Does the best CEO in banking have the best bank strategy? What would that strategy entail? How does the digital landscape change the way bank strategy is defined?
When you read the stated strategies of banks on the Bloomberg list, or on a bank’s website or annual report, you’ll see statements regarding superior RoE, sustainable growth, transformation, customer centricity, the best at x, the leader of y, relentless focus on z, improving lives, enhancing connections, quality of service, going the extra mile, and so on…
Are any of these the best strategies?
When you see headlines such as Europe’s banks need coherent business mix, Killing the Blandness That Plagues Banking Brands and How To Improve Bank Culture? Fire More Bankers, it seems an appropriate to question to ask.
The Strategy Verbal Tic
In Good Strategy/Bad Strategy, author Richard Rumelt states : “The word strategy has become a verbal tic…a mishmash of pop culture, motivational slogans, and business speak…it short-circuits real inventiveness and fails to distinguish.”
He explains that the core content of a strategy contains three elements, which I briefly summarize here:
- Diagnosis – that defines or explains the nature of the challenge
- Guiding policy – for dealing with the challenge
- Set of coherent actions – designed to carry out the guiding policy
As you can see, good strategy is not about setting goals, financial targets or spouting platitudes. As Rumelt proposes, “Good strategy is built on functional knowledge about what works, what doesn’t, and why…The most precious functional knowledge is proprietary.”
To define good strategy, you must define the unique internal and external challenges, even though they may have elements of commonality. This impels different strategies for each bank, and thus, moves away from commoditization or believing that past performance is an indicator of future performance.
Why Good Strategy Is Essential In The Digital Era
For decades, the world has seen global economic growth. As markets grew, so did incumbent banks. Banks had no need to innovate or constantly deliver change. In fact, not innovating and not delivering change was considerably less risky and more desirable.
In a digitally enabled world, where FinTech challengers bring impressively innovative thinking and doing, a resting state is high risk and undesirable. Scale is also a clear competitive disadvantage. Smaller competitors:
- Identify opportunities precisely
- Deliver faster
- Access newer and often better technology
- Create superior customer experiences
- Gain faster and more relevant commercial and customer insights
- Hire better people
- Pursue interesting, sometimes large commercial opportunities
The pervading challenge for incumbent banks when it comes to these contenders is their own lack of comprehension, end-to-end agility or digital fitness. Add to that, their reluctance to see employees and customers as significant stakeholders.
In an era of empowered customers, banks need empowered employees and smart technology/processes to deliver great customer experiences. Only by actively engaging and delivering for both stakeholders will positive shareholder results ensue.
Banks must accelerate thinking and doing to compete effectively, adopt rapid decision making with test and learn delivery, and then surpass customer and employee needs. The strategic focus of each bank should differ if it’s precise about diagnosis, guiding policy, coherent action and stakeholders.
Innovations such as artificial intelligence, Internet of Things, blockchain, cloud computing, mobile, real-time, smart devices, everything as a service, and others mean that grand strategies and large project waterfall deliveries are no longer viable as solo modus operandi.
A common grumble is that quarterly capitalism or short-termism is an issue which drives corporates, including banks, to behave badly or negatively impact the economy. This assumes misalignment between vision, long term strategy and shareholder value. If a bank were to become agile in strategy, delivery and learnings, would this reframe the challenge into a quarterly, real-time reporting opportunity on enhancing customer, employee and shareholder value – just as start-ups do with their investors?
Shaped To Win In The Digital Era
Grand visions, missions and purposes such as “empowering people to live their lives better through smarter banking,” or “seamlessly connecting people’s lives and their banking needs to enhance quality of life,” are laudable and should continue as aspirational or dream worthy ambitions. Solving great human problems with great financial solutions is what banking is about. But it’s not bank strategy.
If your strategy appears similar to another bank’s, then it’s safe to say you have a bad strategy. If you have a good (differentiated) strategy with people, policies, plans, processes and technology all aligned to rapidly deliver and refine on an on-going basis, then you are shaped to win in the digital era.