five game changing ideas for re-shaping banking practices

By

Frederick C. Militello, Jr.

Senior Thought Leader

Future Change Management LLC

www.futurechangemanagement.com.

[email protected].

Tel: +1 518.634.7003

http://www.futurechangemanagement.com/

mailto:[email protected]

GAME CHANGING: SETTING THE STAGE The banking industry is beginning to rethink and reshape itself.

Newly articulated commercial/corporate, investment and retail banking re-

organizations are beginning to emerge.

The quest for a renewed sense of innovation and business differentiation is in the air.

The verdict on the future of achievable and sustainable differentiation for members of

the banking industry is still out.

Moreover, it is far too premature to begin conjecturing as to whom the winners and

losers will be.

But clearly, regulatory reform, bank performance and public opinion have changed

the game of banking.

Accordingly, it is time to offer—and consider—game changing ideas that will reshape

our industry for some time to come.

This is the spirit of this presentation…to inspire conversation about such game

changing ideas and practices.

C O P Y R I G H T 2 0 1 1 F U T U R E C H A N G E M A N A G E M E N T L L C 2

Change the focus of decision-making—put

more trust in experience and intuition


BEYOND COGNITION When it comes to leadership, banks that go beyond cognitive decision-

making will trump those who fear the human element of their business

decisions.

A game changer of the future is to re-examine—and change the focus of

decision-making processes (both those accepted and rewarded) of the

organization.

Cognitive decision-making—as embodied in decision-trees, trade-off models,

etc.,—may seemingly bring objectivity and simplicity to the table but they

leave out the importance of experience and resulting intuition.

Accountability for one’s decisions can only come about through a

recognition and reconnection to our emotive selves.

In almost every profession, except banking, decision-makers readily admit

that their most difficult (and rewarding) decisions are based upon

experience, intuition and emotions.


EXPERIENCE TRUMPS

This reliance on objectivity over experience (and its implied links to intuition

and emotions) is reflected in a growing imbalance of experience/skill

diversity in the banking profession.

Put another way, emotional intelligence (comprising such competencies as

trust, teamwork, communications, and self-awareness/discipline) has

increasingly been sacrificed for a bias toward cognitive thinking and skill

acumen.

In fact, experience has been more than sacrificed—it has been intimidated

out of existence or relevance. For example, rogue traders have no heroes

accept themselves—experience and respect for such matters little.


CHANGE THE GAME

Here is a real game changer for you.

Bring experience and intuition back into your organization.

Celebrate your heroes—both those with skills and experience and

especially those that seek to bridge and/or nurture the two.

There is a hidden workforce out there—a workforce of experience

that has much to offer in terms of helping to create organizations

with greater emotional intelligence and experiential grounding.

God only knows—we need more of that!


Become a demand-obsessed

financial organization


BEYOND SUPPLY

A real game changer of the future will be found not in supply efficiencies—

and lower prices—but instead in capturing preferred segments of

customer demand; customers which promise to become even more

scarce and discriminating as to who they choose to do business with.

In the future, differentiation will not be driven by what we internally choose

to supply but instead in how well we respond to the external realities of

what our customers demand.

The obsession with demand (expressed by and through the customer’s

value chain) must become integral to the customer relationship, product

development and sales strategy of financial organizations.


VALUE TRUMPS

We will earn economic returns from customer relationships when we

understand how we create value for our customers—and that’s

about their business circumstances—not ours.

“Forget” about your sales quotas and agendas. You will sell more

products than you ever dreamed of when you stop selling

products and become obsessed with customer demand—

specifically, the customer’s value chain and the role your

products, services or advice play in the customer’s value-creation

process.


CHANGE THE GAME

Regulations will make it more difficult for organizations

to achieve differentiation through economies of scale.

Systemic risk will be mitigated through market and

supply fragmentation.

These realities will lead to a new mantra of demand-

driven differentiation—which is a function of building

demand-driven organizational cultures that embrace

both skills and behavioral competencies.


Become more like your

customers—adopt their

“best practices”


BEYOND CREATION

When it comes to products and services—and their risk-

taking and reputational implications— banks that

embrace the importance of product life cycles,

product suitability and planned product obsolescence

—relative to their obsession with customer demand—

will trump those that continue to pursue diminishing

profit-margin product lines.


CHANGE TRUMPS

Bankers have a tendency to take great ideas and stretch the limits of those

ideas to—and even beyond—the boundaries of non-greatness.

We are dealing with a culture that won’t allow us to let go of what we

create—regardless of the damage that may result from our

possessiveness.

Our “love” for our products has become totally unconditional—and blinded

by such. For example, securitization was a real game changer—and for

the better; but our inability to move on to something new (even while it

continued to display success) is not part of our culture. This must

change.


CHANGE THE GAME

When it comes to the development and/or sales of products and services,

incentives must be changed.

Product life-cycles must be incorporated into investment/return analysis.

Segmentation analysis must take into account changing product life-cycle

characteristics—appropriately addressing changing product lives and

their economic returns—not by blind expansion into areas of increased

opaqueness; but, instead by the increased transparency that comes

from knowing our clients; and, the correlations that exist between risk

appetite and the eventualities that come with product life-cycles.

The passing of our products should be met not with a sense of dismay—or

worse yet financial crisis—but instead by celebratory achievement.


Make risk awareness

cultural—not

functional


BEYOND MISTRUST

Knowing the client better than anyone else has a great deal to do with

understanding customer circumstances and needs.

Rather than mandatory terminations of relationships or “tours of duty”—a

practice of many banks fearful that bankers will get too close to their

customers—we must encourage the opposite.

Banking is a personal business—taking people out of the equation—and

failing to build organizational and personal trust—is a clear way to further

commoditize the importance of business relationships.

Failure of trust—especially the mutuality of such—also leads to non-

accountability and the dangers of isolationism.


CLOSER TRUMPS

When it comes to risk management, banks that diffuse risk awareness throughout their organizations will trump those that continue to compartmentalize such—namely, viewing risk (skills and awareness) as a product area or special expertise; rather than part and parcel of organizational culture.

Bringing credit closer to the customer is not something to be feared. It should be embraced as part of the customer relationship process.

Externalizing/outsourcing credit decisions simply does not make for better customer relationships, credit decisions or a sounder financial system.


CHANGE THE GAME

A game changer of the future is to take down the silos of risk and re-

introduce risk awareness into the competencies and behaviors of all

those who should be bankers first and salespeople second.

Relationship managers frequently receive more sales training today than

they do credit training.

But the problem is we are selling risk-inherent solutions in everything we do;

and, not fully understanding this is why we can’t sell value—and, equally

important, get paid for it.

We must learn how to sell risk solutions by understanding how our products

relate to the risk sensitivities of the client.

This is a game changer—namely, sales and the sales process is not separate

from risk awareness. Knowing when to sell flexibility—or not—is key to

both increasing risk awareness and increased sales.


Embrace the

competitive benefits

of the blue waters of

regulation


BEYOND DEREGULATION

If there is anything the financial crisis of 2007/2008 has taught us

it is this; banks do not do well with de-regulation—or markets of

open space.

When it comes to strategy, banks seem to do much better

positioning—differentiating—themselves in regulated rather than

deregulated markets.

In de-regulated markets, banks tend to follow each other—over the

cliff if need be.

This is a key cause of systemic risk—it is based in psychological

behavior as much as market dynamics.


REGULATION TRUMPS

Ideologically, like it or not, regulatory positioning will largely

determine bank differentiation—namely, which spaces or arenas

banks operate and compete in.

Moreover, it is within those spaces banks face the requisite

challenge of shifting from supply-mindedness to a world of

demand scarcity and discrimination.

Not all will succeed; however, differentiation will surface and

systemic risk will be deterred through regulatory “inspired”

differentiation.


CHANGE THE GAME

Regulatory-driven differentiation is in our future.

A game changer is not to primarily focus on regulatory arbitrage;

but, instead in embracing those regulations that best allow you to

practice and demonstrate your core competency—the areas

where you can best employ your capital, for the longest period of

time, without the threat of competition.

Moreover, make sure your practices support the reasoning behind

such regulations—as sustainable differentiation is helped—not

hindered—by regulatory intervention.


GAME CHANGERS

1. Change the focus of decision-making—put more trust in experience and intuition

2. Become a demand-obsessed financial organization

3. Become more like your customers—adopt their “best

practices”

4.Become more like your customers—adopt their “best

practices”

5. Embrace the competitive benefits of the blue waters

of regulation


five game changing ideas for re-shaping banking practices

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