First Bank of Nigeria: Restructuring for High Performance

Introduction

Stephen Onasanya walked back to his office after an interesting first-half 2012 financial results conference call on 2 August 2012. A poster of the bank’s vision—to be the clear leader and Nigeria’s bank of first choice—caught his eyes, and got him wondering what more he could do to realize the vision.

First Bank had posted impressive financial results for the first half of 2012. Profit before tax had jumped 125 per cent to ₦54.1 billion ($349 million); cost-to-income ratio had reduced by 10 per cent to just over 58 per cent, and there was a year-on-year increase of 17 per cent in net loans and advances to customers (see Appendix 1). Onasanya had successfully steered First Bank through a three-year period of accelerated corporate transformation and growth, as the institution emerged from the global financial crisis of 2008.

At the core of the bank’s transformation lay a new organizational structure. In 2010 the bank had transitioned from a geography-based to a customer-based organizational structure, and redesigned its nationwide coverage/deployment model to align with the new organization. The restructuring, which was initiated to increase market orientation and ensure tailored product design and delivery, was apparently successful. Apart from the impressive financial results, significant progress had been made on many non-financial measures, including customer satisfaction.

As Onasanya returned to his office after the conference call, he wondered what more could be done to realize full value, and to institutionalize customer centricity through the new organization design.

The Evolution of First Bank: Since 1894

Headquartered in Lagos, Nigeria, First Bank had an international presence in the United Kingdom, United Arab Emirates, France, China, South Africa and DR Congo in 2012. It was one of the largest and most diversified financial institutions in the West Africa region, with subsidiaries involved in capital market operations, insurance, investment banking and asset management, private equity/venture capital, pension fund custody management, trusteeship, mortgage and microfinance banking. The bank’s 8,100 associates provided services to over 7 million customers, through 717 business locations. The bank had 32.6 billion issued shares and over 1.3 million shareholders across the globe. Its brand essence of being ‘Dependably Dynamic’ was anchored on four pillars of success: leadership, safety and security, enterprise and service excellence.

Established in 1894, it is literally the first bank in Nigeria, and in the first years of its operations, it was the only financial institution in the country. The bank was incorporated as a limited liability company under the name Bank of British West Africa, with a focus on financing international trade. In the late 1890s, its first international branches were set up in two neighbouring countries: Ghana and Sierra Leone. By the time the bank changed its name to Bank of West Africa (BWA) in 1957, it had acquired a reputation as a leading financial institution. In 1965, Standard Bank of South Africa acquired Bank of West Africa and changed its name to Standard Bank of West Africa. Four years later, Standard Bank Nigeria was incorporated locally to take over the business in Nigeria. Two indigenization decrees by the Federal Government of Nigeria in the 1970s saw Standard Bank’s equity stake reduced to less than 40 per cent, culminating in the name change to First Bank of Nigeria in 1979.

The liberalization of banking licences in the 1980s and 1990s led to an overcrowded sector, as the number of banks more than quadrupled to over 100. This posed competitive challenges to First Bank, as many of the newly established banks focused on the more profitable customer segments, and had much more efficient operations. By the time the bank marked a century of operations in 1994, it was clear that there was an urgent need to modernize the bank. In 1996, a business transformation initiative, ‘Century II’, was launched. Century II had three major objectives, which included modernizing the bank’s operating systems, strengthening the brand, and significantly improving customer experience.

First Bank went through another transformation initiative from 2001, ‘Century II—The New Frontier’, which sought to consolidate on the gains of the earlier transformation programme. This happened at a time when the industry was recovering from a major shakeup, as massive bank failures had reduced the number of players from 126 to 77. In 2002, the bank made history again, establishing the first offshore financial subsidiary of a Nigerian-owned bank in the United Kingdom.

Not long after these major transformation projects, the Central Bank of Nigeria announced a radical recapitalization programme in 2004, aimed at strengthening the weak and overcrowded sector comprising of 89 banks. The minimum paid up capital for banks was raised from ₦2 billion to ₦25 billion. By 2006, the structure and competitive dynamics of the industry had completely changed, following several mergers and acquisitions, and capital raising activities. Twenty-five banks emerged from the regulator-induced consolidation, and the dominance of the historical ‘big four’ was seriously threatened. First Bank prepared itself for the new competitive challenges, acquiring two banks—MBC International Bank and FBN (Merchant Bankers)—in 2005, and floating Nigeria’s biggest public offer and the first ever hybrid capital offering out of Africa in 2007. Although First Bank remained a strong player in the sector, its leadership in many market segments was challenged by several competitors.

Stephen Onasanya Takes Charge

In June 2009, when Stephen Onasanya was appointed Group Managing Director and Chief Executive Officer of First Bank, the Nigerian banking sector was experiencing significant turbulence. Onasanya did not have much time to decide how to transform the bank, as his predecessor, Sanusi Lamido Sanusi, suddenly left within six months of his appointment to serve as Governor of the Central Bank of Nigeria. Sanusi had initiated a corporate transformation programme, and now Onasanya had to ensure that the transformation of the bank began in earnest.

Although it was a somewhat hasty transition, Onasanya was well-prepared to lead the bank through the challenging period. Since joining the bank in 1994 as a senior manager, he had risen to the position of Executive Director, Banking Operations and Services. He had also served in several critical roles, including as CEO of First Pension Custodian Nigeria Limited, a subsidiary of the bank; Group Head, Finance and Performance Management, and coordinator of the bank’s Century II Enterprise Transformation Project.

Settling into the job was nevertheless challenging, as there was enormous turbulence in the industry with the global financial crisis hitting many banks hard in 2009. The apex bank had to hurriedly arrange ₦620 billion to rescue eight ailing banks, which were subsequently either acquired, nationalized or rescued through private capital injections. This challenging period, however, provided fresh opportunities for First Bank, with its solid reputation as a stable financial institution.

In 2009, a new three-year strategic planning cycle was ushered in, with the aim of restoring the bank to a position of clear leadership of the Nigerian financial services industry, and anchored on four strategic themes: growth, service excellence, talent management and performance management. As a 15-year veteran of the bank, Onasanya knew that executing the strategy successfully required a strong market orientation, and a transition towards a more customer-focused organizational structure.

First Bank’s Organizational Structure in 2009

First Bank’s organizational structure in 2009 was geography-based, with four strategic business units (SBUs) or directorates covering four key regions: Lagos, North, South and West. The sectors served by each directorate varied. In the Lagos directorate, the commercial centre of Nigeria, the key economic activities included telecommunications, aviation, shipping and ports, oil and gas (downstream), real estate, commerce and industry, power, transportation, financial services and tourism. In the north directorate, the focus was on the public sector, agriculture, mining and solid mineral extraction, and manufacturing, while the south directorate’s key market segments were oil and gas, public sector, and trading. The west directorate serviced a wide range of sectors as well, including administrative, extractive, manufacturing, additive, agriculture, merchandising, public and services sectors.

Each of the four strategic business units/directorates, headed by an executive director, was organized into about a dozen business development offices (BDO), headed by business development managers (BDMs). Several branch offices were clustered under a BDO. Through the branches, each directorate offered a wide range of services, from corporate banking services for large corporate customers; to retail banking services to small-sized businesses; to consumer banking products to individual customers; and a variety of services for government ministries, departments and agencies. The four geographic strategic business units were supported by four strategic resource functions/directorates: the office of the Group Managing Director/CEO, finance, risk management and operations.

Aligning FBN with the Market: The Proposed Organizational Structure

After decades of leadership and dominance in somewhat monopolistic and oligopolistic markets, First Bank was faced with the challenge of operating in a hypercompetitive industry. As the Onasanya-led executive management team set out to transform the bank, one of their top priorities was institutionalizing customer centricity, and using it as a lever to regain market leadership. It became apparent that the geography-based organizational structure which had worked well for so many years was now in urgent need of change. After extensive deliberations, five customer segments were proposed: corporate banking, institutional banking, private banking, public sector and retail banking (see Figure 1).

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Figure 1.

Source: Company documents.

There were four critical objectives of the proposed change to a customer-based organizational structure:

To realign the bank’s units to focus on meeting specific customer needs.

The new organizational structure would align First Bank with the market, with an executive director or executive vice president leading each of the five strategic business units (SBUs). The five customer segments were carefully delineated. The corporate banking SBU would focus on mid-size and large corporate clients, private organizations with annual revenues above ₦500 million, and mid-size to large organizations with annual revenues above ₦5 billion, but who have a key-man risk. The institutional banking group would focus on multinationals and large corporate clients, well-structured organizations with annual revenues more than ₦5 billion, firms quoted on the Nigerian Stock Exchange, multinational and multilateral organizations, companies in specialized industries, and large non-governmental organizations.

The private banking group would focus on high net worth individuals with investible income of at least ₦37.5 million, while the public sector group would service the federal government and its ministries, departments and agencies, state and federal tertiary institutions, the armed forces, police, civil defence organizations and foreign embassies. The fifth SBU, the retail banking group, would cater for individual customers with annual income below ₦50 million, businesses with annual turnover below ₦500 million and local governments.

The proposed changes also affected the business support functions. In place of the existing four directorates/strategic resource functions, 15 new strategic resource functions would support the four SBUs, namely: operations, finance, risk management, company secretary, strategy and corporate development, legal services, human capital management, general services, marketing and corporate communications, corporate transformation, project implementation, e-business, products and marketing support, information technology, and internal audit (see Figure 2).

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Figure 2.

Source: Company documents.

The branch operations model would also be reorganized, with the creation of centralized processing centres (CPCs) to standardize the quality of service delivery across all branches, and improve operational efficiency. With this centralization of operations, a new reporting structure would take effect in the branch operations function, with intermediate management to provide proper oversight to all branches. Branch operations managers would now report to area operations managers, who would report to regional operations managers, and ultimately to the office of the group head of operations. The branch operations function would consequently be separated from the sales function at the branch level, to allow market-facing managers at the branches focus solely on selling and relationship management activities.

Successful Implementation of the New Organizational Structure

After careful planning and deliberation, the new organizational structure was deployed in 2010, with a shift from geography as the primary organizing axis to customer segments. Two years after the transition, it was apparent that the restructuring was successful. The goal of becoming customer-centric was being realized with segment specialization driving the identification and targeting of specific market segments. In 2011, for instance, a new sub-segment was created within the retail banking SBU to provide a unique value proposition and experience for affluent customers. The emerging corporates sub-segment was also created within the corporate banking SBU to focus on properly servicing an identified gap in the lower end of the corporate banking market segment, clients with annual revenues between ₦500 million and ₦2 billion. The centralization of branch operations was also successful, as central processing centres provided more efficient processing and enhanced service levels to over 60 per cent of the bank’s branches in early 2012.

The second area where the bank had made significant progress was in customer service excellence, where there was a marked improvement in both internal and external customer satisfaction surveys. In the widely respected KPMG Banking Industry Customer Satisfaction Survey, the bank had climbed from 12th in 2010, to 10th in 2011 and 8th in 2012 in the retail segment. The bank’s performance in the corporate banking segment was even better: from 10th in 2010, to 6th in 2011, to 3rd in 2012 (see Table 1).

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Table 1.

FBN’s KPMG Customer Satisfaction Survey Ranking

Year	Retail Segment Ranking	Corporate Segment Ranking
2010	12	10
2011	10	6
2012	8	3

Source: KPMG Bank Customer Satisfaction Surveys: 2010–2012.

Note: The survey comprises of 24 banks.

These improvements in customer centricity coincided with accelerated growth and impressive financial performance (see Appendices 1 and 2). Results for the first half of 2012 showed a 26 per cent growth in gross earnings to ₦182.3 billion ($1.18 billion), a year-on-year increase of 17 per cent in net loans and advances to customers, and a 125 per cent jump in profit before tax to ₦54.1 billion ($349 million). Many analysts were confident that the bank would go on to achieve an industry historic milestone of ₦100 billion in profit before tax at the end of the financial year.

Going Forward

Onasanya was however not completely satisfied. With competition intensifying in the banking sector, he knew there was no room for complacency. Three specific issues occupied his mind:

First, how to further improve the customer engagement model in the various market segments, to ensure that appropriate customer experience was delivered.

Second, how to build a ‘one-firm firm’ that really operates as one organization, with institutional loyalty and group effort. He was particularly concerned about preventing some possible unintended consequences of the new strategy and structure, such as inter-divisional rivalries, fiefdoms and silos, from emerging.

Third, how to deploy infrastructure and a culture that supports effective cross-selling, particularly among frontline bankers and senior business managers.

Onasanya wondered what more could be done to make the new organizational structure deliver even better results, and help realize the bank’s ambitious vision of becoming Nigeria’s bank of first choice.