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Gt. Bank And The Power of Thinking Differently

One of the biggest lessons taught by Authors, Gary Hamel and C.K Prahalad in their book, Competing for the Future , is the power of  “thinking differently.”. According to them , “If the goal is industry leadership, restructuring and reengineering are not enough. To build leadership, a company must be capable of reinventing its industry; to rebuild leadership, a company must be capable of regenerating its core strategies. In this sense, it is not enough to get smaller and better; a company must also have the capacity to become different. But to ultimately “be” different, a company must first “think” differently.”

Guaranty Trust Bank is a diehard advocate of those words of wisdom; its leadership  has a culture of  thinking differently ; and it is not feigning its belief over it . The bank’s Managing Director and Chief Executive, Segun Agbaje often reiterates this belief at  any  slightest opportunity , “ we are not in the race for revenue and assets size but in competition for scaled overall business growth and underlying profitability” Without a doubt, thinking differently has taken the bank very far since it was established . Underpinning this strategy is the unassailable fact in the power or efficacy of stretch and leverage as opposed to a  mere race for or focus on revenue volume and assets size .In the Nigerian banking industry ,while some banks embark on a race to beef up their assets by almost indiscriminate acquisitions ,others venture into beefing up their revenue base to prove their leadership positions .

  GT Bank has ,no doubt, chosen a different route or strategy to overtake and sit atop its peers .For instance ,GT Bank has the least total assets among its peers . Yet, the bank has continued to report the best financial ratios in the industry and is the most efficiently run bank among tier 1 banks in the real sense  of it  . The strategy is clear enough . GT Bank has chosen to be a cost leader . However, it is not one specific advantage that is responsible for this leadership but a mix of linked activities, relationship and competencies throughout different parts of value chain driving this core competence  in  efficiency leadership . Moreover ,its ability to sustain this differentiation based advantage over years is laudable . This cost leadership strategy has enabled it to achieve the position of lowest cost ¬ service provider in the industry by earning higher unit profits.

The tactics that deliver this feat include economies of Scale which requires high volumes of transactions ; using technology to reduce costs and enhance productivity and by exploiting the effects of the learning Curve as organizations become more efficient over time . As its expertise increases, this results in lower average unit costs .Finally , by adopting the principles of lean thinking to support a strategy of cost leadership , constantly looking to eliminate inefficiencies in the systems and minimizing overheads wherever possible. This core competence seems to become almost difficult for its competitors to comprehend ,as the strategy is culturally embedded deep down the organization .  

 The claim on its efficiency leadership becomes clearer and undisputed when its peers are viewed from the size of their assets and revenues relative to Gt Bank asset level and revenue base. By this , GT Bank  performance has always  proved a point  that  bigness without stretch and leverage is obesity just as smallness without stretch and leverage is impotence. •

      GT Bank is not running the race of size for the sake of it , but efficiency as confirmed by its CEO above . Figures from its rivals books  that confirm this fact .    In 2020 financial year UBA’s Total assets increased Y-o-Y by +36.95% from N5.62trn in 2019 to N7.69trn in 2020 ; ACCESS money lender’s total assets grew Y-o-Y by +21.51% from N7.14trn in 2019 to N8.68trn in 2020 while Zenith Bank’s Total assets also increased significantly by 34% from N6.35 trillion to N8.48 trillion  .However , GTB assets stood at4.94 trn, a far distance away . . .

 But GTB  ranks neck to neck with its peers in terms of equity volume . UBA’s Total equity grew Y-o-Y by +21.10% from N597.98bn in 2019 to N724.15bn in 2020, Access Net Assets grew by 23.8% from N607bn to N751bn. .while Zenith Net Assets or equity grew by 19% from N942bn to N1.1tn. For GT Bank , Net Assets grew by 18.5% from N687bn to N814bn.,next to Zenith Bank in size .In a  nutshell , GTB has a greater proportion of equity relative to assets than all its rivals but lesser overall assets compared to them . .

 GT Bank  has  always  proved it is not the volume of revenues gathered that matters ,but what you make out of it  ;  it made the least amount among its rivals . UBA Gross earnings increased Year-on-Year (Y-o-Y) by +10.83% from N559.8bn in 2019 to N620.4bn in 2020 , ACCEES Gross Earnings grew by 14.7% to N765bn from N667bn in the previous quarter while ZENITH Gross Earnings grew by 5% to N696bn from N662bn in the previous quarter. By this ,Access Bank gathered the biggest revenues far away from GT Bank’s figure . GTB .Gross Earnings grew by 4.6% to N455bn from N435bn in the previous quarter

However, when it comes to where it matters most , GT Bank lifted the trophy when viewed from its assets size and revenue . UBA Profit before tax up by +18.49% Y-o-Y from N111.29bn in 2019 to N131.86bn in 2020, ACCESS Profit before tax grew by 12.5% to N126bn while Zenith Bank Profit before tax grew by 5% to N256bn For GTB, Profit before tax grew by 2.8% to N238bn.

The same scenario reenacted at the bottom line . UBA Profit after tax grew by 28% to N114bn. GTB Profit after tax grew by 2.3% to N201bn. ACCESS Profit after tax grew by 12.7% to N106bn. Zenith .Profit after tax grew by 10% to N231bn

GT Bank has sustained this feat for a long  time  and the joker remains its cost leadership strategy  .  GTB  leadership may not be farfetched . It is not the possession of resources that matters but resourcefulness   that determines leadership  . Resource constraints are not necessarily an impediment to the achievement of global leadership, nor are copious resources a guarantee of continued leadership. great differences do exist between firms in the market and the competitive impact they are capable of generating with a given amount of resources.

.    .  To have a share in the future, a company must learn to think differently about the meaning of competitiveness, strategy, and of organizations. This is what this bank has confirmed . What delivers its leadership are foresight, stretch, and leverage, all of which provide the energy and rationale for proactive advantage building and industry re-engineering.

   But it was a very herculean battle . The industry structure did not favour GT Bank at inception as the then incumbents dominated the market in terms of market share and profitability . The reason for this may not be farfetched .  .Industry structure is known to favour the incumbents .   However , competitiveness is a growth industry; any company that must gain completive advantage must understand and reconfigure its industry structure to its advantage . Ordinarily, different industries and industry segments have different average profitability levels, and these differences persist over time. The banking industry is an attractive industry with above-average profitability. It is attractive because it is surrounded by sizable entry barriers like scale and scope economies, government regulation, capital base, asset size ,among others. These either keep new entrants out or limit the competitive power and influence of the smaller banks .The incumbents with their vast assets or size advantage and experience dominated and reigned supreme above the new and smaller banks as at the time GT Bank was established .  Moreover ,any bank or company making above-average profits within the industry can be assumed to possess competitive advantages that are not easily imitated. This was the reason why the fortunes of the industry were almost an exclusive preserve of the big banks leaving the smaller ones at their mercy .     

    But what  a   creative leader needs is to find a joker that makes the difference , to think differently . That exactly is what GT Bank  did to become  a cost leader . Its cost reduction and efficient portfolio management are sine qua non for it to achieve high profitability level and high rate of return on  capital employed and assets .   GT bank  management  knew that the only avenues open to a firm confronting insurmountable barriers of this nature are to redraw industry boundaries so that what is now attractive lies outside the former barriers. He knew quite well that understanding industry structure is not enough to attain leadership . Industry structure analysis provides almost no insight into the two critical tasks of restructuring industries and building new, nonconventional advantages. There is a need not only to keep score of existing advantages—what they are and who has them . Though the tools of industry and competitor analysis are much better suited to this —but not to discover the “engine” that propels the process of advantage creation. To Gt Bank ,the engine is not in the size of assets only but more in its ability to leverage resources better than its peers . ,

Acknowledging the above wisdom  GT Bank  ,no doubt , crafted his bank’s strategic architecture to overtake the incumbents .   Leaders like  Segun Agbaje  spend less time worrying about how to position the firm in existing competitive space and more time creating fundamentally new competitive space .

The fact remains that competition is not limited to the market for goods and services. . Competition for foresight, competition to build competencies, and competition to shape industry evolution through a coalition are all examples of extramarket, or nonmarket, competition. The fact that this competition takes place outside a “market” doesn’t make it any less real. An insensitivity to this broader scope of competition can prevent a company from adequately preparing for the future. Foresight, stretch, and leverage provide the energy and rationale for proactive advantage building and industry re-engineering .

GT Bank’s   feat   is mostly linked to the management rare and uncanny capabilities in risk management . To win a competitive battle in baking business two critical risks must be tackled . These are interest and credit risks . Any bank that wins them must lend profitably and safely .This may not be farfetched. Bank management is coterminous with risk management. What continues to give the bank a lead is the management ability to skillfully manage risks which is in inherent in maturity transformation. SegunAgbaje is ,indeed , an astute banker and a shrewd lender lending safely and profitably. Moreover, although other sources exist ,the main source of banking income and profitability remains the spread between the rate bank borrows funds from depositors and other sources and the rate it loans them out . GT seems to have some edge over its peers and gets a better spread relative to its assets base in this area . It has developed an iron teeth to break a hard nut of credit and interest risks . This evidently manifests in the net interest margin. In the 2019 financial year its NIM remained the industry best at 9.3 percent compared to Zenith and Access banks 8.2 and 6.6 percent respectively.

 . .What delivered and still delivering this bank leadership is a tradition of not only viewing competitiveness differently but also strategically and organizationally too .With a clear-eyed and creative view of where the bank is headed , not a pedantic planning ritual on one hand or a speculative and open-ended investment commitment on the other , GT Bank    saw strategy quite different from what prevails in many companies.

It is not essentially incremental tactical planning punctuated by heroic, and usually ill-conceived, “strategic” investments that leave many companies rudderless in a world of turbulent seas and force-ten gales . Rather ,it  is  one that mostly escapes the boundaries of existing business units , illuminates new white space opportunities , uncovers the unarticulated needs of customers , provides any insight into how to rewrite industry rules ,   stretches to encompass the threat from nontraditional competitors and forces managers to confront their potentially out-of-date conventions. Analysis of  GT. bank strategic directions indicates a point of view about industry evolution and how to shape it ,a stretching aspiration that is derisked through the tools of resource leverage and intellectual and emotional commitment that ensures consistency and constancy.

 GT  has equally built a unique organization that complements its new strategic thinking .  GT Bank strategic choices of mobilizing employees at all levels around a strategic intent, leveraging resources across organizational boundaries, finding and exploiting “white space” opportunities, redeploying core competencies, consistently amazing customers, exploring new competitive space through expeditionary marketing, and building banner brands all require new ways of thinking about the organization could not be divorced from organizational directions . .

Over the past few years many companies have been working hard to transform their organizations. Companies have devolved traditional head office functions like planning and human resource management to individual business units; they have sought to enlarge the sphere of operating freedom for employees at all levels; they have divested tangential operations and concentrated on core businesses; they have attempted to encourage personal risk-taking; they have emphasized individual responsibility; they have inverted the organization chart and put the customer at the top. The watchwords for the would-be engineers of the modern corporation are devolution, empowerment, focus, entrepreneurship, personal accountability, and customer-focus.

However , GT  Bank is not only doing the above , it is doing them differently . Its senior managers seek to identify and exploit the interlink ages across units that could potentially add value to the corporate whole. This may not be misplaced . Some cross-unit opportunities that are just too attractive to sacrifice on the altar of absolute unit autonomy.

Its development of collective strategy requires managers to adopt a more cooperative and less competitive posture vis-à-vis their peers as empowerment without a shared sense of direction can lead to anarchy. While bureaucracy can strangle initiative and progress, so too can a large number of empowered but unaligned individuals who are working at cross-purposes.

. What is needed are community activists, individuals who are not afraid to challenge the status quo, not afraid to speak out, but who also have a deep sense of community and a desire to improve not only their personal lot but that of others as well. The bank’s goal is not simply to be led by customers’ expressed needs; responsiveness is not enough. The objective is to amaze customers by anticipating and fulfilling their unarticulated needs. To do this, a company must gain deep insights into potential classes of customer benefits. Companies that create the future are companies that are constantly searching for ways to apply their competencies in novel ways to meet basic customer needs.

Lacking a point of view about customers’ future needs, there is a danger that a company will invest only in those technologies that correspond to currently expressed customer needs. This is short-sighted. The link between technology and customers is not just currently articulated needs, but also product and service concepts that promise to satisfy unarticulated needs.

 GT  Bank prefers to be largely organic without any senseless acquisitions . In some companies, acquisitions helped managers cover up anemic growth in the core business. Dozens of academic studies have shown that acquisitions destroy shareholder wealth more often than they create it. Managers who lack the foresight and imagination to grow their core business are unlikely to have the foresight and imagination to grow acquired businesses. And diversification into areas where a company lacks knowledge and capability invites disaster.

But the bank has not ignored sensible diversification. This may not be farfetched . Retrenching around the core business, when “core” is defined in terms of a particular product or market focus, may leave managers with fewer headaches, but may also result in lackluster growth. Not every market grows forever, and not every product or service category expands endlessly. Sticking to the core business limits a company’s opportunity horizon and its potential for creating new competitive space. The dichotomy between “unrelated diversification” versus “core business,” is, like all the other dichotomies here, ultimately sterile.

There is nothing bad about growth and diversification around core competencies. Core competencies are the connective tissue that holds together a portfolio of seemingly diverse businesses. Core competencies are the lingua franca that allows managers to translate insights and experience from one business setting into another. Core competence–based diversification reduces risk and investment and increases the opportunities for transferring learning and best practice across business units. This is the kind of organization built by the leadership of GTB that gives it  industry leadership

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