In a large West Coast city, a thirty-something professional rereads an analyst report that is bullish on the prospects for non-U.S. equities.
She switches on her computer, connects to Fidelity's On-Line Express, and transfers 10% of her assets into the Janus World-Wide fund. Then she downloads a transaction history to confirm that a recent deposit was received.
This professional is participating in the reinvention of an industry, and Fidelity is mining the benefits.
Business reinvention means more than doing things better, or even doing them differently. It means radically changing the rules by which an industry operates. In reinventing its business, Fidelity has created a multichannel approach to broaden customer reach.
More important, it is achieving above-average growth and increasing shareholder value, even in a fiercely competitive industry.
In the financial services industry the best examples of growth are generally nonbanks, such as Advanta, T. Rowe Price, EDS, and GE Capital. These companies have been developing and offering new types of products and reaching new segments of customers in ways not foreseen by traditional banking.
Business reinvention is a fundamental reshaping of relationships, both within an organization and between institutions. Like reengineering, it focuses on a product, processes, and customers, but then it goes beyond reengineering to reevaluate and redistribute roles among all value chain participants.
Different paths can be followed on the way to reinvention. But all successful reinvention stories start with a thorough understanding of customer needs.
Chase Investment Advisors recognized that it was not achieving satisfactory returns either through acquisitions or by selling its own products. So it abandoned a traditional acquisition strategy, pulled together an alliance of its investment planners and external product providers, and made itself the critical link between the customers and the providers.
Looking at its value chain from this new perspective, it saw Chase's highly successful national jumbo mortgage business as more than just a revenue generator. It saw it as a channel to identify and acquire investment customers.
Today, when Chase closes a mortgage, the mortgage officer asks permission to share the customer's financial information with the investment arm.
The customer is offered a free financial plan prepared with the help of an outside pension consulting firm. Chase then provides access to a wide range of other providers' products.
The investment officer regularly talks with the customer during investment performance reviews and is in a position to deepen the relationship.
As a result, the Chase unit has created a business that is estimated to be growing by more than 50% a year.
Traditional bank card companies acquire their accounts through mass mailings conducted twice a year, offering the same price, the same product, and little customer segmentation.
Capital One, formerly Signet Bankcards, decided to redefine account acquisition through the application of state-of-the-art technology for gathering and analyzing customer data. It replaced the traditional shotgun approach for attracting new customers with a strategy of test cell analysis.
At any one time, Capital One has mailings out to customers across 300 test cells that provide information on customer demand and performance. Capital One then develops specific offerings for attractive segments and conducts full-blown marketing campaigns to attract them. The company also conducts test cell analysis on existing customers to understand how their profitability can be developed and managed.
The results have been outstanding. Credit card receivables have increased from $1.7 billion in 1992 to $9 billion in 1994. At the same time, losses have been halved, and Capital One has created one of the most sophisticated customer acquisition and management capabilities in the world.
Not coincidentally, the market value of its owner, Signet Bank, increased fivefold before Capital One's spinoff, reinforcing the link between reinvention growth and shareholder value.
Whatever the ultimate goal, business reinvention requires a vision for the future, combined with a willingness to establish objectives across organizational lines. Institutions willing to break free from traditional mind-sets and embrace reinvention are those most likely to find themselves in a position to grow dramatically and deliver significant benefits to customers, employees, and shareholders.
Mr. Infusino and Mr. Argosh are vice presidents in the financial services industry group at Mercer Management Consulting, New York.
