Question One

Read the following case study and answer the questions below:

Equity Bank

Equity Bank Limited is a Kenyan bank, registered under the companies Act 486 and licensed under the Banking Act Cap 488 laws of Kenya and is listed in both the Nairobi and Uganda Stock Exchanges. The bank has presence in all regions of the country and has commenced business in Uganda and Southern Sudan. The plans to roll out in Rwanda and Tanzania are at a conclusive stage. By the end of the first half of year 2011 the bank had the largest customer base with 6.3 million bank accounts which represents a 28% increase within six months. This is largely due to its business model that targets the massmarket, rural areas and other unbanked sectors. The Banks technology strategy is guided by its Critical Success Factors (CSFs) 3 and 5 which are: Quality, effective and effective operations and robust, effective and efficient systems and process. According to the Banks CEO, the bank is driven by prudent risk management practices, increased innovation on the delivery channels, products and services.

The Bank has an IT platform that is supported by the worlds leading firms such as Microsoft, Oracle, HP and Infosys. Locally, it enjoys the robust fiber optic services from Telkom Kenya, Safaricom, and KDN among others. This makes it possible for the state of art technology to support high volumes of transactions. Currently, the banks system has a processing speed of 300,000 transactions per minute multi currency, multi country with a capacity of 35 million accounts. In its technological strategic positioning, Equity Bank has entered into alliances with three of the four mobile phone companies in Kenya except Airtel Kenya. The forms of convergence that have been executed are discussed below;

The Equity Bank Yu Cash solution includes a linked bank account and cardless ATM withdrawal services. This allows Equity Bank and mobile phone subscribers signed on to the Yu Cash to link their SIM cards to their Equity account through their mobile phones. Orange Money is the second form of convergence and is powered by Equity Banks mobile banking platform. This convergence allows customers to do interbank transfers and loan origination as well as send money to any mobile network. Orange money customers can also transact from Equity Bank agents outlets while the Banks customerscan transact from any Orange shop and agents conveniently. Another from convergence is the M-Kesho which is a bank account introduced by both Equity Bank and Safaricom. It includes Micro-credit facilities (M-Kopo) as well as a personal accident cover which converts to a full cover after one year. M-Kesho targets the niche of customers looking for the convenience of bank account that uses the M-Pesa as a tool to deposit and withdraw money thus reaching out to many unbanked Kenyans which is in line with the countrys vision of deepening financial inclusion. All the three platforms of convergence above were launched by the Equity Bank in 2010 and have basic simple transaction features that include funds transfers, balance enquiries, mini statements, bill payments and account alerts. However, each has distinct features as outlined and is offered in several formats that customers may choose from which are; WAP- based, Sim Tool Kits (STK), SMS and Java downloads.

Burgelman (2009) explains that a technology strategy is a potentially powerful tool for pursuing each of the generic strategies of Porter though each requires a somewhat different approach. He concludes that a technology strategy can serve the purpose of both differentiation and cost leadership especially process related technology aids in product performance hence differentiation. Many companies have multiple business portfolios each utilizing various technologies to enhance corporate strategy. An analysis of the twooffers the possibility to eliminate mismatch between business competitive position and technology.

Technology broadly encompasses all activities that constitute a firms value chain. Any of these technologies as Porter (1986) notes can affect the industry or firms competitive advantage. This is the reason why managers should track the evolution of all technologies that affect a firms value activities. A technology strategy requires the firm to make two crucial decisions viz; (a) how each technology can be used for competitive advantage and (b) whether a given technology could be developed or procured. Integrating technology and strategy should be a dynamic process and it requires the firm to understand the life cycle of the various technologies it employs.

In a nutshell, Burgelman (2009) observes that at the business level, an innovative technology strategy will be influenced by resources available, the technological environment, the strategic management capacity, structural and cultural context and lastly, the competitors innovative strategies and industry evolution. The foregoing arguments attest that firms must embrace technology so as to create value to their customers. This must be executed whilst keeping check of the business environment so as to create a competitive advantage. A technology strategy well executed will give a firm competitive advantage by creating value to the customer which is reciprocated in terms of growing revenue, loyalty and returns to the investors of the given firm (Chowdary, 2004)

Walker (2004) observes that competitive advantage is facilitated by certain factors which he refers to as drivers of competitive advantage. These are quality; comprising durability and reliability; delivery, for instance just-in-time; service, to solve unexpected problems and technology, products that are superior in design, features and functionality.

Equity Banks business model targets mainly the mass market, rural population and the so called unbankable niches such as the uneducated and those in informal employment who had been neglected in the traditional model of banking in Kenya that focused on the formally employed persons and well-to-do business people. The model relies heavily on the high volume of transactions with a minimal charge per transaction. Convergent solutions offered by the bank such as the M-Kesho, Orange Money and YuCash are meant to promote this status such that more people are encouraged to save without worrying about costs levied as ledger charges on their savings as the bank does not charge any ledger fees on any account. Convergence is a strategy where products and services of the bank (accounts) operate on the mobile platforms of the various network providers in Kenya to avail banking services customized to the respective network prefixes Equity Bank customers have subscribed to. The M-Kesho is an Equity Bank account that operates on the Safaricom (Kenyas largest mobile phone network provider) mobile phone platform. Orange Money is a mapping of existing Equity Bank account(s) onto existing Orange mobile phone numbers to enablesubscribers of the Telkom Orange network with accounts at Equity Bank to transact on their accounts without the need to visit a bank branch. These customers can do their transactions using their mobile phones on their own. Alternatively, they are able to access all banking services from all Equity Bank agents, Telkom Orange agents and Orange Shops across the country. The YuCash is banking solution where subscribers of the Yu Mobile, one of the four mobile phone network providers in Kenya and the latest entrant in the industry, with accounts at Equity Bank to link the accounts on the Obopay Platform that powers the service. Such customers not only use their Yu mobile devices to manage and operate their accounts but also access the accounts online while they are not in the country. These convergent solutions are an addition to the banks mobile banking platform known as Eazzy 247 which can be accessed using any mobile phone number regardless of the network a customer has subscribed to. All the applications discussed above except the YuCash have been incorporated into the banks branchless banking or agency and have enabled communities which do not have the access of an Equity Bank branch to access banking services such as opening and linking accounts, deposit and withdraw cash, activate dormant accounts, transfer funds and originate loan applications from places such as local kiosks, hardware shops, salons and pharmacies within their localities.

M-Kesho deposits to the bank are free of charge to encourage those customers with funds in their M-Pesa which is Safaricoms virtual mobile wallet, to transfer money to a real bank account. So is the case with the other two convergent solutions. The bank recognizes that mobile phone network operators in Kenya pose a great threat to the bank through their money transfer services that have gained wide usage and are threateningtraditional banking models due to the convenience, flexibility and affordability such mobile payments offer. This is the reason the bank approached the mobile phone operators in a bid to incorporate these services alongside its mobile banking platform (Eazzy 247) so as to have a symbiotic collaboration in the prevailing competitive environment. The bank has brought on board three convergent solutions which are MKesho, Orange Money and YuCash that complement its mobile banking platform. There is no conclusive reason availed as to why no similar arrangements have been forged between the bank and Airtel Kenya though the bank also has account holders on this network.

Case Study Questions

How, according to the case study, has Equity Bank used the following two strategies to achieve competitive advantage:

1. Technology (10 Marks)
2. Convergence (10 Marks)