Organizational Structure and Performance of Davivienda - Assignment Example

Davivienda of the of the Table of Contents Table of Contents 2 Introduction 3 Davivienda-Business Overview 3 External Environment Analysis 3 Internal Environment Analysis 8 Conclusion (Organizational Structure & Performance) 10 10 11 References 12 Introduction The researcher has selected Davivienda which is a Colombian bank, as the sample organization in the paper. The paper will shed light on issues like external and internal competitive environment for Davivienda with the help of PEST and SWOT analysis. Analyzing resource based competency of the Colombian bank will also be important part of the paper. In the later section of the paper, the researcher will identify competitive position of Davivienda and role of organizational structure of Davivienda in affecting their performance. Before going to the main discussion, the paper will briefly describe business matrix of Davivienda. Davivienda-Business Overview Davivienda which is renowned Colombian Bank and the bank is part of Bolivar Corporate Group, was established as mortgage and savings Corporation in the year 1972. In the next 30 years, the Columbian bank had diversified its business credit card portfolio and retail banking services (Davivienda, 2010). In 2002, the bank has established partnership with IFC in order to form Titularizadora de Colombia which is a securitization arm of the bank. In the last 10 years, Davivienda acquired financial institutions like Bansuperior, Confinanciera and Bancafé along with its subsidiaries in order to become third largest financial institution in Columbia. At present, Davivienda has more than 21.5% market share in the credit cards portfolio (Davivienda, 2010) External Environment Analysis Macro environment analysis of Columbia can be defined in the following manner. Table 1: PEST Analysis Driving Force Characteristics Effect on Davivienda Political Government of Colombia is struggling to find stability and widespread corruption in the country is also challenge for the government. In the last few years, Davivienda faced challenges to attract foreign investors due to ambiguous government policy. Economical The country is facing problems related to current account deficit, budget deficit. Recently, Colombian government infused $2 billion to pump up the economy. Due to stagnant economic growth and decreasing per capita income of the country, the bank is facing challenges in designing price sensitive product portfolio. Social Colombian customers have become risk concerned after experiencing the ill effect of economic recession. Davivienda is facing challenge to fix the interest rate of its lending and mortgage portfolio in order to encourage customers take home loan. Technological Colombian Government spends less than 0.3% of GDP in research & development or technology integration while same is the condition for private sector. Davivienda has tried to implement technology up gradation such as Enterprise Resource Planning (ERP), Electronic Data Interchange (EDI) etc in order to speed up the process flow. However, still the bank lags behind global financial giants in order to ensure security of customer accounts. (Source: Economic Commission for Latin America and the Caribbean, 2011) Industry Characteristics and Competitive Position of Davivienda In the last few decades, banking industry has been proliferated in Columbia and other Latin American countries up to great extent due to easing of foreign direct investment (FDI) norms by government. Figure 1: Banking Industry Growth in Latin America (Source: Economic Commission for Latin America and the Caribbean, 2011) However, as the domestic savings in the country has decreased after economic recession hence demand for credit card has decreased slightly in Columbia in recent years. Colombian banking industry has been dominated by four major players Bogotá, Davivienda, Bbva and Bancolombia and these four players contribute more than 50% of the financial sector of the country. However, Davivienda has reached third position in terms of credit balances while the bank is ranked as no. 1 in the field of agricultural banking. Figure 2: Competitive Position of Davivienda (Source: Davivienda, 2010) System side is showing overall picture of the banking industry in Colombia while the left hand side is depicting the business portfolio of Davivienda. According to the comparison, Davivienda focuses more on consumer loans in comparison to competitors and that is the reason why Davivienda is ranked second in terms of consumer loan segment in the country. Till now, Davivienda has not explored the commercial banking options in comprehensive manner like competitors and the bank is currently ranked in third place in terms of commercial banking. Figure 3: Growth wise Positioning of Davivienda (Source: Davivienda, 2010) It is evident from the above diagram that, Davivienda has been surpassed its competitors in terms of loan reserve and growth during the time 2009 to 2010. The bank has achieved leadership position in terms of mortgage banking while there is scope for Davivienda to expand its wing in the field of commercial banking sector. Competitive position of Davivienda is also being hurt by its high operating expense and the bank is ranked fourth in terms operating expense control. Figure 4: High Operating Expense for Davivienda (Source: Davivienda, 2010) Hence, Davivienda has the opportunity to strengthen its competitive position by decreasing operating expense and increasing asset quality. Restructuring of the business portfolio can help Davivienda to become the second most preferred bank in Colombia. Internal Environment Analysis It is evident from the research work of Schreyögg & Kliesch (2007), Grant (2011) and Kraatz & Zajac (2001) that every organization has its own resource competency and in similar context, Davivienda has following resource capabilities. Table 2: Resource Competency of Davivienda Tangible Resources Intangible Resources Human Resources Capabilities Net income of the company has increased by more than 15% in last two years while the bank has established offices in numerous locations across different cities in the world. The bank has also decreased amount of non-performing asset by 40% in last few years which gives them the financial leverage to finance strategic initiatives. Davivienda is the market leader in terms of commercial lending and mortgage services in Columbia and the bank is to become 2nd largest bank in the country. In such context, brand name and positive word of mouth are the biggest intangible resources for Davivienda. The bank has more than 10, 000 employees working in different branches across the world while average work experiences of the employees are more than 6 years. Such talented employee pool helps the bank to offer service in efficient manner. In the last 10 years, Davivienda has acquired more than 4 private level banks in order to increase its market penetration which shows financial and strategic capabilities of the company. (Source: Davivienda, 2010) Hooley & Greenley (2005) and Priem & Butler (2001) pointed out that companies need to conduct resource audit their internal strength and weaknesses before deciding any strategic move and in such context SWOT analysis of Davivienda can be demonstrated in the following manner. Table 2: SWOT of Davivienda Strength Weakness The bank has strong domestic presence and they are also expanding global foothold via horizontal integration. Diversified revenue mix of Davivienda helps them to reduce operating risk and volatility of cash flow. In the last few years, the bank has achieved increased compound annual growth rate. Asset quality of the bank is not increasing as per standard while the bank is also facing challenges regarding increased operating expenses. Lapses of operational security for retail customers of the bank have also increased concern over privacy issue. Opportunities Threat Davivienda has the opportunity to increase its penetration in commercial banking segment while they have also the opportunity to decrease operational expenses in order to increase profitability and operational efficiency. Stringent regulatory framework of Colombia government is cause of concern for the bank while small level local players have also started to enter mortgage lending business in Columbia which possesses threat for leadership position of the bank. (Source: Davivienda, 2010) Conclusion (Organizational Structure & Performance) Taking help of the research work of Prahalad and Hamel (1990), it can be said that organizational structure of Davivienda is not only the performance driver but also one of the key core competency for the organization. Figure 5: Organizational Hierarchy for Davivienda (Source: Davivienda, 2010) Davivienda follows vertical organizational structure with limited no. of participants in the top level management. It is evident from the organizational structure of the company, president, board of directors and vice presidents have sufficient amount of work experience (generally more than 10 years) and skill set in order to control the operational process of the bank. Due to presence of knowledgeable human capital in the organizational structure, the bank has successfully integrated norms of corporate governance in order to improve both business and corporate performance in sustainable manner. References Davivienda. (2010). Davivienda. Retrieved from https://www.davivienda.com/wps/wcm/connect/fd95a2eb-dc16-4b96-83ac-02fb130d1416/Corporate_Presentation_Davivienda.pdf?MOD=AJPERES&CACHEID=fd95a2eb-dc16-4b96-83ac-02fb130d1416. Economic Commission for Latin America and the Caribbean. (2011). The international financial crisis, banking and foreign direct investment in Latin America and the Caribbean. Retrieved from http://www.eclac.cl/publicaciones/xml/2/46572/LIE2011-Chapter3.pdf. Grant, R. (2011). Contemporary strategy analysis. (7th ed.). Hoboken, New Jersey: Wiley. Hooley, G., & Greenley, G. (2005). The resource underpinnings of competitive positions. Journal of Strategic Marketing, 13(2), 93-116. Kraatz, M. S., & Zajac, E. J. (2001). How organizational resources affect strategic change and performance in turbulent environments: Theory and evidence. Organization Science, 12, 632-57. Prahalad, C. K., & Hamel, G. (1990). The core competence of the corporation. Harvard Business Review, 68(3), 79-91. Priem, R., & Butler, J. (2001). Tautology in the resource-based view and the implications of externally determined resource value: further comments. Academy of Management Review, 26, 22-40. Schreyögg, G., & Kliesch, M. (2007). How dynamic can organizational capabilities be? Towards a dual-process model of capability dynamization. Strategic Management Journal, 28(9), 913–933. Read More