MONDAY: 21 August 2023. Morning Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.
MERCHANT BANK GROUP (MBG)
Merchant Bank Group (MBG) was established in 1956 as a subsidiary of Trade Bank of Britain. It transformed into a savings and credit cooperative in 1989, and later became a fully-fledged commercial bank in 2015. Over the years, MBG has expanded its operations and developed a strong presence in Kenya and the East African region. The bank is regulated by the Central Bank of Kenya and was listed at the Nairobi Securities Exchange (NSE) in 2017. It has a diversified shareholder base, including institutional investors, individual shareholders and the Government of Kenya. MBG offers a
wide range of banking products and services to cater for the needs of individuals, businesses and institutions.
The bank had been growing exponentially until 2018 when it faced significant challenges due to the world economic recession. During the same period, Charles Kariuki retired as the CEO and Job Juma was hired in his place. Job Juma was a renowned strategic manager with extensive experience of turning around organisations. In the first two months of his engagement, he established that the bank was grappling with declining profitability as a result of inefficient operations and an outdated business model. He performed a SWOT analysis to get proper insights on how to return the bank to a growth trajectory. The analysis revealed, among other things, that the bank operated as a retail bank with
limited geographic reach. This was of concern since it was hindering its ability to capitalise on emerging opportunities in the region.
To overcome the challenges identified, MBG embarked on a strategic transformation journey under the stewardship of Job Juma. To actualise the journey, a 5-year strategic plan was launched after six months of meticulous planning and consultations with the stakeholders. The bank`s vision, mission and core values were revised to accommodate the volatility and ambiguity of the business environment. The bank`s vision statement was its mantra during the transformation period. The bank’s strategy also focused on four key pillars: operational excellence, customer-centricity, innovation, and geographic expansion. The bank began by streamlining its operations and improving efficiency by implementing robust technological systems and upgrading the IT infrastructure. Additionally, risk management practices were adopted to drive operational excellence. Customer-centric approach was another crucial aspect of MBG’s strategy.
The bank conducted extensive market research to understand customer needs and preferences, and then introduced innovative products and services tailored to specific customer segments, including mobile banking, agency banking, and digital solutions. These initiatives enhanced customer experience, increased customer acquisition and retention, and strengthened MBG’s market position.
Innovation played a significant role in MBG Group’s strategy. The bank embraced emerging technologies such as artificial intelligence and data analytics to drive product development, enhance service delivery and improve internal processes. MBG’s focus on innovation enabled it to stay ahead of the curve and deliver cutting-edge solutions to its customers. Geographic expansion was a critical element of MBG’s strategy. The bank strategically entered new markets within the East African region, leveraging its strong brand and expertise. The bank acquired and successfully integrated several banks in Rwanda, Tanzania, Uganda, Burundi and South Sudan. This expansion not only increased the bank’s market share but also diversified its revenue streams and helped it capitalise on the region’s economic growth and cross-
border trade opportunities.
The CEO`s strategic initiatives yielded significant results with the bank experiencing robust financial growth, with increased profitability and improved asset quality within two years. It expanded its customer base and market share thereby becoming one of the largest banks in East Africa by asset base. MBG’s total assets grew substantially, and its return on equity consistently outperformed industry benchmarks. The bank’s customer-centric approach led to enhanced customer satisfaction and loyalty. The bank’s innovative digital solutions, such as mobile banking and agency banking,
provided convenient and accessible banking services to a broader customer base. The bank’s strong brand reputation, combined with its focus on customer experience, contributed to its competitive advantage. By venturing into new markets, the bank diversified its risk and revenue streams, reducing its dependence on the Kenyan market.
MBG’s focus on operational excellence, customer-centricity, innovation, and geographic expansion played a pivotal role in its strategic turnaround. As of December 2022, MBG was the largest commercial bank in Kenya with assets of more than KES 566 billion and KES776 billion in customer deposits. The bank has 201 branches, 497 ATMs, and 20,273 registered Agents and Merchant outlets spread across the East African region. MBG has received numerous awards and recognitions for its performance, innovation, and contribution to the banking industry in Kenya and the region. It is also actively involved in various CSR initiatives, particularly in the areas of education, health, and environmental sustainability. The bank supports community projects and programs aimed at improving livelihoods and promoting social development.
1. The CEO performed a certain analysis to get proper insights on how to return the bank back to a growth trajectory.
Explain FOUR components of the analysis. (8 marks)
2. To actualise the strategic transformation journey, a particular plan was launched.
Explain FIVE limitations of this plan. (10 marks)
3. Evaluate FIVE features of the bank`s mantra during the transformation period. (10 marks)
4. A geographic expansion was a critical element of MBG’s strategy.
Analyse SIX strategies MBG adopted to achieve this. (12 marks)
(Total: 40 marks)
1. When conducting strategic change, organisations plan and implement changes to boost competitive advantage or achieve another significant objective.
Appraise FIVE steps an organisation could take to realise this change. (5 marks)
2. Strategy implementation is a process that turns strategic plan into action by outlining the steps the organisation needs to take in order to achieve the set objectives.
Summarise FIVE steps of the process an organisation could follow to make the implementation effective.
3. In the context of business strategy, outline FIVE generic competitive strategies. (5 marks)
(Total: 15 marks)
1. Assess FOUR stages of logical incrementalism in strategy development process. (4 marks)
2. Strategy workshops are necessary to an organisation during any strategic management process.
Identify FIVE purposes of these workshops. (5 marks)
3. Organisation’s core competencies are important during strategic analysis.
Explain Hamel and Prahalad’s THREE tests to confirm these competencies. (6 marks)
(Total: 15 marks)
1. The Parenting Fit Matrix is a framework developed by McKinsey & Company to assess the fit between a corporate parent and its portfolio businesses.
Identify FOUR positions of the Parenting Fit Matrix. (4 marks)
2. Explain FIVE limitations of strategic management. (5 marks)
3. Path dependency theory refers to the idea that past events and decisions can shape and influence the current and future development of a system or organisation.
Outline SIX features of path dependency theory. (6 marks)
(Total: 15 marks)
1. Strategic drift is a gradual deterioration of competitive action that results in the failure of an organisation to acknowledge and respond to changes in the business environment.
Explain FIVE ways in which a business can avoid this. (5 marks)
2. Summarise FIVE steps of sustaining organisational effectiveness. (5 marks)
3. The matrix structure is a type of organisational structure that combines functional departments with project or product teams, creating a dual reporting system.
Outline FIVE benefits of a matrix structure to an organisation. (5 marks)
(Total: 15 marks)