interviews and questionnaires on a purposive sample of 400 staff. Secondary data
was collected from Annual Reports of GCB for five years from 2005 to 2010, GCB‟s
internal newsletters The Eagle and Commerbank News etc and the Business and
Financial Times. The study revealed that the bank has drawn up several strategic
plans and religiously implemented them since 1990. It also came to the fore that the
bank enjoys competitive advantage in the industry, the most important factor
contributing to the competitive advantage, being the bank‟s extensive branch network.
The study recommended that the bank should improve its IT infrastructure, streamline
its loan application processes, train staff to be more customer-friendly and proactive,
de-congest the banking halls and serve customers faster all in a bid to meet and
exceed customer expectations and sustain the competitive advantage.
3
TABLE OF CONTENTS
Content
Title Page
Certification
Abstract
Table of Contents
vii
List of Tables
List of Figures
List of Appendices
List of Abbreviations
Acknowledgement
Page
i
ii
iii
iv viii
ix
x
xi
xiii
CHAPTER ONE
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
Introduction
Background of the Study
Statement of the Problem
Objectives of the Study
Research Questions
Significance of the Study
Scope of the Study
Limitations of the Study
Organization of the Study
1
2.0
2.1
2.2
2.2.1
2.2.2
2.2.3
2.2.4
2.2.5
2.2.6
2.3
2.3.1
2.3.2
2.3.3
2.4
2.4.1
2.4.2
2.4.3
2.5
2.5.1
2.5.2
2.5.3
2.5.4
2.5.5
2.5.6
2.5.7
CHAPTER TWO
The Concept of Strategy
12 - 15
Levels of Strategy
15 - 16
The Concept and Evolution of Strategic Planning
16 - 18
Mission, Vision, Goals and Objectives
18 - 19
Mission Statement
19
Vision Statement
19
Goals and Objectives
20
The Relationship between Strategic Planning and Performance
20 - 22
The Impact of Strategic Planning on Performance
22 - 25
Competition
25 - 26
Competitive Advantage
26 - 27
Sustaining Competitive Advantage
27 - 28
Sources of Competitive Advantage
28
Porter‟s Generic Competitive Strategies
28 - 29
Cost Leadership
29 - 31
Differentiation
31 - 32
Focus
32 - 33
Competitor Analysis
33 - 34
Competitor Array
34 - 35
Competitor Profiling
35 - 39
Drivers of Competition among Banks
40 - 41
Effects of Competition on Banks
41 - 42
Effects of Competition on Lending by Banks
42 - 44
Effects of Competition on Profits and Deposits of Banks
44
Branch Network and Competition
45 - 47
3 -4
4-6
6-7
7
7-9
9
9 - 10
10 – 11
4
2.5.8 Competition and ICT in the Banking Industry
2.5.9 Competition and Customer Service
2.6
Winning Customer Service Strategies
2.6.1 Service Strategy and Competition
2.6.2 Customer-Friendly Systems and Competition
2.6.3 Customer-Friendly People and Competition
2.6.4 Theoretical Frameworks
2.7.4.1 Competition and Time
2.7.4.2 Competition and Efficiency
2.7.4.3 Competition and Lending
2.8
The Origin of Banking
2.8.1
2.8.2
2.8.2.1
2.8.2.2
Banking in Ghana
Overview of Ghana Commercial Bank (GCB)
Mission of GCB
GCB‟s Corporate Values
4.0
4.1
4.1.1
CHAPTER THREE
Methodology
Introduction
Research Design
Population
Sample and Sampling Procedure
Sources of Data
Primary Data
Secondary Data
Data Collection Method
Questionnaire
Method of Data Analysis
CHAPTER FOUR
Introduction
Demographic Background of Respondents
Gender of Respondents
4.1.2
4.1.3
The Range of Ages
The Number of years worked
3.0
3.1
3.2
3.3
3.4
3.5
3.5.1
3.5.2
3.6
3.7
3.8
47 - 49
49 - 50
50
50 - 51
51 - 52
52
52
52 - 53
53
53
54 - 56
56 - 59
59 - 61
61
61 - 62
63
63
63
64
64 - 66
66
66
66 - 67
67
67 - 68
68
69
69 - 70
70 - 71
71 - 72
72 - 74
74 – 75
75 -76
76 – 79
79 - 80
80 - 81
4.1.4 Current Position Held
4.2
Information Systems
4.3 Competitive Advantage
4.4
Image and Reputation
4.5
Profitability
CHAPTER FIVE
5.0
Introduction
81 - 82
5.1
5.2
5.1
Summary of Findings
Recommendations
Conclusion
81- 83
83-85
85-86
5
5.3
Suggested Areas of Further Research
References
Appendices
6
87
90-97
98 -105
LIST OF TABLES
Table 2.1: A Table showing an illustration of a Competitor Array
35
Table 4.1.1: A Table showing the gender distribution of respondents
72
Table 4.1.2: A Table showing the ages of respondents
74
Table 4.1.3: A Table showing the length of service of respondents
75
Table 4.1.4: A Table showing the most important strategies to GCB
80
Table 4.1.5: A Table showing GCB‟s performance on Image/ Reputation
81
Table 4.1.6: A Table showing GCB‟s performance on Profitability
82
7
LIST OF FIGURES
Figure 2.1: The Three Generic Strategies
29
Figure 4.1: A bar chart showing the gender ratio of respondents
73
Figure 4.2: A bar chart showing the ages of respondents
74
Figure 4.3: A bar chart of length of service of respondents
75
Figure 4.4: A pie chart showing positions held by respondents
77
8
LIST OF APPENDICES
Appendix 1: Questionnaire for Management and Staff
9
93 - 100
LIST OF ABBREVIATIONS
AR
Activity Ratios
ATM
Automated Teller Machine
BBG
Barclays Bank Ghana Limited
CEO
Chief Executive Officer
EBG
Ecobank Ghana Limited
EFTPOS
Electronic Funds Transfer at Point of Sale
EZWICH
Brand name for Ghana‟s National Payment Platform
GCB
Ghana Commercial Bank Limited
GDP
Gross Domestic Product
LR
Liquidity Ratios
SME
Small and Medium Scale Enterprise
SCB
Standard Chartered Bank
SG-SSB
Societe General- Social Security Bank
SRR
Shareholders‟ Return Ratios
FINSAP
Financial Sector Adjustment Program
NIB
National Investment Bank
PMSU
Professional and Managerial Staff Union
PR
Profitability Ratios
ROI
Return on Investment
WAN
Wireless Area Network
10
ACKNOWLEDGEMENT
I am grateful to the Almighty God for seeing me through the MBA course, without
Him my efforts would have come to naught. My Supervisor, Mr. Stephen A.
Kyeremateng deserves special praise for agreeing to supervise this project and for his
insight. To Mr. Ernest Agyei, your secretarial expertise and invaluable support is
highly appreciated
I wish to acknowledge my employers, Ghana Commercial Bank Limited for
encouraging staff to upgrade their skills and competences, I thank all the staff who
answered questionnaires used in this and all those I interviewed. Finally, I wish to
thank all the people who in diverse ways assisted me in this project.
`
11
CHAPTER ONE
GENERAL INTRODUCTION
1.0
Introduction
Every industry including banking has an underlying structure or a set of fundamental
economic and technical characteristics which give rise to competitive forces. A firm
can clearly improve or erode its position within an industry through its choice of
strategy. Competitive strategy, then, not only responds to the environment but also
attempts to shape the environment in its favour (Porter, 1985).The strategist must
therefore seek to position his or her firm to cope best within its industry environment
or to influence that environment in the firm‟s favour.
The Ghanaian banking industry has witnessed an unprecedented entry of seventeen
(17) banks between 1990 to 2009 (Ghana Banking Survey,2009 ), notable among the
new entrants are Ecobank Ghana Limited, Stanbic Bank, UT Bank, Unibank,
Amalgamated Bank, United Bank for Africa and Zenith Bank to mention a few. There
are currently 26 banks operating in Ghana, with the attendant jostling for positions,
market share and profits. Competition is at the core of the success or failure of the
Ghanaian banking industry, and the influx of new banks onto the banking scene
means Ghana Commercial Bank can no longer invest in short term government
securities , fold her arms and expect excellent financial performance at the end of the
year.
The industry is characterized by intense competition, serious poaching and luring of
talented personnel from one bank to the other.There has been the introduction of
innovative technology-driven products which are more customer-friendly.Various
12
products have being designed to suit different categories of customers.The Banks
indulge in the use of strong and persuasive marketing communication efforts to
promote their products, although bank products offered by competitors seem alike.
New products and services are easily replicated by rivals. The only difference is the
quality of service and the charges levied by various banks.
All the banks are now licensed to carry out universal banking. They offer loans and
overdrafts, export and import financing, corporate finance and facilities for small and
medium scale enterprises (SME‟s). The previous regulatory regime which categorized
banks into Commercial, Investment and Development banks is no longer applicable
thereby increasing the level of competition, as each bank can venture into any area of
activity.Ghana Commercial Bank is one of the industry leaders in terms of market
share, quality human resource and solid financial assetsbase.
The countrywide dispersion of computer networked branches, product quality and
diversity, wide investment portfolio, and very importantly responsible corporate
citizenship activities have contributed in part to the monopoly it enjoys as banker to
most state and quasi-government organizations. The landscape of the Ghanaian
Banking industry has however, seen dramatic changes in the last decade (2000-2010).
New companies both local and foreign (particularly from Nigeria and South Africa)
have emerged, some as start-ups,others through mergers or acquisitions.
The liberalized economic environment as mentioned earlier has lead to the influx of
banks hence, the need to assess the effectiveness of Ghana Commercial Bank‟s
13
competitive strategy. On this premise, the concepts ofcompetitive edge over other
players, its importance and impact on corporate performance are now considered.
1.1
Background of the Study
Strategic management exponent Toffler (2003) writes that a company without a
strategy is like an airplane weaving through the skies, hurled up and down, slammed
by winds and lost in the thunder heads. If lightning or crushing winds do not destroy
it, it will simply run out of fuel. In similar line of thought, Ross et al (2000) note that
without strategy an organization is like a ship without a rudder. It goes round in
circles and like a tramp has no specific place to go.
Clearly, these statements emphasize the importance and need for far reaching
dynamic and systematic strategic planning for companies to survive competition in
the ever changing global competitive business environment. Ansoff (1970) argues that
planning generally produces better alignment and financial results in companies
which are strategically managed than those which are not. This suggests a seeming
correlation between strategic planning and the ultimate performance of a company in
terms of its growth, profits, attainment of objectives and sustained competitiveness
(Strickland, 2004).
Though these assertions are largely true, Pitts et al (2003) affirm that exceptional
situations also arise when some companies gain not because they had in place any
strategy but because they just benefited from some sudden conditions in the external
environment. For example, after the September 11, 2001 terrorist attack on the World
Trade Centre, Pentagon and in Pennsylvania all in the United States of America, air
14
travel within and across that country dropped drastically in favour of rail and road
transport which were thought to be safer. Rail and road transporter operators
therefore, enjoyed a sudden and unexpected boom.
Nonetheless, and still consistent with the need for evolving and constantly reviewing
strategy, it is important to note that having a sound strategy in itself does not
necessarily translate into desired performance goals if it is not properly implemented.
Both strategy and implementation must be good and timely to achieve positive results.
As for a company driven by wrong strategic planning, Malamud (2004) likens it to a
train on a wrong track saying, „„every station it comes to is the wrong station.”
These fundamental principles largely hold true for all industries globally and as
should be expected, the banking industry is also subject to the dynamics of these
global market trends. Against this background, the study looks at the competitive
strategies for achieving competitive advantage in the banking industry.
1.2
Statement of the Problem
The economic climate in Ghana over the last decade has been relatively stable for
banking business. This notwithstanding, not all the banks can be said to have
performed at levels that meet industry and stakeholders‟ expectations. Much as the
differences in the performance levels of various companies are to be expected, it is
still strongly believed that the strategies pursued by each bank largely account for its
performance. The absence of well-defined competitive strategies results in weak
competitive positions. This study looks at the competitive strategies beingpursued by
Ghana Commercial Bank Limited (hereafter referred to as GCB) to achieve
15
competitive advantage in the banking industry of Ghana. Management plays thelead
role in strategic thinking, planning, decision-making and ultimate implementation of
policies and strategies. Unfortunately, some banks are perceived to have management
structures that overly limit the authority to make long-term strategic decisions to a
few key shareholders who may be limited in some ways. This obviously compromises
the richness and diversity of the banks‟ strategic planning agenda to the detriment of
corporate performance.
The fear of loss of ownership control is also speculated to have inhibited the
expansion of the capital base of some of the private banks. This under-capitalization
has posed challenges for the hiring and retention of the needed numbers and quality of
personnel, upgrading of technology and the financial capacity to insure big and
complex risks.
With the inception of the Financial Sector Adjustment Programme (FINSAP),
distressed banks have since the 1980s attempted to restore their profitability and
become more competitive. GCB witnessed an impressive performance within the
period immediately after the implementation of FINSAP, chalking 45% of the overall
industry profits in 1993. However, the period after 1993 has witnessed a declining
market share for GCB. The bank‟s market share of deposits was 38% in 1993 but has
gradually declined to 17.8% in 2006, Standard Chartered Bank, however, made gains
moving from 9% of the industry share of deposits in 2003 to 13.1% in 2006. GCB‟s
return on equity of 28.7% also does not compare favourably with those of its major
competitors namely; Barclays Bank, Ecobank, and Standard Chartered Bank which
16
posted 52.1%, 43%, and 38.9% respectively in 2006 (Business &Financial Times,
May 21,2007).
Though the bank is utilizing its extensive branch network and modern technology to
better its operations, the bank‟s low cost strategy which is amply demonstrated in its
very attractive base rates are of no use if a greater number of loan applications are not
processed because of the stringent criteria and lengthy procedures. GCB demands that
customers deposit registered titledeeds to secure loan facilities, but land registration is
cumbersome, very expensive and therefore unpopular in most parts of the country
(GCB Newsletter, April 2008).
The bank seems to be using mainly low cost leadership and a little bit of
differentiation as its competitive strategy. Most of the bank‟s products are reasonably
priced and the bank‟s charges compare favourably with those of its close competitors
(i.e. Barclays Bank, Ecobank and Standard Chartered Bank). It also appears that
competing on pricing alone may not be in the long-term interest of the bank as it is no
longer translating into a competitive advantage for the bank. The bank has gained a
very poor reputation in terms of customer service, turnaround time, poorbranch
ambience and bureaucratic credit processes.
This study attempts to investigate the above issues and the reasons behind the mixed
performances despite huge investments in infrastructure, human capital, technology,
sales and marketing activities and essential resources.
17
1.3
Objectives of the Study
The main goal of the study is to assess the strategies adopted by banks to gain
competitive advantage in the banking industry with particular reference to GCB.
However, more specifically the study seeks to;
i. To analyze the current competitive strategies being pursued by GCB.
ii. To diagnose the reasons for the success or failure of the strategies.
iii. To determine the impact of GCB‟s strategy on the bank‟s performance.
iv. To assess the sustainability of the bank‟s competitive strategy
v. To make recommendations to improve the competitive advantage of GCB in the
industry.
1.4
Research Questions
The study seeks to answer the following questions:
1. What strategies are being adopted by GCB to achieve competitive advantage?
2. Are the current strategies capable of surviving the industry competition?
3. Does GCB enjoy competitive advantage in the banking industry?
4. Of the strategies being pursued by GCB, which ones contribute most to the
bank‟s competitive advantage?
5. How can GCB improve its competitive position in the industry?
1.5
Significance of the Study
Financial relations, all over the world have been deeply transformed in the last two
decades, new products, markets and new regulatory regimes have radically altered the
environment in which financial institutions operate, opening up new profit
opportunities but also creating new and sometimes very great risks.
18
Over the last decade, the liberalization and deregulation of the Ghanaian financial
sector have dramatically changed the financial landscape. Interbank competition has
heated up as banks face increasing competition from non-banking financial
institutions and financial markets. The survival of every business including banks
depends on its ability to survive the competition and improve its profitability.
Banking institutions occupy a central position in the nation‟s financial market and are
catalytic agents in the development process of any country. By intermediating
between surplus and deficit spending units, banks increase the quantum of national
savings, investments and hence national output.
By granting of credit, banks create money and thus influence the level of money
supply which is a crucial item in the growth of national income as it determines the
level of economic activity in any nation. Because many banking products are
undifferentiated commodities, banks are constantly looking for ways to set themselves
apart from the competition to help them win and retain customers and to improve the
bottom line.
According to the 2004 Ghana Banking Survey, on average, the services sector,
including the financial and banking sub-sectors has been the fastest growing sector
followed by the agricultural sector. The previous barriers which categorized banks
into commercial, development and investment banks etc., are no longer applicable
with the enactment of the Universal Banking Business Law in 2003. The overall
industry operating costs jumped from GH¢43.55 million in 1998 to GH¢2,373.60
million in 2003 with total net profits rising from GH¢23.30 million to GH¢81.80
19
million for the same period, signaling very high profits within the industry. (Business
and Financial Times, May 21, 2008).
It is hoped that this academic exercise would diagnose and make prescriptions that
would result in the GCB‟s competitiveness and profitability. Vital lessons may be
learnt from the findings of this study by other players in Ghana‟s banking
industry.The study is important for management and is intended; to help other
companies adopt the best practices in GCB‟s competitive strategy, enable GCB
improve on its strategic competitive activities and lastly, contribute to the body of
knowledge in the strategic management of firms.
1.6
Scope of the Study
The study explored competitive strategies at the disposal of banks within the banking
industry in Ghana and is limited to GCB but where necessary comparisons were made
to her competitors. The main focus of the study was on Retail Managers, Operations
Managers, Heads of Department, Area and Retail Managers and non –managerial
staff to whom questionnaires were administered.
1.7
Limitations of the Study
The cardinal rule of banks which does not allow information on customers, strategies
and other sensitive issues to be discussed hampered efforts at getting some vital
information for the study. The fear of being branded as divulging secrets would also
not allow me the free hand to make certain disclosures.
Although this research work was purely an academic exercise, the bank‟s Planning
and Research Department needed a lot of convincing before agreeing to assist in the
20
electronic distribution of questionnaires, thereby wasting the limited time available
for the project work.
Administering the questionnaires (a total of 400) also posed serious challenges, as
most of the respondents could not complete the questionnaires on time. There was
however some consolation in the fact that the bank‟s intranet was put to good use in
electronically distributing the questionnaires. Collating and analyzing 400
questionnaires was also no mean task, as it was time-consuming.
Last but not the least, this research work, conducted by a full time Valuation Officer
of GCB was concurrently done with his official duties. Notwithstanding all these
limitations, the research was conducted taking advantage of the available data.
However, the limitations were not drawbacks to the overall success of the study.
1.8
Organization of the Study
The study is detailed in five chapters. Chapter one is the introductory chapter and
gives the background to the study, states the research problem, objectives of the study,
research questions, significance of the study and organization of the study. Chapter
Two reviews the existing literature on the subject, including; articles, books, journals
and publications. Light is shed on current literature relevant to the study and the
conceptual framework by renowned scholars such as Michael Porter and other
researchers in the field of strategic competitive advantage. Chapter Three offers useful
insights into the methodology techniques applied in developing the research
questions. It covers the methodology, specifically, the study type, sampling technique,
sample sizes, tools and procedures used to collect data needed to address the research
problems.
21
Chapter Four is dedicated to the analysis and discussion of research findings and
finally chapter five captures the summary of findings, conclusions and
recommendations arising out of the study.
22
CHAPTER TWO
LITERATURE REVIEW
2.0
The Concept of Strategy
The word strategy comes from the Greek word Strategos which refers to military
generalship and combines stratos (the army) and ago (the lead). The history of
strategic planning has its roots in, and is a heritage of the military (David, 2003). The
Webster‟s New World Dictionary alludes to this militarism, defining strategy as the
science of planning and directing large scale military operations of maneuvering
forces into the most advantageous position prior to actual engagement with the
enemy. Clearly, the key aim of both business and military strategy is to gain
competitive advantage or combat superiority over competitors or foes as the case may
be.
What business strategy is all about is, summed up in two words ‘competitive
advantage’ … the sole purpose of strategic planning is to enable a company gain, as
efficiently as possible, a sustainable edge over its competitors. Competitive strategy is
therefore an attempt to alter a company‟s strength relative to that of its competitors in
the most efficient way and also to mould actions and decisions of managers and
employees in a coordinated, company-wide game plan (Ohmae, 1983).
Military strategy books such as “The Art of War” by Sun Tzu (1965) “On War” by
Von Clausewitz (1975) and “The Red Book” by Mao Zedong (1965) have been an
invaluable knowledge base for many of the concepts especially on business tactics,
the dynamic and unpredictable future and principles of guerrilla warfare; these have
23
guided and informed the writing of many books on strategic management in general
and marketing warfare strategy in particular (Wikipedia, 2009).
The word “strategy” has always been associated with and indeed been prominent in
any discussion on the subject of management of an organization because of its
importance. Pitts et al (2003) explain that it is to ensure that an organization applies
its strengths and distinctive competences in such a way that it gains a competitive
advantage over its rivals in any given environment. Chandler (1962) defined it as “the
determination of the long-term goals and objectives of an enterprise and the adoption
of causes of action and the allocation of resources for carrying out these goals”.
It is the framework which guides those choices that determine the nature and direction
of the firm (Tregoe and Zimmerman, 1980). In the view of (Johnson et al, 2008; and
Mintzberg, 1994), strategy is a game plan, a pattern in a stream of decisions and
actions, a position and a ploy intended to outwit competitors while fulfilling
stakeholders‟ expectations in line with the organization‟s scope of business.
Johnson and Scholes in their book Exploring Corporate Strategy define strategy as
follows; „„Strategy is the direction and scope of an organization over the long-term
which achieves advantage for the organization through its configuration of resources
within a challenging environment, to meet the needs of markets and to fulfil
stakeholder expectations.‟‟Andrews, 1965, defines strategy as „„the pattern of
objectives, purposes, goals and the major policies and plans for achieving these goals,
stated in such a way as to define what business the company is in or is to be in and the
kind of company it is or it is to be.‟‟
24
According to (Wheelen and Hunger, 2006), a corporation‟s strategy forms a
comprehensive master plan that states how the corporation will achieve it mission and
objectives. The typical business firm usually considers three types of strategy;
corporate, business and functional. In general, strategy can be defined as competitive
moves and business approaches to produce successful performance. It is the
management „game plan‟ for; running the business, strengthening the firm‟s
competitive position, satisfying customers and achieving performance targets.
Nickols (2008) in his article on “Strategy, Strategic Management, Strategic Planning
and Strategic Thinking” explained that before coming to a good understanding of the
term “strategic planning” it is best to examine the terms separately. He thus deposes
that strategic means “of or having to do with strategy” and being “of great
significance or import”. This underscores the reason why strategies exist or must exist
at various levels of the organization to give a clear direction (where it is headed) and
destination (what is it to become). For our purposes then, strategic means “of great
importance” be it at the corporate, business unit or functional level and whether it be
for medium or long-term; 2-7 years purposes (ibid).
Plans of action and planning whether for business or the battlefield always consider
what is to be achieved (the ends, goals or objectives) and how it is to be achieved (the
means; steps, actions or programmes). Simply, plans are a set of intended outcomes
coupled with the actions by which those outcomes are to be achieved. On the other
hand, (Ackoff, 1981; Nickols, 2008) point out that planning involves thinking about
the future, identifying and specifying in advance (now) what has to be done or
25
achieved (objectives) and selecting the most suitable means to accomplish these
objectives.
Planning can be formal or informal involving a lot or very little documentation. The
information base could be large; stated in reports, studies, databases and analyses or
depend on a few knowledgeable people. Plans, and thus the planning activities that
produce the desired ends frequently set time frames, milestones, detailed schedules
and allocate resources whether in the form of money, people, equipment etc. (ibid)
2.1
Levels of Strategy
Corporate strategy describes a company‟s overall direction in terms of its general
attitude toward growth and the management of its various businesses and product
lines. Corporate strategies typically fit within the three main categories of stability,
growth, and retrenchment.
Business Strategy usually occurs at the business unit or product level, and it
emphasizes improvement in the competitive position of a corporation‟s products or
services in the specific industry or market segment served by that business unit.
Business strategies are classified into two; competitive and cooperative.
Functional Strategy is the approach taken by a functional area to achieve corporate
and business unit objectives and strategies by maximizing resource productivity. This
is concerned with developing and nurturing distinctive competence to provide a
company with a competitive advantage. Examples of research and development
26
(R & D) functional strategies are technological followership (imitation of the products
of other companies) and technological followership.
2.2
The Concept and Evolution of Strategic Planning
Strategic planning has been defined differently by various authors. The substantive
issues are however, the same; they focus on making plans and taking actions today for
the future prosperity and competitiveness of a firm in its environment with the
optimal use of available resources. McNamara (2008), identifies some of the major
activities that are common to all strategic planning processes as conducting a strategic
analysis; setting the strategic direction, action planning that is, carefully laying out
how the strategic goals will be accomplished etc. which will be explained later.
Chandler, 1962; Andrews, 1980; Porter,1980; Wyland, 2004 are unanimous in stating
that strategic planning is a systematic process by which an organization formulates
achievable policy objectives for the future growth and development over the long
term, based on its mission, vision and goals and on a realistic assessment of the
human and material resources available to implement the plan. Dubrin (2006) sees it
as encompassing all those activities that lead to the statement of goals and objectives
and the choice of strategies to achieve them. Gluck (1972) adds that it is a unified,
comprehensive and integrated plan designed to ensure that objectives of the enterprise
are achieved.
These comprehensive definitions are concurred by Bryson (1998) who states that it is
a disciplined effort to produce fundamental decisions and actions that shape and guide
what an organization is, what it does, and why it does what it does. The process
27
defines its medium and long term goals and objectives and approaches by which to
achieve them. It is a look into the future that identifies the mission, vision, goals and
objectives of an organization with prescribed actions necessary to achieve the vision.
The importance of strategic planning to any organization cannot be overemphasized.
It is the first in order, and safe to say the most critical management process. This is
evident from the (Nickels et al 2000)‟s definition of management which is “the
process used to accomplish organizational goals through planning, organizing,
directing and controlling organizational resources‟‟. Thompson et al (2004), buttress it
further stating that the central thrust of strategic planning is undertaking moves to
strengthen the company‟s long term competitive position and financial performance.
This intricate and complex nature is borne out by David (2003) who espouses that
strategic planning takes an organization into uncharted territories and does not
provide ready-to-use prescriptions for success. Instead it takes an organization
through a journey and offers a framework for addressing questions and solving
problems, aware of the potential pitfalls and being ready to address them and being
successful.
These views are shared by McConkey (1999) who adds that plans are less important
than planning. This just means that though plans are vital as business road maps with
goals, objectives or targets to be met, the idea of planning being a process introduces
the dimension of a continuous, ongoing and never-ending paradigm of
implementation, monitoring and adjustments (Mintzberg, 1978, 1994; Markidis,
1999) to ensure that any unforeseen, un-anticipated or emerging developments are
28
contained. It emphasizes the point that process (planning) may be much more
influential than content (the plan).
Success in business or military exploits does not come by fluke but is the product of
both continuous attention to changing external and internal conditions and the
formulation and implementation of the insightful adjustments to those conditions. It
entails the use of an organization or army‟s strengths to exploit the competitors‟
weaknesses and cash in on opportunities in the external environment. At the same
time the firm takes steps to avoid, foil or defend possible attacks from competitors
into its areas of weakness. It is thus both an attack and defense weapon which Hofer
and Schendel (2005) see as the mediating force or „match‟ between the organization
and the environment.
The term strategic planning according to David (2003) originated in the 1950‟s and
gained prominence in the mid-1960s to mid 1970s. Its use has traversed the 1990‟s
and become widely practiced as an indispensable tool in the management process in
almost all organizations because of the influence of globalization, technological
advancements and internet capabilities for business.
2.2.1
Mission, Vision, Goals and Objectives
A company‟s strategic plan typically lays out its mission, vision and future direction,
performance targets (objectives) and strategy (Thompson, 2004). For it to be effective
therefore, Drucker (1999) emphasizes that strategic plans must be designed to support
corporate mission, vision and objectives. A strong linkage or connection must
29
therefore exist between them in order for any organization to have a coordinated and
purposeful business direction.
2.2.2
Mission (Statement)
A firm‟s mission according to Pitts (2003) describes the organization in terms of the
business it is in, the customers it serves and the skills it intends to develop to fulfill its
vision. Daft (1991) agrees it is the firm‟s reason for existence and Ritson (2008)
affirms its linkage with vision. A mission statement is the overriding and distinctive
purpose of a company (Johnson, 2002; Pitts, 2003). GCB‟s mission provides for
innovative and competitive financial services through highly skilled and motivated
staff.
2.2.3
Vision (Statement)
Vision describes the firm‟s aspirations of what it really wants to be. Pitts (2003) notes
that vision statements are designed to capture the imagination of the public and as
well galvanize the efforts of employees at all levels such that its emotional appeal
challenges them to commit their full energies and minds to believe it is the best.
The conceptual distinction between mission and vision is that a mission statement
describes the present scope of an organization‟s business and purpose (what we do,
why we exist and where we are now). The vision on the other hand portrays a
company‟s future business scope; where we are going or want to be (Thompson et al,
2004).
30
2.2.4
Goals and Objectives
Goals are the broad, long-term accomplishments that an organization wants to attain,
achieve or where it wants to be. They provide the overall context for what the vision
tries to achieve (Nickels et al 2000). They are powerful tools that break the vision
statement into specific tasks and actions to attain desired results across the
organization. They function as the yardstick for tracking an organization‟s
performance or progress (Thompson et al, 2004).
They must be measurable and time specific as against having vague objectives like
„maximize profit‟, „reduce costs‟, „become more efficient‟or „increase sales‟. These
specify neither how much (figures) nor when (time) an objective is to be achieved.
They thus do not challenge employees to work hard to meet performance targets.
Objectives must be realistic and achievable.
2.2.5
The Relationship between Strategic Planning and Performance
It may appear that making profit which is the obvious intention of any commercial
enterprise is enough. A survey conducted on a number of Chief Executive Officers
(CEO‟s) in America however, showed that they did not place „strong and consistent
profit‟ as their top priority, in fact it was ranked fifth (Hitt et. al 2003). Instead they
regarded a strong and well thought-out strategy as the most important factor to make a
firm promising in the future. Indeed, Thomas J. Watson Jr. formerly IBM chairman is
quoted as having once cautioned people to remember that “corporations are
expendable and that success at best is an impermanent achievement which can always
slip out of hand” ( ibid p.9).
31
For example, Levi Strauss, a once successful company with a global brand and good
financial performance suffered setbacks in the 1990s and began its first lay-offs in
1997 as a result of mistakes and ineffective strategy. This was exploited by Gap and
Tommy Hilfiger its closest rivals. Xerox, a name synonymous with photocopying in
the 1970s and 80s also lost out to its competitors for lack of focus and foresight
(Business Week, May 2001). The foregoing points to the transient nature of success
and what an ineffective strategy (planning) or the absence of it could do to any
company.
Achieving acceptable financial results is crucial because without adequate
profitability and financial strength, a company‟s pursuit of strategic vision, long term
health and ultimate survival is jeopardized. Shareholders, potential investors and
lenders will not continue to sink in any more money. However, it is as important to
note that good financial performance alone is not enough in itself.
Thompson et al (2004) therefore, recommend two very distinct performance
yardsticks; one relating to financial performance and the other relating to strategic
performance. The former looks at performance indicators like sales revenue and
profitability whereas the latter includes output growth, technical progress, efficiency,
shareholder value added, economic value added and human resource capital etc.
The company‟s performance in terms of its strategic well-being, its competitiveness
and market position is crucial and unless it‟s performance in the market place reflects
improving competitive strength and market penetration, its progress is not considered
inspiring and its ability to continue posting good financial performance is in doubt. A
32
firm‟s financial performance measures are „lagging indicators‟ that reflects the result
of the past decisions and organizational activities. Its „lead indicators‟ are future
financial performance expectations to achieve competitiveness and strength in the
market place (ibid pp 157).
2.2.6
The Impact of Strategic Planning on Performance
Strategic planning is a management function that focuses on the growth and future
sustained well being of an organization. Ansoff (2003) affirms that the interest in
strategy grew out of the realization that a firm needed a well defined scope and
growth direction not just extrapolations of past performances which were being used
to project into the future. Hart and Banbury (1994), made an observation of firms‟
recognition for the need to carry strategic thinking and planning.
Since the 1950‟s and particularly the early 1970‟s, rapid changes and, or
advancements in technology, globalization and market competition have compelled
organizations to approach this management task with a more purposeful strategic
perspective (Rosenberg et al, 1985; Kiechel III, 1989). As Drucker, (2004) noted in
his book The Practice of Management, “we cannot be content with plans for a future
we can foresee. We must prepare for all possible and a good many impossible
contingencies. We must have a workable solution for anything that may come up.”
This underscores the need for strategic planning in every organization; diversified or
one business unit, large or small.
The question as to whether organizations which practice strategic planning do better
in terms of their performance (financial and non-financial) challenged many
33
management schools, authors, consultants and organizations to research into and
measure
the impact of strategic planning on organizational performance. Some
related studies are now discussed.
Miller et al (1994) used financial indicators as criteria for the measurement of the
impact of strategic planning on corporate performance. The results were in favour of
planning. In a quantitative critique of 28 studies by Armstrong (1982) the conclusion
was that 20 studies found planning was associated with higher performance, 5 showed
no difference and an insignificant 3 found planning to be detrimental. This growing
wealth of literature has been contributed to by Robinson, Pearce, Vozikis and Hunger,
1984; Shrader, Mulford and Blackburn (1989).
Greenley‟s (1989) review of the previous studies on manufacturing firms showed that
with planning, performance was better in 5, neutral effect in 3 studies and only 1
showed adverse result. Of particular significance was the review of an earlier work by
Karger et al (1999) in which a comparison was made between a set of companies
which carried out strategic planning with those which did not based on sales value,
sales and earnings per share, and net incomes. The result was that companies which
practiced strategic planning were largely more successful and better performers than
the non-planners. David (2003) argues that this is not to say that all companies that
used strategic planning are necessarily successful.
Other researchers have delved into the qualitative (non-financial) aspects of the
performance appraisal. Hitt et al (2003) for example point out strongly that reputation
(the evaluation of a firm by its stakeholders in terms of respect, knowledge or
34
awareness and emotional or affective regard) is a very important intangible resource
upon which a company can build capabilities and core competences. In a survey
conducted on a number of global companies, thereputations of Coca Cola, Gillette,
Eastman Kodak, Campbell Soup, and Wrigley‟s Gum were valued at US$52, $12,
$11, $9 and $4 billion respectively.
They explain that if a company can attract and hire highly-skilled people because of
its reputation, it will most likely increase its “intellectual capital.” This capital will
provide a competitive advantage for the firm over its rivals because of the new,
innovative and diversified ideas, products or services likely to come from them. The
intangible resource in the long run creates more profit and value for the company. The
Fortune 500 America‟s Most Admired Company, The Financial Times World‟s Most
Respected Companies and Ghana‟s version, The Ghana Club 100 all use various
criteria including products and services quality, financial performance, reputation
(image), workplace environment, leadership, vision, social responsibility, firm culture
and power relationships, public likeableness (emotional appeal) etc. to rank
companies or persons that are surveyed (ibid).
Pearce and Robinson (2000) support this approach to evaluate the impact of strategic
planning on performance and add other qualitative behaviour-related criteria like
building a positive team spirit, company-wide knowledge sharing, common
understanding and commitment of management and staff to the corporate vision.
Goodstein et al, (1993) corroborate these ideals and note further that the real measure
of strategic planning in any company is the extent to which it affects behaviour in the
organization.
35
This chapter is devoted to the review of literature relating to the concept of strategic
planning, competitive advantage and how they have been used to impact performance.
According to Taylor (2008), literature review is an account and analysis of what
renowned scholars and researchers have published on particular topics or fields of
study. Saunders et al (2007) define it as a detailed and justified analysis and
commentary of the merits and faults of literature in a chosen area which demonstrates
familiarity with what is already known about a research topic. This view is supported
by (Jankowiscz‟s, 2005; Fisher, 2007) who argue that literature review makes the
need to reinvent knowledge that already exist in the given area of study unnecessary
and redundant.
Literature review provides the foundation upon which a research is built to confirm,
complement, counter or establish any new trends that possibly might have emerged.
This research proceeds accordingly to review literature that is relevant to the research
topic.
2.3
Competition
The banking sector is the largest and most competitive segment of Ghana‟s financial
services industry. Competition is at the heart of the success or failure of firms.
Competitors determine the appropriateness of a firm‟s activities that can contribute to
its performance, such as innovations and cohesive culture.
Merriam-Webster as cited in Wikipedia encyclopedia defines competition in business
as "the effort of two or more parties acting independently to secure the business of a
third party by offering the most favourable terms." Competition is a pillar of
capitalism in that it may stimulate innovation, encourage efficiency, or drive down
36
prices.
In micro-economic theory, resource allocation is more efficient under
conditions of perfect competition. However, competition inthis work would consider
the profit margin, credit, deposits and customer base. (wikipedia.org/wiki/Banker,
2010).
Wheelen and Hunger, 2006, define competitors as organizations that offer the same,
similar, or substitutable products or services in the business arena in which a
particular company operates.
2.3.1
Competitive Advantage
There is no common definition for „„competitive advantage‟‟ in practice or in
marketing strategy, it is sometimes used interchangeably with distinctive
competencies to mean relative superiority in skills and resources.
According to Porter (1980) competitive strategy is the search for a favourable
competitive position in an industry, the fundamental arena in which competition
occurs. The sustainability of this positional advantage requires that the business sets
up barriers that make imitation difficult, because these barriers to imitation are
continually eroding, the firm must continue to invest to sustain or improve the
advantage.
Investorworks.com defines competitive advantage as the condition which enables a
company to operate in a more efficient or otherwise higher quality manner than the
companies it competes with, and which results in benefits accruing to that company
(investorworks.com, 2010).
37
2.3.2
Sustaining Competitive Advantage
A number of studies have explored the conditions under which a business‟
competitive advantage is sustainable (Barney 1991; Coyne 1985). Barney lists four
(4) essential requirements for a resource or skill to be a source of sustainable
competitive advantage. According to Barney, for resources or skills to constitute a
source of sustainable competitive advantage they must possess the following
characteristics; they must be valuable, they must be rare among a firm‟s current and
potential competitors, they must be imperfectly imitableand finally, there must not be
any strategically equivalent substitutes for the resource or skill.
Writing on „„Sustainable Competitive Advantage in Service Industries, a Conceptual
Model And Research Propositions,’’
Bharadwaj, Varadarajan and Fahy (1993)
posited that the attainment of sustainable competitive advantage is not an end in itself,
but a means to an end –namely superior long term financial performance. A company
is not in business to achieve a sustainable competitive advantage over its competitors
but to create wealth for its shareholders. Actions which contribute to sustainable
competitive advantage but detract from creating shareholder wealth can be a good
strategy in the competitive sense, but bad strategy for the company. It is also worth
noting that certain sources of competitive advantage may be more enduring than
others.
2.3.3
Sources of Competitive Advantage
Superior Skills
The ability of a business to do more or better (or both) than its competitors – superior
skills are the distinctive capabilities of personnel that set them apart from those of
38
competing firms. It also includes superior resources, locations, scale of operations,
breadth of sales force and distribution coverage, brand names etc. Superior skills and
superior resources lead to positional advantage, superior customer value and lower
relative cost.
Positional Advantage
The positional advantage of abusiness is directly analogous to competitive mobility
barriers that could deter a firm from shifting its strategic position. It is understood best
within the value chain or business system framework.
2.4
Porter's Generic Competitive Strategies
A firm's relative position within its industry determines whether profitability is above
or below the industry average. The fundamental basis of above average profitability in
the long run is sustainable competitive advantage. Though a firm can have a myriad
of strength and weaknesses, vis-à-vis its competitors, there are two basic types of
competitive advantage a firm can possess: low cost or differentiation. The two basic
types of competitive advantage combined with the scope of activities for which a firm
seeks to achieve them, lead to three generic strategies for achieving above average
performance in an industry: cost leadership, differentiation and focus.
The three generic strategies offer fundamentally different routes to competitive
advantage, combining a choice about the type of competitive advantage sought with
the scope of the strategic target in which competitive advantage is to be achieved
(Porter, 1998). Differentiation and cost leadership strategies aim at competitive
advantage in a broad range of industry segments, while focus strategies target cost
39
advantage (cost focus) or differentiation (differentiation focus) in a narrow segment
(Porter 1998).
Source: Porter, 1985 Competitive Advantage p. 12
2.4.1
Cost Leadership
Under cost leadership, a bank sets out to become the low cost service provider within
the industry and hence develops a range of banking services and products and serves
many industry segments. The sources of cost advantage are varied in the banking
industryconsidering the structure of the industry. According to Reis and Trout (1982),
low cost producers typically sell a no-frills, standard product and place considerable
emphasis on absolute cost advantage from all sources.
To achieve a cost advantage in the banking services delivery requires significantly
low overheads, abundant sources of cheap labour and efficient procedures for training
staff. The low cost strategy is probably the clearest of the three strategies. A low cost
producer must find and exploit all sources of cost advantage. The sources of cost
advantage which may be varied could include the pursuit of economies of scale,
40
proprietary technology, preferential access to raw materials and other factors. The
achievement and sustenance of overall cost leadership by a bank depends on pricing
at or close tothe industry average in order to achieve above-average industry
performance.
Although a cost leader relies on cost leadership for its competitive advantage, it must
attain proximity in the bases of differentiation compared to its competitors to be an
above-average performer.
The bases of differentiation, however, cannot be overlooked, if a product suffers a
negative perception in terms of quality comparable to those of competitors, a cost
leader may be forced to discount prices well below competing products to gain sales,
nullifying the benefits of its favourable cost position (Peattie and Peattie, 1994).
Proximity, as it applies to differentiation means that the price discount required to
obtain an acceptable market share does not offset a cost leader‟s cost advantage, and
therefore the cost leader will earn above-average returns.
According to Porter (1998), the strategic logic of the cost leadership usually requires
that a firm be the cost leader, and not one of several firms jostling for that position.
The strategy is largely dependent on preemption, unless major technological change
allows a firm to radically change its cost position. The theme that runs through the
entire strategy is low cost compared to competitors, although it cannot be achieved to
the detriment of quality and high service standards.
Cost leadership requires an aggressive construction of efficient-scale facilities,
vigorous pursuit of cost reductions from experience, tight cost and control, avoidance
41
of marginal customer accounts, and cost minimization in areas such as research and
development, service, sales force, advertising and so on (Porter, 1998).
2.4.2
Differentiation
The second generic strategy is known as differentiation, and is based on
differentiating the product or service offering of the bank, thereby creating something
that is perceived as a unique product throughout the industry.
The differentiation strategy, if achieved presents a viable opportunity for earning
above-average returns in the industry as it creates a defensible position for coping
with the five competitive forces.
To be successful, that is, achieve and sustain
differentiation, the firm‟s price premium must exceed the costs incurred in creating or
attaining its unique position. The differentiator must therefore aim at proximity
relative to competitors through the reduction of cost in all areas which do not affect
the differentiation
The logic behind this strategy, according to (Porter, 1998), requires the firm to select
the attributes in which to differentiate itself from the competition, that is, the firm
must be truly unique at something or perceived to be as such if it expects a premium
price. Contrasting this position with cost leadership, there is more than one successful
differentiation strategy in an industry if there are numerous attributes widely valued
by consumers.
In a differentiation strategy a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that
many buyers in an industry perceive as important, and uniquely positions itself to
meet those needs. It is rewarded for its uniqueness with a premium price.
42
2.4.3
Focus
Although, the afore-mentioned strategies, low cost and differentiationare aimed at
achieving their objectives throughout the industry, the focus strategy rests on serving
a specific target market very well, this is borne in mind when carving functional
strategies. The generic strategy of focus rests on the choice of a narrow competitive
scope within an industry. The focuser selects a segment or group of segments in the
industry and tailors its strategy to serving them to the exclusion of others. The focus
strategy has two variants; namely cost focus and differentiation focus.
In cost focus a firm seeks a cost advantage in its target segment, while in
differentiation focus a firm seeks differentiation in its target segment. Both variants of
the focus strategy rest on differences between a focuser's target segment and other
segments in the industry. The target segments must either have buyers with unusual
needs or else the production and delivery system that best serves the target segment
must differ from that of other industry segments. Cost focus exploits differences in
cost behaviour in some segments, while differentiation focus exploits the special
needs of buyers in certain segments (ifm.eng.cam.ac.uk, 2010).
Any bank that wants to focus must select a segment or group of segments within the
banking industry and tailor its strategy to serving them to the exclusion of others. By
optimizing its strategy, for the target segments, the focuser seeks to achieve a
competitive advantage overall (Parasuarman et al, 1985). In the banking system, there
are two variants to the focus strategy. A cost focus bank is the type that seeks a cost
advantage in its target customer segment, while a differentiation focusing bank seeks
differentiation in its customer segment. Both variants of the focus strategy rest on
43
differences between a focuser‟s target segment and other segments within the industry
(Czinkota et al, 1990).
Banks which focus on cost will attempt to exploit differences in cost behavior in some
customer target segment; while differentiation focus exploits the special needs of
buyers in certain segment. (Barry, Faber, et al, May 1991, p.44-51).
The notion underlying the concept of generic strategies is that, competitive advantage
is at the heart of any strategy. Achieving competitive advantage requires a bank to
make a choice about the type of competitive advantage.
“Being all things to all” is a recipe for strategic mediocrity and below average
performance, because it often means that a firm has no competitive advantage at all.
2.5
Competitor Analysis
According to (Fleisher et al, 2003, 2007), competitor analysis is the management tool
used in marketing and strategic management in an assessment of the strengths and
weaknesses of current and potential competitors. It provides both an offensive and
defensive strategic context through which to identify opportunities and threats.
Competitor profiling coalesces all of the relevant sources of competitor analysis into
one framework in the support of efficient and effective strategy formulation,
implementation, monitoring and adjustment. Given that competitor analysis is an
essential component of corporate strategy, it is argued that most firms do not conduct
this type of analysis systematically enough. Instead, many enterprises operate on what
is called “informal impressions, conjectures, and intuition gained through the tidbits
of information about competitors every manager continually receives.” As a result,
44
traditional environmental scanning places many firms at risk of dangerous
competitive blind spots due to a lack of robust competitor analysis (Fleisher et al,
2007).
2.5.1
Competitor Array
Gordon, (1989) states that one common and useful technique for conducting a
competitor analysis is the construction of a competitor array. The steps include the
following;
Define your industry - scope and nature of the industry,determine who your
competitors are, determine who your customers are and what benefits they expect,
determine what the key success factors in your industry are, rank the key success
factors by giving each one a weighting. The sum of all the weightings must add up to
one.
Rate each competitor on each of the key success factors, after which you multiply
each cell in the matrix by the factor weighting.
The columns are then summed up for a weighted assessment of the overall strength of
each competitor relative to the others. This can best be displayed on a two
dimensional matrix - competitors along the top and key success factors down the side.
An example of a competitor array follows (Gordon, 1989).
45
Table 2.1: Competitor Array
Key
Industry
Competitor Competitor Competitor Competitor
Weighting
Success Factors
#1 Rating
#1 weighted #2 rating
#2 weighted
1
Extensive distribution
0.4
6
2.4
3
1.2
2
Customer focus
0.3
4
1.2
5
1.5
3
Economies of scale
0.2
3
0.6
3
0.6
4
Product innovation
0.1
7
0.7
4
0.4
Totals
1.0
20
4.9
15
3.7
In this example competitor #1 is rated higher than competitor #2 on product
innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6
out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall,
competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15
out of 40). When the success factors are weighted according to their importance,
competitor #1 gets a far better rating (4.9 compared to 3.7).
2.5.2
Competitor Profiling
The strategic rationale of competitor profiling (Fleisher et al, 2007) is powerfully
simple. Superior knowledge of rivals offers a legitimate source of competitive
advantage. The raw material of competitive advantage consists of offering superior
customer value in the firm‟s chosen market. The definitive characteristic of customer
value is the adjective, superior. Customer value is defined relative to rival offerings
making competitor knowledge an intrinsic component of corporate strategy. Profiling
46
facilitates this strategic objective in three important ways. First, profiling can reveal
strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance
of competitor profiling will allow the firm to anticipate the strategic response of their
rivals to the firm‟s planned strategies, the strategies of other competing firms, and
changes in the environment. Third, this proactive knowledge will give the firms
strategic agility. Offensive strategy can be implemented more quickly in order to
exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be
employed more deftly in order to counter the threat of rival firms from exploiting the
firm‟s own weaknesses.
Clearly, those firms practicing systematic and advanced competitor profiling have a
significant advantage. As such, a comprehensive profiling capability is rapidly
becoming a core competence required for successful competition. An appropriate
analogy is to consider this advantage as akin to having a good idea of the next move
that your opponent in a chess match will make. By staying one move ahead,
checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in
the game of business as well (Fleisher et al, 2007).
According to Fleisher et al, 2007, a common technique often adopted in customer
profiling is to create detailed profiles on each of your major competitors. These
profiles give an in-depth description of the competitor's background, finances,
products, markets, facilities, personnel, and strategies. This involves the following
factors;
47
Background
Under background, you assess the location of offices or plants, and online presence,
history - key personalities, dates, events, and trends, ownership, corporate
governance, and organizational structure of your competitors (Fleisher et al, 2007).
Financials
Here the major financial indicators on the performance or profitability of your
competitors would have to be analyzed. Notable among them are the following; P-E
ratios, dividend policy, and profitability,various financial ratios, liquidity, and cash
flow Profit Growth Profile; method of growth whether organic or acquisitive (ibid).
Products
The products offered, depth and breadth of product line, and product portfolio
balance, new productsdeveloped, new product success rate, Research & Development
strengths, brands, strength of brand portfolio, brand loyalty and brand awareness,
patents and licenses, quality control conformance capabilities of your competitors
would have to be assessed and taken into account (ibid).
Marketing
Under marketing you have gather information on the segments served by your
competitors, their market shares, customer base, growth rates, and customer loyalty
promotional mix, promotional budgets, advertising themes, advertising agencies used,
sales force success rate online promotional strategies, distribution channels used
(direct & indirect), exclusivity agreements, alliances, and geographical coverage,
pricing, discounts, and allowances (Fleisher et al, 2007).
48
Facilities
Under facilities, your competitors‟ plant capacities, capacity utilization rate, age of
plant, plant efficiency, capital investment,location, shipping logistics, and product mix
by plant are all recorded for analysis (ibid).
Personnel
Last but not the least, the number of employees, key employees, and skill sets strength
of management, and management style, compensation, benefits, and employee morale
& retention rates of your competitors would have to be analyzed. The corporate and
marketing strategies objectives, mission statement, growth plans, acquisitions, and
divestitures marketing strategies would all have to be noted (Fleisher et al, 2007).
Media scanning
Scanning the advertisements of your competitors can reveal much about what that
competitor believes about marketing and their target market. Changes in a
competitor's advertising message can reveal new product offerings, new production
processes, a new branding strategy, a new positioning strategy, a new segmentation
strategy, line extensions and contractions, problems with previous positions, insights
from recent marketing or product research, a new strategic direction, a new source of
sustainable competitive advantage, or value migrations within the industry (Fleisher et
al, 2007).
It might also indicate a new pricing strategy such as penetration, price discrimination,
price skimming, product bundling, joint product pricing, discounts, or loss leaders.
Hints on a new promotion strategy may also be dropped, new unique selling
49
propositions, new creative concepts, appeals, tone, and themes, or a new advertising
agency can all be inferred. It might also indicate a new distribution strategy, new
distribution partners, more extensive distribution, more intensive distribution, a
change in geographical focus, or exclusive distribution. Little of this intelligence is
definitive: additional information is needed before conclusions should be drawn
(ibid).
A competitor's media strategy reveals budget allocation, segmentation and targeting
strategy, selectivity and focus. From a tactical perspective, it can also be used to help
a manager implement his own media plan. By knowing the competitor's media buy,
media selection, frequency, reach, continuity, schedules, and flights, the manager can
arrange his own media plan so that they do not coincide.
Other sources of corporate intelligence include trade shows, patent filings, mutual
customers, annual reports, and trade associations. Some firms hire competitor
intelligence professionals to obtain this information. The Society of Competitive
Intelligence Professionals maintains a listing of individuals who provide these
services (Fleisher et al, 2007).
New Competitors
In addition to analyzing current competitors, it is necessary to estimate future
competitive threats. The most common sources of new competitors are companies
competing in a related product/market, companies using related technologies,
companies already targeting your prime market segment but with unrelated products
those from other geographical areas with similar products. New start-up companies
organized by former employees and/or managers of existing companies must also
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warrant attention as they could pose threats to the organization in the present or the
future (ibid).
The entrance of new competitors is likely when the following conditions exist; high
profit margins in the industry, unmet demand (insufficient supply) in the industry, no
major barriers to entry, future growth potential, competitive rivalry is not intense and
when gaining a competitive advantage over existing firms is feasible.
2.5.3
Drivers of Competition among Banks
The banking industry has been characterized by increasing competition since the early
1980s. This has been the result of a number of interrelated factors such as:
Deregulation and Liberalization
Competition and deregulation have revolutionized the distribution of many financial
services. The authors are of the opinion that an increased competition resulting from a
decade of deregulation of the financial services industry has meant that banks find
themselves faced with the task of differentiating their organizations and their
offerings as a means of attracting customers. (Blankson et al., 2007)
Brownbridge and Gockel, 1996 also argued that liberalization could stimulate greater
competition in banking markets through several channels. These include the new
entry into banking markets, the diversification of the operations of the DFIs away
from purely specialized functions, the removal of interest rate controls and credit
ceilings, which should allow banks greater freedom to compete for customers, and the
privatization of government banks; private sector banks might be expected to compete
more aggressively against each other than banks owned by the public sector. New
51
entry has brought about a small reduction in market concentration in the banking
industry.
Baer et al., (1988 as cited in Zardkoohi and Fraser 1988) identified four factors that
produce greater competition. First, by allowing for larger banking organizations,
geographical deregulation makes it easier for banks to achieve economies of scale and
scope. Second, easier entry into banking markets, especially highly profitable
markets, provides incentives for existing banks in those markets to price their services
competitively. Third, reduced restrictions on entry motivate banks to offer more
convenient delivery systems for their customers.
Fourth, banks that operate over a large geographical area offer standard products at a
uniform price throughout their market. While the appearance of new competitors in
local banking markets may stimulate the accruallevel of competition, the threat of
potentialentry might also stimulate competition, even if no actual entry by out-ofmarket institutions takes place.
Levine (2003) documents, among others, that tighter entry requirements are
negatively linked with bank efficiency, leading to higher interest rate margins and
overhead expenditures, while restricting foreign bank participation tends to increase
bank fragility. These results are consistent with the view that tighter entry restrictions
tend to limit competition and emphasized that it is not the actual level of foreign
presence or bank concentration, but the contestability of a market that determines
bank efficiency and stability.
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2.5.4
Effects of Competition in Banking
Ghana has experienced a huge increase in the number of banks due to rather liberal
license policy. Competition, according to the micro-economic theory causes
commercial firms to develop new products, services, and technologies. This gives
consumers greater selection and better products. The greater selection typically causes
lower prices for the products compared to what the price would be if there was no
competition (monopoly) or little competition (oligopoly). However, competition may
also lead to wasted (duplicated) effort and to increased costs (and prices) in some
circumstances. Some effects of competition, as they relate to banking are discussed
below:
2.5.5
Effect of Competition on Credit or Lending By Banks
Shaffer (1998 as cited in Northcott 2004) shows that the number of loans made
increases as the number of banks increases. The more banks there are, the less chance
there is that any given borrower (including “bad” ones) will not get a loan. Therefore,
expected loan losses are also an increasing function of the number of banks. Of
course, many things can mitigate this effect, such as access to credit bureaus, where a
bank can find out whether a borrower has been rejected by other banks.
In addition, bank competition affects the efficiency of credit allocation if an open
license policy exists. Schnitzer, (1999) in her analysis shows that bad loans are more
likely if there are a large number of banks competing for customers as free entry can
induce too much entry and thus too many bad loans compared to the social optimum.
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According to Harris and Holmstrom (1982 as cited by Boot and Thakor 2000)
interbank competition can have adverse effects on banks‟ marginal rents from
relationship lending. Each bank thus reduces its investments in sector specialization.
This result is consistent with the existing wisdom that, by threatening relationships,
competition reduces relationship-specific investments. Thus, interbank competition
encourages banks to shift from transaction to relationship lending, and banks do more
transaction lending in a non competitive banking industry than in a more competitive
environment.
By combining this result with that of the reduction in sector specialization, one can
conclude that the nature of relationship lending itself changes with increasing
interbank competition; relationship lending becomes more important but each loan
has less added value.
Again Besanko and Thakor (1993 as cited in Schnitzer, 1999) analyse the impact of
competition in the case of relationship banking and from their analyses more
competition reduces rates for borrowers but makes banks take on more risk and thus
jeopardizes the bank-customer relationship. Dell‟Ariccia,1998 (as cited in Schnitzer,
1999) studies how the market structure of the banking sector evolves endogenously if
market is not regulated and argued that banks acquire proprietary information about
their clients by lending to them gives existing banks advantage over new entrants.
Besanko, Thakor and Dell‟Ariccia share similar views that banks acquire information
about their customers in the course of lending relationship. This is different in
Broecker (1990) and Riordan (1993) where banks acquire information about potential
54
customers before entering a relationship with them. The analysis showed that the
number of bad loans provided increases with the number of banks operating, which
has a negative impact on the average credit-worthiness of the borrowers who receive
credit.
The potential positive effects of the new entry associated with reduced barriers to
geographical expansion must be balanced against the potential negative effects of
increased concentration. On the other hand, free entry lowers credit costs which have
a positive impact on enterprise restructuring.
2.5.6
Effect of competition on Profits and Deposits of Banks
Interbank competition affects the bank‟s profits from bothrelationship and transaction
lending, but asymmetrically. A relationship orientation helps to partially insulate the
bank from pure price competition, so that an increase in competition from other banks
hurts the bank‟s profits from transaction lending more than its profits from
relationship lending.
The existing theoretical literature on bank competition is mainly concerned with the
question of what impact financial market liberalization has on the stability of the
banking sector. According to Matutes and Vives (1996 as cited in Schnitzer, 1999)
banks compete for deposits. In their analysis the probability of bank failure increases
with the degree of rivalry because of the lower profit margins banks can obtain, which
implies a negative impact of bank competition on social welfare.
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A similar effect was observed in Hellmann, Murdock and Stiglitz (1998) on deposits
in which competition for deposits erodes profits and thus promotes gambling in the
banking sector because the on-going concern value of the banks is lower. The
problem was that an increase in competition has little impact on the total amount of
deposits but mainly increases market stealing incentives.
2.5.7
Branch network and competition:
Branch network has traditionally been viewed as a way for banks to retain market
power, because branches can appropriate some of the value clients place on location,
and thereby mitigate (or avoid) price competition. Branches are also typically seen as
a barrier to entry, since they involve large fixed costs. Another potential disadvantage
to consumers is that competition through branching can lead to a higher-than-optimal
number of branches (compared with the perfectly competitive equilibrium). Due to
the fixed costs associated with branches, this increases banks‟ costs, which are passed
on to consumers (Freixas and Rochet, 1997 as cited in Northcott, 2004).
Other approaches, however, demonstrate how branches can be beneficial to
consumers. In an argument, Allen and Gale (2000 as cited in Northcott, 2004) show
that a few large banks with extensive branch networks can provide a more
competitive outcome than a unitary banking system in an environment with switching
costs: a large branch bank has less of an incentive to exploit the “locked-in” value of
clients, because it is always competing for the clients‟ future business in another
product or location.
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Another way in which branching can improve competitive conduct is by increasing
the effective size of the market. In Calem and Nakamura (1998 as cited in Northcott,
2004), branches can decrease the degree of market power exerted in remote locations
(relative to a unitary banking model) by increasing the effective size of the
geographical market. Branching leads to more uniform pricing across remote and
urban locations. According to Calem and Nakamura (p. 608), “branch banking tends
to export competition in dense urban markets to outlying areas. Thus, branch banking
tends to increase the effective size of banking markets.”
Branches are a way for banks to retain some market power; they also benefit
consumers by increasing access to services and by potentially mitigating market
power in remote areas. The question is how many branches are optimal? Too many
branches pose a barrier to entry and engender a large fixed cost that may be passed on
to consumers, and too few may remove the pro-competitive effect of increasing the
size of the market. There is also a trade-off for banks in choosing the extensiveness of
their branching networks.
While there are benefits to be gained from differentiation, banks will invest in
branches as a way to avoid price competition. If there is a shift towards price
competition (e.g., due to competition from banks or other financial firms), the number
of branches should be expected to fall. That is, there may be a trade-off between price
competition and competition through branching. In fact, the researcher‟s observations
are closely in line with that of Northcott‟s assertion about network branch banking.
That is to say that Ghana Commercial Bank has resorted to an aggressive branch
network approach to banking.
57
Dick (2003 as cited in Northcott, 2004) examines the effect of lifting restrictions on
branching in the United States after the Riegle-Neal Act in 1994. Lifting the
restrictions on branching was associated with both higher concentration and increased
competition in lending rates. These studies are consistent with the idea that branching
can have adverse effects on profitability of banks as revealed by Calem and
Nakamura‟s research. Calem and Nakamura concluded that branch network approach
is associated with high growth of a bank in a competitive banking environment,
Calem and Nakamura (1998) research revealed that this approach breeds high
transaction costs which affects profitability of banks.
2.5.8
Competition and ICT in the Banking Industry:
In addition to the above, the banking industry is an intensive user of a wide range of
technologies, including information technology, telecommunications, and financial
product technologies. Technological innovations can affect the incentives faced by
banks and thereby affect bank behaviour and the structure of the market. There is
literature examining the effect of technology on economies of scale, automated teller
machines and remote banking.
Technological progress has the potential to increase economies of scale in a variety of
bank products and services, such as payments processing, cash management, and back
office operations. In the same vein, advances in technology may lead to the
development of new products and services that have more scale economies than
traditional banking products. Therefore, there is the potential for an increase in the
productive efficiency of banks.
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At the same time, the argument that technological progress has led to more scale
economies has been suggested as a driving force towards consolidation and
concentration (BIS, 2001). While higher-scale economies will obviously benefit
larger institutions, smaller banks may also benefit by outsourcing processes that are
particularly affected.
ATM (Automated Teller Machine) networks provide an alternative, lower-cost way to
establish a physical delivery system, thereby reducing sunk costs and barriers to entry.
At the same time, because they provide a range of basic services (including deposits,
account transfers, and payments), ATMs can provide many of the benefits already
discussed for branches, such as increasing the geographical scope of competition.
Remote banking, through the internet and over the telephone, is increasing in
popularity.
Available through purely electronic means, it provides an alternative to the physical
delivery systems of branches and ATMs. All a client needs to access banking services
is a telephone or computer, proximity to a branch is less important. Therefore, to the
extent that remote banking is embraced by consumers, it decreases the value placed
on being close to branches, which decreases their strategic value to banks.
Consequently, a large uptake of remote banking may lead to a shift away from
competition through branches towards price competition. In this way, remote banking
can further decrease the barriers to entry. As well, because it is not tied to a particular
location, it can further expand the geographical scope of competition. While positive
for contestability, it does further complicate the concept of the “relevant”
geographical market.
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As remote banking becomes more important, the relevant market is much more likely
to be larger than the local area. Vesala (1998 as cited in Northcott, 2004) argued in his
theoretical model about banks that have branch and ATM networks lead to emergence
of remote banking and an increase in price competition even if there is no new entry
into the market. Remote banking has the potential to improve contestability by
decreasing sunk costs and barriers to entry. The extent to which this occurs depends
on various things, such as the market penetration of the technology and the kinds of
services provided. For example, consumers still rely on ATMs and branches to access
cash. Even this dependency may be falling, as consumers rely more and more on
cashless payments and on practices such as “cash back,” which allows them to obtain
cash through non-bank retail outlets, example EZWICH outlets in Ghana.
Remote banking is currently most relevant to the deposit market, providing an easy
way for consumers to check accounts, transfer balances, and make payments. It is
increasingly being used for asset management, through links with brokerages and
lending. Remote banking may be more suited to standardize transactional lending,
such as mortgages. The competitive benefits of remote banking may differ for
different products.
2.5.9
Competition and Customer Service
According to Albrecht and Zemke (1985),a growing number of organizations are
giving increased attention to customer service. Financial institutions, hospitals, public
utilities, airlines, retail stores, restaurants, manufacturers, and wholesalers face the
problem of gaining and retaining the patronage of customers. Building long-term
60
relationships with customers has been given a high priority by the majority of
America's most successful enterprises.
These companies realize that customer satisfaction is an important key to success.
Customerservicecan be defined as those activities that enhance or facilitate the
purchase and use of the product (Albrecht, and Zemke, 1985). In their book The Real
Heroes of Business . . . and Not a CEO among Them, Fromm and Schlesinger (1994)
observed that we have entered the age of boundless competition, triggered in large
part by an expanding global economy. In the view of the authors, multinational
competition has increased dramatically in recent years, and this means a one-world
market exists for products ranging from cars to computers. To compete successfully
in markets where products are the same or very similar, and prices are basically the
same, service is often the only competitive advantage available, they stressed.
2.6
Winning Customer Service Strategies
According to the marketing concept, an organization must determine what customers
want and use this information to create satisfying products and services (Pride and
Ferrell, 1997). Federal Express redefined mail service by providing over-night, doorto-door delivery of packages and letters. The company discovered a need for speed,
reliability, and courteous service by well-trained employees.
The marketing concept is a management philosophy guiding all the organizational
activities, including production, personnel, finance, distribution, and marketing.
Excellent customer service is achieved by a three-dimensional process that includes a
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well-conceived service strategy, customer-driven systems, and customer-friendly
people (Albrecht and Zemke, 1985).
2.6.1
Service Strategy and Competition
A well-conceived service strategy includes three important elements: market research
to discover the customers‟ needs and wants; a clear vision of the firm‟s „„reason for
being‟‟; and clearly stated beliefs and values that guide the enterprise (Albrecht and
Zemke, 1985). Many organizations are creating a written vision or mission statement
that directs the energies of the company and inspires employees to achieve greater
heights. Ortho Biotech, based in Raritan, New Jersey, begins its vision statement with
a bold prediction; „„we will be the best in our business by providing customers with
innovative solutions to significant medical problems through biotechnology and
related science‟‟ (quoted in Lee, 1993). The creation of a sound set of beliefs and
values can give stability to an organization, as customer service priorities also become
clearer.
Ben Edwards, chairman of A.G. Edwards and Sons, Inc., the seventh-largest securities
firm in the nation, says following the Golden Rule is still the best way to achieve
success in business (Kegley, 1990). He is of the opinion that this attitude has had a
positive influence on the company's 7400 employees.
2.6.2
Customer-friendly Systems and Competition
Service systems are made up of all the various practices and procedures that personnel
can use to meet customer needs. When you check into the Hyatt Regency Crown
Center in Kansas City, Missouri, you are given a card that says, "Call 50 for a
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response to any concern within five minutes" (Manning and Reece, 1998). MBNA
Corporation, a Wilmington, Delaware, financial services company wants every phone
call answered within two rings. Employees achieve this goal nearly 100 percent of the
time (Reece and Brandt, 1999). These examples are typical of the steps being taken by
companies that want to meet, and in some cases exceed, the expectations of their
customers. Customer-friendly systems are designed to make things easy for
customers. Complaints should be handled in a timely fashion. Returning or
exchanging products should not be difficult. Requests for assistance should be
handled in a courteous and efficient manner. Customer-friendly systems add value
and build customer loyalty.
2.6.3
Customer-Friendly People and Competition
Carlzon (1987), in his Moments of Truth, had this to say;„„in many cases, the
customer's first impression of an organization comes during contact with frontline
people.” According to him the front-desk clerk or the queue walker at the banking hall
often has the first opportunity to serve the customer. Unfortunately, too often these
employees earn low pay, receive little formal training, and are given little recognition
for the important duties they perform. The best frontline employees are both
competent and caring. They have a certain level of maturity and possess the social
skills needed to build customer loyalty.
2.6.4
Theoretical frameworks
Several studies analyse competition in the banking industry over time. The key ones
the researcher has identified include the following:
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2.6.4.1 Competition and Time:
Nathan and Neave (1989), Molyneux et al. (1994), Hydroyiannis et al. (1999), De
Bandt and Davis (2000), and Mkrtchyan (2005) have researched into competition and
time. Their research disclosed that competition gradually changes over time. Some of
these studies analyse relatively short sample period of three to five years using the
Panzer-Rosse (P-R) approach. Most of the studies used different measures of banks‟
revenue and different control variables in the estimation of the Panzar–Rosse
statistics.
2.6.4.2 Competition and Efficiency:
Weill (2004 as cited in Casu and Girardone 2006) investigates the relationship
between competition and efficiency and concluded that increased competition breeds
efficiency. The author used a stochastic parametric method and the set of independent
variables include macro economic factors (GDP per capita and density of demand), an
intermediation ratio (loans/deposits) and finally a dummy that corresponds to the
geographical location.
2.6.4.3 Competition and Lending:
Van Leuvensteijn et al. (2008) researched into competition and lending in the Italian
banking industry. The Boone indicator of competition was applied on banking firms
of eight major countries during the 1994-2004 periods. They concluded that a fairly
stable level of competition, slightly increases over time, even when concentration
increases. Angelini and Cetorelli (2003, Hauner and Peiris, 2005) also analysed a
longer time span, focusing on the Italian banking industry during the years 1987 to
1997.
64
They estimated yearly Lerner indices of competition for a cross-section of Italian
banks. Subsequently they explained these indices from a range of determinants, such
as market structure, bank-specific characteristics, macro-economic correction
variables and a time dummy distinguishing the period before and after the Second
Banking Directive.
2.7
The Banking Industry
2.7.1
The Origin of Banking
The name bank derives from the Italian word banco meaning "desk/bench", used
during the Renaissance by Florentine bankers. However, there are traces of banking
activity even in ancient times.In fact, the word traces its origins back to the Ancient
Roman Empire, where money lenders would set up their stalls in the middle of
enclosed courtyards on a long bench called a bancu, from which the words banco and
bank are derived. As a money changer, the merchant at the bancu did not so much
invest money as merely convert the foreign currency into the only legal tender in
Rome- that of the Imperial Mint.
A banker or bank is a financial institution whose primary activity is to act as a
payment agent for customers to borrow and lend (wikipedia.org/wiki/Banker, 2010).
The definition of a bank varies from country to country. Under English common law,
a banker is defined as a person who carries on the business of banking, which is
specified as; conducting current accounts for his customers, paying cheques drawn on
him, and collecting cheques for his customers.
65
In most English common law jurisdictions there is a Bills of Exchange Act that
codifies the law in relation to negotiable instruments, including cheques, and this Act
contains a statutory definition of the term banker: banker includes a body of persons,
whether incorporated or not, who carry on the business of banking' (Section 2,
Interpretation). Although this definition seems circular, it is actually functional,
because it ensures that the legal basis for bank transactions such as cheques do not
depend on how the bank is organized or regulated.
The business of banking is in many English common law countries not defined by
statute but by common law, the definition above. In other English common law
jurisdictions there are statutory definitions of the business of banking or banking
business. When looking at these definitions it is important to bear in mind that they
are defining the business of banking for the purposes of the legislation, and not
necessarily in general. In particular, most of the definitions are from legislation that
has the purposes of entry regulation and supervision of banks rather than regulating
the actual business of banking. However, in many cases the statutory definition
closely mirrors the common law one. Examples of statutory definitions:
"banking business" means the business of receiving money on current or deposit
account, paying and collecting cheques drawn by or paid in by customers, the making
of advances to customers, and includes such other business as the Authority may
prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2,
Interpretation).
"Banking business" means the business of either or both of the following;
receiving from the general public money on current, deposit, savings or other similar
account repayable on demand or within less than three months or with a period of call
66
or notice of less than that period; paying or collecting cheques drawn by or paid in by
customers.
Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct
credit, direct debit and internet banking, the cheque has lost its primacy in most
banking systems as a payment instrument. This has led legal theorists to suggest that
the cheque-based definition should be broadened to include financial institutions that
conduct current accounts for customers and enable customers to pay and be paid by
third parties, even if they do not pay and collect cheques.
In Ghana the use of the word bank is stated in section 17 of the Banking Act, 2004
(Act 673) as follows:
A person, other than a bank shall not describe itself out as a bank, or carry on banking
in the country. The use of the word „‟bank‟‟ in the name of an association of banks or
employees of bank formed for the promotion of mutual interest of its members shall
not be construed as a contravention of sub-section (1).
2.7.2
Banking in Ghana
Ghana has a well-developed banking system that was used extensively by previous
governments to finance attempts to develop the local economy. By the late 1980s, the
banks had suffered substantial losses from a number of bad loans in their portfolios.
In addition, the depreciation of the cedi had raised the banks‟ external liabilities. In
order to strengthen the banking sector, the government in 1988 initiated
comprehensive reforms. In particular, the amended banking law of August 1989
required banks to maintain a minimum capital base equivalent to 6 percent of net
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assets adjusted for risk and to establish uniform accounting and auditing standards
(Anin, 2000).
The law also introduced limits on risk exposure to single borrowers and sectors. These
measures strengthened the Central Bank‟s supervision, improved the regulatory
framework, and gradually improved resource mobilization and credit allocation.
Other efforts were made to ease the accumulated burden of bad loans on thebooks of
banks in the late 1980s. In 1989 the Bank of Ghana issued temporary promissory
notes to replace non-performing loans and other government-guaranteed obligations
to state-owned enterprises as of the end of 1988 and on private-sector loans in 1989.
The latter were then replaced by interest-bearing bonds from the Bank of Ghana or
were offset against debts to the bank. Effectively, the government stepped in and
repaid the loans. By late 1989, some ¢62 billion worth of non-performing assets had
been offset or replaced by Central Bank bonds totaling ¢47 billion (ibid).
In the early 1990s, the banking system included the Central Bank (Bank of Ghana),
three large commercial banks (Ghana Commercial Bank, Barclays Bank of Ghana,
and Standard Chartered Bank of Ghana), and seven secondary banks. Three merchant
banks specialized in corporate finance, advisory services, and money and capital
market activities: Merchant Bank, Ecobank and Continental Acceptances; the latter
two were both established in 1990.
These and the commercial banks placed short-term deposits with two discount houses
set up to enhance the development of Ghana's domestic money market: Consolidated
Discount House and Securities Discount House, established in November 1987 and
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June 1991 respectively. At the bottom of the tier were some 100 rural banks which
accounted for only 5 percent of the banking system‟s total assets (ibid).
By the end of 1990, banks were able to meet the new capital adequacy requirements.
In addition, the government announced the establishment of the First Finance
Company in 1991 to help distressed but potentially viable banks to recapitalize. The
company was established as part of The Financial Sector Adjustment Program
(FINSAP) in response to requests for easier access to credit for companies hit by the
policies of the Economic Recovery Programme. The company was a joint venture
between the Bank of Ghana and the Social Security and National Insurance Trust.
Despite offering some of the highest lending rates in West Africa, Ghana‟s banks
enjoyed increased business in the early 1990s because of high deposit rates. The Bank
of Ghana raised its rediscount rate in stages to around 35 percent by mid 1991, driving
money market and commercial bank interest rates well above the rate of inflation,
thus making real interest rates substantially positive. As inflation decelerated over the
year, the rediscount rate was lowered in stages to 20 percent, bringing lending rates
down accordingly (ibid).
At the same time, more money moved into the banking system in 1991 than in 1990;
time and savings deposits grew by 45 percent to ¢94.6 billion and demand deposits
rose to ¢118.7 billion. Loans also rose, with banks‟ claims on the private sector up by
24.1 percent, to ¢117.4 billion. Banks‟claims on the central government continued to
shrink in 1991, falling to a mere ¢860 million from ¢2.95 billion in 1990, a reflection
of continued budget surpluses. Claims on non-financial public enterprises rose by
12.6 percent to ¢27.1 billion.
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Foreign bank accounts, which were frozen shortly after the PNDC came to power,
have been permitted since mid-1985, in a move to increase local supplies of foreign
exchange (ibid).
The Ghana Stock Exchange began operations in November 1990, with twelve
companies considered to be the best performers in the country. Although there were
stringent minimum investment criteria for registration on the exchange, the
government hoped that share ownership would encourage the formation of new
companies and would increase savings and investment. After only one month in
operation, however, the exchange lost a major French affiliate, which reduced the
starting market capitalization to about US$92.5 million (ibid).
By the end of 1990, the aggregate effect of price and volume movements had resulted
in a further 10.8 percent decrease in market capitalization. Trading steadily increased,
however, and by midJuly 1992, 2.8 million shares were being traded with a value of
¢233 million, up from 1.7 million shares with a value of ¢145 million in November
1991. The market continued to be small, listing only thirteen companies, more than
half in retailing and brewing.
In June 1993, the government removed exchange control restrictions and gave
permission to non-resident Ghanaians and foreigners to invest on the exchange
without prior approval from the Bank of Ghana. In April 1994, the exchange received
a considerable boost after the government sold part of its holdings in Ashanti
Goldfields Corporation (ibid).
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2.7.2.1 Overview of Ghana Commercial Bank (GCB)
The Bank of the Gold Coast, the parent company of Ghana Commercial Bank
Limited, was established by Legislative Instrument in 1952 and commenced
operations in 1953. The Bank was set up as a semi government bank to cater for the
needs of the Gold Coasters and operate to the benefit of African industry, agriculture,
commerce and trade (Anin, 2000).
The Bank of the Gold Coast undertook both central and commercial banking
functions. The bank‟s name was changed to Ghana Commercial Bank in 1957 upon
the attainment of independence when Central Bank activities were hived off to the
newly created Bank of Ghana, leaving Ghana Commercial Bank to perform the
functions for which it was set up (Steel and Andah, 2003).
At the time of independence, there were only three banks operating in Ghana, namely;
British Bank of West Africa, Barclays Bank DCO (Dominion Colonial and Overseas),
and the Bank of the Gold Coast. The Bank of the Gold Coast was the only indigenous
bank as the other two were expatriate banks. (Anin, 2000).
In 1996, Ghana
Commercial Bank changed its legal entity from a statutory corporation to a company
registered under the Company‟s code and subsequently floated shares on the Ghana
Stock Exchange when a percentage of the Government of Ghana‟s ownership was
divested to individuals and corporate business entities.
Ghana Commercial Bank operated as the only indigenous bank from independence
until NIB and ADB were established in 1963 and 1965 respectively. The bank held
the bulk of government accounts and had the greatest share of the industry‟s deposits.
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From a modest beginning of three (3) banks at independence, there as many as twenty
six (26) universal banks operating in Ghana as at September 2009 in Ghana with
many more eager to secure operational licenses.
The bank currently operates 157 branches and 11 agencies as at December 2009
nationwide and is exploiting its up to date technology, extensive branch network
linked together by means of wide area network (WAN) to its advantage, but it seems
this ambitious expansion drive has not translated into any exceptional financial
performance.
2.7.2.2 Mission of GCB
The Bank‟s mission is „„to be the established leader in banking, satisfying the
expectations of customers and shareholders, providing a full range of cost efficient
and high quality services through the optimization of information technology and
efficient branch network.‟‟
For the achievement of its mission, the Bank is committed to; the provision of first
class customer service, focusing on the Bank‟s core business competencies – banking
constant improvement in the use of information technology, ensuring that staff are
well motivated and have a conducive work environment, recruiting and retaining the
best human resources to carry out the Bank‟s mandate applying the best internal
policies, procedures, processes and service delivery, and constant improvement in
shareholder value.
2.7.2.3 Corporate Values
The stated corporate values of the bank are enumerated below;
Entrepreneurial Spirit
-
Passion for business.
72
Professionalism
-
Highest banking and ethical standards.
Maximization of profit
-
Passion for superior performance resulting in
achieving targets.
Loyalty to organization, devotion to GCB, good customer care and a sense of
community, belonging to one family. The above beliefs, principles and practices are
supposed to guide staff of GCB in order to achieve the Bank‟s mission, do these
values really exist or to what extent are they embedded in the staff? In the activity
report of the Professional and Managerial Staff Union(PMSU) August, 2008, it noted
the challenges facings customer care as follows;
Branch managers are unable to visit customers on regular basis. They are also unable
to go out to look for new business. Delays in rendering prompt and efficient services
to customers as a result of their inadequate knowledge, professionalism, friendliness
and courtesy in handling customers. Poor attitude of staff to customers and the use of
temporal staff at the front desk. The lack of good customer care has dented the
corporate valuesand action should be taken to improve customer care in the Bank.
73
CHAPTER THREE
METHODOLOGY
3.0
Introduction
This chapter describes in detail the methods used, specific steps taken and the tools
employed in the collection and analysis of data needed to address the research
problem.
Methodology is the theory of how research should be undertaken or
conducted. This includes the theoretical and philosophical assumptions upon which
research is based and the implications of these for the method or methods adopted;
(Saunders et al,2007).It is the study of the method(s) of research that helps to identify
vital data which makes solution of the research problem possible (Encarta
Dictionary). The methods specifically refer to the techniques and procedures used to
obtain and analyze data.
3.1
Research Design
Generally, a complete enumeration of the population provides better results than
samples. According to the law of statistical regularity, higher degree of data gives
higher degree of stability and vice versa. However, censuses of very large populations
are sometimes unrealistic as a result of time, resource and budget constraints.
Considering the size of GCB in respect of geographical extent and number of staff ie.
Over 168 branches and agencies spread over the regions and districts of Ghana with
2298 staff the researcher deems the population too large for individuals in all
branches, departments and divisions to be studied.
Sampling therefore becomes worthwhile in order to have a size manageable for the
study. It has been advocated that it is possible to achieve greater accuracy by using
74
appropriate sampling technique than by a complete enumeration of all the units of the
population. This choice of individuals is as a result of the fact that Management and
Retail Managers are responsible for the formulation and day to day implementation of
strategy respectively.
3.2
Sampling Procedure
A sample is a sub-group or representative selection of a population that is examined
or tested to obtain statistical data or information about the whole population (Encarta
Dictionary; Saunders et al 2007). Sampling on the other hand is the process of
selecting a group of people, items or cases to be used as a representative or random
sample (ibid). A sample size of four hundred (400) respondents out of apopulation of
2298wasselected for the research.The number was considered adequate and
representative enough to give informed answers to the research problem.
To ensure that all the various groups in the sampling frame were surveyed,
convenience or purposive sampling technique was employed in this regard. Purposive
or convenience sampling technique was used because this research focused only on
management and staff of GCB. The researcher marginalized or disregarded the
stratification of GCB‟s staff population since the researcher‟s concern was not to
capture all the various sub groups within the entire staff of GCB (both Management
and non management staff). However, a conscious effort was made to make the
sample as representative as possible.
The sample population of this research is compartmentalized as follows; 350 non
managerial staff, 25 Retail /Operations Managers, 10 Heads of Department, 8 Area
75
Managers and 7 General Managers.
Members of the Board were not easily
accessible.
3.2.1
Population
The complete set of cases from which a sample is selected is called the population
whether it describes human beings or not (Saunders et al, 2007). Wikipedia notes that
it is a group of individuals or items that share one or more common characteristics
from which data can be gathered or analyzed. In the Oxford Advanced Learners‟
Dictionary, population is defined as all the people who live in a particular city,
country or area.
For purposes of this research the population of study comprises Management and staff
of Ghana Commercial Bankfrom the following sub groups; Management, General
Managers, Area Managers, Retail Managers, Operations Managers, Heads of
Department and non managerial staff totaling 2298.
3.4
Sources of Data
Both secondary and primary datawas collected for the purposes of this research. For
clarity, Saunders et al, (2007) define data as facts, opinions and statistics that have
been collected together and recorded for reference or for analysis.
3.4.1
Primary Data
Primary data is data that is used for a specific purpose for which it was gathered. For
this study, it was obtained by administering questionnaires to respondents, namely top
76
management, General Managers, Area Managers, Retail and Operations Managers of
GCB.
3.4.2
Secondary Data
Secondary data refers to data that is used for a purpose other than for which it was
originally obtained. It may be descriptive or explanatory (Saunders et al, 2007), raw
(unprocessed) or summarized (Kervin, 1999). They can be categorized into
documentary, multi-source or survey- based (Saunders et al, 2006). Secondary data
for the research was collected by reviewing textbooks, journals, articles, magazines,
publications, financial statements, industry reports, internal records of Ghana
Commercial Bank and newspapers such as the Business and Financial Times, and
publications like theGhana Banking Survey to gather historical perspectives of the
research data from renowned authors and researchers. Notable publications include
GCB‟s internal newletters The Eagle, Commerbank News and Quarterly Economic
Review. The bank‟s Planning and Research Department also came in handy with a lot
of data.
3.5
Data Collection Method
There are various methods by which both secondary and primary data are obtained.
Saunders et al, (2007) list questionnaire, interviews (semi-structured, in-depth and
group) and observation as methods that are usable. For this research the method
employed was the survey. The instrument used for the collection of relevant data for
the study was a questionnaire.
77
3.6
Questionnaire
This research instrument is a compilation of structured questions which were given to
respondents to elicit responses. The questions were close-ended multiple-choice
questions giving respondents a choice from a range of answers based on the 5- point
Likert-style rating scale. They had choices either to agree or disagree with the
statements made within the range. This was to ensure that the choice of answers
directly addressed issues at stake and make collation and analysis of the data simple.
On the scale, 1 is the lowest score and 5 the highest.
Majority of the questionnaires were electronically administered via the Bank‟s
intranet and e-mailed to staff. The rest were either hand delivered personally or
mailed to staff.
Furthermore, in-depth interviews were held with the managerial staff of Ghana
Commercial Bank Limited to solicit answers, opinions and suggestions on the study
because of the peculiar knowledge they possess on the subject under study. This
involved the use of semi-structured open-ended questions to allow for free, but brief
expression of relevant ideas, opinions and suggestions that might not have been
captured by the closed- ended questions.
The questions were grouped under six sections; Section A to Section E each with six
questions. Section A covered the demographic (personal) data of respondents and
included age, gender, marital status, educational background, income level etc.
Sections B to Section E were categorized under headings that dealt with each of the
evaluative indicators for measuring the impact of strategic competitive advantage on
corporate performance at GCB. Prior to administering the questionnaire the
78
importance of the research was explained to the respondents and they were
encouraged to be truthful and diligent with their responses to make the research
worthwhile.
3.7
Method of Data Analysis
After receiving the answered questionnaires, they were thoroughly examined to find
out if any corrections would be required. Subsequent to making the necessary
corrections on the questionnaires, the answers to the various questions were
coded.The study used descriptive tools in the analyses of the collected data. The
descriptive tools included bar charts, pie charts and tables to analyze the data
statistically. The reason for the choice of the above methods, was to give a pictorial
explanation to the textual presentation.
79
CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION OF RESULTS
4.0
Introduction
This chapter looks at the presentation, discussion and analysis of data collected from
the field. Research findings constitute very important stages of the research exercise.
It is an integral part of the survey and it is affected by its overall quality. The findings
are normally reported with respect to furnishing evidence for each research questions
asked to guide the study. This study presents the results of the study and the findings.
The findings focus essentially on the causes of competition, impact of competition
and the strategies taken to address competition in the industry.
Out of a population of 2298 staff, a sample size of 400 was chosen for the study.
Questionnaires administered to the 400 selected respondents were collated and
analysed.
Descriptive statistics was used in presenting the data. Frequencies, percentages and
charts were employed to explain certain points where necessary.This section gives
detailed information on the findings of the study and detailed discussion on responses
obtained from the various questions posed to the respondents as well as the analysis of
the findings.
4.1
Demographic Background of Respondents
Samples were selected based on targeted units using the non-probability sampling
method of random sampling, specifically Purposive Sampling. This method ensured
that representative samples of all the known elements of the population occur in the
80
sample. A sample size of four hundred (400), comprising fifty (50) managerial staff
and three hundred and fifty (350) non-managerial staff of the targeted population
responded to the administered questionnaires; Break down shown in Table 1 below.
4.1.1 Gender of the Respondents
Table 1: Respondents Distribution
Respondent Distribution
Male
Female
Total
(%)
Management Staff
38
12
50
12.50%
Non-Managerial Staff
111
239
350
87.50%
Total
149
251
400
100.00%
(%)
37.25%
62.75%
100.00%
As indicated in Table 1, 12.50% of the respondents were managerial staff, while the
non-managerial staff registered the remaining 87.50%. The research further revealed
that the administered questionnaires exhibited a ratio of 1:1.7 with regard to male and
female distribution respectively with the female almost doubling that of the male, as
illustrated in Figure 1 below.
81
Gender Ratio
Fig. 4.1
Male
Female
251
239
149
111
38
12
Management Staff
Non-Managerial Staff
Total
Source: Field Survey, 2010
The ratio is an indication of enough evidence that there are more women in the bank,
majority operating as frontline executives, particularly, as relationship managers and
tellers. Thus this is an indication that both men and women were fairly represented.
4.1.2
The Range of Ages
The ages of (staff) respondents are within the range of 18 to 58 years. The staff age is
skew distributed towards 18 – 49 years with the modal age group being 26 - 33 years
which represents 35.5% of the respondents; this was followed by the 18 - 25 year
group scoring 21.5% of the respondents and the 34 – 41 years group registering
20.00%. The 50 – 57 and the 58 - 60 year groups cumulatively constituted 10.50% of
the respondents as shown in Table 2 and Fig 2. Thus, the study indicates that GCB has
a mixture of large number of young and energetic workforce. Staff who are nearing
the retiring age (58 – 60) are in the minority, accounting for 6.75%. However, within
the next decade, the bank has to recruit at least 10.5% new workforce since the 50-57
and the 58-60 year would have retired.
82
Table 4.1.2: Ages of Employees
Age
18 - 25 years
26 - 33 years
34 - 41 years
42 - 49 years
50 - 57 years
58 - 60 years
Total
Frequency
86
142
80
50
15
27
400
Percentage (%)
21.50%
35.50%
20.00%
12.50%
3.75%
6.75%
100.00%
The above data is picturesquely represented below as Figure 2.
Figure 4.2: Ages of Employees
35.50%
21.50%
20.00%
12.50%
6.75%
3.75%
18 - 25 years 26 - 33 years 34 - 41 years 42 - 49 years 50 - 57 years 58 - 60 years
Source: Field Survey, 2010
4.1.3
Number of years worked with GCB
Table 3 depicts ranges of years within which the respondents had worked with the
bank as staff. Out of the 400 respondents contacted 133 (33.25%) employees had
worked with the company between 16-20 years; which is also the modal group of the
distribution. The study showed 109 (comprising 89 non-managerial staff [22.25%]
and 20 [5.00%] managerial staff had worked with the bank between 11 and 15 years.
83
Another 96 of the respondents had also worked between 6 and 10 years; closely
followed by 35 [8.75%] respondents having been with the bank between 1 and 5 years
and 27 [6.75%] for 21 – 25 years.
Table 4.1.3: Number of years worked with GCB
Frequency
Percent
Non-
Non-
Managerial Managerial
Managerial
Managerial
Years
Staff
Staff
Total
Staff
Staff
Total
1-5 yrs
32
3
35
8.00%
0.75%
8.75%
6-10 yrs
80
16
96
20.00%
4.00%
24.00%
11-15 yrs
89
20
109
22.25%
5.00%
27.25%
16-20 yrs
125
8
133
31.25%
2.00%
33.25%
21-25 yrs
24
3
27
6.00%
0.75%
6.75%
Total
350
50
400
87.50%
12.50%
100.00%
Source: Field Survey, 2010
84
The above data is picturesquely illustrated below as Figure 3.
Figure 4.3: Number of years worked with GCB
Figure 4.3
21-25 yrs
16-20 yrs
TOTAL
11-15 yrs
MANAGERIAL STAFF
NON-MANAGERIAL STAFF
6-10 yrs
1-5 yrs
0.00% 10.00% 20.00% 30.00% 40.00%
Source: Field Survey, 2010
4.1.4
Current Position Held
The various positions held by staff or role that the various respondents play at the
bank is represented in three (3) major levels (Lower, Middle and Senior). At GCB,
frontline executives and clerical roles constituted 87% or 350 of the 400 staff while
the middle level executives or supervisory roles which are basically Retail (branch)
managers and their deputies (Operations Managers) comprised 10.00% or 40 of the
respondents. Senior managers, Area managers and or department/Unit heads who
constitute the senior executives and were represented by 10 (3%) respondents,
picturesquely illustrated in Figure 4.
85
Figure 4.4: Current position held at GCB
Figure 4.4
10%
Current Position
3%
Lower Level
Middle Level
Senior Level
88%
Source: Field Survey, 2010
4.2
Information Systems
Respondents indicated several reasons for the strategic decision for the adoption of
computerization and networking of all the operations of the bank and its impact
thereof so far. Notable among them are:

To achieve efficiency in customer information management and to provide the
easy access to banking services at the customers‟ own convenience.

To strategically position the bank to survive and attain the requisite
competitive edge in the turbulent and intense industrial rivalry.

The computerization has increased shareholders‟ wealth; employees are
relieved of extraneous duties which hitherto were manually performed; government
receives increased income through taxation and the public welfare has always been
paramount in the provision efficient services
The research revealed that its nationwide network was affirmed by an overwhelming
100% respondents indicating that they „strongly agree‟; the same response went for
86
the notion, „GCB gives timely accurate report to clients‟. 87% respondents were
neutral to the notion that „GCB sends renewal notices electronically to clients‟, while
the remaining 13% disagree; and „GCB‟s ICT ensures accurate tracking and repayment of loans‟ had 65% agreeing, 24% neutral and 11% disagreeing.
Respondents provided recommendations for the improvement of information
technology management in the bank as listed below:

Operations Support Department and the Systems and IT Division should be
decentralized and

Specialized departments shouldbe provided with customized software to suit
their needs and enhance their operations.

The bank‟s intranet service should be optimally utilized to reduce most of the
paper work and thereby reduce customer waiting time at the various banking halls
which have always been a problem.

The staff should receive adequate training in order to utilize the ICT
infrastructure to its optimum level.

Network breakdowns should be totally eliminated, or conscious effort should
be made to reduce that canker to its barest minimum.
4.3
Competitive Advantage
The study brought to the fore the fact that GCB has a department whose sole
responsibility is on corporate planning and boasts of professional planning staff; its
General Manager is a member of the bank‟s Executive Management Committee; thus
indicating the extent of management‟s commitment to strategic planning and
management.
87
The research revealed that in general terms, GCB is implementing the cost leadership
strategy, though in certain instances the focus differentiation strategy is adopted. An
executive of the bank reiterated that it is cheaper doing business with GCB, hence the
huge customer base.
Even though the questionnaire provided slots for up to five strategic plans
implemented by the bank, responses indicated that the bank had since 1990
religiously implemented its strategic plans; and 99% of respondents showed that it has
over the years „positively‟ impacted on its general performance and output, while the
rest were not too sure. An executive buttressed the point that the strategy to fully
automate the operations of the bank by the use of ICT was aimed at enhancing
productivity and expanding customer access to the branches and ultimately increase
profitability.
When respondents were asked to indicate whether or not GCB enjoys competitive
advantage in the banking industry, 75% responded in the affirmative and 25% held a
contrary view. For those who indicated that the bank enjoys a competitive advantage,
they showed the following in the order of choice as the source of competitive
advantage; 76% for pricing strategy, 20% for distribution strategy, 3% for promotion
strategy and 1% or target market.
This research in the quest to ascertain the most important strategies currently been
operated vis-à-vis the competitive advantage it brings to the bank is illustrated below:
88
Table 4.1.4: The Most Important Strategy
Strategy
Frequency
(%)
Rank
Extensive branch network
143
35.75%
1
Large customer base
87
21.75%
2
Low bank charges
76
19.00%
3
Easy access to loans
69
17.25%
4
Key accounts held with bank
15
3.75%
5
Superior customer service
10
2.50%
6
According to 35.75% of the respondents, the extensive branch network is the most
important factor by way of contribution to GCB‟s competitive advantage. In second
place is the bank‟s large customer base for which 21.7% respondents voted. The
bank‟s low charges and transaction fees was adjudged the third most important factor
with 19.00%. Easy access to loans was ranked fourth with 17.25% followed by key
accounts held by the bank. Customer service showed just 2.5% (the least important of
the strategies that earned the bank any competitive edge).
On the issue of expressing opinion on how planning for strategic competitive
advantage could be improved at GCB, respondents volunteered the following:

The strategic plan must be abreast with recent positive developments in the
banking industry and the economy at large. It should capitalize on the oil find and all
that it brings.

Frontline staff should be involved in the drafting of plans for their valuable
inputs mostly advised by customer care.
89

The extension of branch network should be complemented with good
customer care to win and maintain customers including key customers lost.

The use of ICT to achieve competitive advantage cannot be over emphasized.

Work culture and customer satisfaction must be seriously tackled.
4.4
Image or Reputation
In general, GCB is seen as a bank with a good reputation. This is evidenced by the
over 80% positive response in favour of GCB‟S reputation. On branch ambience and
attractiveness of offices, the following responses were obtained; 45% strongly agreed
that GCB branches were attractive and pleasant, 40% also agreed with the assertion,
and the remaining 15% were neutral.
On the issue of GCB being a pacesetter in terms of product innovation, 35% agreed
with the statement, 12% were neutral, and 53% disagreed with the statement.
The bank is seen as a good corporate citizen, this was represented by 85% of
respondents, with the remaining 15% neutral on the matter.
90
Table 4.1.5: Image/Reputation
Image/ Reputation
GCB„s positive image
is as a result of
planning over the
years.
GCB offices are noted
for their attractiveness
and
pleasant
environment
GCB is recognized as
the
industry‟s
pacesetter in product
innovation.
GCB listing on the
GSE evidences its
financial discipline
GCB is one of the
leading
corporate
citizens in Ghana.
GCB is considered as
the all-round best
Ghanaian bank.
4.5
Strongly
Agree
5
Agree
Neutral
Disagree
4
3
2
Strongly
Disagree
1
0%
87%
10%
3%
0%
45%
40%
15%
0%
0%
0%
35%
12%
33%
20%
90%
10%
0%
0%
0%
65%
20%
15%
0%
0%
77%
23%
0%
0%
0%
Profitability
Research revealed that the profitability of the bank is guaranteed since GCB accounts
show increasing profits year after year, 89% of respondents see GCB as a profitable
company, with 11% remaining neutral. On viability, 10% of respondents strongly
agreed with the statement that GCB is viable, the remaining 90% also agreed on
GCB‟s viability. 90% of respondents alsosee GCB as having a good investment
portfolio just to mention a few. Details are shown in Table 6 below.
91
Table 4.1.6: Profitability
Strongly
Agree
5
GCB
accounts
Agree
Neutral
Disagree
4
3
2
Strongly
Disagree
1
89%
11%
0%
0%
10%
90%
0%
0%
0%
80%
10%
0%
0%
0%
99%
1%
0%
0%
20%
65%
5%
0%
0%
0%
88%
12%
0%
0%
21%
68%
11%
0%
0%
shows
increasing profit year after 0%
year.
GCB is a viable company
GCB
has
a
good
investment portfolio.
GCB listing on the GSE
evidences
its
financial 0%
discipline
GCB‟s investments yield
good dividends.
GCB
profit
ratio
is
consistent.
GCB‟s growth rate is slow
but consistent
92
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS,AND
RECOMMENDATIONS
5.0
Introduction
Globalisation is having a tremendous impact on industry. This has given rise to
intense competition across national boundries. Thus, organisations need to grow to
survive in such a globally competitive market place. The banking industry is not left
out as far as the rise in competition is concerned. To survive, the banks have adopted
different ways of realising competitive advantage of which Ghana Commercial Bank
is no exception.
Kotelnikov (2007), has observed that competitive advantage is a prolonged benefit of
implementing some unique value-creating strategy based on unique combination of
internal organisational resources and capabilities that cannot be replicated. This study
examines the strategies adopted by banks to gain competitive advantage in the
banking industry with particular reference to Ghana Commercial Bank Limited.
Specific objectives are:
 To analyze the current competitive strategies being pursued by the GCB,
 To diagnose the reasons for the success or failure of the strategies and suggest
alternatives.
 To determine the impact of GCB‟s strategy on the bank‟s performance.
 To assess the sustainability of the bank‟s competitive strategy
 To make recommendations to improve the strategic competitive advantage in the
industry.
93
In order to attain the research objectives the following research questions were posed.
 Whatstrategic competitive advantages are being adopted by GCB?
 Which strategies are perceived to give the GCB a competitive advantage/edge?
 Are the current strategies capable of surviving the industrial competition?
 Which strategies can best be practiced by the GCB to either gain or regain
competitive advantage?
5.1
Summary of Findings
Competitive Advantage
It was established that GCB enjoys competitive advantage in the Banking industry,
the main sources of the Bank‟s competitive advantage being its large geographical
spread of 157 branches and 11 agencies, and low charges for the range of services
rendered to the public.
Strategy
The bank is using a cost leadership strategy to achieve competitive advantage which
has been so far, working in its favour. The bank is enjoying the benefits of economies
of scale from its wide network of branches spread across the length and breadth of
Ghana resulting in a large customer base.
Information Systems
The bank‟s decision to computerize and network all its branches was a deliberate,
well thought out strategy to improve efficiency, customer information management
and also provide easy access to banking services. The study found out that the
94
computerization has strategically positioned the bank to survive and attain the
requisite competitive edge within an intensely competitive industry.
Access to Credit
Easy access to credit is not one of GCB‟s strongest points, it placed a distant fourth
when the bank‟s most important strategies were ranked. Thus the bank could do more
in terms of improving its loan application processes, utilizing IT to eliminate the
bureaucracy in its credit delivery system ie. forwarding most loan applications to the
Head Office Credit Committee.
Profitability
The bank‟s accounts show increasing profits year after year indicating GCB‟s
viability.
Customer Service
Customer serviceplaced last among six strategies ranked by respondents; indicating
the low level of importance attached to customer service in GCB.
Image/ Reputation
GCB enjoys a very good reputation which translates into goodwill and business for
the bank, despite the poor customer service.
Branch Ambience/ Aesthetics
Majority of respondents found the bank‟s offices to be unattractive, casting a very
negative impression on the bank‟s facilities.
95
Staffing Needs
The study indicates that GCB has a mixture of large number of young and energetic
workforce and personnel advanced in age nearing pension who are in the extreme
minority. However, within the next decade, especially, in the next two years
management has to recruit at least 10.50% new workforce since the older folks would
have retired.
5.2
Recommendations
In view of the findings of the research the following recommendations are made;
Customer Service
Customer service and turnaround time should be greatly improved to make
bankingeasy, quick and convenient. Modern queue management systems should be
employed to render excellent services to customers. The bank needs to train staff,
particularly those at the frontline to be more customer - friendly and focused so as to
meet and exceed the expectations of customers.
Branch Ambience
The bank must rehabilitate and modernize its branch buildings and facilities to keep
up with trends in the banking industry. The bank must make it part of its culture to
keep a physically attractive environment which would make customers very
comfortable even when they have to wait for longer periods of time.
96
Sustaining Competitive Advantage
Although, the bank is a cost leader, efforts must be made to step up its standard of
service so as no to suffer a negative perception in the minds of customers, which may
result in negating the gains from the cost leadership strategy.
Interest Rates and Charges
The bank should also take a second look at its interest rates to help get new customers
and stay competitive. GCB should be quick to respond to the frequent changes in the
market, especially cuts in Bank of Ghana‟s prime rate to avoid being under-priced by
its competitors.The bank could also lend to certain low-risk categories of customers at
very attractive rates in order to sustain its competitive advantage. Such low-risk
customers include public and civil servants, Ghana Education Service staff, Ghana
Health Service staff who are paid through the Controller and Accountant General‟s
Department. These categories of workers can have their loan repayments deducted at
source and thus minimize the rate of default.
Technology
The bank‟s ICT infrastructure should be regularly reviewed and updated to ensure that
they are using the most efficient technologies on the market. The current VSAT
(Very Small Aperture Terminal) technology in place at most of the branches should
make way for the faster Radio technology so as to reduce transaction times. The bank
should also improve its data back up systems to prevent the incidents of server down
time, and denial of service to customers as a result of communication link going
offline.
97
Staff Motivation
It is highly recommended that the bank retains a well motivated staff with proper
conditions of service and a good pay package since they are the resource tasked with
the duty of carrying out any policy and strategy to help it stay in competition, they
should organize proper training modules to upgrade the staff to help them acquaint
themselves with modern trends in banking operations.
Access to credit
The bank must streamline its loan application processes to make the bank competitive
in the area of short-term financing. Faster loan approvals are the order of the day, as
most of GCB‟ competitors are doing better in this area. The bank can hardly afford to
be left behind. In the same vein, the bank must increase the threshold of loans which
require approval by the Head Office Credit Committee by optimizing the use of IT in
its loan processes to speed it up.
5.3 Conclusion
The respondents fall between the ages of 18 to 60 and with such workforce the bank
can make long term plans to meet the competition in the market and help achieve its
goals and objectives. The competition in the banking sector has brought about a lot of
flexibility into the industry thereby resulting in prompt responses to customer
problems and innovative ways of rendering banking services.
The strategic decision to adopt computerization and networking of all the operations
of the bank and its impact was to achieve efficiency in customer information
management and to provide the customers easy access to banking services at the
98
customers‟ own convenience; to strategically position the bank to survive and attain
the requisite competitive edge in the turbulent and intense industrial rivalry;
computerization has increased shareholders‟ wealth; employees are relieved of
extraneous duties which were hitherto manually performed; government receives
increased income through taxation and the public welfare has always been paramount
in the provision efficient services.
In general GCB is implementing the cost leadership strategy, though in certain
instances the focus differentiation strategy is adopted. The extensive branch network
seems to be the major strength that GCB holds as competitive advantage and has thus
resulted in the bank acquiring the largest customer base in the industry. Customer
services, on the other hand showed just 2.5% (the least of strategies that earned the
bank any competitive edge).
The research revealed that the profitability of the bank is guaranteed since GCB
accounts increases year after year by the 89% response and 90% vote on its viability;
90% indicates that GCB has a good investment portfolio just to mention a few.
The study delved extensively into the operations of Ghana Commercial Bank and has
thus identified several issues of concern which affect the competitive position in the
market. The adoption and implementation of the recommendations made by this study
would in no doubt enhance the bank‟s competitive edge in the industry.
99
5.4 Suggested Areas for Further Research
The study is a case study of one particular banking institution however, every aspect
of competition could not be studied let alone taking some of the core variables of
banking and subjecting them to a more analytical study to determine the extent to
which they can withstand competition using quantitative methods. As a result, this
makes it more appropriate to subject some of the variables such as profit of the
company, market share to determine the exact effect of the competition on them. A
further study can thus be done in this regard.
100
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APPENDIX 1
QUESTIONNAIRE FOR MANAGEMENT AND STAFF
Dear Sir/Madam
You have been selected to respond to this questionnaire for the study of “Achieving
competitive advantage in the banking industry: (A Case Study Of Ghana Commercial
Bank)”. You are assured that any information you provide is solely meant for the
research and nothing else. Your response to the questions will be kept confidential.
Thank You.
SECTION A: Please complete this section by ticking the applicable box
1.
Gender:
2.
Age
Male [ ]
18– 25years
[ ]
26 – 33
[ ]
34 – 41
[ ]
42 – 49
[ ]
50 – 57
[ ]
Female [ ]
58 – 60[ ]
3.
Number of years worked with the bank
1 – 5years
[ ]
6 – 10
[ ]
11 – 15
[ ]
16 – 20
[ ]
21 – 25
[ ]
109
4.
State your current position held at the bank.
…………………………………………………………………………………………
…………………………………………………………………………………………
SECTION B:
INFORMATION SYSTEMS
1) GCB was among the first banks to computerize and network all its operations
in all its offices nationwide. What informed this decision?
…………………………………………………………………………………
………………………………………………………………………………..
…………………………………………………………………………………
2) How has the computerization of the Bank‟s branches positively or otherwise
affected the interests of various stakeholders of the bank over the period; customers,
shareholders, employees, government and the public?
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………… ………………………………………………………………
110
3) In the following table, please tick whether you agree, strongly agree or disagree
etc. with the statements below.
Strongly
Agree
Neutral
Disagree
Agree
Strongly
Disagree
5
4
3
2
1
GCB offices are
networked nationwide.
GCB gives accurate
report/ statements of
account to clients on
time.
GCB gives
timelyreport on
income.
GCB sends renewal
notices electronically
to clients.
GCB‟s ICT ensures
accurate tracking and
re-payment of loans.
4) What is your recommendation for the future improvement of information
technology management in the bank?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
111
SECTION C:
COMPETITIVE ADVANTAGE
1. Does GCB have a Corporate Planning Department?
Yes [
2. Does the Department have professional planning staff?
]
No [
Yes [ ]
]
No [ ]
3. Is the Corporate Planner a member of the GCB Executive Management
Committee?
Yes [ ]
No [ ]
4. How many Strategic Plans has GCB implemented?
Please tick.
1[ ]
2[ ]
3[ ]
4[ ]
5[ ]
5. How often does GCB review its strategy?
Monthly [ ]
Quarterly [ ]
Half Yearly [ ]
Annually [ ]
Others, specify
…………...............................................................................................................
6. a) Which generic strategy is being implemented by GCB?
a. Focus [ ]
b. Differentiation [ ]
c. Cost leadership [ ]
d. Others (specify) [ ]
b) Please provide reasons for your choice.
…………………………………………………………………………………………
……………………………………………………………………………..………….
...………….…………..………………………..………………………………………
7. a) How has GCB‟s strategic planning impacted on its performance?
Very positively [ ] Positively [ ]
Neutral [ ]
Negatively [ ]
Very Negatively [ ]
b) Please explain
…………………………………………………………………………………………..
…………………………………………………………………………………………..
………………………………………………………………………………………….
112
8. Does GCB enjoy competitive advantage in the banking industry?
Yes [ ]
No [ ]
9. If yes, what are the sources of competitive advantage enjoyed by GCB?
a. pricing strategy [ ]
b. distribution strategy[ ]
c. promotion strategy [ ]
d. target market [ ]
10. In the following table, please rank the following strategies in order of importance,
their contribution to GCB‟s competitiveadvantage by assigning numbers 1 – 6, with 1
being the most important and 6 being the least important.
Strategy
Rank
Superior customer
service
Extensive branch
network
Low bank charges
Large customer base
Easy access to loans
Key accounts held with
the bank
11. In your own opinion, how can planning for strategic competitive advantage be
improved at GCB………………………………………………………………………
………………………………………………………………………………………….
…………..………………………………………………………………………………
…………………………………………………………………………………………..
12. Is the source of GCB‟s competitive advantage sustainable in the long-run?
Yes [ ]
No
[ ]
113
13. In your own words, which aspects of the bank‟s strategy need improvement?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
114
SECTION D:
IMAGE OR REPUTATION
1. Inthe followingtable, please tick your extent of agreement or disagreement with the
following statements.
Strongly
Agree
Neutral
Disagree
Strongly
Agree
4
3
2
Disagree
5
1
GCB‟s positive
image is as a result
of planning over
the years.
GCB offices are
noted for their
attractiveness and
pleasant
environment.
GCB is recognized
as the industry‟s
pacesetter in
product innovation.
GCB is one of the
leading corporate
citizens in Ghana.
GCB is considered
as the all-round
best Ghanaian
bank.
115
SECTION E:
PROFITABILITY
1. In the followingtable, please tick your extent of agreement or disagreement with the
following statements.
Strongly
Agree
Neutral
Disagree
Agree
Strongly
Disagree
5
4
GCB accounts show
increasing profit year
after year.
GCB is a viable
company.
GCB has a good
investment portfolio.
GCB‟s listing on the
Stock Exchange
evidences its financial
discipline.
GCB‟s investments
yield good dividends.
GCB profit ratio is
consistent.
GCB‟s growth rate is
slow but consistent.
116
3
2
1