| Refocusing
the Franchise
 By
Thomas P. Johnson Jr.
"All things to all people"
is losing its luster, but care must be taken in mapping
the alternatives.
FleetBoston Financial Corp. decides
to divest its investment banking unit; Citigroup sells
Travelers Property Casualty Corp.; Mellon Financial Corp.
exits retail banking — have we entered a new era
of strategic focus, or are companies simply retrenching
in a weak economy? The question is pivotal, since mastering
the difference between strategic repositioning and reactive
downsizing will go a long way in determining how strongly
individual companies and the overall industry will emerge
from the recession.
From a strategic perspective, it does
seem that the bloom is off the rose of unlimited diversification,
as embodied by the universal bank. Although FleetBoston,
Citigroup and Mellon cited varying reasons for their divestments,
the subtext in all three decisions was that senior management
did not believe the actions would materially damage customer
relationships deemed essential to the company's future.
Indeed, the moves stand to enhance relationships by permitting
a sharper focus on prime customer segments.
This is not an indictment of diversification,
but a refinement of the concept. Rather than lightly touching
customers in a multiplicity of domains (many of them product-denominated),
the strategy is shifting to deeply touching customers
within domains that are fewer in number, better defined,
and more clearly aligned with client needs and distinctive
organizational strengths. Diversification then hopefully
becomes a more discerning exercise, incorporating both
a top-level view and an intra-segment view.
This still leaves plenty of room to
maneuver within chosen markets, and E*Trade
Group Inc. shows how this works in practice. After establishing
itself with self-sufficient customers who like to trade
stocks online, the company introduced banking capabilities
and quickly demonstrated that its customers valued an
ability to migrate funds between brokerage and banking
accounts under the umbrella of a single online provider.
Revenues diversified, relationships deepened.
The latest initiative for E*Trade is
targeted at a different segment of the affluent market
and involves more physical distribution. E*Trade is still
grappling with this challenge, and it's too early to declare
victory.
Numerous traditional banking companies,
meanwhile, are returning bloodied and bruised from the
front lines of diversification. Strategists can't be faulted
for a weak economy, but a balanced response is required.
Pruning operations for pressing near-term financial reasons
is one thing. Simultaneously abandoning a vision for disciplined
growth in select areas is quite another.
Concurrent with efforts to rationalize
overgrown operations, then, should be intensive developmental
efforts centered around the identification and distinctive
fulfillment of the needs of key customers. Such an approach
nurtures a more organic form of diversification that has
a better chance of holding up throughout the business
cycle.
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Copyright © 2003 by Banking
Strategies, published by BAI. |
