This lesson examines how banks use the insights from strategic analysis to define and implement a viable business model.

3.1 Defining the Bank’s Strategy and Business Model
A bank’s strategy is its plan for achieving a sustainable competitive advantage. This is operationalized through its business model, which describes the fundamental way the bank creates, captures, and delivers value. The strategic planning process is used to determine the best business model for the bank. A key aspect is choosing the correct corporate, competitive, and functional strategies.

• Corporate Strategy: The overall scope and direction of the bank (e.g., what businesses to be in, including domestic vs. international).

• Competitive Strategy: How the bank will compete in its chosen markets (e.g., cost leadership, differentiation, or focusing on a niche).

• Functional Strategies: The plans for specific functions like marketing, operations, and risk management.

3.2 Key Business Models in Banking
The choice of business model is heavily influenced by the bank’s size, market, and strategic goals. Common models include:

• The Retail/Commercial Bank: Focuses on deposit-taking and lending to individuals and small businesses. Typically relies on a large branch network and brand reputation.

• The Investment/Wholesale Bank: Focuses on capital markets activities like underwriting, trading, and advisory services.

• The Universal Bank: Offers a combination of commercial and investment banking services.

• The Digital Bank/Neobank: An entirely digital model with no physical branches, often leveraging technology to offer lower costs and a superior customer experience.
  The performance of these models varies greatly and is a subject of ongoing study.

3.3 The Importance of Mission, Vision, and Values
A clear mission (why the bank exists), vision (what it aspires to be), and set of values (the principles it operates by) are foundational to a successful strategy. These elements, often described through the VMOST model (Vision, Mission, Objectives, Strategy, Tactics), provide focus and guide decision-making at all levels of the organization.