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Practice of strategic planning in German retail banks

by Oliver Recklies

This article first appeared in: Ekonomika i Organizacja Przedsiebiorstwa (Economics and Organization of Enterprise), number: 3 (686), pages: 39-46

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2.4         Strategy assessment

Benchmarking[1] represents a major instrument for strategy assessment in banks. Both internal and external benchmarking is used in banks’ strategic planning. The regional auditing associations of both financial networks collect financial information including separate P&L account information as well as balance sheet data. This edited information is forwarded to the member banks on a regular basis during the year. As an additional service the information is arranged by segments, where the segments represent a certain size range of bank balance sheet total. Relevant figures are represented in their total value as well as in a ratio which is based on the same denominator. In most cases the average business volume[2] is the denominator. Each bank makes use of this information as it fits them best. Taking into account personal observations three different approaches (benchmarking against the relevant segment; benchmarking against particular member banks; identification and analyzing of gaps, including a financial description of gaps) can be distinguished for managing that information, where approach no 3 represents to most progressive approach. 

Approach 1 informs the management how other banks with a similar size perform in terms of financial results in comparison to its own bank. Since the available data include single P&L account group information as well as business volume, a precise comparison is possible. Therefore it is also possible to compare the financial success of particular business segments between banks (e.g. sales provisions, net interest income from current accounts). In summary it can be argued that the first approach focus on key financial indicators.

To avoid the risk to compare the own bank with an average performing or even low performing bank[3] banks’ management often employs a second approach. Since the number of banks is known[4], directors often know the very successful banks. Hence bank managers decide to benchmark against those very successful players (often 3 to 5) which face the similar environmental conditions[5]. This approach also represents the fundamentals of a best practice approach. During the benchmarking process further major business factors (e.g. marketing strategies, product range, and business segments) will be considered. It can be argued that this attribute is very helpful, since it tries to consider possible reasons for financial results. In summary it can be argued that the second approach focuses on the business concept of other banks and their financial outcomes.

The third benchmarking approach, which can be found within strategy assessment, can be described as an advanced adaptation of the second approach. The overall objective is to translate differences between the different corporate strategies into financial figures in order to describe the difference in terms of profit chances and to set up a priority list for future improvements. The first step of this approach is to identify the existing gaps between the own corporate strategy and the corporate strategies of the best practice banks. In the second step it is requested to compare the different strategies by employing a single denominator[6]. In some cases it is recommended to make appropriate adaptations in order to consider issues like fixed-step-costs. The third step represents a simple version of a sensitivity analysis. All differences within the different strategies will be analysed and compared in terms of their financial impact and the effort that might be needed to change them. Taking into account the different concepts it can be argued that the third approach can give the management exact information which financial profits can be achieved by certain changes within its corporate strategy. Another benefit is that interdependencies between changes and their financial impact are disclosed. Hence it is possible to focus on those measures that will have the largest impact on returns as well as are able to generate so called “quick wins” in financial terms.  


3          Conclusion

The strategic planning activities of savings banks and credit co-operatives have to support management to make sound strategic decisions in general as well as to fulfil regulatory requirements in particular. Both types of banks face a set of burdens to organise their strategic planning processes. In particular the lack of internal resources represents a major barrier. In order to manage the organisation in an appropriate way most organisations have developed solutions or at least workarounds to overcome these barriers. Strategy conferences and their preparation, well developed scenario planning techniques and benchmarking processes represent the major instruments for strategic planning.  

In summary it can be argued that with this approach banks are able to transfer the outcome of the strategic planning process to the operational planning. Due to their size some of these banks can be named as small and medium size enterprises, which might face similar problems. Hence the banks’ approach gives an example how small organisations might address the issues of strategic planning.



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[1] Note: According to JOHNSON and SCHOLES (1999, page 181 f), “benchmarking seeks to assess the competences of an organisation against “best in class” wherever that is to be found”.

[2] Note: The average business volume represents that volume which is managed on average during the accounting year.

[3] Note: This feature can be described a as a general disadvantage of benchmarking.

[4] Note: For example: Since there are less than 500 savings banks in Germany, in particular the number of savings banks is very straightforward.

[5] Note: Taking this principle into account it is not appropriate to compare a savings bank in a big city with a savings bank in a rural environment.

[6] Note: The key questions can be described as follows: What could the organisation achieve if both banks would have the same business volume? This can be calculated by transferring the business volume of the best practice bank to the volume of the own bank.




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Status: 01. Juli 2015