My company uses some small marketing service vendors, and I was advised recently to help one of them make a profit doing business with us: "Otherwise, he'll leave us."
Yet many of the managers I work with in large banks, unlike this small vendor of mine, do not base their business decisions on profit.
Perhaps that is a crucial difference between large and small, even a reason why small businesses grow faster: Small-business managers can and do make decisions based on the bottom line. Large enterprises create silo units with objectives and measures of performance that do not reflect bottom-line impact. Many examples can be found in IT, risk, operations, legal and even — and most pernicious of all — marketing departments.
At a large bank, a senior marketer told me, "If I spend my ad budget well and my ads look good, then I have succeeded. If no one buys the product, then that would be someone else's fault. I don't own the product and pricing."
Another example: Consumer collections makes use of both thousands of collectors and machines — specifically, auto dialers and the software that drives them.
It was learned long ago that people competent to administer the collectors were not at all competent to run the machines. Hence the machines, the dialers, were displaced laterally into an IT silo. The head of collections has little influence over his own IT.
The dialer/IT people generally do not care about collecting more and improving the bottom line. Their goals are to comply with regulations, stay within budget, keep the collectors busy and make sure that customers are dialed often (irrespective of whether the right person ever answers). This is a lot to do!
But half or more of the collectors' time, tens of millions of dollars' worth, is wasted talking to someone other than the debtor, or on voice mail. This happens because dialer management often does not care much about reaching the right people nor, of course, about collecting any money. IT is an "expense center." If you keep the wheels turning, beat your budget and avoid big messes — then you win.
Likewise, I once asked an operations person about adding a coupon to the customer statement in order to generate revenue and was told: "But if we did it wrong, then our payments would go astray — you can get fired for that." (No reward for doing it right, so avoid doing it at all!)
Hence, also, excuses like this one: "Our system accommodates only three price points. If you want to test another — well, we aim to have a new system in two years."
If a new product generated additional revenue and profit, "IT" would not benefit because it is an expense silo. So why should IT encourage any incremental development work beyond what's already in the budget? It won't.
Of course, in a world of "360-degree reviews," you might imagine that IT would care about making its in-house clients happy. They do care! This goal is addressed by talking a good game, making very helpful suggestions and explaining that it is really someone else who has imposed the constraints. The pea is under a different shell.
We all express belief in ideas such as open competition and the free market system, but we check those notions at the office door in favor of lip service to a "cooperative environment" that is unreal. Since it is unreal, it cannot cut the mustard. Of the many excuses I've heard for supine stasis, my favorite is: "But those people aren't part of my organization."
Thus, in banks, Internet service and marketing are frequently controlled by Internet technologists, operators — not marketers. Hence many product and market segment marketers' attitude, camouflaged only by insouciance and neglect, is: "I don't control this channel, so the heck with it." Could we do more selling of enhancements and automated payments on our Internet servicing site? Sure. But who's got the goal, incentive or performance measure — and authority — to prompt the necessary investment of time and money?
Is there an easy way to get all these decisions focused on the bottom line? No. Can we nonetheless do much better? Yes.
Now that we have senior vice presidents and even executive vice presidents of "decision analysis," "quantitative methods" and the like, we can start by asking them to turn their attention to giving managers who lack direct revenue responsibility the tools to assure that their decisions and the evaluations of their performance will reflect their effect on revenues and profits.
