AN ANALYSIS OF THE IMPEDIMENTS TO STRATEGIC MANAGEMENT IN THE NIGERIAN BANKING INDUSTRY

ABSTRACT

It is no gain saying that Nigerian banking and financial system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as the scale of operations driven largely by the deregulation of the financial sector in line with the global trend. The aim of the study is to analyze impediments, determine and ascertain the causes of resistance to changes in strategic management practices by bank management as well as proffer solutions on eliminating such impediments to strategic management practices in Nigerian banking sector. In this study, descriptive statistics was used to describe quality and quantity raw data on the impediments to strategic management in the Nigerian banking industry. It is important to note that a thorough understanding of descriptive statistics is essential for effective use of all normative  and  cause-and-effect  statistical  techniques,  including hypothesis testing, correlation, and regression analysis.   In conclusion, the result of the analysis ‘showed that banks have really developed new ideas to contend with impediments to strategic management  through new technology, new products and services, competent human resources and strategic branch locations to enhance performance and profitability.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments (Nag et al,2007).  It entails specifying the organization’s  mission,  vision  and  objectives,  developing policies  and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs (Johnson and Scholes, 2008). A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced score card which includes all stakeholders. Strategic management is a level of managerial activity under setting goals and over tactics.

Strategic management provides overall direction to the enterprise and is closely  related  to  the  field  of  Organization  Studies.  In  the  field  of business administration it is useful to talk about “strategic alignment” between the organization and its environment or “strategic consistency”.

According  to  Arieu  (2007),  “there  is  strategic  consistency  when  the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context.” Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structuredified balanced scorecard Strategic management is an ongoing process that evaluates and controls  the  business  and  the  industries  in  which  the  company  is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented  and whether it has succeeded or needs replacement by a new strategy to meet changed   circumstances,   new  technology,   new   competitors,   a   new economic   environment.,   or   a   new   social,   financial,   or   political environment (Lamb, 1984) which includes all stakeholders.

According to Bracker (1980), “although different definitions of strategic management have been proposed there appears to be a common focus among scholars about the key aspects or elements that form the current structure of strategic management”.  Thompson, et. al. (2008), and Dobes and  Starkey (2006) propose the elements of  strategic  management to include strategic analysis, strategic choice and strategy implementation.

Dess and Miller (1993) and Lynch (2000) argued that strategic management involves environmental and capability analysis, strategy formulation  and  strategy  implementation  and  control  on  an  on-going basis. Boyd and Reunning – Elliot (1998) identify mission statement, trend analysis, competitor analysis, long-term goals, annual goals, short- term action plans and on-going evaluation as the key indicators that can be used to measure the strategic planning and management construct.

Banks have a strategic role to play in the nation‘s economic development. This is hinged on their basic function as financial intermediaries, mobilizing  vital  savings  from  surplus  economic  units  and  channeling same to deficits units. An efficient financial system is widely accepted as a necessary condition for an effective functioning of a nation’s economy. The state of development of the financial market in a country serves as barometer for measuring the stage of development of the economy. The mix of  these  financial  intermediaries varies from  country  to  country, reflecting the stage of development and the degree of sophistication of the country’s economic agents (Abdullahi, 2003). Thus, it is imperative that the banking system be healthy in order to fulfill its many expectations, chief among which is the provision of the financial catalyst for the attainment of economic progress, reduction in poverty and general improvement in the living standard of the people (Eboreime, 2009)

A review of developments in the Nigerian banking and financial system indicates that the banking sector has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as the scale of operations driven largely by the deregulation of the financial sector in line with the global trend (Ogunleye, 2005). As at the end of 2004, insured banks stood at 89 with various sizes and degrees of soundness. The sector generally enjoyed a stable operating environment until the July 6, 2004 announcement of the CBN which introduced a major policy initiative affecting the sector.

1.2 INTRODUCTION OF BANKING SYSTEM IN NIGERIA

The banking operation began in Nigeria in 1892 under the control of the expatriates and by 1945, some Nigerians and Africans had established their own banks. The first era of consolidation ever recorded in Nigeria banking industry was between 1959-1969. This was occasioned by bank failures during 1953- 1959 due mainly to liquidity of banks (Somoye,

2008). Banks, then, do not have enough liquid assets to meet customers demand. There was no well-organized financial system with enough financial instruments to invest in. Hence, banks merely invested in real assets which could not be easily realized to cash without loss of value in times of need. This prompted the Federal Government then, backed by the World Bank Report to institute the Lyons commission on September

1958.  The  outcome  was  the  promulgation  of  the  ordinance  of  1958, which established the Central Bank of Nigeria (CBN).

The year 1959 was remarkable in the Nigeria Banking history not only because of the establishment of Central Bank Nigeria (CBN) but that the Treasury Bill Ordinance was enacted which led to the issuance of our first treasury bills in April, 1960. The period (1959–1969) marked the establishment  of formal money,  capital markets  and  portfolio management in Nigeria.  In  addition,  the company acts of 1968  were established. This period could be said to be the genesis of serious banking regulation in Nigeria. With the CBN in operation, the minimum paid-up capital was set at N400, 000(USD$480,000) in 1958. By January 2001, banking sector was fully deregulated with the adoption of universal banking system in Nigeria which merged Merchant bank operation to Commercial banks system preparatory towards consolidation programme in 2004(Somoye,2008).

The proliferation of banks in the 1990s which also resulted in the failure of many of them, led to another recapitalization exercise that saw bank’s capital being increased to N500million(USD$5.88) and subsequently N2billion(US$0.0166billion) in   2004 with the institution of a 13-point reform agenda aimed at addressing the fragile nature of the banking system, stop the boom and burst cycle that characterized the sector and

evolve a banking system that not only could serve the Nigeria economy, but also the regional economy (Somoye, 2008). The author explained that the agenda by the monetary authorities is also agenda to consolidate the Nigeria banks and make them capable of playing in international financial system. However, there appears to be divergent between the state of the banking industry in Nigeria vis-à-vis the vision of the government and regulatory authorities for the industry. This, in the main, was the reason for  the  policy  of  mandatory  consolidation,  which  was  not  open  to dialogue  and  its  components  also  seemed  cast  in  concrete  (Somoye,

2008).

The Nigerian banking environment has witnessed tremendous changes before and during the global financial crisis with a gradual transformation from transactional orientation to customer service-orientation in an increasingly aggressive environment (Okwuosah, 2009). However, customers say the banks of their choice are those with national presence whose network are nationwide such that withdrawal and deposits could be made anywhere in the country, as most Nigerians are gradually losing the desire to carry cash around. This also explains the reason why most customers prefer banks with efficient online banking facilities, most of the banks that have these facilities would attract quite a sizable number of customers, which means if customers all come at the same time queuing

is inevitable hence yet customers say they do not like to queue. They desire strong banks that would reply their e-mails promptly with great public  relations,  prompt  issuance  of  bank  statements,  less  charge  on online services, prompt attention to opening online account, quick activation of accounts, friendly approach, and efficient customer service (Asikhia, 2007).

1.3 STATEMENT OF THE PROBLEM

The intensity of the strategic control system is the extent of an organization’s  effort  in  monitoring  the  effectiveness  of  the  chosen strategy on an on-going basis (Oyedijo, 2008). The philosophical basis and relevance of this strategic management dimension in the empirical study and prediction of organisational performance derives from the role and contribution of strategic control to overall corporate performance. Because a strategic control system involves a process by which managers monitor the on-going activities of an organisation and its members to evaluate whether the activities are being performed efficiently and effectively so as to take correction action to improve if they are not (Hill and Jones, 2005), the system does not just mean reacting to events after they have occurred; it also means keeping an organisation on track, anticipating events that might occur and responding rapidly to new emerging opportunities. A good control system provides an opportunity

for the parties involved to agree on objective performance standards well ahead of any performance evaluation (Barringer and Bluedorn, 1999). Consequently, a higher amount of strategic plan implementation effort on the part of employees or organisational sub-units is stimulated. As a result of its important effects, the strength, robustness or intensity of a strategic control   system   cannot   be   overlooked   when   conceptualising   and measuring the intensity of a firm’s strategic management system.

A greater allocation of time and money on strategic planning and management activities can facilitate an improved awareness and understating of environmental threats and opportunities. The consequence of this is that the quality of the strategic plans that are made will be higher and this can translate to a better positioning of the organisation in its environment and superior performance. Thus, the extent of a firm’s commitment to strategic planning as measured by the percentage of its budget devoted to this function is critical in judging the soundness or intensity of the firm’s strategic management system. The question this study tends to answer is therefore stated as follows:

What are the impediments to strategic management approach in the Nigerian banking industry? Do bank managers behaviourally and systemically resist changes to strategic management of banks in Nigeria?

What are the impediments militating against the use of strategic approach to management of banks in Nigeria?

1.4 OBJECTIVES OF THE STUDY

The  broad  objective  of  this  study  is  to  analyze  the  impediments  to strategic management in the Nigerian banking sector.

The specific objectives are:

i.      To  determine  the  major  impediments  of  strategic  management practices in the Nigerian banking sector.

ii.       To  ascertain  the  causes  of  resistance  to  changes  in  strategic management practices by bank management.

iii.      To  proffer  solutions  on  eliminating  impediments  to  strategic management practices in Nigerian banking sector.

1.5 RESEARCH QUESTIONS

The research question this study tends to answer is stated as follows:

(1)  What  are  the  impediments  militating  against  the  use  of  strategic approach to management of selected banks in Nigeria?

(2)  Do  strategic  management practices  have  any  role  in  the  nation’s banking industry?

(3) Has the introduction of new products and service in banks increased its performance and profitability?

(4) What are the proffer solutions to mitigate impediments to strategic management in the nations banking industry?

1.6 HYPOTHESIS OF THE STUDY

The hypothesis that would guide this study is stated as follows:

Ho1:   There is no impediment to the strategic management practices in

Nigerian banking sector

Ho2:   Strategic  management  practices  have  no  role  in  the  nation’s banking sector

Ho3:    Introduction  of  new  products  and  services  in  banks  has  not increased its profitability

Ho4:   Is  there  solutions  to  mitigate  against  impediments  to  strategic management in the nations banking industry.

1.7 SCOPE OF THE STUDY

This study covers three banks in Nigeria covering the period from 2006 to

2010  which  is the post consolidation period  in  the  Nigerian  banking sector using analytical techniques.

1.8 SIGNIFICANCE OF THE STUDY

The significance of this study cannot be over emphasized. It is significant because data so generated from the study shall be sufficient to expand further fields of knowledge on the topic from many other dimensions.

The study also presents sufficient challenges to academics to increase their research interests in the field of knowledge. Subsequently, business organizations  in  general  and  the  banking  industry  in  particular  will benefit from this study in that they will learn more about the implications of  proper  application  of  strategic  management  in  order  to  improve business performance, which will be beneficial in the following ways:

Firstly,  they  will  be  able  to  easily  adapt  to  changes  from  time  of conception in the execution of a strategy thereby translating business strategies into practices, which is the essence of strategic management. Secondly, they will be able to meet customer’s demand and its customer’s service strategies have been translated into specific policies and practices.

Thirdly, they will be able to achieve better financial performance through effective execution of strategy.

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