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

ABSTRACT

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

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 structuredified balanced scorecard Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment (Lamb, 1984) which includes all stakeholders.

According to Bracker (1980), “although different definitions of strategic management have been proposed there appears to be a common focus among scholars about the key aspects or elements that form the current structure of strategic management”.  Thompson, et. al. (2008), and Dobes and Starkey (2006) propose the elements of strategic management to include strategic analysis, strategic choice and strategy implementation. Dess and Miller (1993) and Lynch (2000) argued that strategic management involves environmental and capability analysis, strategy formulation and strategy implementation and control on an on-going basis. Boyd and Reunning – Elliot (1998) identify mission statement, trend analysis, competitor analysis, long-term goals, annual goals, short-term action plans and on-going evaluation as the key indicators that can be used to measure the strategic planning and management construct.

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

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

1.2 INTRODUCTION OF BANKING SYSTEM IN NIGERIA

The banking operation began in Nigeria in 1892 under the control of the expatriates and by 1945, some Nigerians and Africans had established their own banks. The first era of consolidation ever recorded in Nigeria banking industry was between 1959-1969. This was occasioned by bank failures during 1953- 1959 due mainly to liquidity of banks (Somoye, 2008). Banks, then, do not have enough liquid assets to meet customers demand. There was no well-organized financial system with enough financial instruments to invest in. Hence, banks merely invested in real assets which could not be easily realized to cash without loss of value in times of need. This prompted the Federal Government then, backed by the World Bank Report to institute the Lyons commission on September 1958. The outcome was the promulgation of the ordinance of 1958, which established the Central Bank of Nigeria (CBN).

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

The proliferation of banks in the 1990s which also resulted in the failure of many of them, led to another recapitalization exercise that saw bank’s capital being increased to N500million(USD$5.88) and subsequently N2billion(US$0.0166billion) in  2004 with the institution of a 13-point reform agenda aimed at addressing the fragile nature of the banking system, stop the boom and burst cycle that characterized the sector and evolve a banking system that not only could serve the Nigeria economy, but also the regional economy (Somoye, 2008). The author explained that the agenda by the monetary authorities is also agenda to consolidate the Nigeria banks and make them capable of playing in international financial system. However, there appears to be divergent between the state of the banking industry in Nigeria vis-à-vis the vision of the government and regulatory authorities for the industry. This, in the main, was the reason for the policy of mandatory consolidation, which was not open to dialogue and its components also seemed cast in concrete (Somoye, 2008).

The Nigerian banking environment has witnessed tremendous changes before and during the global financial crisis with a gradual transformation from transactional orientation to customer service-orientation in an increasingly aggressive environment (Okwuosah, 2009). However, customers say the banks of their choice are those with national presence whose network are nationwide such that withdrawal and deposits could be made anywhere in the country, as most Nigerians are gradually losing the desire to carry cash around. This also explains the reason why most customers prefer banks with efficient online banking facilities, most of the banks that have these facilities would attract quite a sizable number of customers, which means if customers all come at the same time queuing is inevitable hence yet customers say they do not like to queue. They desire strong banks that would reply their e-mails promptly with great public relations, prompt issuance of bank statements, less charge on online services, prompt attention to opening online account, quick activation of accounts, friendly approach, and efficient customer service (Asikhia, 2007).