Case Study Analysis of Central Bancompany

Headquartered in Jefferson City, Missouri, Central Bancompany is emerging as a leading provider of banking services in the American Midwest. Through the acquisition of over a dozen banks and 100 branches, the bank is experiencing significant growth. However, what makes Bancompany distinct from its competitors is that the company does not solely seek to expand its market share through the acquisition of financial institutions in key markets. Rather, the company seeks to lead in the early implementation of disruptive technologies and other value-adding propositions in order to take advantage of broader trends in the financial services industry. As a longitudinal analysis of the management strategy of Bancompany demonstrates, the use of early adoption strategy has played a critical role in developing the company’s competitive advantage and will serve to distinguish the company among industry competitors in the future.

Overview of Central Bancompany

Central Bancompany is a leading holding company that owns a dozen banks that serve the Midwest. The holding company operates over 100 banks in the states of Missouri, Kansas, Oklahoma, and Illinois that oversee over 2,500 employees (Huchzermeyer, 2014). To date, the company receives $520.85 million in annual sales and receives a net annual income of $114.11 million (Huchzermeyer, 2014). The financial institutions operated by Central Bancompany provide a wide range of commercial financial services to the public, including checking and savings accounts, investment products, credit cards, insurance, residential and commercial mortgages, and personal and business loans (Huchzermeyer, 2014). Additionally, the company provides asset management and retirement plan administration services through its Central Trust & Investment unit (Huchzermeyer, 2014). Because of its provision of diverse financial products, the company operates in both the banking and financial services sectors.

In 1970, Central Bancompany was incorporated as a one-bank holding company that initially owned Jefferson Bank in Jefferson City, Missouri and First National Bank in Clayton, Missouri (About Us, 2014). After acquiring over a dozen banks throughout Missouri during the 1980s and 1990s, the company conducted its first acquisition in another state when it merged First National Bank in St. Louis with Mid America Bank in O’Fallon, Illinois (About Us, 2014). By the end of the twentieth century, Central Bancompany established itself as a leading holding company in the state of Missouri and neighboring territories.

Another significant point in the company’s history was its acquisition of Oklahoma National Bank in Tulsa (ONB), Oklahoma. Prior to opening for operation in January 2000, ONB had expressed the purpose of building a network of relationships within the surrounding community (Our History, 2014). Through a successful strategy that fostered community ties, ONB was hailed as one of the fastest-growing banks in the history of Oklahoma and became a state-chartered bank by December 2004 (Our History, 2014). By the time that Central Bancompany acquired ONB, the holding company had over $8.5 billion dollars in assets that enabled it to expand the products and services provided by ONB (Our History, 2014). Following the acquisition of ONB, Central Bancompany expanded its holdings in Oklahoma and the state of Kansas (Our History, 2014). As a result of acquiring banks with strong records of performance, Central Bancompany obtained a diverse portfolio of banks that already served as industry leaders at the time of their purchase. Through an aggressive growth strategy, the firm has expanded to include over 20 banks to date.

Analysis of the Competitive Environment

An industry analysis highlights the relevance of product differentiation to entrepreneurial strategy. The primary industry in which Bancompany operates is the bank and credit unions industry. The industry is defined by the operation of businesses that accept deposits and make loans to businesses and consumers, and lead companies include Bank of America, Citibank, JPMorgan Chase, and Wells Fargo (Banks & Credit Unions, 2014). However, because of its position as a midsized financial institution, the main competitors of Central Bancompany are UMB Financial, U.S. Bancorp, and Hawthorn Bancshares (Banks & Credit Unions, 2014). Though Central Bancompany has achieved significant growth through its acquisitions over the past thirty years, it lags behind its competitors in revenue. For example, its leading competitor U.S. Bancorp, owner of U.S. Bank, is one of the largest holding companies in the United States and receives $22 billion in annual revenue (Biesada, 2014). The largest market for U.S. Bancorp is California, and the holding company operates over 3,000 branches in twenty-five states in the Midwest and Western states (Biesada, 2014). A distinguishing feature of U.S. Bancorp’s business strategy is its focus on providing convenience for consumers. Its banks operate over 5,000 ATMs and are the most extensively featured banking chains inside of grocery stores (Biesada, 2014). The geographical location of U.S. Bancorp banks and the accessibility of U.S. Bancorp services adversely impact Central Bancompany’s ability to increase its market share.

While U.S. Bancorp represents large-scale financial institutions, the other direct competitors of Central Bancompany represent medium-sized institutions that are similar in capacity. For example, the second-leading competitor is UMB Financial Corporation, which is similarly positioned in the Midwest, operating commercial banks in Arizona, Colorado, Illinois, Kansas, Nebraska, Oklahoma, and Missouri (Colbert, 2014). Similar in scale to Central Bancompany, UMB Financial Corporation operates approximately 120 branches, yet the company receives $797.81 million in annual revenue (Colbert, 2014). Distinguishing itself from its competitors, UMB focuses on commercial banking with 45 percent of its loan portfolio representing commercial loans (Colbert, 2014). However, while Central Bancompany faces significant competition from industry leaders, it also holds an advantage over industry rivals. Founded in 1932, Hawthorn Bancshares operates two-dozen branches in central and west-central Missouri and receives annual revenue of $58.84 million (Ramirez, 2014). While Hawthorn Bancshare has received stable growth, the comparatively higher revenues received by Central Bancompany highlight the benefit of its growth strategy.

There are several observations on competitive strategy in the banking industry that can be highlighted through an analysis of Central Bancompany’s main competitors. First, the success of the company’s leading competitors highlights the importance of product differentiation in an entrepreneurial environment. While the relatively poor performance of Hawthorn Bancshare demonstrates that a pro-growth strategy is necessary for generating increased revenue, the strategies of U.S. Bancorp and UMB Financial Corporation highlight the importance of differentiation to sustained growth. Through its strategy of increasing the accessibility of its banking services, U.S. Bancorp has managed the growth of its holdings to become one of the leading providers of banking services in the nation. While UMB holds a similar number of banks to Central Bancompany, its focus on commercial banking services provides a distinctive competency that enables the company to receive higher revenue. Thus, in order to increase market share, it is necessary for financial institutions to capitalize on product features that distinguish it from its competitors and increase access to target market segments.

Analysis of Central Bancompany’s Goals and Objectives

In addition to expanding its operations through acquisition, Central Bancompany’s business strategy reflects its recognition of the importance of differentiation in the banking and financial services market. In order to distinguish itself from competing banks, Central Bancompany has expressed the goal of establishing itself as an early adopter of new technologies (Investor Relations, 2014). In a statement to investors, Chief Executive Officer S. Bryan Cook wrote, “We recognize the needs of our customers are continuing to evolve. Customers demand technology, sophisticated financial tools, and convenience” (Investor Relations, 2014, n.p.). Thus, the company has expressed the desire to provide convenience and accessibility to its products through these advancements in technology.

To date, Central Bancompany has taken several steps to become an early adaptor of innovative technologies. First, the company implemented technologies at the organizational level in order to increase the efficiency of its internal operations. For example, in 2008, the company implemented the T-Recs Enterprise to reconcile its ledger system and complete federally mandated bank reconciliations (Reconciling Risk, 2008, p. 47). As a result of implementing the system, the bank saved each branch one hour each day on the time it took to reconcile principle accounts (Reconciling Risk, 2008, p. 47). Second, the company led its competitors in the implementation of technologies that improved services for customers. As early as 2000, Central Bancompany adopted a component-based IT framework that integrated the branch, call center, and Internet customer service channels (Shannon, 2000, p. B12). Through implementing this system over the previous in-house system, the company improved efficiency in directing customers to appropriate bank employees to handle banking inquiries (Shannon, 2000, p. B12). Thus, by integrating its internal system, bank branches are able to enhance the experience that customers have in their interactions with bank tellers and employees.

Additionally, the bank intends to adopt technologies that will reflect the overall technological trends of the banking industry. For example, the company expresses the goal of enhancing its electronic banking division by emphasizing mobile technology (Investor Relations, 2014). Currently, the company has invested significantly in its online banking operations to facilitate its goals of offering accessible banking services. According to 2012 estimates, the company has 110,000 active online bankers who possess over $10 billion in assets (Quittner, 2012). Further, 13,000 of the customers have signed up to utilize the company’s online financial management tools (2012). By implementing efficiencies in its internal and external operations, the company holds the goal of cutting costs and providing services that are distinguished by the convenience they offer to consumers.

According to analyses of the financial and investor services market, the goal of establishing a distinctive competency through capitalizing on technological adaptations is sound. Research by the Securities and Financial Markets Association supports the assertion that an increasing number of consumers will demand online banking services as a standard service. According to the Association, the facilitation of financial services over the Internet has increased notably in the year 2012, and the number of bank transfers that were conducted with a computer increased by 196 percent (Canning, 2013, p. 5). Additionally, research indicates that online accessibility is critical to reaching technologically savvy banking consumers. It is estimated that 61 percent of those researching financial information utilized on an online search engine to obtain information banking services, 58 percent obtained information from the website of banks, 48 percent compared banking products over the Internet, and 36 percent read online reviews on banking services (Canning, 2013, p. 9). The importance of the Internet to connecting with market segments is critical for any banking service provider to consider.

In addition to responding to the increased demands of the public for online information on banking services, improved technologies enable industry competitors to attract consumers with higher levels of income. In addition to obtaining more costumers, financial institutions can increase their revenue by obtaining customers who have higher incomes, and thus the ability to take out larger loans, accumulate higher savings, or purchase investment products. As market research highlights, wealthier investors and consumers of financial products are more likely to possess technologically advanced devices (Canning, 2013, p. 7). For example, individuals who owned tablet devices had an average income of $100K or greater and had a higher percentage of assets that were available for investment (Canning, 2013, p. 7). Additionally, it was determined that individuals from higher income brackets were 85 percent more likely to use their phones and other mobile devices to use the Internet daily (Canning, 2013, p. 7). This research is significant because it confirms the merits of Central Bancompany’s strategy to focus on its mobile banking services. Through focusing on this strategy, the company can increase the accessibility of its banking services to average customers while also obtaining business from wealthier customers who demand technologically accessible banking services.

Operating Environment Analysis

The operating environment also impacts the long-term performance of Central Bancompany. As a provider of banking and investment services, there are external economic and regulatory factors that impact future growth for the business. First, in order to maintain profitability, banks typically attract both depositors and borrowers in order to obtain higher returns on bank deposits through loan products (Banks & Credit Unions, 2014). Thus, the financial health of consumers, who are the potential borrowers, is necessary to consider in evaluating the potential for growth. The recent controversy over lending practices in the United States has led to a regulatory environment that poses to restrict growth in the commercial banking industry. Following the global economic crises of the 2000s, several legislative reforms, such as the Dodd-Frank Reform Act, have increased monitoring and regulation of financial institutions (Banks & Credit Unions, 2014). Also, in 2012, the Federal Reserve established the Comprehensive Capital Analysis and Review process for banks, which requires banks to hold adequate capital in order to support riskier financial transactions (Banks & Credit Unions, 2014). Further, in 2013, the Basel III rules were implemented, which required banks to increase their capital reserves (Banks & Credit Unions, 2014). The impact of these regulations is that they decrease the ability of financial institutions to initiate riskier loans. While these regulations possess the intention of stabilizing the industry as a whole, they also hinder the ability of banks to increase revenue through the provision of loan products.

Further, trends in consumer demands have impacted the conditions of the banking industry. Because of the increased lending requirements imposed by the regulatory environment, demand for loans has persistently decreased (Banks & Credit Unions, 2014). While demand began to increase in 2013, the weak lending environment of the late 2000s caused a decline in profitability across the industry, which led to increased competition (Banks & Credit Unions, 2014). The increased competition is especially pronounced in the investment services segment of the market. In addition to providing banking services, financial institutions also provide several investment products, such as CDs and mutual funds, which expose them to the external environment of the finance industry. A primary environmental factor that impacts the finance industry is trends in the economy overall. Because consumer investment practices are driven by psychological motivations, the propensity of investors to purchase financial products is tied to developments in the business cycle (Finance & Insurance Sector, 2014). Because the Federal Reserve often decreases interest rates on investment vehicles during economic slowdowns, financial institutions receive lower returns on the transactions that they conduct during these periods (Finance & Insurance Sector, 2014). Additionally, external factors hinder risk assessment, which can also create unanticipated losses. For example, an unanticipated decline in property values can hinder the ability of financial institutions to accurately predict the loss they incur from providing investment vehicles that are tied to home prices (Finance & Insurance Sector, 2014). As this assessment demonstrates, the macro-economy presents several variables that hold the potential to adversely impact future revenue for providers of banking and investment services.

The operational environment also presents ethical considerations that Central Bancompany must take into account. An assessment of ethics requires the company to consider the social implications of its business practices. While the company possesses the goal of increasing its market share through promoting technology that expands the availability of its services, it also has an ethical duty to engage in responsible lending patterns. Essentially, the regulatory environment conflicts with the company’s goal of lowering access barriers for consumers who wish to take out loans or utilize investment services. However, in order to engage in ethical business practices, it is necessary for Central Bancompany to operate within the established regulations while refraining from lending practices that might contribute to the destabilization of the economy or the communities in which the bank operates.

However, there are several positive indicators of growth in the banking and investment market. First, the income of Americans, which serves to indicate the propensity for saving and investing, increased by 2.3 percent in November 2013 over a one-year period of analysis (Banks & Credit Unions, 2014). Further, indicators point to an increase in savings. Following the increased demand for loans in 2013, the industry began to establish reduced restrictions for borrowing (Banks & Credit Unions, 2014). Further, from a strategic standpoint, Central Bancompany can benefit from the regulatory environment in its implementation of technology to expand its market share. Through utilizing technology for highly regulated transactions, such as securities investments, financial service providers can decrease their costs, enabling them to develop market niches and disrupt the customer base of competing firms in the industry (Bodily & Venkataraman, 2004, p. 16). Thus, while the regulatory environment and depressive economic conditions serve to slow lending, the expansion of online services can be utilized to promote investment services, financial management, and other products that appeal to niche segments of the financial services market.

Limitations and Opportunities

The analysis of Central Bancompany’s business strategy reveals several limitations that must be considered. The first limitations are present in the external market environment. As the assessment of the banking and financial markets indicate, both industries are highly vulnerable to external pressures. In the case of the banking market, consumer practices are influenced by income and macroeconomic factors that are beyond the control of banking institutions. Further, the regulatory environment imposes conditions upon financial institutions that might hinder their competitive strategies. The second limitation is presented by industry competitors. As a medium-sized financial institution, Central Bancompany is at a disadvantage in implementing newer technologies. Because larger banks possess greater resources, they have the ability to invest in and implement the latest banking technologies while introducing these technologies to larger markets.

However, these limitations reveal opportunities to increase market share through a combination of competitive strategies. As previously addressed research revealed, implementing online and mobile banking technologies is critical for competing for long-term in the banking and financial services industry. While it might be difficult to implement technologies before other competitors with all the restraints and assumptions that new information technology can bring, it is essential that Central Bancompany remain current with the major changes in banking technology that consumers demand. In addition to implementing technology, the company can strengthen its differentiation strategy by focusing on technologies that increase its personal brand. For example, by adopting technologies that focus on improving customer service, community networking, and efficiency, Central Bancompany can utilize technology in a manner that complements its existing distinctive competencies. Further, technology can facilitate the company’s growth strategy by creating efficiencies that aid in branch expansion to new regions. Through these recommendations, Central Bancompany can utilize banking technology and expand its market share in an efficient manner.

Conclusion

With over 100 branches in the Midwest, Central Bancompany is emerging as a leader of banking services in the Midwest. Between the periods of 1970 through the present day, the company has engaged in a strategy of managed growth in order to expand its presence in key markets in the states of Missouri, Kansas, Oklahoma, and Illinois. Yet, as this case study demonstrates, product differentiation is critical for maintaining a competitive advantage in the banking and financial service industry. In order to increase revenues and market share, it is necessary for Central Bancompany to pursue a strategy of differentiation that complements its growth strategy. To meet the increased demands for online banking technologies and capture the high-income market segment, Central Bancompany can benefit from its current strategy of focusing on the early adoption of disruptive technologies. By adopting technologies that make the banking process more efficient while improving services to clients, Central Bancompany can enhance the value of its services to consumers and compensate for environmental and regulatory trends that hinder long-term profitability.

References

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