Who Moved the Cheese?
By Ivana Osagie
Dr Spencer Johnson in his best-selling book "Who Moved My Cheese" introduces us to four characters Sniff, Scurry, Hem and Haw who all have different attitudes or responses to change. The four of them spend their time in the maze where their supply of cheese is more or less guaranteed with a little effort required on their part of course. Anyway not much changes and life goes on as normal follow the trail and find the cheese� until one day.
The rest of this short story is about the different reactions all four characters show to the changes that occur in their environment i.e. the maze. It is interesting today to watch the banks in Nigeria and their reactions to the changes in their operating environment. The one thing any CEO will tell you readily is that the cheese has moved. The question is - what are the banks doing in response? Let's start with a current state analysis of the banking industry in Nigeria today.
Some of the recent changes the industry has seen include the following:
The Central bank recently raised the minimum capitalisation requirement for banks from N2 billion to N25 billion. The change itself should not really have come as any great surprise to serious players in the industry but the magnitude of the increase is certainly unexpected. In any case it does herald the start of a new era in the Nigerian banking industry. Finding the required funds in the current climate will present an overwhelming challenge for many of the banks. Some of them will find themselves forced into unwelcome alliances and some into the arms of waiting predators. Inevitably mergers, and takeovers are only round the corner.
Nigerian banks have in the past depended heavily on deposits of government funds. The wheeler dealer arrangements that have surrounded these transactions have typically been shrouded in secrecy and controversy with much behind the scenes lobbying. Now there is the threat that these funds may be withdrawn from the commercial banks and lodged with the central bank instead. The cheese is fast disappearing.
The Central Bank cracked down heavily on the practice of "round-tripping" which was the banks' easiest and fastest way of generating cheap revenue. Banks who bore the brunt of this attention are still smarting from the bruising they experienced. The introduction of the Dutch Auction System was yet another change introduced by the Central Bank and life has never been the same for the industry.
The reduction of the allowable clearing period has resulted in increased pressure on the float income the banks previously enjoyed through hanging on to funds deposited by their customers.
These last three factors have resulted in shrinking margins. Therefore the demand for increased capitalisation is nothing short of a nightmare for the banks. As if that were not enough however, they are also grappling with a number of other issues.
For instance the introduction of the BASLE II Accord in 2006 will mean greater emphasis on risk management practices and policies. The accord focuses on the specification of a minimum capital requirement in order to reduce economic and credit risk and we have already seen some movement in this direction. Other elements include on-going capital adequacy monitoring as well as the disclosure of timely and accurate market information to facilitate effective risk assessment. The banks will need to invest in and implement new processes and systems in order to satisfy the requirements of the accord. Additionally, personnel with the relevant skills and competencies will be required. Of course bringing in new skills and putting in the needed systems and policies will mean additional costs. Put that together with the shrinking margins and demand for increased capitalization we talked about earlier and you will begin to see that the maze is certainly looking quite different. The cheese is no longer anywhere in sight.
The focus on money laundering is another challenge the banks will have to deal with. They will need to collect sufficient KYC or Know Your Client information in order to reduce the risk of money laundering or other fraudulent transactions. Yet collecting the data is just the start; updating it to keep it current is another matter entirely. Suffice it to say, between meeting the BASLE II accord and the KYC requirements, the banks will need to ensure they have efficient and effective processes in place or else it will all end in tears. The problem is that efficiency in particular, has never been the name of the game round here. While our methods usually achieve some degree of success, there has never really been much emphasis on assessing efficiency. Yet as the regulatory regime gets even tougher, more sophisticated and tidier processes will be required in order to prevent things getting messy or unwieldly. Failures in this area will see rising levels of customer dissatisfaction and complaints and in a climate of such intense competition, this is unaffordable for the bank that desires to not only survive but also to thrive.
Technology is another big headache for many of the banks today. Despite spending huge amounts on IT, the ROI on IT investment is relatively low. Some of the problems include the following: No clear IT strategy/policies; IT strategy not aligned with business strategy; Poor understanding of e-business; Poor implementation of IT; Lack of local systems implementation experience; Reliance on remote systems support providers e.g. Flexcube, FINACLE
While technology could help with delivering efficient and effective processes, it is a well known fact that automating a mess only results in an even bigger mess. Implementation is not one of our strengths in this part of the world. We are typically poor at project management and planning, preferring to focus on the short term and adopt a reactive approach instead of being proactive. Clearly the time has come to change tactics and methods.
So having identified some of the changes in the maze, let's go back to our original question - what are the banks doing in response? Are they sniffing, scurrying, hemming or hawing and what does each response look like in practice? Let's take a look at each of our four characters in order to begin to answer these questions.
Hem
Gets comfortable, complacent and careless; Responds with fear - of ending up worse off; Goes into denial; Resists change; Is stuck in the past.
The "Hem" banks have up until now had their heads buried in the sand. They have been trying to pretend it is a case of "business as usual". These banks are easy prey and are likely to end up on the scrap heap and pretty soon too.
Haw
Gets comfortable, complacent and careless; Is slow to react; Eventually flows with the change and adapts to it
"Haw" banks have been slow on the uptake but are starting to realize that they cannot keep doing the same old things the same old way. Many of them are now looking or have started to re-strategise, some working with external Consultants.
Sniff and Scurry
Look out for change; Recognize signs of change early on; Are proactive; Quick to respond positively
These banks are way ahead of the pack. They have built new alliances and have already identified new strategies and products and are steaming on full speed ahead.
They have found new cheese. The future belongs to this category of organizations. They will ride on the crest of the wave of change and emerge triumphant on the other side.
The End of the Story?
Adapting to change is something many organizations, not just the banks, struggle with. Quite often it requires some external intervention to help the organization understand what areas to tackle and what it needs to do. In the case of the banks, this covers areas like strategy, products, structure, customer proposition, branding, technology and people issues. In today's increasingly complex and fast paced marketplace, many organizations will find that they need to call in the experts. By the way, if you want to know how the story ends for Sniff, Scurry, Hem and Haw, I suggest you read the book!
Osagie is with Phillips Consulting Limited
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