State Bank of India is India’s largest commercial bank in terms of revenue, assets and market capitalisation. It was led, from February 2011 by its chairman O. P. Bhatt, through a journey of transformation from an old, hierarchical, transactional oriented, government bank to a modern, customer focused and technological advanced universal bank during a course of five years. Formerly known as IBI, the government acquired it with the aim to bring about development in the rural area after the country’s independence from England in August 1947.
SBI is stemming from the merger of IBI to other state owned banks. In 1959, after the government passed the State Bank of India Act enabling SBI to take over eight former State-associated banks as its subsidiaries and extend its reach on the territory, it became a virtual powerhouse controlling more than a quarter of the country’s banking industry. SBI was then a respected bank giant, a responsible corporate with social preoccupation; build up most of the country’s rural regions. By 1990, it dominated the market in terms of deposits and advances.
Its cash availability attracted made Indians to bank with them, its employees were almost honoured; they were proud to be SBI member. But maybe too proud, the bank expanded at an astronomic speed, expansion was SBI’s main focus, it was the banks answer to an increasingly growing demand. In the early 1990s, SBI’s network was already impressive compared to its peers’, but the branches had not changed. They were slow and crowded, employees and customers transacting in dissatisfactory conditions. SBI had lost focus as regard to the changing environment and to stakeholders changing expectations.
When Bhatt was handled the company as chairman in 2011, SBI had been losing market share to the private sector and foreign banks; it had fallen from a quarter to 15% in 2006. By 2011, SBI was the 43rd largest bank in the world a with a market capitalization of over $36. 5 billion along with its 5 associate banks and 22 subsidiaries which constituted the SBG, had more than 267, 000 employees, a pan network of over 18,000 branches, and 25, 000 ATMs and delivered profit of 2. 6 billion. External Influences The environment a business operates in has a huge impact on its productivity.
It is from the environment that firms draw their resources and benefits therefore; managers have to constantly reflect on changes within it. Political factors It was the government’s initiative that led to the creation of SBI. Through the State Bank of India Act passed on in 1959, the bank was enabled to take over eight former State-associated banks as its subsidiaries. SBI’s expanding strategy was mostly based on mergers and acquisitions then. The government needed to take rapid control of the economic system and did so by acquiring established banks.
It contributed to SBI’s rapid expansion; the bank was able to reach more people in a short period of time, it beneficiated from other banks knowledge of the market. In 1980, ninety-one percent of the banking market was controlled by the government since it had taken measures to moderate private sector and foreign banks’ proliferation via the implementation of entry restrictions and street branch regulations. Also, to get banks focus on rural areas, the government implemented a law that imposed all banks to provide forty percent of their net credit to sectors such as agriculture, small scale industries and retail trade.
Economic factors During 1969 – 1991, the demand on the Indian banking industry grew significantly. Funds were available in household as the gross domestic savings increased from 15. 7% to 24. 2% and bank deposits growing at a compounded annual rate of 19%. But the conditions quickly deteriorated with the economic crisis of 1990 due to current account deficit and currency overvaluation. The government embarked in a series of financial reforms: * Dilution of government ownership in nationalized banks * Lower entry restrictions * Allow banks to set their own lending and deposit rates * Improve financial disclosures
Social factors A society’s culture determines the rules that govern how firms operate in the society but also how customers behave towards those firms. For instance, USA citizens believe family comprises father, mother and descendants whereas in India, family is broader and bond within its member tighter also. If a family member banked with SBI the rest followed. That is one of the reason people still banked with SBI even though their interest rate was about half a percent lower than other banks. However, because of social obligations, employees’ decisions were not as arbitrary as they should have been.
Decisions were biased as regard to which strata the customer belonged to. Hofstede identifies five social dimensions along which people tend to differ across cultures. India’s culture tends to be characterised by power respect. Hofstede explains that people in this culture tend to accept the power and authority of their superiors simply on the basis of the superiors’ position in the hierarchy. This implies that people in a firm accept the decisions and mandates of those above them because of the implicit belief that higher-level positions carry the right to make decisions and issue mandates.
Technological factors India is a country relatively poor in terms of technology. For decades, improving on technology in order to offer better quality service was not SBI’s main preoccupation. One reason is that the adoption of technology was generally treated with scepticism before the 1990s. However, in the early 1990s, the Indian middle mainly constituted of young people swept those sceptics and made of high-technology a prerequisite in their way to deal with daily activities. Technology became a real threat for SBI when its competitors strategically improve customer experience at their branches in order to attract consumer cueing at SBI’s branches.
The competition also introduced the concept of ‘anywhere, anytime banking’ by centralising its processes. Internal turmoil The external environment describes factors that are probably not in a company’s control. However, firms can draw out opportunities and identify threats and work to capitalise on the first and minimise the second. Taking advantage of a strategic gap is an effective way of managing threats and opportunities (Johnson et al, 2008, p82). They defined strategic gap as ‘an opportunity in the competitive environment that is not being fully exploited by competitors’.
SBI was built up to manage India’s finances and to bring about development in the urban and rural areas. It was the king of the banking sector which decided whom they could lend to, how much, and at what rate. SBI dominated the industry in terms of physical presence; it had grown its network to 8000 branches by the 1990s. Moreover, India’s economy emerged as the fourth largest economy in terms of purchasing power parity in 2006, contributing in setting a suitable environment for SBI’s growth. SBI’s sheer money power was one of the factors that strengthened the company in it early growth.
However, SBI did not make most of its advantage since it failed to maintain its leadership. The branches infrastructure remained unchanged as customer affluence increased. Technological improvements did not follow to match with the external environment. SBI did not benchmark instead, it focused implementing outdated strategy. Meanwhile, foreign and private sector bank offered attractive packages with an indoor experience completely different from what customers went across in the nationalised banks. SBI’s faculty to assess the well being of the company was lured by its mass xpansion and the fact that branches were crowded had employees think they were doing well instead, social obligation dictated the business, risk management and marketing techniques were poor, the firm was losing business. State Bank of India & Globalisation Globalisation is defined in many test books as the stretch of business related activities across physical borders. When the government restricted entry in the banking industry, SBI decided to take advantage of that to expand as quickly as possible.
Even though they dominated the market physically, SBI did not have the infrastructure and technology that could equal its competitors’ offerings. Therefore, in the 1990s, SBI embarked on a path of transforming its processes through a Centralised online real time environmental Banking Solution (CBS). All branches on CBS, SBI customer would be able to enjoy full services from any branch but, volume had expanded so rapidly that technology could not keep up. Systems were slow and not yet mastered by employees, SBI was losing customers.
When SBI’s chairman halted the roll out of CBS in September 2006, people had lost faith in SBI; the mind set was that SBI was unable of rivalry with foreign banks. However, by July 2008, technology technological glitches were revolved and all of SBI’s branches were on CBS. Foreign banks also brought in a branch experience that was unknown by the Indian market. A new way of doing business in which customer needs came first, the concept of customer relationship. At SBI’s branches, seventy five percent of the surfaces were occupied by its employees.
There was no possible interaction possible between customers and employees that could lead to the creation of a bond or loyalty as a result. To remediate to this issue, SBI had to improve on customer service related technology but also had to reduce the staff at its branches. They also created a culture that was more open and friendly to their stakeholders. Consumers were able to provide feedback via “sms unhappy”. SBI had always been wholesale corporations’ first bank choice because the most important service they had needed from them was funding back then.
However, these corporations had evolved geographically and are now doing business across the borders; thus the need for SBI to extend its package content to services such as treasury, trade finance and cash management across multiple currencies borders. The use of technology at SBI In the 1960s, SBI had only 500 branches but by the 1990s, it had sixteen times as much. SBI’s aim was to reach people living in the urban area as much as they possible could. It was a move that rapidly extended its network. At the branches, more than seventy five percent of the areas were occupied by employees because most of the transactions were hand recorded.
SBI did installed computers at its branches later on in order to reduce the time during which customers were being served and also, to reduce the amount of work undertaken by its officers. Despite the fact that transactions had been computerised at SBI’s branches, customers were not able to complete transactions from branches other than the branch where they had registered. Though service time had considerable decreased, branches remained crowded; it was quite frustrating for customers to have to queue for such a long time to get served when it was quicker at foreign banks.
SBI embarked on a path of transformation of its processes around the 1990 using a Centralised online real time environment Banking Solution and by 2006 fifty two percent of its branches were on CBS. The bank branches had been working independently, CBS was supposed to unite them on a same platform enabling flexibility and rapidity. However, CBS being a new technology caused serious issues and SBI had to stop its roll out in 2006, resolve those issues them implement it in the rest of the company’s branches.
SBI had to consider incorporating technological improvements to its strategic plan in 2006 because it was losing market share to the competition. There was a tremendous gab in terms of technology between SBI and its competitors. The Indian middle class mainly form out of young people was more attracted be private and foreign bank which offered advanced business solutions. Within SBI, technology was improved in order to elevate customer service to first position, ameliorate business processes and offer attractive packages at a cheaper price.