I was running a workshop for a bank the other day and asked the group: “what are the toxic assumptions in the bank that will stop it from succeeding to change?”
The resultant list was fascinating and long and, to give you a flavour of what the group came up with, I’ve bucketed them into five key areas:
- Customer focus
- Internal focus
- Market assumptions
- The need to change
- The need to be digital
The group picked up on a number of historical mantra, many of which are embedded as industry beliefs:
“The Customer is King”
“Customers are ok with paying charges and fees”
“Customers will always trust us”
“Customers trust us more than digital competition, e.g. Facebook”
These are not necessarily toxic assumptions – focusing upon customers is important – but the customer is not always right and therefore is not always King.
Equally, the idea of trust is one that I debate on this blog regularly. My belief is that customers trust banks to not lose their money. That trust exists because of the government licence that sits behind the bank, and the depository insurance schemes that promise our money is safe. But they don’t trust bank brands. That’s been proven over and over again, with my favourite quote being that most millennials would rather visit their dentist than their bank.
Finally, customers are ok to pay fees and costs, if there is transparency. It is interesting, for example, that PwC report today that free banking is no longer sustainable. Nothing is free, there's always a cost. Customers just want to see fairer application of fees and costs, with transparency.
Once more, the Group chose some biting statements of fact:
“Cutting costs will save us”
“ROE is the primary focus to measure performance”
It’s absolutely true that a business that believes austerity is the way to the future is one that dies. That’s what’s happened in Europe and why the ECB is now introducing Quantitative Easing (QE). Thank heavens the UK and USA did that in 2009 as, five years later, look where we are today. Growing and stable (dependent upon which political party’s newspaper you read).
In fact, can you show me any country or company that has cut their way to growth?
“The cure for Apple is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament.” Steve Jobs, co-founder of Apple on his return to the ailing company in 1997
Cuts begin with getting at the fat of the company but very quickly start to strike at the meat. That's LEAN for you (if you want it).
However, one comment here “People are our biggest asset” is the one that always makes me smile with scepticism unfortunately, and this group recognised that statement for what it is. A statement of support for motivating employees until the hard times hit, when they become completely disposable.
People are not most bank’s greatest asset, or any companies’ greatest asset, unless they are treated as such. I see consultancies treat people as assets – their only capital is their intellectual capital in many instances – and I see some investment banks treat their trading desk teams as great assets – where will our profits go if we lose them – but in general? People are not an asset. They are just folks you employ whilst you need them.
It is fairly clear that the toxic assumptions list is an important thing to map out if you are going to change the bank. The question you could then ask is: do we really need to change? I loved this bit, as these are assumptions I see in every part of the banking industry:
“We’ve been around over a century and future is guaranteed”
“Business as Usual is acceptable (rather than an urgent need to build the future)”
“Our product division will always be needed”
“We will always be a bank”
They are so not true. Banks have been around for centuries because they are protected by regulation. Regulatory requirements and political motivations for strong economies means that banks are instruments of government, and that is why there is such a close alliance – or is that allegiance? – between regulators and industry leaders? That is why BAU is acceptable in many banks, as I mentioned in last week’s blog about leadership.
But that is changing, because banking is changing. In fact, in my next book, I will make the contention that banking, fintech and financial services are all going to disappear over the next decade and be replaced by something else. You’ll have to buy that book to find out what, but banks will definitely no longer be banks ten years from now imho. I will explain more about that on February 12, after Next Bank Europe where my first airing of views on this subject will be made public. By the way, if you haven’t registered yet you can save 25% on attendance by just entering the promotional code ‘FinTechFan’ when registering.
The need to change
As you can see from the above, the group assumed that the bank needs to change and yet that, in itself, could be a toxic assumption. Most banks need to change. In fact, any company that remains static in any market needs to change. After all, if you’re standing in the middle of the road, you’re gonna get run over.
The question then is what needs to change and how. Here, the group said that the toxic assumptions would include:
“We can manage incremental and evolutionary change (revolution is not needed)”
“We can change to be relevant”
Banks can be relevant in the future if they track and envision their future state and strategy. The issue is that most bank leadership will not take the time out to envision their future state and strategy. The focus is on the bottom-line and the balance sheet fundamentals, rather than the future state and strategy. The thing is that if any leadership fails to take the time out to map out their future strategy, they may not have a future state.
The need to be digital
The thing is then, in banks, that the future state is assumed to be digital and that “digital is a channel”. Digital is a strategy and not a channel. Digital is a core fundamental underpinning of the future bank state, as I keep saying, and banks that don’t get this are going to fail. Nevertheless, as pointed out, a toxic assumption is also going to be that “digital is the only way to go”. It’s not the only way to go. There are still competitors to Amazon and Apple in the physical world of distribution of books and computers. They’ve just struggled hard to make their operations work. This then leads to an interesting dialogue about:
“There is good legacy”
“Reduction of the branch network is needed”
You could just as easily point out that you might not need to reduce the branch network, just do something different with them. For example, a bank I recently encountered in the Ukraine uses their branches as car showrooms and they are the leading used and new car sales operation in that country. That shows you that the only thing that is a toxic assumption is the one you don’t challenge.
As my old school teacher used to say: “if you assume, you make an ass of u and me”.