EFG Eurobank Corporate Strategy - Essay Example

EFG Eurobank Corporate Strategy Introduction When the decade of 1990s came at large, as the multinational corporation gave way to the transnational organisation, as domestic strategies are replaced by global strategies, and as strategic alliances, partnerships and joint ventures proliferate, those companies that are successful in formulating, implementing and communicating sound global strategies will achieve corporate competitiveness. For several decades, corporate strategy practitioners and academic researchers have drawn widespread attention to the importance of formulating comprehensive, sound, forward-looking corporate strategies (Hall et al, 2000). The connection between formal strategic planning systems and firm performance has been studied and re-studied with little consensus regarding a correlation between the two. More recently, strategy implementation has been heralded as the key to corporate strategic success (Ulijn and Amant, 2000). However, corporate strategy regardless of how elegantly conceived, how comprehensive its scope, or how forward-looking its thrust, does not provide competitive advantage until it is communicated, understood, valued and acted upon by a variety of key corporate stakeholders. Employees must understand, accept and internalise corporate strategy if the strategic blueprint is to be transformed into positive strategic results. Suppliers, strategic partners and customers must have a basic understanding and appreciation of the firm's strategic direction if these stakeholder relationships are to flourish and be productive. The financial community must be aware of a company's strategic intentions in order to properly evaluate a firm's current value and prospects for the future. Only when the corporate strategy message is communicated in a clear, concise, timely and persuasive manner to key corporate stakeholders does the firm have an opportunity to achieve competitive advantage. This paper will serve as an explanation of what Corporate Strategy meant. For the purpose of this paper, the study shall be using the case of EFG Eurobank's corporate strategy, to make the banking firm successful and competitive in the market of southern Europe. Company Profile EFG Eurobank Ergasias is the most dynamic Bank in Greece, with leading market shares in high growth segments (www.eurobank.gr). EFG Eurobank Ergasias was first established in 1990 as Euromerchant Bank. With 8 billion market capitalisation and 1.9 billion share capital at the end of 2004, the EFG Eurobank Ergasias Group currently offers a full range of banking products and services aimed at individuals, corporations and institutions. The Bank has built up leading market positions in a number of areas, in particular in the high margin, high growth segments, which form the key focus of its activities. EFG Eurobank Ergasias is Greece's leading provider of consumer loans and credit cards, lending to small and medium sized enterprises and mutual fund management. Moreover, it has a significant presence in corporate banking and holds the leading position both in investment banking, through EFG Telesis Finance, and in capital markets, through EFG Eurobank Securities, while it also has a strong comparative advantage in the field of private banking. Employing over 13,700 people, both in Greece and abroad, with a local distribution network of over 300 branches, 700 ATMs and alternative distribution channels, including phone banking, electronic banking and mobile banking, the Bank achieves countrywide distribution and service capability and the integrated coverage of the needs of its customers. The Bank also develops its presence in the wider geographical area. Access to European markets is facilitated through the strategic alliance with Geneva-based EFG Group. The Target of EFG Eurobank was to become the Bank of first choice in Greece, focusing on quality, innovation and comprehensive services; and To develop its presence in the wider area of Southeastern Europe, exporting its successful local business model. In terms of its ownership, EFG Eurobank Ergasias is ultimately 41.2% owned by Geneva-based EFG Bank European Financial Group. The majority of shares is publicly held by over 330,000 private and institutional shareholders. EFG Eurobank's Corporate Strategy For the long-term operation of each firm, establishing an effective corporate strategy is needed (Verbeke, 1998). EFG Eurobank's corporate strategy was to have a social responsibility in order for the group to reach their goals as bankers in the southern part of Europe. The reason primarily that Corporate Social Responsibility constitutes a fundamental strategic goal that contributes to its long-term success and viable growth. It is within this framework that EFG Eurobank demonstrates responsible action and returns to society, in a constructive and creative way, part of the financial yield it achieves. The Bank's social responsibility springs from its voluntary commitment to offer to society and it is far beyond what is imposed by legislation. The corporate social responsibility programme which is adopted and developed on an on-going basis by the Bank aims at: Respecting the rules and principles of corporate governance; Meeting the expectations of the stakeholders, and Continuing its social contribution that goes side by side with its growth. For each stakeholder, the Bank has set specific goals: 1. Employees - EFG Eurobank aims at the identification and development of the capabilities of its personnel, with emphasis in the provision of equal opportunities, continuous training, appraisal and, finally, rewarding the efforts of each employee. 2. Shareholders - For its shareholders, the Bank aims at creating maximum value, along with the implementation of principles of ethical corporate governance. 3. Clients - Client satisfaction constitutes a fundamental component of the Bank's success. Creating and offering innovative products and services as well as managing client relationships effectively, is at the centre of the Group's daily activities. 4. Suppliers - As far as suppliers are concerned, the Bank pursues the application of unified procedures for selection and assessment, using quality and meritocracy always as a guide. 5. Environment - In particular, as to the environment, EFG Eurobank has combined, since its foundation, its successful development with a broader social presence in important sectors of social life, through sponsorships and actions targeting at the improvement of quality of life and the environment. Mergers and Acquisition In the southern part of Europe specifically in Greece however, the trend of mergers and acquisitions are possible. The whole industry not only the banking sector of Greece has several reasons why most companies have to be merged with other firms. One good reason why companies have to be merged is for the companies to continue their operation since they cannot anymore generate money and for future investments in the firm. In banks, however the key is for them to increase their capitalisation in order to seek financial support to any forms of investment for innovation to give better services to their clients (Vives, 2001). EFG Eurobank are consolidating and acquiring banks that have less capital that is being required by the central bank. One primary reason to this is that the banking sector is being globalised, thus allowing several foreign banks to operate in the market of Greece (Shaffer, 2001). EFG Eurobank is poised in this merger and acquisition form of activity. Objectives of EFG Eurobank The primary goal of EFG Eurobank Ergasias is to become the leading financial services group in the Greek banking sector. Within the scope of this goal, the Bank places emphasis on high-growth, highmargin market segments, provides value-added products and services to its clients, offers increased value to its shareholders and creates an environment with opportunities for personal and professional growth for its employees. In order to achieve its goal, the Bank follows a client-focused approach, which leads to the provision of modern, flexible products and services that meet the constantly evolving needs of the clients. Thus, the Bank develops multiple and alternative distribution channels and invests in modern technological infrastructure. The core philosophy underlying this strategy is quality excellence in the products and services of the Group. EFG Eurobank and Ergo Bank Merger The process of operational merger of former EFG Eurobank and former Ergobank began in spring 2000. There were two phases to the process: During the first phase, which preceded the legal merger, emphasis was given to the settlement of all issues related to the creation of a new legal entity, such as accounting issues, legal matters, check clearance, international and local payments etc. The second and more substantial phase, in terms of operations, began in summer 2000. During that phase, 21 working teams were created and assigned specific responsibilities and targets relating to various operational aspects. The teams comprised experienced professionals from both legacy Banks and were co-ordinated by a special committee, in which the international consulting firm Andersen Consulting (today Accenture), played a leading role. Each team followed a specific programme and timeframe and worked together with the divisions of both legacy Banks in order to create common new procedures for the new banking entity and to properly organise the merger procedure for each division separately. As a result of this process: A new organisation chart was created to ensure better functionality for the new Bank and full optimisation of the personnel of both legacy Banks. New, modern operational procedures were developed. The central services of both legacy Banks were merged. These include Financial Services, Human Resources, and Treasury. Risk management and credit procedures have also been merged by selection of the most conservative procedures from each legacy Bank. The newly created merged units have been reorganised in order to support the increased needs of the new banking entity. The network of the Bank was further relieved from back office and managerial activities, in order to focus on client service. Operational control of the new Bank was enhanced. At the end of the year 2000, most of the teams had completed their assignment and the new operations system of EFG Eurobank Ergasias was put into effect. The harmonisation of products and services is done. This is also the case with technology and systems. Full integration on a common platform has been completed during the year 2001. The improvement of the geographical network coverage, the integration of back office divisions, the simplification of management procedures and the optimisation of alternative distribution channels under development have led to improved economies of scale and reduction of operational cost for EFG Eurobank Ergasias. The merger framework that two banks have used is shown below: The merged group now has: Wide variety of products, cross selling; Strong capital base; Strategic alliance with Deutsche Bank; Unified marketing strategy, distribution channels, product and IT expertise; and High quality management. International Activities As part of their merger and acquisition strategy, EFG Eurobank ventured internationally. Venturing outside according to Gelos and Roldos (2002) is another strategy in which the company creates an opportunity for the firm to do their business operation outside the country. A key strategic goal for EFG Eurobank Ergasias is the expansion of its activities and the export of its successful local banking model to countries of the wider Balkan and Mediterranean region. Three significant events marked the international developments for EFG Eurobank Ergasias during 2002. The upgrade of infrastructure in Bulgaria, destination of the Group's the first international expansion; the consolidation of control over Banc Post Romania, as the participation in its share capital increased to 36.25%; and the penetration of the Serbian market, as the Group signed a pre-contract for the acquisition of a majority stake in the share capital of local bank Postbanka. The latter acquisition was completed in March 2003, leading to a control stake of 68%. These developments represent significant steps towards the realisation of the strategic goal of EFG Eurobank Ergasias to expand its activities in countries of the Balkan and the wider South Eastern European region, by exporting its successful business model. In Romania In 2002, EFG Eurobank Ergasias completed the acquisition of the shares of Romanian bank Banc Post, previously held by the Romanian state. This new share package represents 17% of the bank's total share capital, and raises the Group's total stake in Banc Post to 36.25%. The Group has the possibility to further raise its participation to 45%, based on the additional option it holds to acquire the shares currently possessed by General Electric Capital Corp. It is noted that EFG Eurobank Ergasias, along with Banco Portuguese de Investimento (BPI) currently control the majority of Banc Post. The remaining shareholders are various Romanian investment organisations with 30% and the bank's employees with 8%. Banc Post ranks third in terms of assets in the Romanian Banking Sector, with a network of 126 branches and additional indirect presence through 2,400 outlets of the Romanian Postal Services. The bank made considerable progress during 2002, with its loan portfolio increasing by 22% and its deposits by 18%. Banc Post is strongly positioned in the consumer lending business, controlling 6.5% of the market and is the largest distributor of credit cards in Romania with almost 1,000,000 cards issued. In 2003, EFG Eurobank Ergasias, in cooperation with Banco BPI, focused on supporting the financial and business growth of Banc Post, on expanding the range of its products and services and on gradually upgrading its technical infrastructure. The main aim is to develop Banc Post into a bank that operates according to international banking standards, providing services of the highest quality in the Romanian banking sector, where it is believed there is room for considerable growth potential. In Serbia In a strategic move, within the framework of the Group's policy to expand its activities in the Balkans, EFG Eurobank Ergasias made the decision to acquire a Serbian bank, following a thorough analysis of the Serbian market. During 2002, following the necessary financial and legal audits, the Group negotiated an agreement for the acquisition of a majority stake in Postabanka. The acquisition of 68.06% of Postbanka's share capital was completed in March 2003, after permission from the relevant regulatory authorities was granted. The share purchase agreement was signed between EFG Eurobank Ergasias and 12 shareholders of Postbanka AD, including the two largest shareholders, Poshtanska Stedionica and the Serbian Telecommunications Organisation - PTT. EFG Eurobank's Developments after Mergers and Acquisitions Technology and Services Infrastructure During 2002, the Bank completed the analysis and planning of its new Centralised Corporate Data Warehouse. The gradual implementation of its sub-systems, which is already in progress, will enable the corporate units of the Bank to increase the volume and improve the quality of the Managerial Information provided. In addition, the homogeneous information of the Corporate Data Warehouse will form a strong basis for a more effective management of existing client relations and the development of new ones, on the basis of the Bank's evolving Client Relationship Management system. In 2002, the Bank with the assistance of all business units, extended the range of its Business Continuity Plan and its Disaster Recovery Plan. The infrastructure of vital importance alternative information systems has already moved from the stage of implementation to that of scheduled periodic control. In addition, the new telecommunication network of the Bank was completed. Its installation, which took place in August, has enabled all branches, units and bank subsidiaries to enjoy the same advantages and flexibility in voice and image transmission. At the same time, the successful operation of the new network resulted in a substantial reduction in telecom costs. Last but not least, the incorporation of the Bank's major subsidiaries in the increased safety system during data transmission was completed. Altamira: In 2002, the Altamira platform for banking operations was installed and put into operation with complete success. The operational merger of the two networks and the unification of their databases, marks the start of a new era for EFG Eurobank Ergasias. The Bank now commands a modern, technologically advanced and innovative software system, which allows for its rapid future expansion. The core of this system's philosophy lies in client focus. Altamira, among other things, has a centralised datafile for each customer and contains information on all retail lending products. These include credit cards, mortgage and consumer loans or small business loans. It services the full range of products and a service linked to personal deposit accounts, monitor the transactions taking place through debit cards and ATMs and manages all branch network operations. Through this application, the customer is provided with a fully comprehensive service. Each customer can ask for complex banking operations, while the Bank has the ability to effectively sell and cross-sell its products, benefiting from a thorough knowledge of the overall position of its customers. The new system is also beneficial in reducing the costs associated with certain processing procedures and the safety of transactions. Development of investment products: In 2002 the Bank realised its plans to be in a position to develop multiple and complex investment products for its clients. Margin accounts were extended to customers of other brokerage companies, while the new system of direct communication for stock brokerage transactions was put into operation. Organosis: In 2002, the Corporate Banking Network Unit proceeded with the development of a Management Information System, which automates internal procedures and increases speed and efficiency. This new system, called Organosis, displays all business loan applications, from the moment they are submitted to their final approval and disbursement. Organosis provides a wide range of customer and product MIS data of the Business Lending Division, as well as the time needed to service requests. This way, the branch knows to what extent a client application has been processed, at which stage it is at, and has therefore the ability to inform the customer in a timely manner of the terms and the date of the approval of the claim. As a result, a better coordination between the branch and the Corporate Banking Network Unit is achieved allowing the Bank to service customers more effectively. At the same time, customer data are recorded on line and credit-scoring techniques are applied at branch level. The use of Organosis is expected to give the Bank a competitive advantage in servicing business loans and to contribute substantially to a more efficient and higher quality service for its corporate clients. e-Banking Another advantage that the mergers and acquisition has given EFG Eurobank is the 24-hour banking services in the internet. To De Bandt and Davis (2000), e-commerce or e-marketing can give each bank its competitive edge because it allows several banks to have an advantage against other competitors. In 2002, EFG e-Solutions placed particular emphasis on the design and development of new electronic banking services and on its internal organisation. The company developed the e-banking application for businesses, while it enriched e-banking with a plethora of transactions, such as standing orders, cheques, outgoing international payments etc. Along with new product development, the company was also active in the provision of consulting services and the development of software. This way, the Bank took full advantage of the use of new technologies, while a profitable source of income for EFG e-Solutions was developed. The Bank has received international recognition for its e-banking services for retailers and corporates, as well as for Open24.gr. In 2002, the EFG Eurobank Ergasias site was elected the best e-banking website in Greece by the two leading Greek technology magazines, "RAM" and "PC Magazine". Furthermore, Open 24.gr, which combines banking and stockbrokerage services with on-line purchase offers from selected commercial partners of the Bank, received a Gold and a Silver Hermes, which are the leading awards in this area (The Japan Times, 2003). Because of the major activities that is set by the EFG Eurobank, the growth of the bank since its action has became stunning. The growth can be seen in the chart below: EFG's Five-Forces Analysis This study shall be using Porter's Five Forces (1985) in illustrating the case study of EFG Eurobank. Since threats brought about by the external environment, this framework by Porter (1980) acknowledged five competitive forces that may shape the industry that retail banking such as EFG Eurobank faces: (1) Threats of New Entrants; (2) Bargaining Power of Suppliers; (3) Bargaining Power of Customers; (4) Threat of Substitutes; and (5) Competitive Rivalry within the industry. Porter's Five Forces Model is shown in the figure below: The five forces identified by Porter determines the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organisation such as that of EFG Eurobank. Threats of New Entrants When the competition in a given industry such as the banking industry is higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, interest rates, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The entrance of banking retailers with a low interest rates and other numerous savings bank had also posed a threat to EFG Eurobank. This is due to the introduction of globalisation in the region that allows international banks to enter the industry in Europe, having a significant share of the business sector. Therefore, the conventional banking markets are easy to enter in general. However, with E-banking, new entrants are given a hard time. This is because e-marketing (banking) businesses such as HSBC, Citibank, Standard Chartered, etc, have high entry barriers, which include the expensive setup (or switching) and maintenance costs of equipments and expertise; compliance of government regulations on data protection and privacy; the possible use of patents and proprietary resources; asset specialty of businesses etc (Porter, 1985). Bargaining Power of Suppliers The term "suppliers" comprises all sources for inputs that are needed in order to provide services to the clients. Banking service bargaining power is likely to be high when a few large Banks rather than a fragmented source of service dominate the market and there are no substitutes for the particular input (Bodenhorn, 2003). Moreover, the suppliers customers are fragmented, so their bargaining power is low and the switching costs from one supplier to another are high. In the case of the banking industry, there are many suppliers in the banking service and thus their power is low. However, as Porter (1980) had asserted, it would be more costly to switch suppliers. Purchasing Power Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when customers buy large volumes and there is a concentration of buyers, the supplying industry comprises a large number of small operators, the supplying industry operates with high fixed costs, and he product is undifferentiated and can be replaces by substitutes. For instance, e-banking started in one bank in the form of a website, and its customers are visitors and potential visitors to the Web site and its competitors' sites (Orr, 2004). One of the advantages for the business to take the form of a website over conventional banking approach is to minimise the running cost of a banking operation. Another important advantage is to provide a 24-hour, with no physical location limitation client access to their banking accounts. The effectiveness of this model yields savings on auxiliary costs (such as transportation time and costs) and hassles, where clients may become less price sensitive to transportation fares of different banking service that is being charges when going to the branch site. Threat of Substitutes A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. Indeed, the way how e-banking business works today creates a lot of substitute threats to conventional banking competitors. The impacts of typical B2B (Business-to-Business) e-banking business are mainly regarding to the reforms in distribution channels and value chains (Bielski, 2000). Bankers traditionally operate on their respective branches and distribute service to clients. The chain model is being challenged by the Internet's distance-shortening power, where banking operations can now be offering banking service to clients easily and directly. The B2B model imposes a new type of substitutes, which was unforeseeable for conventional bankers in the old days, resulting in making them become less attractive. Rivalry Rivalry is a force that describes the intensity of competition between existing players (companies) in an industry (Claessens and Laeven, 2004). High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry (Carlivati, 2002). The rival intensity of the conventional bank markets is high because there are usually a large number of banks competing to each other for the same source of clients, but it may not be the same for e-banking markets. Other competitive advantages of e-banking businesses over conventional ones are: (1) banking operation costs are much lower, as the banks can provide the same service through the use of the internet; and (2) the e-banking market is growing rapidly alongside the new internet technologies. EFG's SWOT Analysis Strength One of Greece's renowned bank High volume of sales Code sharing agreements Preferred for business (asset management) and consumer banking (savings) High reputation; excellence in customer services, won many awards Innovative; achieved many industry firsts State of the art banking facilities Adapted the e-commerce technology Weaknesses Poor marketing strategy Not spending enough on advertising Opportunities Increase global awareness of the banking industry. Establish global partners or outsource their business abroad As with any other companies, developing their Information Technology will help to reach other possible and potential clients in the internet world. Advertise to make potential clients aware of their banking products Threats Competition in the banking industry Failure to respond to e-commerce might contribute to the lose market share in the banking world "Being forgotten" due to less than average spend on advertising Bankruptcy Conclusion EFG Eurobank's corporate strategy has indeed given them a competitive edge against other banks, especially the internationally renowned banks. They made mergers and acquisition as one of the Eurobank's Corporate strategies that has made them a market leader, earning them significant shares in the banking industry not only in the market of Greece, but throughout the European banking sector. In addition, these mergers and acquisitions have given EFG Eurobank a competitive advantage (includes additional branches in and out of the country and e-banking for providing better service on their clients). Their acquisition strategy had allowed the bank to further contribute to the Greek economy, thus, setting this organisation a market leader in the banking sector, making them the first choice of every customer in terms of banking and financial services. However, small have been spent on advertisements, and these would be a big difference if they will keep on spending less on this factor. Yes they have embraced a lot of strategy (from global partnership, mergers, acquisition, IT innovation) but making people aware of what they provide is the key to promote their banking ethics in the industry. Of course it is very costly for EFG to have this strategy, but it is guaranteed that it would be promising in the long-run. References: Bielski, L. (2000). E-Business Models Stress Putting the Customer First. ABA Banking Journal 92(7), 67 Bikker, J.A. and J.M. Groeneveld (2000). "Competition and Concentration in the EU Banking Industry." Kredit und Kapital 33, 62-98 Bodenhorn, H (2003). 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