Bank strategies are all the same – execution is the difference
The strategies are remarkably alike and with few surprises. Indeed it would be a good party game for the very sad to strip the brand names out of each of their strategies and see whether anyone can guess which bank the strategy belongs to. We can only hope for shareholders’ sakes that none of the CEOs spent large amounts with highly paid Strategy Consultants to put these strategies together, given that they are so alike.
Broadly speaking all the strategies focus on improving return on equity (ROE) for the banks and their individual business units to between 12-15%, getting the cost:income ratio down below 50% ( “positive jaws” now slipping into the common vernacular to the point where even children can explain what it means), selling/closing down business units that are non-strategic i.e. markets or segments that the bank cannot or doesn’t want to dominate, focus on corporate banking which supports global trading along the primary and emerging ttrading routes, reduce customer complaints, rebuild customers’ trust by improving the customers experience so they buy more, whilst driving out costs (mainly by laying off staff). Of course on top of that each of the banks in their strategy will emphasise the need to meet both international and local regulation, which will mean further rises in costs, which in turn will mean further reductions in staff.
So with all the banks pursuing fundamentally the same strategy (which raises the question of whether more players in the market will actually make customers feel there is more competition or just more of the same) the opportunity for differentiation is all in the execution. The bank that can execute on this strategy the fastest (assuming that each of the banks will execute it to the same standard) should come out as the winner.
However to execute on these strategies quickly and effectively will require a fundamental change to the way that banks organise and go about delivering.
The leadership of banks needs to fundamentally change. (see http://www.itsafinancialworld.net/2011/01/why-leadership-of-banks-needs-to-change.html ). From a culture of hierarchy and fear, where making a mistake results in instant dismissal to a far flatter organisation where employees are encouraged to take more risks. It is ironic that at a time when the banks have been castigated for taking too many risks that to arise from the ashes the banks need to encourage their employees to take risks. Not financial risks, but more with the rapid pace of change in our society, brought about by the internet and for ever faster communications, the culture of banks of only releasing something to the customers when it is perfect and complete has to be changed to one where getting something out into the market and learning from it (even if the learning is that it wasn’t a very good idea) has be part of the culture of the winning banks in the future.
This change of culture requires a different type of leader, particularly to breakdown the barriers that traditionally exist between the business and IT. Whilst Barclays has made the first step, by making the COO and the CIO of their businesses jointly responsible to the CEO for the business (see http://www.itsafinancialworld.net/2011/05/barclays-cooscios-joined-at-hip.html ), ultimately banks need to rcognise that their dependency on IT is total and every executive should understand the language of IT just as they understand the language of banking, and IT-literate COOs, CMOs and CROs will run their business with a much smaller, probably outsourced IT function. To be more radical CIOs should not have a seat at the table, there should be no CIOs. What the banks should end end up with is a small team of IT experts who are commercially and technically savvy who manage the relationships with the organisations (that has as their sole focus IT) who supply the IT services to the bank, and report to the COO.
Antonio Horta-Osario, the CEO of Lloyds Banking Group in his strategy statement has declared his intention to de-layer LBG, and he is to be praised for this, however there is even more radical change that is needed. It is not just the horizontal layers that need removing, but many of the vertical boundaries. With increasingly more business and transactions coming into banks not through the branches, the structure where the bank is structured by channels, where the branch typically has the largest budget and the loudest voice needs to be abandoned and replaced by a structure based around customer segments or brands. Product organisational units need to be either blown up or significantly shrunk as increasingly products are just subcomponents of a customer proposition. To be excellent at delivering change organisational barriers need to be literally brought down and far more co-location brought into play.
The concept of having standalone businesses based around products such as mortgages or cards needs to be abandoned given the stated intent of the CEOs to provide customers with a single, joined up view of their relationship with the bank, as well as by so doing releasing huges amounts of cost locked up in preserving the separation of the product businesses.
Product or proposition launches need to have their lifecycles shortened dramatically. When you look at what Zara has done to the fashion industry (moving from Catwalk to high street in 15 months to 6 weeks), then the banks need to be aware that if they don’t address their time to launch then someone else will. With retailers such as Tesco coming into the market that retail mentality is not far away. This requires a fundamental shift in the ways that the banks operate internally with far more collaboration between the brands, marketing, operations, the channels, risk and compliance than is seen today. What is required is a fundamental shift toward a far more incubator mentality approach to product development – something that requires a fundamental cultural change for banks today.
The bank that has the courage to think and execute on fundamental change will ultimately come out as the winner. Some banks are better positioned to do this than others. Some banks are distracted by government shareholdings, forced disposals, crises overseas, etc. but these distractions will not always be there, so the question is whether there is the leadership in the banks who are ready to grab the opportunity and create clear blue water between themselves and the competition.