Banking industry: time to swot

The allure is we humans are far better at thinking in concrete than abstract. Analogies help. Case studies, real-life examples, these are comprehensible to an extent management jargon and consultant waffle are not.

"The financial services industry… is in full study mode. Ready to take lessons from anywhere.” - Andrew Cornell

The financial services industry, because it has been under such structural pressure since the financial crisis and because it is ripe for digital disruption, is in full study mode. Ready to take lessons from anywhere.

Retailing is a particularly prominent case study – both because of the exposure banks have to retailing through lending to stores, retail property and consumer confidence and credit; and because banks themselves are subject to many of the same destructive forces.

American Banker ran such a piece last week: “Why banks should take notice of retailers’ problems” by Mayra Rodríguez Valladares.

She looked at the credit risk. “Banks have their own direct worries about the effects of digital technology on their industry,” she wrote. “But with online shopping and automation threatening brick-and-mortar stores, the retail industry might have more immediate concerns.”

“Yet retailers’ problems could soon become banks’ problems if risk managers and bank examiners are not sufficiently careful,” she argued, noting in the US in 2016, online shopping grew more dominant and 4,000 physical stores closed. This year is looking far worse.

Such trends are evident globally, in Australia, Asia, Europe. Retail is a sector under enormous pressure.

The issues are clear: consumers want the product, quickly and conveniently, more than they want the physical retail ‘experience’. It’s the same with banking – although banks are even worse off as many still see a day of actual ‘shopping’ as an outing where very few would see a day of ‘banking’ that way.

Special

Someone clearly of the same generation as me, Chris Skinner, wrote recently of how looking at the retail environment brought to mind The Special’s classic Ghost Town with its refrain “this town is coming like a ghost town”.

“People shop online and at home and the impact is now being felt in the physical world, as store closures and mall failures hit,” he wrote.

“We see the same with banks.  Banks (in the US) are actually being told by the Federal Reserve that they have to get approval for a  branch closure as, unlike the UK, there has to be at least one branch in town:

“It’s a time of declining bank branch numbers, but bank examiners continue to expect bankers to meet the credit needs of their communities (from the article As Branches Decline, How Do Bankers Continue to Comply with CRA? which is well worth a read).”

Skinner’s lesson is such moves are treating the symptom rather than the underlying malaise. Because the key lesson from all these lessons is the lesson is actually an immutable one: the customer is always right.

Not all retailers are failing. Nor will all banks. Those that succeed are sensitive to what the customer wants and the operational change necessary to deliver that experience.

Retailers and banks are far from alone. Much has been written about how the Australian media group Fairfax (my former employer) found itself in the dire circumstances it is in today.

One of the central lessons was it ignored how a core stakeholder group – the consumers of classified advertising – preferred to get their information.

Just because the massive Saturday papers of yore in Sydney and Melbourne were enormous didn’t mean the best way to search for a new house, job or car was via a small, black and white, written, heavily abbreviated description.

In a massive shock, consumers preferred far more detail: colour pictures, videos, maps, interactive features. They left Fairfax. Goodbye advertising revenue.

The issue was a failed focus on the customer – advertisers and readers. So too in retail. In a recent bluenotes article Ferrier Hodgson’s James Stewart, one of Australia’s most experienced corporate undertakers for the retail sector, argued the death list of retailers had far less to do with structural change in the industry than it did old fashioned mistakes, particularly losing relevance for customers.

“The key here is to understand who the customer is, what drives their purchasing decisions and how the brand can best communicate with them,” he said.

Aplenty

There are successful retailers aplenty – including those international brands which have come to Australia and made a go of it like Uniqlo, H&M or Zara. (And there are those who haven’t, such as Topshop).

Stationery chain Kikki K is expanding overseas, as is Geelong-based Cotton On whose chief executive chief executive Peter Johnson has frequently spoken of the need to have a point of difference, a fresh offer and be fast on stock turnaround and distribution – particularly when taking on giants like Amazon.

This actually is the lesson for banks: listen to your customers, understand their purchasing decisions, the channels through which they wish to communicate and make the experience convenient. It’s not about slavishly transplanting the often misunderstood practices of another sector.

In their typical, mannered way, consultants say the same thing. McKinsey & Co’s latest Digitising customer journeys and processes: Stories from the front lines report by Chandana Asif, Jiro Hiraoka, Tomas Jones, and Prerak Vohra argues “successful transformations begin with a zero-based redesign of the customer experience of a given task, such as opening an account or renewing a service.”

“That involves ignoring everything the company already has in place and asking, ‘What would be the best possible experience a customer could have when completing this task?’” the report said.

For example, a “next-generation operating model” emerged after one bank reduced the information required on its new-account-opening form from 45 fields to 35 - and declared victory.

“Yet it could have reduced the fields to 15 and pre-populated 10 of them from external data sources,” the authors said.

In another example, an early prototype of a bank’s new-account-opening ‘journey’ sought to help customers choose an account by asking how, when and why they would use it and recommending the most suitable product.

“But in tests, customers always selected ‘compare to other accounts’ whenever a recommendation was offered; answering three or four questions hadn’t saved them the time or trouble of making comparisons for themselves,” the report said.

“So the team took the questions out of the process, relegated recommendations to an option, and added brief summaries of account features to help customers make their own choice.”

That is, the bank actually listened to customers and designed an experience that suited them.

Lessons learned narratives will continue to be popular, not least because they serve to remind business success is not difficult to articulate, it’s difficult to execute – held back by legacy systems, hidden assumptions, silos, culture etc.

So Tony Soprano’s management lessons? It’s lonely at the top. Learn from your mistakes. Have a vision. You have authority – use it. You have authority – know when not to use it. Work life balance. Have a plan. Deal with people.

Pretty universal really. But hard enough to sustain over six seasons let alone the life of a company.

Andrew Cornell is managing editor at bluenotes