Strategic Planning in the Banking Industry Dr. Robert L. Underwood Associate Professor Department of Business & Accounting Furman University July 20, 2015

Overview of Strategy: Differentiating Within the Banking Industry Enhance your understanding of strategy fundamentals leading to the discussion of the Balanced Scorecard What is Strategy? Strategic Positioning/The Delivery of Value Value Types; Achieving a Distinctive Competitive Advantage 2

Overview of Strategy: Differentiating Within the Banking Industry The Discipline of Market Leaders Most Common Strategy Mistakes Applying PESTEL to the Banking Industry Differentiate or Die: Strategic Musts for Banks in the Digital Age 3

Corporate vs. Strategic Five, Ken Favaro, Senior Partner, Booz & Allen 4

Real Substance of Strategy Making deliberate and decisive choices Where to play (markets/industries)/Positioning Foundation for decision making and resource allocation IBM – Lou Gerstner 1993 “The last thing IBM needs right now is a vision.” 5

IBM Turnaround Redefined Business Boundaries (Computer hardware to hardware, software and services) Value Proposition (Best products to corporate solutions) Essential Capabilities (Selling to IT to selling to the C-Suite) 6

What is Strategy? “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Michael Porter 7

Peter Drucker on Marketing Strategy “Marketing is so basic that it cannot be considered a separate function. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view… Business success is not determined by the producer but by the consumer.” Peter Drucker 8

Marketing Strategy Determining the needs and wants of target markets and delivering the desired satisfactions (value) more effectively and efficiently than competitors Distinctive Competitive Advantage 9

The Delivery of Value Customer perspective: o Value is the ratio of costs (price) to benefits (utilities) o Value proposition includes the whole bundle of benefits the firm promises to deliver, not just the benefits of the product itself 10

Types of Value – Strategic Competitive Positioning Low Price Price/Quality Ratio Superior Customer Service Dependability/Assurance Authenticity Status Self Concept Enhancement Superior Product Quality 11

Types of Value Product/Service Innovation Availability/Choice Functional Performance Location Convenience Social Responsibility Timeliness 12

Competing in a business involves performing a set of discrete activities, in which competitive advantage resides Foundations of Economic Performance The Value Chain Support Activities Marketing & Sales (e.g. Sales Force, Promotion, Advertising, Proposal Writing, Web site) Inbound Logistics (e.g. Incoming Material Storage, Data Collection, Service, Customer Access) Operations (e.g. Assembly, Component Fabrication, Branch Operations) Outbound Logistics (e.g. Order Processing, Warehousing, Report Preparation) After-Sales Service (e.g. Installation, Customer Support, Complaint Resolution, Repair) M a r g i n Primary Activities Firm Infrastructure (e.g. Financing, Planning, Investor Relations) Procurement (e.g. Components, Machinery, Advertising, Services) Technology Development (e.g. Product Design, Testing, Process Design, Material Research, Market Research) Human Resource Management (e.g. Recruiting, Training, Compensation System) Value What buyers are willing to pay 13

"The Discipline of Market Leaders" by Treacy and Wiersema 14

"The Discipline of Market Leaders" by Treacy and Wiersema Operational ExcellenceWal-Mart, UPS Product LeadershipApple, BMW Customer IntimacyNordstrom, Publix 15

Most Common Strategy Mistakes (Understanding Michael Porter: The Essential Guide to Competition and Strategy by Joan Magretta) Competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results Confusing operational effectiveness with strategy Confusing marketing with strategy. Importance of the supply side of the equation as well as the demand side Overestimating Strengths 16

Most Common Strategy Mistakes (Understanding Michael Porter: The Essential Guide to Competition and Strategy by Joan Magretta) Getting the definition of the business or the geographic scope wrong Not having a strategy at all 17

New Product Idea – Class Exercise Consider a frequent consumer situation in which you are frustrated with how business is conducted. What value is not being delivered in this situation? How could you deliver value more clearly and consistently in order to better satisfy the marketplace? Discuss the fundamentals of your idea. 18

Impact of Macroenvironment “What we need to do is always lean into the future; when the world changes around you and when it changes against you – what used to be a tail wind is now a head wind – you have to lean into that and figure out what to do because complaining isn’t a strategy.” Jeff Bezos 19

Macroenvironmental Factors: Let’s Discuss the Impact of Each on the Banking Industry 20

Differentiate or Die: Strategic Musts for Banks in the Digital Age “In a 2012 study by global brand consultant, Clear, financial brands ranked as some of the lowest when rated along statements such as ‘a brand I feel attracted to’ and ‘a brand that matters to me.’ The data also confirmed what we all intuitively know about banking brands: they are virtually identical in consumers’ eyes. Every bank in the study was seen as being highly ‘organized’, ‘serious’ and ‘sensible.’ It’s rare to find a bank that stands for much else.” Simon Clough, Clear 21

Differentiate or Die: Strategic Musts for Banks in the Digital Age “…the brutal truth is that most banks lack strategic capital – the combination of brand, innovation, culture and unique ways of doing business that will ensure future relevancy.” Jim Burson, BAI.org (July 2014) 22

Differentiate or Die: Strategic Musts for Banks in the Digital Age Enhancing the Digital Environment o Digital transformation is at an inflection point McKinsey & Company study (Jan 2015) o Digital Laggards could lose 35% net profit o Digital Winners may realize a 40% profit increase 23

Enhanced Digital Capabilities Create Value for Banks - McKinsey & Company Digital technologies increase a bank’s connectivity (customer, suppliers, employees) Digital draws on big data & analytics to extend and refine decision making Digital enables straight through processing Digitization is a means of fostering innovation across products and business models 24

Additional Strategic Musts Enhancing Customer Service to Maximize the Customer Experience o Financial Power of Customer Loyalty Developing and Facilitating the Omni Channel Experience 25

Additional Strategic Musts 26 Developing a Brand Culture that permeates the entire organization and is reflected with each and every interaction with customers

Thank You, Now On to the Balanced Scorecard! Financials Customers Business Processes Innovation & Learning 27

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