Andersen Consulting has new information to feed bankers' inferiority complex.
Studying the performance records of 150 leading financial service companies, the consulting firm identified 21 that qualified for elite status. Of the 21, only five were bank holding companies, and a sixth was a thrift company.
Among the majority were Finova Group, Green Tree Financial, MBNA, Money Store, and Charles Schwab & Co. All represent highly specialized and profitable niches-those that bankers frequently hold up as evidence that rules and regulations are holding them back.
"The winners followed two types of paths," said Michael J. May, an Andersen Consulting partner who worked on what it calls the "Value Capturers" study. "They are either good consolidators who know how to squeeze their operations to get revenue, or they are innovators-one of the best examples being Charles Schwab and its OneSource" mutual fund supermarket.
"How many banks would have been that innovative and taken that risk with their customer base?" Mr. May asked in a recent interview.
He said the point is not to kick bankers while they are, relatively, down, but to understand the ingredients of consistent success. The models are the "value capturers," which maintain annual revenue growth above 18% and total returns to shareholders above 20%.
Andersen studied many of the largest banks, insurance companies, securities brokers, and other financially oriented enterprises, like Berkshire Hathaway and Fannie Mae, in an attempt to make valid comparisons of sustained performance. Data going back to 1989 were gathered on companies that then had at least $1 billion of market capitalization.
Andersen released to American Banker the names of companies that qualified for "value capturer" status, and some that fell just short, for the 1993-96 period.
The star banks were Chase Manhattan, CoreStates Financial, First Tennessee National, Southern National (now BB&T), and SouthTrust. The thrift was Charter One Financial of Cleveland.
In their company were Berkshire Hathaway, Conseco, Federal Home Loan Mortgage Corp., Finova, First USA, Green Tree, MBNA, MGIC Investment, Money Store, New England Life, Pimco, T. Rowe Price, Progressive Insurance, Charles Schwab, and Travelers Group.
As in many such studies, Andersen Consulting drew a grid with four quadrants, the 21 value capturers in the upper right.
Recent events suggest that NationsBank may be ready to join the value capturers, because of the successful merger "factory" it has developed, Mr. May said. And CoreStates might not retain its place, given recent troubles with its integration of Meridian Bancorp.
Travelers Group he called "the consummate consolidator."
Few traditional banks, he added, would rank with Finova, Money Store, or Schwab in innovativeness.
"You can be a good manufacturer, or you can innovate and reinvent the company," Mr. Mayo said. "Both are valid strategies."
Andersen categorized companies that do well in returns to shareholders but don't measure up in revenue growth as "profit maximizers." Banks, including NationsBank, were 60% of this group of 41.
The rest were about equally divided between insurers and "nontraditionals."
Those that do well in revenue growth but not so well in shareholder returns are "empty" growers. Banks were 45% of these 20, nontraditionals 40%, and insurance companies 15%.
Of the 150 in the survey, 68 were "stalled businesses," low on both performance axes. Insurance companies outnumbered banks here by 48% to 37%, and nontraditionals were 15%.
Mr. May said the Andersen criteria generally put corporations with diverse skills in the best light. Profit maximizers are good at restructuring and reengineering; those with empty revenue growth tend to have been making acquisitions without bringing the benefits to the bottom line.
Value capturers are good at both reengineering and post-merger integration; most of the stalled businesses have not shined in either area.
"If you don't focus on revenue growth, at some point you will reengineer yourself right out of business," Mr. May said, underscoring the need for a holistic view of performance factors.
Supporting the validity of Andersen's analysis, the value capturers were highest of the four groups in annualized return on equity, at 19.2%.
Profit maximizers and empty growers were both at 15.4%, stalled businesses at 10.4%.
The value capturers' revenue growth even exceeded the empty growers', by 33.4% to 31.5%. Profit maximizers' growth rate was 10.8%, stalled businesses' 6.2%.
Mr. May listed five characteristics that set the innovators apart:
Unique and compelling value propositions.
Use of technology to deliver them.
Collaboration through alliances.
"Virtualization" of their balance sheets with securitization and other techniques.
Fostering of entrepreneurship.
The prescriptions parallel those in "The New Financiers," a 1996 book by Charles B. Wendel, who interviewed chief executive officers of many of the companies that scored high in the Andersen study. Mr. Wendel, head of Financial Institutions Consulting of New York, said he found a "bias for action" in the best financial services companies-including banks like Chase, Norwest, and Wachovia-that contrasted with commercial banking's more placid, highly regulated past.
Among distinguishing leadership characteristics Mr. Wendel listed speed and flexibility, resistance to complacency, a reasoned approach to technology, and a preference for long-term growth and renewal over short- term cost fixes.
"There is a mind-set that goes beyond culture or point of view about how business gets done," said Kathleen McClave, vice chairman and chief executive officer of Furash & Co., who until a year ago headed a financial services research program at the University of Pennsylvania's Wharton School.
Ms. McClave said the leaders succeed at aligning their entire organizations-from strategies to human resources to technology deployment to day-to-day management-toward a consistent set of objectives.
She said there is good reason that corporate spinoffs like Finova (formerly Greyhound Financial Corp.) and monoline credit card lenders First USA (now owned by Banc One) and MBNA are in Andersen's top quadrant.
"Monolines tend to be clearer in their objectives, distribution channels, and product sets," Ms. McClave said. "For banks, the challenge increasingly is to make choices the way MBNA did."
Those choices will increasingly be based on what Mr. Wendel termed "wisdom, not information" in dealing with the technology and data on customer preferences and profitability.
Mr. May said innovators are evolving their marketing techniques from today's segmentation methods-whether by demographics, products, or life cycles-toward what Andersen calls "buyer value segmentation" and ultimately an understanding of "customer intentions." Only three or four financial organizations have made strides on that more sophisticated, highly individualistic path, Mr. May said.
Ms. McClave said the lesson of Charles Schwab and others is that there is no shortage of opportunity. "If a strategy is based on good, core customer knowledge, the potential to set a new standard for the market is wide open," she said.
Mr. May warned against complacency. "We have been in an up market for some time, and it is easy to delude oneself into thinking that management problems are licked," he observed.
"In a downturn ... a lot of companies could find themselves back where they were before."