104 YEAR YOUNG – Bank of Baroda :
Are we witnessing the Strategic Inflection Point ?
Luckily I was a part of the festivities on the occasion of our 104th Foundation Day celebrated with appropriate pomp and show at Baroda Corporate Centre, Mumbai. All branches, Regional Offices and Zones also marked the auspicious day with befitting events. A proud moment indeed, for all Barodians. It was being said that day that the upbeat mood witnessed in Bank of Baroda is not seen in other banks. Last few years have built up this feeling very steadily with improving business figures also aiding the process. Apart from the mood, visible changes taking shape in the Bank’s overall public image also merits a special mention. Certain path-breaking initiatives taken earlier viz. the branding exercise and the technological transformation deserve credit in no small measure. But the actual harnessing of resultant synergy started only during the last three years, as said.
In this context, I feel it is worthwhile to understand the famous concept viz. ‘Strategic Inflection Point’ as espoused by Andrew S Grove – CEO of Intel Corporation. In this write up, I intend to elaborate on this concept and thereafter draw parallels with our Bank. The exercise is aimed at analyzing forces which work on the fortunes of an organization and managerial responses which shape the growth trajectory upwards. But before I do that, allow me to quote a few facts concerning life-cycles of large corporates.
The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. This figure is based on most surveys of corporate births and deaths. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces. Human beings have learned to survive, on aver-age, for 75 years or more, but there are very few companies that are that old and flourishing.
A depressing fact indeed. Add to this, the buzz during the initial days of computerization in India, predicted a gradual demise of ‘brick-and-mortar’ banking and eventually elimination of banking industry itself. Those were the formative years of the ubiquitous internet. It was said that banks would cease to be financial intermediaries and the web would replace them. Possibility of these eventualities actually taking shape has since receded. Branch banking continues to have a sway on financial affairs of even the most developed countries. In fact, the ‘human-touch’ seems to get a preference over tech-banking channels.
But that is digressing from the focus of this write-up.
Within the banking industry, we do see numerous players regularly vanishing. Even in the United Kingdom, during the worst phase of recession seen in 2007-08, many big names in banking succumbed or were nationalized. Even if we make allowances for the argument against demise of banking companies in the PSU space because of their state owned characteristic, it is an undisputed reality that generally the trajectory of growth is not a straight line going up on the right hand side. The graph more appropriately resembles a sinusoidal curve edging upwards on the X axis. It obviously implies that the organization is responding to environmental factors rather than being in control of the same. So far so good. But what happens when these environmental forces push the growth downwards so strongly as to literally blast the organization out of existence ? One such force was the feared impact of internet and its capabilities. That the threat never materialized was fortunate for the industry. Take a more real force – that of ballooning non-performing assets. Not very long ago, the overhang of NPAs spelt doom for the erstwhile ICICI Corporation. A bail out in the shape of reverse merger with its commercial banking arm saved the day for this behemoth. The threat was real and it did kill the Corporation. Andrew S Grove calls this as the 10X force.
Strategic Inflection Point – the theoretical position:
An inflection point, mathematically, is when the slope of a curve changes sign, for instance, from negative to positive. A point when the balance of forces shifts from the old structure, from the old ways of doing business and old ways of competing to the new. Before the strategic inflection point the bank simply was more like the old. After it, is more like the new. It is a point where the curve has subtly and profoundly changed, never to change back again.'
Unfortunately, from the inside, this is not evidenced as a pinpoint in time when everything changes, but rather a long period of extreme unrest. Corporate statements and operational actions are not aligned. Ideas about the right direction will split people on the same team. In a workplace that used to function collegially and constructively, wars will erupt. Chaos reigns.
Strategic dissonance is the divergence between actions and statements. This is one of the surest indications that a company is struggling with a strategic inflection point. The process of adapting to change starts with employees, who, through their daily work, adjust to new outside forces. So, while front line staff and middle managers are implementing and executing strategic actions that say one thing, senior management is issuing high level pronouncements that say the exact opposite.
Senior management is often hampered by the inertia of success. They got to where they are by being good at what they do. Over time, they have learned to lead with their strengths. So, not surprisingly, they continue to implement the same strategies and tactics that have worked for them during their careers.
At some point a vague outline of the new direction starts emerging. By this time, however, the company is dispirited, demoralized, or just plain tired. The leader now needs to form an image of what the company should look like when it gets to the other side: the essence of the company and the focus of its business. What the company will be and what it will NOT be. Redeploying resources as required (physical or human resources) to support the new direction is one option the leader exercises. Redeployment of his own time is also important, and has enormous symbolic value, communicating what is and is not important far more clearly than all the speeches he can give.
If the competition is chasing the company, the leader can only get out of the valley of death by outrunning the people who are after the company. And one can only outrun them if one commits oneself to a particular direction and runs as fast as one can. The leader should then communicate and clarify the direction as often as possible to the employees. Middle management is critical to help project the message over a distance. He therefore takes extra time with them to ensure their wholehearted commitment.
The other side of the valley of death represents a new industry order that was hard to visualize before the transition. Getting through the strategic inflection point requires enduring a period of confusion, experimentation, and chaos, followed by a period of single minded determination to pursue a new direction towards an initially nebulous goal. It is one of the most daunting tasks an organization has to endure. But when "10X" forces are upon us, the choice is taking on these changes, or accepting an inevitable decline, which is no choice at all.
Lastly, as structured, this section attempts to highlight parallels with the strategic inflection point as theorized by Andrew S Grove and situations prevailing in the external and internal environment of our Bank. Our Chairman & Managing Director’s vision and his ears-to-the-ground approach has seen us through the inflection point. I shall attempt to bring out the initiatives which are squarely attributable to him alone and which have launched the Bank on its way to the new paradigm.
By definition, a Strategic Inflection Point is that which prompts a fundamental change in business strategy. Nothing less is sufficient. Changes in the financial environment are so fast and far reaching that banks are required to be extremely nimble footed and adaptable. Though not exactly ‘Inflection Points,’ two significant factors became critical during the last two decades. First was the BASEL Accord with its rigorous prescriptions on Capital Adequacy, Asset Classification and Provisioning norms, which keep getting more and more stringent – as we all know. The second – more importantly, was the emergence of Information Technology and its forced adoption by banks for managing ever increasing business volumes. With a legacy of manual systems and outdated standards, a switch over to computerized systems was difficult. Aging workforce, resistance to change and large training gaps were impediments which had to be dealt with in double quick time. Opening up of our economy and entry of foreign banks has since emerged as a threat with immense potential to cause unprecedented upheavals in the industry. Regulatory oversight has deepened and there is pressure from the government for a more inclusive growth. This implies large scale branch expansion in unbanked rural areas, putting to test our resilience and capability to recruit and train thousands of new staff immediately. Reorienting senior staff to the emerging realities with motivational inputs is a challenge, given the immense cost and logistics involved. On the business front, a definite squeeze on interest margin, a stagnating CASA base, slack credit off-take by hesitant entrepreneurs and most importantly – the rising NPA levels are factors which combine to present the feared inflection point when fundamental changes are indicated for survival.
Our visionary leader Mr. M. D. Mallya, fortunately at the helm of affairs during this critical period responded by clearing all hurdles for 100% CBS not only in the Bank but also in the sponsored Regional Rural Banks and overseas territories. The fundamental strategic change initiated by our CMD was his decision to move decisively on several fronts simultaneously. The core banking system and enormous investments made for branding had to be used for reaching targeted business growth rates. A clean break from traditional practices and outmoded procedures had to be made, employees at levels were to be re-trained and re-oriented so as to equip them with desired skill-set. Employee morale had to be assiduously pumped up to harness full potential of the work force. Business levels were to grow at above industry average rates.
Mr. Mallya has introduced a systematic change under the ‘Navnirman’ project and established ‘Baroda NEXT’ branches with state-of-the-art technology and customer centric branch layout. Retail Loan Factories and SME Loan Factories with assembly-line processes were established for faster credit decisions and better quality of loan assets. A host of similar back office functions were hived off from branches to facilitate better customer service and better customer acquisition efforts by employees in the branches. Under the Business Process Reengineering (BPR) program, outmoded processes are being re-worked for ensuring enhanced customer focus. Senior staff and branch managers are being put through unique learning workshops viz. LEAP and Udaan etc. Promotion exercises are regularly conducted and a large number of employees realizing their aspirations. These efforts are just a few of his initiatives – but have the potential to impact the future with considerable force – enough to counter the 10X force of the environment. These initiatives have prevented bank’s trajectory from going down towards the old paradigm implying rejection of change and maintenance of status-quo. At the appropriate point in time, these measures have turned the trajectory up towards the new paradigm accepting change and adapting to change. The Inflection Point in Bank of Baroda has been spotted and adequately dealt with.
To recapitulate, ‘a strategic inflection point can be triggered by many things: intense competition, a change in regulations, or a minor change in technology. When a strategic inflection point occurs, the current ways of running your business no longer work. Yet, managed well, a strategic inflection point can be turned to your advantage and your business can emerge stronger than ever.’ Mr. Mallaya has shown how it has been done in our Bank. Let us all Barodians salute him for having steered the bank out of a morass with his sterling leadership qualities and keen foresight.
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