Table of Contents
For any company to prosper and maximize profits, it must formulate a strategic plan that acts as a guide in its operations. Strategic planning is the process through which an organization defines its plan of actions in order to facilitate decision making and allocate resources accordingly. Such planning determines the future of an enterprise and improves its performance in a manner that maximizes its possibility of success. Strategic planning incorporates a sequence of operational or short-term plans, which are a series of steps that require development of objectives on a yearly basis. Operational planning facilitates annual resource allocation in a way that prioritizes on the mission and vision of the organization, as well as the short term goals to be pursued during the year. For a strategic plan to be effective, the management ought to incorporate the views of every stakeholder, and determine whether the organization has the resources and capability to effect growth oriented design (Department of Research 1961).
In strategic planning, a company envisions the future, analyze potential obstacles, and set up the mechanisms that facilitate the attainment of the intended goals. A strategic plan serves as a basis for every day’s decision making. Planning stimulates and accelerates change, and helps in examining a firm’s recent trends. During the examination, various aspects are analyzed, including market segmentation and prevailing competitiveness. Beneficial and achievable strategies are laid by emphasizing on strengths, scaling down the weaknesses, exploiting the available opportunities, and fending off internal and external threats (Husain 1999). This paper aims at analyzing the recent past, current and future strategies that have been instituted by the State Bank of Pakistan.
Before initiating operations, companies lay down strategies that facilitate the evaluation of performance. In order to ascertain progress, the strategies ought to be flexible in a manner that accommodates variations during the operation of an enterprise. These variations occur as a result of unforeseeable circumstances that arise after the business operations commence. The State Bank of Pakistan was established in 2002. Its first governor was Mr. Mahmood Shafqat who led an influential board of directors whose decisions spurred reforms in the banking sector. Some of the initial board members have been retained in the State Bank of Pakistan’s Shariah (Code of Islamic Law) Board, and their wealth of experience facilitates the laying down of strategies that formulate the basis of its operation. Although there has been a notable achievement in the recent past, some of the State Bank’s strategies have been detrimental to the banking industry. Nevertheless, the undesirable consequences have inspired improvements in strategic planning (Husain 1999).
Strategies deployed and their outcomes
Strategy formulation began in 2001. After a wide consultation, the government found favored making Islamic Banking of Pakistan Shariah compliant. This was expected to make the institution an outstanding example in the region. The implementation of this strategy began by setting up several branches and affiliates throughout the country, a task that popularized the idea of strict compliance with Islamic banking practices (Department of Research 1961). By late 2005, the State Bank of Pakistan had inspired four new Shariah compliant banks in the country. The increase raised competition in a very impressive manner, and, therefore, the State Bank had to review its strategic plan in order to remain in business. The enhancement in the strategy facilitated a 0.7 percent increase in the institution’s assets by 2003. This increase provided more resources, which in effect prompted better planning, and in 2006 alone, State Bank’s assets rose by 1.67 percent. In addition to gain in assets, the bank recorded high profits in the period between 2003 and 2006. Even so, the bank’s vision of operating like a conventional institution had not materialized, especially due to the inadequacy in planning (Department of Research 1961). The members of the board considered this as a challenge that had to be tackled in the near future for the bank to remain relevant in the market. By this time, planning was easier as resources were adequate, and the members of the board had experience with the operations of the bank.
Despite the local success, the State Bank had a goal of bettering its performance for it to remain competitive internationally. The State Bank of Pakistan bank has been financing global surveys and analyses of model Islamic institutions on the global level. These surveys began in 2002 and has been continuing every since. Through the surveys, the State Bank has been acquiring vital statistics, which proves effective especially because the survey exercises are conducted in various countries and settings. As compared to global Islamic institutions, the Islamic Bank of Pakistan has been recording satisfactory performance, which has encouraged banks in Pakistan to adopt similar strategies. Among the indications of success are; the growth in the number of branches and affiliates in the country, increase in assets, increased investment as well as the acquisition of a greater market share. For instance, the bank is currently operating 93 divisions, and this is a remarkable improvement as there were 4 branches in 2002. Moreover, State Bank prompted an increase in banking institutions from four, in 2003, to sixteen, by 2006. There have been an increase in the fully fledged Islamic banks too; from one to four, an increment that has resulted into a rise in deposits from eight to 84. These successes positioned the State Bank of Pakistan in the global market. In part, the management of the bank appreciates its achievements so far, though exploration continues in order to increase the wealth of knowledge in banking (Books 2010, p. 80).
In 2002, the goal of the bank’s governor and CEO was to make the State Bank of Pakistan among the best job creator in the Pakistani banking sector by 2006. Statistics in the Money and Banking in Pakistan indicates that the governor’s vision had almost been realized by mid-2006 as 4.5 percent of Pakistani employees worked in the institution. This was achieved through the strict conformity to the strategic plan. As an employment creation strategy, the institution opted to increase divisions as it diversified activities. This development been appreciated by Pakistanis who are convinced that the bank’s initial goals and objectives will be realized in due course. The State Bank of Pakistan invites stakeholders’ contributions during planning (Department of Research 1961). The diversity in the composition of its stakeholders makes facilitates the formulation of an all-encompassing strategic plan which is feasible in various circumstances.
In 2002, the State Bank of Pakistan set a vision of seeing the market share of the industry at 10 percent in 2006. This was not achieved due to competition as other as other banks have been coming up. The market share of this bank as at 2006 was 5.5 percent thus their objective was not met (Books 2010, p. 54). The bank aimed at making 25 percent of its customers have come from the different sectors in the country. The targeted sectors were the SME, agriculture and microfinance sectors. However, this was not achieved as by 2006. Some researchers were done to find out the various factors that could have attributed to this. From the research and analysis of data on conventional banking, the State Bank of Pakistan has set strategies that aim at attracting clients from different sectors of the economy. Although this had appeared challenging, there has been a noted improvement, which means that the State Bank is a trusted institution. The management of the bank and the government of Pakistan believe that the institution will achieve more success in the future as its current operations are matching the international standards (Roy et al 2007, p. 46).
The bank had also aimed at enacting the Shariah law. However, this was seen as a problem that made investors not to be interested in investing in the industry. Despite much advertising, there are Pakistanis who view the whole idea of banking as a western import. Pakistan is a tribal society, and; therefore, tribal and religious leaders influence the manner of behavior in community (Books 2010, p.47).
Changes and trends in the industry’s environment
The institution revised its plan in 2006, and the expectation has that, by 2012, it will be able to meet all the customers’ needs. Currently complains from the customers have declined gradually. This has been achieved through creating more customer care servers also ensuring that there are workers who are already and always there to serve customers and settle down their issues. The company had also set to see that customers can get their issues settled online. This has been achieved to some extent, although poor ICT infrastructure is a factor hindering its achievement (Department of Research 1961). Additionally, customers have been provided with hotlines that they can use to reach the customer care at any time. This is hoped to better in the future by laying out other achievable strategies as it has already been done.
The lending process in the company has been improved. This has been achieved through marketing which has been conducted country-wide. Customers can also apply for loans online through the company’s website. However, there is need for extra effort so as to access all areas of the country. The State Bank of Pakistan has a strategy that will enable it lend money to both local and international customers by 2015 (Khan and Bhatti 2008, p. 84).
The company had set a strategy in 2005 that aimed at making it have a competitive edge in the global Islamic banking arena, a scenario which will facilitate foreign investment. Currently, some foreign countries like Egypt have already started investing in the company although the pace of investment is slow. This is a big challenge since there is a lot of competition from the global banking industries. Most of the foreigners who are willing to invest in the banking are doing it indirectly and thus this is also a challenge that is ought to be done away with in the near future. Nevertheless, the institution has been expanding, and this has made it among the most important players in the local and international stocks markets. For instance, it has been able to achieve almost the same rank with the Lloyds banking industry of United Kingdom (Roy & Sfeir 2007, p. 109).
Currently the State Bank of Pakistan has 330 branches in more than fifty towns and cities in the country. In fact, all the four provinces in the country have branches which have been set there together with the AJK. This has greatly increased the market shares of the company where they are currently at 10 percent with 4 percent coming from the deposit stands. The deposit stands are, therefore, hoped to be increased so that the institution can increase the market share by over 12 percent before the end of 2012. The number of customers is currently 15 million. It is the company plan that by 2015 they increase the number of customers to 20 million both locally and internationally. This is a challenge due to competition and thus more efforts have to be put. In addition to this, all the institution's branches have been computerized (Department of Research 1961). Automation has reduced the cost of operation, a situation which has freed resources for utilization in other sectors.
Currently, State Bank is serving its customers 24 hours a day, and this has been facilitated by the installation of automated teller machines in all the branches and affiliates. The institution has a strategy of offering 24 hour services over the counter by 2015. The view is that such an initiative will facilitate the attendance to customer's demands on a timely basis. Currently, the company has over 20,000 employees. Even so, the management is planning to create more opportunities as part of the government strategy to improve the living standards of the citizens. Among the Islamic banking institutions, the State Bank of Pakistan ranks eighth globally, which means it has overtaken some of the earlier institutions (Books 2010, p. 101).
Competition is a key issue in any business. Competition makes a company to open eyes and thus create effective ways of making profits. This leads to favor of the customer. In the competitors’ environment, there are other Islamic banking industries both locally and internationally which are greatly increasing competition. The biggest competitor is the conventional banks. Currently the latter has 7800 branches country wide while the Islamic industry of Pakistan has 330 branches. This is a great challenge that without proper planning may not be overcome (Khan & Bhatti 2008, p. 56).
The conventional sections of this institution have also been attracting interest. To cater for the growing demand, the company has initiated plans to increase conventional banking activities. These sectors are the SME, agriculture and microfinance. This is a great challenge since the State Bank of Pakistan has only began implementing the same in the past two years especially with small and medium size enterprises, as well as agriculture sectors. This is a big challenge making the competition be imperfect. The state bank has, therefore, set strategies to see that it will cover all parts in the nation within a short duration of time. Indeed, operations have begun in a number of regions in the country, although they are happening at a slow pace.
The State Bank of Pakistan is faced with competition from other established institutions from Malaysia and Bahrain which have been having greater market shares as compared to the State Banking of Pakistan. The economic growth of Indonesia, that has an Islamic banking sector in operation, challenges the expansion of the Pakistani State Bank. For instance, while Islamic banking institutions commands a market share of 1.67 percent in Pakistan, the Pakistani institutions have a market share of less than 0.7 percent in Indonesia. Such a high competition necessitates careful planning that minimizes resource wasting in order to facilitate the achievement of strategic goals (Roy & Sfeir 2007, p. 36).
The conventional bank has set objectives that have already started been enacted. First the conventional bank has set an objective stimulate other Islamic banks to start investing directly in their bank. Secondly it has an aim of encouraging the establishment and growth of Islamic microfinance banks. This is already in place since the conventional bank has already incorporated all sectors in the country into its system. Thirdly the conventional bankers plan to increase their operation countrywide. This poses a challenge the State Bank of Pakistan in its quest to dominate the market (Meenai & Ansari 2010, p. 140).
The Islamic banking of Indonesia has an objective of extending into most of the third world countries. The institution plans to allow both direct and indirect investments so as to facilitate the expansion in these new markets. Despite the magnitude of the challenge, the management remains optimistic that with proper planning, this will be achievable in the near future. The State bank of Pakistan recognizes the intensity of competition in the market, especially from Indonesia, Malaysia, and the United Kingdom. The bank, therefore, is planning to initiate Islamic banking in China, where, as a pioneer, it expects to maintain a leading role in this finance category. However, this would necessitate extensive negotiations, which means it may not be achieved in the near future (Meenai & Ansari 2010, p. 102).
The company has laid some short term and long term objectives which are all directed at bettering the profits and the well being of the people.
The vision of the company is to control 12 percent of the Pakistani financial sector by 2012. It aims at raising the deposits to a range of RS 900-1000 billion as financing rise to RS 700-800 billion. These rates are between 45 to 60- percent. This is likely to be a perfect and attainable target since the current market shares is at 10 percent. On this end, the company has laid down strategies which will enable the fulfillment of these objectives. Firstly there are plans aimed at attracting more customers. The institution has a goal of having twenty million customers by 2015. In addition, some strategies have been set to see that more areas are accessed thus making the deposits and number of customers increase (Books 2010, p. 28).
The company plans to attract more than 70 percent of the Pakistani corporate customers by 2015. These sectors include microfinance institutions as well as agricultural based establishments. More products of this company are to reach twenty million people and thus expand the market. Strategies have been set on how to reach the different sectors, for instance, there are established banking unions that give incentives and loans to the farmers (Khan & Bhatti 2008, p. 180).
The company aims at being a major player in the international Islamic banking. As such, the management has found it necessary to institute plans that attract direct investment so as to cater for the planned expansion. This plan is, however, expected to be faced with major challenges as a result of high competition from international banking institutions like the Barclays which in addition to sharing similar goals and objectives, they have experienced workforce and adequate resources to implement their plans. The banking industries have also a vision of strengthening the Shariah compliance mechanism and thus make the industry acceptable worldwide. This will greatly help the industry to integrate well with other global Islamic banking industries (International Monetary Fund 2009).
Long term objectives
The ultimate goal of the State Bank of Pakistan is to integrate every element of finance, including that the Islamic code of finance appears indifferent about, into its operations. The management believes that such integration will make the organization unique and position it into winning greater portion of the market. Moreover, the consolidation of ideas will make State Bank have a competitive edge; especially in the contemporary market environment where variations are ineluctable. For the organization to implement effective integration, efficient communication between stakeholders is a requisite. With regard to this, the State Bank of Pakistan is adopting the latest communication strategies in an endeavor to enhance reliability during communication. The need for enhancement of the channels of information interchange has increased, especially now that the institution is planning wider association with The International Centre for Education in Islamic Education (INCEIF), a foundation that was established by Bank Negara of Malaysia (BNM). Enhanced communication strengthens regulatory framework, a practice that is in line with the global finance practices. State Bank has been researching on the strategies which have made institutions such as Lloyds Bank of Britain to succeed. Research and implementation of findings from Lloyds Bank and other institutions has helped the State Bank of Pakistan in enhancing its credibility, confidence, and integrity both locally and on the international level (Meenai & Ansari 2010, p. 140). Shariah scholars from all over the world have been approving the operations of State Bank of Pakistan. They contend that if the institution continues to implement its strategies to the letter, it will remain an indomitable force in Pakistan. Consequently, it will continue to be an inspiration to the global Islamic finance practices.
Despite the initial growth, there are various challenges that bar the high pace of growth of the State Bank of Pakistan. Among these challenges include; inadequacy in the short term liquidity management, poor tax and regulatory reforms, and inexperienced workforce. The State Bank of Pakistan provides inadequate avenues of investment. This has been a common problem with most Islamic Financial Institutions in Pakistan. For instance, many of these institutions miss the opportunity of investing in the conventional sovereign debt such as T-bills and investment Bonds. They shun these avenues because they are interest based, while Islamic business practices prohibits the acceptance of interest in business dealings (Meenai & Ansari 2010, p. 140). In Pakistan, the government exercises inadequate patronage in instituting tax reforms. This is unlike in countries like Malaysia and United Kingdom where rules regarding taxation has been relaxed to facilitate the tapping of increasing demand by Muslim businessmen for Shariah-compliant investment. Most of these businessmen are from the Middle East, and this indicates that Pakistan has the potential of becoming a hub for Shariah banking (International Monetary Fund 2009). However, this opportunity may remain elusive until the government introduces a proper regulatory reform structure. As such, the Pakistani government ought to revamp the country’s existing tax structures such that they can be conducive to Shariah finance. Additionally, the Pakistani government need to seek trained and experienced workforce as in adequate workforce is making the industry lag behind as the market for Islamic banking continues to expand. Pakistani institutions of higher learning need to increase the enrollment in the courses in Islamic finance so as to cater for the growing need in the industry. Lastly, there should be better management in these institutions, and if need be, the institution may seek expertise from countries like Malaysia and Britain.
The success of the State Bank of Pakistan is attributable to sound strategic planning. Careful contriving has resulted into a great increase in profit as well as the customer base. The close association with the Malaysian banking industry has helped modernize the financial practices in the organization within the framework of the Islamic financial code. The core idea in strategic planning of the State Bank of Pakistan is to facilitate increment in the market share. As such, it aims at attracting more investors to facilitate the funding of its operations.
The strategic plan of the State Bank of Pakistan has improved pecuniary management processes. It has ensured a continuous supply of fresh notes and coins of all denominations, which is a remarkable achievement especially because Pakistan has been enduring natural disasters in the recent past. The institution’s currency management has been accredited as one that follows the international standards. The participation of field officials during the formulation and implementation of the strategic plan has made the State Bank of Pakistan very successful in its operations. Indeed, during the formulation of its five year plans, the institution invites participants from all sectors of the economy, and the process has been approved by the majority of the Pakistani citizens.
State Bank has been funding the medical bills of all its employees for quite sometimes. This benefit enhances teamwork which in effect increases productivity. Furthermore, effectiveness in teamwork has helped the employees cultivate regular and honest communication among each other as well as with the management. This enables everyone to align his views with the institution’s objectives. Honesty in communication has instilled security which is vital particularly in cities like Karachi (International Monetary Fund 2009). Moreover, close relationship has enabled everyone to work willful manner for the good of his/her team as well as the organization as a whole.
Cooperation at the State Bank of Pakistan has been beneficial for various reasons. It has been a motivating drive, which has helped in: stabilizing a work force, putting human resource into action, building friendly relationships, improving employees’ efficiency, and helping to meet the organizational goals. Cooperation has also resulted into motivation, and this has enabled the organization to utilize its human resource optimally. Additionally, motivation has helped in filling the gap between the willingness and ability of an employee which has led to increased productivity at a reduced cost of operation (Meenai & Ansari 2010, p. 140). Employees, and indeed all stakeholders, of the State Bank of Pakistan are goal-oriented and work purposefully. The management has been encouraging simultaneous co-operation and co-ordination, and these initiatives betters the working conditions at the organization. Consequently, employees of the State Bank of Pakistan have prolonged their stay with the organization which has been beneficial since long service enables an employee to sharpen their practical skills. This indicates the benefits strategic planning as the plan acts as a blueprint for the organization’s operations.