The strategy of bank as a conceptual component of its activities

Table of contents: The Kazakh-American Free University Academic Journal №7 - 2015

Author: Nepshima Victoria, Kazakh - American Free University, Kazakhstan

Currently, banks are the center of finance capital in the market. The nature of the banks, as a special financial institution, is defined as at least three groups of traditional banking operations, which only they can perform for their clients in the aggregate. They are opening and maintaining bank accounts; attraction of money in deposits (acceptance of deposits); placement of attracted and own funds on their behalf and at their own risk under the terms of repayment, urgency (granting loans) [1].

More detailed approach to this concept is needed in modern conditions of economic development and consideration of the object of bank management should be considered on all sides.

Every single bank is a system of interconnected elements, such as organizational structure, functions and activities, information technology and personnel, work processes taking place in the bank. The management system is the organizational interconnect structure. However, the ideal picture is not presented, this system does not always work in some Kazakh banks, therefore, the question is about the effectiveness of the bank.

In our opinion, the above approaches to the definition of the bank as a control object are not entirely clear. It is important to include not only the operations performed by the bank into this concept but the mechanism of the organization of bank management, bank employees, organizational structure, strategy and tactics of the bank, which will be reflected in its work as part of economic modernization of economy of Kazakhstan.

In this article, we will address the issue of strategy of the bank, as a conceptual component of all its activities.

Goals and objectives of the bank, ways of achieving the intended direction and development of the existing to the selected target state are defined in the strategy. The chosen strategy should be focused on new market future products, potential new risks that arise at all levels of the bank, a new organizational structure in a modernized economy. That is the strategy will provide the foundation for all of the bank's management, as detailed and comprehensive and integrated plan that provides the mission and goals of the bank.

The strategy is most often developed and approved by senior management of the bank, however, it is not the right approach. Implementation of the strategy involves the participation all levels of the bank in this process, respectively, its foundations should be formed and be specified at all levels of management. In addition, the strategic guidelines should be confirmed and substantiated by analytical data, especially this thesis acquires relevance in a systematic modernization of the economy, where it is important to know not only their competitors, but also its allies in achieving state goals [2].

The Strategic Plan provides a long-term program of development, so it should be holistic and at the same time be flexible enough because conditions of the bank and its orientation in the market may change in the conditions of the modernized economy. The choice of strategy also defines the policy of hiring and managing staff. Bank, following the chosen strategy, begins to attract a certain type of workers, to manage own and borrowed financial resources and in the chosen direction. In the context of the modernization of the economy, it is important to determine the bank's development strategy as focused on the goal of modernization, financing high-tech and innovative projects, giving preference to lending not only small and medium, but also big business, to encourage young scientists and the sphere of material production.

The structure of strategic management is characterized by the following elements, presented in Figure 1.

Figure 1 - Structure of Strategic Management by data [2]

It is also possible to define some of the basic provisions of the strategy of the bank (Figure 2).

Figure 2 - Summary of strategy [compiled by the author according to the source 2]

The need to focus and deep specialization can be represented as follows: it is important to raise the level of interaction with customers. In the context of the modernization, large industrial, processing and construction companies that require funding for their projects become customers of the bank. In these circumstances, it is important for bank to rely on large-scale financing projects, to prepare specialists, analysts, who could undertake a risk assessment of each investment, and for this they must be sufficiently competent not only in the field of financial relations, but also in the production plan.

Under this principle, it is possible to focus efforts of the bank on specific customer channels. This is groups of customers with similar demands or sectors of activity.

Most often, banks work on a system of traditional marketing with a focus on the sale of specific financial services. However, there is such a thing as a marketing channel, which involves the study of the information environment of the selected preferred client channels. It implies the supply of potential customers information about the bank, its strategy and readiness to finance planned projects, regardless of project size. This creates an aura of large-scale bank and financial strength.

The other side of this issue is focused on the realization of awareness of the needs of a large client. Here it is not so much about the orientation to the needs of the finance function, but rather on production and material divisions - sales department, procurement, and logistics. This approach is dictated by the fact that it is necessary to control not only financial risks but also pay attention to the specific problems of production and construction. That is, the bank will build a pricing strategy, focusing not only on the general market situation in the banking market and the competition in one form or another of lending, but take into account the real needs of customers, taking into account the price of loans of only those banks that matches the client channel selection [3]. Returning to the question of modernization, it can be assumed that not only the individual firm and the company will face a number of new problems and needs, but also government agencies may have finance help from banks.

This implies the second element of the strategy of the bank. It is development of new financial products and marketing activities to promote them.

As already mentioned, it is important to remember about your competitors, so you need to "know in person" banks that operate with the same client channels. Large-scale projects dictate financial institutions to reflect the introduction of new products. It can be contract with a major leasing company or development in this market niche by itself or the introduction of financial advisory companies help in choosing the loan program and assist the company in the event of difficulties with payment of the loan.

In the modernized economy, banks must have a sufficiently large amount of money to fully fund this or that project. To do this, it is important not to lose customers, investors, attracting them favorable interest rates, with all sorts of discounts, sweepstakes gifts, benefits and discounts, etc. There is often a situation where banks lose relationships with customers, which trust bank to manage its financial activities. It happens because there is a lack of centralized accounting system of relationships with customers in the bank. That is, the bank is not able to organize their clients, encourage them, etc.

Third principle strategy follows from these provisions. It is directing the work of the bank on hold regular customers of the bank by providing them with all sorts of privileges and prediction of their future needs.

Modern banks base their organizational structure along functional lines, that is, each unit implements entrusted part of work. In this case, each unit works with individual client to the extent of his needs and the amount of needed services. For example, a client may be a major contributor, and deposit department refers to him as a vip-client, while another division of the same bank considers the same as an ordinary customer. In such situation, the overall quality of customer service decreases and the customer can leave the bank. There is another side of client relationships that should be regulated. The client may be uncomfortable or inconvenient contact with different managers of the bank on various issues. It is more convenient for particular company or individual client to communicate with one representative of the bank, which will be able to give the necessary advice on the different areas of customer service. As already mentioned above, custom channels for banks will be formed in the modernization and one manager will be able monitor and adjust the work of the bank on each group of similar customers or with each company and do work only with it. That is necessary to create a sort of institute of personal or corporate managers.

This implies the following strategy of bank - system of personal or corporate management for the industry as a whole, the client audience that are arranged on a specific feature or for individual clients.

Indeed, it is important to remember that production staff and information is the main factor of the sphere of immaterial. Truism of HR states that employees, regardless of their location in the bank should be interested in how to effectively carry out their work for the benefit of the bank as a whole. In addition, the bank should be interested to retain valuable employees, as some customers may leave bank with the departure of the employees of bank. It takes significant portion of time and money for searching for a new employee.

The fifth component in the formation of the bank's strategy is guarantee employee a fair evaluation of its contribution to the bank's results, therefore, material rewards and career growth.

In the context of the modernization of the economy, when more and more attention is paid to the concept of investment, it is important to position the bank as an investment institution, focusing the state and leading enterprises on the capability to finance the planned events. If the bank considers to finance the modernization processes in the economy, then eventually it will establish a clearly developed technology of project financing, whereby the costs will be reduced and the possibility of establishing for major clients competitive rates will rise.

Reasonable rates for both parties are good incentive for companies to establish long-term relationship with the client. If the bank is committed to funding innovative projects, then the product specialization can be supplemented with favorable conditions for specific individual enterprise, as well as for the entire customer lines operating in this area. Consequently, the contribution of the bank in the development of one of the priority sectors of the economy increases significantly.

The next requirement of the bank's strategy states that it is necessary to increase the motivation of customers by providing a selected bank services at competitive conditions. It should be noted that communication between the bank and the customer must be affiliated in the modernization of the economy. That is, the relationship should be based not "top to bottom" but on an equal footing. In this case, the bank should not take precedence over the client and dictate its terms. Relationships are becoming partnership, which leads to their longevity, which is important for the bank. As lack of customers is a direct threat to business and development of not only the bank, but also the goals of modernization.

It is important to select customers based on the possibility to match the scale of clients’ business with the bank itself in order to implement this principle. That is, if the client is a fairly large and his project requires a large initial investment, the bank must not yield to the scale of such customer. Only then the relationship will be based on partnership.

Any bank plans to successfully develop and establishes the scope of its activities at the beginning of his work. Emphasis should be placed on the major banks, such as "BTA", "Kazkombank", "Bank Center Credit" within the modernized economy. The scale of the bank is important for both staff and clients of the bank, as it plays motivating role for staff and it is an indicator of the reliability of the bank and another criterion for establishing partnerships.

Hence the eighth positions of strategy formed - setting the scale of business to increase the rating of reliability and stability, improve the bank's reputation.

The bank, which will be able to develop an appropriate strategy and develop primarily those areas that will be relevant in the circumstances, will have competitive advantage in terms of modernization. It is important to remember that the environmental conditions could be changed. Also do not forget about the foreign competitors. Therefore, a large role will be assigned to the bank's ability to change the strategy in response to the changes and update the structure.

It is important to note that any employee of the bank should be familiar not only with the strategy, but also he should  refer to it in carrying out a work. Each employee of the bank should be guided by the strategy in decision making, in the performance of duties, in the event of disputes. The strategy should be clear to all employees without exception, to answer the question how it relates to the activities of all divisions of the bank.

When the task is strengthening the bank's position in the market, strategy should serve as a tool of corporate governance in the context of modernization of the economy. If the bank has built its strategy in such  way that it is clear for the owners, board members and customers, while strictly adheres to it, then there is no doubt that this fact will be fundamental in choosing financing business partner.

Let us consider the system of strategic management.

Banking strategy can be defined as a set of actions aimed at achieving a sustainable competitive advantage of the bank.

Set of actions includes the following decisions:

- selecting a strategic position;

- identifying one or more sources of competitive advantage;

- development of the business concept;

- creating systems of interaction with the consumer [5].

Strategic planning should include the development of a strategic vision and development strategy. The last one includes:

1) development of strategic planning elements (goals, indicators, projects, budgets, etc.);

2) development of strategic plans and objectives;

3) the development of a balanced scorecard (BSC);

- distribution of indicators on business processes;

- business planning and strategic budgeting [6].

When the bank starts the implementation of the strategic plan, management should take into account the motivation of staff to implement the strategic objectives, correctness of project management and business processes in the implementation of strategic goals, completeness and correctness of the necessary resources, control over management decisions and operational implementation of the tasks at all levels of management. It is important not to lose control and regulatory measures aimed at changing the parameters of action under varying conditions.

The following structural units of the organizational structure are engaged in the implementation of all the above activities:

- The Board and the owners of the bank.

- Division of Strategic Planning.

- Economic planning unit.

- Organizational unit of Corporate Development.

- Project Office.

- Strategic Committee.

The strategy was taken into accounts at first in the concept of strategic management, developed several decades ago on the basis of postulates that reflect patterns of the period of "sustainable growth". Also it was considered as a plan, a detailed program of action, based on the choice of one of their well-known "standard" strategies.

However, this approach requires a vast array of information processing within the global crisis - moreover no guarantee of success. Nowadays set of strategic planning procedures, that was made several decades ago, does not bring the expected results. Therefore, there is no consensus on the methodology of strategic planning in modern economic science.

Give several authoritative statements of the western authors in support of this statement:

- “there is dissatisfaction with the static equilibrium and analytical scheme proposed by the economic theory of industrial organization, which dominated much of the work on the business strategies” (Grant 1991) [7];

- “the experience of recent decades has shown that up to three quarters of the effort invested in strategic planning, were completely unsuccessful, ... over the past twenty years, the most successful companies in the USA did not have any of the "typical" competitive advantage” (Cameron, Quinn 1991) [cited by 8];

- “strategic planning loses its meaning in a dynamic environment, where key conditions for survival are flexibility and ability to quickly respond to instantly appear and disappear opportunities” (Mintzberg, Quinn 1998) [9];

- many different approaches to understanding the strategy was proposed, there was even developed their typology. Mintzberg has devoted her entire book review, highlighting ten different "schools of strategies" [10].

- but in the end “all this has led to displacement strategy of the companies” (Porter 2004) [11].

The last M. Porter definition strategy is:

“The strategy is search and development of the individual, unique way of competition; develop special kind of value (goods), rather than an attempt to produce the same kind of value (goods) just better; endless process” [11].

Thus, the choice of strategy is the choice of the direction of the myriad of options ("strategic alternatives"). This choice must be done necessarily. Of course, the selection a list / classification of possible "coping strategies" can be created in order to facilitate the choice. But it is not necessary to adhere once someone compiled list.

Because the strategy is, first of  all, unique mode of action, a set of rules for decision-making (and subsequent programming), which the organization is guided in its activities. The main value of the strategy is its uniqueness, that no one had gone that way. Its developing is implementing "here and now". "Yesterday" and "tomorrow" for optimal organization have been and will probably be completely different strategy; and it must begin with an understanding of their own, individual and unique list of alternatives of choice.

The information base for strategic management of the global crisis becomes:

- no analysis of the development of the market in the past (trends and tendencies of previous years can change its direction at any time);

- but analysis of future: risk assessment in the creation and promotion of various variants of the new product, based on an analysis of its specific properties.

In modern conditions, the development of strategy of the organization should be understood not as the development of "a clear program of action" (use of information technology and special software enables to automate this process), but as inventing a new set of rules for decision-making, a set of alternatives to select unique mode of action. For example:

- new product, as an individual, unique way of competition;

- new organizational system (corporate culture, the internal environment of the organization), which would provide timely, dynamic and painless change of these new products, strategies which are based on risk monitoring (Project Risk Management).

The information base of strategic management in the modernization of the economy should not be an analysis of past experience, because the market trends and the situation can change (as well as modernization - the way toward the new economy), but the forecast of the future: risk assessment in the creation and promotion of various new options products based on an analysis of its specific properties.

In terms of modernization, selection of the bank's strategy should be based on the development of a unique product or a new approach to the management of the system of bank management.

RESOURCES

1. Svyatova M.A., About the formation of the competitive environment in the regional banking markets // Bank of Kazakhstan. - 2010. - №8. - p.18-23;

2. Bohr, M.Z., The Bank's management: organization, strategy, planning [Text]: studies. / M.Z. Bor, V.V. Pyatenko. - M.: Business and Services, 1997. - 284 p.;

3. Bank Management: Dr. Economic Sciences, prof. O.I. Lavrushina. - 2nd ed., Rev. and add. - M.: KNORUS, 2009. - 560 p.

4. Kolesnikov V.I. Banking [Text]: studies. for schools / V.I. Kolesnikov. - 4th ed., Rev. and add. - Moscow: Finance and Statistics, 2000. - 580 p.

5. Sklyarenko V.V., Bank Management: Textbook - SP .: Pub. SPSUEF 2009 - 108 pp., 2009.

6. R.A. Isaev, Business architecture and system management of the bank, "Managing in a credit institution", №4, 2009.

7. Grant R. М. The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation // California Management Review, 1991. Vol. 33. N 3. P. 114-135.

8. Cameron K.S., Quinn R.I. Diagnostics and changing organizational culture St. Petersburg: Peter, 2001. - 460 p.

9. Mintzberg H., Quinn J.B. Readings in the Strategy Process. 3rd edition New Jersey: Prentice Hall. 1998.- 240 р.

10. Mintzberg H., Alstrend V., J. Lempel. Teaching strategies / lane. from English. - St. Petersburg: St. Petersburg, 2000. - 340 p.

11. Hodzhetts R. Michael Porter about new strategies to improve the management. Quoted by: National Business, June 2004, №5 (8) -p 65 Full text of the interview in Russian, see: // Website E-xecutive http: // www. management. com.ua/



Table of contents: The Kazakh-American Free University Academic Journal №7 - 2015

  
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