Importance of Strategic Planning in a Bank's Performance

Introduction
Strategic planning improves bank performance. There is a clear positive correlation between a bank’s quality and quantity of strategic planning, and their economic performance (Hopkins). The purpose of this paper is to demonstrate the link between quality strategic planning and performance, but more importantly to suggest why strategic planning produces benefits in banks’ bottom lines.
Banks have been more affected by economic changes than most other industries in the past 20 years. All the major business trends appear to have impacted how banks compete for customers and amongst themselves. These major trends include:
1. Disintermediation due to Internet and other services taking some of banks’ functions, such as check-writing, bill settlement, cash management and money transfers. This trend started relatively early in the PC and Internet era, but has accelerated in recent years as many non-bank institutions have taken on banking functions, from airlines and Wal-Mart issuing credit cards, to money transfer through PayPal or Western Union.
2. A significant increase in the number of banking transactions, countered by a dramatic decrease in the cost per transaction. This has resulted in lower transaction fees, and forced banks to improve “back office” operations or perish.
3. Customer expectations which reduce reliance on brick-and-mortar and increase demands for ease-of-use. This is not always based on Internet or financial software use. Customers may expect to top up their wallets at ATM machines, make deposits at local supermarkets, or pay bills online.
4. Increased competition for customer savings and customer loans. Whereas customer choices in the past were limited by geography, personal relationships with bankers, or the difficulty of doing business out-of-state, now individuals are free to shop nationwide, or even worldwide, for the most attractive rates for their savings.
Added to these technology and consumer changes has been a host of legal changes, which have reduced barriers to entry in the banking business, and opened new opportunities for banks to securitize, sell off risks, and seek additional assets.
Most important of these laws was the Glass-Steagall Act, which created a “Chinese Wall” between banks and investment houses. Until its repeal, banks could not easily compete for stocks, bonds and mutual fund business.
Strategic planning is more important for smaller business
Large companies have the luxury of resources and on-going business. Small businesses have fewer strategic ‘degrees of freedom.’ That is, wrong strategic decisions can deplete a small company’s resources faster than in a large company—there is simply less room for error (Ibrahim).
Strategic planning should also be easier for small businesses. With fewer layers of bureaucracy, small business leaders should be closer to the customer and the service they are delivering. Thus strategic planning in a small company is grounded in inductive experience.
Small banks lack strategic bandwidth and skills. The CEO of a small bank is doing everything from meeting key customers to training new employees—thus strategic planning can be pushed to the back-burner too often in a small company.

Banks Large and Small Need Strategic Planning

The largest and the smallest banks have the greatest opportunities for profitability. Small banks are able to exploit niches that large banks, with their bureaucratic structures and high overheads, would not be able to touch. Large banks, on the other hand, have access to a global set of assets and liabilities, and can balance risk by spreading across a number of business areas.
Large banks can afford the staffs to understand and build competence in each of their chosen business sectors—from hedging and derivatives to in-house mutual funds and securitization. The very large banks have