Keeping the customer in focus isn't easy. Everybody wants a share of a juicy account, and customers aren't always well served in the rush to carve up their business. The task for managers is to seek out ways to better align their organizations and satisfy customers' needs while effectively controlling costs.

Banks are not blessed with an arsenal of exclusive products, so they must seek innovations where they can. Look, for instance, at the opportunities that come with the personal computer revolution. Cheaper and better technology is driving the electronic interface down market from the very large companies into the middle market. Eventually, it will reach into the small-business area, too.

Banks need to be prepared. Already personal computers have moved into the small-business environment in a big way.

The proposed union of Microsoft and Quicken could alter the way small firms - as well as individuals - handle checks and settle accounts. Microsoft says it intends to work with banks as it develops new software, but banks also need to educate and help their customers get ready for whatever comes down the electronic highway. This is simply another service channel to be exploited.

In a sense, the PC-based software packages that can handle cash flow sweeps and investment plans are analogous to cash management products for middle-market customers. Educating customers about any of these products can help keep the account, defend against competition, and even consolidate a relationship. The electronic interface is appealing because it is cost- effective. And it just might help banks maintain their small-business franchise.

Sometimes, bankers worry that cash management accounts will speed the cannibalization of core deposits. Margins may get squeezed, but the savvy banker seeks offsetting compensation in the form of greater sales opportunities for other products and more stable fees.

In fact, the leading cash management provider in a market often enjoys the largest share of deposits. For attracting new customers, cash management ranks second only to credit availability as small businesses grow.

Most small firms remain loyal and profitable customers, but few, if any, banks can take that allegiance for granted. Competition is mounting. The nonbanks want in.

Small businesses tend to act like individual retail customers, looking to banks mainly for checking accounts. Barely 23% establish lines of credit. Only a quarter take out auto loans, and a mere 12% use equipment loans.

A couple of examples help paint the picture. GE Capital Corp. has established itself as a market leader in equipment leasing and management, chalking up rapid increases in market share. In part, its success comes from forming a special small-business development group that leverages a superior understanding of equipment to provide better engineering support and to improve management of residual risk.

Another competitor banks face is Merrill Lynch & Co. with its cash management accounts targeted at small businesses with annual sales of $1 million to $150 million. The focus at Merrill is on understanding small businesses and building strong relationships to cross-sell business owners who have personal accounts with the firm.

These and other competitors launch products that offer more flexibility or convenience. They also take advantage of the regulatory restrictions that penalize banks. But that is hardly the point. Most banks were slow to react when the mutual funds started siphoning off their individual retail customers. The danger is that more small businesses could join the exodus if banks don't pay attention and get out ahead.

Competition also looms large in supplying small businesses with retirement plans. Already mutual fund organizations are making sizable inroads by offering small businesses low-cost investment management services for employees.

In one example, firms can pay as little as $5,000 for a plan that manages the accounts of 100 employees with a choice of 27 no-load mutual funds and offers record keeping, trust function, and employee education. That's hard to match, but not impossible if the underlying relationship is right.

The importance of smaller service firms is hard to overstate. As the U.S. economy matures and moves away from its traditional industrial base, the number of small service firms will mount. So will their attraction as suppliers of significant deposit income.

Mr. Mara is a vice president and Mr. Gregor a senior vice president at Morristown, N.J.-based Gemini Consulting.

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