Answer to Question #235259 in Management for Kudzie

Question

1.1 Explain the strategic management process that Standard Bank needs to follow to remain
competitive and to gain more market share. (40)
1.2 Discuss driving force that would give Standard Bank a competitive edge in the market. (25)
1.3 As a Business Management 512 student, advise the Senior Management of Standard Bank on the
future challenges for the bank. (25)

Answer 1

a) Strategic management entails the continuous planning, monitoring, analysis, and evaluation of all requirements that a business must meet in order to achieve its goals and objectives. Changes in the business climate will need firms to reevaluate their success methods on a regular basis. The strategic management process assists businesses in assessing their current condition, developing plans, implementing them, and evaluating the effectiveness of their management methods. Strategic management strategies are divided into five categories, each of which can be implemented differently depending on the circumstances. On-premise and mobile platforms both benefit from strategic management. So, how does a bank go about achieving such goals? Budget cuts that are applied uniformly are doomed to fail. These savings are usually more than necessary in places that are already productive, and they are insufficient in the most inefficient areas. The most effective efficiency programs take a more analytical approach that takes into account the unique circumstances that each line of business and support function faces. The six critical areas on which today's industry leaders are concentrating their efforts are listed below.

1) Reorganization of the business

2) Optimization of the channel

3) The price of the procedure. The possibility to reduce process costs is sometimes overlooked in banks, in part because it necessitates a more manufacturing-oriented approach to business processes. The purpose is to increase the bank's efficiency ratio by lowering the unit cost-to-value ratio of each activity or transaction, such as opening an account, preparing a loan document package, or managing a certain type of transaction. 

4) Employee productivity

5) Automation and technology

6) Relationships with vendors

7) Creating a culture that prioritizes efficiency

1.2) In the banking market, the Lerner index is a measure of market dominance. The discrepancy between output prices and marginal costs is what it's called (relative to prices). Prices are derived using an estimated translog cost function with regard to output, whereas marginal costs are derived from total bank revenue divided by assets. The index runs from one to zero, with a higher number indicating stronger market power or less competition. The Lerner index dataset was created using data from BankScope and follows the methods described in Demirguc-Kunt and Martinez Peria (2010). The Boone indicator, which is calculated as the elasticity of earnings to marginal costs, is a measure of the degree of competition. The log of profits (measured by return on assets) is regressed on the log of marginal costs to produce the elasticity. The elasticity is the estimated coefficient (taken from the first derivative of a translog cost function). The indicator is based on the idea that more efficient banks generate larger profits. As a result, the higher the degree of competition, the more negative the Boone indicator is, because the effect of reallocation is stronger. The World Bank's dataset for the Boone indicator uses the same approach as Schaeck and Cihak (2010), with the exception that marginal costs are utilized instead of average costs. Based on underlying data in BankScope, regional estimates of the Boone indicator pool bank data by regions.

1.3. future challenges

Heightened Competition

FinTechs pose a serious threat because they often target some of the most profitable areas of financial services. 

Adherence to the law

As a result of the enormous increase in regulatory costs relative to earnings and credit losses during the 2008 financial crisis, regulatory compliance has become one of the most critical banking industry concerns. 

Banking Laws and Regulations

Faced with severe implications for non-compliance, banks have expended greater cost and risk (without a proportionate increase in risk reduction) in order to stay current on regulatory changes and deploy the controls required to meet those requirements. 

 Adapting to New Business Models

Compliance management costs are just one of many banking industry concerns prompting financial organizations to adjust their business practices.