EXCELLENCE.EXCELLENCE.

ALWAYS.ALWAYS.MVPs.MVPs.2006. 2006.

0103.2007 0103.2007

Commerce Commerce BankBank

The Power of WOW!The Power of WOW!How Commerce Bank How Commerce Bank

Created a Super-Created a Super-Growth Business in a Growth Business in a No-Growth IndustryNo-Growth Industry

Vernon W. Hill, IIVernon W. Hill, II

““Our whole Our whole story is story is growing growing

revenue.”revenue.” —Vernon Hill (Top-line driven; standard —Vernon Hill (Top-line driven; standard

is bottom-line driven by cost cutting)is bottom-line driven by cost cutting)

8,000 Radio City 8,000 Radio City Music HallMusic Hall … J.D. Power/Customer … J.D. Power/Customer

service/Bank/NYC/1service/Bank/NYC/1stst in 5 of 6; 2 in 5 of 6; 2ndnd in #6 … Inspired by Ray in #6 … Inspired by Ray Kroc … $36B ($100B in 6 years); +$750M per month/373 Kroc … $36B ($100B in 6 years); +$750M per month/373

branches in 7 states/900 in 6 years … player piano … branches in 7 states/900 in 6 years … player piano … Penny Arcade/$25K per machine … 9M lollipops, 2M dog Penny Arcade/$25K per machine … 9M lollipops, 2M dog

biscuits … stupid rule (red) button … call center not biscuits … stupid rule (red) button … call center not “cost center,” but opportunity/human by second “cost center,” but opportunity/human by second operation … over-invest in real estate … design-operation … over-invest in real estate … design-

experience fanaticism … Red!/Red Friday/Hot music … experience fanaticism … Red!/Red Friday/Hot music … deposits available next day (vs ½ on 3deposits available next day (vs ½ on 3rdrd; ½ on 5; ½ on 5thth; focus ; focus

on 99%, not 1%)on 99%, not 1%) … LONG HOURS!!!! (7/week/12 … LONG HOURS!!!! (7/week/12 hours/Fridays/15 minutes before) … “Do whacky things hours/Fridays/15 minutes before) … “Do whacky things

forfor customers” (VH) … “create magical moments of customers” (VH) … “create magical moments of surprise and delight for employees” (VH) … “Hire for surprise and delight for employees” (VH) … “Hire for attitude. Train for skills.” (VH) … Chinatown/10K first attitude. Train for skills.” (VH) … Chinatown/10K first

day; 28K first week … Commerce U in ’93 (“underlying day; 28K first week … Commerce U in ’93 (“underlying theme is fun”—VH)theme is fun”—VH)

Commerce Bank: From “Service” to “Experience”Commerce Bank: From “Service” to “Experience”

7X. 730A-7X. 730A-800P. 800P.

F12A.F12A.**

**’93-’03/10 yr annual return: CB: 29%; ’93-’03/10 yr annual return: CB: 29%; WM: 17%; HD: 16%. Mkt Cap: 48% p.a.WM: 17%; HD: 16%. Mkt Cap: 48% p.a.

Thesaurus of WOW!

“They” hate it if you call them “bankers.” “They” love it, on the other hand, when you ask to see their #s—stupendous. “They” are … Commerce Bank. These absurdly fast

growing, insanely profitable “retailers,” rewriting the rules of East Coast retail

banking, sent me a copy of their booklet, “Traditions.” It explicates their “Wow the Customer Philosophy.” At the end there’s “A Collection of Commerce Lingo.” I won’t define (use your imagination), but simply offer a small

sample: “Fans, Not Customers.” “Say YES … 1 to say YES, 2 to say NO.” (A staffer has to get a supervisor’s approval to say “no” to anything.) “Recover!!! To Err Is Human; To Recover Is Devine.” “Leave ’Em Speechless.” “Positive Behavior.”

“Positive Language.” “Kill A Stupid Rule.” (Get cash rewards for exposing dumb internal rules “that impede our ability to WOW!”) Make the ‘WOW! Answer Guide’

Your Best Friend.” “Buzz Bee.” “CommerceWOW!Zone.” (A K-12 financial education program.) “Doctor WOW!” “Ten-Minute Principle.” (“Stores” open 10 minutes before

posted hours, stay open 10 minutes after posted hours—and the hours, such as open 7 days a week, are already incredibly generous & tradition-shattering.) “Wall of

WOW!” “WOW! Awards.” (The annual recognition ceremony—Radio City Music Hall, with the Rockettes, in ’05.) “WOW! Patrol.” “WOW! Spotlight.”

“WOW Van.” “WOW Wiz.” (A service superstar.) Etc.

S.M.A.R.T.S.M.A.R.T.

S.S. Say Yes Say YesM.M. Make Each Customer Feel Special Make Each Customer Feel SpecialA.A. Always Keep Customer Promises Always Keep Customer PromisesR.R. Recover! Recover!T.T. Think Like Our Customers Think Like Our Customers

Standard bank:Standard bank: Keep ’em out of Keep ’em out of branches; ignore middle income; cost-branches; ignore middle income; cost-driven following mergers. (“No great driven following mergers. (“No great American retailer was ever created by American retailer was ever created by

doing acquisitions”—VH “No examples of doing acquisitions”—VH “No examples of seriously broken retail models thatseriously broken retail models that

have been fixed.”) have been fixed.”)

CB:CB: deposit focus; customer experience; deposit focus; customer experience; best facilities; no stupid rules; revenue best facilities; no stupid rules; revenue

driven; better experience for lower yielddriven; better experience for lower yield

“ … cut costs at most banks. ‘We have to push

them out of the branches.’ ‘We have to push them to

machines.’ We have to push them to the Internet.”

Source: Vernon HillSource: Vernon Hill

““We defy conventional We defy conventional wisdom, operating more wisdom, operating more like the young bucks at like the young bucks at Starbucks than the old Starbucks than the old

farts at the Bank of farts at the Bank of America.”America.” —Vernon Hills—Vernon Hills

TP:TP: Experience … Top-line Experience … Top-line fanaticism (vs Cost-fanaticism (vs Cost-

fanaticism) … Deposits …fanaticism) … Deposits …Drive ’em to the branch … Drive ’em to the branch … Experience/Wow! … design Experience/Wow! … design … little touches … no stupid … little touches … no stupid

rules … Talent/Attitude/ rules … Talent/Attitude/ RecognitionRecognition

John Laing John Laing HomesHomes

““We don’t We don’t ‘close units,’ ‘close units,’

we build we build homes.”homes.” —Larry Webb,—Larry Webb,

John Laing Homes John Laing Homes

““If you want to If you want to gain competitive gain competitive

advantage fast, the advantage fast, the best place to do it best place to do it

is in is in salessales.”.” —Larry Webb, —Larry Webb,

John Laing HomesJohn Laing Homes

““Builder of the Year”/Builder of the Year”/Professional Professional BuilderBuilder … Experience … Communities/ … Experience … Communities/

Family values/ Relationships/After-sale “ …Family values/ Relationships/After-sale “ …talk to our customers …” J.D. Power talk to our customers …” J.D. Power

awards … Warranties … Price premiums … awards … Warranties … Price premiums … Design!!!! (all Divisions winners) (Top Design!!!! (all Divisions winners) (Top

“names”) … Data/market research … Top “names”) … Data/market research … Top company to work for … Team development company to work for … Team development … “I just love being a home builder.” (LW) … “I just love being a home builder.” (LW)

… Brand … Emaar Properties (Robert … Brand … Emaar Properties (Robert Booth/Int’l: “They have a tremendous Booth/Int’l: “They have a tremendous

focus on the customer, and that is hugely focus on the customer, and that is hugely important to us.”)important to us.”)

““Soft Skills, Soft Skills, Hard Dollars”Hard Dollars”

Source: Headline, Source: Headline, BigBuilder,BigBuilder, September 2006 September 2006

““A couple of years ago, the Los Angeles A couple of years ago, the Los Angeles division division [of John Laing Homes][of John Laing Homes] decided it was decided it was

going to become the king of Hispanic housing going to become the king of Hispanic housing [sarcasm], because our research shows [sarcasm], because our research shows

there’s a huge demand. They were right to there’s a huge demand. They were right to go after that market, but I looked around the go after that market, but I looked around the room, and it’s full of white guys. They were room, and it’s full of white guys. They were

telling us how much they know about telling us how much they know about Hispanic buyers, and they were making it up. Hispanic buyers, and they were making it up.

… We’re getting better now. … We’re getting better now. We hired two smart, young Hispanic We hired two smart, young Hispanic

managers. … We are working through a managers. … We are working through a partnership with [former HUD secretary] partnership with [former HUD secretary]

Henry Cisneros. We’re learning, but we have Henry Cisneros. We’re learning, but we have a long way to go.”a long way to go.” —Larry Webb—Larry Webb

““We are a We are a ‘life ‘life

Success Success Company’”Company’”

Dave Linegar, RE/MAXDave Linegar, RE/MAX

jim’s group jim’s group

Jim’s GroupJim’s Group:: Jim Penman.* Jim Penman.*

1984: Jim’s Mowing. 2006: Jim’s Group. 1984: Jim’s Mowing. 2006: Jim’s Group.

2,600 franchisees2,600 franchisees (Australia, NZ, UK). (Australia, NZ, UK). Cleaning. Dog washing. Handyman. Cleaning. Dog washing. Handyman.

Fencing. Paving. Pool care. Etc.Fencing. Paving. Pool care. Etc.

“People first.” Private. Small staff. Franchisees “People first.” Private. Small staff. Franchisees can leave at will. 0-1 complaint per year is can leave at will. 0-1 complaint per year is

norm; cut bad ones quickly.norm; cut bad ones quickly.

*Ph.D. cross-cultural anthropology; mowing on the side

Source: MT/Management Today (Australia), Jan-Feb 2006

X.06X.06

X.06.23X.06.23:: Whole Foods Markets Whole Foods Markets …… Starbucks Starbucks … … Wegmans Wegmans …… Commerce Commerce Bank Bank …… John Laing Homes John Laing Homes …… Apple Apple ……

London Drugs London Drugs …… Griffin Hospital/ Griffin Hospital/ Planetree Alliance Planetree Alliance …… The Met The Met

School/Big Picture School/Big Picture …… Carl Sewell Carl Sewell …… Progressive Insurance Progressive Insurance …… Stanford Stanford

women’s sports women’s sports …… Stanford D-School Stanford D-School …… HSM HSM …… Washington Speakers Bureau Washington Speakers Bureau … …

Build-A-Bear Build-A-Bear …… RE/MAX RE/MAX … … Donnelly’s Donnelly’s Weatherstrip Service Weatherstrip Service … … Jim’s Group Jim’s Group ……

Cirque du Soleil … Cirque du Soleil … (U.S. Grant)(U.S. Grant) …… (Horatio Nelson) (Horatio Nelson) …… (Stew Leonard’s)(Stew Leonard’s) … …

(DeMar Plumbing) … (FBR/Friedman (DeMar Plumbing) … (FBR/Friedman Billings Ramsey)Billings Ramsey)

X.06.23X.06.23:: Whole Foods Markets Whole Foods Markets (high-end, experience-design, (high-end, experience-design, demographic)demographic) … Starbucks … Starbucks (people, experience)(people, experience) … Wegmans … Wegmans

(people)(people) … Commerce Bank … Commerce Bank (nuts about customers, WOW, (nuts about customers, WOW, people, execution)people, execution) … Apple … Apple (design-experience, breakthrough, (design-experience, breakthrough,

“virus management,” resilience, talent, “seriously cool”)“virus management,” resilience, talent, “seriously cool”) … … London Drugs London Drugs (design-experience, people, “solutions”)(design-experience, people, “solutions”) … Griffin … Griffin Hospital/Planetree Alliance Hospital/Planetree Alliance (customer-centric, “whole person”)(customer-centric, “whole person”) … The Met School/Big Picture … The Met School/Big Picture (engagement, self-control)(engagement, self-control) … Carl … Carl

Sewell Sewell (experience!)(experience!) … Progressive Insurance … Progressive Insurance (speed, IT)(speed, IT) … … Stanford women’s sports Stanford women’s sports (demographic, Blue Ocean)(demographic, Blue Ocean) … Stanford … Stanford

D-School D-School (design-biz-engineering, Blue Ocean)(design-biz-engineering, Blue Ocean) … HSM … HSM (execution, experience)(execution, experience) … WSB … WSB (integrity, broad view of (integrity, broad view of

customers, execution)customers, execution) … Build-A-Bear … Build-A-Bear (experience) (experience) RE/MAX RE/MAX (people/“create(people/“create

success stories”)success stories”) … Donnelly’s Weatherstrip Service … Donnelly’s Weatherstrip Service (high end, (high end, execution-reliability, simply the best)execution-reliability, simply the best) … Jim’s Group … Jim’s Group

(imagination-Blue Ocean, demographic, customer-centric)(imagination-Blue Ocean, demographic, customer-centric) … … Cirque du Soleil Cirque du Soleil (talent, R&D, Imagination, resilience, design-(talent, R&D, Imagination, resilience, design-experience, partnering)experience, partnering) … (U.S. Grant/ … (U.S. Grant/execution, delegation, execution, delegation,

people, K.I.S.S., action-at-all-costs, win, bold people, K.I.S.S., action-at-all-costs, win, bold ) … (Horatio ) … (Horatio Nelson/Nelson/execution, delegation, people, K.I.S.S., action-at-all-execution, delegation, people, K.I.S.S., action-at-all-

costs, win, boldcosts, win, bold) … (Stew Leonard’s/) … (Stew Leonard’s/people, experience-design, people, experience-design, WowWow) … (DeMar Plumbing/) … (DeMar Plumbing/experience, people, Blue Oceanexperience, people, Blue Ocean) … ) …

(FBR/Friedman Billings Ramsey/(FBR/Friedman Billings Ramsey/research, focusresearch, focus) )

High end.High end.Experience.Experience.

Design.Design.Crazy for customers!Crazy for customers!

Crazy for Patients! (“Whole person”).Crazy for Patients! (“Whole person”).Wow!Wow!

People first, second, third.People first, second, third.Breakthrough or bust.Breakthrough or bust.

““Seriously cool.”Seriously cool.”““Virus management.”Virus management.”

Resilience.Resilience.Tippy top talent.Tippy top talent.

“ “Solutions,” not “just” “satisfaction.”Solutions,” not “just” “satisfaction.”Engagement.Engagement.

Self-control. (Customer/Patient/Student control.)Self-control. (Customer/Patient/Student control.)Blue Ocean.Blue Ocean.

““Mundane stuff” made great.Mundane stuff” made great.Great demographic.Great demographic.

The best. Period.The best. Period.Effective partnering.Effective partnering.

K.I.S.S.K.I.S.S.Play to win. (Offense > Defense.)Play to win. (Offense > Defense.)

Bold!Bold!Action! Always!Action! Always!

Integrity-as-strategy.Integrity-as-strategy.

**Focused on Focused on growthgrowth and and revenuerevenue and “ and “offenseoffense,”,” not defense and cost containment.not defense and cost containment.

**People-talent obsession.People-talent obsession.

**Provide mind-bending experiences. (DrivenProvide mind-bending experiences. (Driven by design primacy.)by design primacy.)

**Nuts about customers.Nuts about customers.

**Happy to use words like Happy to use words like “Wow.”“Wow.”

**Pretty close to the high end of the market.Pretty close to the high end of the market.

[*[*Ability to make silk purses filled with gold out ofAbility to make silk purses filled with gold out of sows’ ears: Wegmans-Whole Foods-Stew Leonard’ssows’ ears: Wegmans-Whole Foods-Stew Leonard’s and groceries; Jim’s Group and dog-walking;and groceries; Jim’s Group and dog-walking; Donnelly and weatherstrip installation; DeMarDonnelly and weatherstrip installation; DeMar and plumbing.and plumbing.]]

**Execution!Execution!