Defining Moment

By Thomas P. Johnson, Jr.

The time has come for chief executives to make the hard choices needed to lift their institutions to the next level of performance.

The banking industry is caught up in two great storms sweeping through corporate America, one being retrenchment in a battered economy, and the other being the crisis of confidence in financial reporting accuracy. With fresh reports of cost-cutting campaigns surfacing around the country and federal regulators probing the books of at least a few major institutions, it is clear that senior management has a lot of internal review and tightening down to do.

The good news is that the industry has been cleaning up its own house for a decade, and though there may be some high-profile exceptions in the days ahead, most banks can be expected to weather the gale in fine form. The bad news is that chief executives generally have not yet made the hard strategic choices needed to lift their institutions to the next level of performance.

Banking largely remains a look-alike industry, with many CEOs still trying to be all things to all customers and all shareholders. Coming off an entire decade when strategy supposedly was king, you can count the differentiated companies on one hand. It's inspiring that major players such as Commerce Bancorp Inc., Mellon Financial Corp., Bank of New York Co. and State Street Corp. have focused themselves on selected markets and competencies, but disheartening that such examples remain the exception.

To a great extent, the homogenous state of strategy in banking is a failure not of vision, but of nerve. Many CEOs lack the courage to follow through on bold programs that would entail a higher level of risk-taking and arduous organizational changes.

While this assessment may appear harsh, it seems inescapable once you consider the many handicaps of the generalist business model. If employees don't understand the identity of their company and the select markets that it intends to serve, how can they develop superlative levels of expertise and productivity? If customers don't perceive distinctive value, why should they base decisions on anything other than price? If management doesn't have a strategic focus, how can it possibly allocate capital efficiently?

The easy out is to say that such questions can wait until after the recession, but in fact there is no better time than right now to put a stake in the ground. Everyone understands that adjustments have to be made in troubled times, and the fundamental decisions must be made well in advance of a market rebound if strategic focus is to pay off fully. This may be a dark hour, but it's also a defining moment, and the true CEO leaders will take advantage of it.

Mr. Johnson is publisher of Banking Strategies and president and chief executive officer of BAI.

Copyright © 2003 by Banking Strategies, published by BAI.

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