The competitive pressures and changes our industry is undergoing require us to change our management paradigm and the key indicators we watch for signposts to success.
Here are some transitions we need to watch and emulate:
A customer-centric orientation is replacing the so-called silo organization of product line and geographic segmentation. The old paradigm organized and delivered services in the way that achieved maximum convenience for the bank. In our quest to become more customer-oriented, we need to realign delivery so that our "factories" produce products in a way that is seamless. Seamless delivery can take place at any customer touch point.
Market share has been king for many years. However, share of wallet of the "right" customers is much more meaningful than market share, especially when that is measured by deposit share rather than share of total customer investable dollars.
We have traditionally served customers, as Levi Strauss & Co. did, as though one shape fit all. Levi, however, has awakened to the fact that human beings are built differently, and it has achieved mass customization through different jeans cuts. We need to move toward the same recognition. Our customers' needs are various, and the rigidity of our products is customer un-friendly.
We used to give Cadillac service to every customer whether he or she paid for a Cadillac or a Chevy. We can't afford to do that anymore, though our customers are trained to expect it. We need to offer service to different customer tiers based upon their value.
We used to give away the store in an effort to attract all customers. Our job is not to transfer shareholder value to customers; it is to create value for all. While value propositions are critical to success, and we need to give our customers value, that does not necessarily mean giveaways. The toaster days are over. A combination of information, convenience, and advice can add value, and we can charge for it.
Our products are stand-alone. But relationships are built on bundled products and relationship pricing. You will be well advised to give the best customers the best prices. We charge and waive fees based upon our vague perception of cost and how well we know the customer. We need to adopt fees based on actual cost and true customer profitability rather than friendliness.
Branch performance today is typically measured by profit. But measures based on sales, performance, and the net present value of the entire customer base is a more effective way to look at branch value. Although profitability measurement is very important, it can prompt decision-making skewed toward the short term.
In addition, peer profitability measurement can reward managers who simply inherited extremely successful branches and penalize outstanding managers who are "turning around problem children." Incorporating sales quality and net present value information is a more accurate way to measure performance.
Our information system is based on transactions. Instead, we need to move to relationship-based information systems that enhance our ability to build a broad service penetration of our customer base.
We need to redefine selling. We think that if we put an ad in the paper for a special CD rate and customers buy CDs, this is selling. It is not. It is order taking. Selling is a proactive activity that identifies a customer's needs and meets them without redistributing profits from shareholders to customers.
In conclusion, we need to change our delivery and measurement systems to reflect these changes.