Analysis by Industrial and Commercial Bank of China (ICBC)

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Literary Review

Presents the company’s management structure and cultural perspective, the company’s financial performance, and the company’s growth and leadership strategy.

Answer

Industrial and Commercial Bank of China (ICBC) is a multinational bank in China and is considered the largest bank in the country. ICBC was incorporated on 1 January 1985 and fully restructured as a limited liability company on 28 October 2005 (icbc-ltd.com 2020). ICBC is listed on two major stock exchanges; those are the Shanghai Stock Exchange and the Hong Kong Stock Exchange. ICBC has been able to make a name for itself among the top banks in the world thanks to its unremitting efforts and steady growth; and the world knows ICBC for its diversified business structure, excellent customer base, strong innovation ability and market competitiveness (icbc-ltd.com 2020). ICBC management firmly believes that providing better services is the most important way to ensure new business growth; and as such, it wants to create value by providing better services while providing far-reaching financial products to 7,033 thousand corporate customers and 607 million individual customers. Another important positive aspect of ICBC is the continued integration of corporate social responsibilities through development strategy as well as management and operations strategies (icbc-ltd.com 2020). In addition, ICBC has received major recognition in various aspects such as promoting financial inclusion, supporting poverty reduction, protecting the environment and resources, and participating in other initiatives and programs. related to the public welfare. ICBC’s leadership always keeps in mind the mission and vision of serving the real economy with core business activities for the country’s economy to grow. The Bank has continuously improved its ability to control and reduce risk by adopting a risk-based approach. ICBC’s main commitment is to pursue innovation while maintaining the stability of all business operations (icbc-ltd.com 2020).

The main objective of this report is to analyze and evaluate various aspects related to ICBC. There are several sections of this report. The first section introduces ICBC by discussing its operations, industry, and other activities. The following section of the report provides a brief literature review on reporting-related topics such as management structure, corporate culture, financial performance, corporate leadership strategy, growth strategy, and corporate governance. leadership, benchmarking strategy, and more. The following section sheds light on the management structure of ICBC; This part of the report also addresses the corporate culture perspective at the selected bank. The following section of the report discusses ICBC’s recent financial performance through analysis of the financial information provided in the annual report. This report then analyzes important aspects of business management and discusses the strategies adopted to ensure the growth of the business. The next section deals with the theoretical framework of related topics as well as its application in the ICBC context. The following section discusses ICBC’s benchmarking strategy for business development purposes. Finally, the report concludes with an appropriate recommendation to ICBC management and provides a conclusion as well as an overall summary of the report.

Management structure and cultural perspective

Choosing an appropriate organizational structure leads to organizational success. There are four types of theories to explain the management structure in companies; they are classical organization theory, neoclassical organization theory, stochastic theory and systems theory. Classical organizational theory was developed to combine scientific management, bureaucratic theory and administrative theory. The main focus of this theory is to get the best people and equipment while considering every task involved in production (Bybee 2013). According to the neoclassical concept, organizational success depends on a cohesive environment where subordinates accept the authority of the manager; and it is necessary to maintain balance. According to contingency theory, conflicts cannot be avoided, but they can be managed effectively (Van de Ven, Ganco and Hinings 2013). Systems theory states that there is a reciprocal relationship between all parts of an organization and that changes in one area can affect many parts of the same organization.

In a business organization, leadership can be assessed by five main theories; these are Great Man Theory, Trait Theory, Situation Theory, Situation Theory, and Behavior Theory. According to the concept of Great Man Theory, leaders are born with the right abilities and characteristics to lead; and some of these traits are charisma, confidence, communication skills, social skills, and intellectual skills (Sethuraman and Suresh 2014). Therefore, the best leaders are not created, they are born. The similarity of this theory can be seen to the trait theory, which is founded on the characteristics of successful and unsuccessful leaders. The use of this theory can be seen in predicting leadership effectiveness. Contingency theory is developed on the principle that the same leadership cannot be applied in all situations (McCleskey 2014). This theory is similar to situational theory in that it states that no leadership style replaces the others. This theory is based on the belief that leadership is largely dependent on current situations. According to the concept of behavioral theory, effective leadership is the result of different skills acquired; and so the theory is based on the actions and behaviors of leaders.

Managed growth theory and innovative growth theory are the two main theories that explain the business growth of companies. The primary goal of managed growth is to achieve cost and market position superiority over competitors using better management and planning to achieve shareholder value (Kowalkowski). et al 2015). Innovative growth strategy influences strategic innovation to drive profitable growth. Innovative companies specialize to differentiate themselves from their competitors, strategically or in terms of product or both (Bello 2014).

Management structure

Four types of benchmarking strategies can be observed in business organizations; These are internal benchmarks, competitive benchmarks, functional benchmarks and generic benchmarks. Internal benchmarking is a common practice in which the outstanding performance of a branch or division of a company is used as an example for all others to do so (Claro and Kamakura 2017). In competitive benchmarking, a company’s business activities are re-evaluated using the performance of key competitors as an example (Attiany 2014). Functional benchmarking is the process of evaluating a company’s performance using its non-competitive organization’s performance as an example. By common standards, an organization’s business performance is determined relative to other companies in the same industry with outstanding performance. Organizational culture encompasses the behaviors and values ​​that lead to a company’s unique psychological and social environment. Organizational culture exerts a major influence on how it interacts, creates knowledge, resists change, and shares knowledge (Jerome 2013). There are different models for assessing an organization’s culture; such as the Hofstede model, the Edgar Schein model, the Daniel Denison model, the Gerry Johnson model and others. These models provide different theories of organizational culture that can be applied in different organizations. Organizations tend to adopt different corporate cultures based on their business goals, objectives and core activities (Weare, Lichterman and Esparza 2014). These aspects must be taken into account when evaluating a company’s organizational culture.

Figure 1: ICBC Management Structure

As can be seen from the above table, the organizational structure of ICBC is divided into two parts under the general meeting of shareholders; that is the Board of Directors and the Supervisory Board; and these two together form the bank’s management team (icbc-ltd.com 2020). There are six committees under the Board of Directors; these are the Risk Management Committee, the Appointment Committee, the Strategy Committee, the Compensation Committee, the Audit Committee, and the Related Party Transaction Control Committee. The ICBC Board of Directors divides responsibilities into six departments; these are the Marketing Department, Profitability Department, Risk Management Department, Global Management Department, Support Department and Directly Controlled Organizations (icbc-ltd.com 2020). The main divisions under the Supervisory Board are the Corporate Banking Promotion Committee, the Retail Banking Promotion Committee, the Institutional Banking Promotion Committee, the Investment Banking Promotion Committee, and the Promotion Committee. Internet finance, Asset and Debt Management Committee, Risk Management Committee, Business and Product Innovation Management Committee. Information Technology Regulatory Commission and Financial Asset Services Regulatory Commission (icbc-ltd.com 2020).

Cultural perspective

ICBC’s corporate culture consists of three main aspects; that is Mission, Vision and Values. The company has developed a corporate culture that brings excellence to its customers (icbc-ltd.com 2020). In the mission statement, the four main goals of ICBC are to provide outstanding customer service, maximize shareholder returns, ensure employee success, and contribute broadly to the advancement of society. festival. ICBC’s vision is an integral part of corporate culture (icbc-ltd.com 2020). The bank’s vision is to develop a world-class, modern financial institution in the face of global competition by adhering to the principles of providing impeccable, innovative products and services. ICBC believes that integrity leads to prosperity. The five core values ​​under which ICBC operates are Integrity, Humanity, Prudence, Innovation and Excellence (icbc-ltd.com 2020).

Fiscal year 2018 was a good year for ICBC as banks recorded good numbers in terms of overall financial performance. This year, ICBC continues to improve its ability to serve the real economy while strengthening the fundamentals of governance and operations. The overall profit structure has been optimized while enhancing risk control and hedging activities. ICBC was able to achieve the desired sustainability in terms of quality and benefits (icbc-ltd.com 2020).

In 2018, ICBC reported a net profit of 298,723 million RMB, 3.9% higher than the previous year’s 287,451 RMB. 1.11% is return on total assets and 13.79% is return on weighted average equity (v.icbc.com.cn 2020). ICBC also recorded a 7.3% increase in operating profit from 675,654 million yuan to 725,121 million yuan; and the main reasons for this increase are the increase in earning assets and net profit margin (v.icbc.com.cn 2020). ICBC’s net interest income grew 9.7% in 2018; i.e. from RMB 522.078 million in 2018 to RMB 572,518 million in 2018 (v.icbc.com.cn 2020). However, the bank’s non-interest income fell by 0.6% in 2018, falling from RMB 153,576 million in 2017 to RMB 152,603 ​​million in 2018. ICBC recorded a 4.3 increase in operating expenses %. to RMB 194,203 million in 2018 from RMB 186,194 million in 2017. ICBC’s income tax expense fell by 4.5% from RMB 77,190 million in 2017 to RMB 73,690 million in 2018 (v.icbc.com. cn 2020).

Financial activities

ICBC recorded an increase in total assets in 2018 of 6.2%; ie from 26,087,043 million RMB in 2017 to 27,699,540 million RMB in 2018 (v.icbc.com.cn 2020). In addition, total loans and advances to customers increased by 8.3% in 2018, from RMB 14,233,448 million in 2017 to RMB 15,419,905 million in 2018 (v.icbc.com.cn 2020 ) . Investments grew at a rate of 17.3% from RMB 5,756,704 million in 2017 to RMB 6,754,692 million in 2018. At the same time, ICBC’s total liabilities increased by 5.9% in 2018, from 23,945 .987 million RMB to 25 million RMB. 354,657 million yen in 2018; and the main reasons were that customer debt increased by 81.7%, debt to banks and other financial institutions increased by 7.1%, asset repurchase contracts increased by 4.4%, debt securities issuance increased by 4.4%. 2.2% and other debt increased by 4.6% in 2017 year over year (v.icbc.com.cn 2020).

ICBC’s management team consists mainly of the bank’s board of directors and supervisory board. ICBC’s management team ensures that the bank strictly complies with all regulatory requirements in the area of ​​credit risk management, strictly implementing established business strategies and goals. ICBC’s leadership team is responsible for implementing the organization’s overall strategies and policies (v.icbc.com.cn 2020).

ICBC places great importance and value on the development and implementation of growth strategies. Business transformation is ICBC’s key growth strategy. As part of this strategy, ICBC developed and implemented the strategic framework of the three-year plan. As part of this strategy, ICBC leans on the real economy by focusing on stabilizing quality, adjusting structures, pursuing innovation, and driving transformation (icbc-ltd.com 2020 ). The three key components of this growth strategy for ICBC are outlined below:

Phase 1 – ICBC will participate in the implementation of three key projects and implement initiatives to ensure overall quality improvement. The three key projects are rebuilding the credit management facility, completely resolving bad debts and improving the risk management process (icbc-ltd.com 2020).

Phase 2 – ICBC will make four key structural adjustments to its assets, liabilities, revenue, and channels, and build a business framework that is relevant to new markets and emerging markets. new type of banking business (icbc-ltd.com 2020).

Phase 3 – ICBC will undertake innovative transformation in five different areas; these are retail banking, IT-based banking, corporate banking, major wealth management, integration and internationalization. This will develop the strategic underpinnings of banks for steady income growth as well as a grassroots competitive advantage (icbc-ltd.com 2020).

Leadership and growth strategy

Step 4 – ICBC will expand institutional reform with the goal of laying a solid foundation for transition, growth and development (icbc-ltd.com 2020).

The previous part of the discussion showed that the Board of Directors and Supervisory Board are at the top level of ICBC’s organizational structure; and other departments report to this bank management team. This particular management structure of ICBC can be explained by the classical organizational theory of hiring the best people and the best equipment to do the job. According to this theory, ICBC shareholders chose the best people on the board of directors and supervisory boards; and these two committees selected the best people for other parts of the bank. This helps to create an overall balance in the bank’s management structure (Nonaka and Toyama 2015). The above discussion also shows that ICBC has developed such an organizational culture, where their mission is driven by excellence for customers by providing quality products and services. . ICBC has corporate values ​​such as Integrity, Humanity, Prudence, Innovation and Excellence, which help to develop an organizational environment where values ​​and ethics are given the highest priority. Overall, ICBC was able to establish an effective organizational culture within its company (Weare, Lichterman and Esparza 2014).

The above discussion shows that ICBC has an effective management team in the Board of Directors and Supervisory Board. Both these boards are composed of members with effective skills, knowledge and expertise in various aspects of running the business. They are nominated by shareholders of various institutions. This can be explained in light of leadership behavior theory which states that effective leadership is the result of acquired skills, knowledge and expertise; and it trains effective leaders everywhere. The same can be seen in the case of ICBC, as bank managers are fully qualified, making them good managers (Shanafelt et al. 2015).

An earlier discussion discussed two types of growth strategies as managed growth strategies and innovative growth strategies. ICBC’s management has embarked on a three-step growth strategy for its business, with a focus on utilizing effective management while ensuring the presence of innovation in operations. business. This is an important aspect of the bank’s use of both managed growth and innovative growth strategies. ICBC’s primary objective is to ensure business growth and profitability through embedding innovation in all essential aspects of business operations. This will help the bank gain the necessary competitive advantage in the banking sector (Wright and Stigliani 2013).

Theoretical framework

The benchmarking process adopted by ICBC shows that the bank has adopted internal benchmarking and functional benchmarking strategies in various aspects of its business. The internal benchmarking strategy has been adopted by the bank when it comes to its dividend policy, as the bank measures its own dividend percentage to provide the next year’s dividend to its shareholders. In other respects such as interest rates, internal controls, short-term benefits, and financial products as a service, ICBC follows the policies and procedures of various government agencies and agencies. non-competitive (Tian and Ketsaraporn 2013). This shows the adoption of a common benchmarking strategy by the bank.

ICBC’s strategy is to compare different aspects of its financial and business operations. They are discussed below:

ICBC has improved its financial services for small and micro businesses and private enterprises by comparing them to high quality economic development requirements (icbc.com.cn 2020). ICBC has a benchmarking strategy for interest rate reference. The reference interest rate is the one-year term deposit rate applied by the People’s Bank of China on each value date of each interest period (icbc.com.cn 2020).

ICBC maintains the effectiveness and efficiency of internal controls taking into account benchmark data. Specifically, ICBC’s Board of Directors conducted a self-assessment of the effectiveness of internal control in accordance with the Core Standards on Corporate Internal Control and supporting guidelines issued by the five ministries and committees, including including the Ministry of Finance, and the Guidelines on internal control of listed companies issued by the Ministry of Finance. SSE and relevant CBIRC regulatory requirements (icbc.com.cn 2020).

The benchmarking strategy is also used by ICBC to determine short-term employee benefits as well as post-employment benefits from defined contribution plans. In the latter case, government plans are used as a reference (icbc.com.cn 2020).

In the case of dividend policy, ICBC has used its own dividend information as a reference to provide dividends for the coming year (icbc.com.cn 2020).

It is therefore clear from the above that the company has adopted different types of benchmarking strategies in different aspects of its financial performance.

Based on the above discussion and analysis, some recommendations are provided below:

There are several areas of financial performance where ICBC has not seen improvement; such as decrease in non-interest income, increase in liabilities and others. We urge the ICBC Board of Directors to pay special attention to these areas through the development and implementation of appropriate financial strategies so that these areas can be improved.

Matching strategy

ICBC has adopted genetic and internal benchmarking strategies for benchmarking purposes only. However, the lack of competitive standards in the bank can be seen, which is a very effective procedure to improve overall business performance. Therefore, the recommendation to the ICBC Board of Directors is to use competitive standards within the organization by providing examples of the good performance of key competitors. This will contribute to improving the business efficiency of the bank.

In addition to the above, ICBC management should adopt more growth strategies in different parts of its business. This will give the bank the necessary competitive advantage.

Conclusion

ICBC is the largest bank in China and is also considered one of the top banks worldwide. The analysis shows that ICBC has developed such a management structure, in which responsibilities are segregated from top to bottom; and management team including board of directors and supervisory board. From a cultural perspective, ICBC has such an organizational culture where certain values ​​such as integrity, prudence, excellence, humanity and innovation can be seen. The Bank has developed its mission and vision taking into account these values ​​and organizational culture. When looking at ICBC’s financial performance, it can be seen that most of the financial aspects of the bank have improved; such as increase in interest income, net profit, total assets and others; but banks need to pay special attention to areas that have not seen growth, such as non-interest income and the like. ICBC has an effective leadership team of leaders with skills, knowledge and expertise; and the presence of these skillful leaders is one of the main reasons for the success of ICBC’s business across China and around the world. ICBC is bringing innovation to its business through the introduction of a three-step growth strategy focused on increasing the company’s overall profitability through innovative products and services for its customers. me. ICBC has effectively used internal and generic benchmarking strategies in various aspects of its business for the purpose of improving its business. Adopting these benchmarking strategies gave the company the opportunity to measure its performance against the best performance metrics. Overall, it can be concluded that all the aspects discussed above have contributed to the success of ICBC in China and around the world.

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