1

An Evaluation of Strategies for Achieving Competitive

Advantage in the Banking Industry. The Case of Ghana

Commercial Bank Limited.

By

Lawrence Awuah (BSc. Hons.)

A Thesis submitted to the Institute of Distance Learning,

Kwame Nkrumah University of Science and Technology in

partial fulfillment of the requirements for the degree of

Commonwealth Executive Master of Business

Administration

Institute of Distance Learning

September 2011

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CERTIFICATION

I hereby declare that this submission is my own work towards the Commonwealth

EMBA and that to the best of my knowledge, it contains no material previously

published by another person nor material which has been accepted for the award of

any other degree of the University, except where due acknowledgement has been

made in the text.

Student

………………. Date:

Lawrence Awuah …………….

Supervisor:

……………………….. Date:

Stephen Akwasi Kyeremateng ………………

Professor I.K. Dontwi:

…………………….. Date:

Dean, Institute of Distance Learning …………………

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ABSTRACT

Competition is a fact of business life, unless a business can develop strategies to

compete successfully in the market place, it has practically no chance of growth and

would remain a tiny firm performing far below its potential. In an increasingly

competitive banking industry in Ghana, the absence of well-defined competitive

strategies leads to weak competitive positions and hence performance below the

industry average. The purpose of this study is to examine the competitive strategies

adopted by banks to achieve competitive advantage in the banking industry in Ghana

with Ghana Commercial Bank as a case study. Both primary and secondary data were

sourced and used for the analysis of the study. Primary data was collected using

interviews and questionnaires on a purposive sample of 400 staff. Secondary data

was collected from Annual Reports of GCB for five years from 2005 to 2010, GCB‟s

internal newsletters The Eagle and Commerbank News etc and the Business and

Financial Times. The study revealed that the bank has drawn up several strategic

plans and religiously implemented them since 1990. It also came to the fore that the

bank enjoys competitive advantage in the industry, the most important factor

contributing to the competitive advantage, being the bank‟s extensive branch network.

The study recommended that the bank should improve its IT infrastructure, streamline

its loan application processes, train staff to be more customer-friendly and proactive,

de-congest the banking halls and serve customers faster all in a bid to meet and

exceed customer expectations and sustain the competitive advantage.

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TABLE OF CONTENTS

Content Page

Title Page i

Certification ii

Abstract iii

Table of Contents iv -

vii

List of Tables viii

List of Figures ix

List of Appendices x

List of Abbreviations xi

Acknowledgement xiii

CHAPTER ONE

1.0 Introduction 1

1.1 Background of the Study 3 -4

1.2 Statement of the Problem 4 - 6

1.3 Objectives of the Study 6 - 7

1.4 Research Questions 7

1.5 Significance of the Study 7 - 9

1.6 Scope of the Study 9

1.7 Limitations of the Study 9 - 10

1.8 Organization of the Study 10 – 11

CHAPTER TWO

2.0 The Concept of Strategy 12 - 15

2.1 Levels of Strategy 15 - 16

2.2 The Concept and Evolution of Strategic Planning 16 - 18

2.2.1 Mission, Vision, Goals and Objectives 18 - 19

2.2.2 Mission Statement 19

2.2.3 Vision Statement 19

2.2.4 Goals and Objectives 20

2.2.5 The Relationship between Strategic Planning and Performance 20 - 22

2.2.6 The Impact of Strategic Planning on Performance 22 - 25

2.3 Competition 25 - 26

2.3.1 Competitive Advantage 26 - 27

2.3.2 Sustaining Competitive Advantage 27 - 28

2.3.3 Sources of Competitive Advantage 28

2.4 Porter‟s Generic Competitive Strategies 28 - 29

2.4.1 Cost Leadership 29 - 31

2.4.2 Differentiation 31 - 32

2.4.3 Focus 32 - 33

2.5 Competitor Analysis 33 - 34

2.5.1 Competitor Array 34 - 35

2.5.2 Competitor Profiling 35 - 39

2.5.3 Drivers of Competition among Banks 40 - 41

2.5.4 Effects of Competition on Banks 41 - 42

2.5.5 Effects of Competition on Lending by Banks 42 - 44

2.5.6 Effects of Competition on Profits and Deposits of Banks 44

2.5.7 Branch Network and Competition 45 - 47

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2.5.8 Competition and ICT in the Banking Industry 47 - 49

2.5.9 Competition and Customer Service 49 - 50

2.6 Winning Customer Service Strategies 50

2.6.1 Service Strategy and Competition 50 - 51

2.6.2 Customer-Friendly Systems and Competition 51 - 52

2.6.3 Customer-Friendly People and Competition 52

2.6.4 Theoretical Frameworks 52

2.7.4.1 Competition and Time 52 - 53

2.7.4.2 Competition and Efficiency 53

2.7.4.3 Competition and Lending 53

2.8 The Origin of Banking 54 - 56

2.8.1 Banking in Ghana 56 - 59

2.8.2 Overview of Ghana Commercial Bank (GCB) 59 - 61

2.8.2.1 Mission of GCB 61

2.8.2.2 GCB‟s Corporate Values 61 - 62

CHAPTER THREE

3.0 Methodology 63

3.1 Introduction 63

3.2 Research Design 63

3.3 Population 64

3.4 Sample and Sampling Procedure 64 - 66

3.5 Sources of Data 66

3.5.1 Primary Data 66

3.5.2 Secondary Data 66 - 67

3.6 Data Collection Method 67

3.7 Questionnaire 67 - 68

3.8 Method of Data Analysis 68

CHAPTER FOUR

4.0 Introduction 69

4.1 Demographic Background of Respondents 69 - 70

4.1.1 Gender of Respondents 70 - 71

4.1.2 The Range of Ages 71 - 72

4.1.3 The Number of years worked 72 - 74

4.1.4 Current Position Held 74 – 75

4.2 Information Systems 75 -76

4.3 Competitive Advantage 76 – 79

4.4 Image and Reputation 79 - 80

4.5 Profitability 80 - 81

CHAPTER FIVE

5.0 Introduction 81 - 82

5.1 Summary of Findings 81- 83

5.2 Recommendations 83-85

5.1 Conclusion 85-86

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5.3 Suggested Areas of Further Research 87

References 90-97

Appendices 98 -105

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LIST OF TABLES

Table 2.1: A Table showing an illustration of a Competitor Array 35

Table 4.1.1: A Table showing the gender distribution of respondents 72

Table 4.1.2: A Table showing the ages of respondents 74

Table 4.1.3: A Table showing the length of service of respondents 75

Table 4.1.4: A Table showing the most important strategies to GCB 80

Table 4.1.5: A Table showing GCB‟s performance on Image/ Reputation 81

Table 4.1.6: A Table showing GCB‟s performance on Profitability 82

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LIST OF FIGURES

Figure 2.1: The Three Generic Strategies 29

Figure 4.1: A bar chart showing the gender ratio of respondents 73

Figure 4.2: A bar chart showing the ages of respondents 74

Figure 4.3: A bar chart of length of service of respondents 75

Figure 4.4: A pie chart showing positions held by respondents 77

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LIST OF APPENDICES

Appendix 1: Questionnaire for Management and Staff 93 - 100

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LIST OF ABBREVIATIONS

AR Activity Ratios

ATM Automated Teller Machine

BBG Barclays Bank Ghana Limited

CEO Chief Executive Officer

EBG Ecobank Ghana Limited

EFTPOS Electronic Funds Transfer at Point of Sale

EZWICH Brand name for Ghana‟s National Payment Platform

GCB Ghana Commercial Bank Limited

GDP Gross Domestic Product

LR Liquidity Ratios

SME Small and Medium Scale Enterprise

SCB Standard Chartered Bank

SG-SSB Societe General- Social Security Bank

SRR Shareholders‟ Return Ratios

FINSAP Financial Sector Adjustment Program

NIB National Investment Bank

PMSU Professional and Managerial Staff Union

PR Profitability Ratios

ROI Return on Investment

WAN Wireless Area Network

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ACKNOWLEDGEMENT

I am grateful to the Almighty God for seeing me through the MBA course, without

Him my efforts would have come to naught. My Supervisor, Mr. Stephen A.

Kyeremateng deserves special praise for agreeing to supervise this project and for his

insight. To Mr. Ernest Agyei, your secretarial expertise and invaluable support is

highly appreciated

I wish to acknowledge my employers, Ghana Commercial Bank Limited for

encouraging staff to upgrade their skills and competences, I thank all the staff who

answered questionnaires used in this and all those I interviewed. Finally, I wish to

thank all the people who in diverse ways assisted me in this project.

`

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CHAPTER ONE

GENERAL INTRODUCTION

1.0 Introduction

Every industry including banking has an underlying structure or a set of fundamental

economic and technical characteristics which give rise to competitive forces. A firm

can clearly improve or erode its position within an industry through its choice of

strategy. Competitive strategy, then, not only responds to the environment but also

attempts to shape the environment in its favour (Porter, 1985).The strategist must

therefore seek to position his or her firm to cope best within its industry environment

or to influence that environment in the firm‟s favour.

The Ghanaian banking industry has witnessed an unprecedented entry of seventeen

(17) banks between 1990 to 2009 (Ghana Banking Survey,2009 ), notable among the

new entrants are Ecobank Ghana Limited, Stanbic Bank, UT Bank, Unibank,

Amalgamated Bank, United Bank for Africa and Zenith Bank to mention a few. There

are currently 26 banks operating in Ghana, with the attendant jostling for positions,

market share and profits. Competition is at the core of the success or failure of the

Ghanaian banking industry, and the influx of new banks onto the banking scene

means Ghana Commercial Bank can no longer invest in short term government

securities , fold her arms and expect excellent financial performance at the end of the

year.

The industry is characterized by intense competition, serious poaching and luring of

talented personnel from one bank to the other.There has been the introduction of

innovative technology-driven products which are more customer-friendly.Various

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products have being designed to suit different categories of customers.The Banks

indulge in the use of strong and persuasive marketing communication efforts to

promote their products, although bank products offered by competitors seem alike.

New products and services are easily replicated by rivals. The only difference is the

quality of service and the charges levied by various banks.

All the banks are now licensed to carry out universal banking. They offer loans and

overdrafts, export and import financing, corporate finance and facilities for small and

medium scale enterprises (SME‟s). The previous regulatory regime which categorized

banks into Commercial, Investment and Development banks is no longer applicable

thereby increasing the level of competition, as each bank can venture into any area of

activity.Ghana Commercial Bank is one of the industry leaders in terms of market

share, quality human resource and solid financial assetsbase.

The countrywide dispersion of computer networked branches, product quality and

diversity, wide investment portfolio, and very importantly responsible corporate

citizenship activities have contributed in part to the monopoly it enjoys as banker to

most state and quasi-government organizations. The landscape of the Ghanaian

Banking industry has however, seen dramatic changes in the last decade (2000-2010).

New companies both local and foreign (particularly from Nigeria and South Africa)

have emerged, some as start-ups,others through mergers or acquisitions.

The liberalized economic environment as mentioned earlier has lead to the influx of

banks hence, the need to assess the effectiveness of Ghana Commercial Bank‟s

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competitive strategy. On this premise, the concepts ofcompetitive edge over other

players, its importance and impact on corporate performance are now considered.

1.1 Background of the Study

Strategic management exponent Toffler (2003) writes that a company without a

strategy is like an airplane weaving through the skies, hurled up and down, slammed

by winds and lost in the thunder heads. If lightning or crushing winds do not destroy

it, it will simply run out of fuel. In similar line of thought, Ross et al (2000) note that

without strategy an organization is like a ship without a rudder. It goes round in

circles and like a tramp has no specific place to go.

Clearly, these statements emphasize the importance and need for far reaching

dynamic and systematic strategic planning for companies to survive competition in

the ever changing global competitive business environment. Ansoff (1970) argues that

planning generally produces better alignment and financial results in companies

which are strategically managed than those which are not. This suggests a seeming

correlation between strategic planning and the ultimate performance of a company in

terms of its growth, profits, attainment of objectives and sustained competitiveness

(Strickland, 2004).

Though these assertions are largely true, Pitts et al (2003) affirm that exceptional

situations also arise when some companies gain not because they had in place any

strategy but because they just benefited from some sudden conditions in the external

environment. For example, after the September 11, 2001 terrorist attack on the World

Trade Centre, Pentagon and in Pennsylvania all in the United States of America, air

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travel within and across that country dropped drastically in favour of rail and road

transport which were thought to be safer. Rail and road transporter operators

therefore, enjoyed a sudden and unexpected boom.

Nonetheless, and still consistent with the need for evolving and constantly reviewing

strategy, it is important to note that having a sound strategy in itself does not

necessarily translate into desired performance goals if it is not properly implemented.

Both strategy and implementation must be good and timely to achieve positive results.

As for a company driven by wrong strategic planning, Malamud (2004) likens it to a

train on a wrong track saying, „„every station it comes to is the wrong station.”

These fundamental principles largely hold true for all industries globally and as

should be expected, the banking industry is also subject to the dynamics of these

global market trends. Against this background, the study looks at the competitive

strategies for achieving competitive advantage in the banking industry.

1.2 Statement of the Problem

The economic climate in Ghana over the last decade has been relatively stable for

banking business. This notwithstanding, not all the banks can be said to have

performed at levels that meet industry and stakeholders‟ expectations. Much as the

differences in the performance levels of various companies are to be expected, it is

still strongly believed that the strategies pursued by each bank largely account for its

performance. The absence of well-defined competitive strategies results in weak

competitive positions. This study looks at the competitive strategies beingpursued by

Ghana Commercial Bank Limited (hereafter referred to as GCB) to achieve

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competitive advantage in the banking industry of Ghana. Management plays thelead

role in strategic thinking, planning, decision-making and ultimate implementation of

policies and strategies. Unfortunately, some banks are perceived to have management

structures that overly limit the authority to make long-term strategic decisions to a

few key shareholders who may be limited in some ways. This obviously compromises

the richness and diversity of the banks‟ strategic planning agenda to the detriment of

corporate performance.

The fear of loss of ownership control is also speculated to have inhibited the

expansion of the capital base of some of the private banks. This under-capitalization

has posed challenges for the hiring and retention of the needed numbers and quality of

personnel, upgrading of technology and the financial capacity to insure big and

complex risks.

With the inception of the Financial Sector Adjustment Programme (FINSAP),

distressed banks have since the 1980s attempted to restore their profitability and

become more competitive. GCB witnessed an impressive performance within the

period immediately after the implementation of FINSAP, chalking 45% of the overall

industry profits in 1993. However, the period after 1993 has witnessed a declining

market share for GCB. The bank‟s market share of deposits was 38% in 1993 but has

gradually declined to 17.8% in 2006, Standard Chartered Bank, however, made gains

moving from 9% of the industry share of deposits in 2003 to 13.1% in 2006. GCB‟s

return on equity of 28.7% also does not compare favourably with those of its major

competitors namely; Barclays Bank, Ecobank, and Standard Chartered Bank which

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posted 52.1%, 43%, and 38.9% respectively in 2006 (Business &Financial Times,

May 21,2007).

Though the bank is utilizing its extensive branch network and modern technology to

better its operations, the bank‟s low cost strategy which is amply demonstrated in its

very attractive base rates are of no use if a greater number of loan applications are not

processed because of the stringent criteria and lengthy procedures. GCB demands that

customers deposit registered titledeeds to secure loan facilities, but land registration is

cumbersome, very expensive and therefore unpopular in most parts of the country

(GCB Newsletter, April 2008).

The bank seems to be using mainly low cost leadership and a little bit of

differentiation as its competitive strategy. Most of the bank‟s products are reasonably

priced and the bank‟s charges compare favourably with those of its close competitors

(i.e. Barclays Bank, Ecobank and Standard Chartered Bank). It also appears that

competing on pricing alone may not be in the long-term interest of the bank as it is no

longer translating into a competitive advantage for the bank. The bank has gained a

very poor reputation in terms of customer service, turnaround time, poorbranch

ambience and bureaucratic credit processes.

This study attempts to investigate the above issues and the reasons behind the mixed

performances despite huge investments in infrastructure, human capital, technology,

sales and marketing activities and essential resources.

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1.3 Objectives of the Study

The main goal of the study is to assess the strategies adopted by banks to gain

competitive advantage in the banking industry with particular reference to GCB.

However, more specifically the study seeks to;

i. To analyze the current competitive strategies being pursued by GCB.

ii. To diagnose the reasons for the success or failure of the strategies.

iii. To determine the impact of GCB‟s strategy on the bank‟s performance.

iv. To assess the sustainability of the bank‟s competitive strategy

v. To make recommendations to improve the competitive advantage of GCB in the

industry.

1.4 Research Questions

The study seeks to answer the following questions:

1. What strategies are being adopted by GCB to achieve competitive advantage?

2. Are the current strategies capable of surviving the industry competition?

3. Does GCB enjoy competitive advantage in the banking industry?

4. Of the strategies being pursued by GCB, which ones contribute most to the

bank‟s competitive advantage?

5. How can GCB improve its competitive position in the industry?

1.5 Significance of the Study

Financial relations, all over the world have been deeply transformed in the last two

decades, new products, markets and new regulatory regimes have radically altered the

environment in which financial institutions operate, opening up new profit

opportunities but also creating new and sometimes very great risks.

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Over the last decade, the liberalization and deregulation of the Ghanaian financial

sector have dramatically changed the financial landscape. Interbank competition has

heated up as banks face increasing competition from non-banking financial

institutions and financial markets. The survival of every business including banks

depends on its ability to survive the competition and improve its profitability.

Banking institutions occupy a central position in the nation‟s financial market and are

catalytic agents in the development process of any country. By intermediating

between surplus and deficit spending units, banks increase the quantum of national

savings, investments and hence national output.

By granting of credit, banks create money and thus influence the level of money

supply which is a crucial item in the growth of national income as it determines the

level of economic activity in any nation. Because many banking products are

undifferentiated commodities, banks are constantly looking for ways to set themselves

apart from the competition to help them win and retain customers and to improve the

bottom line.

According to the 2004 Ghana Banking Survey, on average, the services sector,

including the financial and banking sub-sectors has been the fastest growing sector

followed by the agricultural sector. The previous barriers which categorized banks

into commercial, development and investment banks etc., are no longer applicable

with the enactment of the Universal Banking Business Law in 2003. The overall

industry operating costs jumped from GH¢43.55 million in 1998 to GH¢2,373.60

million in 2003 with total net profits rising from GH¢23.30 million to GH¢81.80

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million for the same period, signaling very high profits within the industry. (Business

and Financial Times, May 21, 2008).

It is hoped that this academic exercise would diagnose and make prescriptions that

would result in the GCB‟s competitiveness and profitability. Vital lessons may be

learnt from the findings of this study by other players in Ghana‟s banking

industry.The study is important for management and is intended; to help other

companies adopt the best practices in GCB‟s competitive strategy, enable GCB

improve on its strategic competitive activities and lastly, contribute to the body of

knowledge in the strategic management of firms.

1.6 Scope of the Study

The study explored competitive strategies at the disposal of banks within the banking

industry in Ghana and is limited to GCB but where necessary comparisons were made

to her competitors. The main focus of the study was on Retail Managers, Operations

Managers, Heads of Department, Area and Retail Managers and non –managerial

staff to whom questionnaires were administered.

1.7 Limitations of the Study

The cardinal rule of banks which does not allow information on customers, strategies

and other sensitive issues to be discussed hampered efforts at getting some vital

information for the study. The fear of being branded as divulging secrets would also

not allow me the free hand to make certain disclosures.

Although this research work was purely an academic exercise, the bank‟s Planning

and Research Department needed a lot of convincing before agreeing to assist in the

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electronic distribution of questionnaires, thereby wasting the limited time available

for the project work.

Administering the questionnaires (a total of 400) also posed serious challenges, as

most of the respondents could not complete the questionnaires on time. There was

however some consolation in the fact that the bank‟s intranet was put to good use in

electronically distributing the questionnaires. Collating and analyzing 400

questionnaires was also no mean task, as it was time-consuming.

Last but not the least, this research work, conducted by a full time Valuation Officer

of GCB was concurrently done with his official duties. Notwithstanding all these

limitations, the research was conducted taking advantage of the available data.

However, the limitations were not drawbacks to the overall success of the study.

1.8 Organization of the Study

The study is detailed in five chapters. Chapter one is the introductory chapter and

gives the background to the study, states the research problem, objectives of the study,

research questions, significance of the study and organization of the study. Chapter

Two reviews the existing literature on the subject, including; articles, books, journals

and publications. Light is shed on current literature relevant to the study and the

conceptual framework by renowned scholars such as Michael Porter and other

researchers in the field of strategic competitive advantage. Chapter Three offers useful

insights into the methodology techniques applied in developing the research

questions. It covers the methodology, specifically, the study type, sampling technique,

sample sizes, tools and procedures used to collect data needed to address the research

problems.

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Chapter Four is dedicated to the analysis and discussion of research findings and

finally chapter five captures the summary of findings, conclusions and

recommendations arising out of the study.

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CHAPTER TWO

LITERATURE REVIEW

2.0 The Concept of Strategy

The word strategy comes from the Greek word Strategos which refers to military

generalship and combines stratos (the army) and ago (the lead). The history of

strategic planning has its roots in, and is a heritage of the military (David, 2003). The

Webster‟s New World Dictionary alludes to this militarism, defining strategy as the

science of planning and directing large scale military operations of maneuvering

forces into the most advantageous position prior to actual engagement with the

enemy. Clearly, the key aim of both business and military strategy is to gain

competitive advantage or combat superiority over competitors or foes as the case may

be.

What business strategy is all about is, summed up in two words ‘competitive

advantage’ … the sole purpose of strategic planning is to enable a company gain, as

efficiently as possible, a sustainable edge over its competitors. Competitive strategy is

therefore an attempt to alter a company‟s strength relative to that of its competitors in

the most efficient way and also to mould actions and decisions of managers and

employees in a coordinated, company-wide game plan (Ohmae, 1983).

Military strategy books such as “The Art of War” by Sun Tzu (1965) “On War” by

Von Clausewitz (1975) and “The Red Book” by Mao Zedong (1965) have been an

invaluable knowledge base for many of the concepts especially on business tactics,

the dynamic and unpredictable future and principles of guerrilla warfare; these have

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guided and informed the writing of many books on strategic management in general

and marketing warfare strategy in particular (Wikipedia, 2009).

The word “strategy” has always been associated with and indeed been prominent in

any discussion on the subject of management of an organization because of its

importance. Pitts et al (2003) explain that it is to ensure that an organization applies

its strengths and distinctive competences in such a way that it gains a competitive

advantage over its rivals in any given environment. Chandler (1962) defined it as “the

determination of the long-term goals and objectives of an enterprise and the adoption

of causes of action and the allocation of resources for carrying out these goals”.

It is the framework which guides those choices that determine the nature and direction

of the firm (Tregoe and Zimmerman, 1980). In the view of (Johnson et al, 2008; and

Mintzberg, 1994), strategy is a game plan, a pattern in a stream of decisions and

actions, a position and a ploy intended to outwit competitors while fulfilling

stakeholders‟ expectations in line with the organization‟s scope of business.

Johnson and Scholes in their book Exploring Corporate Strategy define strategy as

follows; „„Strategy is the direction and scope of an organization over the long-term

which achieves advantage for the organization through its configuration of resources

within a challenging environment, to meet the needs of markets and to fulfil

stakeholder expectations.‟‟Andrews, 1965, defines strategy as „„the pattern of

objectives, purposes, goals and the major policies and plans for achieving these goals,

stated in such a way as to define what business the company is in or is to be in and the

kind of company it is or it is to be.‟‟

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According to (Wheelen and Hunger, 2006), a corporation‟s strategy forms a

comprehensive master plan that states how the corporation will achieve it mission and

objectives. The typical business firm usually considers three types of strategy;

corporate, business and functional. In general, strategy can be defined as competitive

moves and business approaches to produce successful performance. It is the

management „game plan‟ for; running the business, strengthening the firm‟s

competitive position, satisfying customers and achieving performance targets.

Nickols (2008) in his article on “Strategy, Strategic Management, Strategic Planning

and Strategic Thinking” explained that before coming to a good understanding of the

term “strategic planning” it is best to examine the terms separately. He thus deposes

that strategic means “of or having to do with strategy” and being “of great

significance or import”. This underscores the reason why strategies exist or must exist

at various levels of the organization to give a clear direction (where it is headed) and

destination (what is it to become). For our purposes then, strategic means “of great

importance” be it at the corporate, business unit or functional level and whether it be

for medium or long-term; 2-7 years purposes (ibid).

Plans of action and planning whether for business or the battlefield always consider

what is to be achieved (the ends, goals or objectives) and how it is to be achieved (the

means; steps, actions or programmes). Simply, plans are a set of intended outcomes

coupled with the actions by which those outcomes are to be achieved. On the other

hand, (Ackoff, 1981; Nickols, 2008) point out that planning involves thinking about

the future, identifying and specifying in advance (now) what has to be done or

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achieved (objectives) and selecting the most suitable means to accomplish these

objectives.

Planning can be formal or informal involving a lot or very little documentation. The

information base could be large; stated in reports, studies, databases and analyses or

depend on a few knowledgeable people. Plans, and thus the planning activities that

produce the desired ends frequently set time frames, milestones, detailed schedules

and allocate resources whether in the form of money, people, equipment etc. (ibid)

2.1 Levels of Strategy

Corporate strategy describes a company‟s overall direction in terms of its general

attitude toward growth and the management of its various businesses and product

lines. Corporate strategies typically fit within the three main categories of stability,

growth, and retrenchment.

Business Strategy usually occurs at the business unit or product level, and it

emphasizes improvement in the competitive position of a corporation‟s products or

services in the specific industry or market segment served by that business unit.

Business strategies are classified into two; competitive and cooperative.

Functional Strategy is the approach taken by a functional area to achieve corporate

and business unit objectives and strategies by maximizing resource productivity. This

is concerned with developing and nurturing distinctive competence to provide a

company with a competitive advantage. Examples of research and development

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(R & D) functional strategies are technological followership (imitation of the products

of other companies) and technological followership.

2.2 The Concept and Evolution of Strategic Planning

Strategic planning has been defined differently by various authors. The substantive

issues are however, the same; they focus on making plans and taking actions today for

the future prosperity and competitiveness of a firm in its environment with the

optimal use of available resources. McNamara (2008), identifies some of the major

activities that are common to all strategic planning processes as conducting a strategic

analysis; setting the strategic direction, action planning that is, carefully laying out

how the strategic goals will be accomplished etc. which will be explained later.

Chandler, 1962; Andrews, 1980; Porter,1980; Wyland, 2004 are unanimous in stating

that strategic planning is a systematic process by which an organization formulates

achievable policy objectives for the future growth and development over the long

term, based on its mission, vision and goals and on a realistic assessment of the

human and material resources available to implement the plan. Dubrin (2006) sees it

as encompassing all those activities that lead to the statement of goals and objectives

and the choice of strategies to achieve them. Gluck (1972) adds that it is a unified,

comprehensive and integrated plan designed to ensure that objectives of the enterprise

are achieved.

These comprehensive definitions are concurred by Bryson (1998) who states that it is

a disciplined effort to produce fundamental decisions and actions that shape and guide

what an organization is, what it does, and why it does what it does. The process

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defines its medium and long term goals and objectives and approaches by which to

achieve them. It is a look into the future that identifies the mission, vision, goals and

objectives of an organization with prescribed actions necessary to achieve the vision.

The importance of strategic planning to any organization cannot be overemphasized.

It is the first in order, and safe to say the most critical management process. This is

evident from the (Nickels et al 2000)‟s definition of management which is “the

process used to accomplish organizational goals through planning, organizing,

directing and controlling organizational resources‟‟. Thompson et al (2004), buttress it

further stating that the central thrust of strategic planning is undertaking moves to

strengthen the company‟s long term competitive position and financial performance.

This intricate and complex nature is borne out by David (2003) who espouses that

strategic planning takes an organization into uncharted territories and does not

provide ready-to-use prescriptions for success. Instead it takes an organization

through a journey and offers a framework for addressing questions and solving

problems, aware of the potential pitfalls and being ready to address them and being

successful.

These views are shared by McConkey (1999) who adds that plans are less important

than planning. This just means that though plans are vital as business road maps with

goals, objectives or targets to be met, the idea of planning being a process introduces

the dimension of a continuous, ongoing and never-ending paradigm of

implementation, monitoring and adjustments (Mintzberg, 1978, 1994; Markidis,

1999) to ensure that any unforeseen, un-anticipated or emerging developments are

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contained. It emphasizes the point that process (planning) may be much more

influential than content (the plan).

Success in business or military exploits does not come by fluke but is the product of

both continuous attention to changing external and internal conditions and the

formulation and implementation of the insightful adjustments to those conditions. It

entails the use of an organization or army‟s strengths to exploit the competitors‟

weaknesses and cash in on opportunities in the external environment. At the same

time the firm takes steps to avoid, foil or defend possible attacks from competitors

into its areas of weakness. It is thus both an attack and defense weapon which Hofer

and Schendel (2005) see as the mediating force or „match‟ between the organization

and the environment.

The term strategic planning according to David (2003) originated in the 1950‟s and

gained prominence in the mid-1960s to mid 1970s. Its use has traversed the 1990‟s

and become widely practiced as an indispensable tool in the management process in

almost all organizations because of the influence of globalization, technological

advancements and internet capabilities for business.

2.2.1 Mission, Vision, Goals and Objectives

A company‟s strategic plan typically lays out its mission, vision and future direction,

performance targets (objectives) and strategy (Thompson, 2004). For it to be effective

therefore, Drucker (1999) emphasizes that strategic plans must be designed to support

corporate mission, vision and objectives. A strong linkage or connection must

30

therefore exist between them in order for any organization to have a coordinated and

purposeful business direction.

2.2.2 Mission (Statement)

A firm‟s mission according to Pitts (2003) describes the organization in terms of the

business it is in, the customers it serves and the skills it intends to develop to fulfill its

vision. Daft (1991) agrees it is the firm‟s reason for existence and Ritson (2008)

affirms its linkage with vision. A mission statement is the overriding and distinctive

purpose of a company (Johnson, 2002; Pitts, 2003). GCB‟s mission provides for

innovative and competitive financial services through highly skilled and motivated

staff.

2.2.3 Vision (Statement)

Vision describes the firm‟s aspirations of what it really wants to be. Pitts (2003) notes

that vision statements are designed to capture the imagination of the public and as

well galvanize the efforts of employees at all levels such that its emotional appeal

challenges them to commit their full energies and minds to believe it is the best.

The conceptual distinction between mission and vision is that a mission statement

describes the present scope of an organization‟s business and purpose (what we do,

why we exist and where we are now). The vision on the other hand portrays a

company‟s future business scope; where we are going or want to be (Thompson et al,

2004).

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2.2.4 Goals and Objectives

Goals are the broad, long-term accomplishments that an organization wants to attain,

achieve or where it wants to be. They provide the overall context for what the vision

tries to achieve (Nickels et al 2000). They are powerful tools that break the vision

statement into specific tasks and actions to attain desired results across the

organization. They function as the yardstick for tracking an organization‟s

performance or progress (Thompson et al, 2004).

They must be measurable and time specific as against having vague objectives like

„maximize profit‟, „reduce costs‟, „become more efficient‟or „increase sales‟. These

specify neither how much (figures) nor when (time) an objective is to be achieved.

They thus do not challenge employees to work hard to meet performance targets.

Objectives must be realistic and achievable.

2.2.5 The Relationship between Strategic Planning and Performance

It may appear that making profit which is the obvious intention of any commercial

enterprise is enough. A survey conducted on a number of Chief Executive Officers

(CEO‟s) in America however, showed that they did not place „strong and consistent

profit‟ as their top priority, in fact it was ranked fifth (Hitt et. al 2003). Instead they

regarded a strong and well thought-out strategy as the most important factor to make a

firm promising in the future. Indeed, Thomas J. Watson Jr. formerly IBM chairman is

quoted as having once cautioned people to remember that “corporations are

expendable and that success at best is an impermanent achievement which can always

slip out of hand” ( ibid p.9).

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For example, Levi Strauss, a once successful company with a global brand and good

financial performance suffered setbacks in the 1990s and began its first lay-offs in

1997 as a result of mistakes and ineffective strategy. This was exploited by Gap and

Tommy Hilfiger its closest rivals. Xerox, a name synonymous with photocopying in

the 1970s and 80s also lost out to its competitors for lack of focus and foresight

(Business Week, May 2001). The foregoing points to the transient nature of success

and what an ineffective strategy (planning) or the absence of it could do to any

company.

Achieving acceptable financial results is crucial because without adequate

profitability and financial strength, a company‟s pursuit of strategic vision, long term

health and ultimate survival is jeopardized. Shareholders, potential investors and

lenders will not continue to sink in any more money. However, it is as important to

note that good financial performance alone is not enough in itself.

Thompson et al (2004) therefore, recommend two very distinct performance

yardsticks; one relating to financial performance and the other relating to strategic

performance. The former looks at performance indicators like sales revenue and

profitability whereas the latter includes output growth, technical progress, efficiency,

shareholder value added, economic value added and human resource capital etc.

The company‟s performance in terms of its strategic well-being, its competitiveness

and market position is crucial and unless it‟s performance in the market place reflects

improving competitive strength and market penetration, its progress is not considered

inspiring and its ability to continue posting good financial performance is in doubt. A

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firm‟s financial performance measures are „lagging indicators‟ that reflects the result

of the past decisions and organizational activities. Its „lead indicators‟ are future

financial performance expectations to achieve competitiveness and strength in the

market place (ibid pp 157).

2.2.6 The Impact of Strategic Planning on Performance

Strategic planning is a management function that focuses on the growth and future

sustained well being of an organization. Ansoff (2003) affirms that the interest in

strategy grew out of the realization that a firm needed a well defined scope and

growth direction not just extrapolations of past performances which were being used

to project into the future. Hart and Banbury (1994), made an observation of firms‟

recognition for the need to carry strategic thinking and planning.

Since the 1950‟s and particularly the early 1970‟s, rapid changes and, or

advancements in technology, globalization and market competition have compelled

organizations to approach this management task with a more purposeful strategic

perspective (Rosenberg et al, 1985; Kiechel III, 1989). As Drucker, (2004) noted in

his book The Practice of Management, “we cannot be content with plans for a future

we can foresee. We must prepare for all possible and a good many impossible

contingencies. We must have a workable solution for anything that may come up.”

This underscores the need for strategic planning in every organization; diversified or

one business unit, large or small.

The question as to whether organizations which practice strategic planning do better

in terms of their performance (financial and non-financial) challenged many

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management schools, authors, consultants and organizations to research into and

measure the impact of strategic planning on organizational performance. Some

related studies are now discussed.

Miller et al (1994) used financial indicators as criteria for the measurement of the

impact of strategic planning on corporate performance. The results were in favour of

planning. In a quantitative critique of 28 studies by Armstrong (1982) the conclusion

was that 20 studies found planning was associated with higher performance, 5 showed

no difference and an insignificant 3 found planning to be detrimental. This growing

wealth of literature has been contributed to by Robinson, Pearce, Vozikis and Hunger,

1984; Shrader, Mulford and Blackburn (1989).

Greenley‟s (1989) review of the previous studies on manufacturing firms showed that

with planning, performance was better in 5, neutral effect in 3 studies and only 1

showed adverse result. Of particular significance was the review of an earlier work by

Karger et al (1999) in which a comparison was made between a set of companies

which carried out strategic planning with those which did not based on sales value,

sales and earnings per share, and net incomes. The result was that companies which

practiced strategic planning were largely more successful and better performers than

the non-planners. David (2003) argues that this is not to say that all companies that

used strategic planning are necessarily successful.

Other researchers have delved into the qualitative (non-financial) aspects of the

performance appraisal. Hitt et al (2003) for example point out strongly that reputation

(the evaluation of a firm by its stakeholders in terms of respect, knowledge or

35

awareness and emotional or affective regard) is a very important intangible resource

upon which a company can build capabilities and core competences. In a survey

conducted on a number of global companies, thereputations of Coca Cola, Gillette,

Eastman Kodak, Campbell Soup, and Wrigley‟s Gum were valued at US$52, $12,

$11, $9 and $4 billion respectively.

They explain that if a company can attract and hire highly-skilled people because of

its reputation, it will most likely increase its “intellectual capital.” This capital will

provide a competitive advantage for the firm over its rivals because of the new,

innovative and diversified ideas, products or services likely to come from them. The

intangible resource in the long run creates more profit and value for the company. The

Fortune 500 America‟s Most Admired Company, The Financial Times World‟s Most

Respected Companies and Ghana‟s version, The Ghana Club 100 all use various

criteria including products and services quality, financial performance, reputation

(image), workplace environment, leadership, vision, social responsibility, firm culture

and power relationships, public likeableness (emotional appeal) etc. to rank

companies or persons that are surveyed (ibid).

Pearce and Robinson (2000) support this approach to evaluate the impact of strategic

planning on performance and add other qualitative behaviour-related criteria like

building a positive team spirit, company-wide knowledge sharing, common

understanding and commitment of management and staff to the corporate vision.

Goodstein et al, (1993) corroborate these ideals and note further that the real measure

of strategic planning in any company is the extent to which it affects behaviour in the

organization.

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This chapter is devoted to the review of literature relating to the concept of strategic

planning, competitive advantage and how they have been used to impact performance.

According to Taylor (2008), literature review is an account and analysis of what

renowned scholars and researchers have published on particular topics or fields of

study. Saunders et al (2007) define it as a detailed and justified analysis and

commentary of the merits and faults of literature in a chosen area which demonstrates

familiarity with what is already known about a research topic. This view is supported

by (Jankowiscz‟s, 2005; Fisher, 2007) who argue that literature review makes the

need to reinvent knowledge that already exist in the given area of study unnecessary

and redundant.

Literature review provides the foundation upon which a research is built to confirm,

complement, counter or establish any new trends that possibly might have emerged.

This research proceeds accordingly to review literature that is relevant to the research

topic.

2.3 Competition

The banking sector is the largest and most competitive segment of Ghana‟s financial

services industry. Competition is at the heart of the success or failure of firms.

Competitors determine the appropriateness of a firm‟s activities that can contribute to

its performance, such as innovations and cohesive culture.

Merriam-Webster as cited in Wikipedia encyclopedia defines competition in business

as "the effort of two or more parties acting independently to secure the business of a

third party by offering the most favourable terms." Competition is a pillar of

capitalism in that it may stimulate innovation, encourage efficiency, or drive down

37

prices. In micro-economic theory, resource allocation is more efficient under

conditions of perfect competition. However, competition inthis work would consider

the profit margin, credit, deposits and customer base. (wikipedia.org/wiki/Banker,

2010).

Wheelen and Hunger, 2006, define competitors as organizations that offer the same,

similar, or substitutable products or services in the business arena in which a

particular company operates.

2.3.1 Competitive Advantage

There is no common definition for „„competitive advantage‟‟ in practice or in

marketing strategy, it is sometimes used interchangeably with distinctive

competencies to mean relative superiority in skills and resources.

According to Porter (1980) competitive strategy is the search for a favourable

competitive position in an industry, the fundamental arena in which competition

occurs. The sustainability of this positional advantage requires that the business sets

up barriers that make imitation difficult, because these barriers to imitation are

continually eroding, the firm must continue to invest to sustain or improve the

advantage.

Investorworks.com defines competitive advantage as the condition which enables a

company to operate in a more efficient or otherwise higher quality manner than the

companies it competes with, and which results in benefits accruing to that company

(investorworks.com, 2010).

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2.3.2 Sustaining Competitive Advantage

A number of studies have explored the conditions under which a business‟

competitive advantage is sustainable (Barney 1991; Coyne 1985). Barney lists four

(4) essential requirements for a resource or skill to be a source of sustainable

competitive advantage. According to Barney, for resources or skills to constitute a

source of sustainable competitive advantage they must possess the following

characteristics; they must be valuable, they must be rare among a firm‟s current and

potential competitors, they must be imperfectly imitableand finally, there must not be

any strategically equivalent substitutes for the resource or skill.

Writing on „„Sustainable Competitive Advantage in Service Industries, a Conceptual

Model And Research Propositions,’’ Bharadwaj, Varadarajan and Fahy (1993)

posited that the attainment of sustainable competitive advantage is not an end in itself,

but a means to an end –namely superior long term financial performance. A company

is not in business to achieve a sustainable competitive advantage over its competitors

but to create wealth for its shareholders. Actions which contribute to sustainable

competitive advantage but detract from creating shareholder wealth can be a good

strategy in the competitive sense, but bad strategy for the company. It is also worth

noting that certain sources of competitive advantage may be more enduring than

others.

2.3.3 Sources of Competitive Advantage

Superior Skills

The ability of a business to do more or better (or both) than its competitors – superior

skills are the distinctive capabilities of personnel that set them apart from those of

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competing firms. It also includes superior resources, locations, scale of operations,

breadth of sales force and distribution coverage, brand names etc. Superior skills and

superior resources lead to positional advantage, superior customer value and lower

relative cost.

Positional Advantage

The positional advantage of abusiness is directly analogous to competitive mobility

barriers that could deter a firm from shifting its strategic position. It is understood best

within the value chain or business system framework.

2.4 Porter's Generic Competitive Strategies

A firm's relative position within its industry determines whether profitability is above

or below the industry average. The fundamental basis of above average profitability in

the long run is sustainable competitive advantage. Though a firm can have a myriad

of strength and weaknesses, vis-à-vis its competitors, there are two basic types of

competitive advantage a firm can possess: low cost or differentiation. The two basic

types of competitive advantage combined with the scope of activities for which a firm

seeks to achieve them, lead to three generic strategies for achieving above average

performance in an industry: cost leadership, differentiation and focus.

The three generic strategies offer fundamentally different routes to competitive

advantage, combining a choice about the type of competitive advantage sought with

the scope of the strategic target in which competitive advantage is to be achieved

(Porter, 1998). Differentiation and cost leadership strategies aim at competitive

advantage in a broad range of industry segments, while focus strategies target cost

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advantage (cost focus) or differentiation (differentiation focus) in a narrow segment

(Porter 1998).

Source: Porter, 1985 Competitive Advantage p. 12

2.4.1 Cost Leadership

Under cost leadership, a bank sets out to become the low cost service provider within

the industry and hence develops a range of banking services and products and serves

many industry segments. The sources of cost advantage are varied in the banking

industryconsidering the structure of the industry. According to Reis and Trout (1982),

low cost producers typically sell a no-frills, standard product and place considerable

emphasis on absolute cost advantage from all sources.

To achieve a cost advantage in the banking services delivery requires significantly

low overheads, abundant sources of cheap labour and efficient procedures for training

staff. The low cost strategy is probably the clearest of the three strategies. A low cost

producer must find and exploit all sources of cost advantage. The sources of cost

advantage which may be varied could include the pursuit of economies of scale,

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proprietary technology, preferential access to raw materials and other factors. The

achievement and sustenance of overall cost leadership by a bank depends on pricing

at or close tothe industry average in order to achieve above-average industry

performance.

Although a cost leader relies on cost leadership for its competitive advantage, it must

attain proximity in the bases of differentiation compared to its competitors to be an

above-average performer.

The bases of differentiation, however, cannot be overlooked, if a product suffers a

negative perception in terms of quality comparable to those of competitors, a cost

leader may be forced to discount prices well below competing products to gain sales,

nullifying the benefits of its favourable cost position (Peattie and Peattie, 1994).

Proximity, as it applies to differentiation means that the price discount required to

obtain an acceptable market share does not offset a cost leader‟s cost advantage, and

therefore the cost leader will earn above-average returns.

According to Porter (1998), the strategic logic of the cost leadership usually requires

that a firm be the cost leader, and not one of several firms jostling for that position.

The strategy is largely dependent on preemption, unless major technological change

allows a firm to radically change its cost position. The theme that runs through the

entire strategy is low cost compared to competitors, although it cannot be achieved to

the detriment of quality and high service standards.

Cost leadership requires an aggressive construction of efficient-scale facilities,

vigorous pursuit of cost reductions from experience, tight cost and control, avoidance

42

of marginal customer accounts, and cost minimization in areas such as research and

development, service, sales force, advertising and so on (Porter, 1998).

2.4.2 Differentiation

The second generic strategy is known as differentiation, and is based on

differentiating the product or service offering of the bank, thereby creating something

that is perceived as a unique product throughout the industry.

The differentiation strategy, if achieved presents a viable opportunity for earning

above-average returns in the industry as it creates a defensible position for coping

with the five competitive forces. To be successful, that is, achieve and sustain

differentiation, the firm‟s price premium must exceed the costs incurred in creating or

attaining its unique position. The differentiator must therefore aim at proximity

relative to competitors through the reduction of cost in all areas which do not affect

the differentiation

The logic behind this strategy, according to (Porter, 1998), requires the firm to select

the attributes in which to differentiate itself from the competition, that is, the firm

must be truly unique at something or perceived to be as such if it expects a premium

price. Contrasting this position with cost leadership, there is more than one successful

differentiation strategy in an industry if there are numerous attributes widely valued

by consumers.

In a differentiation strategy a firm seeks to be unique in its industry along some

dimensions that are widely valued by buyers. It selects one or more attributes that

many buyers in an industry perceive as important, and uniquely positions itself to

meet those needs. It is rewarded for its uniqueness with a premium price.

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2.4.3 Focus

Although, the afore-mentioned strategies, low cost and differentiationare aimed at

achieving their objectives throughout the industry, the focus strategy rests on serving

a specific target market very well, this is borne in mind when carving functional

strategies. The generic strategy of focus rests on the choice of a narrow competitive

scope within an industry. The focuser selects a segment or group of segments in the

industry and tailors its strategy to serving them to the exclusion of others. The focus

strategy has two variants; namely cost focus and differentiation focus.

In cost focus a firm seeks a cost advantage in its target segment, while in

differentiation focus a firm seeks differentiation in its target segment. Both variants of

the focus strategy rest on differences between a focuser's target segment and other

segments in the industry. The target segments must either have buyers with unusual

needs or else the production and delivery system that best serves the target segment

must differ from that of other industry segments. Cost focus exploits differences in

cost behaviour in some segments, while differentiation focus exploits the special

needs of buyers in certain segments (ifm.eng.cam.ac.uk, 2010).

Any bank that wants to focus must select a segment or group of segments within the

banking industry and tailor its strategy to serving them to the exclusion of others. By

optimizing its strategy, for the target segments, the focuser seeks to achieve a

competitive advantage overall (Parasuarman et al, 1985). In the banking system, there

are two variants to the focus strategy. A cost focus bank is the type that seeks a cost

advantage in its target customer segment, while a differentiation focusing bank seeks

differentiation in its customer segment. Both variants of the focus strategy rest on

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differences between a focuser‟s target segment and other segments within the industry

(Czinkota et al, 1990).

Banks which focus on cost will attempt to exploit differences in cost behavior in some

customer target segment; while differentiation focus exploits the special needs of

buyers in certain segment. (Barry, Faber, et al, May 1991, p.44-51).

The notion underlying the concept of generic strategies is that, competitive advantage

is at the heart of any strategy. Achieving competitive advantage requires a bank to

make a choice about the type of competitive advantage.

“Being all things to all” is a recipe for strategic mediocrity and below average

performance, because it often means that a firm has no competitive advantage at all.

2.5 Competitor Analysis

According to (Fleisher et al, 2003, 2007), competitor analysis is the management tool

used in marketing and strategic management in an assessment of the strengths and

weaknesses of current and potential competitors. It provides both an offensive and

defensive strategic context through which to identify opportunities and threats.

Competitor profiling coalesces all of the relevant sources of competitor analysis into

one framework in the support of efficient and effective strategy formulation,

implementation, monitoring and adjustment. Given that competitor analysis is an

essential component of corporate strategy, it is argued that most firms do not conduct

this type of analysis systematically enough. Instead, many enterprises operate on what

is called “informal impressions, conjectures, and intuition gained through the tidbits

of information about competitors every manager continually receives.” As a result,

45

traditional environmental scanning places many firms at risk of dangerous

competitive blind spots due to a lack of robust competitor analysis (Fleisher et al,

2007).

2.5.1 Competitor Array

Gordon, (1989) states that one common and useful technique for conducting a

competitor analysis is the construction of a competitor array. The steps include the

following;

Define your industry - scope and nature of the industry,determine who your

competitors are, determine who your customers are and what benefits they expect,

determine what the key success factors in your industry are, rank the key success

factors by giving each one a weighting. The sum of all the weightings must add up to

one.

Rate each competitor on each of the key success factors, after which you multiply

each cell in the matrix by the factor weighting.

The columns are then summed up for a weighted assessment of the overall strength of

each competitor relative to the others. This can best be displayed on a two

dimensional matrix - competitors along the top and key success factors down the side.

An example of a competitor array follows (Gordon, 1989).

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Table 2.1: Competitor Array

Key Industry

Success Factors

Weighting

Competitor

#1 Rating

Competitor

#1 weighted

Competitor

#2 rating

Competitor

#2 weighted

1 Extensive distribution 0.4 6 2.4 3 1.2

2 Customer focus 0.3 4 1.2 5 1.5

3 Economies of scale 0.2 3 0.6 3 0.6

4 Product innovation 0.1 7 0.7 4 0.4

Totals 1.0 20 4.9 15 3.7

In this example competitor #1 is rated higher than competitor #2 on product

innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6

out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall,

competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15

out of 40). When the success factors are weighted according to their importance,

competitor #1 gets a far better rating (4.9 compared to 3.7).

2.5.2 Competitor Profiling

The strategic rationale of competitor profiling (Fleisher et al, 2007) is powerfully

simple. Superior knowledge of rivals offers a legitimate source of competitive

advantage. The raw material of competitive advantage consists of offering superior

customer value in the firm‟s chosen market. The definitive characteristic of customer

value is the adjective, superior. Customer value is defined relative to rival offerings

making competitor knowledge an intrinsic component of corporate strategy. Profiling

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facilitates this strategic objective in three important ways. First, profiling can reveal

strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance

of competitor profiling will allow the firm to anticipate the strategic response of their

rivals to the firm‟s planned strategies, the strategies of other competing firms, and

changes in the environment. Third, this proactive knowledge will give the firms

strategic agility. Offensive strategy can be implemented more quickly in order to

exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be

employed more deftly in order to counter the threat of rival firms from exploiting the

firm‟s own weaknesses.

Clearly, those firms practicing systematic and advanced competitor profiling have a

significant advantage. As such, a comprehensive profiling capability is rapidly

becoming a core competence required for successful competition. An appropriate

analogy is to consider this advantage as akin to having a good idea of the next move

that your opponent in a chess match will make. By staying one move ahead,

checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in

the game of business as well (Fleisher et al, 2007).

According to Fleisher et al, 2007, a common technique often adopted in customer

profiling is to create detailed profiles on each of your major competitors. These

profiles give an in-depth description of the competitor's background, finances,

products, markets, facilities, personnel, and strategies. This involves the following

factors;

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Background

Under background, you assess the location of offices or plants, and online presence,

history - key personalities, dates, events, and trends, ownership, corporate

governance, and organizational structure of your competitors (Fleisher et al, 2007).

Financials

Here the major financial indicators on the performance or profitability of your

competitors would have to be analyzed. Notable among them are the following; P-E

ratios, dividend policy, and profitability,various financial ratios, liquidity, and cash

flow Profit Growth Profile; method of growth whether organic or acquisitive (ibid).

Products

The products offered, depth and breadth of product line, and product portfolio

balance, new productsdeveloped, new product success rate, Research & Development

strengths, brands, strength of brand portfolio, brand loyalty and brand awareness,

patents and licenses, quality control conformance capabilities of your competitors

would have to be assessed and taken into account (ibid).

Marketing

Under marketing you have gather information on the segments served by your

competitors, their market shares, customer base, growth rates, and customer loyalty

promotional mix, promotional budgets, advertising themes, advertising agencies used,

sales force success rate online promotional strategies, distribution channels used

(direct & indirect), exclusivity agreements, alliances, and geographical coverage,

pricing, discounts, and allowances (Fleisher et al, 2007).

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Facilities

Under facilities, your competitors‟ plant capacities, capacity utilization rate, age of

plant, plant efficiency, capital investment,location, shipping logistics, and product mix

by plant are all recorded for analysis (ibid).

Personnel

Last but not the least, the number of employees, key employees, and skill sets strength

of management, and management style, compensation, benefits, and employee morale

& retention rates of your competitors would have to be analyzed. The corporate and

marketing strategies objectives, mission statement, growth plans, acquisitions, and

divestitures marketing strategies would all have to be noted (Fleisher et al, 2007).

Media scanning

Scanning the advertisements of your competitors can reveal much about what that

competitor believes about marketing and their target market. Changes in a

competitor's advertising message can reveal new product offerings, new production

processes, a new branding strategy, a new positioning strategy, a new segmentation

strategy, line extensions and contractions, problems with previous positions, insights

from recent marketing or product research, a new strategic direction, a new source of

sustainable competitive advantage, or value migrations within the industry (Fleisher et

al, 2007).

It might also indicate a new pricing strategy such as penetration, price discrimination,

price skimming, product bundling, joint product pricing, discounts, or loss leaders.

Hints on a new promotion strategy may also be dropped, new unique selling

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propositions, new creative concepts, appeals, tone, and themes, or a new advertising

agency can all be inferred. It might also indicate a new distribution strategy, new

distribution partners, more extensive distribution, more intensive distribution, a

change in geographical focus, or exclusive distribution. Little of this intelligence is

definitive: additional information is needed before conclusions should be drawn

(ibid).

A competitor's media strategy reveals budget allocation, segmentation and targeting

strategy, selectivity and focus. From a tactical perspective, it can also be used to help

a manager implement his own media plan. By knowing the competitor's media buy,

media selection, frequency, reach, continuity, schedules, and flights, the manager can

arrange his own media plan so that they do not coincide.

Other sources of corporate intelligence include trade shows, patent filings, mutual

customers, annual reports, and trade associations. Some firms hire competitor

intelligence professionals to obtain this information. The Society of Competitive

Intelligence Professionals maintains a listing of individuals who provide these

services (Fleisher et al, 2007).

New Competitors

In addition to analyzing current competitors, it is necessary to estimate future

competitive threats. The most common sources of new competitors are companies

competing in a related product/market, companies using related technologies,

companies already targeting your prime market segment but with unrelated products

those from other geographical areas with similar products. New start-up companies

organized by former employees and/or managers of existing companies must also

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warrant attention as they could pose threats to the organization in the present or the

future (ibid).

The entrance of new competitors is likely when the following conditions exist; high

profit margins in the industry, unmet demand (insufficient supply) in the industry, no

major barriers to entry, future growth potential, competitive rivalry is not intense and

when gaining a competitive advantage over existing firms is feasible.

2.5.3 Drivers of Competition among Banks

The banking industry has been characterized by increasing competition since the early

1980s. This has been the result of a number of interrelated factors such as:

Deregulation and Liberalization

Competition and deregulation have revolutionized the distribution of many financial

services. The authors are of the opinion that an increased competition resulting from a

decade of deregulation of the financial services industry has meant that banks find

themselves faced with the task of differentiating their organizations and their

offerings as a means of attracting customers. (Blankson et al., 2007)

Brownbridge and Gockel, 1996 also argued that liberalization could stimulate greater

competition in banking markets through several channels. These include the new

entry into banking markets, the diversification of the operations of the DFIs away

from purely specialized functions, the removal of interest rate controls and credit

ceilings, which should allow banks greater freedom to compete for customers, and the

privatization of government banks; private sector banks might be expected to compete

more aggressively against each other than banks owned by the public sector. New

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entry has brought about a small reduction in market concentration in the banking

industry.

Baer et al., (1988 as cited in Zardkoohi and Fraser 1988) identified four factors that

produce greater competition. First, by allowing for larger banking organizations,

geographical deregulation makes it easier for banks to achieve economies of scale and

scope. Second, easier entry into banking markets, especially highly profitable

markets, provides incentives for existing banks in those markets to price their services

competitively. Third, reduced restrictions on entry motivate banks to offer more

convenient delivery systems for their customers.

Fourth, banks that operate over a large geographical area offer standard products at a

uniform price throughout their market. While the appearance of new competitors in

local banking markets may stimulate the accruallevel of competition, the threat of

potentialentry might also stimulate competition, even if no actual entry by out-of-

market institutions takes place.

Levine (2003) documents, among others, that tighter entry requirements are

negatively linked with bank efficiency, leading to higher interest rate margins and

overhead expenditures, while restricting foreign bank participation tends to increase

bank fragility. These results are consistent with the view that tighter entry restrictions

tend to limit competition and emphasized that it is not the actual level of foreign

presence or bank concentration, but the contestability of a market that determines

bank efficiency and stability.

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2.5.4 Effects of Competition in Banking

Ghana has experienced a huge increase in the number of banks due to rather liberal

license policy. Competition, according to the micro-economic theory causes

commercial firms to develop new products, services, and technologies. This gives

consumers greater selection and better products. The greater selection typically causes

lower prices for the products compared to what the price would be if there was no

competition (monopoly) or little competition (oligopoly). However, competition may

also lead to wasted (duplicated) effort and to increased costs (and prices) in some

circumstances. Some effects of competition, as they relate to banking are discussed

below:

2.5.5 Effect of Competition on Credit or Lending By Banks

Shaffer (1998 as cited in Northcott 2004) shows that the number of loans made

increases as the number of banks increases. The more banks there are, the less chance

there is that any given borrower (including “bad” ones) will not get a loan. Therefore,

expected loan losses are also an increasing function of the number of banks. Of

course, many things can mitigate this effect, such as access to credit bureaus, where a

bank can find out whether a borrower has been rejected by other banks.

In addition, bank competition affects the efficiency of credit allocation if an open

license policy exists. Schnitzer, (1999) in her analysis shows that bad loans are more

likely if there are a large number of banks competing for customers as free entry can

induce too much entry and thus too many bad loans compared to the social optimum.

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According to Harris and Holmstrom (1982 as cited by Boot and Thakor 2000)

interbank competition can have adverse effects on banks‟ marginal rents from

relationship lending. Each bank thus reduces its investments in sector specialization.

This result is consistent with the existing wisdom that, by threatening relationships,

competition reduces relationship-specific investments. Thus, interbank competition

encourages banks to shift from transaction to relationship lending, and banks do more

transaction lending in a non competitive banking industry than in a more competitive

environment.

By combining this result with that of the reduction in sector specialization, one can

conclude that the nature of relationship lending itself changes with increasing

interbank competition; relationship lending becomes more important but each loan

has less added value.

Again Besanko and Thakor (1993 as cited in Schnitzer, 1999) analyse the impact of

competition in the case of relationship banking and from their analyses more

competition reduces rates for borrowers but makes banks take on more risk and thus

jeopardizes the bank-customer relationship. Dell‟Ariccia,1998 (as cited in Schnitzer,

1999) studies how the market structure of the banking sector evolves endogenously if

market is not regulated and argued that banks acquire proprietary information about

their clients by lending to them gives existing banks advantage over new entrants.

Besanko, Thakor and Dell‟Ariccia share similar views that banks acquire information

about their customers in the course of lending relationship. This is different in

Broecker (1990) and Riordan (1993) where banks acquire information about potential

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customers before entering a relationship with them. The analysis showed that the

number of bad loans provided increases with the number of banks operating, which

has a negative impact on the average credit-worthiness of the borrowers who receive

credit.

The potential positive effects of the new entry associated with reduced barriers to

geographical expansion must be balanced against the potential negative effects of

increased concentration. On the other hand, free entry lowers credit costs which have

a positive impact on enterprise restructuring.

2.5.6 Effect of competition on Profits and Deposits of Banks

Interbank competition affects the bank‟s profits from bothrelationship and transaction

lending, but asymmetrically. A relationship orientation helps to partially insulate the

bank from pure price competition, so that an increase in competition from other banks

hurts the bank‟s profits from transaction lending more than its profits from

relationship lending.

The existing theoretical literature on bank competition is mainly concerned with the

question of what impact financial market liberalization has on the stability of the

banking sector. According to Matutes and Vives (1996 as cited in Schnitzer, 1999)

banks compete for deposits. In their analysis the probability of bank failure increases

with the degree of rivalry because of the lower profit margins banks can obtain, which

implies a negative impact of bank competition on social welfare.

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A similar effect was observed in Hellmann, Murdock and Stiglitz (1998) on deposits

in which competition for deposits erodes profits and thus promotes gambling in the

banking sector because the on-going concern value of the banks is lower. The

problem was that an increase in competition has little impact on the total amount of

deposits but mainly increases market stealing incentives.

2.5.7 Branch network and competition:

Branch network has traditionally been viewed as a way for banks to retain market

power, because branches can appropriate some of the value clients place on location,

and thereby mitigate (or avoid) price competition. Branches are also typically seen as

a barrier to entry, since they involve large fixed costs. Another potential disadvantage

to consumers is that competition through branching can lead to a higher-than-optimal

number of branches (compared with the perfectly competitive equilibrium). Due to

the fixed costs associated with branches, this increases banks‟ costs, which are passed

on to consumers (Freixas and Rochet, 1997 as cited in Northcott, 2004).

Other approaches, however, demonstrate how branches can be beneficial to

consumers. In an argument, Allen and Gale (2000 as cited in Northcott, 2004) show

that a few large banks with extensive branch networks can provide a more

competitive outcome than a unitary banking system in an environment with switching

costs: a large branch bank has less of an incentive to exploit the “locked-in” value of

clients, because it is always competing for the clients‟ future business in another

product or location.

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Another way in which branching can improve competitive conduct is by increasing

the effective size of the market. In Calem and Nakamura (1998 as cited in Northcott,

2004), branches can decrease the degree of market power exerted in remote locations

(relative to a unitary banking model) by increasing the effective size of the

geographical market. Branching leads to more uniform pricing across remote and

urban locations. According to Calem and Nakamura (p. 608), “branch banking tends

to export competition in dense urban markets to outlying areas. Thus, branch banking

tends to increase the effective size of banking markets.”

Branches are a way for banks to retain some market power; they also benefit

consumers by increasing access to services and by potentially mitigating market

power in remote areas. The question is how many branches are optimal? Too many

branches pose a barrier to entry and engender a large fixed cost that may be passed on

to consumers, and too few may remove the pro-competitive effect of increasing the

size of the market. There is also a trade-off for banks in choosing the extensiveness of

their branching networks.

While there are benefits to be gained from differentiation, banks will invest in

branches as a way to avoid price competition. If there is a shift towards price

competition (e.g., due to competition from banks or other financial firms), the number

of branches should be expected to fall. That is, there may be a trade-off between price

competition and competition through branching. In fact, the researcher‟s observations

are closely in line with that of Northcott‟s assertion about network branch banking.

That is to say that Ghana Commercial Bank has resorted to an aggressive branch

network approach to banking.

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Dick (2003 as cited in Northcott, 2004) examines the effect of lifting restrictions on

branching in the United States after the Riegle-Neal Act in 1994. Lifting the

restrictions on branching was associated with both higher concentration and increased

competition in lending rates. These studies are consistent with the idea that branching

can have adverse effects on profitability of banks as revealed by Calem and

Nakamura‟s research. Calem and Nakamura concluded that branch network approach

is associated with high growth of a bank in a competitive banking environment,

Calem and Nakamura (1998) research revealed that this approach breeds high

transaction costs which affects profitability of banks.

2.5.8 Competition and ICT in the Banking Industry:

In addition to the above, the banking industry is an intensive user of a wide range of

technologies, including information technology, telecommunications, and financial

product technologies. Technological innovations can affect the incentives faced by

banks and thereby affect bank behaviour and the structure of the market. There is

literature examining the effect of technology on economies of scale, automated teller

machines and remote banking.

Technological progress has the potential to increase economies of scale in a variety of

bank products and services, such as payments processing, cash management, and back

office operations. In the same vein, advances in technology may lead to the

development of new products and services that have more scale economies than

traditional banking products. Therefore, there is the potential for an increase in the

productive efficiency of banks.

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At the same time, the argument that technological progress has led to more scale

economies has been suggested as a driving force towards consolidation and

concentration (BIS, 2001). While higher-scale economies will obviously benefit

larger institutions, smaller banks may also benefit by outsourcing processes that are

particularly affected.

ATM (Automated Teller Machine) networks provide an alternative, lower-cost way to

establish a physical delivery system, thereby reducing sunk costs and barriers to entry.

At the same time, because they provide a range of basic services (including deposits,

account transfers, and payments), ATMs can provide many of the benefits already

discussed for branches, such as increasing the geographical scope of competition.

Remote banking, through the internet and over the telephone, is increasing in

popularity.

Available through purely electronic means, it provides an alternative to the physical

delivery systems of branches and ATMs. All a client needs to access banking services

is a telephone or computer, proximity to a branch is less important. Therefore, to the

extent that remote banking is embraced by consumers, it decreases the value placed

on being close to branches, which decreases their strategic value to banks.

Consequently, a large uptake of remote banking may lead to a shift away from

competition through branches towards price competition. In this way, remote banking

can further decrease the barriers to entry. As well, because it is not tied to a particular

location, it can further expand the geographical scope of competition. While positive

for contestability, it does further complicate the concept of the “relevant”

geographical market.

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As remote banking becomes more important, the relevant market is much more likely

to be larger than the local area. Vesala (1998 as cited in Northcott, 2004) argued in his

theoretical model about banks that have branch and ATM networks lead to emergence

of remote banking and an increase in price competition even if there is no new entry

into the market. Remote banking has the potential to improve contestability by

decreasing sunk costs and barriers to entry. The extent to which this occurs depends

on various things, such as the market penetration of the technology and the kinds of

services provided. For example, consumers still rely on ATMs and branches to access

cash. Even this dependency may be falling, as consumers rely more and more on

cashless payments and on practices such as “cash back,” which allows them to obtain

cash through non-bank retail outlets, example EZWICH outlets in Ghana.

Remote banking is currently most relevant to the deposit market, providing an easy

way for consumers to check accounts, transfer balances, and make payments. It is

increasingly being used for asset management, through links with brokerages and

lending. Remote banking may be more suited to standardize transactional lending,

such as mortgages. The competitive benefits of remote banking may differ for

different products.

2.5.9 Competition and Customer Service

According to Albrecht and Zemke (1985),a growing number of organizations are

giving increased attention to customer service. Financial institutions, hospitals, public

utilities, airlines, retail stores, restaurants, manufacturers, and wholesalers face the

problem of gaining and retaining the patronage of customers. Building long-term

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relationships with customers has been given a high priority by the majority of

America's most successful enterprises.

These companies realize that customer satisfaction is an important key to success.

Customerservicecan be defined as those activities that enhance or facilitate the

purchase and use of the product (Albrecht, and Zemke, 1985). In their book The Real

Heroes of Business . . . and Not a CEO among Them, Fromm and Schlesinger (1994)

observed that we have entered the age of boundless competition, triggered in large

part by an expanding global economy. In the view of the authors, multinational

competition has increased dramatically in recent years, and this means a one-world

market exists for products ranging from cars to computers. To compete successfully

in markets where products are the same or very similar, and prices are basically the

same, service is often the only competitive advantage available, they stressed.

2.6 Winning Customer Service Strategies

According to the marketing concept, an organization must determine what customers

want and use this information to create satisfying products and services (Pride and

Ferrell, 1997). Federal Express redefined mail service by providing over-night, door-

to-door delivery of packages and letters. The company discovered a need for speed,

reliability, and courteous service by well-trained employees.

The marketing concept is a management philosophy guiding all the organizational

activities, including production, personnel, finance, distribution, and marketing.

Excellent customer service is achieved by a three-dimensional process that includes a

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well-conceived service strategy, customer-driven systems, and customer-friendly

people (Albrecht and Zemke, 1985).

2.6.1 Service Strategy and Competition

A well-conceived service strategy includes three important elements: market research

to discover the customers‟ needs and wants; a clear vision of the firm‟s „„reason for

being‟‟; and clearly stated beliefs and values that guide the enterprise (Albrecht and

Zemke, 1985). Many organizations are creating a written vision or mission statement

that directs the energies of the company and inspires employees to achieve greater

heights. Ortho Biotech, based in Raritan, New Jersey, begins its vision statement with

a bold prediction; „„we will be the best in our business by providing customers with

innovative solutions to significant medical problems through biotechnology and

related science‟‟ (quoted in Lee, 1993). The creation of a sound set of beliefs and

values can give stability to an organization, as customer service priorities also become

clearer.

Ben Edwards, chairman of A.G. Edwards and Sons, Inc., the seventh-largest securities

firm in the nation, says following the Golden Rule is still the best way to achieve

success in business (Kegley, 1990). He is of the opinion that this attitude has had a

positive influence on the company's 7400 employees.

2.6.2 Customer-friendly Systems and Competition

Service systems are made up of all the various practices and procedures that personnel

can use to meet customer needs. When you check into the Hyatt Regency Crown

Center in Kansas City, Missouri, you are given a card that says, "Call 50 for a

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response to any concern within five minutes" (Manning and Reece, 1998). MBNA

Corporation, a Wilmington, Delaware, financial services company wants every phone

call answered within two rings. Employees achieve this goal nearly 100 percent of the

time (Reece and Brandt, 1999). These examples are typical of the steps being taken by

companies that want to meet, and in some cases exceed, the expectations of their

customers. Customer-friendly systems are designed to make things easy for

customers. Complaints should be handled in a timely fashion. Returning or

exchanging products should not be difficult. Requests for assistance should be

handled in a courteous and efficient manner. Customer-friendly systems add value

and build customer loyalty.

2.6.3 Customer-Friendly People and Competition

Carlzon (1987), in his Moments of Truth, had this to say;„„in many cases, the

customer's first impression of an organization comes during contact with frontline

people.” According to him the front-desk clerk or the queue walker at the banking hall

often has the first opportunity to serve the customer. Unfortunately, too often these

employees earn low pay, receive little formal training, and are given little recognition

for the important duties they perform. The best frontline employees are both

competent and caring. They have a certain level of maturity and possess the social

skills needed to build customer loyalty.

2.6.4 Theoretical frameworks

Several studies analyse competition in the banking industry over time. The key ones

the researcher has identified include the following:

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2.6.4.1 Competition and Time:

Nathan and Neave (1989), Molyneux et al. (1994), Hydroyiannis et al. (1999), De

Bandt and Davis (2000), and Mkrtchyan (2005) have researched into competition and

time. Their research disclosed that competition gradually changes over time. Some of

these studies analyse relatively short sample period of three to five years using the

Panzer-Rosse (P-R) approach. Most of the studies used different measures of banks‟

revenue and different control variables in the estimation of the Panzar–Rosse

statistics.

2.6.4.2 Competition and Efficiency:

Weill (2004 as cited in Casu and Girardone 2006) investigates the relationship

between competition and efficiency and concluded that increased competition breeds

efficiency. The author used a stochastic parametric method and the set of independent

variables include macro economic factors (GDP per capita and density of demand), an

intermediation ratio (loans/deposits) and finally a dummy that corresponds to the

geographical location.

2.6.4.3 Competition and Lending:

Van Leuvensteijn et al. (2008) researched into competition and lending in the Italian

banking industry. The Boone indicator of competition was applied on banking firms

of eight major countries during the 1994-2004 periods. They concluded that a fairly

stable level of competition, slightly increases over time, even when concentration

increases. Angelini and Cetorelli (2003, Hauner and Peiris, 2005) also analysed a

longer time span, focusing on the Italian banking industry during the years 1987 to

1997.

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They estimated yearly Lerner indices of competition for a cross-section of Italian

banks. Subsequently they explained these indices from a range of determinants, such

as market structure, bank-specific characteristics, macro-economic correction

variables and a time dummy distinguishing the period before and after the Second

Banking Directive.

2.7 The Banking Industry

2.7.1 The Origin of Banking

The name bank derives from the Italian word banco meaning "desk/bench", used

during the Renaissance by Florentine bankers. However, there are traces of banking

activity even in ancient times.In fact, the word traces its origins back to the Ancient

Roman Empire, where money lenders would set up their stalls in the middle of

enclosed courtyards on a long bench called a bancu, from which the words banco and

bank are derived. As a money changer, the merchant at the bancu did not so much

invest money as merely convert the foreign currency into the only legal tender in

Rome- that of the Imperial Mint.

A banker or bank is a financial institution whose primary activity is to act as a

payment agent for customers to borrow and lend (wikipedia.org/wiki/Banker, 2010).

The definition of a bank varies from country to country. Under English common law,

a banker is defined as a person who carries on the business of banking, which is

specified as; conducting current accounts for his customers, paying cheques drawn on

him, and collecting cheques for his customers.

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In most English common law jurisdictions there is a Bills of Exchange Act that

codifies the law in relation to negotiable instruments, including cheques, and this Act

contains a statutory definition of the term banker: banker includes a body of persons,

whether incorporated or not, who carry on the business of banking' (Section 2,

Interpretation). Although this definition seems circular, it is actually functional,

because it ensures that the legal basis for bank transactions such as cheques do not

depend on how the bank is organized or regulated.

The business of banking is in many English common law countries not defined by

statute but by common law, the definition above. In other English common law

jurisdictions there are statutory definitions of the business of banking or banking

business. When looking at these definitions it is important to bear in mind that they

are defining the business of banking for the purposes of the legislation, and not

necessarily in general. In particular, most of the definitions are from legislation that

has the purposes of entry regulation and supervision of banks rather than regulating

the actual business of banking. However, in many cases the statutory definition

closely mirrors the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit

account, paying and collecting cheques drawn by or paid in by customers, the making

of advances to customers, and includes such other business as the Authority may

prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2,

Interpretation).

"Banking business" means the business of either or both of the following;

receiving from the general public money on current, deposit, savings or other similar

account repayable on demand or within less than three months or with a period of call

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or notice of less than that period; paying or collecting cheques drawn by or paid in by

customers.

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct

credit, direct debit and internet banking, the cheque has lost its primacy in most

banking systems as a payment instrument. This has led legal theorists to suggest that

the cheque-based definition should be broadened to include financial institutions that

conduct current accounts for customers and enable customers to pay and be paid by

third parties, even if they do not pay and collect cheques.

In Ghana the use of the word bank is stated in section 17 of the Banking Act, 2004

(Act 673) as follows:

A person, other than a bank shall not describe itself out as a bank, or carry on banking

in the country. The use of the word „‟bank‟‟ in the name of an association of banks or

employees of bank formed for the promotion of mutual interest of its members shall

not be construed as a contravention of sub-section (1).

2.7.2 Banking in Ghana

Ghana has a well-developed banking system that was used extensively by previous

governments to finance attempts to develop the local economy. By the late 1980s, the

banks had suffered substantial losses from a number of bad loans in their portfolios.

In addition, the depreciation of the cedi had raised the banks‟ external liabilities. In

order to strengthen the banking sector, the government in 1988 initiated

comprehensive reforms. In particular, the amended banking law of August 1989

required banks to maintain a minimum capital base equivalent to 6 percent of net

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assets adjusted for risk and to establish uniform accounting and auditing standards

(Anin, 2000).

The law also introduced limits on risk exposure to single borrowers and sectors. These

measures strengthened the Central Bank‟s supervision, improved the regulatory

framework, and gradually improved resource mobilization and credit allocation.

Other efforts were made to ease the accumulated burden of bad loans on thebooks of

banks in the late 1980s. In 1989 the Bank of Ghana issued temporary promissory

notes to replace non-performing loans and other government-guaranteed obligations

to state-owned enterprises as of the end of 1988 and on private-sector loans in 1989.

The latter were then replaced by interest-bearing bonds from the Bank of Ghana or

were offset against debts to the bank. Effectively, the government stepped in and

repaid the loans. By late 1989, some ¢62 billion worth of non-performing assets had

been offset or replaced by Central Bank bonds totaling ¢47 billion (ibid).

In the early 1990s, the banking system included the Central Bank (Bank of Ghana),

three large commercial banks (Ghana Commercial Bank, Barclays Bank of Ghana,

and Standard Chartered Bank of Ghana), and seven secondary banks. Three merchant

banks specialized in corporate finance, advisory services, and money and capital

market activities: Merchant Bank, Ecobank and Continental Acceptances; the latter

two were both established in 1990.

These and the commercial banks placed short-term deposits with two discount houses

set up to enhance the development of Ghana's domestic money market: Consolidated

Discount House and Securities Discount House, established in November 1987 and

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June 1991 respectively. At the bottom of the tier were some 100 rural banks which

accounted for only 5 percent of the banking system‟s total assets (ibid).

By the end of 1990, banks were able to meet the new capital adequacy requirements.

In addition, the government announced the establishment of the First Finance

Company in 1991 to help distressed but potentially viable banks to recapitalize. The

company was established as part of The Financial Sector Adjustment Program

(FINSAP) in response to requests for easier access to credit for companies hit by the

policies of the Economic Recovery Programme. The company was a joint venture

between the Bank of Ghana and the Social Security and National Insurance Trust.

Despite offering some of the highest lending rates in West Africa, Ghana‟s banks

enjoyed increased business in the early 1990s because of high deposit rates. The Bank

of Ghana raised its rediscount rate in stages to around 35 percent by mid 1991, driving

money market and commercial bank interest rates well above the rate of inflation,

thus making real interest rates substantially positive. As inflation decelerated over the

year, the rediscount rate was lowered in stages to 20 percent, bringing lending rates

down accordingly (ibid).

At the same time, more money moved into the banking system in 1991 than in 1990;

time and savings deposits grew by 45 percent to ¢94.6 billion and demand deposits

rose to ¢118.7 billion. Loans also rose, with banks‟ claims on the private sector up by

24.1 percent, to ¢117.4 billion. Banks‟claims on the central government continued to

shrink in 1991, falling to a mere ¢860 million from ¢2.95 billion in 1990, a reflection

of continued budget surpluses. Claims on non-financial public enterprises rose by

12.6 percent to ¢27.1 billion.

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Foreign bank accounts, which were frozen shortly after the PNDC came to power,

have been permitted since mid-1985, in a move to increase local supplies of foreign

exchange (ibid).

The Ghana Stock Exchange began operations in November 1990, with twelve

companies considered to be the best performers in the country. Although there were

stringent minimum investment criteria for registration on the exchange, the

government hoped that share ownership would encourage the formation of new

companies and would increase savings and investment. After only one month in

operation, however, the exchange lost a major French affiliate, which reduced the

starting market capitalization to about US$92.5 million (ibid).

By the end of 1990, the aggregate effect of price and volume movements had resulted

in a further 10.8 percent decrease in market capitalization. Trading steadily increased,

however, and by midJuly 1992, 2.8 million shares were being traded with a value of

¢233 million, up from 1.7 million shares with a value of ¢145 million in November

1991. The market continued to be small, listing only thirteen companies, more than

half in retailing and brewing.

In June 1993, the government removed exchange control restrictions and gave

permission to non-resident Ghanaians and foreigners to invest on the exchange

without prior approval from the Bank of Ghana. In April 1994, the exchange received

a considerable boost after the government sold part of its holdings in Ashanti

Goldfields Corporation (ibid).

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2.7.2.1 Overview of Ghana Commercial Bank (GCB)

The Bank of the Gold Coast, the parent company of Ghana Commercial Bank

Limited, was established by Legislative Instrument in 1952 and commenced

operations in 1953. The Bank was set up as a semi government bank to cater for the

needs of the Gold Coasters and operate to the benefit of African industry, agriculture,

commerce and trade (Anin, 2000).

The Bank of the Gold Coast undertook both central and commercial banking

functions. The bank‟s name was changed to Ghana Commercial Bank in 1957 upon

the attainment of independence when Central Bank activities were hived off to the

newly created Bank of Ghana, leaving Ghana Commercial Bank to perform the

functions for which it was set up (Steel and Andah, 2003).

At the time of independence, there were only three banks operating in Ghana, namely;

British Bank of West Africa, Barclays Bank DCO (Dominion Colonial and Overseas),

and the Bank of the Gold Coast. The Bank of the Gold Coast was the only indigenous

bank as the other two were expatriate banks. (Anin, 2000). In 1996, Ghana

Commercial Bank changed its legal entity from a statutory corporation to a company

registered under the Company‟s code and subsequently floated shares on the Ghana

Stock Exchange when a percentage of the Government of Ghana‟s ownership was

divested to individuals and corporate business entities.

Ghana Commercial Bank operated as the only indigenous bank from independence

until NIB and ADB were established in 1963 and 1965 respectively. The bank held

the bulk of government accounts and had the greatest share of the industry‟s deposits.

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From a modest beginning of three (3) banks at independence, there as many as twenty

six (26) universal banks operating in Ghana as at September 2009 in Ghana with

many more eager to secure operational licenses.

The bank currently operates 157 branches and 11 agencies as at December 2009

nationwide and is exploiting its up to date technology, extensive branch network

linked together by means of wide area network (WAN) to its advantage, but it seems

this ambitious expansion drive has not translated into any exceptional financial

performance.

2.7.2.2 Mission of GCB

The Bank‟s mission is „„to be the established leader in banking, satisfying the

expectations of customers and shareholders, providing a full range of cost efficient

and high quality services through the optimization of information technology and

efficient branch network.‟‟

For the achievement of its mission, the Bank is committed to; the provision of first

class customer service, focusing on the Bank‟s core business competencies – banking

constant improvement in the use of information technology, ensuring that staff are

well motivated and have a conducive work environment, recruiting and retaining the

best human resources to carry out the Bank‟s mandate applying the best internal

policies, procedures, processes and service delivery, and constant improvement in

shareholder value.

2.7.2.3 Corporate Values

The stated corporate values of the bank are enumerated below;

Entrepreneurial Spirit - Passion for business.

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Professionalism - Highest banking and ethical standards.

Maximization of profit - Passion for superior performance resulting in

achieving targets.

Loyalty to organization, devotion to GCB, good customer care and a sense of

community, belonging to one family. The above beliefs, principles and practices are

supposed to guide staff of GCB in order to achieve the Bank‟s mission, do these

values really exist or to what extent are they embedded in the staff? In the activity

report of the Professional and Managerial Staff Union(PMSU) August, 2008, it noted

the challenges facings customer care as follows;

Branch managers are unable to visit customers on regular basis. They are also unable

to go out to look for new business. Delays in rendering prompt and efficient services

to customers as a result of their inadequate knowledge, professionalism, friendliness

and courtesy in handling customers. Poor attitude of staff to customers and the use of

temporal staff at the front desk. The lack of good customer care has dented the

corporate valuesand action should be taken to improve customer care in the Bank.

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CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter describes in detail the methods used, specific steps taken and the tools

employed in the collection and analysis of data needed to address the research

problem. Methodology is the theory of how research should be undertaken or

conducted. This includes the theoretical and philosophical assumptions upon which

research is based and the implications of these for the method or methods adopted;

(Saunders et al,2007).It is the study of the method(s) of research that helps to identify

vital data which makes solution of the research problem possible (Encarta

Dictionary). The methods specifically refer to the techniques and procedures used to

obtain and analyze data.

3.1 Research Design

Generally, a complete enumeration of the population provides better results than

samples. According to the law of statistical regularity, higher degree of data gives

higher degree of stability and vice versa. However, censuses of very large populations

are sometimes unrealistic as a result of time, resource and budget constraints.

Considering the size of GCB in respect of geographical extent and number of staff ie.

Over 168 branches and agencies spread over the regions and districts of Ghana with

2298 staff the researcher deems the population too large for individuals in all

branches, departments and divisions to be studied.

Sampling therefore becomes worthwhile in order to have a size manageable for the

study. It has been advocated that it is possible to achieve greater accuracy by using

75

appropriate sampling technique than by a complete enumeration of all the units of the

population. This choice of individuals is as a result of the fact that Management and

Retail Managers are responsible for the formulation and day to day implementation of

strategy respectively.

3.2 Sampling Procedure

A sample is a sub-group or representative selection of a population that is examined

or tested to obtain statistical data or information about the whole population (Encarta

Dictionary; Saunders et al 2007). Sampling on the other hand is the process of

selecting a group of people, items or cases to be used as a representative or random

sample (ibid). A sample size of four hundred (400) respondents out of apopulation of

2298wasselected for the research.The number was considered adequate and

representative enough to give informed answers to the research problem.

To ensure that all the various groups in the sampling frame were surveyed,

convenience or purposive sampling technique was employed in this regard. Purposive

or convenience sampling technique was used because this research focused only on

management and staff of GCB. The researcher marginalized or disregarded the

stratification of GCB‟s staff population since the researcher‟s concern was not to

capture all the various sub groups within the entire staff of GCB (both Management

and non management staff). However, a conscious effort was made to make the

sample as representative as possible.

The sample population of this research is compartmentalized as follows; 350 non

managerial staff, 25 Retail /Operations Managers, 10 Heads of Department, 8 Area

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Managers and 7 General Managers. Members of the Board were not easily

accessible.

3.2.1 Population

The complete set of cases from which a sample is selected is called the population

whether it describes human beings or not (Saunders et al, 2007). Wikipedia notes that

it is a group of individuals or items that share one or more common characteristics

from which data can be gathered or analyzed. In the Oxford Advanced Learners‟

Dictionary, population is defined as all the people who live in a particular city,

country or area.

For purposes of this research the population of study comprises Management and staff

of Ghana Commercial Bankfrom the following sub groups; Management, General

Managers, Area Managers, Retail Managers, Operations Managers, Heads of

Department and non managerial staff totaling 2298.

3.4 Sources of Data

Both secondary and primary datawas collected for the purposes of this research. For

clarity, Saunders et al, (2007) define data as facts, opinions and statistics that have

been collected together and recorded for reference or for analysis.

3.4.1 Primary Data

Primary data is data that is used for a specific purpose for which it was gathered. For

this study, it was obtained by administering questionnaires to respondents, namely top

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management, General Managers, Area Managers, Retail and Operations Managers of

GCB.

3.4.2 Secondary Data

Secondary data refers to data that is used for a purpose other than for which it was

originally obtained. It may be descriptive or explanatory (Saunders et al, 2007), raw

(unprocessed) or summarized (Kervin, 1999). They can be categorized into

documentary, multi-source or survey- based (Saunders et al, 2006). Secondary data

for the research was collected by reviewing textbooks, journals, articles, magazines,

publications, financial statements, industry reports, internal records of Ghana

Commercial Bank and newspapers such as the Business and Financial Times, and

publications like theGhana Banking Survey to gather historical perspectives of the

research data from renowned authors and researchers. Notable publications include

GCB‟s internal newletters The Eagle, Commerbank News and Quarterly Economic

Review. The bank‟s Planning and Research Department also came in handy with a lot

of data.

3.5 Data Collection Method

There are various methods by which both secondary and primary data are obtained.

Saunders et al, (2007) list questionnaire, interviews (semi-structured, in-depth and

group) and observation as methods that are usable. For this research the method

employed was the survey. The instrument used for the collection of relevant data for

the study was a questionnaire.

78

3.6 Questionnaire

This research instrument is a compilation of structured questions which were given to

respondents to elicit responses. The questions were close-ended multiple-choice

questions giving respondents a choice from a range of answers based on the 5- point

Likert-style rating scale. They had choices either to agree or disagree with the

statements made within the range. This was to ensure that the choice of answers

directly addressed issues at stake and make collation and analysis of the data simple.

On the scale, 1 is the lowest score and 5 the highest.

Majority of the questionnaires were electronically administered via the Bank‟s

intranet and e-mailed to staff. The rest were either hand delivered personally or

mailed to staff.

Furthermore, in-depth interviews were held with the managerial staff of Ghana

Commercial Bank Limited to solicit answers, opinions and suggestions on the study

because of the peculiar knowledge they possess on the subject under study. This

involved the use of semi-structured open-ended questions to allow for free, but brief

expression of relevant ideas, opinions and suggestions that might not have been

captured by the closed- ended questions.

The questions were grouped under six sections; Section A to Section E each with six

questions. Section A covered the demographic (personal) data of respondents and

included age, gender, marital status, educational background, income level etc.

Sections B to Section E were categorized under headings that dealt with each of the

evaluative indicators for measuring the impact of strategic competitive advantage on

corporate performance at GCB. Prior to administering the questionnaire the

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importance of the research was explained to the respondents and they were

encouraged to be truthful and diligent with their responses to make the research

worthwhile.

3.7 Method of Data Analysis

After receiving the answered questionnaires, they were thoroughly examined to find

out if any corrections would be required. Subsequent to making the necessary

corrections on the questionnaires, the answers to the various questions were

coded.The study used descriptive tools in the analyses of the collected data. The

descriptive tools included bar charts, pie charts and tables to analyze the data

statistically. The reason for the choice of the above methods, was to give a pictorial

explanation to the textual presentation.

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CHAPTER FOUR

DATA ANALYSIS AND DISCUSSION OF RESULTS

4.0 Introduction

This chapter looks at the presentation, discussion and analysis of data collected from

the field. Research findings constitute very important stages of the research exercise.

It is an integral part of the survey and it is affected by its overall quality. The findings

are normally reported with respect to furnishing evidence for each research questions

asked to guide the study. This study presents the results of the study and the findings.

The findings focus essentially on the causes of competition, impact of competition

and the strategies taken to address competition in the industry.

Out of a population of 2298 staff, a sample size of 400 was chosen for the study.

Questionnaires administered to the 400 selected respondents were collated and

analysed.

Descriptive statistics was used in presenting the data. Frequencies, percentages and

charts were employed to explain certain points where necessary.This section gives

detailed information on the findings of the study and detailed discussion on responses

obtained from the various questions posed to the respondents as well as the analysis of

the findings.

4.1 Demographic Background of Respondents

Samples were selected based on targeted units using the non-probability sampling

method of random sampling, specifically Purposive Sampling. This method ensured

that representative samples of all the known elements of the population occur in the

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sample. A sample size of four hundred (400), comprising fifty (50) managerial staff

and three hundred and fifty (350) non-managerial staff of the targeted population

responded to the administered questionnaires; Break down shown in Table 1 below.

4.1.1 Gender of the Respondents

Table 1: Respondents Distribution

Respondent Distribution

Male Female Total (%)

Management Staff 38 12 50 12.50%

Non-Managerial Staff 111 239 350 87.50%

Total 149 251 400 100.00%

(%) 37.25% 62.75% 100.00%

As indicated in Table 1, 12.50% of the respondents were managerial staff, while the

non-managerial staff registered the remaining 87.50%. The research further revealed

that the administered questionnaires exhibited a ratio of 1:1.7 with regard to male and

female distribution respectively with the female almost doubling that of the male, as

illustrated in Figure 1 below.

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Source: Field Survey, 2010

The ratio is an indication of enough evidence that there are more women in the bank,

majority operating as frontline executives, particularly, as relationship managers and

tellers. Thus this is an indication that both men and women were fairly represented.

4.1.2 The Range of Ages

The ages of (staff) respondents are within the range of 18 to 58 years. The staff age is

skew distributed towards 18 – 49 years with the modal age group being 26 - 33 years

which represents 35.5% of the respondents; this was followed by the 18 - 25 year

group scoring 21.5% of the respondents and the 34 – 41 years group registering

20.00%. The 50 – 57 and the 58 - 60 year groups cumulatively constituted 10.50% of

the respondents as shown in Table 2 and Fig 2. Thus, the study indicates that GCB has

a mixture of large number of young and energetic workforce. Staff who are nearing

the retiring age (58 – 60) are in the minority, accounting for 6.75%. However, within

the next decade, the bank has to recruit at least 10.5% new workforce since the 50-57

and the 58-60 year would have retired.

38

111

149

12

239 251

Management Staff Non-Managerial Staff Total

Gender Ratio

Male Female

Fig. 4.1

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Table 4.1.2: Ages of Employees

Age Frequency Percentage (%)

18 - 25 years 86 21.50%

26 - 33 years 142 35.50%

34 - 41 years 80 20.00%

42 - 49 years 50 12.50%

50 - 57 years 15 3.75%

58 - 60 years 27 6.75%

Total 400 100.00%

The above data is picturesquely represented below as Figure 2.

4.1.3 Number of years worked with GCB

Table 3 depicts ranges of years within which the respondents had worked with the

bank as staff. Out of the 400 respondents contacted 133 (33.25%) employees had

worked with the company between 16-20 years; which is also the modal group of the

distribution. The study showed 109 (comprising 89 non-managerial staff [22.25%]

and 20 [5.00%] managerial staff had worked with the bank between 11 and 15 years.

21.50%

35.50%

20.00%

12.50%

3.75%6.75%

18 - 25 years 26 - 33 years 34 - 41 years 42 - 49 years 50 - 57 years 58 - 60 years

Figure 4.2: Ages of Employees

Source: Field Survey, 2010

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Another 96 of the respondents had also worked between 6 and 10 years; closely

followed by 35 [8.75%] respondents having been with the bank between 1 and 5 years

and 27 [6.75%] for 21 – 25 years.

Table 4.1.3: Number of years worked with GCB

Frequency Percent

Years

Non-

Managerial

Staff

Managerial

Staff Total

Non-

Managerial

Staff

Managerial

Staff Total

1-5 yrs 32 3 35 8.00% 0.75% 8.75%

6-10 yrs 80 16 96 20.00% 4.00% 24.00%

11-15 yrs 89 20 109 22.25% 5.00% 27.25%

16-20 yrs 125 8 133 31.25% 2.00% 33.25%

21-25 yrs 24 3 27 6.00% 0.75% 6.75%

Total 350 50 400 87.50% 12.50% 100.00%

Source: Field Survey, 2010

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The above data is picturesquely illustrated below as Figure 3.

Figure 4.3: Number of years worked with GCB

Source: Field Survey, 2010

4.1.4 Current Position Held

The various positions held by staff or role that the various respondents play at the

bank is represented in three (3) major levels (Lower, Middle and Senior). At GCB,

frontline executives and clerical roles constituted 87% or 350 of the 400 staff while

the middle level executives or supervisory roles which are basically Retail (branch)

managers and their deputies (Operations Managers) comprised 10.00% or 40 of the

respondents. Senior managers, Area managers and or department/Unit heads who

constitute the senior executives and were represented by 10 (3%) respondents,

picturesquely illustrated in Figure 4.

0.00% 10.00% 20.00% 30.00% 40.00%

1-5 yrs

6-10 yrs

11-15 yrs

16-20 yrs

21-25 yrs

TOTAL

MANAGERIAL STAFF

NON-MANAGERIAL STAFF

Figure 4.3

86

Figure 4.4: Current position held at GCB

Source: Field Survey, 2010

4.2 Information Systems

Respondents indicated several reasons for the strategic decision for the adoption of

computerization and networking of all the operations of the bank and its impact

thereof so far. Notable among them are:

To achieve efficiency in customer information management and to provide the

easy access to banking services at the customers‟ own convenience.

To strategically position the bank to survive and attain the requisite

competitive edge in the turbulent and intense industrial rivalry.

The computerization has increased shareholders‟ wealth; employees are

relieved of extraneous duties which hitherto were manually performed; government

receives increased income through taxation and the public welfare has always been

paramount in the provision efficient services

The research revealed that its nationwide network was affirmed by an overwhelming

100% respondents indicating that they „strongly agree‟; the same response went for

88%

10%3%

Current Position

Lower Level

Middle Level

Senior Level

Figure 4.4

87

the notion, „GCB gives timely accurate report to clients‟. 87% respondents were

neutral to the notion that „GCB sends renewal notices electronically to clients‟, while

the remaining 13% disagree; and „GCB‟s ICT ensures accurate tracking and re-

payment of loans‟ had 65% agreeing, 24% neutral and 11% disagreeing.

Respondents provided recommendations for the improvement of information

technology management in the bank as listed below:

Operations Support Department and the Systems and IT Division should be

decentralized and

Specialized departments shouldbe provided with customized software to suit

their needs and enhance their operations.

The bank‟s intranet service should be optimally utilized to reduce most of the

paper work and thereby reduce customer waiting time at the various banking halls

which have always been a problem.

The staff should receive adequate training in order to utilize the ICT

infrastructure to its optimum level.

Network breakdowns should be totally eliminated, or conscious effort should

be made to reduce that canker to its barest minimum.

4.3 Competitive Advantage

The study brought to the fore the fact that GCB has a department whose sole

responsibility is on corporate planning and boasts of professional planning staff; its

General Manager is a member of the bank‟s Executive Management Committee; thus

indicating the extent of management‟s commitment to strategic planning and

management.

88

The research revealed that in general terms, GCB is implementing the cost leadership

strategy, though in certain instances the focus differentiation strategy is adopted. An

executive of the bank reiterated that it is cheaper doing business with GCB, hence the

huge customer base.

Even though the questionnaire provided slots for up to five strategic plans

implemented by the bank, responses indicated that the bank had since 1990

religiously implemented its strategic plans; and 99% of respondents showed that it has

over the years „positively‟ impacted on its general performance and output, while the

rest were not too sure. An executive buttressed the point that the strategy to fully

automate the operations of the bank by the use of ICT was aimed at enhancing

productivity and expanding customer access to the branches and ultimately increase

profitability.

When respondents were asked to indicate whether or not GCB enjoys competitive

advantage in the banking industry, 75% responded in the affirmative and 25% held a

contrary view. For those who indicated that the bank enjoys a competitive advantage,

they showed the following in the order of choice as the source of competitive

advantage; 76% for pricing strategy, 20% for distribution strategy, 3% for promotion

strategy and 1% or target market.

This research in the quest to ascertain the most important strategies currently been

operated vis-à-vis the competitive advantage it brings to the bank is illustrated below:

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Table 4.1.4: The Most Important Strategy

Strategy Frequency (%) Rank

Extensive branch network 143 35.75% 1

Large customer base 87 21.75% 2

Low bank charges 76 19.00% 3

Easy access to loans 69 17.25% 4

Key accounts held with bank 15 3.75% 5

Superior customer service 10 2.50% 6

According to 35.75% of the respondents, the extensive branch network is the most

important factor by way of contribution to GCB‟s competitive advantage. In second

place is the bank‟s large customer base for which 21.7% respondents voted. The

bank‟s low charges and transaction fees was adjudged the third most important factor

with 19.00%. Easy access to loans was ranked fourth with 17.25% followed by key

accounts held by the bank. Customer service showed just 2.5% (the least important of

the strategies that earned the bank any competitive edge).

On the issue of expressing opinion on how planning for strategic competitive

advantage could be improved at GCB, respondents volunteered the following:

The strategic plan must be abreast with recent positive developments in the

banking industry and the economy at large. It should capitalize on the oil find and all

that it brings.

Frontline staff should be involved in the drafting of plans for their valuable

inputs mostly advised by customer care.

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The extension of branch network should be complemented with good

customer care to win and maintain customers including key customers lost.

The use of ICT to achieve competitive advantage cannot be over emphasized.

Work culture and customer satisfaction must be seriously tackled.

4.4 Image or Reputation

In general, GCB is seen as a bank with a good reputation. This is evidenced by the

over 80% positive response in favour of GCB‟S reputation. On branch ambience and

attractiveness of offices, the following responses were obtained; 45% strongly agreed

that GCB branches were attractive and pleasant, 40% also agreed with the assertion,

and the remaining 15% were neutral.

On the issue of GCB being a pacesetter in terms of product innovation, 35% agreed

with the statement, 12% were neutral, and 53% disagreed with the statement.

The bank is seen as a good corporate citizen, this was represented by 85% of

respondents, with the remaining 15% neutral on the matter.

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Table 4.1.5: Image/Reputation

Image/ Reputation Strongly

Agree

5

Agree

4

Neutral

3

Disagree

2

Strongly

Disagree

1

GCB„s positive image

is as a result of

planning over the

years.

0% 87% 10% 3% 0%

GCB offices are noted

for their attractiveness

and pleasant

environment

45% 40% 15% 0% 0%

GCB is recognized as

the industry‟s

pacesetter in product

innovation.

0% 35% 12% 33% 20%

GCB listing on the

GSE evidences its

financial discipline

90% 10% 0% 0% 0%

GCB is one of the

leading corporate

citizens in Ghana.

65% 20% 15% 0% 0%

GCB is considered as

the all-round best

Ghanaian bank.

77% 23% 0% 0% 0%

4.5 Profitability

Research revealed that the profitability of the bank is guaranteed since GCB accounts

show increasing profits year after year, 89% of respondents see GCB as a profitable

company, with 11% remaining neutral. On viability, 10% of respondents strongly

agreed with the statement that GCB is viable, the remaining 90% also agreed on

GCB‟s viability. 90% of respondents alsosee GCB as having a good investment

portfolio just to mention a few. Details are shown in Table 6 below.

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Table 4.1.6: Profitability

Strongly

Agree

5

Agree

4

Neutral

3

Disagree

2

Strongly

Disagree

1

GCB accounts shows

increasing profit year after

year.

0% 89% 11% 0% 0%

GCB is a viable company 10% 90% 0% 0% 0%

GCB has a good

investment portfolio.

80% 10% 0% 0% 0%

GCB listing on the GSE

evidences its financial

discipline

0% 99% 1% 0% 0%

GCB‟s investments yield

good dividends. 20% 65% 5% 0% 0%

GCB profit ratio is

consistent. 0% 88% 12% 0% 0%

GCB‟s growth rate is slow

but consistent 21% 68% 11% 0% 0%

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CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS,AND

RECOMMENDATIONS

5.0 Introduction

Globalisation is having a tremendous impact on industry. This has given rise to

intense competition across national boundries. Thus, organisations need to grow to

survive in such a globally competitive market place. The banking industry is not left

out as far as the rise in competition is concerned. To survive, the banks have adopted

different ways of realising competitive advantage of which Ghana Commercial Bank

is no exception.

Kotelnikov (2007), has observed that competitive advantage is a prolonged benefit of

implementing some unique value-creating strategy based on unique combination of

internal organisational resources and capabilities that cannot be replicated. This study

examines the strategies adopted by banks to gain competitive advantage in the

banking industry with particular reference to Ghana Commercial Bank Limited.

Specific objectives are:

To analyze the current competitive strategies being pursued by the GCB,

To diagnose the reasons for the success or failure of the strategies and suggest

alternatives.

To determine the impact of GCB‟s strategy on the bank‟s performance.

To assess the sustainability of the bank‟s competitive strategy

To make recommendations to improve the strategic competitive advantage in the

industry.

94

In order to attain the research objectives the following research questions were posed.

Whatstrategic competitive advantages are being adopted by GCB?

Which strategies are perceived to give the GCB a competitive advantage/edge?

Are the current strategies capable of surviving the industrial competition?

Which strategies can best be practiced by the GCB to either gain or regain

competitive advantage?

5.1 Summary of Findings

Competitive Advantage

It was established that GCB enjoys competitive advantage in the Banking industry,

the main sources of the Bank‟s competitive advantage being its large geographical

spread of 157 branches and 11 agencies, and low charges for the range of services

rendered to the public.

Strategy

The bank is using a cost leadership strategy to achieve competitive advantage which

has been so far, working in its favour. The bank is enjoying the benefits of economies

of scale from its wide network of branches spread across the length and breadth of

Ghana resulting in a large customer base.

Information Systems

The bank‟s decision to computerize and network all its branches was a deliberate,

well thought out strategy to improve efficiency, customer information management

and also provide easy access to banking services. The study found out that the

95

computerization has strategically positioned the bank to survive and attain the

requisite competitive edge within an intensely competitive industry.

Access to Credit

Easy access to credit is not one of GCB‟s strongest points, it placed a distant fourth

when the bank‟s most important strategies were ranked. Thus the bank could do more

in terms of improving its loan application processes, utilizing IT to eliminate the

bureaucracy in its credit delivery system ie. forwarding most loan applications to the

Head Office Credit Committee.

Profitability

The bank‟s accounts show increasing profits year after year indicating GCB‟s

viability.

Customer Service

Customer serviceplaced last among six strategies ranked by respondents; indicating

the low level of importance attached to customer service in GCB.

Image/ Reputation

GCB enjoys a very good reputation which translates into goodwill and business for

the bank, despite the poor customer service.

Branch Ambience/ Aesthetics

Majority of respondents found the bank‟s offices to be unattractive, casting a very

negative impression on the bank‟s facilities.

96

Staffing Needs

The study indicates that GCB has a mixture of large number of young and energetic

workforce and personnel advanced in age nearing pension who are in the extreme

minority. However, within the next decade, especially, in the next two years

management has to recruit at least 10.50% new workforce since the older folks would

have retired.

5.2 Recommendations

In view of the findings of the research the following recommendations are made;

Customer Service

Customer service and turnaround time should be greatly improved to make

bankingeasy, quick and convenient. Modern queue management systems should be

employed to render excellent services to customers. The bank needs to train staff,

particularly those at the frontline to be more customer - friendly and focused so as to

meet and exceed the expectations of customers.

Branch Ambience

The bank must rehabilitate and modernize its branch buildings and facilities to keep

up with trends in the banking industry. The bank must make it part of its culture to

keep a physically attractive environment which would make customers very

comfortable even when they have to wait for longer periods of time.

97

Sustaining Competitive Advantage

Although, the bank is a cost leader, efforts must be made to step up its standard of

service so as no to suffer a negative perception in the minds of customers, which may

result in negating the gains from the cost leadership strategy.

Interest Rates and Charges

The bank should also take a second look at its interest rates to help get new customers

and stay competitive. GCB should be quick to respond to the frequent changes in the

market, especially cuts in Bank of Ghana‟s prime rate to avoid being under-priced by

its competitors.The bank could also lend to certain low-risk categories of customers at

very attractive rates in order to sustain its competitive advantage. Such low-risk

customers include public and civil servants, Ghana Education Service staff, Ghana

Health Service staff who are paid through the Controller and Accountant General‟s

Department. These categories of workers can have their loan repayments deducted at

source and thus minimize the rate of default.

Technology

The bank‟s ICT infrastructure should be regularly reviewed and updated to ensure that

they are using the most efficient technologies on the market. The current VSAT

(Very Small Aperture Terminal) technology in place at most of the branches should

make way for the faster Radio technology so as to reduce transaction times. The bank

should also improve its data back up systems to prevent the incidents of server down

time, and denial of service to customers as a result of communication link going

offline.

98

Staff Motivation

It is highly recommended that the bank retains a well motivated staff with proper

conditions of service and a good pay package since they are the resource tasked with

the duty of carrying out any policy and strategy to help it stay in competition, they

should organize proper training modules to upgrade the staff to help them acquaint

themselves with modern trends in banking operations.

Access to credit

The bank must streamline its loan application processes to make the bank competitive

in the area of short-term financing. Faster loan approvals are the order of the day, as

most of GCB‟ competitors are doing better in this area. The bank can hardly afford to

be left behind. In the same vein, the bank must increase the threshold of loans which

require approval by the Head Office Credit Committee by optimizing the use of IT in

its loan processes to speed it up.

5.3 Conclusion

The respondents fall between the ages of 18 to 60 and with such workforce the bank

can make long term plans to meet the competition in the market and help achieve its

goals and objectives. The competition in the banking sector has brought about a lot of

flexibility into the industry thereby resulting in prompt responses to customer

problems and innovative ways of rendering banking services.

The strategic decision to adopt computerization and networking of all the operations

of the bank and its impact was to achieve efficiency in customer information

management and to provide the customers easy access to banking services at the

99

customers‟ own convenience; to strategically position the bank to survive and attain

the requisite competitive edge in the turbulent and intense industrial rivalry;

computerization has increased shareholders‟ wealth; employees are relieved of

extraneous duties which were hitherto manually performed; government receives

increased income through taxation and the public welfare has always been paramount

in the provision efficient services.

In general GCB is implementing the cost leadership strategy, though in certain

instances the focus differentiation strategy is adopted. The extensive branch network

seems to be the major strength that GCB holds as competitive advantage and has thus

resulted in the bank acquiring the largest customer base in the industry. Customer

services, on the other hand showed just 2.5% (the least of strategies that earned the

bank any competitive edge).

The research revealed that the profitability of the bank is guaranteed since GCB

accounts increases year after year by the 89% response and 90% vote on its viability;

90% indicates that GCB has a good investment portfolio just to mention a few.

The study delved extensively into the operations of Ghana Commercial Bank and has

thus identified several issues of concern which affect the competitive position in the

market. The adoption and implementation of the recommendations made by this study

would in no doubt enhance the bank‟s competitive edge in the industry.

100

5.4 Suggested Areas for Further Research

The study is a case study of one particular banking institution however, every aspect

of competition could not be studied let alone taking some of the core variables of

banking and subjecting them to a more analytical study to determine the extent to

which they can withstand competition using quantitative methods. As a result, this

makes it more appropriate to subject some of the variables such as profit of the

company, market share to determine the exact effect of the competition on them. A

further study can thus be done in this regard.

101

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APPENDIX 1

QUESTIONNAIRE FOR MANAGEMENT AND STAFF

Dear Sir/Madam

You have been selected to respond to this questionnaire for the study of “Achieving

competitive advantage in the banking industry: (A Case Study Of Ghana Commercial

Bank)”. You are assured that any information you provide is solely meant for the

research and nothing else. Your response to the questions will be kept confidential.

Thank You.

SECTION A: Please complete this section by ticking the applicable box

1. Gender: Male [ ] Female [ ]

2. Age

18– 25years [ ]

26 – 33 [ ]

34 – 41 [ ]

42 – 49 [ ]

50 – 57 [ ]

58 – 60[ ]

3. Number of years worked with the bank

1 – 5years [ ]

6 – 10 [ ]

11 – 15 [ ]

16 – 20 [ ]

21 – 25 [ ]

110

4. State your current position held at the bank.

…………………………………………………………………………………………

…………………………………………………………………………………………

SECTION B: INFORMATION SYSTEMS

1) GCB was among the first banks to computerize and network all its operations

in all its offices nationwide. What informed this decision?

…………………………………………………………………………………

………………………………………………………………………………..

…………………………………………………………………………………

2) How has the computerization of the Bank‟s branches positively or otherwise

affected the interests of various stakeholders of the bank over the period; customers,

shareholders, employees, government and the public?

…………………………………………………………………………………………

…………………………………………………………………………………………

………………………… ………………………………………………………………

111

3) In the following table, please tick whether you agree, strongly agree or disagree

etc. with the statements below.

Strongly

Agree

5

Agree

4

Neutral

3

Disagree

2

Strongly

Disagree

1

GCB offices are

networked nationwide.

GCB gives accurate

report/ statements of

account to clients on

time.

GCB gives

timelyreport on

income.

GCB sends renewal

notices electronically

to clients.

GCB‟s ICT ensures

accurate tracking and

re-payment of loans.

4) What is your recommendation for the future improvement of information

technology management in the bank?

…………………………………………………………………………………………

…………………………………………………………………………………………

…………………………………………………………………………………………

…………………………………………………………………………………………

112

SECTION C: COMPETITIVE ADVANTAGE

1. Does GCB have a Corporate Planning Department? Yes [ ] No [ ]

2. Does the Department have professional planning staff? Yes [ ] No [ ]

3. Is the Corporate Planner a member of the GCB Executive Management

Committee?

Yes [ ] No [ ]

4. How many Strategic Plans has GCB implemented?

Please tick. 1 [ ] 2[ ] 3 [ ] 4 [ ] 5 [ ]

5. How often does GCB review its strategy?

Monthly [ ] Quarterly [ ] Half Yearly [ ] Annually [ ] Others, specify

…………...............................................................................................................

6. a) Which generic strategy is being implemented by GCB?

a. Focus [ ] b. Differentiation [ ] c. Cost leadership [ ]

d. Others (specify) [ ]

b) Please provide reasons for your choice.

…………………………………………………………………………………………

……………………………………………………………………………..………….

...………….…………..………………………..………………………………………

7. a) How has GCB‟s strategic planning impacted on its performance?

Very positively [ ] Positively [ ] Neutral [ ] Negatively [ ]

Very Negatively [ ]

b) Please explain

…………………………………………………………………………………………..

…………………………………………………………………………………………..

………………………………………………………………………………………….

113

8. Does GCB enjoy competitive advantage in the banking industry?

Yes [ ] No [ ]

9. If yes, what are the sources of competitive advantage enjoyed by GCB?

a. pricing strategy [ ] b. distribution strategy[ ]

c. promotion strategy [ ] d. target market [ ]

10. In the following table, please rank the following strategies in order of importance,

their contribution to GCB‟s competitiveadvantage by assigning numbers 1 – 6, with 1

being the most important and 6 being the least important.

11. In your own opinion, how can planning for strategic competitive advantage be

improved at GCB………………………………………………………………………

………………………………………………………………………………………….

…………..………………………………………………………………………………

…………………………………………………………………………………………..

12. Is the source of GCB‟s competitive advantage sustainable in the long-run?

Yes [ ] No [ ]

Strategy Rank

Superior customer

service

Extensive branch

network

Low bank charges

Large customer base

Easy access to loans

Key accounts held with

the bank

114

13. In your own words, which aspects of the bank‟s strategy need improvement?

…………………………………………………………………………………………

…………………………………………………………………………………………

…………………………………………………………………………………………

…………………………………………………………………………………………

115

SECTION D: IMAGE OR REPUTATION

1. Inthe followingtable, please tick your extent of agreement or disagreement with the

following statements.

Strongly

Agree

5

Agree

4

Neutral

3

Disagree

2

Strongly

Disagree

1

GCB‟s positive

image is as a result

of planning over

the years.

GCB offices are

noted for their

attractiveness and

pleasant

environment.

GCB is recognized

as the industry‟s

pacesetter in

product innovation.

GCB is one of the

leading corporate

citizens in Ghana.

GCB is considered

as the all-round

best Ghanaian

bank.

116

SECTION E: PROFITABILITY

1. In the followingtable, please tick your extent of agreement or disagreement with the

following statements.

Strongly

Agree

5

Agree

4

Neutral

3

Disagree

2

Strongly

Disagree

1

GCB accounts show

increasing profit year

after year.

GCB is a viable

company.

GCB has a good

investment portfolio.

GCB‟s listing on the

Stock Exchange

evidences its financial

discipline.

GCB‟s investments

yield good dividends.

GCB profit ratio is

consistent.

GCB‟s growth rate is

slow but consistent.