Tuesday, June 4, 2013

Strategic Leadership and Business Transformation

Cairo Amman Bank (CAB) The Cairo Amman Bank was founded in 1960 in Egypt by Khaled Sabih Al-Masri who also happens to be an international business man as well as one of the richest known men in Jordan. The bank has a market capitalization close to 100 million JD. The head office of the bank is in Amman while the head office for the Palestine operations is in Ramallah. The bank currently operates over 70 offices and branches in Jordan with 21 offices and branches in Palestine. In order for business organizations such as Cairo Amman Bank to remain relevant and at the same time retain its competitive advantage in the face of the increasing globalization of business activities there is need for strategic leadership and business transformation to be undertaken in the organization. Strategic leadership is basically needed because human resource is the largest and most critical resource that a business enterprise can ever have and for it to perform optimally it would require to be well guided (Cairo Amman Bank, 2012). An analysis of the organization will be carried out to determine whether the firm is healthy and has the ability to withstand the current downturn in both the national and the global economy. The essay will further give the various aspects of the organization which need to change and why. An implementation plan will be given regarding how the changes will be undertaken so that the organization can be able to pull through the downturn stronger and able to take advantage of its core capabilities. To determine the health of Cairo Amman Bank, an environmental analysis will be carried out to be able to understand the real situation. The environmental factors in most cases, inform the various decisions of the management in the organization especially through its factors such as new laws, changes in the demographics, or even planned or effected government policy changes. The externals environment of the firm will be analyzed first followed by the internal environment to give the complete picture of the situation at the financial institution. The external analysis will be carried out through the use of PESTEL analysis, Porter’s 5 forces model and the SWOT- Opportunities and threats. On the other hand, internal environment analysis will be carried out through SWOT-strength and weaknesses. To begin with, the PESTEL analysis begins with the political considerations which affect the nature of doing the banking business in Jordan. The war in Palestine has prevented the firm from extending its operations into Palestine. The bank has been able to stick to the Jordanian government policies and the policies of the Jordanian Central Bank and thus they have smooth operations. The labor laws require than employees are paid for the additional hours that they work. However, this is not the case as CAB and some other banks do not pay the employees thus leading to low employee loyalty to their jobs (Rowe, 1994). The lowering of the interest rates has both advantages and disadvantages. The advantage is increased sales of the services of the bank. The disadvantage is the erosion of the profits of the firm. The economic environment is bleak as Jordan is a small country which has very limited resources. CAB has however been strong as it has never asked for state help through its CAB system which has ensured that the firm has high liquidity and the ability to expand to new areas of operation. The country suffers from a very high rate of inflation as it has very limited supply of most of the natural resources. The country over relies on foreign support (Sofka and Teichert, 2006). There is a low loan repayment rate due to the low income levels of the people coupled with the high inflation that is battering the country. This poses a threat of loss of investment to CAB whenever they give loans. The volatile interest rates affect people ability to make saving and spending decisions. The volatility of the interest rates would benefit CAB through increased long term profits as it id principally a lender. Various socio-cultural factors have affected the operations of Cairo Amman Bank. First is the notion and the view of the people that banks can help them own their homes especially through mortgages and loans. Secondly, the demand for some of thee products which are offered by the bank will be reduced due to religious restrictions especially due to the fact that majority of the population in Jordan is Muslim. This is a disadvantage to the bank as it does not use Islamic banking in its operations. Technology has been at the center of the banking sector with majority of the banks taking advantage of it due to the need to increase the service level to the customers. CAB has applied IRIS recognition to their banking especially in their ATMs. The customers of the banks are able to access their money without having to use their cards. The customers of the bank are more satisfied as their money is more secure than before. The use of IRIS has also reduced the risks associated with the loss of credit cards. The employees of the firm have also benefited from the technology through a reduction in the paper work that the employees have to deal with thus saving a great deal of time (Rao, 2005). After the PEST analysis of the environment of the firm, the Porter’s five forces also affect the competitive ability of the firm in the industry especially through the number of firms that can be able to compete in the industry. There is an ever increasing competition from the existing competitors as each of the banks in the Jordanian banking industry strives to capture more and more market share. The competition is made fierce through the various product offerings which the various banks have to deal with. The threats of substitutes is high as there is a growing number of micro finance institutions which offer services which can be comparable to those that are offered by the CAB (Pitts and Lei, 1995). The customers of the bank will consider how they are treated by the bank, the time they take to be served and the cost of the services to determine whether they will consider moving to the substitutes. The bargaining power of buyers and suppliers is low to high. Some of the supplies of the more common day to day items needed for the running of the activities of the bank have a low bargaining power as the bank can change the suppliers at will as long as they are not in breach of the supply contracts which they entered into. However, the bargaining power of the suppliers of the systems, which act as the backbone of the operations of the bank, is high as without them the bank cannot deliver on its mandate (Porter, 2008). The customers also have a high bargaining power as the switching costs to the alternatives are very low. Due to these, the bank experiences a considerable amount of cost increases and a reduction in the profitability if they have to consider both the supplier’s demands and the demands of the various customers (buyers) of the firm (Siaw and Yu, 2004). Finally, the threat of entry is ever growing due to the various enabling policies which encourage new entrepreneurs to enter into the business. Also, the threat is made worse by the increasing level of wealth people in the country who have the potential to finance the starting of new banking institutions. The positive outlook of the country, especially its quick emergence from the effects of the global financial crisis is an indication to investors, especially those who are afraid of risks, to invest in the banking industry in the country as they are assured of good returns on their respective investments (Hubbard, 2004). SWOT analysis especially the opportunities and threats also form the external environment analysis. There are three main opportunities open to Cairo Amman Bank which will be discussed in this paper. The first is an opportunity to open branches and operations in the Arab Gulf. This opportunity arose due to the fact that Jordan was recently accepted as a member of the council of Gulf cooperation. The banks also have a new avenue through which they can increase their profitability. The governments of Jordan being always short of finances which can be used to run its budget in most cases turn to banks for long term loans (Palese and Crane, 2002). These loans can enhance the profitability of the banks thus a new novel avenue through which the firm can make profits. Thirdly, Cairo Amman Bank has an increased opportunity to open up in Egypt due to the increasing international banking operations between the two countries. This would help the bank escape the fierce competition from the other banks back in Jordan; the bank will be able to diversify its sources of income by establishing operations in Egypt (Stahl, 1995). Even in the face of the above opportunities, there are also threats which must be dealt with if the firm is to achieve its goal of increasing the profits of the firm. The real threat of new competitor, who may be stronger than the Cairo Amman Bank and thus attract the new customers who may be available to Cairo Amman Bank. In some cases the bank may even take away the customers that the bank had initially. The entry of Abu Daphi National Bank into the Jordanian market has caused great problems for CAB as the bank is very strong and thus able to be greatly competitive (Atkin and Brooks, 2009). Secondly, the economic slow down, which the country is beginning to recover from, may have a negative impact on the profits of businesses, spending on investment and through other negative influences which may have an adverse effect on the liquidity of the company thereby slowing down the growth of the bank. Finally, the high dependence of Cairo Amman Bank on local investment for its main liquidity needs may be of a disadvantage to the firm especially considering the facts that the economy of Jordan is unstable. When the country faces economic instabilities, the investments may be weaken thus jeopardizing the financial position of the bank and therefore an ever growing threat of collapse of the bank. The internal environment will be analyzed through the consideration of the SWOT- strength and weaknesses. The strengths of the firm include the ability to provide financial services to their clients whenever and wherever they want them. The bank also offers equal and fast service to their customers thus the customers of the bank feel greatly appreciated and is thus more loyal to bank. The bank also has a huge network of ATMs so that the customers of the bank can have an increased access to their money all day round without having to wait for the official opening hours of the bank. The bank also offers comprehensive financial advice to their customers and the adverts of the bank also help the customers in making financial decisions (Chan, Shaffer and Snape, 2004). Their sponsorship of events such as Jarash festival as endeared it to the hearts of many Jordanians as the festival is greatly treasured by may people. The weaknesses of the bank include the inability to solve some of the problem which the customers experience prompting them to visit the branches. The internet banking portal of the firm does not allow for the transfer of money from the account of a customer to another account. The bank also has a complicated hierarchy which makes some of the decision ineffective (Hellriegel and Slocum, 2009). The effect of this is indiscipline and problems in implementing the various elements of the business decisions and processes. The competitors of the bank hold various competitive advantages over the CAB which leave it in an awkward position. Arab Bank boasts of being the largest bank in the Middle East, Housing Bank is synonymous with easy mortgages and loans while Jordan Kuwait Bank is synonymous with saving or both students and employees. Housing bank intends to diversify into Saudi Arabia as they hope to that the banking market will be conducive. Some of the banks are also increasing their capitals especially Arab Bank which increased its capital from199.8 million JD to 220.9 million JD. CAB does not have various capabilities which are enjoyed by their competitors. Arab Bank has an intensive training for their employees so that they can be able to serve their customers to satisfaction. Jordan Kuwait Bank uses ads which are effective in attracting customers. Use of technology by Arab Bank makes it outstanding in the market thus more customers move to the bank (Schendle, 1994). The firm is governed through a dictatorial regime under the CEO, Kamal Al Bakri. The employees of the bank are not involved in the various decisions which are undertaken. The managers of the firm are tasked with the responsibility to make all the major decisions of the bank (Burke, 2008). From the analysis, it is important to note that there is need for change in the various activities and the management style which are currently used in the bank. The ways through which the operations of the bank are financed also need to be changed. The management style need to be changed so that all the employees of the firm can feel appreciated (Lewis, 2002). This will help in increasing their loyalty to the organization. To prevent the firm from threats of collapse, the firm should be diversified especially its sources of capital from the current local funding to incorporate some international bodies which cannot be greatly affected by the operations of the economic conditions of Jordan (Harigopal, 2006). The diversification to other Gulf countries will help the firm to increase its profitability as currently it faces very high competition in Jordan (Strandholm and Kumar, 2003). To effect the above changes, ADKAR change model will be used. The members of the organization must be made ware of the need for the change. CAB will be engaged in collecting feedback from the customers. Operations should be reviewed to be in line with the needs of the customers. The managers and the employees must be made to understand that the management style that was used was the genesis of the ineffectiveness that was facing the firm. The desire for the employees to support the change will be enhance as they will be more involved in the running of the bank especially through a new decision making role. The employees will be more satisfied with their roles thus self actualization and the employees work environment will be greatly improved. Employees who are resistant to the change should be informed that their stay in the firm would be limited and thus for them to continue serving in their various capacities, they should be able to accept and adapt to the change (Stonebrake and Leong, 1994). Knowledge of how to change will be given to the employees through various training and development workshops. In theses kinds of seminars, the employees will be given the right information regarding their new roles in the bank. The information should be made to be freely accessible to all the employees of the bank (Frappaolo, 2006). The ability to implement the change on a daily basis should be inculcated in the employees (all the members of the CAB). This will ensure that the skills that will be needed after the change has been effected are developed over the change period. Time should be given so that the employees are able to develop the skills. The employees should engage in practice and be coached on their new roles (Ehrenhard, 2009). Reinforcement should then be undertaken to ensure that the employees are on the right track so that they can deliver results. Reinforcement can include forms of rewards ad punishment which are given for desirable and undesirable behavior respectively. The rewards will be used to motivate employees and make them feel part of the change (Sharplin, 1986). An implementation plan for effecting the change which will lead to the bank getting out of the current financial downturn stronger and more profitable: Change Who is responsible Outcome The management style should be changed from autocratic to democratic All the members of the organization starting with the The decisions will be more acceptable thus effectiveness in the operation of the CAB. Commitment and loyalty of the employees will increase. Diversification of the operations of CAB; starting new operations in the Gulf countries with specific focus on Egypt. Business Development managers The profitability of the firm will increase as currently the firm faces a very high rate of competition. New ways of financing; External financing rather than complete dependence on financing from within Jordan. Strategic managers To make CAB more robust and able to deal with the unstable economic situation in Jordan In conclusion, when the above changes are implemented, the problems such as unstable economy and lack of synergy between the members of the bank will be solved. The firm must also continue to build on its strengths while also capitalizing on the opportunities that the firm has. Bibliography Atkin, B. and Brooks, A. 2009, Total facilities management, Chichester, U.K.: Wiley-Blackwell. Burke, W. W. 2008, Organization change: theory and practice, Los Angeles: Sage Publications. Cairo Amman Bank 2012, Cairo Amman Bank in Jordan, CAB - Zawya, [online] Accessed 05 January, 2012 Chan, L. M., Shaffer, M. A. and Snape, E.D. 2004, "In search of sustained competitive advantage: The impact of organizational culture, competitive strategy and human resource management practices on firm performance", International Journal of Human Resource Management, 15:1, pp.15-35. Ehrenhard, M. 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