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Gt. Bank :The Power of Thinking Differently

 One of the biggest lessons taught by   Clay  Christensen, a knight of the Harvard Business School, is  the power  of  innovation.  He revolutionized the study of this subject  with the Innovator’s Dilemma”, a book that popularized the term “disruptive innovation”.He also  published a new study, “The Innovator’s DNA”, co-written with Jeff Dyer and Hal Gregersen. Specifically,  he  tried to take his readers  inside the five habits of mind that characterize   disruptive innovators .Innovators , he explained , are constantly asking why things aren’t done differently, excel at connecting seemingly unconnected things,  have an unusual talent for observation , tend to be great networkers and are inveterate experimenters.  

With the above works ,Christensen has ,no doubt, become an intellectual wellspring of sort .Several world class corporate leaders are known to be exploiting those  habits of  disruptive innovation” . David Neeleman, the founder of JetBlue and Azul,  shared those innovators habits and made the difference .His deep-seated curiosity on why people treated airline tickets like cash, freaking out when they lose them, whereas customers could instead be given an electronic code has added an immense value to air travelers across the globe .

Not only him .  In Nigeria ,Segun Agbaje, the former Managing Director of  Guaranty Trust Bank Plc , now its Chief Executive Officer of Guaranty Trust Holding Company Plc, GTCO , is another world class leader  with a similar habit of  doing  things   differently .With this   habit of mind ,Agbaje has   revolutionized  the art of banking and  entrenched  a culture of  “disruptive innovation” that has  taken   his employees to inside the minds of successful innovators on how they go about their business ,differ from regular suits  and  learn from their mental habits      

 At the slightest opportunity , Agbaje often declares to the banking stakeholders ::“  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 GTCO  remains  the most cost-efficient. The  real picture  of GTCO  as the most cost efficient bank is demonstrated when its total assets and gross earnings  relative to its profit  are considered relative its competitors  among tier 1 banks. A part from having  the least cost to income ratio its net interest and profit margins are the highest .Today , GTCO has remained the best-in class corporate entity with that singular habit.

.How did one arrive at this judgment ? An organization’s strategic capability is a relative issue since it concerns the ability to meet and beat the performance of the past and competitors. Sequel to this, investors benchmark the performance of every organization by three standards : they benchmark  the performance of one organization with previous years records  in order to identify any significant changes, look  at industry norms/ standards  for  comparative perspective of other organisations in the same industry or sector  by Best in class  by comparing  organizations performance against best in class performance  wherever it may be found. .

GTCO is no doubt crowned the Nigeria’s best in class bank.  .  .GTB’s business model  is believed to be  one that has been very difficult for a lot of Nigerian banks to replicate. The bank operates a low cost, revenue efficient model that relies less on manpower while attracting cheap deposits. For most banks, some noted it would take years to replicate and possible billions spent in restructuring to achieve this .In the 2023 financial year, the bank sustained that legacy. 

In the 2023 financial year the banking industry players saw gross earnings and profitability climb to a record high, benefitting from MPR hikes and naira devaluation.When its performance is benchmarked with the previous year  records  in order to identify any significant changes ,  GTCO’s  performance   was extraordinary’.  The Group reported profit before tax  of ₦609.3billion, representing an increase of 184.5% over ₦214.2billion recorded in the corresponding year ended December 2023. The Group’s loan book (net) Increased by 31.5% from ₦1.89trillion recorded as at December 2022 to ₦2.48trillion in December 2023, while deposit liabilities grew by 63.7% from ₦4.61trillion in December 2022 to ₦7.55trillion in December 2023.

The Group’s balance sheet remained well structured, diversified, and resilient with total assets and shareholders’ funds closing at ₦9.7trillion and ₦1.5 trillion, respectively. Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 21.9%, while asset quality was sustained as IFRS 9 Stage 3 Loans improved to 4.2% in December 2023 from 5.2% December 2022. However, Cost of Risk (COR) closed at 4.5% from 0.6% in December 2022 owing to worsening macros which caused significant increase in ECL variables.

When its performance is benchmarked with its competitors in order to identify the best in the industry it remains the industry best  as the most efficient and resourceful bank  . Among the tier 1 banks, Access Holding had the highest gross earnings at N2.59trn, and GTCO had the lowest at N1.19trn, but Zenith Bank took the lead in terms of profit at N795.96bn, ahead of UBA (N757.68bn) and Access Holding (N729.00bn). 

The bank’s high earnings made the earnings per share grow to a double-digit, with Zenith Bank taking the lead at N21.55k while Access Holding had the lowest at N17.23bn. This implies that Access Holding incurred high operating costs, eating deep into the profit compared to Zenith Bank. However, Access Holding retained its position as the highest customer depositor at N15.32trn ahead of UBA and Zenith, while GTCO had the lowest at N7.41trn. 

Similarly, the banks’ financial ratios had a positive outcome, with GTCO having the highest net interest margin, return on equity, and return on assets. Also, GTCO was the most cost-efficient, with the lowest cost-to-income ratio of 29.10%, while Access Holding was the least efficient at 44.69%. The fundamental valuation of the banks showed that GTCO had the highest price-to-book value and price-to-earnings at 0.96x and 2.31x, while Access holding had the least at 0.39x and 1.39x, respectively. 

This implies that GTCO’s market value reflected its underlying book value and earnings more than the remaining banks. Despite the high-interest rate environment, GTCO had a 1.80% cost of funds, which was extremely lower than its peers, with access holding at 5.40%. GTCO seems to have better financial health than others based on the financial ratios despite having the lowest gross earnings, profit, and asset size  

 In one sentence, what has established Guaranty Trust Holdings Company,GTHCO , as the industry best-in-class for more than one decade   is  simply its capability to demonstrate that it is possible to do more with less,  the essence of resource leverage that springs  from an aspiration that takes little notice of current resource constraints .

A detailed analysis  of some key players strategic position and their choices  may throw further light on how the battle was lost ad won . Naturally ,Tier one players are the soul of the industry ; they are the movers and the shakers . They are recognized by their  strong reputation, technological richness and deep pockets,  all of which  could enable them to  hire the most talented people in their industry ,to have sizable market shares  and to have a worldwide  distribution channels. In other words ,they  have  bigger  resources than other tiers . Ironically , GTHO has relatively smaller assets compared to its close rivals , yet has bigger and better profit margin than all its rivals ; it remains the most profitable bank in the real sense of the profitability.

GTCO is indeed a model for other banks in Nigeria . One big lesson learnt from  its  competitive fortunes  is that a starting resource positions are very poor predictor of future industry leadership. A firm can sit atop mountain of cash and command legions of talented people,  and still lose its preeminent position.  Likewise, a firm can sometimes overcome resource handicaps and successfully scale the heights of industry leadership ; getting to the future first is more a function of resourcefulness than resources .

One  notable observation among its rivals that gives it an edge over them is the dominant strategy frame  that  pays much attention to the task of resource allocation probably because of the belief that resources  are scarce . They are more fixated with size of their resources . No wonder , an opinion frequently voiced by their  managers   is that with  more resources, they could be more strategic,”

But the  almost exclusive preoccupation of their managers and strategy researchers with the allocational task is usually questionable?    Smarter CEOs believe it is  equally the  top management’s job to effectively multiply the firm’s resource base through creative approaches to resource leverage .To them ,  leverage is not any way  less important than allocation

 That is where the boys are separated from the me . With their  view of strategy as stretch and leverage, they believed it is apparent that the real issue for many of these managers is not a lack of resources, but too many priorities, too little stretch, and too little creative thinking about how to leverage resources , a reason why  many of these managers feel they are resource-constrained:  

 Moreover , showering them with more resources, in the absence of a fundamental improvement in their capacity to leverage resources, would provide no more than temporary relief of their frustrations.

As opposed to much emphasis placed on resources as against resourcefulness ,foresight, stretch, and leverage that provide the energy and rationale for proactive advantage building and industry re-engineering are . GTCO’s unique selling points that delivered  its relative better  value for money .    

Foresight and strategic architecture provide the map, and stretch and leverage provide the fuel . A distinctive feature that separates tier 1 banks from the rest is their bigger    wealth of resources of every kind ranging from  human talent, technical skills, distribution access, brands, manufacturing facilities to  cash flow ..These resources, accumulated over decades, are the rewards of past and current industry leadership, not the guarantors of future leadership.

  However while some have  resources  that could be  described as substantial with modest aspiration,GTB with  much smaller  or  far fewer tangible resources,   possesses  a grand ambition that belies its meager resource base. GTCO is the mirror image of  its rivals-resource-poorer , but aspiration-richer . Their strategies and leverage are  different too 

Armed only with this knowledge, one can reasonably predict that the two firms will adopt fundamentally different approaches to competitive strategy,and each will exhibit different degrees of creativity in leveraging its resources.

Certainly  its rivals are  much better placed to behave “strategically,” that  is to preempt GT in building new capacity to outspend  GT  , to get more market share through aggressive and so on.  In fact, given their slack resources, this is precisely how some of its rivals  think about competitive battles with GT. This may not be may not be farfetched .  An abundance of resources, or slack, enables firms to be strategic in an investment sense, but  it does nothing to enhance the wisdom of strategic decisions. Resource abundance and the attendant ability to make multiple bets and to sustain multiple failures too often substitute for disciplined and creative strategic thinking ;their ability to make strategic investments totally outpaced its ability to absorb new technology, retrain workers, reengineer work flows, rejuvenate supplier relationships, and discard managerial orthodoxies.

 But if there is no capacity for resource leverage, if a firm hasn’t learned how to do more with less, there is no advantage to being strategic.In other words, the risks of being “strategic” are fully commensurate or more than commensurate with the potential rewards, there is no advantage to being strategic. Bigger bets sometimes bring bigger payoffs, but they’re just as likely to bring bigger disasters.   In the absence of an aspiration that outstrips a firm’s resources and a capacity for resource leverage, abundance is likely to be little more than a license for carelessness in strategic decision making.

But GT  has no such luxury. Facing its wealthy rivals , GT  must outmaneuver rather than overpower the enemy.  By way of contrast, the above kinds of  strategic decisions would be likely to emerge from  GT  whose aspirations run far ahead of its resources . For it , just as necessity begets invention, stretch begets resource leverage  ; tactical creativity is the child of resource scarcity. It would exploit opportunities to change the rules of the game rather than play by the rules of incumbent

GT would be compelled to lay emphasis on doing more with less. With fewer product designers than its competitors,  gtco  would be forced to dramatically reduce product development times and therefore costs to develop a full product line while its  need to accelerate product development would spur cross-functional communication. It goes without saying that GT  would be unable to support any superfluous corporate overhead or excess management layers ;with a smaller human resource base,  GT would need to view every employee as a contributor, to avoid any diversion of effort,  while its  top management would seek a deep consensus on strategic goals.

 Each  of the above  particulars can be logically induced when one views strategy as stretch —-the fact that ambition forever outpaces resources—that fuels the engine of advantage creation.

 GTB understands  that  a firms that has a surfeit of ambition and a dearth of resources quickly discovers that it cannot merely imitate the advantages of more affluent competitors; it cannot match their spending dollar-for-dollar;it cannot afford the same entry costs; it cannot tolerate the same inefficiency and slack ; it cannot risk playing by the leader’s rules.

For all these reasons,    GTCO is compelled to create entirely new forms of competitive advantage   It figures  out ways of matching the existing advantages of competitors in more resource-efficient ways   

GT Bank has chosen to be a cost leader  .   This core competence  seems to   become  almost  difficult for its competitors to comprehend ,as the strategy is culturally embedded deep down the organization

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