Editor's Note

Beyond Corporate Reengineering

Our cover story in this issue examines the track record of bank reengineerings. One big unanswered question is how effective these cost- cutting programs are in creating and maintaining a strong expense control culture.

Analysts note that banks like Wells Fargo & Co., Bank of New York Co., and Fifth Third Bancorp built their flinty cultures over many years, and not with a six- to eight-month restructuring programs.

Bank watchers also point to First Bank System Inc. as a once-bloated company that now is among the best at watching costs.

But the transformation of the Minneapolis-based banking company began in 1990 when a new management team, led by chief executive John F. Grundhofer, came on board. While much of what happened then amounted to reengineering - the bank slashed costs and built a new technology infrastructure - managers today recall an effort far broader in scope.

"When we first looked at what we wanted to be, we thought about bringing consultants in. And we actually did very briefly in terms of helping us take costs out," said vice chairman Philip G. Heasley. "And then we kind of did an about-face. We said, 'Wait a second. This is more about who we are, and what our culture is, than it is about an event and a task, a project to take costs out. It's got to be who we are as a corporation."

Lawrence Vitale, a Bear Stearns analyst, said institutions like First Bank System always "find a way to keep the expenses down no matter what they are doing."

Mr. Heasley said the likes of First Bank, Wells, and Fifth Third have something else in common: "You'll find any of the banks that are efficient that way tend to understand how to manage technology, which I think is a huge piece of it."

How First Bank manages post-merger systems conversions is the subject of another story in this issue (see page 4A).

Marketing

What's In a Name? Prospects

Savvy bankers know that promising cross-selling opportunities are buried in their computer systems, just waiting to be identified. That helps explain the explosion of interest by banks in segmenting their customer base and deploying so-called data warehousing technology.

But identifying prospects is only the first step - banks must also find ways to effectively reach those customers.

Increasingly, banks are turning to direct mail campaigns to do just that, a new survey has found.

Some 88% of banks surveyed said they plan to send out more targeted mailings in the future to promote products such as credit cards, checking accounts, and home equity loans. Just 1% said they planned to cut those efforts. The representative study of 100 banks was conducted by Leslie Associates Inc., Omaha, Neb., and sponsored by Bankers Direct Marketing Group, a Lincoln, Neb.-based firm that produces 40 million pieces of mail annually for its clients.

Not surprisingly, the study found that larger banks were more likely than their smaller counterparts to use direct mail. Overall, 96% of banks said that direct marketing is very, or somewhat, cost-effective.

And Mike Browne, president of Bankers Direct, said there is a "one-to- one correlation" between banks that have a marketing data base and those that send out direct mail. He added that as banks get better at data base marketing, more are using direct mail to sell a wider range of bank products.

"There is an unrelenting movement to direct mail," said Mr. Browne. "Guys who are doing direct are guerrilla marketers. They are quietly taking market share."

Community Banking

Keeping Pace with Progress

Despite the changes sweeping the industry, top performing community banks believe they can prosper well into the future, senior executives say. But most expect to adapt to a continuing onslaught of change led by technology.

That's the finding of a KPMG Peat Marwick survey of top executives at 25 community banks with long track records of success. These managers recognize the need to balance traditional services with the electronic delivery channels increasingly demanded by their younger customers.

They also say they must match their technology to the needs of business customers. Said one community bank president: "There is a tendency toward the consolidation of our small-business customers. They are becoming larger and more technologically sophisticated. What technology does the bank need to serve its customers in the future? We cannot let our customers get ahead of the bank on technology."

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