Slide 2:

The case study is about a large commercial bank in Mexico experiencing an increase
in revenues over the last 2 years but a decline in profits during the same period. The
task at hand is to dissect the situation, analyze it and develop a turnaround strategy
to arrest this decline in profits without impacting our growth in revenue.

Before we begin, Id like to point out there are a couple of assumptions that I made
about the case.
1. The bank is purely a domestic player, is not involved in international trade
and its revenue is unaffected by it.
2. The observed decline in profits is viewed as an internal problem, economic
factors are not considered for the downturn and a strategy for the
turnaround has been develop accordingly.

In the next few minutes, we will analyze the case study, identify problem areas and
suggest some key strategies as well as certain other alternatives to effect a
turnaround.

We move onto our analysis of why profits are declining.

Slide 3:

We know that Profit is Revenue minus the costs. Since our revenue is increasing the
likely reason for the dip in profits is a disproportionate increase in the banks costs.
Lets look at some of the drivers of revenue and costs in the banking space.

Revenue:
Increase in lending to retail customers, institutional lending could drive revenues
upward.
Also an increase in fees from other products such as credit cards and wealth
management services etc can be responsible for a spike in revenue

As for the Costs, the drivers would be:
An absence of a centralized processing unit in banks leading to a lot of duplication of
work, mismanagement of large accounts which shoots up the costs a lot
Investment in real estate area due to rapid expansion can be detrimental to the
profitability of the bank
Another driver can be improper targeting and adoption of marketing strategies that
dont yield the expected ROI
To counter this we adopt a two pronged strategy to enhance the revenue and reduce
the costs to return to profitability

Slide 4:
Some of the key recommendations are:
1. Utilize Business Intelligence to understand customer behavior patterns and
preferences. A CRM system especially can be useful in this regard, armed
with this intelligence cross selling of products at competitive prices can be
enabled
2. An increase in revenue can be an indicator of a larger quantity of new
product buyers entering, but the revenue per capita for these customers
might not be high enough (they might be students or blue collar workers) to
justify the expenditure. Thus it would be wise to create segments of
customers based on demography, future value of the customer etc to better
cater to the high value clients, and such segmentation schemes will also
ensure effective cross selling as mentioned previously
3. Achieve operational effectiveness through IT. Strengthening the current IT
infrastructure and smoothening the back office processes would result in
savings which can be channeled into revenue generating front office
initiatives. Increasing online presence will also help reduce burden on
branches and reduce real estate investments required to open newer
branches. This will help create a leaner and more effective organization
without sacrificing any core competencies.
4. Apart from this implement a hub and spoke model of operation to avoid
mismanagement of accounts by smaller branches

Slide 5:
Certain other strategies can be explored to improve the bottomline/ profits such as:

1. Optimize product offerings: Perform quantitative impact analysis and
product redesign. This should follow up from a clear and structured
customer segmentation talked about earlier in the key strategies.
2. Optimize service pricing: Review competitor benchmarks and align service
fees to remain competitive. This encompasses treasury management and
commercial service analysis in order to ensure maximum service
contribution. For example if a large portion of your revenue comes from
institutional lending
3. Introduce new products and services: A surge in revenue can be achieved
through a concerted effort to create new products for the market or
introducing new services such as mobile applications to capture the attention
of retail tech savvy clients and expand the revenue portfolio
4. Enter new and expanded markets: For certain key products and services, the
gaps between the current market share and the expected demand can be
identified and efforts can be directed to bridge this by entering such markets
5. Improve Fee Collection efficiency: Even mega banks with sophisticated
investment portfolio and loan management computer systems often rely on
index cards bearing scrawled notations to track delinquent accounts.
Recoveries can be increased by bringing in automation

The core focus is on creating a leaner, more efficient organization, a turnaround can
be effected.

Key strategies/ recommendations that we talked about, some targeted at cost
drivers, some at revenue and some others for both.