| Front Line Solution
 By
Thomas P. Johnson Jr.
The failure of recent mega-mergers
to produce quick revenue synergies underscores the importance
of day-to-day execution.
The latter part of the '90s was a momentous
period in banking, featuring the biggest merger deals
yet seen. Along with tremendous cost savings, merger partners
held out the promise of revenue growth, sparking talk
of industry revival.
Much of the bloom has now faded from
that rose. With few exceptions, the newly merged titans
are struggling to meet Wall Street expectations.
Their stock performance has lagged that
of the overall industry, which itself has lost investor
favor in an environment of rising interest rates. The
problem has been the much-heralded synergies. While merging
banks have generally done a good job achieving the promised
expense saves, revenue growth has been much more elusive.
The reality is finally sinking in that
merger deals, however grandiose, do not automatically
solve banking's real problem, which is the continuing
loss of business to other types of financial intermediaries.
Some CEOs hope to regain lost ground by embracing technology
and e-commerce. Others pin their fortunes on improved
day-to-day execution, particularly in consultative selling.
The latter approach is personified by
Dick Kovacevich, the subject of this issue's cover story.
Chief executive of Wells Fargo & Co., he is the industry's
foremost proponent of cross-selling as the key to generating
sustained revenue growth. Having outperformed the industry
in this area during his prior tenure as head of Norwest
Corp., Kovacevich is attempting to duplicate the feat
at Wells, which was acquired by Norwest in 1998.
As senior editor Kenneth Cline points
out, however, raising the newly-merged company to the
cross-sell levels seen at Norwest will be an arduous,
multi-year task, with no guarantee of success. Wells is
much larger and more complex than Norwest had been. Compounding
the challenge, Kovacevich has chosen to merge the two
companies in a deliberate, "pick the-best-of-each" approach
that has delayed completion of some of the tricky operational
transitions.
If anybody can master the discipline
of effective cross-selling, Kovacevich can. But if even
this veteran is facing an uphill struggle to generate
growth, how much more difficult might this be for the
industry at large? The question is worth pondering in
the wake of mega-mergers that so far have failed to produce
an enduring solution to the industries revenue challenge.
Renewal begins with a changed state
of mind on the part of the senior executives guiding traditional
financial intermediaries. The certainty with which they
approach familiar activities must be supplanted by a sense
of urgency and exploration, tempered by a humility that
acknowledges the enormity of the challenge.
Strategists may be better off with a
back-to-basics approach that emphasizes disciplined execution.
Kovacevich himself argues that implementation skill is
the major differentiating factor in competition today,
since products are commoditized and capital and technology
are accessible by all. That reality shifts the strategic
emphasis back to the front lines. The battle for renewal
must be fought one day at a time, and expectations should
be adjusted accordingly.
Copyright © 2003 by Banking
Strategies, published by BAI.
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