Improvement of strategic planning in banks
Requirements for the business plan (strategic development plan of a bank) are established by the resolution of the Board of the National Bank of the Republic of Belarus No. 554 dated 30.10.2012 “On Approval of the Instruction on Requirements to the Business Plan and Strategic Development Plan of a Bank, “Development Bank of the Republic of Belarus” Joint-Stock Company and Non-Bank Credit and Financial Institution and Procedures for the Assessment Thereof”.
In accordance with this Instruction:
The strategic development plan should be updated to take account of changing conditions;
The strategic development plan should contain a reasonable forecast of the bank’s performance and development in the corresponding period including an assessment of expected results and planned values of the bank’s principal performance indicators as well as measures, tools, resources and conditions for achieving them;
The bank’s local legal acts should contain a procedure for developing and approving the bank’s strategic development plan, as well as monitoring the implementation of the bank’s business plan (strategic development plan), including considering information on the implementation of the bank’s business plan when approving annual reports by the general meeting of shareholders; other.
Specialists of the audit company analyzed strategic planning and strategy implementation as part of an independent expert assessment of the effectiveness of corporate governance for 2018 in 13 commercial banks of the Republic of Belarus. The following aspects were identified with the corresponding recommendations:
- objectives are not reached;
The root of the problem was that the strategic objectives were declared, but not decomposed. Specifically, the strategy did not have a tree of objectives. At the envisioning stage, the company formulated the most basic objectives and outlined the ways to achieve them very briefly and generically. But the company’s employees, coming to work every day, do not think in terms of long-term objectives, they have daily responsibilities. How to make sure that employees bring the company closer to its strategic objectives on a daily basis? The principal objectives need to be decomposed to operational objectives.
The tree of objectives is a hierarchical list of tasks, each having a clearly defined person responsible, due date, and expected result.
- scenario analysis is not used;
A strategy is a plan for the future, and the future is by definition unpredictable. We can analyze the market and make plans for the future all we want, still not all of them are destined to come true. Our clients did not use all the tools of strategic management. For instance, a strategic planning tool such as scenario analysis was not utilised.
Scenario development includes:
selecting changeable variables;
designing different scenario outcomes;
combining key variables and scenario writing.
The contribution of scenario planning to the further strategy development is that the scenario method allows to develop a reasonable set of strategies that contribute to achieving the best result of the organization’s activities. In particular, scenario planning allows to build an organization’s protection against the main threats of the external environment.
- intermediate results are not controlled;
If the strategy defines intermediate expected results, then if something goes wrong you will find out immediately instead of in a few months. If you see deviations from the plan, you can either quickly eliminate them, or correct the plan in a timely and accurate manner. Even if the objective is not achieved, you will know exactly why. This will allow you to learn from mistakes and avoid them in the future.
- the strategy is not updated in a timely manner;
Sometimes the situation changes so much that the strategy becomes outdated, in which case the company is simply obliged to rewrite it. If only certain provisions become obsolete, the strategy needs to be adjusted.
It is not advisable to write strategies and blindly follow them for three years, not paying attention to what is happening around. Difficult times require flexibility. And even in quiet times the strategy needs to be updated annually.
- the monitoring of the external environment indicators is not carried out;
Business strategy development begins with analysis. In order to analyze the external environment, your strategy must include a set of external environment key indicators that you monitor on a regular basis. They can include, for instance: currency exchange rate, market price index, income level of the population. You should create a list of such indicators during the development of the strategy, assign those responsible for monitoring, and set the amount of deviations of these indicators from target values. As soon as the indicator deviates by a specified amount or more, this can serve as a basis for adjusting the strategy.
- there is a disconnect between top-level objectives and operational business plans;
The company’s strategic objectives, even if they are clearly formulated, cannot be achieved if the operational and tactical plans are not logically linked to them, if the operational objectives and plans do not follow from the strategic ones logically. The same applies to employee motivation policies.
- the strategy is out of touch with the market;
A strategy is a long-term plan to develop and maintain competitive advantages. Often, top managers do not define or reflect the bank’s competitive advantages in the strategy, which ultimately reduces its competitiveness.
Just as there is no company without a need for its products (services), there are no market opportunities without competitive advantages. Competitive advantages make the company recognizable in the market and protect it from the effects of competitive forces.
Developing a competitive strategy allows to identify and focus on the advantages of the organization. This is complex work that involves analysing the market, competitors, and the company itself.
There are several tools that have been long used to find the right direction of development:
SWOT-analysis;
Porter five forces analysis;
Core competencies.
- developing an effective strategy is impossible without modern marketing tools;
Systematically analysing the market is the key to making the right strategic decisions.
- there is no continuous monitoring of the implementation of the strategy;
A strategy is a plan of activities that need to be implemented in order to achieve objectives, a plan of resources that need to be spent for this, and a list of objectives. But any plan is useful only when it is implemented. Currently, strategic plans, even if they are dutifully drawn up, are often not being implemented. This happens because of the lack of continuous monitoring of work and its results. The strategy is not going to implement itself. The controlling or marketing department together with the economists is obliged to constantly monitor the implementation of the strategy.
In low-performing markets, there are enough myths surrounding strategy. In particular, strategy is often called a beautiful concept that is out of touch with life, entertaining, but ultimately useless. Sometimes strategy is described as an abstract “vision”, mistakenly separating strategic tasks from tactical ones. However, top managers are well aware that the consequences of business decisions often extend beyond one year, and these same consequences require professional advice and a more serious approach in planning and executing corporate strategic business decisions.
To sum up it is necessary to note the following main directions for improving strategic planning in banks:
1) More thorough preparation of strategic development plans in accordance with the recommendations presented above;
2) Special attention should be paid to the composition of the Supervisory Board and the qualifications of its members, in particular their knowledge and experience in business analysis, marketing, macroeconomics and political economy;
3) In Western business practice, the process of describing the strategy is usually entrusted to specialists – consulting companies. And this is justified, since strategy development is a separate specialty. Every top manager must understand the language of strategy, think strategically, but this does not mean that he can perfectly master the skills of strategy development.
