- 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
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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
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