Development strategy of bank of investment and development of vietnam in the period of 2010 2015

CHAPTER I THEORETICAL FOUNDATION OF BUSINESS STRATEGY AND APPLICATION IN BANKING SECTOR This theoretical framework will serve as a foundation for analysis in chapter 2 andchapter 3, incl

DEVELOPMENT STRATEGY OF BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM IN THE PERIOD OF 2010-2015

INTRODUCTORY

1 Rational of the study

Business strategy is the foundation of successful business But there are, of course,different types of business strategy The best business strategies must steer a coursebetween the inevitable internal pressure for business continuity and the demands of

a rapidly changing world for revolutionary business strategies

A full statement of a selected business strategy is a business plan defining:

 the company vision

 the strategy and tactics that will enable the company to reach those objectives

 the resources required, and how they are going to be obtained;

 what the main milestones and steps are along the way;

 who is responsible for causing each step to occur;

 what are the company's business risks and external factors that need to be keptunder review for indications that a change in strategy or plan may be required.Strategizing is much more than just visioning, forecasting and planning In the newrapidly changing economy, all substantive issues of strategy have been redefined asissues of implementation Today, strategizing is concerned with the match betweenthe internal capabilities of the company and its external environment "The modernsubject of business strategy is a set of analytic techniques for understanding better,and so influencing, a company's position in its actual and potential marketplace".There is great potentional for consumer banking including SMEs and individaulgiven the low banking penetration rate and country’s weng and growing population.With the opening of local banking market under WTO the competition will becomemuch fiecer WTO accession brings about both opportunities and challenges for

Vietnam in general and financial banking industry in particular As a leading stateowned commercial bank in Vietnam, BIDV should have right awareness ofinternational integration process, proactively construct its own action plans, map thestrategic targets in the time to come, the bank need great effort to reform in allfields All this suggests the critical need to plan for competition in the years aheadand the critical need to have competitive advantage to not only maintain the marketshare but to develop BIDV’s success may depend on developing a realistic plan toachieve competitive advantage in several critical products or services, then growingfrom a base of strength.

BIDV is among the biggest state commercial banks of Vietnam, with big capital scale,functioning as universal commercial banks, providing full range of currency, credit,banking and non-banking services Main targets of BIDV are to become the leadingfinancial group in Vietnam with 4 main activities: Commercial banking, securities,insurance, and investment,” now BIDV completed equitization and have justconducted IPO bid in first quarter of 2009 We include 4 students, of whom 3 studentsare BIDV’s employees We chose the research topic of “Development strategy ofbank of investment and development of Vietnam in the period of 2010-2015”, wishing

to apply theory in evaluating business situation of our bank and base on that, we hope

to build up a good strategy for next 5 years with solutions and tactics to successfulrealize the strategy We do hope that, after completing this project, we will be moremature and successful thanks to knowledge and skill learnt from Griggs’s MBA

2 Study objective

With topic “Development strategy of bank of investment and development ofVietnam in the period of 2010-2015”, objectives of this research study areformulated as followed:

1 Systematize theoretical issues no strategy, especially strategy for bankingactivities

2 Analysis and evaluation on the strategy of BIDV in previous time

3 Recommendations on strategic solutions aiming at developing bankingactivities in the future

3 Subject, scope and methods of research

Subject of research: Strategic activities of BIDV, especially banking activities In

details, strategic analysis, strategic formulation and choice

Scope of research: The topic is researched in the scope of BIDV’s banking

activities Relating activities such as Securities, insurance… are not in the scope ofresearch

Research method: Documentary and reality research (Survey ); Probabilities

methods, analysis and synthesis methods

4 Structure of the research

CHAPTER I THEORETICAL FOUNDATION OF BUSINESS STRATEGY

AND APPLICATION IN BANKING SECTOR

This theoretical framework will serve as a foundation for analysis in chapter 2 andchapter 3, including: 1) Overview of strategy and strategic management; 2) Strategyformulation; 3) Strategy implementation; 4) Features of banking industry

1.1 Overview of strategy and strategic management

1.1.1 Strategy

What is strategy? There is no single, universally accepted definition Variousauthors and managers use the term differently

Strategy According to Henry Mintzberg

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning, points

out that people use "strategy" in several different ways, the most common beingthese four:

1 Strategy is a plan, a "how," a means of getting from here to there

2 Strategy is a pattern in actions over time; for example, a company that regularlymarkets very expensive products is using a "high end" strategy

3 Strategy is position; that is, it reflects decisions to offer particular products orservices in particular markets

4 Strategy is perspective, that is, vision and direction

Mintzberg argues that strategy emerges over time as intentions collide with andaccommodate a changing reality Thus, one might start with a perspective and

conclude that it calls for a certain position, which is to be achieved by way of acarefully crafted plan, with the eventual outcome and strategy reflected in a patternevident in decisions and actions over time This pattern in decisions and actionsdefines what Mintzberg called "realized" or emergent strategy.

Mintzberg’s typology has support in the earlier writings of others concerned withstrategy in the business world, most notably, Kenneth Andrews, a Harvard Business

School professor and for many years editor of the Harvard Business Review.

Strategy According to Kenneth Andrews

Kenneth Andrews presents this lengthy definition of strategy in his book, The

Concept of Corporate Strategy:

"Corporate strategy is the pattern [italics added] of decisions in a company thatdetermines and reveals its objectives, purposes, or goals, produces the principalpolicies and plans for achieving those goals, and defines the range of business thecompany is to pursue, the kind of economic and human organization it is or intends

to be, and the nature of the economic and non-economic contribution it intends tomake to its shareholders, employees, customers, and communities

Andrew’s definition obviously anticipates Mintzberg’s attention to pattern, plan,and perspective Andrews also draws a distinction between "corporate strategy,"which determines the businesses in which a company will compete, and "businessstrategy," which defines the basis of competition for a given business Thus, he alsoanticipated "position" as a form of strategy Strategy as the basis for competitionbrings us to another Harvard Business School professor, Michael Porter, theundisputed guru of competitive strategy

Strategy According to Michael Porter

In a 1996 Harvard Business Review article and in an earlier book, Porter argues that

competitive strategy is "about being different." He adds, "It means deliberatelychoosing a different set of activities to deliver a unique mix of value." In short,Porter argues that strategy is about competitive position, about differentiatingwerself in the eyes of the customer, about adding value through a mix of activitiesdifferent from those used by competitors In his earlier book, Porter definescompetitive strategy as "a combination of the ends (goals) for which the firm isstriving and the means (policies) by which it is seeking to get there." Thus, Porterseems to embrace strategy as both plan and position

Strategy According to Kepner-Tregoe

In Top Management Strategy, Benjamin Tregoe and John Zimmerman, of

Kepner-Tregoe, Inc., define strategy as "the framework which guides those choices thatdetermine the nature and direction of an organization." Ultimately, this boils down

to selecting products (or services) to offer and the markets in which to offer them.Tregoe and Zimmerman urge executives to base these decisions on a single "drivingforce" of the business Although there are nine possible driving forces, only one canserve as the basis for strategy for a given business The nine possibilities are listedbelow:

It seems Tregoe and Zimmerman takes the position that strategy is essentially amatter of perspective.

Strategy According to Michel Robert

Michel Robert takes a similar view of strategy in, Strategy Pure & Simple [8],

where he argues that the real issues are "strategic management" and "thinkingstrategically." For Robert, this boils down to decisions pertaining to four factors:

Like Tregoe and Zimmerman, Robert claims that decisions about which productsand services to offer, the customers to be served, the market segments in which tooperate, and the geographic areas of operations should be made on the basis of asingle "driving force." Again, like Tregoe and Zimmerman, Robert claims thatseveral possible driving forces exist but only one can be the basis for strategy The

10 driving forces cited by Robert are:

Strategy According to Treacy and Wiersema

The notion of restricting the basis on which strategy might be formulated has been

carried one step farther by Michael Treacy and Fred Wiersema, authors of The

Discipline of Market Leaders In the Harvard Business Review article that presaged

their book, Treacy and Wiersema assert that companies achieve leadership positions

by narrowing, not broadening their business focus Treacy and Wiersema identifythree "value-disciplines" that can serve as the basis for strategy: operationalexcellence, customer intimacy, and product leadership As with driving forces, onlyone of these value disciplines can serve as the basis for strategy Treacy andWiersema’s three value disciplines are briefly defined below:

1 Operational Excellence Strategy is predicated on the production and

delivery of products and services The objective is

to lead the industry in terms of price andconvenience

2 Customer Intimacy Strategy is predicated on tailoring and shaping

products and services to fit an increasingly finedefinition of the customer The objective is long-term customer loyalty and long-term customerprofitability

stream of state-of-the-art products and services.The objective is the quick commercialization ofnew ideas

Each of the three value disciplines suggests different requirements OperationalExcellence implies world-class marketing, manufacturing, and distribution

processes Customer Intimacy suggests staying close to the customer and entailslong-term relationships Product Leadership clearly hinges on market-focused R&D

as well as organizational nimbleness and agility

1.1.2 Strategic management

The nature and value of strategic management

Managing activities internal to the firm is only part of the modern executive’sresponsibilities The modern executive also must respond to the challenges posed bythe firm’s immediate and remote external environments The immediate externalenvironment includes competitors, suppliers, increasingly scarce resources,government agencies and their ever more numerous regulations, and customerswhose preferences often shift inexplicably The remote external environmentcomprises economic and social conditions, political priorities, and technologicaldevelopments, all of which must be anticipated, monitored assessed, andincorporated into the executive’s decision marking

However the executive often is compelled to subordinate the demands of the firm’sinternal activities and external environment to the multiple an often inconsistentrequirements of its stakeholders: owners, top managers, employees, communities,customers and country To deal effectively with everything that affects the growthand profitability of a firm, executive employ management processes that they feelwill position it optimally in its competitive environment by maximizing theanticipation of environmental changes and of unexpected internal and competitivedemands

Strategic management is defined as the set of decisions and actions that result in theformulation and implementation of plans designed to achieve a company’sobjectives It comprises nine critical tasks:

1 Formulate the company’s mission, including broad statements about its purpose,philosophy, and goals

2 Conduct an analysis that reflects the company’s internal conditions andcapabilities

3 Assess the company’s external environment, including both the competitive andgenera contextual factors

4 Analyze the company’s options by matching its resources with the externalenvironment

5 Identify the most desirable options by evaluating each option in light of thecompany’s mission

6 Select a set of long term objectives and grand strategies that will achieve themost desirable options

7 Develop annual objectives and short-term strategies that are compatible with theselected set of long-term objectives and grand strategies

8 Implement the strategic choices by means of budgeted resource allocations inwhich the matching of tasks, people, structures, technologies, and rewardsystems is emphasized

9 Evaluate the success of the strategic process as an input for future making

Figure 1.1: Strategic Management process

As these nine tasks indicate, strategic management involves the planning, directing,organizing, and controlling of a company’s strategy-related decisions and actions.

By strategy, managers mean their large-scale, future-oriented plans for interactingwith the competitive environment to achieve company objectives A strategy is acompany’s game plan Although that plan does not precisely detail all futuredevelopments (of people, finances, and material), it does provide a framework for

Company mission

External environment

Internal Analysis

Strategic analysis and choice

Long-term objectives grand strategiesGeneric and

Short-term objective

Functional tactics Policies that

empower action

Restructuring, reengineering, and refocusing the organization

Strategic control and continuous improvement

managerial decisions A strategy reflects a company’s awareness of how, when, andwhere it should compete; against whom it should compete; and for what purposes itshould compete.

1.1.3 Benefits of strategic management

Using the strategic management approach, managers at all levels of the firm interact

in planning and implementing As a result, the behavioral consequences of strategicmanagement are similar to those of participative decision making Therefore, anaccurate assessment of the impact of strategy formulation on organizationalperformance requires not only financial evaluation criteria but also non-financialevaluation criteria – measures of behavior-based effects In fact, promoting positivebehavioral consequences also enables the firm to achieve its financial goals.However, regardless of the profitability of strategic plans, several behavioral effects

of strategic management improve the firm’s welfare:

 Strategy formulation activities enhance the firm’s ability to prevent problems;Managers who encourage subordinates’ attention to planning are aided in theirmonitoring and forecasting responsibilities by subordinates who are aware of theneeds of strategic planning

 Group-based strategic decisions are likely to be drawn from the best availablealternatives The strategic management process results in better decisionsbecause group interaction generates a greater variety of strategies and becauseforecasts based on the specialized perspectives of group members improve thescreening of options

 The involvement of employees in strategy formulation improves theirunderstanding of the productivity-reward relationship in every strategic plan,and, thus heightens their motivation

 Gaps and overlaps in activities among individuals and groups are reduced asparticipation in strategy formulation clarifies differences in roles.

 Resistance to change is reduced Though the participants in strategy formulationmay be no more pleased with their own decisions than they would be withauthoritarian decisions, their greater awareness of the parameters that limit the

available options makes them more likely to accept those decisions

1.2 Strategy formulation

1.2.1 Defining company’s mission

The mission of a company is the unique purpose that sets it apart from othercompanies of its type and identifies the scope of its operations In short, the missiondescribes the company’s product, market and technological areas of emphasis in away that reflects the values and priorities of the strategic decision marker Whether

a firm is developing a new business or reformulating for an ongoing business, itmust determine the basic goals and philosophies that will shape its strategic posture.This fundamental purpose that sets a firm apart from other firms of its type andidentifies the scope of its operations in product and market term is defined as thecompany mission

1.2.2 External environment analysis

A firm’s external environment consists of all the conditions and forces that affect itsstrategic options and define its competitive situation The strategic managementmodel show the external environment as three interactive segments: the remote,industry and operating environment

The remote environment comprises factors that originate beyond, and usuallyirrespective of, any single firm’s operating situation: (1) economic, (2) social, (3)Political, (4) technological, and (5) ecological factors That environment presents

firms with opportunities, threats, and constraints, but rarely does a single firm exertany meaningful reciprocal influence

Industry environment mainly concerns competition The nature and degree ofcompetition in an industry hinge on five forces: the threat of new entrants, thebargaining power of customers, and the bargaining power of supplier, the threat ofsubstitute products and services, and the jockeying among current contestants Toestablish a strategic agenda for dealing with these contending current and to growdespite them, a company must understand how they work in its industry and howthey affect the company in its particular situation

The essence of strategy formulation is coping with competition Yet it is easy toview competition too narrowly and too pessimistically Moreover, in the fight formarket share, competition is not manifested only in the other players Rather,competition in an industry is rooted in its underlying economics, and competitiveforces existing that go well beyond the established combatants in a particularindustry Customers, suppliers, potential entrants and substitute products are allcompetitors that may be more or less prominent or active depending on the industry

1.2.3 Industry analysis and competitive analysis

Designing viable strategies for a firm requires a thorough understanding of thefirm’s industry and competition The firm’s executives need to address fourquestions: (1) what are the boundaries of the industry? (2) What is the structure ofthe industry? (3) Which firms are our competitors? (4) What are the majordeterminants of competition? The answers to these questions provide a basis forthinking about the appropriate strategies that are open to the firm

1.2.4 Emphasis on environmental factors

In fact, the forces in the external environment are so dynamic and interactive thatthe impact of any single element can not be wholly disassociated from the impact of

other elements Strategic managers are frequently frustrated in their attempts toanticipate the environment’s changing influences Different external elements affectdifferent strategies at different times and with varying strengths The only certainty

is that the impact of the remote and operating environments will be uncertain until astrategy is implemented This leads many managers, particularly in less powerful orsmaller firms to minimize long-term planning, which require a commitment ofresources Instead, they favor allowing managers to adapt to new pressures from theenvironment While such a decision has considerable merit from many firms, there

is an associated trade-off, namely that absence of a strong resource andpsychological commitment to a proactive strategy effectively bars a firm fromassuming a leadership role in its competitive environment

1.2.5 Internal analysis

Internal analysis has received increased attention in recent years as being a criticalunderpinning to effective strategic management

Resource-based View of the firm

The resource base view emerged as a way to make the core competency conceptmore focused and measurable – creating a more meaningful internal analysis.Central to the RBV’s ability to do this is its notion of three basic types of resourcesthat together create the building blocks for distinctive competencies They aredefined as below:

Tangible assets are the easiest to identify and are often found on a firm’s balancesheet They include production facilities, raw materials, financial resources, realestate, and computers Tangible assets are the physical and financial means acompany uses to provide value to its customers

Intangible assets are things like brand names, company reputation, organizationalmorale, technical knowledge, patents and trademarks, and accumulated experience

within an organization While they are not assets that we can touch or see, they arevery often critical in creating competitive advantage.

Organizational capabilities are not specific “inputs” like tangible or intangibleassets; rather, they are the skills – the ability and ways of combining assets, peopleand processes – that a company uses to transform inputs into outputs

To use the RBV in internal analysis, a firm must first identify and evaluate itsresources to find those that provide the basis for future competitive advantage Thisprocess involves defining the various resources the firm possesses, and examiningthem based on the above discussion to gauge which resources truly have strategicvalue Although the RBV enables a systematic assessment of internal resources, it isimportant to stress that a meaningful analysis of those resources best takes place inthe context of the firm’s competitive environment Possessing valuable resourceswill not generate commensurate profits unless resources are applied in an effectiveproduct market strategy; they must be deployed in an optimum way and alignrelated activities for the firm to pursue its chosen sources of competitive advantage

SWOT analysis

SWOT is an acronym for the internal strengths and weaknesses of a firm and theenvironmental Opportunities and threats facing that firm SWOT analysis is awidely used technique through which managers create a quick overview of acompany’s strategic situation It’s based on the assumption that an effective strategyderives from a sound “fit” between a firm’s internal resources (strengths andweaknesses) and its external situation (opportunities and threats A good fitmaximizes a firm’s strengths and opportunities and minimizes its weaknesses andthreats Environmental industry analysis provides the information needed to identifyopportunities and threats in a firm’ environment

Figure 1.2: SWOT Matrix

An opportunity is a major favorable situation in a firm’s environment Key trendsare one source of opportunities Identification of a previously overlooked marketsegment, changes in competitive or regulatory circumstances, technologicalchanges, and improved buyer or supplier relationship could represent opportunitiesfor the firm

Threats

A threat is a major unfavorable situation in a firm’s environment Threats are keyimpediments to the firm’s current or desired position The entrance of newcompetitors, slow market growth, increased bargaining power of key buyers orsuppliers, technological changes, and new or revised regulations could representthreats to a firm’s success

Understanding the key opportunities and threats facing a firm helps its managersidentify realistic options from which to choose an appropriate strategy and clarifiesthe most effective niche for the firm

Strengths

Strength is a resource advantage relative to competitors and the needs of themarkets a firm serves or expects to serve It is a distinctive competence when itgives the firm comparative advantage in the marketplace Strength arise from theresources and competencies available to the firm

The functional approach

Key internal factors are a firm’s basic capabilities, limitations, and characteristics.Most firms organize their operations at some level along functional lines to get theirproducts or services sold, produced, delivered, financed, and accounted It stands toreason that close scrutiny of each of these functions serves as a compelling,strategically relevant focus for internal analysis To develop or revise a strategy,managers would prefer to identify the few factors on which its success is mostlikely to depend Equally important, a firm’s reliance on particular internal factorswill vary by industry, market segment, product life cycle and the firm’s currentpositions It’s important to see that a functional approach, regardless of situationaldifferences, focuses managers on basis business functions leading to a moreobjective, relevant internal analysis that enhances strategic decision making.Whether looking at attributes of marketing, production, financing, information

systems, or human resource management, the functional approach structuresmanagers’ thinking in a focused, potentially objective manner.

Value Chain Analysis

Figure 1.3: The Value Chain

The term value chain describes a way of looking at a business as a chain ofactivities that transform inputs into outputs that customer’s value Customer valuederives form three basis sources: activities that differentiate the product, activitiesthat lower its cost, and activities that meet the customer’s need quickly Value chainanalysis (VCA) attempt to understand how a business creates customer value byexamining the contributions of different activities within the business to that value.VCA takes a process point of view: It divided the business into sets of activities thatoccur within the business, starting with the inputs a firm receives and finishing withthe firm’s products (or services) and after- sales service to customers VCAattempts to look at its costs across the series of activities the business performs todetermine where low-cost advantages or cost disadvantages exist It looks at theattributes of each of these different activities to determine in what ways each

activity that occurs between purchasing inputs and after-sales service helpsdifferentiate the company’s product and services

Internal analysis making meaningful comparisons

Managers need objective standards to use when examining internal resources andvalue-building activities Whether applying the RBV, SWOT analysis, or the valuechain approach, strategists rely on four basic perspectives to evaluate where theirfirm stacks up on its internal capabilities, which are: comparison with pastperformance, Stages of industry evolution, benchmarking – comparison withcompetitors, comparison with success factors in the industry

1.2.6 Formulating long-term objectives and grand strategies

Long-term objectives

To achieve long-term prosperity, strategic planners commonly establish long termobjectives in seven areas:

Profitability The ability of nay firm to operate in the long run depends on attaining

an acceptable level of profits Strategically managed firms characteristically have aprofit objective, usually expressed in earning per share or return on equity

Productivity Strategic managers constantly try to improve the productivity of their

systems Firms that can improve the input-output relationship normally increaseprofitability Thus, firms almost always state an objective for productivity

Competitive position One measure of corporate success is relative dominance in

the marketplace Larger firms commonly establish an objective in terms ofcompetitive position, often using total sales or market share as measures of theircompetitive position An objective with regard to competitive position may indicate

a firm’s long term priorities

Employee development Employee value growth and career opportunities.

Providing such opportunities often increases productivity and decreases turnover.Therefore, strategic decision makers frequently include an employee developmentobjective in their long-range plans

Employee Relation Whether or not they are bound by union contracts, firms

actively seek good employee relations In fact, proactive steps in anticipation ofemployee needs and expectations are a characteristic concern of strategic managers.Strategic manager believe that productivity is linked to employee loyalty and toperceived management interest in worker’s welfare They, therefore, set objectives

to improve employee relations Among the outgrowths of such objectives are safetyprograms, worker representation on management committees, and employee stockoption plans

Technological leadership Firm must decide whether to lead or follow in the

marketplace Either approach can be successful, but each requires a differentstrategic posture

Public Responsibility Firms recognize their responsibilities to their customers and

to society at large They work not only to develop reputations for fairly pricedproducts and services but also to establish themselves as responsible corporatecitizens

Quality of long term objective

What distinguishes a good objective form a bad one? What qualities of an objectiveimprove its chances of being attained? Perhaps these questions are best answered inrelation to seven criteria that should be used in preparing long-term objectives:acceptable, flexible, measurable over time, motivating, suitable, understandable,and achievable

Generic strategies

From a scheme developed by Michael Porter, many planners believe that any longterm strategy should derive form a firm’s attempt to seek a competitive advantagebased on one of three generic strategies:

- Striving for overall low-cost leadership in the industry

- Striving to create and market unique products for varied customer groupsthrough differentiation

- Striving to have special appeal to one or more groups of consumer or industrialbuyers, focusing on their cost or differentiation concerns

While each of the generic strategies enables a firm to maximize certain competitiveadvantages, each one also exposes the firm to a number of competitive risks

Grand strategies

Grand strategies, often called master or business strategies provide basis directionfor strategic actions They are the basis of coordinated and sustained efforts directedtoward achieving long-term business objectives

Grand strategies indicate the time period over which long-range objectives are to beachieved Thus, a grand strategy can be defined as a comprehensive generalapproach that guides a firm’s major actions The 15 principal grand strategies are:concentrated growth, market development, product development, innovation,horizontal integration, vertical integration, concentric diversification, conglomeratediversification, turnaround, divesture, liquidation, bankruptcy, joint ventures,strategic alliances, and consortia Any one of these strategies could serve as thebasis for achieving the major long-term objectives of a single firm But a firminvolved with multiple industries, businesses, product lines, or consumer groups –

as many firms are – usually combines several grand strategies

The selection of long-range objectives and grand strategies involves simultaneous,rather than sequential, decisions While it is true that objectives are needed toprevent the firm’s direction and progress form being determined by random forces,

it is equally true that objectives can be achieved only if strategies are implemented

In fact, long –term objectives and grand strategies are so interdependent that somebusiness consultants do not distinguish between them Long-term objectives andgrand strategies are still combined under the heading of company strategy in most

of the popular business literature and in the thinking of most practicing executives

1.2.7 Strategic Analysis and Choice

For single-or dominant-product businesses: Building sustainable competitive advantages

Business becomes successful because they possess some advantage relative to theircompetitors The two most prominent sources of competitive advantage can befound in the business’s cost structure and its ability to differentiate the businessfrom competitors Studies and experiences of many businesses indicate that thehighest profitability levels are found in business that possesses both types ofcompetitive advantages at the same time So the challenge for today’s businessmanagers is to evaluate and choose business strategies based on core competenciesand value chain activities that sustain both types of competitive advantagesimultaneously, including: 1) Evaluating Cost leadership opportunities;2)Evaluating differentiation opportunities; 3)Evaluating speed as a competitiveadvantage; 4)Evaluating market focus as a way to competitive advantage

Managers evaluating opportunities to build competitive advantage should linkstrategies to value chain activities that exploit low cost, differentiation, and rapidresponse competitive advantages When advantageous, they should consider ways

to use focus to leverage these advantages One way business managers can enhancetheir likelihood of identifying these opportunities is to consider several different

“generic” industry environments from the perspective advantages in those uniqueindustry situations

For multi-business company: Rationalizing diversification and building shareholder value

Stockholder value in a diversified company is ultimately determined by how well itsvarious businesses perform and/or how compelling potential synergies andopportunities appear to be Business-level performance is enhanced by sustainedcompetitive advantages Wise diversification has at its core the search for ways tobuild value and sustained competitive advantage across multiple business units Wesaw several ways opportunities for sharing and building value may be presentacross different businesses The bottom line is that diversification that shares skillsand core competencies across multiple businesses to strengthen value chains andbuild competitive advantage enhances shareholder value And so it is that strategicanalysis and choice for corporate managers overseeing multi-business companiesinvolves determining whether their portfolio of business units of business units iscapturing the synergies they intended, how to respond accordingly, and choosingamong future diversification or divestiture options

The BCG growth-share matrix

Managers using the BCG matrix plotted each of the company’s businessesaccording to market growth rate and relative competitive position Market growthrate is the projected rate of sales growth for the market being served by a particularbusiness Usually measured as the percentage increase in a market’s sales or unitvolume over the two most recent years, this rate serves as an indicator of therelative attractiveness of the markets served by each business in the firm’s portfolio

of businesses Relative competitive position usually is expressed as the market share

of a business divided by the market share of its largest competitor Thus, relativecompetitive position provides a basis for comparing the relative strengths of the

businesses in the firm’s portfolio in terms of their positions in their respectivemarkets The growth-share matrix is illustrated in the below figure 1.4.

Figure 1.4: BCG matrix

The stars are businesses in rapidly growing markets with large market shares.

These businesses represent the best long-run opportunities (growth andprofitability) in the firm’s portfolio They require substantial investment to maintain(and expand) their dominant position in a growing market This investmentrequirement is often in excess of the funds that they can generate internally.Therefore, these businesses are often short-term, priority consumers of corporateresources

Cash cows are businesses with a high market share in low-growth markets or

industries Because of their strong positions and their minimal reinvestmentrequirements, these businesses often generate cash in excess of their needs.Therefore, they are selectively “milked” as a source of corporate resources fordevelopment elsewhere (to star and question marks) Cash cows are yesterday’sstars and the current foundation of corporate portfolios They provide the cash

needed to pay corporate overhead and dividends and provide debt capacity Theyare managed to maintain their strong market share while generating excessresources for corporate wide use.

Low market share and low market growth businesses are the dogs in the firm’s

portfolio Facing mature markets with intense competition and low profit margins,they are managed for short-term cash flow to supplement corporate-level resourceneeds

Question marks are businesses whose high growth rate gives them considerableappeal but whose low market share makes their profit potential uncertain Questionmarks are cash guzzlers because their rapid growth results in high cash needs, whiletheir small market share results in low cash generation At the corporate level, theconcern is to identify the question marks that would increase their market share andmove into the star group if extra corporate resources were devoted to them Wherethis long run shift from question mark to star is unlikely, the BCG matrix suggestsdivesting the question mark and repositioning its resources more effectively in theremainder of the corporate portfolio

The industry attractiveness – business strengths matrix

This matrix developed by Mc Kinsey and Company at General Electric, usesmultiple factors to assess industry attractiveness and business strength rather thanthe single measures (market share and market growth, respectively) employed in theBCG matrix It also has nine cells as opposed to four – replacing he high/low axeswith high/medium/low axes to make finer distinctions among business portfoliopositions

Although the strategic recommendations generated by the Industry Attractiveness –Business Strength Matrix are similar to those generated by the BCG matrix, theIndustry Attractiveness – Business Strength Matrix improved on the BCG matrix in

Attractiveness – Business Strength Matrix is preferable because it is less offensiveand more understandable Second, the multiple measures associated with eachdimension of the business strength matrix tap many factors relevant to businessstrength and market attractiveness besides market share and market growth Andthis, in turn makes for broader assessment during the planning process, bringing tolight considerations of importance in both strategy formulation and strategyimplementation.

The Life Cycle – Competitive strength Matrix

This approach uses the multiple-factor approach to assess competitive strength asone dimension and stage of the market life cycle as the other dimension

The file cycle dimension allows users to consider multiple strategic issuesassociated with each life cycle stage, thereby enriching the discussion of strategicoptions It also gives a “moving indication” of both issues – those strategy needs toaddress currently and those that could arise next Figure 1.5 provides an illustration

of this matrix It includes basic strategic investment parameters recommended fordifferent positions in the matrix

Figure 1.5 The market life cycle – competitive strength matrix

1.2.8 Behavioral considerations affecting strategic choice

After alternative strategies have been analyzed, managers choose one of thosestrategies If the analysis identified a clearly superior strategy or if the currentstrategy will clearly meet future company objectives, then the decision is relativelysimple Such clarity is the exception, however, and strategic decision makers oftenare confronted with several viable alternatives rather than the luxury of a clear-cutchoice Under these circumstances, several factors influence the strategic choice.Some of the more important are: 1) Role of the current strategy; 2) Degree of thefirm’s external dependence; 3) Attitudes toward risk; 4) Managerial prioritiesdifferent from stockholder interests 5) Internal political considerations 6)Competitive reaction

1.3 Strategy Implementation

1.3.1 Short–term objectives, Functional tactics, reward system, and employee empowerment

Once corporate and business strategies have been agreed upon and long-termobjectives set, the strategic management process moves into a critical new phase –translating strategic thought into organizational action Managers successfully makethis shift when the do four things well: 1) Identify short-term objectives; 2) Initiatespecific functional tactics; 3) Communicate policies that empower people in theorganization; 4) Design effective rewards.

Short-term objectives translate long-range aspirations into this year’s targets foraction If well developed, these objectives provide clarity, a powerful motivator andfacilitator of effective strategy implementation

Functional tactics translate business strategy into daily activities people need toexecute Functional managers participate in the development of these tactics, andtheir participation, in turn, helps clarify what their units are expected to do inimplementing the business’s strategy

Policies are empowerment tools that simplify decision making by empoweringoperating managers and their subordinates Policies can empower the doers in anorganization by reducing the time required to decide and act

A powerful part of getting things done in any organization can be found in the wayits reward system rewards desired action and results Rewards that align managerand employee priorities with organizational objectives and shareholder valueprovide very effective direction in strategy implementation

1.3.2 Restructuring and reengineering the company’s structure, leadership, and culture

Structuring an effective organization

Successful strategy implementation depends in large part on a firm’s “primaryorganization structure.” Primary organizational structure refers to the way work is

organized within an organization or business entity Mangers quickly learn thatdesigning the right structure can enhance the chances a strategy will succeed, whiledesigning a structure without regard to the needs of their strategy, or more oftensimply staying with a long-standing organizational structure, can cause that strategy

to fail regardless of other well-intended efforts

Matching the structure to the strategy is a fundamental task of company strategists.The five basic primary structures are: 1) Functional, 2) Geographic, 3) Divisional,

or Strategic business unit, 4) Matrix, and 5) Product team Each structure hasadvantages and disadvantages that strategists must consider when choosing anorganization form Since the structural design ties together key activities andresources of the firm, it must be closely aligned with the demands of firm’s strategy.There are some guidelines to match structure to strategy, which are:

 Restructure to emphasize and support strategically critical activities

 Reengineer strategic business process

 Downsize, Outsource, and self manage

 Recognize that strategy and structure often evolve in a predictable pattern

Organizational leadership

Organizational leadership involves two considerations One is strategic leadership,usually coming from the CEO The other is management skill to cope withcomplexity

The blending of telecommunications, computers, the internet, and one globalmarket place has increased the pace of change during the last ten years All businessorganizations are affected Change has become an integral part of what leaders andmanagers deal with daily

The leadership challenge is to galvanize commitment among people within anorganization as well as stakeholders outside the organization to embrace change andimplement strategies intended to position the organization to do so Leadersgalvanize commitment to embrace change through three, interrelated activities:clarifying strategic intent, building an organization, and shaping organizationalculture.

Organizational culture

Organizational culture is the set of important assumptions that members of anorganization share in common Leaders typically attempt to manage and createdistinct cultures through a variety of ways Some of the most common ways are:Emphasize key Themes or Dominant Values; Encourage Dissemination of storiesand legends about core values; Institutionalize practices that systematicallyreinforce desired beliefs and values Adapt some very common themes in their ownunique ways

The stronger a company’s culture and the more that culture is directed towardcustomers and markets, the less the company uses policy manuals, organizationcharts, and detailed rules and procedures to enforce discipline and norms Thereason is that the guiding values inherent in the culture convey in crystal-clearfashion what every-body is supposed to do in most situations Poorly performingcompanies often have strong culture However, their cultures are dysfunctional,being focused on internal politics or operating by the numbers as opposed toemphasizing customers and the people who make and sell the product

1.3.3 Strategic control and continuous improvement

Strategic control is concerned with tracking a strategy as it is being implemented,detecting problems or changes in its underlying premises, and making necessaryadjustments

Another aspect of strategic control is continuous improvement Synonymous withthe total quality movement, continuous improvement provides a way fororganizations to provide strategic control that allows an organization to respondmore proactively and timely to rapid developments in hundreds of areas thatinfluence a business’s success.

Figure 1.6: Four types of strategic control

The four basic types of strategic controls are: Premise control, implementationcontrol, Strategic surveillance, special alert control

The control of strategy can be characterized as a form of “steering control”, whichprovides the basis for adapting the firm’s strategic actions and directions inresponse to these developments and changes

Organizational control systems

Organizational control systems guide, monitor, and evaluate progress in meetingshort-term objectives While strategic controls attempt to steer the company over anextended period (usually five years of more), operational controls provide post

action evaluation and control over short periods – usually from one month to oneyear To be effective, operational control systems must take four steps common toall post action controls: 1) Set standards of performance; 2) Measure actualperformance; 3) Identify deviations from standards set; 4) Initiate corrective action Three types of operational control system are budgets, schedules and key successfactors.

1.4 Major economic features of banking industry and Vietnam’s Banking System

1.4.1 Major economic features of banking industry

The global trend of deregulation has opened up many new businesses to the banks.Coupling that with technological developments like internet banking and ATMs, thebanking industry is obviously trying its hardest to shed its lackluster image

But banks (and financial institutions) have become cornerstones of the economy forseveral reasons They transfer risk, provide liquidity, facilitate both major andminor transactions and provide financial information for both individuals andbusinesses

Running a bank is just as difficult as analyzing it for investment purposes A bank'smanagement must look at the following criteria before it decides how many loans toextend, to whom the loans can be given, what rates to set, and so on:

 Capital Adequacy and the Role of Capital

 Asset and Liability Management - There is a happy medium between banksoverextending themselves (lending too much) and lending enough to make aprofit

 Interest Rate Risk - This indicates how changes in interest rates affectprofitability

 Liquidity - This is formulated as the proportion of outstanding loans to totalassets If more than 60-70% of total assets are loaned out, the bank is considered

to be highly illiquid

 Asset Quality - What is the likelihood of default?

 Profitability - This is earnings and revenue growth

Perhaps the biggest distinction that sets the banking industry apart from others is thegovernment's heavy involvement in it Besides setting restrictions on borrowinglimits and the amount of deposits that a bank must hold in the vault, the governmenthas a huge influence on a bank's profitability

Interest Rates: Because interest rates directly affect the credit market (loans), banks

constantly try to predict the next interest rate moves, so they can adjust their ownrates A bad prediction on the movement of interest rates can cost millions

Gap: This refers to the difference, over time, between the assets and liabilities of a

financial institution A "negative gap" occurs when liabilities are higher than assets.Conversely, when there are more assets than liabilities, there is a positive gap.When interest rates are going up, banks with a positive gap will profit The opposite

is true when interest rates are falling

Capital Adequacy: A bank's capital, or equity, is the margin by which creditors are

covered if the bank has to liquidate assets A good measure of a bank's health is itscapital/asset ratio, which, by law, is required to be above a prescribed minimum The following are the current minimum capital adequacy ratios:

 Tier 1 capital to total risk weighted credit (see below) must not be less than 4%

 Total capital (Tier 1 plus Tier 2 less certain deductions) to total risk weightedcredit exposures must not be less than 8%

The risk weighting is prescribed by the Bank for International Settlements Forexample, cash and government securities are said to have zero risk, whereasmortgages have a risk weight of 0.5 Multiplying the assets by their risk weightsgives the total risk-weighted assets, which is then used to determine the capital

Tier 1 Capital: In relation to the capital adequacy ratio, Tier 1 capital can absorb

losses without a bank being required to cease trading This is core capital, andincludes equity capital and disclosed reserves

Tier 2 Capital: In relation to the capital adequacy ratio, Tier 2 capital can absorb

losses in the event of a winding up, so it provides less protection to depositors Itincludes items such as undisclosed reserves, general loss reserves and subordinatedterm debt

Analyst Insight

Interest rate fluctuations play a huge role in the profitability of a bank Banks are,therefore, trying to get away from this dependency by generating more revenue onfee-based services Many bank financial statements will break up the revenuefigures into fee-based (or non interest) and non-fee (interest) generated revenue.Make sure we take a close look at the fee-based revenue: firms with a higher fee-

based revenue will typically earn a higher return on assets than competitors

Evaluating management can be difficult because so many aspects of the job areintangible One key figure for evaluating management is the net interest margin(NIM) Look at the past NIM across several years to determine its trends Ideally,

we want to see an even or upward trend Most banks will have NIMs in the 2-5%range; this might appear low, but don't be fooled - a 01% change from the previousyear means big changes in profits

Another good metric for evaluating management performance is a bank's return onassets (ROA) When calculating ROA, remember that banks are highly leveraged,

so a 1% ROA indicates huge profits This is one area that catches a lot of investors:technology companies might have an ROA of 5% or more, but these figures cannot

be directly compared to banks

As with other industries, we want to know that a bank has costs under control, andthat things are being run efficiently Closely analyze the bank's operating expenses.Ideally, we want to see operating expenses remain the same as previous years or to

decrease This isn't to say that an increase in operating expenses is a bad thing, aslong as revenues are also increasing

As we mentioned in the above section, a measure of a bank's financial health is itscapital adequacy If a bank is having difficulty meeting the capital ratiorequirements, it can use a number of ways to increase the ratio If it is publiclytraded, it can issue new stock or sell more subordinated debt That, however, may

be costly if the bank is in a weak financial position Small banks, most of which arenot publicly traded, generally do not have the option of selling new stock If thebank cannot increase its equity, it can reduce its assets to improve the capital ratio.Shrinking the balance sheet, however, is not attractive because it hurts profitability.The last option is to seek a merger with a stronger bank

Porter's 5 Forces Analysis

1 Threat of New Entrants The average person can't come along and start up abank, but there are services, such as internet bill payment, on whichentrepreneurs can capitalize Banks are fearful of being squeezed out of thepayments business, because it is a good source of fee-based revenue Anothertrend that poses a threat is companies offering other financial services Whatwould it take for an insurance company to start offering mortgage and loanservices? Not much Also, when analyzing a regional bank, remember thatthe possibility of a mega bank entering into the market poses a real threat

2 Power of Suppliers The suppliers of capital might not pose a big threat, but thethreat of suppliers luring away human capital does If a talented individual isworking in a smaller regional bank, there is the chance that person will beenticed away by bigger banks, investment firms, etc

3 Power of Buyers The individual doesn't pose much of a threat to the bankingindustry, but one major factor affecting the power of buyers is relatively highswitching costs If a person has a mortgage, car loan, credit card, checkingaccount and mutual funds with one particular bank, it can be extremely tough for

that person to switch to another bank In an attempt to lure in customers, bankstry to lower the price of switching, but many people would still rather stick withtheir current bank On the other hand, large corporate clients have bankswrapped around their little fingers Financial institutions - by offering betterexchange rates, more services, and exposure to foreign capital markets - workextremely hard to get high-margin corporate clients

4 Availability of Substitutes As we can probably imagine, there are plenty ofsubstitutes in the banking industry Banks offer a suite of services over andabove taking deposits and lending money, but whether it is insurance, mutualfunds or fixed income securities, chances are there is a non-banking financialservices company that can offer similar services On the lending side of thebusiness, banks are seeing competition rise from unconventional companies.Sony (NYSE: SNE), General Motors (NYSE:GM) and Microsoft(Nasdaq:MSFT) all offer preferred financing to customers who buy big ticketitems If car companies are offering 0% financing, why would anyone want toget a car loan from the bank and pay 5-10% interest?

5 Competitive Rivalry The banking industry is highly competitive The financialservices industry has been around for hundreds of years, and just about everyone whoneeds banking services already has them Because of this, banks must attempt to lureclients away from competitor banks They do this by offering lower financing,preferred rates and investment services The banking sector is in a race to see who canoffer both the best and fastest services, but this also causes banks to experience a lowerROA They then have an incentive to take on high-risk projects In the long run, we'relikely to see more consolidation in the banking industry Larger banks would prefer totake over or merge with another bank rather than spend the money to market andadvertise to people

14.2 Major Features of Vietnam’s Banking System

1.4.2.1 Vietnam’s banking is a weng economic industry

The banking industry in Vietnam is deemed to be a weng economic one Thebanking system of the country is in its strong development period with the annualasset growth rate and the annual credit and mobilization growth rate are both of20% Currently, the scope of credit market and capital mobilization has reached60% of GDP

However, scope of commercial banks’ activities is still at small or medium size incomparison with banks in the Asia region Rate of overdue debt compared with totalaccount outstanding (according to the debt classification and Vietnamese accountingstandard) is about 6% According to the international accounting standard (IAS), therate of bad debt is higher, if Vietnam’s commercial banks deduct and create enoughrisk provisions as stipulated in the international convention, many of them will incurlosses, fall into the state of negative equity

1.4.2.2 Vietnam’s Banking System has been under restructuring process

Since 1998, the Government of Vietnam has planned to restructure the State Bank ofVietnam (“SBV”) as well as reorganized and consolidated the commercial joint stockbanks The focus of bank reform program is to clean up finance by handling with andpreventing bad debts from equity increase and restructure; and to restructureoperations by setting up and developing an advanced administrative system, applyingmodern technologies and developing new products

Up to now, CJSBs’ financial capacity has been improved considerably with increasedequity, decreased bad debt, and the scope of activity is broadened under diversifiedand modernized direction Weak CJSBs has been integrated, unified, sold, wound upand strengthened their financial capacity (some CJSBs’ equity reaches VND 300-500billion) Remarkably, some CJSBs have cooperated with foreign partners (such asACB, Sacombank) and actively become listed companies in the Vietnam sharemarket

1.4.2.3 Banks are in the modernization process

The banking industry has accelerated to modernized technology and appliedadvanced administrative skills into commercial banks based on the informationtechnology, international conventions and standards on currency, banking activities.From now up to 2010, the Vietnamese local banks have been modernized faster topossibly catch up with advanced banks in the Asia region

1.4.2.4 Competing conditions in the Banking industry

The currency market is still small and has not actually developed Currently, theState commercial banks play the role of oligopoly; the competition in bankactivities mainly concentrate in urban, cities, economic and commercial centers

 Scope of currency market (inter-bank market, open market and inter-bankexchange market) is still small Therefore, the market is not eventful and smooth;the banking is mainly deposit and borrowing The currency market is segmentedand components of the currency market have not connected closely to each other.Therefore, banks meet many difficulties in promoting investment activities andcontrolling market risks effectively Due to its small scope and segment, thecompetitiveness in the currency market is very weak

 Currently, State commercial banks play the role of oligopoly thanks to its capitalscope, assets, activities and networks much bigger than that of CJSBs Generally,the competitiveness in the industry is not strong with rudimentary competing forms(mainly by price/interest rate)

 Loosening the management of exchange rate and liberalizing the interest rateallow foreign banks to operate widely and deeply in Vietnam (allow 100% foreigninvestment banks to operate in Vietnam, broaden the scope of Vietnam dong tradingfor EU banks) The competitiveness in Vietnam Banking Industry has increasedconsiderably

1.4.2.5 Attractive gradation of banking system

Banking is now an attractive sector in Vietnam, which results in competitiveness inthis industry The current attractiveness of monetary and banking industry is higher

than that of other economic sectors The profit on equity of banking industryreaches 9 -10 percent that is much higher than the level 1-2 percent of industrysector (electronic industry sector for instance) Commercial joint stock banks havetheir fine-looking profit, which is at least equal to 15-16 percent of charter capital.Several commercial joint stock banks offer very high dividend interest, some ofwhich increase up to 40 percent.

Now foreign investors are paying great attention to banking industry in Vietnam(some of them have participated in the equitization of some commercial joint stockbanks), which implies that this sector is now very attractive

1.4.2.6 Forecasting changes in customer structure using Vietnam banking services

Customers are depositors, investors in banking industry

According to a market research report conducted in 2001 by Deloitte TaucheTohmatsu, only 30% of country’s assets have been held by domestic bankingsystem, the remaining held by the people, enterprises; only 10% of Vietnamesepopulation has opened accounts in the bank This means that the market’spotentiality is very large; recent developments in personal accounts show that thistendency is reaching active changes Surveys on the public’s actions also releasedthe number of main motivations to promote the participation in banking services asfollows:

(i) Customers’ trust and guarantee for their asset;

(ii) It is convenient for customers to draw their cash;

(iii) Customers find enhanced safety in using the bank’s accounts;

(iv) Statutory and asset saving are made out

Because depositor’s sensitiveness on interests is larger and larger, their deposit istransferred among banks Which impacts on depositors’ decisions on its interest andincreases expenses for banks’ capital mobilization in the future?