Critical Balance
By Thomas P. Johnson, Jr.
Retail financial executives should reaffirm the fundamentals in these uncertain times, but also maintain their focus on the future.
All eyes are on the consumer, and no wonder. Confidence, credit-worthiness and job security had already been under assault going into the fall. Following the events of September 11 and the ensuing war on terrorism, the pressure is mounting on this last pillar propping up the U.S. economy.
Certainly, much of what happens next year depends on how well individuals cope in a period of great uncertainty. This does not mean retail financial executives are helpless, however, and it certainly does not mean the industry should call a full-scale retreat.
To the contrary, the days and months ahead hold great promise for those companies that can remain true to their strategic vision while making the necessary short-term adjustments to protect their franchises. It's a critical balancing act, but those who prevail can emerge from this era with even greater momentum and market share. Much will be determined by the manner in which financial institutions handle credit, costs and relationships.
With credit, for example, there's a natural tendency to over-tighten in stressful periods. That would be the worst thing for the economy, however. Placing undue stress on the consumer will only increase the burden on all institutions. A more judicious approach is to elevate underwriting standards and strengthen early warning systems while continuing to build sources of future profit by lending to those who qualify.
Slashing expenses is another familiar tactic in tough times. Technology projects are obvious targets, since the payoffs can be slow in coming. Yet an indiscriminate, across-the-board reduction will only dampen prospects for future growth. The strategist's answer is to align cost reduction with the strategic plan. At J.P. Morgan Chase & Co., for instance, retail chief David Coulter has prioritized technology investments in a manner that lowers overall spending but preserves momentum on the projects that matter most.
And what of the customer? In recent years, institutions have promised a new level of commitment, proclaiming that strong relationships are a top strategic priority. Now is the time to back up the rhetoric with action and focus on winning clients for life. This means delivering on the service promise made in more prosperous times. Companies that stand by customers today will find it easier to cross-sell more products to those customers when conditions improve.
Among the many difficult aspects of following through on these priorities is the mounting pressure on profitability. The uncertainties at home and abroad will tempt executives to think strictly defensively. Yet institutions have an obligation to deliver both short- and long-term value to shareholders. Wise strategists will deliver that value by reaffirming the fundamentals even as they continue to position their organizations for the future.