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Introduce The Company And Company's Management Structure And Cultural Perspective Company's Financial Performance ,Company's Leadership And Growth Strategy .
Industrial and Commercial Bank of Chine Limited (ICBC) is a multinational bank in China and it is regarded as the largest bank of the country. ICBC was established on January 1, 1985 and it went into complete restructuring to a joint-stock limited company on October 28, 2005 (icbc-ltd.com 2020). ICBC has its name listed in two major stock exchange; they are Shanghai Stock Exchange and The Stock Exchange of Hong Kong Limited. ICBC has been able in registering its name among the leading banks all over the world with the help of its continuous effort and stable development; and the whole world knows ICBC for its diversified business structure, excellent customer base, strong capabilities of innovation and market competitiveness (icbc-ltd.com 2020). The management of ICBC believes that providing better services is the most important mean to ensuring further business developments; and thus, it prefers to create value through providing better services while providing wide-ranging financial products to 7,033 thousands corporate customers and 607 million personal customer. Another major positive side of ICBC is the continuous integration of corporate social responsibilities with the assistance of its development strategy along with its operation as well as management strategies (icbc-ltd.com 2020). In addition, ICBC has been receiving major recognition in different aspects such as the promotion of inclusive finance, providing support to the reduction of poverty, protecting the environment as well as resources and participating in different public welfare related initiatives and programs. The management of ICBC always keeps in mind its mission and vision to serve the real economy with the core business so that the economy of the country can grow. The bank has been continuously improvising its capability to control and mitigate risks through undertaking a risk-based approach. Major commitment of ICBC can be seen in looking for innovation while maintaining the stability of the overall business operations (icbc-ltd.com 2020).
The main aim of this report is the analysis and evaluation of different aspects associated with ICBC. There are certain sections of this report. The first section provides the introduction of ICBC by discussing its operations, industry and other activities. The next section of the report provides a short literature review on the associated topics of report such as management structure, corporate culture, financial performance, leadership strategy of business, growth strategy, benchmarking strategy and others. The next part sheds light on the management structure of ICBC; this part of the report also discusses about the corporate cultural perspective in the chosen bank. The next part of the report discusses about the recent financial performance of ICBC through the analysis of the provided financial information in the annual report. After that, this report analyses crucial aspects of the leadership of the company and discusses about the strategies adopted by it to ensure business growth. The next part involves in theoretical framework of the related topics along with its application in the context of ICBC. The next part discusses about the benchmarking strategy of ICBC for the purpose of business development. Lastly, the report ends with suitable recommendation to the management of ICBC while providing a conclusion as well as overall summary of the report.
Selection of appropriate organizational structure leads to organizational success. Four types of theories are there for explaining the management structure in the companies; they are classical organisation theory, neoclassical organisation theory, contingency theory and systems theory. Classical organization theory was developed for bringing together scientific management, bureaucratic theory and administrative theory. The main focus of this theory is to get the best people and equipment while scrutinizing each task associated with production (Bybee 2013). As per the concept of neoclassical theory, organizational success depends on a cohesive environment where the subordinates accept the managerial authority; and it is needed to maintain the equilibrium. As per contingency theory, it is not possible to avoid the conflicts but these conflicts can be managed effectively (Van de Ven, Ganco and Hinings 2013). Systems theory states that there is interrelation among all part of an organization and the changes in one area can affect multiple parts of the same organization.
In a business organization, leadership can be assessed with the help of five major theories; they are great man theory, trait theory, contingency theory, situational theory and behavioural theory. As per the concept of great man theory, leaders are born with jut the appropriate abilities and traits to lead; and some of these traits are charisma, confidence, communication skills, social skills and intellectual skills (Sethuraman and Suresh 2014). Therefore, the best leader are not made, they are born. Similarity of this theory can be seen with trait theory which is established on the characteristics of both successful and unsuccessful leaders. Utilization of this theory can be seen in effectively predicting leadership. Contingency theory is developed on the principle that the same leadership is not applicable in all the situations (McCleskey 2014). This theory is also similar with the situational theory which states that no one leadership style replaces others. This theory is based on the belief that leadership largely depends on the present situations in hand. As per the concept of behavioural theory, effective leadership is the outcome of different learned skills; and thus, theory is based on the actions and behaviours of the leaders.
Managed-growth theory and innovative-growth theory are two key theories that explain the business growth of the companies. The prime focus of managed-growth is to achieve market and cost position superior to the competitors by employing better management and planning for achieving the shareholders’ value (Kowalkowski et al. 2015). Innovative-growth strategy influences strategic innovation for driving profitability growth. Innovative businesses are specialized to be different from the competitors, either strategically, or product wise, or both (Bello 2014).
Four types of benchmarking strategies can be seen within the business organizations; they are internal benchmarking, competitive benchmarking, functional benchmarking and generic benchmarking. Internal benchmarking is a common practice where the superior performance of a branch or department of a company is used as an example for all others doing likewise (Claro and Kamakura 2017). In competitive benchmarking, the business practices of a company are re-evaluated by using the performance of its primary competitors as example (Attiany 2014). Functional benchmarking involves in evaluating a company’s performance by using the performance of its non-competitor organization as example. Under generic benchmarking, business performance of an organization is decisively compared with the other companies in the same industry having superior performance.
Organizational culture includes behaviours and values that lead to unique, social and psychological environment of a company. Organizational culture creates key influence on the way of interaction, creation of knowledge, resistance of changes and knowledge sharing (Jerome 2013). The presence of different models can be seen for assessing the culture of an organization; such as Hofstede model, Edgar Schein model, Daniel Denison model, Gerry Johnson model and others. These models provide different theories on organizational culture that are applicable in different organisations. Organizations tend to adopt different corporate cultures based on their business aims, objectives and core operations (Weare, Lichterman and Esparza 2014). These aspects are required to be considered while assessing the organizational culture of a company.
Figure 1: Management Structure of ICBC
It can be seen from the above table that the organizational structure of ICBC is divided into two parts under the shareholders’ general meeting; they are Board of Directors and Board of Supervisors; and these two together forms the senior management team of the bank (icbc-ltd.com 2020). There are six committees under the Board of Directors; they are Risk Management Committee, Nomination Committee, Strategy Committee, Compensation Committee, Audit Committee and Related Party Transactions Control Committee. Board of Directors of ICBC segregate the responsibilities into six departments; they are Marketing Management Department, Profitability Units, Risk Management Departments, Comprehensive Administration Departments, Supporting Departments and Directly Controlled Institutions (icbc-ltd.com 2020). The main departments under Board of Supervisors are Corporate Banking Promotion Committee, Retail Banking Promotion Committee, Institutional Banking Promotion Committee, Investment Banking Promotion Committee, Internet Finance Promotion Committee, Asset and Liability Management Committee, Risk Management Committee, Business and Product Innovation Management Committee, Information Technology Management Committee and Financial Assets Service Management Committee (icbc-ltd.com 2020).
The corporate culture of ICBC consists of three main aspects; they are Mission, Vision and Values. The company has developed the corporate culture of providing excellence for its customers (icbc-ltd.com 2020). In the mission statement, the four main aims of ICBC are to provide excellent services to the clients, to maximise the shareholders’ returns, to ensure success for its organisational people and to ensure largely contribute to the betterment of the society. The vision of ICBC is a major part of its corporate culture (icbc-ltd.com 2020). The vision of the bank is to develop modern and world-class financial institution in the presence of global competitive through complying with the principles delivering excellent innovative products and services. ICBC believes that integrity leads to prosperity. The five major values on which the operation of ICBC is situated are Integrity, Humanity, Prudence, Innovation and Excellence (icbc-ltd.com 2020).
The financial year of 2018 has been a good year for ICBC since the banks has registered good numbers in terms of overall financial performance. In this year, ICBC continued to improve its service capabilities for the real economy while consolidating the foundation of management and operations. The overall profitability structure has been optimized while increasing its control activities and risk precautions. ICBC has been able in achieving the desired sustainability in terms of quality and benefits (icbc-ltd.com 2020).
In the year 2018, the reported amount of net profit by ICBC is RMB298,723 million which is 3.9% more than the previous year’s figure of RMB287,451. 1.11% is the return on total assets and 13.79% is the return on weighted average equity (v.icbc.com.cn 2020). ICBC has also registered a 7.3% growth in operating income that is from RMB675,654 million to RMB725,121 million; and the main reasons contributing this increase are increase in interest-generating assets and net interest margin (v.icbc.com.cn 2020). There has been a 9.7% increase in the net interest income of ICBC in 2018; that is from RMB522,078 million in 2018 to RMB572,518 million in 2018 (v.icbc.com.cn 2020). However, a fall of 0.6% can be seen in the non-interest income of the bank in 2018 that is from RMB153,576 million in 2017 to RMB152,603 million in 2018.ICBC has registered an increase of 4.3% in the operating expenses amount to RMB194,203 million in 2018 from RMB186,194 million in 2017. There is a 4.5% reduction in the income tax expenses of ICBC from RMB77,190 million in 2017 to RMB73,690 million in 2018 (v.icbc.com.cn 2020).
ICBC has registered increase in the total assets in the year 2018 by 6.2%; that is from RMB26,087,043 million in 2017 to RMB27,699,540 million in 2018 (v.icbc.com.cn 2020). Moreover, there is increase in total loans and advances to the customers have increased by 8.3% in 2018 from RMB14,233,448 million in 2017 to RMB15,419,905 million in 2018 (v.icbc.com.cn 2020). Investments have grown at a rate of 17.3% from RMB5,756,704 million in 2017 to RMB6,754,692 million in 2018. At the same time, there is a 5.9% growth in the total liabilities of ICBC in 2018 from RMB23,945,987 million to RMB25,354,657 million in 2018; and the key reasons for this are the 81.7% increase in due to customers, 7.1% increase in due to banks and other financial institutions, 4.4% increase in repurchase agreements, 2.2% increase in debt securities issued and 4.6% increase in other liabilities in 2017 as compared to the previous year (v.icbc.com.cn 2020).
The leadership team of ICBC mainly consists of the Board of Directors and Board of Supervisors of the bank. The leadership team of ICBC has ensured that the bank strictly adhere to all the regulatory requirements in the areas of credit risk management, diligent fulfilment of the established strategies and business objectives. The leadership team of ICBC is responsible for the execution of strategies and overall policies of the organization (v.icbc.com.cn 2020).
ICBC has placed a high significance and value on the development and implementation of growth strategies. Business transformation is the main growth strategy adopted by ICBC. As a part of this strategy, ICBC has developed and implemented a strategic framework of a 3-year plan. Under this strategy, ICBC relies on the real economy by focusing on stable quality, structural adjustment, pursuit of innovation and transformation promotion (icbc-ltd.com 2020). Three major parts of this growth strategy of ICBC are shown below:
1st Stage –ICBC will involve in the implementation of three key projects and undertake the initiatives to ensure improvements in the overall quality. The three key projects are reconstruction of credit management foundation, comprehensive disposition of non-performing loans and improvements of the risk management process (icbc-ltd.com 2020).
2nd Stage –ICBC will undertake the implementation of four key structural adjustments regarding its assets, liabilities, earnings and channels and will build a corporate framework that matches the new market as well as new types of business of the bank (icbc-ltd.com 2020).
3rd Stage –ICBC will implement innovative transformation in five different field; they are retail banking, IT-based banking, corporate banking, mega asset management and integration and internationalisation. This will develop the strategic foundation for the banks for stable growth in profit along with advantage in core competition (icbc-ltd.com 2020).
4th Stage –ICBC will extend the institutional mechanism reform with the intention to lay a solid foundation for transformation, growth and development (icbc-ltd.com 2020).
Earlier part of the discussion shows that the Board of Directors and Board of Supervisors reside at the top of the organizational structure of ICBC; and the other departments are under this senior management team of the bank. This particular management structure of ICBC can be explained in the lights of classical organizational theory that is all about getting the best people and equipment for performing the tasks. As per this theory, the shareholders of ICBC have chosen the best people in the teams of Board of Directors and the Board of Supervisors; and these two boards have selected the best people for other departments of the bank. This helps in creating an overall equilibrium in the management structure of the bank (Nonaka and Toyama 2015).
The above discussion also shows that ICBC has developed such an organizational culture where its mission is driven by providing excellence to its customers through providing quality products and services. ICBC has corporate values like integrity, humanity, prudence, innovation and excellence that help in developing such an organizational environment where ethics and values are provided with utmost priority. On the overall basis, ICBC has been able in establishing an effective organizational culture within their business (Weare, Lichterman and Esparza 2014).
The above discussion shows that ICBC has an effective leadership team in the Board of Directors and Board of Supervisors. Both of these boards include members having effective skills, knowledge and expertise on different aspects to manage a business. They have been appointed by the shareholders from different organizations. This can be explained in the light of behavioural theory of leadership which states that effective leadership is the outcome of learned skills, knowledge and expertise; and it forms the effective leaders all over the world. The same can be seen in case of ICBC as the leaders of the banks are fully skilled that makes them good leaders (Shanafelt et al. 2015).
Earlier discussion discusses about two types of growth strategies that are managed-growth strategy and innovative-growth strategy. The management of ICBC has undertaken a three-stage growth strategy of their business where their focus is on employing effective management while ensuring the presence of innovation in the business. This is a crucial aspect that indicates towards the employment of both managed-growths as well as innovative-growth strategy by the bank. The main aim of ICBC is to ensure the increase in business growth and profitability through the inclusion of innovation in every necessary aspect of the business. This will help the bank in gaining the required competitive advantage in the banking industry (Wright and Stigliani 2013).
The benchmarking procedures adopted by ICBC shows that the bank has adopted the strategies of internal benchmarking and functional benchmarking in different aspects of their business. Internal benchmarking strategy has been adopted by the bank in the development of dividend policy as the bank benchmarks its own dividend percentage to provide the next year’s dividend to the shareholders. In other aspects such as interest rate, internal control, short-term employee benefits and financial products as services, ICBC has followed the policies and procedures of different government agencies and other non-competitor agencies (Tian and Ketsaraporn 2013). This shows the adoption of generic benchmarking strategy by the bank.
ICBC has the strategy of benchmarking in different aspects of their financial and business operations. These are discussed below:
ICBC has upgraded its financial services for small and micro enterprises and private enterprises through benchmarking to the requirements of high-quality economic developments (icbc.com.cn 2020).
ICBC has the strategy of benchmarking in order to benchmark the interest rate. Benchmark interest is the rate of interest of one-year time deposits applied by the People’s Bank of China on each of the value date in each interest-bearing period (icbc.com.cn 2020).
ICBC has maintained the efficiency as well as effectiveness of its internal control by considering the benchmark data. More specifically, the Board of Directors of ICBC has undertaken a self-assessment on the internal control effectiveness as per the Basic Standard for Enterprise Internal Control along with its supporting guidelines issued by five ministries and commission that include MOF, the Guidelines for Internal Control of Listed Companies that SSE issue and the relevant regulatory requirements of CBIRC (icbc.com.cn 2020).
The strategy of benchmarking is also used by ICBC for determining the short-term employee benefits along with the post-employment benefits-defined contribution plans. In case of the latter, government’s plans are used as benchmark (icbc.com.cn 2020).
In case of dividend policy, ICBC used its own dividend related information as the benchmark in order to provide the dividend of next year (icbc.com.cn 2020).
Therefore, it is observable from the above that the company has adopted different types of benchmarking strategies in different aspects of their financial operations.
Based on the above discussion and analysis, certain recommendations are provided below:
There are certain areas in financial performance where ICBC has failed to register an improvement; such as decrease in non-interest income, increase in liability and others. The Board of Directors of ICBC is recommended to put special attention to these areas through the development and implementation of appropriate financial strategies so that these areas can be improved.
ICBC has only adopted internal and genetic benchmarking strategies for the purpose of benchmarking. However, lack of competitive benchmarking can be seen in the bank which is a very effective procedure to improve the overall business performance. Therefore, the recommendation to the Board of Directors of ICBC is to employ competitive benchmarking within the organization by presenting the examples of good performance of major competitors. This would help in enhancing the business performance of the bank.
Apart from the above, the management of ICBC is recommended to adopt more growth strategies in different parts of their business. This will provide the bank with the required competitive advantage.
Conclusion
ICBC is the largest bank in China whereas it is also regarded as one of the leading banks all over the world. The analysis shows that ICBC has developed such a management structure where responsibilities are segregated from top to bottom; and the senior management team includes the Board of Directors and the Board of Supervisors. In terms of cultural perspective, ICBC has such an organizational culture where the presence of certain values can be seen such as integrity, prudence, excellence, humanity and innovation. The bank has developed its mission and vision by considering these organizational values and culture. When considered the financial performance of ICBC, it can be observed that there are improvements in most of the financial aspects of the bank; such as increase in interest income, net profit, total assets and others; but the bank needs to put special emphasis on the areas where it has failed to register growth such as non-interest income and others. ICBC has an effective leadership team that consists of the leaders with skills, knowledge and expertise; and the presence of these skilful leaders is one major reason for the business success of ICBC all over China and globe. ICBC as infuses innovation in their business through the introduction of their three-stage growth strategy that is focused on increasing the company’s overall profitability through innovative products and services for its customers. ICBC has effectively used the strategies of internal and generic benchmarking in different aspects of its business with the aim to improve its business operations. Adoption of these benchmarking strategies has provided the company with the opportunity to measure its performance against the best performance parameters. On the overall basis, it can be concluded that all the above-discussed aspects together contributed towards the success of ICBC in China and all over the world.
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