Secrets behind Zenith bank industry leadership as it emerges again the best Tier 1 bank
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. Not only that. To have a share in the future ,a company must learn to think differently . Competitively , strategically and organizationally , Zenith Bank has ,no doubt , shown to be an exemplar of those feats ,and these are the secrets that deliver the leadership for the bank in the Nigerian Banking industry .
Recently , Zenith Bank Plc has been ranked as the Number One Bank in Nigeria by Tier-1 Capital in the 2021 Top 1000 World Banks Ranking published by The Banker Magazine. For the third consecutive year, the bank retained its position as the number one Tier-1 bank in Nigeria with a Tier-1 Capital of $2.64 billion, emerging as the 454th bank globally and the only Nigerian bank in the top 500.
For this feat , the whole bank is now in celebration galore ; its employees clicking glasses and wines flowing endlessly depicting the mood of another confirmation of the bank’s leadership . Speaking on the ranking, the Group Managing Director/Chief Executive, Mr. Ebenezer Onyeagwu said: “This ranking is a demonstration of our resilience and doggedness as an institution given the very challenging macroeconomic environment brought about by the Coronavirus (COVID-19) pandemic, which had a significant deleterious impact on businesses globally. It is also an affirmation of our commitment to delighting and creating value for our customers through a broad range of superior product offerings, best-in-class service and top-of-the-range technology”. He also expressed thanks to the bank’s numerous customers for making Zenith their bank of choice .
Tier 1 capital describes capital adequacy, and it is the core measure of a bank’s financial strength from a regulator’s point of view. According to the ranking, Tier 1 Capital, as defined by the latest Bank for International Settlements (BIS) guidelines, includes loss-absorbing capital, i.e. common stock, disclosed reserves, retained earnings and minority interests in the equity of subsidiaries that are less than wholly owned.
The leadership position of this bank is not accidental . Zenith bank has continued to maximize its shareholders value by prudently optimizing the level and mix of its capital resources .This has helped it to maintain sufficient capital resources that have ensured it to be well capitalized .This is more than enough to support its risk appetite ,its economic capital requirements and uphold its credit rating . 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 return on capital employed and assets .
This may not be farfetched going by its well diversified earnings from its product mix . Zenith Bank remains the biggest bank by profitability and the most valuable bank currently by market capitalization .With brilliant earnings power and valuation multiples driven by strong fundamentals the bank also sustained profit and market leadership in the first quarter of 2021 .
When the idea of the bank was put together in May , 1990, Zenith was outside the radar of the movers and shakers of the industry .The first generation banks held swayed in every enviable performance metric . But Jim Ovia, the founder ,was undaunted ; he came in with a mission and vision to be different . The first thing Jim Ovia did was to study and understand the structure of the industry he had chosen. 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, among others that 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 . In this industry, any bank 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 .
Jim Ovia , a banking legend, was quick to find a away that gradually tilted or reconfigured the industry structure to his favour .He 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.
Just as it is not enough to benchmark the advantages of competitors, it is not enough to understand the existing structure of an industry of barriers to entry, market segments, and present patterns of rivalry ,among others ; it is not the same thing as reshaping it; keeping score of competitive advantage is not the same thing as inventing new advantages . Typically, the existing industry structure works to the disadvantage of everyone save the industry leader, and most especially to the disadvantage of aspiring entrants. What is needed is a capacity to transform the structure of an industry . This is exactly what Jim Ovia did .
, Acknowledging the above wisdom Jim Ovia ,no doubt crafted his bank’s strategic architecture to overtake the incumbents . . As against the thinking in some companies or banks , competition for the future is competition to create and dominate emerging opportunities—to stake out new competitive space. At a broad level, he saw competition differently as a process for finding and gaining insight into tomorrow’s opportunities , ability to energize the company top-to-bottom for what may be a long and arduous journey toward the future and the capacity to outrun competitors and get to the future first, without taking undue risks.
He knew the race to competition is or should be perceived as a race to build competencies not simply to gain immediate market share . A commitment to building competencies is usually made by managers or leaders with foresight who are capable of imagining products, services and the entire industry that did not yet exist and then give them a birth. Leaders like Jim Ovia 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 . This is done by radically shifting the basis for competitive advantage in the industry and creating entirely new industry space ideally suited to his own strengths.
Zenith Bank overturned the industry order by challenging “accepted practice,” redrawing segment boundaries, setting new price-performance expectations, and reinventing the product or service concept .Its unique selling point was making the bank technology driven . Than others , Zenith Bank capitalized on this weapon . Zenith Bank laid the foundation of its structures and processes on cutting-edge Information and Communications Technology (ICT) infrastructure. This ensures that every transaction is carried out via a medium that makes for speed, flexibility, accuracy and convenience for customers. Exceptional service delivery is its unique selling point and this defines service standards in the business environment. Its technology is second to none. Technology is at the core of the business strategy of Zenith Bank. They deploy global best practices and the innovative technology infrastructure which enables them meets the dynamic needs of their customers on time. The use of technology can help reduce costs and enhance productivity .
The direct and indirect impacts of the above are massive .Within the broad profitability constraints of its industry and segment what worked for him and still working now are the management’s relative cost and differentiation (price) advantages. Moreover, the fact that the bank sustains its leadership position in a supposedly “unattractive” environment merely demonstrates its relative advantage in the industry
Not only that , he ensured this ingenuity constructed is unique and nonimitable to sustain its competitive advantages for a long time before others joined the race or saw the impact of being a technology driven bank .
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 ,Zenith 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. But 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 , one that stretches to encompass the threat from nontraditional competitors and forces managers to confront their potentially out-of-date conventions.
Analysis of Zenith 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.
Zenith has equally built a unique organization that complements its new strategic thinking . Zenith 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 , Zenith 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.
Zenith 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.