State Bank of India (SBI)
State Bank of India (SBI)
State Bank of India (SBI) is the leading banking and financial services in India in terms of revenue, assets and market capitalization. As early 2012, SBI had assets worthy over US$300billion. The bank also has an international presence with over 14,000 branches that include close to 180 foreign branches in various countries across the world. SBI is a state owned financial institution whose roots trace back to the 1st decade of the 19th century. In 1806, the bank of Calcutta was established after which it was redesigned and named bank of Bengal. Under the sponsorship of the government of Bengal, the Bank of Bengal became a joint-stock bank of British India. Other banks like the bank of Bombay and the bank of madras soon followed the path of the bank of Bengal to become joint stock banks of British India. In 1921, the three banks merged to be the imperial bank of India.
During this time, there was increasing need to establish a financial body that will serve the entire economy with a special interest in rural economic development (Browning, & Nada, 2012). After much consideration, the state took over the Imperial Bank of India and merged it with other state owned financial institutions. In 1955, the State bank of India was formed and became a pace setter for other financial institutions in the region. From 1960 to 1990, SBI’s branches grew from 500 to over 8000. Most importantly, SBI gave particular attention to rural development that had been sidelined before independence. The banks provided financial services to boost the agricultural sector, the predominant activity in the rural areas. Other than agriculture, the banks also financed infrastructure development, merchant banking and house finance. SBI was a force to reckon with as the bank enjoyed large deposits (Dubey, & Alam, 2012).
However, despite the rapid expansion, SBI began to lose its recognition as a leader in the banking sector. Vital activities such as customer service and relation between the employees and the customers took a back seat as the focus was on expansion. The emergence of competitors from the private and foreign banks was eye opening for the financial institution that revered itself as the top financial institution in India. The novel banks came with bigger and better services, and gradually customers began to move to the new financial institutions (Baidya, & Mitra, 2012). This was an indicator that the time for change for SBI was here. SBI had only two alternatives; to change and compete with the new banks or to remain resistant to change and face imminent failure. SBI chose to change and embrace innovation and effective strategies to put the organization back on tract in time of productivity and growth (Chaudhry, 2012).
Internal and External Influences on SBI
In any business set up there are some driving forces that affect an organization and determines the direction of operation it takes as well as it profitability of loss. These driving forces are either internal or external. Any organization that strive to remain competitive and successful must change as per the internal and external influences that it encounters
Internal Force
Internal influences refer to the situation within the organization that affects the operations of the company. Ordinarily, the management of the organization is in a position to manipulate and control the internal influences to favor the operations of the organization. One of the areas that significantly influenced internal operations in SBI is equipment used for service delivery. At the start of SBI, service delivery was highly manual and staff spent most of their office time managing papers used for transactions and other business activities. The large amount of paper work meant that they did not have time for other task such as improving employee customer relations. There also was a conflict between employees over their duties and responsibilities (Desta, 2011).The roles of employees at SBI were narrowly defined, and multiple employees would handle one customer at a time.
The processing of financial services required that a customer passes through a series of employees before his financial need is sorted. The employees were thus focused on completion of tasks assigned to them rather than customer sales and services. He working environment at SBI was also not customer friendly as the bank reserved most of the area to its employees. Employees would barricade themselves from the customer with iron grills and a chest-high unbroken counter. SBI mission and vision give the institution direction with regards to the future.Another internal factor that has significantly influenced the direction of SBI is the mission and vision of the organization. The back is gradually moving away from traditional banking to new age banking.
The mission statement of the bank dictates that the bank intends to remain the premier Indian financial service provider. SBI also intends to provide world class standard and demonstrate a high level of global business committed to its customer, shareholders and employee. On its vision, SBI intends to be a top financial institution with and international presence. It also intends to offer world class efficiency and professionalism within all its branches. The organization mission also dictates to the world the focus of the organization (Baksi, & Parida, 2012). Existing and potential customers and shareholder rely on the mission statement of the organization to determine whether to be affiliated to the organization.
External Influence
In an organization, external influences refer situation that occur outside the organization buts still affect the operations within the organization. In most instances, the management is not in a position to manipulate the external influences. The alternative when dealing with most external influences is to re-strategize to accommodate the force. The first external influence at SBI was technological advancement. SBI relied heavily on manual operation in rendering financial services, which affected efficient service delivery. With strained customer-employee relations, the management embraced technology and computerized its back office operations (Constanzo, 2003). In 2003, it further embraced technology by installing a centralized online real time environment banking solutions. The technological transformation saw the organization improve in its service delivery which improved customer service and sales.
SBI also faced stiff competition from upcoming private and foreign banks. New private banks such as ICICI Bank and foreign banks such as Standard chartered Bank and Citibank began to make an entrance into Indian banking. The competitors offered better services to customers, had better employee relations and had minimal expenses. SBI, on the other hand, had large financial expenses attributed to factors such as the high number of employee. Since the financial institution lacked clearly defined duties and responsibilities for employees, the company hired many employees who served different duties that could be executed by one person. The threat of competition made SBI reconsider restructuring of its branches by focusing on the provision of lean employee structure.
The aim of the restricting process was to improve customer satisfaction and enhance sales and marketing across the various branches (Baksi, & Parida, 2012). Another external factor is government involvement in affairs of the banking industry. The government dictated that banks should loan at least half of their credit to sectors such as agriculture and the small scale industry. The government also nationalized 14 commercial banks which embarked on an aggressive growth strategy that saw the number of banks rise form, 8,000 in 1969 to 60,000 in 1991. RBI also played an active role in determining who banks could lend to, the amount and the lending rate. This meant that ISB and other existing banks were tied on crucial decision making processes (Underwood, 2010).
Globalization and Its Effects on State Bank of India
Globalization involves international integration arising from exposure to other world views on various aspects. All industries have faced various effects of globalization, the banking industry being one of them (Dowling, & Sharif, 2011). For instance, there has been a reduction in the obstacles of global rivalry in the banking sector. The physical presence of customers will no longer be necessary so as to enjoy banking services. With regards to the State Bank of India, globalization led to a need for change in leadership. The leadership within any organization determines the direction and operations of the organization. A change in leadership in, SBI came, with a change in the chairman, in 2006. Bhatt, though not academically qualified to manage a financial institution had a vision for the bank. SBI had been losing market share and gradually becoming less popular in the banking industry.
The emergence of banks such as ICICI had shown the world that SBI is just an ordinary financial institution without product innovation, marketing and distribution. SBI was gradually losing its customers to private and foreign banks. The entry of chairman Bhatt marked a change in the policy and decision making process of the bank. First, the bank became more customers oriented with emphasis on meeting and interacting with the customers rather than waiting for customers to visit the branches. The focus changed from service oriented to customer oriented with stress on the customer as the most significant asset for the organization. The chairman also introduced a policy that broke the management-employee barriers. Initially, the employee were left out of any decision making process. They were thus uninformed of any development, positive or negative that occurred in the bank (Desta, 2011).
Decision making was the responsibility of the management hence communication was one-way i.e. from management to the employees. The level of motivation amongst the employee was low as the felt that the management paid little concern for them. The employees lacked their sense of pride and belonging. This had a significant impact on the organization as without motivation and employee involvement the employees did not look beyond the present status of their jobs and the future of the organization. When Bhatt took over as chairman, the decision making process at the bank changed from the task of management to the task of all employees.
The bank adopted a non-hierarchical approach to decision making process. The leadership encouraged its employees participate in the decision making process in the organization. Employees play a crucial role in determining the direction that an organization should take. This is attributed to the fact that the employees interact mostly with the customers. They are thus aware of the hurdles that impede effective service delivery (Bexley, & Bond, 2012). This is the approach that the new chairman took when dealing with employees. He encouraged reverse feedback and ideas from the employees to the management. This enabled the workforce have a sense of belonging with the company thus become involved in directing the institution’s future.
Globalization enabled SBI adopt an elaborate decision making practices when rendering its financial services. Unlike the past when financial decision could only be taken by the management, the task was now distributed over different officials within the bank. Emphasis was paid on the position that the officials had and their expertise in making reliable financial decisions (Manoj, 2010). The banks also adopted a centralize credit processing system that was responsible for sanctioning loans for customers. SBI branches sourced the loan application from customers and then forwarded then to the respective credit sale for consideration. A qualified loan officer had the task of reviewing the loan proposal and makes a decision on whether the customer should receive the loan (Cetorelli, 2004).
Use of Technology at SBI
Technology and innovation intertwine in any organizational framework. Simply defined, technology is the skills, knowledge and expertise used to improve performance in organizations. Performance within an organization can improve by enhancing communication and improving production of goods or rendering of services to consumers. There are several categories of technological innovations. The first is technological innovations that affect products and or services. According to KPMG (2010), technology led innovation plays an essential role in growth and value creation of the banking industry.Though banks in India have previously been slow in adopting emerging technologies in their operations, there have been increased interests in adopting technologies focusing on differentiated strategy and risk management (KPMG, 2010). SBI managed to engage in product innovation technology by enhancing its service delivery to its customers.
The second technological innovation is process innovation, which involves changes to the business process of the organization. At SBI, process technology involves determination of effective strategies to relate with the consumers. Embracing any level of technological innovation within an organization requires planning hence does not occur spontaneously (Abir, & Mamoghli, 2010).Under the leadership of Bhatt, SBI focused on changing to become customer oriented technology savvy and retain its leadership position in the banking industry. SBI had a weak technology backbone that made it impractical for the organization to compete with other emerging financial institutions. Emerging private and foreign banks were in a position to offer more reliable products and service that SBI was not able to offer (Kaul, 2012). Initially, the bank relied on paper work to render it services. Later it adopted a decentralized technological system. This meant that the each of the branches had its one computer system. Though this was a positive step away for paper work, it was still not effective. Customers needed to be recognized as bank customers and not branch customers. Customers at SBI were considered branch customers as they could only access their services from their main branches (Clark, & Foster 2012).
Later, the bank improved its technological application by implementing a more centralized system. This meant that customers could access banking services in any branch as information was located in one central system. SBI need for technological change was evident after it began to lose customers to private banks. It became apparent that the computerization efforts that the bank undertook in the 1990s were not able to compete with emerging technology. SBI had automated its services but on a local level. Though this system was more effective than the manual system, customers remained restricted to their bank branches. The decentralized system also inhibited the development of new products and services as well as failed to centralize the operations of the bank as one unit. SBI embarked on a strategy to implement better technologies is as to enable it deliver new products capabilities to all its customers, in the rural and urban regions (Leao, & Pedro, 2006). Unification of operations within the organization would see the bank improve its operational efficiency and improve overall customer service in the bank. The bank also aimed to improve customer service, which would reduce customer attrition in the organization (Hunt, 2009).
Change and Innovation
Change is inevitable for any organization that desires to remain competitive. Change and innovation within an organization prepares the employees, customers and shareholder for any adjustments in the future. For an organization to be innovative, there is a need to embrace change and success to change is through learning. There are two main triggers of innovation and change in an organization; the internal and external trigger (Jain, & Juneja, 2011). The internal trigger refers to factors such as the changing needs and expectation of the employees, the emergence of new technology and change in regulations. Internal triggers, on the other hand, refer to factors such as change in leadership, engagement in alliance and the declining growth of the organization. The internal and external factors are indicators that the organization has to embrace change and innovation. SBI was no exception as it faced stiff competition from foreign and private banks. The banks arrived with large investments capital and operations strategies that SBI had not adopted.
The management at SBI took the time to evaluate the situation in the banking industry. It is vital to observe the competitors, determine the strategy and ways of operations so as to establish an effective strategy (Jain, & Juneja, 2011). Other technological improvement within the bank, SBI also ventured into auto finance. SBI had noted that its competitors used the strategy of reduced interest so as to encourage customers to seek their loan services. Instead of also lowering its interest, SBI chose to increase the repayment period of car loans from five years to seven years. SBI also collaborated with auto manufacturers such as Maruti to finance customers who desire to own Maruti brand of cars. This strategy proved to a success as SBI emerged the largest financier of the cars (Hannan, & McDowell, 2000).Change was also evident in the products and services that the bank offered. Considered a bank that emphasizes on traditional traders, SBI expanded its services to include the sale of mutual funds and insurance products. This was a mark of SBI’s entrance into aggressive retail banking. With the new products and services, the bank was certain to improve its customer base.
One impressive service that the bank introduced is the tele-banking and remote login serve to provide support transactional requests (Constanzo, 2003). In 2004, the bank announced it would introduce anywhere banking, a facility that would be available to over 9000 of its branches. It also introduced different loan programs to cater a wider range of customers. Customers have different needs and different repayment capabilities of loans. Establishing a wider loan program guaranteed that a wider pool of customers qualifies for loan services offered by the bank. In terms of marketing, SBI introduced a wider range of products so as to tap to a wider pool of customers. SBI also introduced a service desk where employees could assist customers with their queries. The company’s products and services had grown to over 150, and it was thus impossible for an employee to recall all details on all products (Rubera, & Kirca, 2012). The service desk was served with a computer that made all information on the banks products and services available by a single click. SBI also introduced a service known as SMS unhappy which opened communication between the bank and the employees. This allowed the bank to familiarize itself with the common problem that the customers faced while trying to receive bank service. It also hastened problem solving as employees strived to resolve grievances within the shortest time (Alam, 2003).
Recommendation
SBI should keep up adopting new strategize that effectively help the company to grow. A review of the financial highlights from 2005-2010 indicates that there have been a positive rise in the bank’s deposits, advance, investments and operating profits. This is an indicator that the shift from traditional banking to banking with a variety of products and services has steered the bank towards increased growth and profitability. SBI is proof that an organization can rise from its old form and structure of doing business and embrace change so as to remain relevant, successful and become a leading institution in its industry (Sethi, & Iqbal, 2012).SBI acknowledge the need to change and adopt effective strategize that align with the changing time. This was after carefully consideration and analysis of its loss of customers to its employees. SBI success is evident that organizations should always be open to change. It is change and embracing innovation that has put old banks such as SBI in a leading position against private and foreign banks.
Diversification of products and services is another vital element of the success of organizations. Government should carefully evaluate its role in delicate sectors such as banking. Banks should be given some authority in decision making over its operations. This is seen in the 1990 when there was excessive government involvement in the banking industry. Unfortunately, the government interventions were futile as the country experienced large current account deficits and currency over valuation. It is only after government diluted its presence in the banking sectors and allowed banks to establish their own lending rates that the economy began to regain its strength. The importance of competition is also widely addressed in the report. As much as the emergence of competition can create uncertainty and anxiety on existing institutions, it should be embraced. Competition encourages industries to review their trends and strategies (Markus, 2011). Competition enables organizations to compare its performance with the performance of its competitors. Competition emphasizes on the need to embrace change as customer’s access better services and products. The existing organizations have no alternative, but to adopt similar if not better strategize than its competitors. In the end, the greatest beneficiary is the consumer as he can access better products and services.
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