myrStrategic Management
Strategic Management
1. Introduction
The growing numbers of population, hence potential customers, have driven the invention of new products and services due to each customer have their own preferences towards services/products. Figure 1 show the growing number of start up company in that suggests every year there is a company that needs help to manage risks of starting new ventures or business.
Figure A Number of New Registered Companies
Source: National Competitiveness Council. (1998).
Many companies that experience the downfall in foreign market is then wondering what the cause is. In this situation, Stacey suggests many failed companies had better manage their risk with an extra touch of integrity and a carefully considered risk plan (2001).
Concerning the issue, this paper will evaluate the potential benefits and limitation of strategic management for Citibank especially regarding the cash management services. Prior to the discussion, this paper will elaborate the definition of strategic management.
2. Strategic Management
By definition, strategic management shows the ability of an organization to provide overall direction to the whole enterprise. It involves matching several elements such as strategic advantages by using the company’s resources, circumstances, and objectives in order to carry out its mission effectively and efficiently. For example, a company may have following strategic management:
Allocating resources (financial, personnel, time, computer system support) to strengthen the company’s presence in respective industry
· Setting up superior chain of command that smoothes the operation of the company
Strategic Management is a vast field of study. It contains numerous concepts which contain various sub-concepts. Despite the endless field of study, there is a core purpose of the strategic management concept. This purpose is –arguably- to define the competitive advantage of a business and take advantage of them in developing the company.
Discovering the competitive advantage of a business might not be an easy task, thus explaining the complexity of strategic management itself. It contains various analyses that lead to the reduction of every situation into corporate strengths and weaknesses. Afterwards, taking advantage of the discovered competitive advantage to enhance the company might also not as easy as it sound. It includes expanding the competitive advantage into a series of strategies and plans and monitors them as they are implemented in the targeted environment.
Sometimes, in the process of defining the alternatives of strategies, we discover the need to alter some portion of the competitive advantage itself. This is due to the nature of competitive strategy which has an inseparable connection with the environment in which a company exists. Because business environment contains numerous influential factors, this undeniable connection is what made strategic management a dissimilar challenge for each and every business design. In order to cope with such challenge entrepreneurs generally used several analysis tools that will help them discover the competitive advantages of their business and take advantage of them for the betterment of their companies.
3. Strategic Management at Banking
Every bank has different grades and characteristics. Each of them is different in terms of marketing strategy, product and services, type of banks (investment, retail, export/import etcetera), capability to customize services, to name a few
One important issue when dealing with the selection of international bank is about their presence in international market. This condition highlights the banks’ commitment towards providing multi services and their capability to dealing with financing structure.
International banks usually rely on their international branches instead of affiliation. This condition provides the company with challenges since standardization is hardly empowered. For instances, An American branch in London could appear very different from that in the U.S. this situation occurs since foreign branches are likely to focus on adopting strategy that foreign banks implement in a mrket.
Therefore, a bank with foreign branches could prove very effective services and presents competitive advantage for the bank to work with multinational companies that intend to present in foreign markets.
4. Strategic Management at Citibank:
4.1 Needs of Risks Management
Many start-up firms that experience the downfall are then wondering what the cause is. In this situation, Hooven suggests many failed start-ups had better manage their risk with an extra touch of integrity and a carefully considered risk plan (2001). This move is imperative since go in start-up jungle we will face the uncertainty that takes more than just market knowledge, skills, and patience. It certainly takes a lot of energy and focus to handle risk that we know as risk management.
Risk, referring to Oxford Advanced Learner’s Dictionary, is defined as possibility of meeting danger or suffering harm, loss, etc (1989). Furthermore, Hooven describes that in terms of a start-up company the plethora of risks involved can relate to strategic, market or credit activities. Additionally, they can be programmatic, technical, cost or schedule related to name just a few saying that risks are obviously vary from industry to industry (2001).
Regarding the risk management practice, Carnegie Melon Institute explains that it involves three the method, processes, and tools for risk management. Therefore, risk management presents a support to obtain proactive decision making (Hooven 2001).
Reflecting on the initial stages of his start-up, McInerney, an entrepreneur from Atlanta, Georgia, felt that he could have eliminated a great deal of risk from his business by properly planning and pricing the projects from the very beginning.
4.2 The Retail Banking Industry
The financial business is a business that helps all other business in the world performs their activities. Researches indicated that the change from agrarian to industrialist economy often happens along with the appearance of various financial organizations, whether they are governmental or private in nature. These financial organizations offer financial aid and services to small and large businesses and help them grow. No economist could deny the role of banks and other financial institutions in the development of an economy. There are various types of financial organizations.
In this paper, however, I am focusing on the retail banking industry, where companies are providing services directly to clients. Retail banking is the spearhead of the global financial services industry. This type of financial service generates more than 50% of the world’s financial service revenues. The success and failure of retail banking has a great impact over the development of business environments.
Therefore, financial executives generally place the segment as a major priority. For most retail banking industries, the major criteria for success is growth. Growth is the most appropriate indicator of the success and failure of retail banking organizations. There are various strategies to enhance growth in the retail banking industry. The most common strategy is cost reduction to enhance the margins of the business. Analysts acknowledged the effectiveness of such practice, but many retail banking industries are growing near to a point where they cannot afford to perform further cost reduction program. In this point further cost reduction will weaken sales and marketing capabilities and suspected will hurt market share.
The implementation of bank management strategy may differ fro one bank to another and from one division to another division. In an Australian bank, for instances, they pay attention to four elements for their IT staffs, which involve career coaching with top managements, managers, attending workshop, career support (Armstrong and West, 2001).
Therefore, observers believed that retail banking managers must switch to other strategies to promote high-value and sustainable growth. In this chapter we will present a short overview of the strategic plans generally applied for today’s retail banking environment.
4.2.1 Acquisition and Organic Growth
There are various strategies that could enhance the growth of a retail banking company. One of those strategies is to perform an international acquisition. Many considered acquisitions as a good strategy for growth, but observers also stated that acquisitions do not really involve internal enhancement of corporate operations (‘Striving for Organic Growth’, 2005).
Furthermore, there are significant limitations in the alternative of making international acquisitions. Thus, managers of retail banking business now have a stronger focus on enhancing organic growth rather than seeking for international acquisitions. Strategies for organic growth include enhancing leadership capabilities and benchmarking to gain fresh insights toward the business (‘Striving for Organic Growth’, 2005).
4.2.2 Improving the Segment-Specific Services
Retail banking is basically the business of providing services to individual clients in the business environment. Thus, managers of large international banks must not loose the sight that services to each individual consumer are as important as the entire chain of services they provide.
However, they must also take account of the most profitable segments and provide more value preposition in that segment. For instance, private banking and services to small and medium sized enterprises has been the most rapidly developing segment in retail banking today. Thus, there must be considerable focus in developing more value prepositions to attract and retain the most valuable customers within the segment (‘Striving for Organic Growth’, 2005).
4.2.3 CRM
In the business that depends on individual service offered to customers, the presence of Customer Relationship Management is critical. CRM must play its role and help the company predicts and manage the needs of customers. Having a good CRM program means that the company is able to retain customers through various states of their lives. Creating more channels, customer segments, harnessing more client data, etc are examples of activities to enhance CRM (‘Striving for Organic Growth’, 2005).
4.2.4 Employee Motivation
Motivating the employees is important because they are the ones in personal contact with the customers. However, employee motivation programs must be made to support the right gesture toward the company and customers. A compensation scheme that focuses on rewarding employees for their valuable performance is necessary (‘Striving for Organic Growth’, 2005).
4.2.5 Pricing Strategy
Pricing is the factor that greatly impact profitability. Nevertheless, pricing is also the factor that generates attractiveness of financial services. Therefore, retail banking managers must design a good pricing strategy with sufficient considerations of various factors that affect each customer segment. This is crucial to enhance the value of service in each segment and attract people with higher price sensitivity.
4.2.6 Innovation
Differentiation is a strong feature of corporate strategy. Companies today cannot afford to stop innovating and searching for better ways to enhance customer value. For instance, banks could enhance services through multiple channels like online and phone banking (‘Striving for Organic Growth’, 2005).
4.2.7 Information System
The last but no least is the strategy of improving customer value by managing the information system properly. A well maintained management information system will widely leverage clear accountability of frontline staff and improve performance transparency toward senior executives (‘Striving for Organic Growth’, 2005)
5 Citibank and Cash Management services
Citibank has many services both for corporate and individual customers. In terms of corporate customers, Citibank is well-known for its cash management system, which is about implementing a strategy for managing the company’s cash flow that is focused on the long-term goals, but flexible enough to adapt to change.
At this point, Citibank has proven to be the best international bank compared to other international banks such as Bank of America and HSBC. This is because Citibank is well-known to have branches in over 100 countries.
Selecting Citigroup® Global Transaction Services also means Acme Company joins 15,000 corporations and financial institutions, in more than 100 countries, which have chosen to partner with a market leader. There are six obvious benefits by selecting Citigroup as follows:
1) Wide-ranging, integrated services
Citibank Global Trade Services encompasses a truly integrated range of services designed to meet customers’ needs. Their services includes, risk mitigation, financing and settlement solutions support entire value chain
2) Unmatched infrastructure
Citigroup also deliver highly automated processing of large transaction volumes and high value deals, Citibank’s regional operational infrastructure is unmatched in scale
3) A partnership approach
In Citigroup, customers have a partner who understands the way customers manage their business and provides various solutions and services to optimize transaction turnaround times, accelerate funds flow timing, and structure a solution that is suited to your specific needs.
4) Trade expertise
Citigroup also have Trade Advisory teams, located in regional centers, which have in-depth expertise in the intricacies of markets and trade products in different geographies. The benefit is they can provide customers with customized solutions. Among other things, they recognize your need to comply with various local regulatory requirements and the latest government rules affecting how buyers finance their purchases.
5) State-of-the-art technology: Internet-based supply chain management
Citibank is committed to developing and using state-of-the-art technology and risk mitigation techniques. The bank has maintained an ongoing investment in advanced global imaging and transaction processing technologies, such as our Web-based CitiDirect® Online Banking. (Citibank, 2007).
Nowadays, manufacturing and services firms face growing challenges to increase profit margins amidst increasingly fiercer competition. Under such circumstances, industry analysts and supply chain experts suggest manufacturers and service providers to promote more effective supply and demand planning, management, and execution as the means to unlocking significant gains in margins.
In Supply Chain Management, the author defines SCM as the oversight of materials, information, and finances as they move in a process from supplier to manufacturer then to wholesaler/retailer and finally to consumer. The main goal of any supply chain management system is to reduce inventory, referring to assumption that products are available when needed. Therefore, SCM will improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to manage current resources and plan for future needs.
Harcourt and Hutchinson further suggests that although companies must have the products and supplies available to generate sales revenue or to provide public services, excess and outdated products and supplies will reduce available funds for investments in plant, people, service delivery, and product development. Therefore, in order to obtain successful SCM, there should be closed collaboration between customers, suppliers, and business partners.
In addition, to obtain successful SCM, O’Brien and Springman (2004) suggests that companies should balance supply and demand since focusing entirely on the supply side may result in unnecessary capital expenditures, inventory investments or suboptimal solutions. Therefore, to best optimize the total supply chain, supply chain managers must have a detailed understanding of customer demand and then to manage this demand patterns of their customers
Figure 1 Supply Chain in a Bank
In addition, to obtain successful SCM, O’Brien and Springman (2004) suggests that companies should balance supply and demand since focusing entirely on the supply side may result in unnecessary capital expenditures, inventory investments or suboptimal solutions. Therefore, to best optimize the total supply chain, supply chain managers must have a detailed understanding of customer demand and then to manage this demand patterns of their customers. Figure 1 shows a typical non-Internet financial supply chain management services (FSCMS) of Citibank.
From the figure, we can see that the traditional supply chain possess abundant of processes that can be reduced into several activities by conducting online transaction. The figure also suggests that traditional supply chain gives a banking institution with late customized services since, for example, the bank are not able to take advantage of discount terms since it takes time to conduct business in brick method.
Fortunately, the situation turns upside down as many financial institutions like banks start incorporating e-banking in order to eliminate the time-consuming ‘brick’ business. In this situation, I notice that since early 21st century almost all reputable banks in the world has launch e-banking as their alternative to their financial services that aim at improving their service performance.
An example of a successful new ‘click method’ of online banking is cast by Citibank. At one of the largest bank in the United States, there is any change in global trade platform that aims at reaching middle and smaller export-import customers in addition to large-volume users.
Figure 2 Web-based Supply Chain Management
Since non-Internet supply chain poses a drawback for buyers such as excess cash balances and inability to take advantage of discount terms since it takes time to conduct business in brick method.
However, the situation changes as banks realize the opportunity loss caused by this time-consuming ‘brick’ business. They develop a web-based global supply chain to improve their performance as shown in the figure 2.
At Citibank, for instance, has become web-based global trade platform in which it has reached middle and smaller export-import customers in addition to large-volume users. By employing this new approach, Citibank is able to integrate customers’ initial procurement by reconciling the financial and transport documents for further completion of the payment or collection procedure.
Reference:
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Striving for Organic Growth in Retail Banking’, Retrieved October 6, 2007 accenture.com/NR/rdonlyres/…/0/79ACCOrganicGrowth0210.pdf
