Companies in the evolving financial services industry needs to adapt new techniques to stay ahead of the competition. Sanjiv Anand offers some suggestions
Tools to map markets and strategies are increasingly important in GCC markets that are becoming highly competitive. Unfortunately academics and consultants do a great job of creating acronyms. Fortunately SWOT is probably one of the better known.
Strengths, Weaknesses, Opportunities and Threats, commonly called SWOTs, is an analysis technique which was created in the 1960s by Albert Humphrey, who led a research project at Stanford. The goal was to identify why corporate planning failed. This phenomenon is not new. Harvard research found that 90 per cent of US firms that cannot implement corporate planning strategies.
Developing a coherent strategy is not rocket science. Planners should look at the external environment, carefully examine their internal capabilities and gaps, and determine a forward strategy. This can help reveal competitive advantages, and by analysing their prospects for sales, profitability and product development, help to prepare the company for unforeseen problems that may arise. It will also allow the company to develop contingency plans, amongst many other things.
SWOTs can be used effectively along with other tools in this process. A SWOT analysis is a tool frequently used for auditing an organisation and the environment. It is the first stage of planning and helps marketers focus on key issues. Strengths and Weaknesses are internal factors, Opportunities and Threats are external factors.
A strength could be the company's marketing expertise, a new product or service, the company's location, its internal and external processes and so on. A weakness is the reverse of some of the above factors. Opportunities could include developing new markets and joint venture opportunities. Threats could include new competitors, price wars and taxation issues, for instance.
I am a firm believer of the Balanced Scorecard as a strategy formulation and deployment tool. Therefore in identifying some of the factors for an effective SWOT analysis, I use the BSc perspective. The BSc outlines that in order to meet financial expectations, one must meet customer expectations. In order to meet customer expectations, one must excel at key processes, and people and technology drive processes. Therefore key components to a strategy framework are financials, product, relationship, image, processes, people and technology. Companies should keep these in mind when they are thinking about when they are designing the SWOT analysis.
X Head: Wealth management example
We will take an example in the financial services context, using a bank's wealth management unit as the unit under assessment.
On the Strengths side, one could consider the following:
A large retail customer base, with core wealth management customers;
A large branch network;
A recognised brand and reputation.
On the Weaknesses side one could consider the following:
No wealth management product offering;
No high performance processes in place for this segment;
Channels and relationship managers are not geared towards wealth management expectations.
Opportunities could include:
An increase in GCC personal wealth;
Greater acceptance of international wealth management products;
Regulations for GCC expansion for wealth management being simplified.
Threats could include:
The increasing presence of international private banks;
That local competition has significantly increased;
Competitive channels are of higher quality.
A word of caution here, especially for those who are quant oriented. SWOT analysis can often be very subjective. You cannot rely solely on it. It is only one of the tools. Two people rarely come up with the same SWOT.
Consequently there are some simple rules when doing a SWOT:
Be honest about the Strengths & Weaknesses of your organisation;
It should help you distinguish where your organisation is today, and where you want it to be;
Try to be as specific as possible and avoid grey areas;
Always apply it in relation to your competition, for example, better than or worse that your competition;
Keep it short and simple. Avoid complexity and over-analysis;
No matter what is done, it will always be subjective.
X:Head SWOTs in the planning framework
Let us now try to put SWOTs in the planning and budgeting framework.
I see it has having the following components: strategy formulations, including internal assessments and external assessments.
An internal assessment can include financials, products, customers, channels, credit, processes, organisation, and technology. This tends to be highly quantitative and act driven. If we do not know our numbers and customers, who will?
External assessments can include detailed secondary and primary market data on markets, regulations, customers, competitors, and trends. The secondary research is based on published information, of which there is plenty nowadays, and primary data which is hard to get but can be done by contracted research teams.
One can use SWOT to summarise key areas before the above detailed internal and external exercises to see where we thought we stood and see if the detailed assessment confirmed our views.
Strategy deployment and enterprise performance management using balanced scorecards is another area which is important.
This means that the formulated strategy can then be converted into a balanced scorecard, creating a dashboard and identifying the top 20 to 25 financial, customer, process, organisational and IT objectives, and putting ownership measurement, and targets around those.
The process of identification and alignment of strategic and operational projects for strategy is also a key point. Around 65 per cent of projects are not delivered on time. This process helps to take an inventory of existing and new projects, align them to the strategy and prioritise them. More importantly it helps to cost out and add to the budget cost.
The development of budgets aligned to strategy and key targets identified in balanced scorecard is pivotal when preparing budgets and following the above process ensures that the budgets are aligned to strategy, and helps the company to become a strategy focused organisation, something companies always talk about but never do.
The big issue that is it always on the table, but where does the responsibility for formulation strategy or doing SWOT analysis sit? My firm belief is that nobody knows their SWOT better than the management team, however it needs an expert or an independent un-biased unit to monitor and guide the process, and that happens to be a strategic planning unit. Middle East financial services organisations have rarely invested in this type of unit and many are just starting to put strategic planning units into place. SWOT exercises can be moderated by strategy planning in a session attended by the senior management team of a business unit or the overall unit.
Remember SWOTs can be prepared not only for a company, but also for a product, and even on an individual as a personal development planning tool.
Sanjiv Anand is the managing director of Cedar Management Consulting International in Dubai.
© Banker Middle East 2008
