Strategic leadership the silver bullet behind lenders’ sterling performance

One of the highlights of the past one week was the high-profile launch of the Nairobi International Financial Centre at the Kenyatta International Convention Centre on Monday, July 4, 2022 by President Uhuru Kenyatta.

As is typical of presidential functions, guests arrive early enough for the necessary security checks before the formal function begins. Attendees therefore have time to catch up and even make new acquaintances while getting ready for the formal function to commence.

I bumped into a gentleman I hadn’t seen for a long time since our days in campus and so we got chatting and catching up. We ended up digressing into the performance of the banking industry.

The observation was that the banking sector has shown relatively steady performance on most measures of performance after the three successive waves of failure witnessed in the 80s and 90s.

The measures in mind ranged from return on assets, net interest margin, balance sheet growth to profitability. It was observed that between the period 2000 and 2015, there were no bank failures; the sector was stable and experienced steady growth. We, therefore,  explored the reasons behind this steady performance.

Regulatory measures

First, a number of regulatory measures were put in place as a result of the failures that were witnessed in the 80s and 90s, which included consolidating the weak banks into the present-day Consolidated Bank Ltd and creating a bank resolution mechanism for the failed banks, initially through the Deposit Protection Fund Board within the Central Bank of Kenya.

The board subsequently became the independent Kenya Deposit Insurance Corporation of today. These measures, in addition to more recent regulatory measures by the Central Bank, have ensured that the safety of the banking industry is protected and stability ensured.

Besides the regulatory strides achieved, the main contributor to this steady performance for the industry is the effective leadership provided by the top management teams in the individual commercial banks, which has enabled them to implement relentlessly the strategies they laid out.

Strategic management can be viewed as formulation of the corporate strategy on one side and the implementation of the strategy on the other.

 It can be viewed as the organisation’s managers “planning their work” on one side and “working the plan” on the other.

In the realm of strategic management, strategy implementation is the more critical component and contributes to superior performance more than the formulation of strategy. Without effective implementation, the best   strategies are of little use. Of course, the ideal combination is when the strategy formulation is good and the implementation well done. The other extreme – of poor strategy poorly implemented – is of course an absolute disaster.

It is now common knowledge that failure is more attributed to strategy implementation than to its formulation. This contrasts with what we see happening on the supply side. In academia, most of the literature available provides acres of space to strategy formulation, while extending token accommodation to the implementation aspects of the strategy.

Even in the business schools that teach strategy, more emphasis is put on strategy formulation than the actual implementation of the strategy, so most learners graduate from these institutions equipped with skills to develop well-tied-in strategies but ill-eqipped to handle the segment where ‘the rubber meets the road’ . This is partly promoted by the view that one learns the formulation of strategy in class and then experiences the implementation in practice by doing. Most MBA programmes emphasize the ‘planning’ bit while giving a wide berth to the ‘doing’. In order to be effective in the strategy implementation, there has to be consistency between the strategy and each organisation dimension including structure, people, process and task.

Stategic leadership is a key parameter that influences the effective implementation of strategy and the banking sector has demonstrated this correlation quite effectively. Strategic leadership brings on board the ability to think strategically while maintaining flexibility and working with others to infuse changes that create a sustainable organisation. This set-up drives performance, enabling the organisation to achieve its set goals.

Competitiveness

Lack of strategic leadership has the converse effect of failure to achieve set goals, thus negatively affecting its various stakeholders. Staff lose morale, shareholders lose value and customers are short-changed by not getting value for money. This compromises the organisation’s ability to achieve strategic competitiveness and a sustained, above-average earnings trend.

For organisations to succeed in effective implementation of strategy, they need to put leaders in place who would set the strategic direction for the organisation, which is then communicated with clarity within the organisation to achieve the strategic objectives to remain competitive in the marketplace.

Organisations should avoid too much commitment to the status quo and go for change and calculated risks. They should ensure they hire leaders (read CEOs) who are inclined to change.

Effective CEOs strive to strike a balance between the constraining influence of financial controls and the long-term focus of the strategic controls that create impetus for sustainable growth.

We were pulled back from our engaging discussion by the announcement of the arrival of the chief guest, as the function commenced.

Dr Olaka is the Chief Executive Officer,  Kenya Bankers Association