Category Archives: Strategy

The Strategic Planning Problem

There’s plenty of good advice out there on how to run a strategic planning session or offsite. As it pertains to credit unions, check out Mark Arnold’s blog or CU Insight.

Mark encourages CUs to address questions about the organization’s value proposition and how it engages members. The CU Insight article, penned by CUES’ Charles Fagan, suggests that CUs identify the right planning horizon, get artistic, and leave time to incubate ideas.

No argument from me. All great ideas and suggestions for what to focus on in a strategic planning effort. Charles even goes on to recommend that CUs “include key players from all areas and levels in the organization”:

“CUES is small enough that we were able to include every staff member in the brainstorming sessions. This was a great professional development opportunity for our young professionals and others on the team who don’t think organization-wide on a day-to-day basis. Being inclusive also helps get staff buy-in for the ideas generated and the resulting strategic plan.”

Being inclusive is important. I had a boss at a consulting firm who told me that “only senior execs formulate strategy” and as a result we had to ignore the front-line managers who really understood what the day-to-day issues were.

But regardless of how you structure your organization’s strategic planning process, regardless of which questions you address, and regardless of whether or not you get artistic and leave time for incubating, it’s likely that you’ll still have a strategic planning problem.

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The problem is a people problem. At the risk of oversimplification, you will likely have two distinct personalities participating in your strategic planning process: Dreamers and Solvers.

An employee’s job description might be a predictor of which strategic planning process role they play, but it isn’t 100% accurate. Their job description notwithstanding:

1. Dreamers look for greenfield/blue ocean opportunities. The dreamers are those who want to address (and even create) the potential market opportunities. Their contributions to the strategic planning process tend to focus on suggesting new products and services the firm could/should offer, the new consumer segments to go after (Gen Y is our future!), and the new emerging technologies that promise to make the organization orders of magnitude more effective and efficient (a billion people are on Facebook!).

2. Solvers want to fix today’s problems. Solvers are problem solvers. They see and feel the pain of the weaknesses of the existing system and want the organization to fix them and fix them now. They use the strategic planning process to advocate for these fixes, if for no other reason that there’s usually no other process that organization has in place for allocating resources to fix these problems.

The problem that results from this dichotomy in roles stems from two issues:

  1. Dreamers are not always particularly good at figuring out the “how do we get there from here” question.
  2. Solvers’ time horizon is usually too narrow and their content focus is a whole lot more tactical than strategic.

If you work at a credit union, you might have a third type of contributor (and another problem): The board of directors. In my experience, many of them — while highly committed to the success of the CU and often quite successful business people in their own right — aren’t particularly good contributors to the strategic planning process.

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If you’re the CEO (or member of the senior exec team) at a credit union, planning your CU’s strategic planning process/offsite, you’ve got some challenges to deal with:

  • How do you balance the focus of the effort between the truly strategic and the tactical?
  • How do you incorporate input from both the Dreamers and Solvers?
  • How do you evaluate the skills of a facilitator who may be better at Solving than Dreaming (or vice versa)?
  • How do you overcome (or at least recognize) your own inherent biases in this process?

No easy answers here. The first step is to recognize that there is no “formula” or “recipe” for successful strategic planning. 

Knock Somebody Off The Pedestal

In a recent industry analyst meeting, the CEO of a large financial technology firm laid out his firm’s vision for expanding into new markets within the financial services space. I asked him “Who do you see as your primary competitors standing in the way of your quest for world dominance?”

His answer (as best as I can recall) was “well, we have a number of competitors in the variety of spaces in which we play.” He did name four firms — one of which I wasn’t familiar, another which I would never have thought he’d mention (since this particular organization doesn’t sell software to financial institutions).

My take: His answer was unsatisfactory. You’ve got to know who you’re going to knock off the pedestal on your way to world dominance.  And this is of particular importance to credit unions.

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Let’s say you’re the 250th ranked tennis professional in the world. There are 249 other pros ahead of you on the list, but only one matters — that Djokovic guy. If you beat Djokovic you might not jump from #250 to #1 (or #2), but if you beat him, you’re in the big leagues. On the map. On the radar.

It might take you a while to get a chance to beat Djokovic, but the other piddly-sh*t pros don’t matter. They’re just the peons you have to slay and step over on your way to the top.

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In the world of financial services, the focus of your FI’s competitive strategy doesn’t necessarily have to be the largest provider in the market. It should be the one who has the best reputation, or best products, or best service, or best whatever it is that you compete on.

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Why is this so important? In a word, alignment.

When you know who you’re (really) competing against — or better yet, when you know who you want to knock off the pedestal — your organization has a much easier time deciding what to invest in, and what not to invest in.

What the other piddly-sh*ts do doesn’t matter. They’re pretenders to the throne. Only your firm is the true contender to the throne.

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Why tell you all this?

I saw a tweet today, from someone attending a credit union conference, quoting Chip Filson telling CUs “Don’t try to be ‘nice’ banks.”

Excellent advice, I couldn’t agree more.

But it reflects a problem that credit unions have: They set their sights on knocking banks off the pedestal.

No offense to bankers, but people, allow me to let you in on a little secret: If banks are on a pedestal, the pedestal isn’t very high off the ground.

Every survey I see (not to mention do) shows that credit unions are seen as having better customer service than banks, and higher advocacy (that is, seen as doing what’s right for the customer) scores than banks.

And I doubt that every one of those surveys is spot on. But it begs the question: If it is true, then why aren’t credit unions tearing up the charts in membership growth?

The answer has to be: Because they’re not clear about who they’re really competing with. They don’t know who they have to knock off the pedestal on their way to world dominance. 

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When I observe and hear about credit unions’ strategic (or so-called strategic) planning efforts, I’m underwhelmed. These efforts quickly devolve into tactical planning efforts that determine which projects will get funded in the coming year. 

Strategy isn’t just about how you compete, it’s understanding who you compete with.  Sorry to be critical, but there are a lot of credit unions out there doing a lousy job of strategy creation/formulation. 

Customer Segmentation Is A Game Of Tic-Tac-Toe

Remember when you were a kid — or maybe more recently with your own kids — and played tic-tac-toe?

You started by drawing two vertical lines and two horizontal lines, which combined to create a nine-square grid. You then put your shape (X or O) in a box to claim it, alternating with your competitor to “own” the grid (and win the game) by securing three boxes in a row.

In some ways, that’s exactly what marketing is.

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A credit union contacted us recently and asked us how they could better understand the consumer landscape in their footprint to help them win more lending business. I proposed that they play tic-tac-toe. We’d start by drawing a tic-tac-toe board, and go one step further and label the rows and columns:

20130409_Tictactoe

On our board, the three rows correspond to the timing of consumers’ borrowing needs: Immediate, intermediate, and longer-term (not length of loan, but how immediate the need for a loan is). The columns correspond to consumers’ propensity to consider a credit union for their borrowing needs: Low propensity (or likelihood), moderate propensity, and high propensity.

Through consumer research, we would segment the consumer population using this tic-tac-toe board, and help the CMO organization understand:

  1. The market opportunity each segment represents by estimating the allocation of consumers to each segment.
  2. The demographics, channel behaviors, and financial services-related attitudes of consumers who belong to each segment.
  3. The marketing challenges each segment represents (e.g., what holds consumers back from considering a credit union).
  4. The marketing tactics required to capture the borrowing-related business from consumers in each segment.

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Generalizing the board a bit, another firm might not capture “propensity to borrow from a credit union” but “propensity to consider XYZ.”

But much as a tic-tac-toe player must weigh the consequences of capturing a particular cell on the board, marketers must determine the costs, benefits, and competitive consequences of going after consumers in any particular segment.

If the majority of consumers are in the upper right hand bucket, you might want head down to the bar for an early beer. If the majority of consumers are in the lower left hand bucket, you might get sent down to the bar for an early beer.

If the majority of consumers are in the seven other buckets, you’ve got some marketing decisions to make.

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The art is in determining how to allocate consumers to segments.

It’s not enough to just ask consumers “will you consider XYZ for your next purchase?” but to derive the likelihood by looking at past behavior. Same with product timing. A consumer may say that she or he has a longer-term need for a product, but good predictive modeling may indicate that certain behaviors, attitudes, and purchases indicate that the need may be more immediate than the consumer thinks or is willing to say.

Why Don’t Banks Innovate?

There appears to be no shortage of opinions that banks don’t innovate (see here and here  and here  and…you can find the other 17 million references yourself). 

Rather than arguing whether or not this assertion is true, let’s assume for a moment that it is. The key question, then, is: Why don’t banks innovate (or why haven’t banks innovated)?

Is it because:

a) They’re too stupid to innovate

b) They don’t know how to innovate

c) They’re too risk averse to innovate

d) There’s been no need to innovate

If I were to take a poll, I’d bet that the majority of respondents would answer B, followed by C — even though many of you would like to select A.

I think the answer is D.

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When the Innovation Snobs talk about innovation I think what they’re really looking for is large-scale change in the industry. After all, there have been plenty of technology “innovations” in the industry like ATMs, online banking, online bill pay, PFM, mobile banking, remote deposit capture, etc., but none of these “innovations” seem to satisfy those that call for more innovation.

Despite these innovations, the industry has changed little in terms of power structure and business model (as it applies to the retail sector, that is). Even the sadly misguided Mashable article Can the Internet Replace Big Banks? recognizes this. 

So why haven’t we seen large-scale, transformational change — or innovation — in the industry, despite the advent of the Internet, the Web, and more recently, mobile technologies?

Because — until recently — there has been no need for the industry to change.

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For large scale change to happen in retail banking, three elements need to be in place: technology change, demographic change, and economic imperative.

There’s no formula, but if one of these elements isn’t sufficiently present, change isn’t going to happen. 

Since the mid-90s, the emergence of Internet technologies has created the technology change required to cause industry innovation or transformation. With the advent of mobile technologies, even more technological change is pushing the industry to change. 

Many Innovation Snobs think that this is sufficient to cause change, but it isn’t. And one reason why the technology change wasn’t enough was because we didn’t have sufficient demographic change. 

Ten, even five, years ago, Boomers and Seniors dominated the generational composition of the US population. While we were willing to try technologies like online banking and bill pay, and even willing to open online savings accounts with a firm like ING Direct, we still did our banking business the old-fashioned way: We opened up checking accounts with the same old providers we did 20 or 30 years ago (although many of them merged along the way, of course).

It’s only been more recently that the demographic shifts required to effect industry change have come about. The emergence of Gen Yers as a significant percentage of the US population is a recent phenomenon. What’s different about this generation (from a financial services perspective) is their willingness (or desire) to find an alternative to checking accounts. When Seniors, Boomers, and even Gen Xers became adults, we automatically opened up a checking account. Not so with Gen Yers.

Without this demographic shift, the simple development of online banking, bill pay, etc. was insufficient to bring about large-scale industry change.

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But even the demographic shift by itself isn’t — and hasn’t — been enough. There’s another reason why innovation hasn’t occurred, and I think the Innovation Snobs really miss this point: There has been (until recently) no economic imperative to change. 

Ten years ago I did some consumer research about the drivers of customer loyalty in banking. I went out to my bank clients to tell them the findings, and tell them what they had to do differently to improve customer loyalty. Their response was pretty underwhelming: “Why should we do anything differently when we’re making money hand over fist?”

They had a point. The chart below shows industry ROE from 1998 through 2009. From about 1993 through 2007, industry ROE fluctuated in a narrow band of about 13% to 15%, before falling off the cliff in 2008. 

20130325_ROE

With those kinds of returns, who’s got an incentive to change?

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This is why we haven’t seen the innovation that the snobs have called for. The elements of change haven’t sufficiently been in place. 

But with advent of mobile technologies, the shift in demographics, and the economic issues facing the industry, we might actually be on the cusp of some bigger change. 

Despite the rebound in industry profits since the worst of the financial crisis in 2009, ROE has not come back as fast, and is only at about half of the historical levels of 13%-15%. 

McKinsey did an analysis and estimated that industry profits could reach $154 billion by 2015, up 27% from its 2010 level. But for the industry to reach 12% ROE in 2015, profits would have to be roughly twice that amount — about $312 billion. 

How is the industry going to get there? For that, we can turn to another leading consulting firm, BCG. For the industry to reach historical levels of ROE, cost reduction could put 3 to 4 percentage points on the ROE level (that’s not 3%-4% cost reduction, you know). BCG believes another 2 to 4 points could come from pricing and growth.

20130325_BCG

With all the regulatory changes that have occurred in the past few years, I don’t see how price manipulation is going to help. The banks have been limited in their ability to alter interest rates and fees every step of the way. 

The demographic shift may help to fulfill the growth imperative as a new way of Gen Yers need mortgages and car loans. But the shift away from checking accounts (and the inability of banks to generate significant revenue and profits from these accounts) may inhibit the banks’ ability to put that 1 or 2 percentage points onto ROE through growth.

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So we may actually see some innovation in the industry over the next few years. It’s not like the banks are too stupid or don’t how to innovate. They haven’t had the economic imperative to innovate. Until now.

The One Key Question About Retail Banking’s Future

In connection with its Retail Banking conference, American Banker ran an article titled Five Key Questions about Retail Banking’s Future which included the following questions:

1. How many branches should we close?
2. How many new branches should we build?
3. How many more people should we lay off?
4. How much revenue can we get from offering mobile and online technology?
5. What are the future sources of revenue?

My take: An OK list. But not in the right order. And if you put them in the right order, there’s really only one key question about retail banking’s future, because the answers to the others are all dependent on the answer to the one key question.

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So what’s the one key question? Simply: What are the future sources of revenue?

A bank can’t determine how many branches it should open/close, or how many people to let go, until it has a clear vision and strategy for how it’s going to generate revenue. Specifically, what (products and services), where (geographically), and from whom (customer segments).

Closing/opening branches and/or letting people go before developing that vision/strategy is pure stupidity, and the board should fire any CEO that does the former before the latter.

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But I’m still not sure that a lot of banks are asking the right question.

As the article states, when it comes to future revenue sources, “many banks are pinning their hopes on commercial and industrial lending. At banks with $20 billion or less in assets, C&I loans grew 3% from the third quarter and 9% from a year earlier. Some banks have a rosier outlook on other types of loan growth; Regions Financial (RF) said last week that it is expecting single-digit growth in credit cards, indirect auto lending and C&I lending to upper middle market companies.”

Huh? C&I loans? I thought we were talking about retail banking?

Here’s the challenge that the majority of banks face in a nutshell:

20130314_NII

The majority of banks (and credit unions for that matter) aren’t generating enough revenue from enough non-interest sources of revenue.

Financial services execs are locked into a narrow view of what their sources of NII are.

In a study done by Filene Research Institute last year, three of the top five most important sources of NII to credit unions were checking account fees, mortgage closing costs, and out-of-network ATM fees. I can’t imagine that those aren’t in the top 5 list of bank execs, as well.

Yet, when asked to rank sources of NII by the value they provide to credit union members, only one — mortgage closing costs — was in the top 10 list of value-added services. And CU execs must’ve been smoking to think that people think that mortgage closing costs “add value.”

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I know that there a lot of people in the industry who will say “mobile is the key to the future of banking” or that “innovation is crucial to the success of banking.”

Yeah, whatever. 

As far as I’m concerned, mobile is nothing more than an access mechanism. Just one more way of connecting. If  banks and credit unions want to charge customers/members for accessing their accounts using a mobile device, good luck. That doesn’t add a lot of value to the product (account) itself, and I don’t many FIs will get far with that tactic.

The successful banks and credit unions of the future will be those that generate new sources of revenue that consumers are willing to pay for. Tacking on additional fees to existing products, or dreaming up new penalties or usage/inactivity fees is a dead end. 

And if you don’t answer the question of what those sources of revenue are going to be, you’re going to end up closing a lot more branches, and firing a lot more people, than you thought you would.

Consumers Don’t Really Want Portable Checking Account Numbers

Switching Banks

According to a study conducted by BT and YouGov, 61% of US banking customers want portable banking account numbers. As reported by The Financial Brand:

“The research, which surveyed more than 6,500 people across six countries, found most consumers agreeing that a portable account number — one allowing them to switch banks without changing account details and causing major disruptions — would be useful.”

My take: No way. US consumers don’t want a “portable” banking account number (can’t speak to consumers in other countries, though).

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There’s an old marketing parable (?) that “people don’t want a drill, they want a hole.” This talk of portable banking account numbers is the same thing. 

What people want is less hassle closing accounts. If you tell them a portable banking account number will accomplish that, then, sure, they’ll tell you that they want portable banking account numbers. 

We want portable phone numbers across carriers because we tell so many people our number that switching numbers is a pain. Plus, I have a really cool number (because I’m a Yankees fan in Boston — remind me to tell you that story one day), and there’s no way I’ll give it up. 

But you’ve got to be one really strange nerd to know your checking account number, and be adverse to giving it up. 

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This kind of research scares me. 

Why is BT and YouGov asking US consumers if they want portable bank account numbers?

BT stands for British Telecom, no? Go back to England, BT. We have enough crappy telcos in this country, already, thank you very much. 

YouGov, on the other hand, according to its website, ”is a professional research and consulting organization, pioneering the use of technology to collect higher quality, in-depth data for companies, governments, and institutions so that they can better serve the people that sustain them.”

The people sustain the government? Huh?

If this research is aimed at influencing US policy on making it easier for consumers to switch banks by creating portable account numbers, they better be careful what they ask for. 

After all the Dodd-Frank disasters, I wouldn’t expect our government to have any foresight on unanticipated consequences, but government attempts to make it easier for consumers to switch banks by mandating portable account numbers will backfire.  

The cost of deploying this scheme is way beyond my ability. But I will bet that two things will happen:

1) FIs will pass the cost on the consumers, and

2) FIs will deploy other tactics to make it tough to switch — like 2-year contracts like the telcos use. 

In an interesting article on Financial Brand, Mike Branton of Strategy Corps reports on research that shows that consumers express a willingness to pay for what Mike calls “lifestyle financial services” like identity theft alerts and credit score reporting.

Want those services for free? No problem. Just renew your checking account contract for another 2 years, and we’ll throw in ID theft alerts for free. 

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Each year (at least for the past couple of years that I’ve seen research for), no more than 10% of US consumers switch banks. And it’s not for certain that it’s a different 10% each year. 

Why do we need a government policy that adversely impacts the other 90% to serve the 10%? Is that “fair” (which seems to be the mantra of the current administration)? 

It’s not like a policy mandating portable bank account numbers will help the unbanked. They don’t have account numbers. 

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Making it difficult to switch bank accounts is a fundamental element of Porterian (you know, Michael Porter of Harvard) strategy: Create barriers to exit.

Does this it make it inconvenient for the minority of consumers who want to switch? Yes.

But, boo hoo. We have bigger issues in the financial services industry to fix than this.  

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There’s another disconnect in this situation, as well. 

While there’s no doubt that (many) banks make it difficult to switch — out of them, that is — there seems to be no shortage of banks (and credit unions) touting how easy it is to switch to them. Here’s one example from one large regional bank:

This is just one example. There are plenty of other examples I could have included, especially from credit unions.

So, is it easy or not? 

If it is, then we certainly don’t need portable account numbers. And if it’s not, then there are a lot of FIs make false advertising claims.

The Next Wave Of Banking Competition

Damn that Brett King. Had to title his book Bank 3.0, didn’t he? The book (which as I said in my Amazon review is a must-read by anyone working in financial services), talks about the progression of banking from branches (1.0) to the Web (2.0) to mobile (3.0).

I have no argument with this interpretation. But I think of the evolution in terms of how the predominant basis of competition has changed, not in terms of the change in channel focus (see the chart below).

20130203_3Waves

Phase I: This phase of  competition (post-WWII) focused on who had the most/best locations, and who provided the best (friendliest, most helpful) branch-based service.

Phase II: As the nation’s overall level of education and affluence rose, we developed more sophisticated borrowing needs (mortgage, education, other personal loans) and more opportunities to save. As a more educated society, we believed we should be more “economic” in our decision making, and not just put (or take) our money from whomever had the closest branch. As a result, Rates became the new focus of competition — who had the best rates (lowest for borrowing, highest for saving) or lowest fees became the primary basis of competition.

Phase II started to take hold long before the Web emerged. It was the rising levels of education and affluence that brought about Phase II. What the Web did do, however, was kick this phase into high gear starting around the mid-90s. Even though few people applied or opened financial products, many researched financial products looking for the best rates and fees.

Phase III: The next wave of banking competition will be about personal financial performance.

It’s not about personal financial management. PFM has become too narrowly linked to budgeting and expense categorization. Nice features, but not what a lot of people want. Performance isn’t just about getting the best savings rate or lowest mortgage rate. It’s about helping customers save more, getting the best deals on what they buy, about choosing the right way to pay for the things they purchase, and about avoiding fees. And charging them for those capabilities.

You might think that this is what financial advisors have been doing for years.

Nope. They’ve typically focused on helping a small percentage of people maximize the performance of their financial assets. But the mass market doesn’t need help allocating assets (investments), they need help in managing liabilities (expenses).

There’s no money for RIAs in doing that. And banks haven’t been able to do it.  As long as people paid in cash or checks, (or with credit cards that weren’t issued by the bank), banks and have been hampered by a business model that offers no reward for providing advice and guidance in managing day-to-day expenditures.

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Why is this new phase of competition emerging now?

1.Industry economics. Industry ROE fell off a cliff after 2008. While profitability has rebounded, ROE hasn’t. This is true for both banks and credit unions. Ten years ago, when the Web was emerging, lots of people predicted industry transformation. Didn’t happen because there was no profitability crisis. Another reason it didn’t happen was…

2. Demographics. Ten years, even the oldest Gen Yers were barely out of college. They simply weren’t a force in the industry, and therefore not a factor in driving change. Now it’s different. Gen Yers are the first generation to not automatically open a checking account upon becoming an adult (they’re also kind of the first generation to not actually become an adult upon reaching adult age, but that’s a different blog post). The other important thing about Gen Yers is that they’re a whole lot more educated about financial-related things than previous generations were at that age. Gen Yers want more help in managing their everyday financial lives than previous generations did (and do).

3. Technology. Yes, mobile matters. What matters most about mobile isn’t just location-based stuff, it’s the elimination of latency. In Phase II, while the Web helped consumers get better access to their financial lives, it still happened after the fact. You went out into the world, spent money, then came home, accessed your PC, and figured out how badly you screwed things up. The gap between action (purchase) and analysis has closed thanks to the mobile channel. That’s more important than knowing that you’re at Starbucks.

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The problem a lot of bank marketers have is that they don’t understand the composition of the competitive dynamic. It’s probably inaccurate of me to describe these waves as “phases.” They’re not discrete. They overlap.

So, many marketers cling to the Location dynamic because some consumers still place an emphasis on branch location and service, and because they (the marketers) have been around so long, this is the competitive dynamic they’ve grown accustomed to competing in.

Younger marketers, who grew up in the Rational Customer era, learned how to compete in the Rates dynamic. But, at any given point in time, there isn’t just one dynamic at play. The forces change slowly over time. What confuses the industry right now, is that all three dynamics play a role.

But the Location dynamic is dying out. Rates will persist for a while, but will be replaced by Performance.

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My Aite Group research this year is going to focus on building out these concepts and what it means to FIs and fin tech vendors. These are just some early — and I fear, poorly formed — ideas.

P.S. Interested in financial services marketing and analytics? To get a free Aite Group report on marketing analytics in financial services, please help me out by completing the 2013 Retail Financial Marketing Survey. Thanks. Your help is greatly appreciated.

Why Banks Can’t Compete On Customer Service

@BrettKing’s new book, Bank 3.0, includes the following quote from social media celebrity Gary Vaynerchuk:

“I genuinely believe that any business can create a competitive advantage through giving outstanding customer care.”

My take: In a banking context, this might be true — but, as Ringo Starr would say, “it don’t come easy.”

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There are three forces (or dimensions) that shape the competitive landscape in retail banking:

Customer Experience. I don’t like the term “customer experience” because it’s so indescript, but it’s hard to argue against the notion that whatever it is, it’s important. However customer experience is defined, though, customer service (or support) is just one component of the overall customer experience. Other components include self-service and the use of the product itself.

Value. This is a subjective determination (often sub-conscious, implicit, or qualitative) made by consumers regarding the extent to which the price paid for products/services is worth the benefits received.

Product Features. Bankers may think that financial products are commodities (I disagree), but that doesn’t mean there aren’t distinguishable product features. If the products are commodities, that simply means there is no differentiation in features.

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The consumer research I’ve done has convinced me that there are three groups of banking consumers. Each chooses to do business with a provider that does the best job for them on one of the dimensions, as long as some acceptable level of performance is provided on the other two.

In practice, what this means is that consumers who place the highest emphasis on customer experience are willing to sacrifice — to a certain extent — value and product superiority.

Consumers who consider value to be the most important factor will trade-off (again, to a certain extent) customer experience and product features.

You can figure out for yourself what consumers who put the most emphasis on product features do.

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Experience, value, and product are the external dynamics of the retail banking space. There are internal (to the firm, that is) dynamics as well. Competing and conflicting priorities create challenges in allocating resources and creating capabilities. Successful companies demonstrate three attributes:

  1. Focus. Whatever their chosen strategy, successful firms focus their resources on executing that strategy.
  2. Alignment. Successful firms find a way to align business units and functions around a chosen strategy.
  3. Discipline. Successful firms demonstrate discipline in sustaining focus and alignment over a sufficient period of time.

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So why is it so hard for for banks to pursue a strategy that “creates a competitive advantage through giving outstanding customer care”?

The market isn’t big enough. Only so many consumers choose a financial provider for its “outstanding customer care.”  If you decide to focus on attracting and serving the segment that considers customer experience to be the most important dimension of the three listed above, you might be looking at anywhere from just 10% to 40% of a market as customers/prospects. But we’re talking about customer care here, which is only one component of the customer experience — and might not even be an important element of the experience to some portion of this segment.

The strategy isn’t measurable. Managers need to be able to gauge two things: 1) To what extent is their chosen strategy a smart strategy, and 2) How well are they executing on their chosen strategy. There’s no shortage of financial institutions (especially credit unions) who claim to provide superior customer care — with no ability to measure or prove that claim. Without adequate measurement, focus/alignment/discipline becomes impossible to achieve.

The strategy isn’t specific enough. An FI that chooses to compete by providing “superior customer care” still needs to determine the level of quality it needs to provide regarding value and product quality. I’m not saying this is impossible, but, in practice, focusing on creating an advantage through superior customer care may lead managers to neglect the value and product quality dimensions.  The lack of specificity also means that focus/alignment/discipline will be hard to achieve.

Existing organizational structure is a huge barrier. If you work in a mid-sized to large bank, you know what I mean. If you don’t, go ask someone who does.

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In no way do I want to portray Mr. Vaynerchuk as a YASMM (yet another social media moron). But his statement reeks of the simplistic stuff spewed forth by the real YASMMs.

In the world of retail banking, “creating a competitive advantage through giving outstanding customer care” isn’t likely to happen.

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I’m sure some readers will disagree with that last statement.  That’s OK — I’m open to hearing well-reasoned disagreements.

In fact, I can think of an FI that might prove me wrong: USAA.

USAA could be considered to have created a competitive advantage through outstanding customer care.

But USAA meets my criteria for having been able to provide strong levels of capability on the value and product feature dimensions. And it would appear to have achieved the focus/alignment/discipline requirements.

So, it’s not impossible to create a competitive advantage through outstanding customer care. But I’m betting that you can’t do it.

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For a great article on this topic, see The Financial Brand’s Your Service Is Not What Differentiates You.

The Real Must-Have Job Skills For 2013

A Wall Street Journal article titled Must-Have Job Skills in 2013 asserts:

“For employees who want to get ahead, basic competency won’t be enough. To win a promotion there are four must-have job skills: 1) Clear communications; 2) Personal branding; 3) Flexibility; and 4) Productivity improvement.”

My take: Total and utter nonsense.

Let’s use me as an example to prove the fallacy of the article.

1. Clear communications. Perhaps this is a bit bombastic and egotistical (but really, what did you expect from me?), but I’m the best communicator in my company, and our job is communication. I’m the best writer among the analyst staff, and probably the best presenter.

2. Personal branding. I’m the most quoted analyst in my company, and my blog was voted 2nd best banking blog. That’s pretty good personal branding in my book. Happy to take on any of my colleagues who think their personal brand is stronger.

3. Flexibility. Tough attribute to measure quantitatively. Willing to give myself just an average grade on this.

4. Productivity improvement. The WSJ article says “In 2013, workers should find new ways to increase productivity.” No problem here. Two years running now, I’ve published the most reports of any analyst at my firm, blowing away the goal.

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Having made these pompous claims about my skills, let me tell you this: There is no one — and I mean NO ONE — in my company who is LESS LIKELY to get a promotion next year than I am.

It’s not like I just developed the above skills. I’d argue that I’ve have had them for years. Yet, the last time I got a promotion was — you sitting down? — 1999.

That’s right. Haven’t been promoted in 13 years. In fact, title-wise, I’ve been demoted. I used to be a “VP, Principal Analyst” and now I’m just a lowly Senior Analyst.

Not that I’m complaining, mind you. Ten times happier doing what I’m doing now than when I had the fancier title.

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But the more important point is that the skills listed above are NOT what it takes to get a promotion. If you really want to get promoted next year, I’ll tell you what to do. It’s quite simple. If you do the following things in 2013, I guarantee you that you’ll get promoted (will buy you lunch at a nice restaurant in Boston, but you will have to PROVE that you did these things):

1. Make the company money. There are other things on the list, but if you do none of the rest, just doing this is bound to get you promoted.  Here’s what the social media gurus morons don’t get: Your personal brand is worthless if the company you work for can’t capitalize on it. It’s great for your ego that your community knows who you are because you tweet links to 500 articles every day, but your employer couldn’t care less.

2. Do the dirty work. In every company, there are sticky issues, or problem areas, that don’t ever seem to get resolved or cleaned up. Do the stuff that nobody else is willing to take on, and you’re on your way to a promotion.

3. Drive other people’s productivity. The WSJ article is way off the mark. Companies promote people who are willing to take on the responsibility of dealing with headaches and issues that come with managing other people.  Improving your own productivity doesn’t win you promotions. What it does do — and this shouldn’t be downplayed or overlooked — is win you freedom. What I get from my personal branding, productivity, and communication ability is freedom. Freedom to (mostly) do what I want and how I want to do it (for the most part).  This is what too many Gen Yers don’t get. They think they’re entitled to this level of freedom because they’re the “future.” Buzz off, you inexperienced little nudniks. If John Houseman was still around, he’d tell you that “you have to EARN it.”

4. Earn the respect of your colleagues. Smart companies know that the number one reason why people leave a company is bad bosses. It’s not money, or anything else. It’s having a lousy boss (I speak from experience).  If you want that promotion, you stand a better chance if you’ve done the three things above AND if people like you (I’ve learned that the hard way, too).

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Bottom line: I don’t know what the WSJ editors were thinking when they decided to publish that article. Not a particularly good piece.

Ctrl-Alt-FinServ

I’ve decided to write a book about the financial services industry. Surely, Brett King must be tired of traveling around the world every week, speaking at conferences about Bank 2.0. The poor man has small children, for g*d’s sake. I just nominated myself to take his place.

Here’s a sneak preview of the book:

Ctrl-Alt-FinServ: Rebooting the Financial Services Industry for the 21st Century
by Ron Shevlin

That’s all I’ve got so far. I’ve got no book, and it’s breaking my heart. But I’ve got a title, and that’s a start.

The book will be about three things: Economics, Technology, and Demographics — and most importantly, the intersection of those three forces.

Here’s why the intersection is so important: Technologies that could drive significant (I hate to use the word “fundamental”) change in financial services have been around, and in development for the past 15 years. Yet, the industry really hasn’t gone through any “fundamental” transformation (despite the years of blathering from technology vendors and consultants).

Why not? Because the other two forces weren’t in alignment. About nine years ago, I wrote a report asserting that FIs that were perceived as doing what’s right for their customers and not just their own bottom line–I called it customer advocacy, you can call it trust–would have the most loyal customers, and be the most successful in the market.

I got a fair degree of pushback from a lot of bankers at large banks, who asked–quite understandably–why they should change what they’re doing when they were making money hand over fist.

Advocating a shift away from branch and call center investments to online (and, heaven forbid, mobile) technologies just didn’t jive with the fact that in 2003, the oldest Gen Yers were barely in their 20s, and hardly a force driving demand for financial products and services.

In other words, although the technologies were in place (or could be in place with some investment), the economics of the industry, and the demographics of the consumer base forced the status quo.

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I’ve been a consultant for the better part of the past 25 years, and I’ve been fortunate to work with a lot of really good senior executives from a range of companies and industries. One of the things I’ve observed is that good ones are able to take a broader view (i.e. longer term, both in terms of looking back as well as looking ahead) of what’s happening in their market.

While the young hotshots all proclaim the death of this and the death of that, the seasoned execs know that business cycles go up and down. They also know that although technology is constantly changing, and that they have to keep up with those changes, that technology change in and of itself does not mean fundamental structural change to their industry.

Sometimes it does. I wouldn’t have wanted to be an exec at Polaroid in the mid-80s.

But for the past 20 years, despite all the calls for the transformation of financial services, it hasn’t happened. And it hasn’t happened because the three forces weren’t aligned.

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Increasingly, a lot of the smart financial services people I talk to feel like maybe–just maybe–those three forces are becoming aligned.

The advent of mobile technologies, the assault on the economics of the industry on the part of government, and the emergence of a new, sufficiently-large generation (sorry, Gen Xers, you just weren’t that large of a generation) may be the impetus required to turn today’s banks into Polaroid.

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Here’s what I anticipate the premise of the book to be about: 1) Economics. It isn’t enough for FIs to be “more transparent” or “improve usability”, etc. It’s going to require new business models. The existing business model: Discrete deposit and credit products that generate revenue for FIs through “penalties” isn’t sustainable. The fees that consumers pay must be in line with the value they receive. 2) Technology. Maybe I’ll devote a page to social media. But the real story is mobile. Today, many people talk about mobile as a new channel. But it isn’t really a new, discrete channel. It combines voice, online, video, and wholly new capabilities. That’s the real story. 3) Demographics. I don’t know about you, but I’m feeling like Gen Yers are into the 20th minute of their 15 minutes of fame. Time to look past the Gen Yers to see what’s next.

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OK, I got a book to write. Nobody steal my title. And move over, Brett.