In our little opinion corner we mostly focus on the much highlighted client-oriented topics of banks. Or we ask about the governance in this regulator-friendly times. These are obviously the most important parts, which can come in one’s mind. Today I will state that behind these a rather internal cause stands, as I see it in my daily business in the industry. The origin of problems is, deeply hidden in the production, the - mostly - poor production.
It is not there, if I don`t look at it
Most of the regulatory driven topics have their origin in the production, but the more visible offspring of this issues comes then to light when it becomes a request or inquiry from the Bundesbank, Banque de France, the ECB or other institutions. I will now not talk about the changing demand for data protection, secure production or the very German topic of the cum/ex deals to realize some more tax refund as necessarily obvious in first glance. I am talking about all the issues as missing business contingency, user access management, risk management etc coming up with a production not growing with forward moving time and business.
New strategy - taxis go abroad
To illustrate I will give you a colorful picture about this. Let`s say the bank is a taxi. Then we have the car with it`s different machinery parts, the cabin with its interior, the driver and also the client. As the business is calm and easy and no real competitor in sight due to market entry barriers, everything is totally fine. So a taxi operated like a bank would then start to think what can be done next. And someone could come up with the idea of making transportation faster and cheaper. That wouldn’t be fun so why not go in distant destinations to try to have as much taxi in their fleet all over the world to serve the client wherever he wants to ride a tax. Maybe this is not so relevant for the daily business, it definitively costs a lot of money. But much more important, the managers are paid by the number of taxi and they can be in exotic places. So the strategy makes really sense.
How to finance the strategy?
But it costs a fortune and someone has to bring the money. So they would start to increase attraction to get more clients and they would communicate to differentiate the services for normal clients and VIP and others groups to increase the revenue. They would spend a lot of effort on the outside appearance, the look of the wheels, the shiny and bright chrome bumper, maybe the nice multi-color surround light and hope to attract clients.
Self perception and awareness of others
The clients would hope for a fast and reliable transportation and draw the conclusion, that such a shiny car must be operated the same - professional - way. They enter the car and see that the cabin has two parts. One is reserved for special clients, which should drive much more often and ask for a lot of services like extra coffee, shoe polish or just simple a water. As our normal client sees this and he is more interested in reaching his destination, he does not care that much, maybe he is a little bit irritated. But as he or she takes the next time the next taxi, she doesn’t think that much about that. Instead the taxi hopes to lure her into the better class by showing her what she will find behind the curtain.
Changing the business
So as the taxi operations have to be cheap and the company needs some more sales, the manager of the taxi had the idea to change the driver into a service sales person. The main task is no longer driving but talking to the client and selling additional stuff like coffee, water, chocolate or goods from the sales partner network. First all good skilled drivers where substituted by good talking sales people. Skills of a driver in terms of knowing the streets and finding the best ways are no longer needed. For this the driver got some small navigation system, nothing expensive, simple enough for the private rides of the boss. Obviously it doesn’t work in a highly frequency business ride, so the car is never going the direct way, causing a lot of discussions with the clients and thus loosing turnover. And as all taxi did the same, the clients moved on and used other transportation as bus, bike or private car. Even some freaks came around and offered driving services for cheap with no fringes. As the whole industry suffers, the problem was very fast identified as the mean competitors that have so many advantages because not being a taxi. They also started to complain at legal authority, and they received support to help keeping the jobs etc.
Next strategy: reduce costs
As the driver was already cheap and in the management were good and expensive people the only way to reduce further costs was the maintenance. And really, it paid off. The price was so unbeatable that the taxis increased their attraction. The turnover increased a little so everything seemed to be fine. But it comes what has to come. The engine wasn’t in the best shape, breaks, tires and suspension became older and older. So the police showed up and not only asked for a refurbishment but also handed over to the inspection authorities, which found some more problems to be solved right now. And while the taxi was no longer on the street and the managers complaining, new - or old well-known - competitors used their chances and took the place of the taxi.
Changed world
So as our taxi does, the banks also see only the end of the story. But in the same way as maintenance for a car does not only mean to wash it and do the absolute minimum, it is definitively the wrong approach for a bank. Maintenance is taking new technologies, utilizing new approaches or processes, offering additional services and so much more, e.g. that the engine is working in the state-of-the-art style. Today is now the tipping point if banks have a future or not and much worse, if bank employees have a future or not.
Stay tuned
Yours K-Street6 Team