PART-2Leadership and management styles
Leadership is a concept which with its fluidity has the vision-centric, all inspiring ability to engage all the constituents while empowering them
Masihul Huq Chowdhury
PART-2
Steve Jobs saw a future in which consumers would move beyond the computer to use a range of electronic devices for entertainment and communication and then systematically rolled them out one step at a timethe iPod, iPhone, and iPad.
Strategic management is the comprehensive collection of ongoing activities and processes that organisations use to systematically coordinate and align resources and actions with mission, vision and strategy throughout an organisation. Strategic management activities transform the static plan into a system that provides strategic performance feedback to decision making and enables the plan to evolve and grow as requirements and other circumstances change. Strategy Execution is basically synonymous with Strategy Management and amounts to the systematic implementation of a strategy which is generally prepared for a time line of 3 to 5 years.
There are many different frameworks and methodologies. While there are no absolute rules regarding the right framework, most follow a similar pattern and have common attributes. Many frameworks cycle through some variation on some very basic phases: 1) analysis or assessment, where an understanding of the current internal and external environments is developed, 2) strategy formulation, where high level strategy is developed and a basic organization level strategic plan is documented 3) strategy execution, where the high level plan is translated into more operational planning and action items, and 4) evaluation or sustainment / management phase, where ongoing refinement and evaluation of performance, culture, communications, data reporting, and other strategic management issues occurs.
A strategic plan document generally is based on the following
1. Uses a Systems Approach that starts with the end in mind.
2. Incorporate Change Management and Leadership Development to effectively transform an organization to high performance.
3. Provide Actionable Performance Information to better inform decision making.
4. Incorporate Assessment-Based Inputs of the external and internal environment, and an understanding of customers and stakeholder needs and expectations.
5. Include Strategic Initiatives to focus attention on the most important performance improvement projects.
6. Offer a Supporting Toolkit, including terminology, concepts, steps, tools, and techniques that are flexible and scalable.
7. Align Strategy and Culture, with a focus on results and the drivers of results.
8. Integrate Existing Organisation Systems and Align the Organization Around Strategy.
9. Be Simple to Administer, Clear to Understand and Direct, and Deliver Practical Benefits Over the Long-Term.
10. Incorporate Learning and Feedback, to Promote Continuous Long-term Improvement.
Bangladesh Bank has launched the 2nd 5 year strategic plan in 2015. All the scheduled banks must also prepare the strategic plan document for five years with a focus on inclusive banking, environment friendly, automation, transparency, enabling culture for employees with an ultimate objective of satisfying all the relevant stakeholders including customers, regulators, shareholders and the entire nation as a whole. Needless to mention that resource constraints remain a challenge to get the desired outcome in fullest but proper implementation of the policies, business ethics be the driving force for excelling business performance towards achievement of the desired goals.
The annual exercise of budget process is also the best time to evaluate the gaps from the desired outcome as stated in the 5 year Strategic Plan and if need be the corrective measures can be adopted to rectify the situation so that the bank moves in the right direction of achieving the goals as set in 5 years Strategic Plan. Overall, CAMELS rating along with the rating of each individual components; credit rating; customer satisfaction measure matrices; employee turnover; reach of the branding are some of the annual report card or balanced scorecard approach that will help the organisation to adopt the corrective measures promptly and accordingly.
Minimum Capital Adequacy Requirement (CAR) of a Bank as per regulatory requirements is 10 percent of the weighted risk. Which means the total weighted risk associated with total funded and non funded exposure as per the weight assigned on the basis of nature of facilities, collateral taken and the classification status of the entire bank portfolio not to go below 10 percent of tier 1 capital of the bank. That is why it plays a very important role to understand the direction of growth incorporated in the strategic plan and the capital plan of the bank to fund this growth. These two plans need proper synchronisation to ensure that the CAR is maintained accordingly under various level of shocks like moderate and severe shock. The level of non performing loan therefore along with eligible collateral play a significant role.
That brings the second pillar Asset Quality in to discussion. The diversified portfolio approach including Corporate, Retail, SME, Agricultural Loans ensuring green banking. The proper credit analysis, credit documentation and ensuring recovery will help quality of assets and the robustness.
Management efficiency and effectiveness in terms of discipline, governance, social responsibility lays the direction towards successful and on time implementation of Key Performance Indicators (KPI) and milestones laid in the strategic plan. Human capital is one of the key resource of a bank. Proper recruitments, Training, Retaining and ensuring performance culture in a compliant manner are few of the parameters which should be the integral part of the strategic plan. Automation and driving the business through automation, developing new products adhering to compliance issues will broaden the base of the business.
A bank earns primarily through two streams which are net interest income and fees, commission, charges combining to net fee income. Keeping the cost of funds low, arresting interest in suspense helps the bank to keep the customer lending rate low which will enable the bank to have a solid base of good borrowing customers. On the other hand, proper service quality will help the bank to earn more customers using general services, international trade, treasury products which will help increase net fee income. The gradual and steady upward trend in earnings of the bank with no element of surprise will help the bank to achieve long term sustainability.
Liquidity of the bank is very critical. High liquid situation indicates that there is huge idle fund which the bank is not able to lend. It may be due to country investment situation or may be that the bank is extremely conservative in lending thereby missing the opportunities to increase earnings. On the other hand, tight liquidity may indicate that the bank may not be able to keep its payment obligations on due time which may push the bank to borrow from other banks at a higher rate. This may eventually result in to deterioration in reputation of the bank.
Sensitivity tests are equivalent to health check of a living being. Whether the bank is able to absorb the shock, what are the trigger points set to review if any of the indicators going bad, what is the management action plan under the stress case scenario are of major importance. The way the local banking industry is now being integrated with global banking industry, it is time critical that our industry must adopt and practices the stress tests successfully considering risks related to Credit, Treasury, ICT, Assets Liability management (ALCO), Anti Money Laundering and Terrorist financing, Internal Compliance. The banks deal in with peoples money, so confidence and reputation related risks also to be conducted regularly.
How a sole trader in the Singapore trading floor betting on Nikkei future made 822 million loss in 1995 which brought down the oldest British Investment Bank Barring Brothers is a case study. The book titled Rogue Trader and the subsequent movie made in 1999 has shown how vulnerable a bank can be. Another nerve wrecking scam story that took place in India which got unearthed by a reporter named Sucheta Dalal. Harshad Mehta, the flamboyant trader cheated many banks including a number of foreign banks and played big in stock market. The financial impact was around INR 4,000 crore in those days! The Chairman of one of the banks even committed suicide. Indian Government had to bring in wholesale regulatory reforms post this scam. The financial engineering gets a newer dimension by these innovative fraudsters. The major reasons for such occurrences remain common and that is excessive greed or making higher profits. Let there be light and the journey for excellence and sustainability rather than performances which may put the banking industry go through the grey area of uncertainties. We can wish and pray for all the banks to have their 5 years strategic plan to be effective and accomplish the successful journey to greater level of achievements. This will enable the overall financial health of the country can be in a jovial mood in the coming days.
Concluded
The writer, a banker by profession has worked both in local and overseas market with various foreign and local banks in different positions
