We wanted to test the common perception that bank strategy is all about service delivery.
The premise of The Alpha Strategies model is there are 8 strategies and 3 types of strategy common to all organizations and that strategy is defined as being a choice of action.
Banks are interesting to study because they spend a lot of money marketing that they really care about service delivery. Not surprisingly, bank customers, employees, and even management and board members will usually identify dominant strategy of the bank as being "service delivery".
What we found, using The Alpha Strategies model to analyze a bank's strategy system, is that financial management, not service delivery, is the dominant strategy of a typical bank. Banks are all about the sourcing, allocation, and management of capital. That is the culture of banking.Let’s look at how we used The Alpha Strategies model to study a bank's strategies.
There are 4 templates on the site to accommodate model building for for-profits in service or manufacturing and nonprofits that market versus those that don't do marketing.
The 8 strategies are common to both; however, the names are slightly different. Business definition strategy for for-profits is called mandate strategy by nonprofits. "Marketing" becomes "communications"
Each of the 8 strategies on our templates are draggable objects. The user can click on and drag each of the 8 shown outlined in red on the graphic above to move them into 1 of the 3 categories of the model.
The starting place for understanding strategy configuration is identifying the one strategy that is dominant strategy; the alpha for the company.
Vision comes from long term successful pursuit of dominant strategy so it is very important to understand which strategy of the 8 is the Alpha. (see: Don't Lose Your Mojo: Understanding Dominant Strategy)
The three most likely candidates for dominant strategy at a bank would seem to be service delivery (because that’s what banks keep telling us in their marketing campaigns); marketing/sales (because that’s what so many folks think is "strategy", period!); and financial management.
We concluded financial management was Alpha. Here's why.
Both marketing/sales and service delivery can be eliminated as candidates by reading a typical bank's annual report and securities filings. These speak primarily of financial management; being the sourcing, allocation, and management of capital and revenues. Financial management is clearly the top priority for a bank.
The second category of strategy is called Influencers. These are the 3 strategies that most guide and constrain implementation of the Alpha and the third category, the Enablers, being the remaining 4 strategies.
Again, referring to a bank's annual reports and securities filings, it becomes apparent that the risk strategy is an Influencer as well as technology. Managing risk is the key to managing the financial management strategy. And a bank’s information systems are critical to running decision-support processes and secure management of customer data and accounts.
This leaves marketing/sales or service delivery as possible candidates for the remaining Influencer. It is at this point that you begin to ask yourself “What services does a bank actually deliver?” “Is being open at convenient hours really service delivery?” “Is having tellers and conveniently located branches really a service?”
The reality is the service delivery at a bank is actually marketing/sales. The hours of operation and bank branch locations are more about marketing than service delivery. And many times, the tellers and branch personnel are more interested in "cross-selling" more products, such as accounts, mortgages, investment products, than delivering a service. Having your monthly statements posted on line or mailed to you constitutes a service but it is a small part of any customer's interaction with a bank. As a result, we picked marketing/sales as an Influencer.
This means that service delivery, business definition, organization management, and growth are all Enablers at a typical bank and that financial management, risk, technology, and marketing/sales have a greater priority than service delivery or the other Enablers.
That said, Enablers are an important part of the strategy system. The 8 strategy system can be compared to an 8 cylinder engine. All the cylinders are important. If even just one misfires, engine performance is seriously impaired.
So what does the model tell us?
1. Dominant Strategy Identification: Without a powerful model for strategy, it's easy to draw the wrong conclusions about dominant strategy. Case in point: thinking a bank’s dominant strategy is service delivery when it is, in fact, financial management. Losing focus of dominant strategy is a recipe for disaster. The 2008 global financial meltdown was caused to a great extent by banks focused on growth rather than on financial management and risk.
2. Influencers Identification: The model tells us that risk, technology, and marketing/sales should be the strategies that provide the most guidance and constraint to implementation of the Alpha, financial management, and to the Enablers. The key metrics used to monitor and measure bank performance are accordingly mostly centred on the Alpha and its Influencers.
3. Current Strategy Identification: The model provides a starting place for a deep understanding of current strategy if each of the 8 are now populated with descriptions of actual strategies being implemented. We see far too many organizations assuming that current strategy is well understood. The research suggests it seldom is.
4. The Basis of Organization Design: The model and the 8 building blocks are the basis of organization design. Does your organization design support the strategy configuration currently being implemented by your business or nonprofit?
5. A Powerful Visual of the Strategic Plan: The 8 strategies are the basis of the strategic plan. All subsequent strategy is developed from these 8 building blocks. Understanding these strategies and how they are configured is the key to successful performance management.
For more on strategy, see: The Alpha Strategies: Understanding Strategy, Risk, & Values in Any Organization)