Does your bank have a unique competitive business strategy as compared to your rivals? A key tenet to creating superior performance is “doing” something that is both unique as compared to your rivals and valued by your target customers. And, as importantly, you “do” it in a fashion in which every activity in the company consistently and fully optimizes, reinforces and works together in enhancing that value proposition. Competitive advantage, an over-used term these days, in its truest essence should translate into superior financial performance. Without the latter, do you really have competitive advantage?
In this environment of low loan demand, continued low interest rates, greater regulations, higher costs of doing business, and changing customer behavior patterns, it will be increasingly difficult to profitably grow operating revenue. Advantage will go to those banks that have a thoughtful, deliberate competitive strategy for creating sustainable, superior performance. For most banks, this means a competitive strategy that creates smart asset growth funded by low cost deposits; sustainable operating revenue growth; efficient, productive cost structure; and prudent risk management.
We work with scores of banks around the country in developing competitive strategies and business models for creating superior performance. We have found that, generally, most banks’ competitive strategy looks like any other bank’s. When asked what differentiates them from the competition, most banks will say their highly personalized approach, localized decisioning, and ability to be more customized in creating financial solutions. Yet, if I were to ask this same question of their rival community bank I would most likely get the same answer.
What is that “something” your bank is GREAT at? Can this strength be translated into a competitive advantage that provides meaningful profitable growth? Some examples of GREATNESS are:
- a West Coast bank that focuses on financing small to medium size multi-family projects,
- a Mid-Atlantic bank that has an established reputation of smart commercial real estate financing even through the recessionary years,
- a Midwest bank that has a steady low-cost funding source a result of a national HSA checking product,
- a Florida business bank that focuses on high net worth entrepreneurs banking both their business and personal affairs.
These are just a few examples.
Back to my opening question, does your bank truly have a unique business strategy that can create sustainable superior performance? In my earlier blog, “Survival of the Fittest: Is Your Bank Positioned to Survive”, I discuss the challenges banks will face over the coming years—equally as challenging as the last five years we just experienced. Being just like every other bank in your market or being “good” at most everything is not a recipe for thriving. Rather, banks will have to be GREAT at something to thrive!
When you consider your own bank’s strength or areas of GREATNESS, ask yourself these question:
- Is this strength unique as compared to our bank’s rivals and valued by our target customer(s)?
- Does this strength provide opportunity for profitable growth? How big is the market and what are the growth prospects?
- Does the target customer associated with this opportunity value what my bank offers? Are there other products or services that we don’t currently offer that could enhance the potential for sustainable profitable growth?
- Are the bank’s structure, platform and people completely aligned to take advantage of this opportunity? Does the web of activities throughout the entire bank–people, processes, technology, policies and the like– support and enhance the value proposition of this unique opportunity?
Creating competitive advantage will not happen overnight. The great Chinese philosopher, Laozi, said “a journey of a thousand miles begins with a single step.” It is more important than ever to thoughtfully evaluate and determine your bank’s competitive strategy. In fact, it is often during periods of great change and turmoil that great opportunity can be found.