A Matter of Focus

By Steve Klinkerman

It takes more than a general emphasis on customers to unlock high performance.

Will a strong customer orientation carry the day? It seems a fitting outcome, given the great organizational leap needed to make the customer a key driver of decisions. But even as banking companies raise customer devotion to new levels, it is becoming increasingly clear that a specific approach is still needed to capitalize on all the effort.

One way to look at the problem is through the lens of execution. When it comes time to make decisions and take action, even the most skilled and committed team needs to be able to focus its energies in a way that makes a difference in the market. The troops need to know which way to march.

For example, nearly three-fourths of respondents to a recent executive survey by BAI and First Manhattan Consulting Group identified customer-related goals as the top path to revenue growth in retail banking. But the specific steps needed to pursue goals such as cross-selling, customer retention and service quality can vary markedly, depending on the targeted customers and chosen strategy.

Indeed, the BAI/FMCG study identified six different retail banking strategies, each playing to a different customer segment. Is the provider pursuing a lowest-price strategy or emphasizing distinctive convenience? Perhaps the emphasis is on service quality, or on advice. Other players might build recognition programs around high-value customers, while still others might take a personalized approach to each individual.

Going back to the top avenues for growth, then, cross-selling might work well for institutions pursuing either the advice or personalization models, which require skilled personnel, quality time with the client and deep customer knowledge. Careful refinements to the traditional cross-sell approach would be needed, however, for those retail banking outfits competing on the basis of price or convenience.

Likewise, the goal of customer retention, though universally shared, would be pursued quite differently at various institutions. The drivers of defection and retention will vary according to the chosen customer segment and strategy. Customers attracted to a service strategy, for example, are retained as the provider simplifies their lives, while people enrolled in recognition programs thrive on that special feeling of being preferred clients.

Service quality seems like a fairly homogenous issue, but it too takes on different forms to different people. Customers pursuing rock-bottom prices would expect a plain branch atmosphere and standardized products, and they likely will be subjected to more special fees. The opposite would hold for customers attracted to a personalization strategy.

The point in these examples is that each strategy requires a different set of execution decisions. Absent clear strategic guidance, employees will struggle unnecessarily with vital activities, both customer-focused and internal.

With marketing, for example, vital activities include market segmentation, customer management and distribution planning, according to the BAI/FMCG researchers. Execution-related issues revolve around sales management and service/cost management. Internal issues include technology and operations; information management; risk management; and a host of other activities ranging from coordination and budgeting to resource allocation and employee incentives. All of these important areas are affected by strategic clarity or lack thereof.

Contrast all this with a finding by BAI/FMCG that only 10% of top retail banks are fully committed to a strategy, and the potential for performance improvement seems immense. It takes tremendous vision and determination to break out of the age-old pattern of being a tactical opportunist, but those who prevail can gain some exciting payoffs.

Mr. Klinkerman is editor-in-chief of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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