In this May 13 column ["Service, Not Size or Cost Cutting, Is the Key to Future Prosperity"], Bill Isaac started down the road toward "super community" banking, which has been a frequent subject of mine in these columns.
While I agree that the industry suffers from a herd syndrome, I do not share the view that size and cost are "kings" today.
If anything, capital was king in 1992, and cost cutting is on a back burner while bankers struggle with revenue enhancement strategies.
Be that as it may, we both agree on one thing: service (and the quality thaat goes with it) will be the king for the 1990s for many banks - but not for all.
I see the industry being reconfigured around three primary strategic positions, with some variations on these themes:
*Low-cost producers, which consider service nice to have but focus on lowering unit costs. Size, market share, and other considerations play a major role in this strategic position.
Megabanks recognize the value of service quality but cannot realistically compete on this basis against community-oriented banking institutions.
*Community banks, where quality is the only differentiation factor and defense against the scale economies of bigger competitors. Generally, at least 20% of employees have at least 10 years of service.
The strategic direction and mission are clear to all employees, who rally together to serve the community and contribute to the bottom line. Service is king for community banks, and for their closest competitors - the super community banks.
*Super community banks, which aim to outlocal the nationals and outnational the locals by emphasizing customer service and finding economies that do not diminish it.
Cost is important as a competitive factor, but is not necessarily a core competency. It is a necessary component of managing the basics, not the cornerstone of the strategic position or a major competitive advantage.
Service, on the other hand, is critical to the success of super community banks.
Employees Are the Key
As Mr. Isaac noted, bank employees are the key to service quality. The Ritz-Carlton Hotels, which recently won the Malcolm Baldridge National Quality Award, found that a 1% increase in employee satisfaction results in a 22% decline in customer dissatisfaction.
American Telephone and Telegraph Co., another Baldridge winner found that the longer employees stay with the company, the greater customer satisfaction is. Employees are key to customer retention, and that, in turn, is key to profitability.
The days of slash and burn are over, and service is indeed king for at least two of the three viable strategic positions in banking. Service is a competitive advantage to some, a lifeline to others, and a sure way to create franchise value and enhance shareholder value for all.