The Effect Of Customer Service Strategies On Corporate Performance In Ghanaian Banks
CHAPTER ONE INTRODUCTION
1.1 Background of the Study
Globally, the world business is faced with stiff competition, due to the increased technology. In the world business arena, financial institutions have faced fierce competition from each other; hence the challenge remains to be customer service strategies that will enable them sustain the biggest market share. For example in most developing countries like Nigeria, retaining customers and attracting them has constituted one of the toughest and most challenging activities of financial institutions (Banabo & Koroye, 2011). In 2008 to 2009, the world economy suffered the deepest global financial crisis ever since World War II. Countries around the world witnessed huge declines in trade, output, and employment. Gross Domestic Product in the industrial countries fell by 4.5 percent in 2008, and average real Gross Domestic Product growth in emerging economies dropped to 0.4 at the start of 2009 from 8.8 percent in 2007. Unemployment rate across Organisation for Economic Co- operation and Development economies rose to 9 percent, and reached double digits in a mix of industrial and developing nations (Rose and Spiegel, 2009).
In the wake of the global financial crisis, global financial integration has gone into reverse. The discussion has mostly focused on the collapse in cross-border bank flows globally (Milesi-Ferretti & Tille, 2011) and the fragmentation of financial markets within the euro zone (Equatorial Commercial Bank, 2014). It is therefore clear that the need to restore balance sheets and profitability, and meet stiffer capital requirements and other regulatory changes aimed at strengthening banking systems have caused European and, to a lesser extent, American banks to reduce their international operations. Following the financial crisis, banks have placed stringent regulatory measures, such as higher capital requirements
which have become more prominent as a move towards having a stable and a more competitive banking sector (Financial Service Authority, 2009).Thus, any modern financial system contributes to economic development and the improvement in living standards by providing various services to the rest of the economy (Driga, 2006).
Africa’s low level of financial integration meant that African economies were relatively isolated from the direct impact of the financial crisis. Thus, Africa found itself shielded from the impact of the 2007 subprime and the summer 2008 banking crises, thereby avoiding the effects of a financial crisis that affected the very foundations of international financial markets. Compared to emerging countries, Africa’s external financing; bond issue, stocks and private borrowing is low, representing only 4% in 2007 of overall issue for emerging economies. The financial meltdown suffered by the parent banks following market capitalization losses was not passed down to their African subsidiaries. In fact, some subsidiaries of foreign banks saw a considerable increase in their market capitalization. For example, Swaziland Nedbank, Bank of Africa Benin and Standard Bank of Ghana saw their market capitalization increase between July 2007 and January 2009. Therefore, the contagion effect of financial meltdown was weak compared to the effect on parent banks (Africa Development Bank, 2009).
During the period 2008-2011, the Ghanaian banking system showed resilience, which was attributed in part to the low financial integration in the global financial market and the intensive supervision and sound regulatory, reforms (International Monetary Fund, 2010). The financial sector performance indicators improved substantially and the sector remained profitable with return on asset indicator rising from 2.6 percent in 2007 to 4.4 percent in 2011 while the ratio of gross non-performing loans to gross loans improving from 10.6 percent to
4.4 percent over the same period (Ghana National Bureau of Statistic, 2013). Banking industry is highly competitive with banks not only competing among each other; but also with non-banks and other financial institutions (Hull, 2002). According to Fiveson (2010), understanding customers doesn’t end with knowing who your customers are and what they have bought. Instead it is developing good relationship with them and knowing what they expect at any given point, is what matters for any profit making entity.
Even though the overall picture indicates that Ghana’s banking sector is well capitalized, competition has been increasing where major players have introduced various products in bid of attract customers. For example, the Equitel Banking Services, by Equity bank limited the Pesapoint by family bank limited, the M-shwari by the Safaricom and the Commercial Bank of Africa limited. With this increased competition, banks have to care about the quality of their services since this quality is considered the essence or core of strategic competition. However service providers such as banks have been faced with challenges on how to develop an offering that is both flexible and capable of being tailored to fit the specific requirements of customers (Edvardsson et al, 2007). This has led to the need for banks to continuously work on attracting, retaining and maintaining existing customers and to do so, implementing customer service strategies plays an important role. Since banking operations are becoming increasingly customer dictated (Heskett & Sasser, 2010). It is against this background that this study therefore, sought to find out effects of customer service strategies on bank performance on the selected commercial banks in Bantama town.
Customer Service Strategies
Customer service strategies refer to the processes and actions that make it easier for customers to do business with a company (Kotler, 2000). A good customer service strategy
considers its customers’ needs and how best to meet them. It always puts the customer first, when creating procedures, conducting daily operations and training new employees (Hitt et al, 2008). A customer service strategy is essential if a business wants to gain a competitive edge in the marketplace by building a large and loyal customer base. If a company is to develop a successful customer strategy, the first step is to accurately identify customer needs. The objective is to enlarge the scope of the advantage, which can only happen at some other firms expense (Dobni, 2003). Good customer service strategies enhances employees performance, hence in the long run the organization’s goal is met.
Providing a good experience is also important because it affects customer satisfaction, delivers customer loyalty (Pullman & Gross, 2004). Strategy is the direction and scope of an organization over the long term, which achieves advantage for the organization through the configuration of its resources within a challenging environment and is geared towards meeting the needs of the markets as it fulfils stakeholder expectations (Johnson & Scholes, 2002). Strategy creates a fit among company’s activities (Porter, 1996). In the banking sector where profit maximization is key, good customers service strategies ensures the objectives of the organization are effectively achieved.
Porter argues that strategy is about competitive position, about an organization differentiating itself in the eyes of the customer, and about adding value through a mix of activities different from those used by competitors. The concept of strategy is therefore built around winning. Strategy helps to achieve success whether in business or otherwise, success in this context refers to the realization of objectives that are desired. The hardest thing for competitors to copy is the customer service strategy a company creates (Hunsaker, 2010). Hence each bank has to choose a strategy that work best for it. According to Richardson (2010), every company provides customer service regardless of whether it’s created consciously. For banks to increase their market share, good customer service strategy has to be in place. Gupta (2012) asserts that customers who experience poor service levels often tell their friends and family members about the bad experience to warn them away.
Organizational Performance involves the ability of an organization to fulfil its mission through sound management, strong governance and a persistent rededication to achieving results (Doyle & Stern, 2006). In this study performance was viewed as attaining positive perceptions of customers by reaping off the effects of the adoption of strategies by financial institutions in attracting and maintaining customers while achieving customer service quality and maintaining customer loyalty. Organizational performance can be measured both using financial and non-financial indicators. The use of non-financial measures to manage organizations appears to be positively associated with organizational performance on average. Briggs, Claiboborne and Cole (2006) pointed out that financial measures are generally lagging measures of performance while non-financial measures such as sustainability, learning and growth, and internal processes improvements are leading measures that offer insight about future performance.
Balanced Score Card is defined as integrated set of performance measures derived from The company’s strategy that give top management a fast but comprehensive view of the organizational units (Drury, 2004). BSC framework identifies four categories of measures in order to achieve balance between financial and non-financial, between internal and external and between current performance and future performance (Kaplan & Norton, 1992). Out of the four BSC perspectives the customer is at the core of any business and it’s crucial to long
term improvement of company performance (Kaplan &Norton, 1992; and Pineno, 2002). This study will therefore use BSC to measure organizational performance of banks.
The recent trend of globalized competitive business era focuses on formulation and execution of business strategies and planning practices and its significant effect on the financial performance of the organization (Khatoon, Amin & Hossain, 2013). The measures for the performance measurement system chosen are based on an organization’s vision and strategy (Kaplan & Norton, 1996). Measures are chosen to measure success factors from different points of view, such as that of the customer, employees, business processes and financial success, as well as from the point of view of past, current and future performance. This way, different aspects of an organizations’ performance can be measured and managed.
Effective banks are mission-driven, adaptable, customer-focused, entrepreneurial, outcomes oriented and sustainable. Performance measures can be financial or nonfinancial. Both measures are used for competitive firms in the dynamic business environment (Doyle & Stern, 2006). Burnes, (2002), posited that performance is what individuals do relating to bank roles. Performance measurement systems offer the foundation to extend strategic plans, remunerate mangers and review a banks’ completion of objectives (Burnes, 2002).
Commercial Banks in Ghana
Commercial bank can be defined as a financial institution that is capable of accepting deposits, making business loans, and offering basic investment products (Boldizzoni, 2008). Ghana’s financial sector is largely bank based as capital market is still considered narrow and shallow (Ngugi et al 2006). Banks dominate financial sector in Ghana and as such the process of financial intermediation in the country depends heavily on commercial banks (Kamau, 2009). Commercial banks are further categorized into three different classes;
large banks have asset size of over 15 billion Cedi, medium with more than 5 billion Cedi and small banks with less than 5 billion Cedi. Banking sector in Ghana is the bond that holds the country economy together (Oloo, 2009).
The banking sector in Ghana comprises 43 registered commercial banks that are governed and controlled by laws. The laws are divided and partitioned to cover the different aspects in the banking industry. It also enables the government to keep an eye in the way the banks operate and managed (CBG, 2014). The commercial banks are either locally owned or foreign owned. Each commercial bank offers a range of services and products majorly in retail banking, investment and insurance. Majority of the commercial banks compete against each other and hence have a greater share market where each has a unique product or service that help retain their customers. The majority of the banks have even gone to the extent of opening regional branches and regional head offices in the current wake of globalization (Kimani, 2010).
Commercial banks and mortgage companies are licensed and regulated under the banking Act, Cap 488 and prudential guidelines issued thereafter. Deposit taking MFIs on the other hand are licensed and regulated under microfinance Act and Regulations issued there under. According to the Central Bank of Ghana (2011), supervision report as of December 2011 out of the 43 commercial banks, 30 are domestically owned and 13 are foreign owned. In terms of asset holding, foreign banks account for about 35% of the banking assets as of 2011. In Ghana the commercial banks dominate the financial sector. The banking industry is governed by the Companies Act, the Banking Act, and the Central Bank of Ghana Act (PWC, 2010). CBG makes and enforces rules which govern the minimum entry requirements for banks in Ghana and are based on the international standards developed by the Basel Committee. CBG,
under the Banking Act (2013) set the minimum capital requirements for commercial banks and mortgage finance institutions with the aim of maintaining a more stable and efficient banking and financial system. Recently, CBG ordered for closure of Dubai Bank, Imperial Bank and Chase bank placing them under receivership due to what it said was unsafe financial conditions. The closure of these banks affected the financial market as Accra Securities Exchange tumbled. Shares of most Accra lenders closed lower, with the entire banking sector recording declines over the period.
Over the last few years, the Banking sector in Ghana has continued to grow in assets, deposits, profitability and products offering. The banking sector’s aggregate balance sheet grew by 3.4% from CHS 3.26 trillion in December 2014 to CHS 3.37 trillion in March 2021. The growth has mainly been underpinned by: banks responding to the needs of the Ghanaian market for convenience and efficiency through alternative banking channels such as mobile, internet and agency banking, industry wide branch network expansion strategy both in Ghana and in the East African community region, a resilience by banks to reduce their rates, and Ghanaian banks have been fairly good at protecting their margins regardless of the rate environment (Cyntonn Investments Report, 2021).
In a bid to improve the financial soundness of financial sector, the minimum core capital requirement for banks is set to increase from CHS. 1 billion to CHS. 5 billion by 2018. The changes were proposed in a bid to ensure that banks and insurance companies are well capitalized and can absorb financial shocks. Concentration is fairly high in Ghanaian banks, with the country’s top eight banks holding about 60% of the market. Roughly half of Ghanaian banks have less than CHS. 5 billion of equity and will need to increase their core capital. Mergers and Acquisition (M&A) activity will be heightened in such a period as small banks
seek to survive, while market leaders consolidate to boost their franchise value, market reach and distribution (Cyntonn Investments Report, 2021). This creates the need for banks to compete and create strategies to stand out and remain relevant in the market.
Customer Service Strategy and Bank Performance
Customer service strategy has been broadly defined as the combination of strategies offered by service providers in an effort to increase service quality (Howardell, 2003). Maintaining effective customer service strategy helps to build and maintain customers’ relationship which is the key success in service industrial business (Sing, 2002). Better service quality typically can help to get higher market share and better returns (Slu & Mou, 2003). In order to maximize its capabilities ,it’s prudent for organizations to effectively exploit its core competencies. Organizations need to focus on achieving competitive advantage that can be sustained over a long period of time. This is because a company’s prosperity is dependent on how powerful and enduring its competitive advantages are (Tilson, 2000)
Organizations have banked on managers to ensure that the firm’s vision, mission and objectives are achieved. In order to do so, good managers need to be put in place because they are the ones that ensure customers are treated well; prompt response to their complaints and complements, last but not least to ensure that teamwork is enhanced among employees so that one language can be used when handling the customers. Achieving incredibly good customer service is a direct result of having incredibly good managers (Saleem, 1997). Hence it goes without saying that success of any business organization is determined by good customer service strategy. The best way to move forward in any service industry is to listen
carefully to their customers, since they are often the best source of information. Delighted customers are company’s best salesman and happy customers continue proclaiming about quality service they receive to other customers (Maxhand & Plowman, 1992).
It’s evident that nowadays most companies train their staff in order to keep at par with others and thrive to achieve competitive advantage. They are trained on the current technology and how to offer outstanding customer service; this in the end will result to organization improving its performance. Improved performance will lead to increased productivity, increased profits for the organization and therefore good results of investing in training (Mullins, 2002).
1.2 Statement of the Problem
Globally banks are under intense pressure to perform in today’s volatile market place. Ghanaian banks are facing fierce competition among themselves; this is due to the emergence of many financial institutions providing almost the same products and services. Since these financial institutions target the same clients, there’s need for the commercial banks to come up with unique strategies that will enable them stand out hence acquire the largest market share. In the last two decades researches have shown that strategic customer management and human resource management are among the most important determinants of organizational performance (Taylor & Francis, 2008). The banks survival solely depends on the customers, since they are the backbone of any service industry. For any bank to continue improving on its performance, it must differentiate itself by consistently providing exceptional customer service strategies. Progressive organizations are deeply examining client needs and plotting the customer journey to uncover inherent or potential risks, including compliance issues. They are then designing effective business controls with the impact to the customer at the forefront. By bringing compliance and customer objectives together “under one roof,” it is also possible to achieve greater efficiency, eliminate process redundancies and ultimately, lower costs (Adegoroye & Moruf, 2012).
Anyim and Munyoki (2010), in their study, clearly indicated that banks experience various challenges for example changing business environment and changing customer’s needs, when trying to adopt strategies to manage customer service strategies. Also, Wambui (2012), in her study on financial innovation and bank performance, indicated that most commercial banks in Ghana face greater challenges in trying to adopt new technologies as a strategic response to customer service delivery in the changing business environment. The study used census survey research design. Johnston & Kong (2011) and Helkulla (2010) identified the benefits for improved experience is not only for the customers but also benefits staff due to cost reduction and efficiency gains. Gapalani and Shuck (2011), in their study on the service enabled customer experience, the results revealed that companies need to adopt customer experience strategies and they should leverage on those strategies for them to achieve competitive advantage. William & Baumann (2008), in their study established relationship between customer service strategy and performance. The results indicated that customer satisfaction was positively related to earnings per share and price earnings ratios of an organization. However, few studies have used the variables that were discussed in this study. Hence it was paramount for the researcher to carry out the research on customer service strategies effect on bank performance in Bantama town.
1.3 Objectives of the Study
The general objective of the study was to establish customer service strategies effect on bank performance in Ghana, a survey of selected commercial banks in Bantama town.
1.3.1 Specific Objectives
- To determine the effects of human resource management strategies on performance of commercial
- To evaluate the effects of technological strategies on performance of commercial
- To examine the effects of service delivery environment strategies on performance of commercial
1.4 Research Hypotheses
The specific hypotheses that guided the research were:
HO1: There is no significant relationship between human resource management strategies and performance of commercial banks
HO2: There is no significant relationship between technological strategies and performance of commercial banks
HO3: There is no significant relationship between service delivery environment and performance of commercial
1.5 Significance of the Study
The findings of the study are of great benefit to the management of commercial banks, to know important as a source of information on what strategies to apply in the market to ensure
customer satisfaction. They ought to be able to identify the loopholes in providing quality customer service and take necessary steps to rectify and offer solutions to the problems regarding customer experience. Managers ought to understand the strategies, effects and importance of customer service and further their use in the organization.
The findings of the study add value to policy makers as they would obtain knowledge of the financial service industry dynamics and the responses that are appropriate and specific for the firms. They would therefore obtain guidance from this study in designing appropriate policies that would regulate the sector to ensure there is quality customer service.
The findings of the study adds value to scholars and academicians by providing information to potential and current scholars on customer care strategies on bank performance and would expand their knowledge on customer satisfaction in the banking industry. In addition; it would identify any knowledge and practice gaps that may exist and potential areas for further research.
The findings of the study also benefits banks through board of directors, executive management, employees and policy makers by informing them on how to implement customer service strategies more effectively and ensure that they discharge their duties more effectively towards increasing Banks value. This would ensure provision of quality service to the customers and therefore providing a competitive edge for the Bank.
1.6 Scope of the Study
The study was limited to commercial banks in Bantama town. The study was restricted to the effects of customer service strategies on bank performance within Bantama town. The study used an exploratory research design, targeting all the 26 commercial banks in Bantama town.
The study sought to collect primary data from the respondents targeted which was done through the use of a questionnaires to; regional managers, branch managers and customer experience officers. Their opinions were used to draw the conclusions for the stud. The quality of service at the time of data collection was considered.
1.7 Limitations of the Study
The research faced suspicion from the respondent due to the nature of the study. The respondents refused to cooperate in answering all the questions as required and were even hostile since they viewed the research as an intrusion to their business. There was also a possibility of encountering non-response from the respondents.
The researcher was able to overcome these limitation factors through the emphasis on the confidentiality of the study. The researcher assured the respondents that the study was purely for academic purposes. The researcher had also requested well in advance for the permission to carry out the research in the premises, so as to decrease hostility and non-cooperation from the respondents.
1.8 Organization of the Study
This research project was organized into five chapters. The first chapter presented the introduction, background to the study, statement of the problem, the objectives, research questions, the scope of the study, delimitation, limitations and significance of the study. Chapter two entailed the literature review of relevant work that has been done relating to the customer service strategies and corporate performances around the globe. It also identified the gaps in research work done related to this topic. Chapter three illustrates the Research methodology used to carry out this study. It included the research design, target population, description of the sample size and sample selection, research instruments used and their
reliability and validity, elaboration of data collection procedures, ethical issues and operationalization of variables. Chapter four covers data analysis, interpretation and discussions while chapter five presents’ summary, conclusion and policy implications[email protected][email protected]