Strategic management practices of the Sri Lankan commercial banks

Strategic management addresses the question of why some organizations succeed and others fail. While the field of strategic management has developed rapidly, no one has attempted to investigate the strategic management practices of a particular industry in Sri Lanka. Hence, this research aims to explore the strategic management practices of the Sri Lankan commercial banks and to provide original knowledge about the strategic management practices of a particular industry in a developing country. Licensed commercial banks dominate the financial sector in Sri Lanka and as at 31st December 2005 there were 22 commercial banks operating in Sri Lanka. The Banking sector has shown a significant expansion during the last five years. Despite the significant expansion, the banking industry in Sri Lanka is currently going through a period of rapid change due to new products and services being introduced by the banking industry as a result of globalization and the adoption of new technologies. Therefore, an exploration of the current strategic management practices of the Sri Lankan commercial banks will be extremely important for every commercial bank in the Sri Lankan banking industry. The prominent authors in the field of strategic management fall in to two main categories in the way they look at strategy, namely the “strategic planning” or the “strategic thinking” approach. This study aims to investigate both the strategic planning and the strategic thinking capabilities of the Sri Lankan commercial banks. However, the major priority of this research is to investigate the strategic planning practices which are currently playing a major role in the strategic management practices of the Sri Lankan commercial banks. Because of the exploratory nature of the study research objectives were stated instead of research hypotheses. The large number of variables that were expected to be investigated in this study, together with no prior knowledge about how the variables would behave in the Sri Lankan banking industry meant that this study was developed around key research questions. The theoretical framework for this study is based predominately on previous research studies but was adapted to the Sri Lankan banking industry and in accord with the major research questions of this research study. Except for one commercial bank all the commercial banks in Sri Lanka participated in this study, a response rate of 95.5%. The primary data was collected through personal interviews using a questionnaire with senior executives who were responsible for their corporate planning. The respondents were categorized according to ownership, size, and planning system aspects. Except for one bank all the banks had a formalized strategic planning system at their corporate level. Thus, whether it is a large, medium or small sized bank strategic planning systems played a major role in these banks strategic management processes. However, the top management of most of these banks were also aware of the importance of having strong strategic thinking capabilities. It would appear that the banks preferred to have formalized strategic planning systems and also seek to develop strategic thinking capabilities. Overall banks spent most of their strategic planning effort on action planning or operational planning for the next 1 to 3 years. Most of the effort spent on forecast development was in the areas of domestic economy, laws and regulations for the financial services sector, industry level demand, and competitive analysis and in these areas the forecasts were transmitted to a reasonably high degree from corporate level to second level. The responsibilities for a number of strategic analyses were decentralized to the operations, marketing and second level managers to some degree but the corporate level was mainly responsible for competitive, supplier, customer, political, social and cultural analyses whereas operations people were mainly responsible for technological analyses. The medium sized, large, locally owned and government owned banks were identified as being moderate strategic thinkers whereas the small sized and foreign owned banks were identified as being weak strategic thinkers. There were no strong strategic thinkers identified amongst the banks. Strategic thinking capabilities such as strategic intent and intelligent opportunism were identified as low in most banks. Thus, there is much room to improve the strategic thinking capabilities of Sri Lankan commercial banks. Corporate strategies such as mergers, acquisitions, and divestitures did not play a major role in most banks corporate planning during the last five years and are also not expected to play a significant role in the next five years. However, a reasonable number of banks had executed turnaround strategies during the last five years. Benchmarking has also played a reasonably high role in these banks during the last five years. The management of quality is also considered as important and is being addressed as a strategic issue to a great extent. There are number of significant contributions from of this research study. First, this study has identified and discussed the overall strategic management characteristics of Sri Lankan commercial banks and their expected changes to their strategic management practices in the next five years. This will also help corporate level managers in Sri Lankan commercial banks to compare their strategic management practices with other banks. Secondly, the theoretical framework developed for this study provides the foundation for other research studies to potentially investigate the strategic management practices of other industries in Sri Lanka. Finally, the database developed in this study will help other researchers who plan to do further research into Sri Lankan commercial banks.