In business, as in art, what distinguishes leaders from laggards, and greatness from mediocrity, is the ability to uniquely imagine what could be. In the Nigerian Banking subsector ,as in elsewhere, the story is not different .
By each player’s fruits one shall know where it belongs . While some are merely playing catch-up and operating on the treadmill , some have demonstrated the capability for leadership and greatness ; beaming a searchlight into the strategic position of every player , the values created and delivered confirms this view .
Behind the above is the ever changing environment .Operating environments have remained highly dynamic leaving the success of many players eroded or destroyed by the tides of technological, demographic, regulatory change and order-of-magnitude productivity as well as the quality gains made by nontraditional competitors. Buffeted by these forces, few firms seemed to be in control of their own destiny
The only way out of the above challenges is for each player is to do the same . Sequel to this , in the recent time , corporate leaders have been warned on the risk of ignoring the call for certain paradigm changes. Most importantly , the voices calling for a new organizational paradigm (leaner, flatter, virtual, modular, etc.) have been numerous and vocal just as a concomitant clamor for a new strategy paradigm is gathering serious momentum .Specifically ,the belief is that what determines where each player belongs are the organizational and strategic paradigms chosen to gain competitive advantage and outperform competitors .
Despite this warning , the way many companies “strategize” is just as out of date, and just as toxic, as the way they organize . But few CEOs are not caught unaware . They have not only demonstrated the capability to imagine , build or to create the future but to get to the future first .This initiative enables these players to be prescient about the size and shape of tomorrow’s opportunities and to shape the emergence of that future industry structure to one’s own advantage.
For those without this foresight the story is different , They are still yet to get off the restructuring treadmill and get beyond the reengineering programs that simply rev up today’s performance. Sequel to this ,capturing the riches that the future holds in store for them has been a mirage .
One of the players in the Nigerian Banking industry that has remained in the treadmill and catch-up mode for long is Sterling Bank Plc . Although this bank is lean and fit, analysts believe it still needs a brain as well because what makes the difference among corporate leaders is the conception and application of new strategies, an organization’s brain, that helps some players to gain competitive advantages and outperform competitors.
The brain needed , however , is not the brain of the CEO or strategic planner ; it is an amalgamation of the collective intelligence and imagination of managers and employees throughout the company who must possess an enlarged view of what it means to be “strategic.”
The negative impacts of the above lacuna defines its status in the industry .Viewing Sterling Bank from its strategic position in the industry, one could not be mistaken or far from the truth to say the bank is a mere corporate laggard ; its uninspiring performances since it adopted its current corporate name , could be pinned down to the quality of its leadership. This may not be unconnected with the quality of the bank’s brain or the strategic choices by which it hopes to gain advantage and outperforms its competitors .For some analysts , what its senior managers know today—the knowledge and experience that justify their position in the corporate pecking order—may be irrelevant or wrong-headed for the future.The negative impact has been grievous as the bank has remained on the treadmill for long .
Is Sterling Bank Plc under any jinx to remain on treadmill perpetually ? From its inception as a product of the banking consolidation, the bank, an amalgam weaklings saved from extinction by the regulatory authorities, has continued to be uninspiring .The takeover of the distressed Equatorial Trust Bank by it did not help its case . Till today , the inability to turn it around for better competitive value creation has continued to raise serious concerns among its stakeholders. And the blame for this is put on the door step of its successive leaders at the driver seat of the bank that failed to discover the right joker for a much needed turnaround .
For this alone the bank’s progress has been stunted and its shareholders have remained the clear victim. . Its stock price has remained diminutive below N5 per share, a product of the investors’ poor perception of its value .Although in the last one year it appreciated by 152% , its 52 Week High was ₦4.58 while its low within the same stretch of time is ₦1.32 . The bank’s current share price is N3.79. as it closed its last trading day (Friday, September 15, 2023)
The stock’s unbounded volatility is another dent on the image of the bank . Compared to industry and market , its Average Weekly Movement or votality is 11.6%, the rate at which it is adjudged to be the most volatile in the industry and the market Average Movement 8.3%
The diminutive price of Sterling Bank could strictly pinned down its uninspiring performance over the years and unstable dividend track record .This is the reason for its miserable value delivery to its shareholders . . Its current dividend yield is 4% and dividend payout ratio is 20%
Figures from the bank’s financial statements confirmed this view. During the tenure of Mr Adeola between 2007 and 2018 ,though he started well with a supersonic growth of the.bank’s profit from N621m at the end 2007 financial year to N6.5b in the same period in 2008 .
But the bank could not sustain this momentum till he left the bank as its CEO in 2018 . Its profitability became stunted in the first five years under him with a loss N6b in 2009 ; it backtracked in 2010 to N4b compared to 2008 before it hit six N6.6b in 2011, perhaps with the acquisition and integration of Equatorial Trust Bank.
Between 2012 and 2016 , the pace followed the same trend , growing in a snail speed from approximately N7b to N8.3b,N9b and N10.3 before it backtracked steeply N5.2b. The bank under Adeola sustained its roller coaster attitude between 2017 with N13.5b profit in 2017 and N9b in 2018 before he exited the bank and Abubakar Suleiman took over from him.
The most worrisome issue about the bank is that it was when its profitability was seemingly waking up from its slumber that Suleiman was removed. Under him the bank experienced an unusual growth from N15b in 2021 to N19.3b in 2022 , the biggest jump ever in profitability ; yet the man was unseated as the CEO
On the face value one might be tempted to score the management of Sterling Bank high for increases recorded in its profitability metric, however, this is still unimpressive in an absolute term relative to its peers ; it has remained and sustained a back seat position as the least profitable tier 2 bank .Moreover , according to a ranking of banks on the weighted bank strength index by Proshare , an influential financial firm ,Sterling Bank recorded the lowest score of 23 as well as the highest or the worst non performing loan ratio of 7% in 2021 while its cost to income settled at 75% , the third worst figure among its peers
Looking at this bank profit from its earnings to the investors or earnings per share [EPS] confirms an observation that the bank needs a better top management to fulfill its destiny or to exploit its full potentials. A good way to determine earnings to the investor is the Earning Per Share (EPS), which is the monetary share value, i.e., what every share issued by the bank will receive from declared earnings. The higher the EPS, the more profitable the bank is. Full Year EPS for Sterling Bank in the last five years comes to about 0.31k ,0.36k ,0.18k,0.28k an d 0.32k per share; in the first quarter of 2022 it is 12k compared to 8k in the corresponding period of 2021. When the prevailing high of inflation is factored into the values given to its investors by EPS, this is nothing but miserable return to investors.
Sterling Bank net profit margin , a metric that helps investors assess if a company’s management is generating enough profit from its revenues and whether operating costs and overhead costs are being contained., also follows a similar diminutive trend .Between 2017 and 2021 it ranged from 9.5%,8.2% ,7% ,6% to 6 %,indicating the bank is converting less than 10% of every N1.00 revenue made at the top line to profit .Companies that can expand their net margins over time are generally rewarded with share price growth as share price growth is typically highly correlated with earnings growth. Sterling Bank has failed to do this and the consequence is its diminutive share price growth and market value
From the perspective of its assets contribution to its profitability or how efficiently it uses the assets its owns to generate profits , the same message of lethargic profitability is communicated by the bottom line . For every N1.00 naira in assets owned by Sterling Bank , the bank earned 0.82 ,0.86 ,0.89 ,0.86 and 0.83 between 2017 and 2021 . This poor scenario could be linked to the impressive rise in its assets without a simultaneous impressive rise in its top line .These ratios indicate less impressive asset turnover as the bank generated less than one naira for every one naira asset employed and thereby depicting an inefficient optimization of its available assts .
Its ratio of return on Equity which suggests a company’s ability to return profits to its shareholders is speaking the same language ranging between 8.9 % ,9.0%,,9.4% ,8.9 %,8.3% and 9.6 % from 2017 to 2021 .The indication of the above trend is that for every naira invested in Sterling Bank its investors would earn less than 10 percent as their return per share .RoE,a ratio that holds the highest importance for any shareholder , is an indication of how well a company uses its shareholder’s funds. Analysts believe the returns may not serve as a signal for investors to go long riding on hidden-value opportunities.
A comparative analysis of some industry players shed some light on why this bank has remained on the treadmill for too long . Unlike the leadership of Sterling Bank ,those that get the joker right or organizations with the brain of industry leaders know they must unlearn much of their past before they can find the future ; that it is not enough to optimally position a company within existing markets .They overcome the challenge piercing the fog of uncertainty and develop great foresight into the whereabouts of tomorrow’s markets.
They gain a deeper understanding than competitors of the trends and discontinuities—technological, demographic, regulatory, or lifestyle—that could be used to transform industry boundaries and create new competitive space ;they know it is more than an incrementalist, annual planning rain dance and acknowledge that what is needed is a strategic architecture that provides a blueprint for building the competencies needed to dominate future markets ; it is a battle to influence the direction of industry development
Moreover , they are less concerned with ensuring a tight fit between goals and resources but more concerned with creating stretch goals that challenge employees to accomplish the seemingly impossible. ; they know that only a view of strategy that is more than the allocation of scarce resources across competing projects but about the quest to overcome resource constraints through a creative and unending pursuit of better resource leverage is the way out of the treadmill ;they are not only competing within the boundaries of existing industries, but competing to shape the structure of future industries ; they recognize that competition for core competence leadership precedes competition for product leadership, and that which conceives of the corporation as a portfolio of competencies as well as a portfolio of businesses.
The above are the components of the brain that not only enables a company to compete for today but the future, not only to imagine the future but create it as well ; it separates the champions from the laggards . .
The only option for a bank like Sterling is to change the rule of the game .The Nigerian banking industry had witnessed such a crop of s CEOs in the early 90s with the brains of the champions highlighted above .During that period, powers swiftly changed hands among few top players as the Nigerian banking sphere came under strong competitive dynamics ; behind this change were the few new generation banks ceos with brilliant visions and breathtaking guts.
To turn the table around to their advantage they adopted a robust business model, considered to be very difficult for their competitors to replicate. They operate a low cost, revenue efficient model that relies less on manpower but more on prudent risk asset allocation while attracting cheap deposits
No doubt , the story of Sterling Bank is different . The bank has not been lucky to have a CEO or a workforce with strong zeal or ambition of the leaders with the capability to imagine the future , create the future and get to the future first . It is one of the banks in dire need of the corporate brain of a champion ; if it must gain a competitive advantage to outperform competitors and be fully in control of the bank’s future, its leaders must wake up from their slumber.. The absence of this , however , is raising serious concerns and questions from the observers of its ugly strategic position
Sterling Bank is not the only one in this camp and the reason for this may not be far to seek .It takes substantial and sustained intellectual energy to develop a high-quality and robust corporate brain that delivers an industry leadership to any player. .
First , creating the future is more challenging than playing catch up, in that it needs to create its own road map. The goal is not simply to benchmark a competitor’s products and processes and imitate its methods, but to develop an independent point of view about tomorrow’s opportunities and how to exploit them.
Moreover , to get to the future first requires an understanding of how competition for the future is different, a process for finding and gaining insight into tomorrow’s opportunities, an 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.
Sequel to its inability to live up to the above expectations, Sterling Bank had witnessed painful upheavals ; its success had been eroded or destroyed by the tides of technological, demographic, and regulatory change and order-of-magnitude productivity and quality gains made by nontraditional competitors.
Buffeted by these forces, few firms seemed to be in control of their own destiny. When the foundations of past success were shaken and fractured when, in all too many cases, the industrial terrain changed shape faster than top management could refashion its basic beliefs and assumptions about which markets to serve, which technologies to master, which customers to serve, and how to get the best out of employees , the only option is to play a catch up ..
As the future is not occupying senior management’s attention of Sterling Bank, the option before it is to be lean and fit .Confronted with sizable “organizational transformation” problems, this bank considered more of a bystander than a driver on the road to the future, indeed , has found its structure ,values, and skills less attuned to an ever-changing industry reality. Such a discrepancy between its pace of change in the industry environment and the pace of change in the internal environment is what has spawned the daunting task of organizational transformation of downsizing, overhead reduction, employee empowerment, process redesign, and portfolio rationalization for it .
In two words—restructuring and reengineering became the only way out that replace creating the future and getting to the future for Sterling Bank , a feature that separate a laggard from industry leaders ..
Moreover , when a competitiveness problem of stagnant growth, declining margins, and falling market share finally becomes inescapable, what most executives do is to pick up the knife and begin the brutal work of restructuring. And the goal is to carve away layers of corporate fat, jettison underperforming businesses, and raise asset productivity.
They embark on this exercise because executives who don’t have the stomach for emergency room surgery mayfind themselves out of a job.
This assumption seems to be that because there is no hope of raising output, the only solution is to restructure to survive , gain efficiency and productivity; but with no or slow growth, these companies soon found it impossible to support their burgeoning employment rosters, this initiative becomes a necessity. Moreover , the problems of low growth were often compounded by inattentiveness to ballooning overheads diversification into unrelated businesses and the paralysis imposed by unfailingly conservative corporate staff.
To escape being a victim of the above circumstances and make effective use of corporate resources its leadership had to launch some tough programmes to improve return on investment.
Ordinarily , to deliver this target ,a leader either goes for the numerator—net income or the denominator — investment, net assets, or capital employed. , the two components of ROI: In a service industry, a more appropriate denominator may be headcount.
To improve the return on investments is the dream of every manager. However , the only difference is the route to this end . Those who decide to cut assets and head-count and those who prefer to raise net income in any corporate organization have their reasons , To raise the net income, the fear is that this is likely to be a harder slog than cutting assets and head-count considered to be a no brainer alternative ..
The reason for this may not be far to seek .To grow the numerator, top management must have a point of view about where the new opportunities lie, must be able to anticipate changing customer needs, must have invested preemptively in building new competencies, and so on.
For Sterling Bank that was under intense pressure for a quick ROI improvement, the executives had no option than to reach for the lever that will bring the quickest, surest improvement in ROI—the denominator. To cut the denominator, top management doesn’t need much more than a red pencil. Thus the obsession with denominators.
Like the generation of denominator managers , Sterling Bank had been obsessed with downsizing , decluttering , delayering , and divesting to realise its ultimate agenda of raising the bank’s return on investments . The attraction to its leadership has remained high asset productivity ratios This is not unexpected .Denominator management is believed to be an accountant’s shortcut to asset productivity.
Although ,there is nothing wrong with efficiency and productivity as a company must not only get to the future first, it must get there for less, yet analysts believed there is more than one and better route to productivity improvement
. Just as any firm that cuts the denominator and holds up revenue will reap productivity gains, so too will any company that succeeds in growing its revenue stream atop a slower growing or constant capital and employment base. Although the first approach may sometimes be necessary, analysts believe that the second approach is usually more desirable.
To become lean and fit , the bank is not only restructuring . Recognizing that restructuring is ultimately a dead end, smart companies have moved on to reengineer their processes. There is a difference, though, between restructuring and reengineering. Reengineering offers at least the hope, if not always the reality, of getting better as well as getting smaller. Any company that is more successful at restructuring than reengineering will find itself getting smaller faster th an it is getting better. . Although restructuring is never more than a necessary thing, reengineering can be a good thing. Reengineering aims to root out needless work and get every process in the company po inted in the direction of customer satisfaction, reduced cycle time, and total quality
Interestingly, though the ostensible goal of reengineering is to focus each and every process on customer satisfaction, it is almost always the promise of reduced costs, rather than heightened customer satisfaction, that convinces a top team to sign up for a major reengineering project.
In fact, many companies have taken reengineering charges against earnings in the same way they took restructuring charges in earlier years.
Far from being a tribute to senior management’s steely resolve or far-sightedness, a large restructuring and reengineering charge is simply the penalty that a company must pay for not having anticipated the future.
Asides the above reservation on the route taken to achieve better return on investments, the strategy itself is not what some analysts are comfortable with . First ,restructuring is believed to be seldom results in fundamental improvement in the business. At best , they believe it buys time.
Downsizing is believed to be a belated attempt to correct the mistakes of the past and not about creating the markets of the future. The simple point is that getting smaller is not enough while downsizing, the equivalent of corporate anorexia, could make a company thinner; it doesn’t necessarily make it healthier.
Moreover , any company that is better at denominator management than numerator management—any company that doesn’t have a track record of ambitious, profitable, organic growth—shouldn’t expect Wall Street to cut it much slack. What Wall Street says to such companies is, “Go ahead, squeeze the lemon, get the inefficiencies out, but give us the juice . We’ll take that juice and give it to companies that are better at making lemonade.”
Analysts know that a management team that is good at denominator reduction may not be good at numerator growth.Again and again Wall Street has shown itself quite content to watch a firm profitably restructure itself out of business, when top management seems incapable of profitably creating the future.