Assignment:
1. Strategic Positioning in Banking
Read the required Roy article. Respond to the following:
a. How does the strategic planning of a multi-unit business organization pose constraints to its profitable growth?
b Why do banks lose profitability as they grow bigger?
c. How can product categories (loans, deposits, payment, fund transfer, custody, etc), customer segments (business, professionals, pensioners, salaried, etc), and geographical units (country, region, district, city, etc.) be better developed to achieve long-term sustainability in the bank industry?
How Strategic Planning of a Multi-Unit Business Poses Constraints to Profitable Growth
Market positioning and capacity utilization can pose constraints to a bank's profitable growth. . As banks expand into different markets and lines of businesses, they grow in size and complexity. An important aspect of planning in a multi-unit enterprise such as a bank is about achieving allocative efficiency. Allocative efficiency refers to achieving the right combination of inputs to produce outputs, leading to the best possible utilization of market potential as well as resource capacity. (Roy, 2011)
Why Banks Lose Profitability as they Grow Bigger
Banks lose profitability as they grow bigger because as the number of units increase, the planning process might lose the portfolio view. This impedes the synergy gains causing loss of allocative efficiency. Research has shown that customers of banks are not fully receiving what they want or need and their expectations, are not being met. (Akdag & Zineldin, 2011)
How Product Categories, Customer Segments , and Geographical Units can Achieve Long-
Term Sustainability in the Bank Industry
The BCG market share can help to assess the growth and profit potential of business regions in regards of their deposit and advance markets and the superimposition of the industrial model of cost-capacity position to assess the existence of production economies and resource requirements. This will help the businesses gain long term sustainability. Business planning in banks must address both market and capacity factors together in order to ensure meeting of growth and profit objectives together. (Roy, 2011)Failure to meet these standards will make growth without profit and unsustainable.
References
Akdag, H., & Zineldin, M. (2011). Strategic positioning and quality determinants in banking service. TQM Journal, 23(4), 446-457. doi:10.1108/17542731111139518
Roy, A. (2011). Strategic positioning and capacity utilization: Factors in planning for profitable growth in banking. Journal of Performance Management, 23(3), 23-58. Retrieved from the ProQuest ABI/INFORM Global database
Discussion response 2
Read the required Roy article. Respond to the following:
a. How does the strategic planning of a multi-unit business organization pose constraints to its profitable growth?
There are many factors that can constrain growth as it relates to strategic planning of multi-unit business organization. According to Roy (2011), some studies discovered that larger size banks "have an inverse impact upon profitability. (para. 2) Furthermore, large banks simply are not as equipped in funding costs over smaller banks and that smaller community type banks are higher in profitability than regional and larger banks. (However, other studies have noted that there is a correlation between profitability and size of bank but only with small and medium groups.) One reason is the large banks struggle with strategic planning around their multi-unit organizations. External factors such as the state of the economy and industry as well as target markets make strategic planning difficult. The internal factors that contribute to this are the network of the branch, technology, and even customer relationships. Essentially, all these factors and considerations become too overwhelming for large banks.
b. Why do banks lose profitability as they grow bigger?
Roy (2001) describes it as banks just want to be bigger and bigger with the intent or expectation of being "too big to fail". Sarkis (1999) noted that the output prices of banks decreases as their size increases simply because they go from focusing on retail to more diversified products as they expand into more markets; they are not planning at the pace they grow but rather at the size they wish to become. (Roy. 2011)
c. How can product categories (loans, deposits, payment, fund transfer, custody, etc), customer segments (business, professionals, pensioners, salaried, etc), and geographical units (country, region, district, city, etc.) be better developed to achieve long-term sustainability in the bank industry?
This is all about allocative efficiency which refers to the achieving the appropriate combination of inputs to then product desired outputs. They also must plan for market penetration and evaluate it through in depth market analysis.
Roy, A. (2011). Strategic positioning and capacity utilization: Factors in planning for profitable growth in banking. Journal of Performance Management, 23(3), 23-58. Retrieved March 12, 2014 from the ProQuest ABI/INFORM Global database