Introduction
Today's banking approach is more complex and faces many uncertain conditions that call for effective strategies to cope with the dynamic market changes.Therefore, strategic management is critical in ensuring that organisations operate successfully in the process of meeting their core objectives within the competitive market environment (Madura,2012). Moreover, to effectively address these challenges and complications in market dynamics, performance measurement is gaining popularity within the discipline of strategic management as the only panacea to achieve operational effectiveness and efficiency in the banking sector. This study will cover the origin of British Business Bank (BBB), the strategies employed as well as performance measurement used in the bank.
Origin of British Business Bank
In September 2012, Vince Cable, the Secretary of State for Business, Innovation and Skills, announced about the necessity of innovative British business financial institution with a clean balance sheet and the capability to rapidly expand lending to manufacturers, exporters and growing companies, which operate British economy. The UK sent 1 billion pounds ($1.6 billion) to the new state-owned bank. The Bank was created to solve the problem of "market failure", a situation where the banks, which are required to restore the balance, do not lend to small firms, often because they have lost the ability to assess risks.October 15, 2014, the EU Commission granted the financial establishment with government benefit permission and November 1, 2014, the initiative was successively shifted to the British Business Bank PLC (British Business Bank, 2015). Cable needed long time to seek to create a state development bank, expanding commercial lending, similar to the German KfW or the US Exim Bank as the UK was the only state without such bank. However, he had to act with caution in order to avoid conflict with the EU rules on state aid (Groom and Jenkins, 2014).
Strategic management concepts used at British Business Bank
The government fully owns the British Business Bank with operations aimed at fulfilling public policy objectives. This means that the bank's effort cannot be measured by increased profitability but rather by various benefits the bank can create in the economy through its programmes it offers to the UK market. The overall aim of the bank is to ensure that it creates diverse as well as vibrant private sector partnerships with the market players. For every starling pound the bank invests in the private economy, the bank expect an equivalent of twice or three times contribution by the private sector in the next five years (Bovaird & Loffler, 2009). The major goals of the bank that the strategic plan tries to achieve is to transform the financial market systems for smaller businesses in order to boost economic prosperity in the UK. The bank achieves this through increasing the money supply to micro businesses and develops a vibrant market that enables small businesses to thrive and build confidence for small business start-ups in the country to support the government objective of employment creation in the economy.
The bank, therefore, has developed a flexible strategic planning process to be able to pinpoint lapses in market and help solve the concerns through an all-inclusive financial objectives to help achieve sustainable growth through developing new products and improving already existing products to meet the bank's goals. Both the existing and new products at the bank are accessed against some specific criteria that are based on their monetized economic impact as well as non-monetised benefits that include the exports, competition and innovation (Seaford et al.,2013). The bank also considers market imperfection issues and delivery considerations in setting the standards on its operations that assist it identify market failures and design products to correct the same.
The Bank has segmented the UK business market into three broad categories :these are start-ups firms, growth firms and finally viable but underfunded companies. Therefore, the bank has designed four different programmes for these market segments targeting to put an end to these market gaps. These programmes are Venture Capital Solutions, Lending Solutions, Investment programme and Wholesale Solutions (Weeks,2015).
Venture capital solutions is the one responsible for creating vibrant and diverse market that supports starts up businesses and high growth companies operating in the UK through the provision of products targeting uplifting of smaller businesses. Venture capital solutions is divided into four different categories that is Angel CoFund, Enterprise Capital Funds, VC Catalyst Fund and wholesale solutions (van der Schans,2015).
The bank envisages that its co-Fund will support around fifty new investments each year with a target to recycle £40 million in opening new ventures for the first ten years. In order to achieve this strategic plan, the bank secured state aid approval from partners like European Commission so as to extend it activities and programme from £2 million to £5 million. The bank also extended it maximum investment from a tune of £ 25 to £ 50 million. The major challenges facing these plan however is that since the period where the nation faced financial crisis, most investors withdrawn as a result of poor returns the Bank then set in to bridge the market gap.
Venture capital solutions, on the other hand, target the provision of seed capital and ventures which are still at their early stages. The bank is ready to extend the VC catalyst fund to the tune of £125 million. This extension is meant to attract and maintain significant private sector funding so as to deliver major business investments in the UK market for the next decade. Therefore, about 543.5m has so far been committed to about 16 ECFs that are currently managed by 14 fund managers. Secondly, about £204m further invested in more than 169 corporations and still more than £300m is yet to be utilized by the bank.
Alternatively, the bank also manages a portfolio of legacy investments that are made by the government towards venture capital as well as debt funds. Besises, the banks also manage BIS interests in about 90 regional funds and offers oversight for all other existing funds under its watch. The leading solutions are divided into two categories those dealing with offering start-up loans and those handling Enterprise Finance Guarantee. The bank provides funds to micro businesses through start-up loans facility programme that support various entrepreneurs operating in the country and willing to start their businesses with viable ideas but are unable to attract financing from mainstream banks because of high levels of risks associated with such ventures. These start-up loans programme is managed and run by an independent company that also offer mentorship to small businesses through offering vital advice to entrepreneurship training to enable businesses they fund to be managed and run effectively. The forward plan, the bank has already achieved momentum and widely expanded its network across the UK from the time this programme was launched in 2012. The provision of this facility is expected to continue providing start-up loans facility to new entrepreneurs with a target to achieve up to 300 new loans per week.
The bank also has a role in providing market information and developing the confidence to small business through raising business awareness and various financial options . In order to achieve this the bank work in partnership with various financial groups and policy officials in providing the right information to the business entrepreneurs in the country.
Issues the bank considers in its strategic planning process
Some of the major issues in the bank effort to meet its strategic objectives are environmental scanning. The bank looks at areas where financial markets are not working perfectly due to high concentration of risk and fear by private banks pursuing profit objectives. One such areas is funding start-up business. Most banks insist on credit history, financial statements for a specific period before they can be adverse credit. Therefore, commercial banks find it so difficult to give credit facilities to start-up businesses because of high risk involved. This kills so many business ideas and opportunities. Therefore, British Business Bank has tailor made a product for new ventures and start-ups businesses so that more businesses can be established in the nation and help create employment and achieve economic prosperity in the United Kingdom. The bank has also articulated well all its key priority areas and seek for expertise and relevant partnership to ensure that they deliver its mandate to the business operating in the UK. The banks constantly assess various impact of caused by already existing programme in order to identify gaps and work out a plan to meet the gaps. They also perform risk assessments and advises the business appropriately on mitigation measures and various financial alternatives on the market suitable for every particular case. The bank also seeks for relevant partnership and agree with its major stakeholders on various business plans they pursue and avail rightful information to businesses through its websites.
The different BBB approach
The bank approach to providing financial inclusion to UK businesses is different from the normal profit making banks being a bank for the government they are simply pursuing the government objectives of creating more employment as well as achieving economic prosperity in the nation. However, they have similar strategic planning process like the profit making commercial entities that begin with analysing environmental scanning, identifying key priority areas, assessing the impact of their products and developing risk assessments and various mitigation measures and finally developing the strategic plan around to help the organisation fulfil its strategic objectives.
Performance measurements of British Business Bank
The bank has placed in a mechanism of performance measurement that assist it be able to understand how it is performing against its strategic goals and objectives. The bank has created a framework that analyses performance measures into three different pillars. The first one is strategic key performance indicators (KPIs). These indicators look at performance in the eyes of both high level and longer terms strategies. The second category of measurements is economic indicators that measure whether the bank products and various programmes are providing additional finances to small businesses as the initially intended objectives of providing financial access and inclusive. It also measures the net impact of these programmes on economic growth. Finally, is the operational and Financial KPIs which measures how the bank products and programmes perform against set KPIs (Elliot & Elliot, 2010). The bank strategic purpose is fulfilled through achieving various strategic objectives, and the objectives are achieved by developing workable strategic plans. The strategic plan though is tracked through developing strategic KPIs measuring whether the bank is still on track in meeting its strategic objectives after a short duration of time. Additionally, the bank also analyses whether each product or programme it offers to businesses is helping to achieve its strategic objectives. The bank's strategic plan is also being assessed by conducting an ex-post evaluation. Such type of evaluations will try to compare businesses under the programme and those supported by mainstream banks and identify the differences. The evaluation will also try to establish the impact of Gross Value Added (GVA) of its programmes and products to the general economy as a whole. Finally, the bank measures through comparing whether each individual programmes are operating within its set target KPIs. For instance, the first objective of the Banks talks about increasing the supply of money in most of the areas where the market does not operate efficiently (British Business Bank,2014). The key performance indicators recognized that for the first five years the bank programmes have yielded about £10 billion of finance clearly indicating that the bank activities are called on meeting market imperfections. The second objective of the Bank is to assist in creating a more diverse market for small and big businesses. About 50% of finance to the businesses were facilitated by the providers rather than mainstream commercial banks indicating that the bank plays vital role of providing different options. the bank also provides market information to businesses in the market that make it possible for all categories of entrepreneurs to seek for relevant financial support to boost their business (Groom and Jenkins,2014). The final objective of the bank is to help in managing taxpayers resources by developing elaborate evaluation plans to the banks programmes.
Issues raised in the performance measurement of BBB
The bank has developed its key performance indicators (KPIs) around it major objectives that also have been designed taking into consideration the banks major targets and goals. Performance measurements at British Business Bank are similar in approach but different in measurement criteria. The bank's KPIs is developed around its strategic n objectives whereas other commercial banks develope their KPIs around four pillars that are financial, people, customer and risk. The bank measures risk performance and assessments just like other commercial banks operating in the United Kingdom. The bank is approaching performance measurements differently due its public nature. Therefore, it is not championing the profit objectives of most commercial banks but an open course.
How BBB differs with other banks in its performance measurements
Performance measurement is one of the fundermental functions of management. The process of performance measurement entails evaluating performance, analysing various changes in the environment and makng vital adjustements as a component of strategic managemenent process ( Chaneta, 2007). In the general perspective, performance measurements should encompass a combination of outcome measurements and performance drivers which are linked to financial measures in a commercial private enties. However, performance measurements at BBB takes similar approach but differ with other private entities due to lack of link to the financial pillar in the final stage of measurements due to public nature concern therefore missing financial objective as an ordinary bank.
Conclusions
According to the development theory, state-owned banks can stimulate economic growth by addressing the lack of private financing in a situation, where the economic and financial development institutions are rather weak. Thus, this concept implies a positive role of such banks in providing the financial resources for certain categories of borrowers, as long as the overall level of financial intermediation in the country is low, saying nothing about the potential effects of the state's presence in the developed countries with the effective functioning of financial markets.Also, government-owned banks play a key role in lending to borrowers in remote regions of the country that do not have access to enough private banking services. Therefore, according to view social theory, the leading role of state banks in the economy providing the necessary financial resources also takes place in countries with low levels of economic and financial infrastructure, experiencing shortages of the private banking capital (Madura, 2012).
Banking community should promote competition in the financial market. To do this, banks need to seek the differences in operating costs, resulting in financial companies with high costs and non-optimal structure lose profit. Operating costs at the major banks are higher, giving a competitive advantage to small banks. It is also necessary to maintain the presence of banks in the financial market with different shares: the disagreement of other market participants deprives the leader of super-profits. Small banks have to change the strategic guidelines and find their specialization and can take a strong position on the banking market. In addition, it is necessary to develop the infrastructure of the banking business actively: to maintain the principle of disclosure and transparency through public reporting and the development of the rating system, to create a training management systems, certification and recertification of independent directors, to form a clear and fair system of financial liability of owners and managers, and more. These measures will strengthen the confidence of customers to banks of all sizes and with different ownership structure (Hughes, 2012; van der Schans, 2015).
Stated goals of British Business Bank allowed it to formulate KPIs concerning the facilitation of finance through developed initiatives and cooperation with other financial institutions as well as the conduct of survey among SMEs and increase in return. In order to achieve stated goals, the Bank applies a four-branched method, which is aimed at financing start-ups, scaleups, established businesses and Enable program. Its strategy of supporting SMEs is carried out through the collaboration with more than 80 associates, namely different banks, web-based platforms, rental businesses and venture investment funds. The Bank's performance measurement indicates about its loss and the negative value of ROE. Notwithstanding stated financial result, in general, British Business Bank has very high share of shareholders' equity (around 87%) and it is assumed that the bank's consistency is higher, however, for the Bank it is more challenging to guarantee high cost-effectiveness of its funds (British Business Bank, 2015; Elliot and Elliot, 2010). Furthermore, the BBB is a very young organization, which within over two years of its functioning has shown valuable outcomes and is going to improve its activity.
References
Bovaird, T. and Loffler, E., 2009. Public Management and Governance, 2nd ed. London: Routledge.
British Business Bank ,2014.Strategic Plan 2014. [online]. Available from http://british-business-bank.co.uk/wp-content/uploads/2014/06/British-Business-Bank-Strategic-Plan.pdf [Accessed: 28 December 2015]
British Business Bank, 2015. Annual Report and Accounts 2015. [online]. Available from http://british-business-bank.co.uk/wp-content/uploads/2015/07/British-Business-Bank-Annual-Report-and-Accounts-2015.pdf [Accessed: 28 December 2015]
British Business Bank ,2015. What We Do. [online]. Available from http://british-business-bank.co.uk/what-the-british-business-bank-does/ [Accessed: 28 December 2015]
Chaneta, I.,2007, Strategic Management Process, Journal of Comprehensive Research, Vol.5, 17-25.
Elliot, B. and Elliot, J. ,2010. Financial Accounting and Reporting (14th edition). Prentice Hall.
Groom, B. and Jenkins, P., 2014. British Business Bank to target SMEs with potential, Financial Times. [online]. Available January 5, 2014, from http://www.ft.com/intl/cms/s/0/8fe98c74-6969-11e3-89ce-00144feabdc0.html [Accessed: 28 December 2015]
Hughes, O.E., 2012. Public Management and Administration: An Introduction, 4th ed. Basingstoke: Palgrave Macmillan.
Madura, J.,2012. International financial management, 11th ed. Mason, OH: South-Western/Cengage Learning.
Seaford et al (2013). The British Business Bank: Creating good sustainable jobs. [online]. Available from http://b.3cdn.net/nefoundation/3ca20a2932a21ebb17_09m6ibe57.pdf [Accessed: 28 December 2015]
van der Schans, D. (2015). The British Business Bank’s role in facilitating economic growth by addressing imperfections in SME finance markets, Venture Capital: An International Journal of Entrepreneurial Finance, 17(1-2), p. 7-25.
Weeks, R. (2015). An Interview with the British Business Bank. [online]. Available March 25, 2015, from http://www.altfi.com/article/0860_an_interview_with_the_british_business_bank [Accessed: 28 December 2015]
