| The Dual
Track
 By
Thomas P. Johnson Jr.
Leadership in financial services
depends on a joint pursuit of differentiation and efficiency.
One of the great quests in banking over
the past decade has been to find distinctive approaches
to the customer that build relationships and minimize
price competition. Customer relationship management can
be seen as an attempt to actualize this vision through
technology.
The good news is that a significant
portion of the customer base is willing to deepen relationships.
According to a recent consumer study by BAI Research,
for example, roughly two-thirds of depositors are receptive
to consolidating their accounts with a single provider.
The catch, however, is that the financial
resources that can be brought to bear by certain customer
groups may not be sufficient to justify the cost to serve
them. A relationship-intensive approach entails outlays
for highly-trained reps, sophisticated information systems,
customized products and packages, and extensive personal
interactions with customers. Underscoring the peril of
taking an overly broad approach, BAI Research findings
indicate that only one-sixth of total customers possess
both the receptivity and the resources that warrant intensive
relationship building.
Conversely, perhaps five-sixths of
the customer base does not strongly lend itself to this
type of treatment, which provides another indication of
why cost reduction is a continuing theme in the industry.
After all, only the low-cost providers can come out on
top when customers view offerings as commodities and base
decisions largely on price.
In that light, it makes sense that
cost reduction was the prime rationale cited in the recently-announced
merger between Bank of America Corp. and FleetBoston Financial
Corp. The banking industry still has more capacity than
it can profitably deploy, a point driven home by Bank
One Corp. chief executive Jamie Dimon at BAI's Retail
Delivery conference last November. "Waste is a disease
that will cripple companies," declared Dimon, who estimated
that half of the industry's back office capacity is redundant.
As institutions strive to apply high-touch
resources where they will do the most good with customers,
therefore, they must also strive to streamline the commodity
aspects of the business.
This is not to say that mergers are
necessarily the only answer to cost reduction. One emerging
efficiency avenue, for example, is offshore outsourcing,
also known as "offshoring." As shown in this issue's cover
story, consultant A.T. Kearney estimates that the U.S.
financial services industry potentially can save $30 billion
a year in operating costs by shifting functions overseas,
although security and political risks certainly must be
kept in mind.
There will never be a perfect answer
to the dual strategic obligation of differentiation and
efficiency. Yet those institutions that do the best job
of mastering this dual track will surely parlay that expertise
into industry leadership.
Mr. Johnson
is publisher of Banking Strategies
and president and chief executive officer of BAI.
Copyright © 2004 by Banking
Strategies, published by BAI.
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