Project Materials

An Analysis of the Impediments to Strategic Management in the Nigerian Banking Industry

ABSTRACT

It is no gainsaying that the Nigerian banking and financial system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as the scale of operations driven largely by the deregulation of the financial sector in line with the global trend.

The aim of the study is to analyze impediments, determine and ascertain the causes of resistance to changes in strategic management practices by bank management as well as proffer solutions on eliminating such impediments to strategic management practices in Nigerian banking sector.

In this study, descriptive statistics was used to describe quality and quantity raw data on the impediments to strategic management in the Nigerian banking industry. It is important to note that a thorough understanding of descriptive statistics is essential for effective use of all normative and cause-and-effect statistical techniques, including hypothesis testing, correlation, and regression analysis.

In conclusion, the result of the analysis ‘showed that banks have really developed new ideas to contend with impediments to strategic management through new technology, new products and services, competent human resources and strategic branch locations to enhance performance and profitability.

TABLE OF CONTENTS

Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
List of Tables

CHAPTER ONE – INTRODUCTION
1.1 Background of the Study 1
1.2 Introduction of Banking System in Nigeria 4
1.3 Statement of the Problem 7
1.4 Objectives of the Study 9
1.5 Research Questions 9
1.6 Hypothesis of the study 10
1.7 Scope of the Study 10
1.8 Significance of the Study 11
References 12

CHAPTER TWO – REVIEW OF RELATED LITERATURE
2.1 Theoretical Review 14
2.2 Empirical literature 29
References 39

CHAPTER THREE – METHODOLOGY OF THE RESEARCH
3.1 Research Design 41
3.2 Sources of Data 41
3.3 Population/Sample Derivation 42
3.4 Instrument for Data Analysis 44
3.5 Method of Data Analysis 45
References 46

CHAPTER FOUR – DATA/RESULT ANALYSIS
4.1 Data Presentation and Interpretation 47
4.2 Implications of Results/Analysis 48
References 60

CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 61
5.2 Conclusion 61
5.3 Recommendations 62
Appendix
Bibliography 63

LIST OF TABLES

Table 3.1: Composition of the management staff of the banks 42
Table 3.2: Determination of each Banks Sample Size 44
Table 3.3: Questionnaire Distribution and Responses 47
Table 4.2.1: Application of Strategic Management Approach in
Nigerian banks 49
Table 4.2.2: Impediments to Strategic Management in Nigerian
Banks 52
Table 4.2.3: Resistances to change as Impediment to Strategic
Management in Nigerian Banks 55
Table 4.2.4: Impact of Poor Strategic Planning as Impediment to
the performance of Nigerian Banks 57
Table 4.2.5: Solutions to the Impediments to Strategic Management
in Banks 58

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments (Nag et al,2007).

It entails specifying the organization’s mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs (Johnson and Scholes, 2008).

A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced score card which includes all stakeholders. Strategic management is a level of managerial activity under setting goals and over tactics.

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

According to Arieu (2007), “there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context.” Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization.

It depends on the organizational structured balanced scorecard Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors;

and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment (Lamb, 1984) which includes all stakeholders.

According to Bracker (1980), “although different definitions of strategic management have been proposed there appears to be a common focus among scholars about the key aspects or elements that form the current structure of strategic management”.

Thompson, et. al. (2008), and Dobes and Starkey (2006) propose the elements of strategic management to include strategic analysis, strategic choice and strategy implementation. Dess and Miller (1993) and Lynch (2000) argued that strategic management involves environmental and capability analysis, strategy formulation and strategy implementation and control on an on-going basis.

Boyd and Reunning – Elliot (1998) identify mission statement, trend analysis, competitor analysis, long-term goals, annual goals, short-term action plans and on-going evaluation as the key indicators that can be used to measure the strategic planning and management construct.

Banks have a strategic role to play in the nation‘s economic development. This is hinged on their basic function as financial intermediaries, mobilizing vital savings from surplus economic units and channeling same to deficits units. An efficient financial system is widely accepted as a necessary condition for an effective functioning of a nation’s economy.

The state of development of the financial market in a country serves as barometer for measuring the stage of development of the economy. The mix of these financial intermediaries varies from country to country, reflecting the stage of development and the degree of sophistication of the country’s economic agents (Abdullahi, 2003).

Thus, it is imperative that the banking system be healthy in order to fulfill its many expectations, chief among which is the provision of the financial catalyst for the attainment of economic progress, reduction in poverty and general improvement in the living standard of the people (Eboreime, 2009).

A review of developments in the Nigerian banking and financial system indicates that the banking sector has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as the scale of operations driven largely by the deregulation of the financial sector in line with the global trend (Ogunleye, 2005).

As at the end of 2004, insured banks stood at 89 with various sizes and degrees of soundness. The sector generally enjoyed a stable operating environment until the July 6, 2004 announcement of the CBN which introduced a major policy initiative affecting the sector.

1.2 INTRODUCTION OF BANKING SYSTEM IN NIGERIA

The banking operation began in Nigeria in 1892 under the control of the expatriates and by 1945, some Nigerians and Africans had established their own banks. The first era of consolidation ever recorded in Nigeria banking industry was between 1959-1969.

This was occasioned by bank failures during 1953- 1959 due mainly to liquidity of banks (Somoye, 2008). Banks, then, do not have enough liquid assets to meet customers demand. There was no well-organized financial system with enough financial instruments to invest in.

Hence, banks merely invested in real assets which could not be easily realized to cash without loss of value in times of need.

This prompted the Federal Government then, backed by the World Bank Report to institute the Lyons commission on September 1958. The outcome was the promulgation of the ordinance of 1958, which established the Central Bank of Nigeria (CBN).

The year 1959 was remarkable in the Nigeria Banking history not only because of the establishment of Central Bank Nigeria (CBN) but that the Treasury Bill Ordinance was enacted which led to the issuance of our first treasury bills in April, 1960.

The period (1959–1969) marked the establishment of formal money, capital markets and portfolio management in Nigeria. In addition, the company acts of 1968 were established.

This period could be said to be the genesis of serious banking regulation in Nigeria. With the CBN in operation, the minimum paid-up capital was set at N400, 000(USD$480,000) in 1958.

By January 2001, banking sector was fully deregulated with the adoption of universal banking system in Nigeria which merged Merchant bank operation to Commercial banks system preparatory towards consolidation programme in 2004 (Somoye, 2008).

The proliferation of banks in the 1990s which also resulted in the failure of many of them, led to another recapitalization exercise that saw bank’s capital being increased to N500million(USD$5.88) and subsequently

N2billion(US$0.0166billion) in 2004 with the institution of a 13-point reform agenda aimed at addressing the fragile nature of the banking system, stop the boom and burst cycle that characterized the sector and evolve a banking system that not only could serve the Nigeria economy, but also the regional economy (Somoye, 2008).

The author explained that the agenda by the monetary authorities is also agenda to consolidate the Nigeria banks and make them capable of playing in international financial system. However, there appears to be divergent between the state of the

banking industry in Nigeria vis-à-vis the vision of the government and regulatory authorities for the industry. This, in the main, was the reason for the policy of mandatory consolidation, which was not open to dialogue and its components also seemed cast in concrete (Somoye, 2008).

The Nigerian banking environment has witnessed tremendous changes before and during the global financial crisis with a gradual transformation from transactional orientation to customer service-orientation in an increasingly aggressive environment (Okwuosah, 2009).

However, customers say the banks of their choice are those with national presence whose network are nationwide such that withdrawal and deposits could be made anywhere in the country, as most Nigerians are gradually losing the desire to carry cash around.

This also explains the reason why most customers prefer banks with efficient online banking facilities, most of the banks that have these facilities would attract quite a sizable number of customers, which means if customers all come at the same time queuing is inevitable hence yet customers say they do not like to queue.

They desire strong banks that would reply their e-mails promptly with great public relations, prompt issuance of bank statements, less charge on online services, prompt attention to opening online account, quick activation of accounts, friendly approach, and efficient customer service (Asikhia, 2007).

1.3 STATEMENT OF THE PROBLEM

The intensity of the strategic control system is the extent of an organization’s effort in monitoring the effectiveness of the chosen strategy on an on-going basis (Oyedijo, 2008). The philosophical basis and relevance of this strategic management dimension in the empirical study and prediction of organizational performance derives from the role and contribution of strategic control to overall corporate performance.

Because a strategic control system involves a process by which managers monitor the on-going activities of an organization and its members to evaluate whether the activities are being performed efficiently and effectively so as to take correction action to improve if they are not (Hill and Jones, 2005),

the system does not just mean reacting to events after they have occurred; it also means keeping an organization on track, anticipating events that might occur and responding rapidly to new emerging opportunities. A good control system provides an opportunity for the parties involved to agree on objective performance standards well ahead of any performance evaluation (Barringer and Bluedorn, 1999).

Consequently, a higher amount of strategic plan implementation effort on the part of employees or organizational sub-units is stimulated. As a result of its important effects, the strength, robustness or intensity of a strategic control system cannot be overlooked when conceptualizing and measuring the intensity of a firm’s strategic management system.

A greater allocation of time and money on strategic planning and management activities can facilitate an improved awareness and understating of environmental threats and opportunities. The consequence of this is that the quality of the strategic plans that are made will be higher and this can translate to a better positioning of the organization in its environment and superior performance.

Thus, the extent of a firm’s commitment to strategic planning as measured by the percentage of its budget devoted to this function is critical in judging the soundness or intensity of the firm’s strategic management system. The question this study tends to answer is therefore stated as follows:

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

1.4 OBJECTIVES OF THE STUDY

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

The specific objectives are:

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

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

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

1.5 RESEARCH QUESTIONS

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

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

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

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

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

1.6 HYPOTHESIS OF THE STUDY

The hypothesis that would guide this study is stated as follows:
Ho1: There is no impediment to the strategic management practices in Nigerian banking sector
Ho2: Strategic management practices have no role in the nation’s banking sector
Ho3: Introduction of new products and services in banks has not increased its profitability
Ho4: Is there solutions to mitigate against impediments to strategic management in the nations banking industry.

1.7 SCOPE OF THE STUDY

This study covers three banks in Nigeria covering the period from 2006 to 2010 which is the post consolidation period in the Nigerian banking sector using analytical techniques.

1.8 SIGNIFICANCE OF THE STUDY

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

The study also presents sufficient challenges to academics to increase their research interests in the field of knowledge.

Subsequently, business organizations in general and the banking industry in particular will benefit from this study in that they will learn more about the implications of proper application of strategic management in order to improve business performance, which will be beneficial in the following ways:

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

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

REFERENCES

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Bracker, J. (1980), The historical development of the strategic management concept, Academy of Management Review 5(2): 219-224.

Boyd, B.K. and E. Reuning-Elliot (1998), A Measurement model of strategic planning, Strategic Management Journal, Vol. 19, pp.181-192

Dess G.G., and A. Miller (1993), Strategic Management, New York: McGraw-Hill p. 9.

Dobson, P. and K. Starkey (2006), Strategic Management Blueprint, Oxford: Blackwell Publishers Ltd, pp.2-3.

Drucker, P. (1954). The Practice of Management, Harper and Row, New York.

Johnson, G, and Scholes, K. W.(2008), Exploring Corporate Strategy, 8th Edition, FT Prentice Hall, Essex, ISBN 978-0-273-71192-6

Lamb, R. B. (1984), Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall,

Nag, R.; Hambrick, D. C.; Chen, M.-J. (2007), “What is strategic management, really? Inductive derivation of a consensus definition of the field”, Strategic Management Journal. Volume 28, Issue 9.

Okwuosah U (2009), “Reading the Nigerian Crisis on Ghana’s Banking Environment,” Business Day, 26 August.

Ogunleye G.A (2005), The bank of the future regulatory and supervisory imperative in the Age of I.T, FITC center Lagos Nig.

Somoye, R.O.C. (2008) “Corporate Governance and Merger Activity in the Nigeria Banking Industry: Some Clarifying Comments”, International Research Journal of Finance and Economics

Thompson, A.A. Strickland, A. J. and R. Gamble (2008), Crafting and Executing Strategy, Boston: McGraw-Hill Irwin, pp. 6-14.