Rural Bank of Pozorrubio, Inc.: A paper on strategic management

Date of Publication

1996

Document Type

Oral Comprehensive Exam

Degree Name

Master of Business Administration

Subject Categories

Business Administration, Management, and Operations

College

Ramon V. Del Rosario College of Business

Department/Unit

Decision Sciences and Innovation

Thesis Adviser

Simon Mendoza

Abstract/Summary

The Rural Bank of Pozorrubio, (Pangasinan), Inc. or RBPI has expired impressive growth for the past five years. Its average growth of 34.55% compares favorably with the industrys average of 19.81%. This growth however is without direction. The bank does not have a corporate plan and its only experience in planning is the Annual Bank Plan and Budget which is prepares for compliance with Bangko Sentral ng Pilipinas (BSP) requirements more than anything else. After its preparation and submission, it is never referred to again until the following year when another Bank Plan and Budget is due for submission.

The bank who is currently the market leader in its strategic group realizes the need for a corporate plan for it to be able to adjust to changes that are continuously occurring in the system and for its to be able to maintain its current position.

In formulating the Corporate Plan/Strategy, the first and most important stem the bank must make is to reconceptualize what business it is in. The Rural Bank of Pozorrubio thinks it is in the DEPOSIT BUSINESS and it is not alone in this misconception as a lot of bankers think that this is their business too. As such, the banks current strategies are centered on increasing the deposit base and putting up of branches to amass deposits.

While it is a fact that money is the basic raw material of banking and funds acquisition is generally achieved through deposit generation, deposits represent costs not earnings and therefor is not actual business of the bank. The incorrect definition of the banks business results to the following:

Failure to properly measure and manage total funding costs from each source

Serious miscalculations regarding resource allocations

Failure to see the attractiveness of alternative funding sources (rediscounting)

Failure to appreciate the profitability of earning assets/products (loans)

The incorrect definition of the banks business also results to lost market opportunities, human assets not focused strategically, wrong things are measured and rewarded which ultimately poses a threat to the banks very existence.

The business of RBPI is the creation and management of earning assets (loans and other fee-based services) in order to build shareholder value. This is where earnings and cash flows are generated and implicit in this is the value which is being delivered to the customers.

Even more specific is the definition of RBPIs core business. Its core business is defined using Michael Porters generic strategy this strategy will also distinguish the bank’s key competencies that will enable it to achieve competitive advantage.

RBPIs generic strategy is FOCUS with DIFFERENTIATION. Focus because it aims its products/services (countryside financing) towards particular buyer group (farmers and small entrepreneurs) located within a small geographical area (Pozorrubio and nearby towns of San Jacinto, Binalonan, Sison).

Within this smaller part of the market (FOCUS) RBPI will compete by differentiation more specifically by Support Differentiation Strategy. The banks relationship with the borrower will not pause after the release of the loan proceeds and then just be resumed upon payment. The banker-borrower relationship will continue throughout the duration of the loan and possibly even beyond it. The idea is to provide a related service alongside the basic one that is from lending.

The support differentiation strategy will be done by providing the farmer-borrower the support he needs in his venture. RBPI will hire a bank technician who would be well-versed with farming techniques more particularly livestock-raising (as this constitute bulk of the banks loan portfolio) in order to assist the borrower in his venture by imparting this technical know-how. However, this would be done only if the borrower accepts the offer of assistance as the bank would not want to force this on anyone. Occasional farm visits will be made to further enhance the banker-borrower relationship.

The bank will also arrange for a tie-up with a dealer of veterinary/agricultural products. The agreement would be for the bank to recommend this dealer to the borrowers. The bank would neither charge the dealer nor accept commission for this endorsement whatever commission the dealer might be willing to give the Bank would be re-channeled as discounts for the borrowers purchases.

Given the core business with a distinct competitive posture, the bank would now be ready to implement a marker development strategy to elaborate on this core business. A market development strategy more particularly a geographic expansion strategy will be adopted which involves carrying the banks services to new geographic areas-in this case the setting up of a branch in San Jacinto and in the future, in nearby towns.

All of these strategies can only be implemented if the bank corrects its main weakness of having a low capital base by requiring its stockholders to infuse additional fresh capital. It is only after the capital infusion would the bank be in a position to implement any and all of these strategies.

All of these strategies can only be implemented if the bank corrects its main weakness of having a low capital base by requiring its stockholders to infuse additional fresh capital. It is only after the capital infusion would the bank be in a position to implement any and all of these strategies.

Abstract Format

html

Language

English

Format

Print

Accession Number

OCE0093

Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

[55] leaves

This document is currently not available here.

Share

COinS