graduate school of banking at wisconsin leadership · pdf filetom peters ‘in search of...

Graduate School of Bankingat Wisconsin

Leadership Beyond Management

Rex Bennett, Ph.D.Professor, University of San Francisco

President, Achieving Unlimited Inc.August 6, 2015

Copyright 2015

CompetitiveAdvantage

Disruptive Forces Affecting Banks

• Expanded Regulation• Digitalization • Emerging New Entrants• Customer Empowerment and  

Choice

Bob Dylan

‘For the times they are a‐changin.’

FDIC data: • US banks closed nearly 5,000 branches

from mid-2009 thru mid-2014• The number of BANKS declined by 1,539

during the same period (from 8,185 to 6,656)

Payment Systems Innovations

Square

Paypal

Square Capital

Samsung Pay Google Pay

Source: Accenture Consulting: The Digital Disruption in Banking, 2014 North America Consumer Digital Banking Survey, Sample Size = 4,000.

CHANGE‘It is not the strongest of the species that survives, nor the most intelligent that survives.It is the one that is most adaptable to CHANGE.’Charles Darwin‘On the Origin of Species’ 1859.

Leaders think and talk about solutions.

Followers think and talk about problems.

Brian Tracy

Strategic Leadership• Identify market, competitive, technological, regulatory, and disruptive factors and trends that will shape the future banking environment

• Forecast what type of bank will prosper in that environment 2, 3, or 5 years hence

• And then change the attitudes, culture, and product and service environment of your current bank to that new type of bank

• Strategic leadership embodies                                 CHANGING OTHERS OPINIONS AND PERSPECTIVE

• Virtual Banking vs. Traditional Branches

• Virtual Assistants • PFM’s (Personal Financial

Management Tools)• Predictive Analytics

Four (4) Critical Factors Affecting Your Personal and Your

Bank’s Survival

Question:

Why should I do business with your bank rather than one of your 

competitors?

‘

Source: ‘Winning Through Customer Experience,’ Ernst & Young Study, 2014.

Source: Accenture Consulting: The Digital Disruption in Banking, 2014 North America Consumer Digital Banking Survey, Sample Size = 4,000.

Automated Wealth Management

Automatically rebalances your portfolio according toYOUR SELECTED RISK PROFILE.

Customer Dissatisfaction with How Financial Institutions Help Them Achieve Their Financial 

GoalsPercentage Dissatisfied

• Credit Union Customers:  34%• Regional and Local Bank Customers: 39%• National Bank Customers:  47%

Source: Morpace Inc. Research, Farmington Hills, MI.

‘Why should I do business with your bank rather than one of your competitors?’

Answer:  If your bank can help me ACHIEVE MY FINANCIAL GOALS BETTERthan any of your competitors.

If you are not DISTINCTYou will be EXTINCT

Tom Peters

‘In Search of Excellence’

Profit Implications of Market Strategies (PIMS)

Harvard UniversityStrategic Planning Institute                          

35 Year Plus Study of 3,000 Strategic Business Units

Effects of Market Strategies On                      Return of Investment (ROI) 

(Or What Banks Term Return on Equity…ROE)

Competitive Structure Variables

Relative Perceived Quality

Profits

The Four (4) Factors Customers Use to Evaluate 

Bank QualityDeterminants of Customer Acquisition, Satisfaction, Retention and Profitability

Factors Customers Use to Evaluate Bank Quality

• Tangibles: Financial Products• Empathy: Listening to the Customer• Responsiveness:  Innovation financial products and expertise to help customers achieve their financial goals

• Assurance: Do financial products and expertise work as promised?

Factors Customers Use to RATE The Quality of Bank Performance

R esponsiveness

A ssurance

T angibles

Empathy

Factors Customers Use to Evaluate Quality

• Tangibles 

Factors Affecting Customers Perceptions Of  Bank Performance

DIMENSION AND DEFINITION

EXAMPLE QUESTIONS

Tangibles: Appearance of physical facilities, equipment, personnel, communication materials, and Financial Product Features.

What are the features of the revolving line of credit? How does the bank’s cash management system work? What are the features of the bump CD? What types of PFM tools does the bank have? What are the features of the bank’s mobile banking products? Does the bank have virtual assistants?

Virtual Banking Vs.

Traditional Branches

Service Quality

FDIC data: • US banks closed nearly 5,000 branches

from mid-2009 thru mid-2014• The number of BANKS declined by 1,539

during the same period (from 8,185 to 6,656)

Branch transaction volume of about 12 million is only 23% of mobile plus online transaction volume of about 51 million

Mobile Phone Banking Users Growth 2013-2015 = 42%Tablet Banking Users Growth 2013-2015 = 46%

Average Monthly Branch Transaction Volume

Source: Financial Management Solutions, Inc., Teller Line Study, March 2013.

One‐third (33%) of Americans did NOT visit a branch bank during 

the past 6 months.

Source: Bankrate.com Study, released March 27, 2014.

But 59% Do NotPrefer Branch

Source: Financial Management Solutions, Inc., Teller Line Study, March 2013.

In Teller Labor Costs PerTransaction

Source: 2015 Corporate Executive Board.

Online: 58%

Branch: 15%

Source of New Accounts by Acquisition Channel

Efficiency Ratio: Non‐Interest Expense

• Efficiency ratio = Non‐interest expense divided by the sum of net interest income plus non‐interest income

• What does it measure: How much of every dollar of revenue the bank brings in (after paying interest expense) does it spend on non‐interest expense (such as salaries, premises, IT, marketing, etc.)

EFFICIENCY RATIO COMPARISON

• Average 2014 Efficiency Ratio for Top 200 Community Banks (based on Profitability)

=  64.4%• Average 2014 Efficiency Ratio for All 6,137 Community Banks ($2 Billion or 

less)

=  70.1%Average 2014 Efficiency Ratio for Banks from $1‐$10 Billion

=  63.2%Average 2014 Efficiency Ratio for Banks over $10 Billion

= 62.6%Average 2014 Efficiency Ratio for All US Banks

= 63.0%Source: fdic.gov. Dec. 31, 2014 data.

Source: ‘The Future of US Retail Banking, McKinsey & Company, 2014.

A 7% decrease in the efficiency ratioresults in a 20-25%INCREASE IN PROFITS

The Future: The OMNICHANNEL Bank

Seamless integration of:• Traditional Branches• Micro Branches• Video ATM’s• On‐line Banking• Mobile Banking

High Digital Usage Correlates with Customer Loyalty

Source: Bain Consulting: Customer Loyalty in Retail Banking, 2013.

Millennials and Over 55’s

Source: Accenture Consulting: The Digital Disruption in Banking, 2014 North America Consumer Digital Banking Survey, Sample Size = 4,000.

Hub and Spoke

Video Tellers

Micro Branches

Branch Transformation

Source: 2015 Networld Media.

Page County State BankClarinda, IA $190 Million

ITM: Interactive Teller Machines• United Bank: $1 Billion..Zebulon GA• 22 ITM’s in 11 different markets; most are drive-up• 25% of traditional teller line transaction now go thru

ITM’s• 7 AM to 11PM EST• Staffed primarily by college students• Empty and balance ITM’s only once a week• Costs: 35-40% lower than traditional teller transaction• Deploying stand alone units• $50,000-$60,000 Source: Brian Bailey, Vice President of NCR

Source: 2015 Network Media Group, Case Study sponsored by Columbus Data + Services.

Cost of Video ATM$50,000-$60,000

Brian Bailey, Vice President of NCR

May 19, 2014

• 32% of SBOs bank via mobile devices.• 31% of SBOs say they are likely to adopt mobile banking in the next year

Source: ath Consulting, January 7, 2014.

Mobile Banking and Small Business Owners (SBOs)

Source: 2014 Monetizing Mobile Banking for Small Business Customers, Ratewatch and Simon-Kucher & Partners.

• 66% indicate that they would likely switch banks for one with a better mobile offering

Source: ath Consulting, January 7, 2014.

Mobile Banking and Small Business Owners (SBOs)

• Conversely, 37% of bankers failed to even mention mobile banking in rating factors that influence SBOs in their choice of a bank.

Source: ath Consulting, January 7, 2014.

Mobile Banking and Small Business Owners (SBOs)

Mobile Wallet• Projected Growth: CAGR of 127% from 2012 to 2020*

• More than 70% of smartphone users are willing to adopt mobile payment modes

Source: Allied Market Research, Nov. 2013.

VIRTUAL WALLET

www.pncvirtualwallet

Samsung Pay Google Pay

The New Banker:

The Virtual Assistant:Natural Language Based Service 

USAA Bank Virtual Assistant

Virtual Mobile Assistant: Over 200 Voice Commands

PFM (Personal Financial Management)

Percentage of Customers Who Are Interested in Receiving Advice Via

Source: ‘Winning Through Customer Experience,’ Ernst & Young Study, 2014.

PFM Usage Forecast

• To Categorize Expenses– 2014: 14 Million– 2016: 38 Million

• For Budget Management– 2014:  12 Million– 2016:  25 Million

• For Investment Analysis and  Recommendations– 2014:  14 Million– 2016:  26 Million

Source: Aite Group: December 2012

All Categories ForecastTo Have 86% or Greater Increase in Next 2 Years

Does a PFM Increase The Value of An OnLine Banking Site?

93% of Customers Indicate They Are Very Satisfied or Somewhat Satisfied With Their PFM

Over 90% of Consumers Think a PFM Enhances TheValue of an OnLine Banking Site

Source: Yodlee Research.

Thus, look to and use PFM (Personal Financial Management) or OFM (Online Financial Management) tools suchas Mint, FinanceWorks (Intuit), Yodlee, Geezeo, Banno, and MoneyDesktop.

Over 40 Million People Use YodleePersonal Financial Management Tools

(PFM)Source: Yodlee

Acquired by Jack Henry and Associates, March, 2014.

MoneyDeskTop

Factors Customers Use to Evaluate Bank Quality

• Tangibles

• Empathy

• Paradox:Two Doctors

• HeroesWhat a guy in a boat does

• CounterfeitersWorkers who put together kitchen cabinets

• BidePast tense of buy

Wouldn’t Life Be Easier If Words Meant The Same Thing As The Way That They Are Pronounced

• Parasites:What you see from the top of the Eiffel Tower

• SubduedLike, a guy, like who works on like one of those, like, submarines, man

• Arbitrator:A cook who leaves Arby’s to work at McDonalds

• AvoidableWhat a bullfighter tries to do

Wouldn’t Life Be Easier If Words Meant The Same Thing As The Way That They Are Pronounced

DIMENSION AND DEFINITION EXAMPLE QUESTIONS

Empathy

Access: Approachability and ease of contact.

How easy is it for me to talk to senior bank officials when I have a problem?

How easy is it for me to get through to a person who can handle my question over the phone?

Can I use social media to communicate with the bank?

Can someone in the bank clearly explain to me how I can use my mobile devices to better manage my finances?

DIMENSION AND DEFINITION EXAMPLE QUESTIONS

Empathy

Communication: Keeping customers informed in language they can understand and listening to them.

Can the loan officer clearly explain the various charges and fees associated with my card?

Are changes in fees clearly communicated?

Does the bank engage in two-way communication?

Does my bank solicit my feedback about its performance?

DIMENSION AND DEFINITION EXAMPLE QUESTIONS

Empathy

Understanding The

Customer: Making the effort to know customers and their needs.

Does the bank match the services they provide me with my needs? Does the bank have personal financial management (PFM) tools to help me achieve my financial goals? Does the bank ask about my needs, problems, and ideas for services?

Predictive Analytics

Customers Want Proactive Advice

Source: Accenture Consulting: The Digital Disruption in Banking, 2014 North America Consumer Digital Banking Survey, Sample Size = 4,000.

Small Business Market

• Percentage of SBO’s who feel that it is important for the financial institution to be knowledgeable about their business’s industry

– $100 K to $1 Million:           74%– $1 Million to $5 Million:     78– $5 Million to $10 Million:   84 

Source: BAI: Small Business Demand for Banking Services 2012

But only 23% of SBO’s think their bankperforms well on this KPI (Key Performance Indicator).

What is Predictive Analytics?

• Predictive analytics using data gathering, analysis, and modeling to predict unknown future events.

• For example, Netflix, Amazon, Google use predictive analytics to recommend products or services.

• Most useful application is to forecast customer needs, targeted marketing messages, and product needs.

Source: predictiveanalyticstoday.com, February-March 2015.

MoneyDeck PFM Analytics

Top 12 Predictive Analytics Freeware Software

Source: predictiveanalyticstoday.com, March 2015.

The Mobivore

‘You either take charge of change,Or change will take charge of you.’

Kemmons WilsonFounder of Holiday Inns

Change

Sources of Information• Bank Administration Institute (BAI) bai.org

On the homepage:  Create an account.• Deloitte Consulting: deloitte.com

At the bottom of the homepage, click on email subscriptions• NCR: ncr.com

At the top of the homepage, click on log in and then register• McKinsey & Company: mckinsey.com

At the top of the homepage, click register.• BrightTALK.com  Subscribe to weekly emails.• Harvard Business Review: hbr.org  Register upper right.  15 

free articles.• Nuance:  nuance.com• Ernst & Young:  ey.com

Click on connect with us.

Summary: 4 Key Questions1. How do we FIND OUT what customers want –

both outcome and process qualities?EMPATHY

2. How do we PROVIDE what the customers want?  RESPONSIVENESS AND ASSURANCE

3.   How do we MEASURE firm, group, and individual performance on key ‘Customer Valued’ attributes?

4.   How do we REWARD exceptional performance on ‘Customer Valued’ attributes?

“We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly.  We are what we 

repeatedly do.”

“Excellence, then, is not an act but a habit.”

‐‐ Aristotle

Commit yourself and your bank to doing…to providing exceptional customer satisfaction 

and performance

Then you will simply be THE BEST!

And the most PROFITABLE! 

In Conclusion:

Success Is A Journey ...Not A Destination

And I Wish You Well on Your Journey of Success

Thank You

Appendix A

VITAREX BENNETT, Ph.D.

SUMMARYA combination of business, management, and academic experience provides a broad basis and integrated perspective for competitive strategy, bank financial

management strategy, customer satisfaction retention, and strategic planning consulting.

CONSULTING EXPERIENCECompetitive strategy, bank financial management, customer satisfaction, strategic planning, and marketing research consultant to a number of international

and national banks and other firms. Among the clients:International and National Banks and Organizations

• American Bankers Association • First Data Resources • Medtronic, Inc.• Bank of America • First USA BankCard • Risk Management Resources, Inc.• Bank Marketing Association • Kaiser-Permanente HMO • Target Department Stores• Capital One • Key Banks (KeyCorp) • US Treasury Department• Citicorp • KPMG Peat Marwick • US Agency for International Development

Regional and Local Banks and Organizations: Over 300 ClientsBanking and Executive Program Faculty MemberInstructor and Lecturer on Competitive Strategy, Strategic Planning, Strategic Marketing, and Bank Financial Management.

• Graduate School of Banking at Wisconsin • Pacific Coast Banking School • Southwestern GSB at SMU • Stonier Graduate School of Banking • Graduate School of Banking at Colorado • School of Bank Marketing • Graduate School of Banking at LSU • Barret School of Banking • US Treasury Department

SPEAKER AND PRESENTERNationally and internationally recognized speaker at hundreds of businesses, organizations, associations, and executive and management development

seminars and courses. Speeches in the areas of achieving competitive advantage, becoming a customer-driven organization, customer satisfaction and retention, and strategic planning and thinking.

International ExperienceSpeaker and instructor for bank financial strategies, competitive strategies, and marketing strategies in Austria, Bulgaria, China, Czech Republic, Hong Kong, Indonesia, Poland, Romania, Slovakia, Thailand, and Ukraine.

Manager, International Financial Services, KPMG Peat Marwick, Prague, the Czech Republic. Responsible for developing and implementing bank training and curriculum for mid and upper management for the Czech banking industry. Topics included competitive advantage strategies, international banking, asset/liability management, credit, bank management, and strategic planning.

Expert Witness: Bank Profitability and New Bank FeasibilityComptroller of the CurrencyNumerous State Banking Commissions and Boards

Academic Position: Professor EmeritusSchool of Business University of San Francisco2130 Fulton StreetSan Francisco, CA 94117-1080

Publications: Numerous articles in such publications as: The American Banker Journal of Retail BankingBankers MagazineBank Marketing

Contact: Rex Bennett, Ph.D.President, Achieving Unlimited4 Excelso Trace Hot Springs Village, AR 71909(415) 302-1182 Cell (501) 226-5555 rexbennett@achievingunlimited.com

What Is Strategic Leadership?

Effectively Adapting the Bank to

CHANGE

Elevating Strategic Leadership• Strategic leadership embodies CHANGE• Leaders must identify trends and disruptivefactors in their industry

• Then forecast what type of bank willprosper and survive in the new environment 

• And then change the attitudes, culture, and product and service environment of the current bank to that type of bank that will prosper in the future.

• Strategic leadership embodies changing others opinions and perspective

• Because if everyone agreed on how the bank should change, little leadership would be needed