An application of the AHP to bank strategic planning: the mergers and acquisitions process

Strategic planning is one of the most complex and ill-structured tasks faced by banks. It usually requires adopting a course of action from a large set of alternatives with uncertain long-term outcomes that depend, to a large extent, on unknown and turbulent environments. The Analytic Hierarchy Process (AHP) methodology was applied to the evaluation of bank mergers and acquisitions (M&A) strategy. The model developed was tested with the assistance of the board of directors of a billion-dollar bank holding company. It is safe to assume that the AHP methodology can be applied to other complex and ill-defined strategic issues faced by other banking institutions. Compared with existing techniques and with qualitative managerial judgment, the AHP provides a useful, simple, and powerful tool for dealing with strategic planning in banking.