Centre for Banking and Finance

This paper examines the effectiveness of strategic planning in commercial banks and how management styles influence (or reflect influences) on diversification decisions within bank markets. The research is based on and further develops a framework proposed by Goold and Campbell (1987) and Goold et al. (1994) by testing the strategic response of banks to changes in their growth opportunities. Changes in growth opportunities are measured by diversification and market positioning moves that respond to external innovations (and in particular to changes in regulation and IT applications). External change is, therefore, thought to have introduced strategic needs to bank markets through effective threats of entry and to have resulted in several dimensions for commercial banks as new intermediaries diversified into bank markets. Empirical support for the effectiveness of strategic planning emerged from interviews with senior managers with direct (and indirect) responsibilities in bank markets and working within distinct competitive environments. The first part of the survey was carried out in 1996 in Mexico, Spain and the UK. The second part considered Germany, Ireland and Mexico in 1999. A third survey considered participants from Sweden, Estonia and Portugal in 2001. Results emerging from triangulating responses suggested that, on balance, top managers in bank markets are predisposed to integrate around purely strategic rather than purely financial targets or than a combination of strategic and financial performance. Management of diversity does not seem to be time invariant with results suggesting that technological advances have increased in importance from rank 5 in 1993, to rank 3 in 1996, and top of the list in 1999 and 2001. At the same time, the analysis established that diversification moves of domestic competitors (resulting from regulatory and technological innovations) rather than newly established foreign banks, were perceived as the top drivers to change the boundaries of bank markets. Information technology management played a secondary role in the design of bank strategy but at the same time, computer applications were perceived as an important force to modify competition in bank markets.