Financial Sector: Bolstering Business is A Complex Process

Keeping in view the fast changing financial sector scenario – where a particular technology is being replaced rapidly by another technology – it is better to take for granted that in the near future there would be intense competition – intra and inter [ players being  Government owned, old private sector, new private sector and foreign institutions in the financial sector] not only at the macro- level, but at the very micro-level also.

It is better to consider would- be- situation as CORE [competitors, opponents, rivals and enemies] factor. Naturally, fixation of strategies, continuous up gradation of skill and making best use of talent backed by effective planning techniques that take care of the forthcoming series of happenings / things, pose the biggest challenge.

In this age of innovention – innovation plus invention – fast changing techno-savvy world the buzzword  is there –  strengthen the marketing team and at the same time the very effectiveness so that the market share is broadened overtime following a set of strategies that are customer- centric and at the same time risk-centric in approach.

The challenge comes from two directions mainly – to what extent an institution is customer centric and risk-centric. In fact the present era belongs to the institutions that could manage the risks effectively. Banks, for example, with proper risk management systems would not only gain competitive advantage by way of lower regulatory capital charge but also add value to the shareholders / stakeholders.

That is to say: the future is for them who emerge to be top risk managers through optimal utilization of all of the resources – physical, financial, technological and the most important one – the human resource.

Facing The Reality

To achieve the same continuously changing business environment is required to be given appropriate weight age in as much as retaining the customer emerges to be the biggest challenge all over the banking world now and for that matter following a renovated strategy [ e.g. a joint- drive  like inter-institutional ] could strengthen the base.

Everyone is all set for grabbing a better market share – let it happen in a realistic manner. One just cannot survive or achieve a long term success by resorting to snatching of customers. The need is very much there to follow a defensive marketing strategy as well so that the aging building does not suffer from unnoticed pilferage.

Keeping in view the recent global experience on financial crisis the urgent requirement is to examine the very adequacy of risk management system that is being followed. Risk minimization efforts occupy the central place in such a vital context.  – mechanism followed to minimize liquidity risk; use of GAP Analysis and other mechanism to measure and manage interest rate risk and the mechanisms to minimize foreign exchange risk  is to be looked into, especially among others. Institutions are to assess the effectiveness of risk-conscious internal control system  In fact, this arena calls for assessment of  the vital aspects like: effectiveness of the audit  committee; effectiveness of the internal Audit Function; rectification of the deficiencies identified in the audit reports; adequacy of the controls in credit operation/controls exercised;  adequacy of the controls in Treasury operations, adequacy of the controls in Branch operation; adequacy of the controls in procedures related to expenditure as well as adequacy of the control over fixed assets.

Needless to say here: corporate governance area invites proper attention on : formulation and implementation of required plans, policies and guidelines, code of conduct of directors, Chief Executive and Employees, mechanism to identify related  parties, promoters, directors or senior management and  lending to directors, chief executive, employees(except as per employees rules) and their  related parties, if any.

The need is here to mention of other related aspects: adequacy of the Management Information System (MIS), control in information Technology and related support function; reliability of mechanism used for reporting plus accuracy of such returns; compliance with the prevailing Statute, Act, Directive and Regulations, especially in vital areas like : profit appropriation  to general reserve: appropriation to exchange fluctuation reserve, distribution of dividend and of course whether prohibited activities are pursued.

In fact: financial sector policies and instruments are required to be constantly rebalanced to respond not only to financial markets, prices and overall stability considerations but also to developments in real sector especially , trends in growth across sectors, regions and sections of population. The need is there for an inorganic growth in order to compete with the techno-reinforced foreign institutions on Indian soil. To generate income to meet challenges thrown by the steady entry of the foreign players alternate ways are to be tapped since it is crystal clear that tinkering around the already travelled areas cannot give rich dividends simply because of the fact that the call of the contemporary age relates to pure business and nothing else – a highly complex situation where keeping pace with demand is itself a much harder task compared to even a decade back. Talent and people development emerges to be the biggest challenge for the business world, especially for the new incumbents.

Too Many Frontiers To Guard

In today’s unprecedented talent crunch, the services industry in particular is grappling with developing the leadership, talent, risk awareness and of course the very task of building up/inculcate positive-change-adapting-attitude.

On this score the choice of strategy also depends on facts and circumstances – may be one particular strategy becomes outdated or calls for supplements not necessarily by discarding the older one. This renovation is thus a continuous process. The redesigning of existing processes can effectively lead to dramatic enhancements in performance that enables the organization to deliver greater value to customers in ways that also generate higher profits to the stakeholders. So, focusing on, measuring and redesigning the customer-facing and internal processes improvements could be there in areas like: cost, quality, speed, profitability and other key areas. Arranging for such change –over calls for more than rearranging work-flows – who does what tasks, in what locations, as well as in what sequence.

Business processes must become more mature and the Institution must be able to deliver higher performance-spatially, temporally, hierarchically and functionally. Obviously, to achieve the same the starting point is designing [the comprehensiveness of the specifications as to how the process is to executed]; followed by the performers [people executing the process based on skill and knowledge]; owner [persons shouldering the responsibility for the process as well as the results]; infrastructure [information/MIS that support the process]; and of course the metrics [the measures the company uses to track the process’s performance].

So, complexities galore — business space, technologies, processes and business models as well have turned out to be more complex. New characteristics are added frequently [subtracted infrequently]. The dimensions of business space keep increasing, adding complexity, while at the same time furnishing attractive new opportunities for those who can successfully navigate in the new environment. This complexity, in turn, also inhibits greater size and greater value creation.

Business boosting does not have any short cut formula. Reality is something where one has to keep pace with the changing needs and thus correcting the strategies to be followed. What is more, one particular strategy is not going to necessarily give lasting success. What will happen tomorrow cannot simply be said as it is nothing but mystery. Yesterday is history – why not to learn from it? It is a good teacher. Simply following the others’ path may lead to putting one’s leg into a bottomless pit. This is business!

Author : Dr B K Mukhopadhyay

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