Recommended development strategy for Sacombank in period 2011 - 2020

- Next, building external factor evaluation Matrix EFE helps in providing a summary and evaluation of company external environment.. - Combination stage: Combine company internal and ex

CAPSTONE PROJECT REPORT

RECOMMENDED DEVELOPMENT STRATEGY FOR SACOMBANK IN

Ho Chi Minh City, 2011

GRIGGS UNIVERSITY Global Advanced Master of Business Administration

RECOMMENDED DEVELOPMENT STRATEGY FOR SACOMBANK IN PERIOD 2011 – 2020

Class : GaMBA01.C0110 Group : 3

Member : LUU HUYNH

HO THI YEN LY TRUONG VAN HOI

LE HAI HOANG TRAN DUC HOANG

Ho Chi Minh City, 2011

CONTENTS

ACKNOWLEDGEMENTS 4

LIST OF DIAGRAMS 6

LIST OF TABLES 7

INTRODUCTION 8

CHAPTER 1: RATIONALE OF STRATEGIC MANAGEMENT 10

1.1 Concept, role and process of strategic management 10

1.1.1 Concept and role of business strategy: 10

1.1.2 Strategic management process: 11

1.2 The instruments are used in making business stratery process: 14

1.2.1 Five Forces Model of Michael E.Porter 14

1.2.2 Matrixes are used to analyze, evaluate: 17

Summary of Chapter 1 31

CHAPTER 2: ANALYZE SACOMBANK BUSINESS OPERATION 32

2.1 Introduction to banking services 32

2.1.1 Concept of banking services 32

2.1.2 The value chain of the banking: 35

2.1.3 Current environment of banking sector 36

2.2 Background 37

2.2.1 Establishment and development of Sacombank: 37

2.2.2 Business results of Sacombank 2008-2010: 40

2.3 Analysis of Sacombank business activities 42

2.3.1 Analysis of Five Forces Model of Michael E.Porter in banking 42

2.3.2 Analysis of Sacombank operation environment 46

2.3.3 External Factor Evaluation matrix 51

2.3.4 Analysis of Competitive Profile Matrix 52

2.3.5 Internal analysis 54

2.3.6 Internal Factor Evaluation Matrix (IFE) 60

Summary of Chapter 2 61

CHAPTER 3: BUILD DEVELOPMENT STRATEGY FOR SACOMBANK

PHASE 2011-2020 62

3.1 Analysis of banking activities in the coming period 62

3.1.1 Overview of the world economy 62

3.1.2 Forecast development trend of world economy 62

3.1.3 Vietnamese economy 63

3.1.4 Forecast development trend of Vietnamese banking sector: 64

3.2 Sacombank developing target to 2020 65

3.2.1 General target 65

3.2.2 Vision, mission statement, target and core value: 65

3.3 Build and select business development strategy of Sacombank up to 2020: 66 3.3.1 Basis of strategy formulating: 66

3.3.2 Establish strategies from SWOT matrix: 66

3.3.3 SPACE matrix analysis (Strategic Posturing & Action Evaluation) 69

3.3.4 Analysis of Internal factor - External factors (IE): 71

3.3.5 Grand strategy matrix 72

3.3.6 Evaluate and select strategies: 73

3.3.7 QSPM matrix, S – O: 73

3.3.8 QSPM matrix, S – T: 75

3.4 Solutions to implement Sacombank development strategy in 2011 – 2020: 77 3.4.1 Core business fields 77

3.4.2 Main solution development: 83

3.4.3 Solution Support Team 88

3.5 Evaluate difficulties and propose solutions to execute strategies: 93

3.6 Implementation Schedule 94

3.7 Resolution: 95

3.7.1 To Government: 95

3.7.2 To State Bank of Vietnam: 95

3.7.3 To Sacombank: 96

Summary of Chapter 3 97

CONCLUSION 98

REFERENCES 99

APPENDIX 100

ACKNOWLEDGEMENTS

First of all, we would like to express our appreciation to all professors and staff at ETC - Nation University Hanoi for giving us chance to obtain knowledge in mordern advanced business administration We highly appreciated their support to help us successfully accomplish the whole program of Global Advanced Master of Business held by the Center

We also would like to thank our classmates from GaMBA01.C0110 class who always supported and encouraged us while completing this paper

Last but not least, we want to thank Sacombank for its provision of relevant data of the Company

The joint paper could not have been completed without the cooperation and hard work of all members of the Group resulting in deep understanding and high accord when choosing the topic, gathering information and analyzing them

ABBREVIATIONS

ACB : Asia Commercial Bank

ALCO : Asset Liabilities Committee

ANZ : Australia & New Zealand Bank

ATM : Automatic Teller Machine

BCG : Boston Consult Group matrix

CAR : Capital Adequacy Ratio

EFE : External Factor Evaluation Matrix

IFE : Internal Factor Evaluation Matrix

GDP : Gross Domestic Products

LIST OF DIAGRAMS

Diagram 1.1: Five forces Model of Michael E.Porter 14

Diagram 2.2: The value chain of the banking 35 Diagram 2.3: Organizational Structure of Sacombank 38

Diagram 3.2: Internal factor - External factors of Sacombank 71

Table 3.5: Evaluate and select strategies 73

Table 3.8: Criteria of Sacombank goals 2011 – 2015 82

1 General:

Global economic integration is an essential developing process for any country This trend has formed in clearer shape, especially in countries where market economy has turned into the universal play ground, financial market is expanding its almost unlimited operation, which encourages improves cooperation and simultaneously leads

to harsher competition In the field of banking, global integration means opening of banking activities of that economy to international financial community such as credit and currency relationship and other banking services as well as legal barriers gradually removed following to the world financial banking activities

In the integration process, it is vital that bankers and non-banker financial organizations directly compete with one another to survive and develop To remain profit and competitive competence, banks shall always innovate, develop in aspects of capital, technology, organizational structure, management standard, working quality of risk control system and continuously improve their trust and trademark

In 2008, the world economy came into the crisis with a beginning of severe shortage of liquidity of US banks due to the main reason of under-standard loans into real estate from most banks, together with unclear administration and operation and the result of a collapsed banking system was unavoidable That banks and financial companies such as Lehman Brothers and Merrill Lynch’s fell to bankrupt caused suspicion and stun to financial banking economists all over the world The precious lesson from the recent global financial crisis makes bankers change their ways of thinking how to set strategies and carry out them and those strategies shall really best harmonize the two extremes of risk and profits to assure long-term and stable development; Strategy effectuation shall conform to given regulation and standards and flexibility shall be with high caution

This is the reason why our group chooses the topic of Capstone Project Report

“Recommended Development Strategy for Sacombank in period 2011- 2020” based

on the above mentioned strategic viewpoints

2 Study purpose:

- Study and systemize basic arguments of strategic management for the basis of

building strategies for Sacombank

- Analyze and assess facts of Sacombank operation and business environment,

then analyze and pick up suitable strategic methods for Sacombank development in the coming 10 years

- Find solutions to effect selected strategies

3 Study scope and object:

- Study argument issues of strategic management

- Study Sacombank actual operation; then build development strategies for

Sacombank in the coming 10 years

4 Study method:

- Mainly based on the knowledge of economic subjects such as strategic

management, currency financial theory, marketing management, human resource management, and financial management and employ reality understandings

- Data analysis following historical materialism and descriptive statistics is based

on the statistic and reported data of Sacombank, State Bank and commercial

banks

5 Project Outline

- Following is an outline of the remaining sections of this project:

o Chapter 1: Rationale of strategic management

o Chapter 2: Analyze Sacombank business operation

o Chapter 3: Build development strategy for Sacombank phase 2011-2020

CHAPTER 1: RATIONALE OF STRATEGIC MANAGEMENT

1.1.1 Concept and role of business strategy:

1.1.1.1 Concept of business strategy

A business strategy of an enterprise is the direction and size of an organization in the long term; Strategy will bring in advantages for the organization through superior arrangement of resources in a competitive environment to meet the market demand and investors’ expectation”

A business strategy of an enterprise is the ability to set up direction and method based on the objective and subjective conditions, available resources and defined development targets to ensure the survival, stable and long-term development in the condition of the market economy,

Besides, there are currently some basic concepts defined by scientists as the followings:

 According to Alfred Chandler: “Strategic management is a process to define the basic and long-term target of an organization, to select ways or a course

of action and distribute essential resources to obtain that target”

 Following to Fred R David: “Strategic management can be defined as an art and science to conduct and assess decisions relating to many functions that allow an organization to achieve set targets” “Extracted from Concepts of Strategic Management by Fred r David, Statistics Publication”

 According to John Pearce II and Richard B Robinson: “Strategic management is a system of decisions and actions to form and conduct plans

in order to achieve company goals”

To understand the basic nature of strategic management for a Company, we need to answer three following questions:

 Where is Company now?

 What target does Company want to obtain?

 Market position that Company occupies

 Demand and customer groups that Company serve

 Results that we want to achieve

 How do we achieve the target? The answer to this question is actually the Company’s strategy

1.1.1.2 Role of business strategy:

Nowadays, companies pay more attention to planning and developing their own strategies in order to create company core value Among the company strategies, business strategy is the most important element; the others shall depend on the business strategy for adjustment Business strategy is essential to the company survival and operation

However, not all companies acknowledge the importance of business strategy in the clearest way Most common points of the role of business strategy can be summarized

as the followings:

- Business strategy helps companies see business opportunities and threats, then

give out suitable development policies in order to achieve set targets

- Business strategy helps managers forecast some incidences or risks at the

present or in the future and then based on their own company potentials, actively face with those unexpected events

- Business strategy best cooperates with company departments helps company

members promote their motivation and innovation to achieve the general target

1.1.2 Strategic management process:

Strategic management process consists of 3 phases to form a closed cycle:

- Shaping strategy: A process of investigation and study to define internal

strengths and weaknesses and external opportunities and threats, set up term goals to build and select alternative strategies

long Developing strategy: A process of carrying out strategic targets in company

activities

- Assessing and checking strategy: A process of checking elements, measuring

and assessment of results Then adjust strategies to suit with the environment

In the topic scope, we will focus on the phase of strategy forming This phase consists of the following steps:

 Step 1: Environment Study

- Environment elements have considerable influences because they affect all next

steps of strategic management process Given strategy shall be planned based on the environment condition of the company including components and institutions externally existing that hardly or cannot be controlled by managers, but they do affect the company business activities Company environment consists of macro and micro environment

- Analyzing macro and micro environment shows opportunities and threats that

companies will meet and then they set up strategies to utilize opportunities and avoid or lessen influence of threats

- Next, building external factor evaluation Matrix (EFE) helps in providing a

summary and evaluation of company external environment This is a component matrix in strategic building

- Then, building Competitive Profile Matrix allows a company to have a

comparison between itself and its major competitors A competitive profile matrix gives a clearer picture of the company with its strength and weakness in comparison to its competitors

 Step 2: Internal analysis

- A process that analyzes company internal activities that managers are fully

aware of and actively control them through the analysis of strengths and weaknesses in the company business in order to promote strengths and recover

weaknesses Finally, build Internal Factor Evaluation Matrix (IFE) It is a

tool to summarize and evaluate strengths and weaknesses of relevant business departments and also provide a basis to define and evaluate the relationship between these departments

 Step 3: Company targets definition

- Company targets determine the results that company wants to achieve after

some definite years The target shall assure scientism, unification,

continuousness, advancement, reality and flexibility A target should determine time of conduction and should be determined by quantitative indicators Targets

in term of time consist of short-term and long-term ones Targets in term of characteristics consist of fast growth target, stable growth target and declined growth target

 Step 4: Strategy Set-up

A process of forming a general strategy consists of 3 stages:

- In-put stage: Process to establish EFE matrix, IFE matrix and Competitive

Profile matrix If any factor appears twice in the matrix, it is one case of an internal factor that is both strength and weakness and the other case of an external factor that is both an opportunity and a threat

- Combination stage: Combine company internal and external factors to

establish Strength – Weaknesses – Opportunities – Threats Matrix (SWOT)

- Decisive stage: After analyzing SWOT matrix, SPACE matrix, IE matrix and

grand strategy matrix to build possible strategies that can be selected and relatively attracted decisions of possible strategies and Quantitative Strategic Planning Matrix (QSPM) will be used

 Step 5: Strategy Selection

 Corporate strategy

Each company has a different strategy in different periods to carry out his goal

- Concentration growth strategy: market penetrating strategy and market

development strategy

- Product development strategy

- Diversification growth strategy: diversifying concentric activities and

diversifying activities horizontally or diversifying joint activities

 Business Unit Strategy:

The foundation of Business Unit Strategy is established by the combination of products, market and distinctive capacity of the company to achieve competitive advantages to competitors:

- Differentiation strategy,

- Concentric strategy

1.2.1 Five Forces Model of Michael E.Porter

Diagram 1.1: Five forces Model of Michael E.Porter

1.2.1.1 The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources

- Supplier switching costs relative to firm switching costs

- Degree of differentiation of inputs

- Impact of inputs on cost or differentiation

- Presence of substitute inputs

- Strength of distribution channel

- Supplier concentration tofirmconcentration ratio

- Employee solidarity (e.g.labor unions)

- Supplier competition - ability to forward vertically integrate and cut out the buyer

1.2.1.2 The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes

- Buyer concentration tofirmconcentration ratio

- Degree of dependency upon existing channels of distribution

- Bargaining leverage, particularly in industries with highfixed costs

- Buyer volume

- Buyer switching costs relative tofirmswitching costs

- Buyer information availability

- Ability tobackward integrate

- Availability of existing substitute products

- Buyerprice sensitivity

- Differential advantage (uniqueness) of industry products

- RFManalysis

1.2.1.3 The threat of the entry of new competitors

Profitable markets that yield high returns will attract new firms This results in many new entrants, which eventually will decrease profitability for all firms in the industry Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition)

- The existence ofbarriers to entry(patents,rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

- Economies of product differences

1.2.1.4 The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

- Buyer propensity to substitute

- Relative price performance of substitute

- Buyerswitching costs

- Perceived level ofproduct differentiation

- Number of substitute products available in the market

- Ease of substitution Information-based products are more prone to substitution,

as online product can easily replace material product

- Substandard product

- Quality depreciation

1.2.1.5 The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

- Sustainablecompetitive advantagethroughinnovation

- Competition between online and offline companies;

- Level ofadvertisingexpense

- Powerfulcompetitive strategy

- The visibility of proprietary items on the Webused by a company which can intensify competitive pressures on their rivals

How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able

to charge higher prices and achieve higher profits, until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival

1.2.2 Matrixes are used to analyze, evaluate:

1.2.2.1 External Factor Evaluation Matrix:

External Factor Evaluation (EFE) matrix method is a strategic-management tool

often used for assessment of current business conditions The EFE matrix is a good tool

to visualize and prioritize the opportunities and threats that a business is facing

External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces

Developing an EFE matrix is an intuitive process which works conceptually very much the same way like creating the IFE matrix The EFE matrix process uses the same five steps as the IFE matrix:

 List factors: The first step is to gather a list of external factors Divide factors

into two groups: opportunities and threats

 Assign weights: Assign a weight to each factor The value of each weight

should be between 0 and 1 Zero means the factor is not important One means that the factor is the most influential and critical one The total value of all weights together should equal 1

 Rate factors: Assign a rating to each factor Rating should be between 1 and 4

Rating indicates how effective the firm’s current strategies respond to the factor

1 = the response is poor 2 = the response is below average 3 = above average

4 = superior Weights are industry-specific Ratings are company-specific

 Multiply weights by ratings: Multiply each factor weight with its rating This

will calculate the weighted score for each factor

 Total all weighted scores: Add all weighted scores for each factor This will calculate the total weighted score for the company

Evaluation: Total scores do not depend on the number of factors, highest 4 and

lowest 1:

 4: means firm has a good reaction with opportunities and threats

 2.5: means firm has a medium reaction with opportunities and threats

 1: means firm has a poor reaction with opportunities and threats

1.2.2.2 Competitive Profile Matrix (CPM)

Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry Competitive profile matrix shows the clear picture to the firm about their strong points and weak points relative to their competitors The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies The best thing about CPM that it includes your firm and also facilitates to

add other competitors make easier the comparative analysis

IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but CPM include both internal and external factors to evaluate overall position of the firm with respective to their major competitors

The competitive profile matrix consists of following attributes mentioned below

 Critical Success Factors:

Critical success factors are extracted after deep analysis of external and internal environment of the firm Obviously there are some good and some bad for the company in the external environment and internal environment The higher rating show that firm strategy is doing well to support this critical

success factors and lower rating means firm strategy is lacking to support the factor

 Rating

Rating in CPM represents the response of firm toward the critical successfactors Highest the rating better the response ofthe firmtowards the critical success factor, rating range from 1.0 to 4.0 and can be applied to any factor

There are some important points related to rating in CPM

 Rating is applied to each factor

 The response is poor represented by 1.0

 The response is average is represented by 2.0

 The response is above average represented by 3.0

 The response is superior represented by 4.0

 Weight

Weight attribute in CPM indicates the relative importance of factor to being successful in the firm’s industry The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight tofactorsmust

be equal to 1.0 otherwise the calculation would not be consider correct

 Weighted Score

Weighted score value is the result achieved after multiplying each factor rating with the weight

 Total Weighted Score

The sum of all weighted score is equal to the total weighted score; final value of total weighted score should be between ranges 1.0 (low) to 4.0(high) The average weighted score for CPM matrix is 2.5 any company total weighted score fall below 2.5 consider as weak The company total weighted score higher than 2.5 is consider as strong in position The other

dimension of CPM is the firm with higher total weighted score considered as the winner among the competitors

1.2.2.3 Internal Factor Evaluation Matrix

Diagram 1.2: IEF matrix

Internal Factor Evaluation (IFE) matrix is a strategic management tool for

auditing or evaluating major strengths and weaknesses in functional areas of a business

IFE matrix also provides a basis for identifying and evaluating relationships among

those areas The Internal Factor Evaluation matrix or short IFE matrix is used in

strategy formulation

The IFE Matrix together with the EFE matrix is a strategy-formulation tool that

can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company The IFE matrix

method conceptually relates to the Balanced Scorecard method in some aspects

The IFE matrix can be created using the following five steps:

 Step1: Conduct internal audit and identify both strengths and weaknesses in all

your business areas It is suggested you identify 10 to 20 internal factors, but the more you can provide for the IFE matrix, the better The number of factors has

no effect on the range of total weighted scores (discussed below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting from subjective ratings First, list strengths and then weaknesses It is wise to be

as specific and objective as possible You can for example use percentages, ratios, and comparative numbers

 Step 2: Having identified strengths and weaknesses, the core of the IFE matrix,

assigns a weight that ranges from 0.00 to 1.00 to each factor The weight assigned to a given factor indicates the relative importance of the factor Zero means not important One indicates very important If you work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0

to 100 scale instead of 0.00 to 1.00 Regardless of whether a key factor is an internal strength or weakness, factors with the greatest importance in your organizational performance should be assigned the highest weights After you assign weight to individual factors, make sure the sum of all weights equals 1.00 (or 100 if using the 0 to 100 scale weights)

The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry Weights are industry based

 Step 3: Assign a 1 to 4 rating to each factor Your rating scale can be per your

preference Practitioners usually use rating on the scale from 1 to 4 Rating captures whether the factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4) If you use the rating scale 1 to 4, then strengths must receive a 4 or

3 rating and weaknesses must receive a 1 or 2 rating

Note, the weights determined in the previous step are industry based Ratings are company based

 Step 4: Now we can get to the IFE matrix math Multiply each factor's weight

by its rating This will give you a weighted score for each factor

 Step 5: The last step in constructing the IFE matrix is to sum the weighted scores for each factor This provides the total weighted score for your business

Evaluation:

 Total score < 2.5 means company has weak internal factors

 Total score > 2.5 means company has strong internal factors

1.2.2.4 SWOT Matrix:

SWOT analysis is to manage and delete risks which company does not recognize them By analyzing SWOT, company can draft a strategy to make the differences with competitors

SWOT can be made following these steps:

 Step 1: List main opportunities from external environment

 Step 2: List main threats from external environment

 Step 3: List main company strengths

 Step 4: List main company weaknesses

 Step 5: Combine strengths and opportunities to create SO strategies

 Step 6: Combine weaknesses and opportunities to create WO strategies

 Step 7: Combine strengths and threats to create ST strategies

 Step 8: Combine weaknesses and threats to create WT strategies

Table 1.1: SWOT matrix

S2: ……

S3: ……

2: … 3: …

2: … 3: …

Weaknesses ( W)

List weaknesses according

its important order

WT strategies establish a

defensive plan to prevent the firm's weaknesses from making it highly susceptible

to external threats

1: … 2: … 3: …

1.2.2.5 Strategic Position & Action Evaluation (SPACE) matrix

The SPACE matrix is a management tool used to analyze a company It is used to determine what type of a strategy a company should undertake

The Strategic Position & Action Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization

The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix)

What is the SPACE matrix strategic management method?

To explain how the SPACE matrix works, it is best to reverse-engineer it First, let's take a look at what the outcome of a SPACE matrix analysis can be, take a look at the picture below The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:

 Aggressive

 Conservative

 Defensive

 Competitive

This is what a completed SPACE matrix looks like:

Diagram 1.3: SPACE matrix

This particular SPACE matrix tells us that our company should pursue

an aggressive strategy Our company has a strong competitive position it the market with rapid growth It needs to use its internal strengths to develop a market penetration and market development strategy This can include product development, integration with other companies, acquisition of competitors, and so on

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry The SPACE matrix is based on four areas of analysis

Internal strategic dimensions:

 Financial strength (FS)

 Competitive advantage (CA)

External strategic dimensions:

 Environmental stability (ES)

 Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension These factors analyze a business internal strategic position The financial strength factors often come from company accounting These SPACE matrix factors can include for example return on investment, leverage, turnover, liquidity, working capital, cash flow, and others Competitive advantage factors include for example the speed of innovation by the company, market niche position, customer loyalty, product quality, market share, product life cycle, and others

Every business is also affected by the environment in which it operates SPACE matrix factors related to business external strategic dimension are for example overall economic condition, GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures, industry growth potential, and others These factors can

be well analyzed using the Michael E.Porter's Five Forces model

The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates

The following are a few model technical assumptions:

 By definition, the CA and IS values in the SPACE matrix are plotted on the X axis

- CA values can range from -1 to -6

- IS values can take +1 to +6

- The FS and ES dimensions of the model are plotted on theY axis

- ES values can be between -1 and -6

- FS values range from +1 to +6

 How do construct a SPACE matrix?

The SPACE matrix is constructed by plotting calculated values for the competitive advantage (CA) and industry strength (IS) dimensions on the X axis The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions The SPACE matrix can be created using the following seven steps:

 Step 1: Choose a set of variables to be used to gauge the competitive advantage

(CA), industry strength (IS), environmental stability (ES), and financial strength (FS)

 Step 2: Rate individual factors using rating system specific to each dimension

Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best) Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best)

 Step 3: Find the average scores for competitive advantage (CA), industry

strength (IS), environmental stability (ES), and financial strength (FS)

 Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the

appropriate axis

 Step 5: Add the average score for the competitive advantage (CA) and industry

strength (IS) dimensions This will be your final point on axis X on the SPACE matrix

 Step 6: Add the average score for the SPACE matrix environmental stability

(ES) and financial strength (FS) dimensions to find your final point on the axis

Y

 Step 7: Find intersection of your X and Y points Draw a line from the center of

the SPACE matrix to your point This line reveals the type of strategy the company should pursue

1.2.2.6 Internal – External (IE) matrix

The Internal-External (IE) matrix is another strategic management tool used to

analyze working conditions and strategic position of a business The Internal External

Matrix or short IE matrix is based on an analysis of internal and external business

factors which are combined into one suggestive model

The IE matrix is a continuation of the EFE matrix and IFE matrix models

The IE matrix belongs to the group of strategic portfolio management tools In a similar manner like the BCG matrix, the IE matrix positions an organization into a nine cell matrix

The IE matrix is based on the following two criteria:

 Score from the EFE matrix this score is plotted on the y-axis

 Score from the IFE matrix plotted on the x-axis

The IE matrix works in a way that you plot the total weighted score from the EFE

matrix on the y axis and draw a horizontal line across the plane Then you take the score calculated in the IFE matrix, plot it on the x axis, and draw a vertical line across the plane The point where your horizontal line meets your vertical line is the determinant of your strategy This point shows the strategy that your company should follow

On the x axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents

a weak internal position A score of 2.0 to 2.99 is considered average A score of 3.0 to 4.0 is strong

On the y axis, an EFE total weighted score of 1.0 to 1.99 is considered low A score

of 2.0 to 2.99 is medium A score of 3.0 to 4.0 is high

Now we plot these values on axes in the IE matrix

This is what a completed SPACE matrix looks like:

Diagram 1.4: IE matrix

This IE matrix tells us that our company should hold and maintain its position The

company should pursue strategies focused on increasing market penetration and product development (more about this below)

The IE matrix can be divided into three major regions that have different strategy

implications

Cells I, II, and III suggest the growth and build strategy This means intensive and aggressive tactical strategies Your strategies should focus on market penetration, market development, and product development From the operational perspective, a backward integration, forward integration, and horizontal integration should also be considered

Cells IV, V, and VI suggest the hold and maintain strategy In this case, your tactical strategies should focus on market penetration and product development

Cells VII, VIII, and IX are characterized with the harvest or exit strategy If costs for rejuvenating the business are low, then it should be attempted to revitalize the business In other cases, aggressive cost management is a way to play the end game

1.2.2.7 Quantitative Strategic Planning Matrix (QSPM)

QSPM helps the strategists decide objectively which strategies belong to alternative strategies are the best attractive and appropriate for company follows to implement successfully its goals The process to create QSPM include 6 steps as follows:

 Step 1: Provide a list of internal factors strengths and weaknesses Then

generate a list of the firm's key external factors opportunities and threats

These will be included in the left column of the QSPM You can take these factors from the EFE matrix and the IFE matrix

 Step 2: Having the factors ready, identify strategy alternatives that will be

further evaluated These strategies are displayed at the top of the table Strategies evaluated in the QSPM should be mutually exclusive if possible

 Step 3: Each key external and internal factor should have some weight in the

overall scheme You can take these weights from the IFE and EFE matrices again You can find these numbers in our example in the column following the column with factors

 Step 4: Attractiveness Scores (AS) in the QSPM indicate how each factor is

important or attractive to each alternative strategy Attractiveness Scores are determined by examining each key external and internal factor separately The

range for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3

= reasonably attractive, and 4 = highly attractive If the answer to the above

question is no, then the respective key factor has no effect on our decision If the key factor does not affect the choice being made at all, then the Attractiveness Score would be 0

 Step 5: Calculate the Total Attractiveness Scores (TAS) in the QSPM Total

Attractiveness Scores are defined as the product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) in each row

The Total Attractiveness Scores indicate the relative attractiveness of each key factor and related individual strategy The higher the Total Attractiveness Score, the more attractive the strategic alternative or critical factor

 Step 6: Calculate the Sum Total Attractiveness Score by adding all Total

Attractiveness Scores in each strategy column of the QSPM

The QSPM Sum Total Attractiveness Scores reveal which strategy is most attractive Higher scores point at a more attractive strategy, considering all the relevant external and internal critical factors that could affect the strategic decision

This is an example about QSPM looks like:

Strategies are chosen

Basis of attractiveness scores

Strategy 1 Strategy 2 Strategy 3

QSPM indicates the relative attractiveness of the strategy can choose and more importantly, it provides an objective basis to consider and decide the most appropriate choice about product quality However QSPM also has limitations and must have certain conditions to be used in practice One of the biggest limitations is that during construction of the matrix requires the judgment by intuition to grade attractiveness

score of elements - although the information was based on the environmental analysis was conducted from before Therefore use effectively QSPM requires the strategist thoroughly discuss and agree on each figure in the matrix by adding bases to score in basis of attractiveness scores column

Summary of Chapter 1

In this chapter, we introduce some strategic business concepts and outline corporate strategic management process Given the logic of the theory of strategic management and strategic management process shows

a logical, systematical and objective method of determining corporate future tendency

In next chapters, we will apply arguments raised in this chapter to build up developing strategy for Sacombank in the period of 2011 – 2020.

CHAPTER 2: ANALYZE SACOMBANK BUSINESS OPERATION 2.1 Introduction to banking services

2.1.1 Concept of banking services

2.1.1.1 Concept of services:

Bank is a professional organization in the field of establishing and providing management services for the community and it also plays many other economic roles Successful banking totally depends on the ability to determine financial services of the social demand conduct those services effectively and sell them at a competitive price

So nowadays, what kind of services is required from banks by the society? Basic functions of multipurpose banking nowadays:

Diagram 2.1: Model of modern banking

Payment

Saving Cash Management

 Foreign exchange: History shows that one of the first banking services was

foreign exchange A bank purchased and sold a currency and got a commission

as a service fee

 Commercial paper discount and commercial loan: At the early stage, banks

discounted commercial papers which, in fact, loans given to local businessmen who sold customers’ payables to the bank for cash

 Deposit: Giving loans is considered as a high profit activity So banks have tried

many ways to mobilize capital for loans One of the important capitals is mobilized from customers’ deposits

 Protect valuable items: From the Medieval, banks have storage gold and other

precious items for customers in the store Attractiveness is that certificates issued by banks to customers (which record the stored assets) could be in circulation like money

 Sponsor government activities: In the Medieval and early industrial revolution,

banks’ ability to mobilize capital and give huge loans got the most attention of the government Normally, banks are granted with establishment certificates if they purchase government bonds on a definite percentage of total deposits they mobilize

 Provide transaction accounts: A new and most important service developed in

this age is demand deposit, a deposit with which the account holder can issue checkbooks for purchase of goods and services The offer of this new kind of deposit is one of the most important advancement in the banking sector because

it remarkably improves payment process to make business transaction easier, faster and safer

 Provide trust service: Banks have conducted equity management and financial

management for private and commercial companies and charged fees based on the value or size of the mortgages managed by banks This service of asset management is called trust service Most banks provide both services of individual or personal trust service and commercial trust service

 Modern banking services

 Personal loan: In the history, most banks do not attempt to give personal loans

because they believe that personal loans are generally of small size and with relatively high bankruptcy risk though they have high interest rate; risks proportionate with profits So banks now provide various financial services of personal loans in the forms of personal installment loan, mortgage, credit cards, etc

 Financial consultant: Banks have been requested to provide financial

consultant, especially in savings account and investment Banks now provide various financial consultant services from individual tax preparation and financial plan to corporate customers of their domestic and foreign market opportunities

 Cash management: For many years, banks have discovered that some services

carried out for them are also useful for their clients One of the most outstanding examples is the service of cash management While banks tend to specialize in cash management service for organizations, now there is an increased trend of similar services for personal clients

 Finance leasing service: Many banks actively offer businessmen with rights to

choose and purchase necessary equipments and machines through lease contracts in which banks purchase the equipments and lease them to clients Originally it was regulated that such clients shall pay the lease fee (that would finally spend on purchasing such equipments) and at the same time, bears taxes and repair costs (through subsidiaries, finance leasing companies and 100% owned banks)

 Finance project: Banks tend to provide term loans for construction cost of new

plants especially in high-tech industries Risk of this kind of credit is generally high and requires huge capital, so project loans are often in the form of cooperation between banks

 Insurance services: For many years have banks provided credit insurance to

customers It ensures the return in case the customer is dead or disable At the

moment, banks often provide customers with insurance through joint ventures or executive agent agreements that an insurance company agrees to place a representative office at the bank and the bank will get a part of the service revenue there or establish an insurance joint stock company

 Security broker services: In the current financial market, many banks try to

become a real “financial grocery” to fully provide financial services to help customers satisfy with any demand at one place This is among the main reasons why banks start to provide services of security broker that help customers to purchase shares, bonds and other securities without asking for a security business by establishing a subsidiary of 100% capital owned or a security joint stock company

 Investment banking services and commercial banking services: Banks now

follow the leading financial organizations in providing investment banking services and commercial banking services to great corporations These services include determining purpose of merging, acquisition or security trade for customers

2.1.2 The value chain of the banking:

Technical infrastructure of Bank

Risk management Technology develoment Human Resources

Raising

Capital

The idea of the products by target customers

Marketing, sales and distribution channel selection

The banking – the target customers

Diagram 2.2: The value chain of the banking

(Source: www.saga.vn)

Value

2.1.3 Current environment of banking sector

The competitive environment in the financial banking has started since 2001 and got really eventful since 2006 after Vietnam joined WTO Many foreign banks were established in Vietnam such as HSBC, ANZ, Deutsche Bank Vietnam, Citibank, etc and joint banks such as IVB, VRB, SVB, etc Many fast developing commercial joint stock banks such as Techcombank, VIB start to expand their network, vary their products with competitive prices Some foreign banks such as HSBC, ANZ start to develop deposit services in Vietnam to compete with Vietnamese banks to mobilize capital Non-state banks such as VCB, BIDV, and INCOMBANK gradually recognized the importance of improving their competitive position through improving serving attitudes and service quality Commercial banks’ competition tend to focus on elements

of product and service differentiation and operation network to attract target customers and low expenditure is formed from saving costs due to good management and technology appliances Banks compete with each other in detailed contents of loans, deposit, product and service differentiation, technology innovation, service quality, transaction network, product and service price and human resources

Vietnam is implementing WTO commitment in financial banking Banking market

is still preliminary, potential and attracted with a young population It prevails on the coming competition in banking sector that requires banks to continue with improvement, reorganization and set their own way to develop

Developing trend of banking sector splits into separate fields from a traditional multipurpose banking Parts of retail, trade, micro finance, personal loan and investment banking model are being specialized Depending on their strengths, each bank selects a developing model to focus and utilize that strength to increase their working shares, then optimizes costs as well as profits

Despite of the emergence of more participants and more competition in the financial market, market size certainly will also increase following to the economic development So banking retail is considered potential to develop However, technology infrastructure, labour productivity, monotonous products, and administrative regulation, etc are barriers of domestic banking competition Banks

surely shall set up clear retail goals, strategies to improve capital capacity and technology and risk management, consolidate technology infrastructure and diversify service products Furthermore, in order to success banks shall set up for themselves a core competence system to create differences and stably develop

2.2.1 Establishment and development of Sacombank:

Sacombank was established on 21st December 1991 based on the merging of Go Vap Economy Development Bank and three credit establishments of Lu Gia Credit Establishment (District 11), Thanh Cong Credit Establishment (District 5) and Tan Binh Credit Establishment (Tan Binh District) with an original charter capital of only 3 billion dongs After nearly 20 years development, Sacombank has grown up and become a great economic corporation in Vietnam

With an original capital of 3 billion dongs contributed by shareholders, up till now Sacombank’s charter capital is 9,179 billion dongs from about 74,000 shareholders among whom are 2 foreigners, Dragon capital Financial Holding limited (England) and ANZ Bank (Australia) and it is among the group of joint stock banks of biggest charter capital in Vietnam

Network: Upon newly established, Sacombank had only 5 branches in some districts in Hochiminh City; To the end of 2010, its network has expanded to every cities and provinces in the whole country with 364 locations and branches in 2 neighboring countries, Laos and Cambodia Sacombank is the one with the biggest network among the commercial joint stock banks and the only Vietnamese bank that has branches in Laos and Cambodia Apart from a wide system of branches and transaction centers, Sacombank is also the only commercial bank in Vietnam who has a system of various subsidiaries such as foreign exchange companies, finance leasing companies, security companies and asset management companies, etc

Services of Sacombank are diversified and rich in full products of deposit, loan, domestic payment, international payment, currency trade, factoring, etc

With more than 8,000 young and energetic personals who always devote themselves for the wealth of Sacombank and with a lucid and highly consistent management of Board of Directors and General Directors, Sacombank have obtained success in recent years With outstanding achievements in continuous years, Sacombank received certificate of merit from the prime Minister for many activities (2010), competitive standard of State bank for the leading banking organization in 2009, etc Internationally, Sacombank honorably received the award of “Best Retail Bank Vietnam 2009) voted by Asian Banker (Singapore) and in 2010, Sacombank was awarded with “Best Foreign Exchange Provider 2010” voted by Global Finance (American)

Diagram 2.3: Organizational Structure of Sacombank