I first published this article on the challenges facing UK Retail Banks in 2011, but I have never published it on my blog. I was very proud of it then and I still like it now and think the ideas in it are as important today as they were 3 years ago. I'd be very interested to know if anyone believes things have progressed significantly within the industry over the last 3 years. I can see a few green shoots but they are few and far between and we are still seeing multiple fines, scandals and disasters. Definitely still opportunity for a massive rethink and major Innovation. Enjoy the read
Much has now been written about the impact of the credit crisis
and the subsequent challenges facing the UK banking industry. The intention of this article is not to opine
on that topic but rather to look at how these disruptive events have created a
new set of operating conditions that will test the capabilities of the
traditional UK banks requiring some very different ways of thinking. Therefore, let me take as a given the forces
and impacts in the table below and look at how UK Banks are trying to respond.
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Top 5 Challenges
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Impact on Banks
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A weakened global economy
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Need to drive down the cost to serve and increase market share
just to make profit at “traditional” levels
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A tidal wave of new regulation and security requirements
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Need to be seen to “treat customers fairly”, be secure and
solvent and be easily auditable
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A welter of new digital capabilities
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Need to react far more quickly to emergent technology trends to
maintain competitiveness against new entrants, maintain security and drive
value from existing data
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A more financially literate and expectant customer base
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Need to provide clear and concise products and services through
multiple channels to a proliferation of segments (segment of 1)
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A damaged brand and a disenfranchised and change weary workforce
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Need to win customers and improve customer service through
rehabilitating the brand and reengaging the workforce to deliver
unprecedented levels of service and innovation
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Given the situation above the traditional UK Banks clearly have to
expend a very significant amount of effort on changing the way that they
currently operate just to stand still. Almost
all of the UK banks have had their advisors counsel them to retrench and
consolidate, undertake massive streamlining programmes and refocus on their
core businesses. Whilst this is not
rocket science it is actually proving very hard to do – as evidenced by the
sector’s collective share prices – but most of the big UK banks are well
advanced on this first part of their recovery plan. Now comes the really hard part.
Having spent two years trying to staunch the bleeding and
re-establish a stable business most UK banks are now turning their attention to
innovation and growth agendas as they seek to re-establish their brands,
improve profit and increase share price – primarily by focusing on improving
customer experience. Sounds simple,
however, there are a series of complications that when considered will make the
delivery of the “stabilise and simplify” initiatives look like a walk in the
park. The funny thing is that most of
these complications are not material but are actually derived from control
orientated, pre-crisis mindsets that just don’t work so well in the post crisis
environment.
So at the risk of coming across as Jerry Maguire does at the start
of the eponymous film when he presents his vision of the sports management
industry to his peers to rapturous applause only to be sacked 24 hours later,
here is my assessment of the state of the major UK banks and a flavour of my
vision for the future.
The 5 control orientated mindsets* – what they are and why they
matter
*For the purposes of this article a
mindset is a deeply embedded and prevailing way of thinking that is believed to
be the viewpoint of the majority of the senior leadership of the organisation –
its key features are its presence is difficult to mention and it is difficult
to change.
1.
The “unify and simplify” mindset
This mindset is still very prevalent in UK banks and can be
summarised as the belief that “the major difficulties and challenges faced by
an organisation can be resolved by removing complexity and unifying systems and
processes”. Whilst this seems on the
face of it to be very sensible it is the organisational design and structuring
equivalent of building the tower blocks of the 60s – seemingly very efficient,
practically disastrous. It is the kind
of thinking that exists in a world where growth is a given and the future seems
bright and rosy. It is not subtle
thinking – it is thinking for an ordered and rationale world. It is not thinking for a chaotic, turbulent
post crisis world in which digital capabilities present new opportunities on a
daily basis. As a very wise and
respected Strategy Director for one of the major UK banks recently said before
leaving his post – “the biggest challenge facing the UK banking systems are the
armies of former consultants with 2-1 degrees, from red brick universities, who
believe that the answer to any problem is to unify and simplify.” As a current consultant with a 2:1 degree
from a red brick I can only agree. It
is deeply rooted in the old F.W. Taylor concepts of monitoring time and motion,
seeing customers and employees merely as mechanical agents to be exploited by
finely tuning the management systems.
Unsurprisingly many of the “uber” programmes that get launched fail to
deliver on their projected benefits as global events and managerial changes
take their natural course leaving the well intentioned one programme looking as
cutting edge and useful as the aforementioned 60’s tower block. However, despite the horrible statistics
associated with the delivery of benefits from major change programmes the lure
of the panacea of the “uber” programme is still very strong. What we need is a new approach to the
delivery of projects and programmes that is more akin to organic growth
processes than the mechanistic waterfalls of the 1980’s.
Sadly the obsession with making things neat and tidy and ordered
plays very well with the next mindset.
2.
The “Joy of cost cutting”
mindset
This mindset is developed when times are tough and the clarion
call is made to cut costs. Of course the
good people of the organisation jump into action and the accountants and cost
cutters jump to the fore to take the necessary measures to convince the Board
and the analysts beyond that the business is under firm control and
discipline. Positive results can often
rapidly be shown and praise is forthcoming for those who can demonstrably cut
costs. However, the problems arise as
the organisation re-stabilises and looks again to drive top line growth. Unfortunately whilst the cost-cutting has been
going on most organisations have abandoned their forward looking growth
initiatives and focused on reduction.
Sadly the time required to derive benefits from top line growth
initiatives is often greater than the organisation or the analysts are prepared
to tolerate and so the organisation seems to stall at which point the
temptation to further reduce costs (because it worked last time) takes hold and
the “joy of cost cutting” mindset can be given free reign. Of course we have now entered into the
classic vicious circle and are doomed to undergo multiple rounds of cost
cutting as the organisation shrinks its way to success. Most of the UK Banks are now well advanced
on either their second or third rounds of cost cutting whilst all the time
hoping that somehow (maybe by magic) top line growth is going to be re
found. Dream on.
Now, do not get me wrong, I am all for an occasional review of how
Banks are investing their money and delivering returns, but, to imagine that an
organisation can continually cut its way to health and prosperity is
madness. I’m with Steve Jobs when he
said* “The cure for Apple is not cost-cutting. The cure for Apple is to
innovate its way out of its current predicament.” Unfortunately for the UK most of our Banks
are not run by visionary entrepreneurs but by financiers and accountants. NB in my book there is a very big difference
between cost cutting “because we can” and realignment of investment to help us
deliver our shared vision to a rapidly evolving customer base. The joy of cost cutting mindset is never
going to be compatible with those looking to deliver cutting edge customer
experiences to a digitally enabled customer base.
OK, enough ranting about the joy of cost cutting let’s look at a
third mindset that is causing the UK Banks problems.
3.
The “size matters” mindset
Banking, being “one of the oldest professions”, is by nature going
to be carrying some level of historical baggage with it. Over the past 600 years, since the Medici’s
professionalised the practice of lending money, size has mattered. Interestingly, over the last 30 years as
global opportunities have presented themselves to the UK banks, size has become
even more important as many of the senior executives have sought to establish
their Banks on the global stage.
However, whilst the traditional Banks have been seeking to build their
own empires many new businesses have created massively devolved business models
– preferring to lease “on demand” capabilities from 3rd party
suppliers. Recently Facebook and HSBC
had roughly the same market capitalisation – interestingly Facebook had
approximately 3,000 direct employees and HSBC had approx 150,000. Now before you argue that these are very
different businesses let me point out that many of the new entrants into the UK
banking market will and are, able to pursue some very different business models
to the traditional banks. Specifically
they are not looking to own many of the traditional banking processing
operations e.g payments, mortgages and cards – instead preferring to lease
these services from the growing number of banking utilities (providing one to
many services) that are beginning to get a foothold in the market.
So what is slowly beginning to happen is that the new entrants
(who have a better control over their cost base) will invest relatively more on
better products or service than the traditional players enabling them to gain
more market share. The traditional banks
will be forced to cut costs again (see above), but will still want to maintain
“ownership” of the majority of their operations so they can maintain control
and prove to their traditional peers that they are important executives.
However, my vision of the “successful” banking executive of the
future is not of a command and control overlord but rather of a passionate
executive who runs a small central organisation that affirms brand, leads on
compliance and sets business direction.
She will have a team around her that are excellent at managing multiple
suppliers to deliver quality services and products to loyal customers who love
the brand.
To date the 3 mindsets I have outlined, the “unify and simplify”,
the “joy of cost cutting” and the “size matters” mindset can all be argued to
actually be useful management philosophies and for those who are students of
situational leadership you may wish to argue that desperate times require
desperate measures. However, the next
two mindsets are potentially even more toxic and insidious and when exposed
infuriate the public and the politicians.
4.
The “entitlement” mindset
Power corrupts and absolute power corrupts absolutely. For the public the biggest “eye opener” from
the crisis has been the insights they’ve been served up by the press and
politicians that all too transparently paint a picture of bankers as greedy,
self-obsessed gorgons who enjoy the process of ripping off the man in the
street in an attempt to prove to their banker mates that they are
“winners”. Harsh? Not really – it’s actually a pretty good facsimile
of what the public actually thinks. And
like in the Wizard of Oz when the curtain is drawn back to reveal the truth of
the wizard’s true nature the illusion is shattered. What has been amazing is that despite the
unveiling the Bankers continue to behave in a manner reminiscent of any of the
recent slew of dictators faced with the inevitable overrun of their regimes – i.e.
talk bollocks and act as if you are still very important. I’m ranting again (sorry).
However, the point is that Banks do not have a God given right to
make phenomenal profits and senior executives do not have a God given right to
take home massive salaries. What they
do have a right to do is to carry out a simple, customer focused savings and
loan business that makes reasonable profits, rewards effective staff and
supports the redevelopment of the world economy. Sadly, whilst this “entitlement” mindset
persists, the ability of banks to “do the right thing” for their customers is
going to be limited and we will continue to suffer from the succession of miss-selling
scandals that have been a feature of the last 20 years. Currently the regulators and legislators are
having to create and enforce pretty heavy handed rules to ensure that the banks
behave themselves – ie there is a persisting belief that the banks will not
self regulate and need very careful supervision.
I think what is particularly challenging for the banks with this
mindset is that to move away from it requires the senior leaders to display a
genuinely new “humility”, a more human and vulnerable approach that sees them
think customer first and bank second. In
essence it requires that the banks rediscover what it means to be “servant
leaders” and become capable of understanding the valuable role they can play in
society. This will be very hard. Remember Ozymandias**.
Which brings us neatly to the final mindset.
5.
The “customer as a wallet”
mindset
Now I am going to sound like an incurable romantic as I lay out
the details of this last mindset but I am happy to appear naive if it gets the
point across. Since the strategy
planning sessions of the mid ‘80s the aim for growth orientated banks has been
to increase their “share of the customer’s wallet”. Whilst this seems on the surface like a jokey
bit of shorthand, what it has enabled the banks’ executives to do, is to create
a distance from their customers – to ignore the very human situations and
circumstances of their customers – replacing them with a mental picture of
their value to the organisation that would make old Fagan himself proud.
I am not a wallet – I’m a husband who wants the right house for
his family, I’m a Father who wants a safe car for his children to get to school
in, I’m a man with a great idea looking to build a viable business, I’m a
student hoping to enjoy university and not end up with a crippling debt. I am many, many things but I am not a wallet.
Now don’t get me wrong – I’m not asking for every mortgage to be
approved or loan granted, far from it, what I’m asking for is a partnership
with my bank, a bank that will support me through the good times and the
bad. I want my bank to be like a
benevolent uncle – close enough to me to know who I am and what I’m about and
distant enough from me to give me level and reasonable advice before I do
something stupid. For those of you who
have seen Jimmy Stewart in “It’s a Wonderful Life” you’ll know what I’m talking
about. This is a lot to ask, but, it is
what I want and I do know one thing – it will never be delivered by an
organisation that sees me as a wallet.
6.
Conclusion
Having laid out the challenges caused by these pernicious mindsets
the question must now be how can the major UK banks change them and reconnect
with their customers. Being forever an
optimist my view is that it can be done, but it will require a real act of
leadership from a leader who is prepared to be humble enough to acknowledge the
mindsets and innovative enough to elevate the thinking in their organisation to
a new level. To paraphrase the
leadership guru Peter Senge – “Leadership is the ability to honestly articulate
the current reality and the ability to passionately articulate the
future.”
As a psychologist with over 20 years experience working with
Boards to change mindsets I am well aware that this is a massive challenge but
I am determined to find an enlightened leader to work with to help restore the
UK banking industry to its rightful place as a central and valued player in UK
society .
You are not here merely to
make a living. You are here in order to enable the world to live more amply,
with greater vision, with a finer spirit of hope and achievement. You are here
to enrich the world, and you impoverish yourself if you forget the errand - Woodrow Wilson
*As quoted in Apple Confidential 2.0 : The
Definitive History of the World's Most Colorful Company (2004) by Owen W.
Linzmayer
**Ozymandias – mythical leader discussed in
Shelley’s eponymous short poem – moral – no matter how great we consider ourselves
time levels the playing field
