For all banking and marketing interested persons – for the latter one with a key focus on brand issues – this current study regarding the brand value of financial service companies might submitt very interesting data. The study “Brand Finance Banking 500″ does provide an opinion as to point-in-time valuations of the biggest banking brands. The report also presents how the methodology and findings can be used to assess the impact of brand equity on business performance. It gives your relevant data on all 500 top brands; furthermore the top 5 brands have been presented for each business segment, i.e. consumer banking, corporate banking.

The study report is available as pdf-file on this website.

I want to make one thing clear right from the beginning. I am sure the ocelot is an interesting animal and it surely has more functions in our ecosystem than just making other ocelots happy. However, this ocelot some sort of analogy for me – an analogy for things that are just there, things that always have been there and that we are so used to that we don’t even realise that we could as well live without them. I learned that some businesses are more or less like ocelots. These businesses often have a long history. The do what they have always done, even improve what they are doing gradually, and they have a customer base. Ocelot businesses are not businesses in a crisis situation. However, ocelots are really endangered species. The most dangerous thing is that they don’t know it.

Let’s think about that. A business in a crisis knows about its crisis. Crises can be recognised by various signs like liquidity gaps, heavy losses, of sales breakdowns and so on. If a busi-ness experiences such signs of a crisis, it is forced to react in some way or the other. Some do the right thing and recover and some don’t. But this is a different story. With ocelot busi-nesses, the situation is different. There are no severe signs of a crisis – maybe some early warning signs but no more. Ocelot businesses are those who don’t realise that their business model is obsolete or is gradually becoming obsolete. Think of all the middlemen that have been cut out by clever new Internet businesses. Think of a local grocery store in a neighbourhood with already more than enough grocery stores and a large supermarket nearby. They are still there and still have customers. However, the businesses are struggling because their product or service can now be obtained otherwise. Some of the customers would even miss them if they closed down. They don’t want to change their business partner even if there are better offers around. This may be out of habit or because they fear the trouble of switching. Nevertheless, those customers could as well switch to a different business partner or solution. The fact that they don’t do it does not necessarily mean that there are strong barriers or a real customer lock-in. So the business is still there and will probably still be there next year. But like the ocelot that is only needed by the ocelot, the business is not longer there because it has something unique to offer which will be valued by the customers over time. It is just there because it is not yet gone.

So far this is not a serious problem. Many businesses lose their value proposition. If they realise this early enough they still have time to adjust their business model. The local travel agent with his high street-office may target elder citizens that are not computer-literate. The grocery store may refocus on organic produce and so on. So they literals regain their right to existence.

However, the businesses that I call ocelots are in danger because they feel safe. They may for instance experience a slow decline in turnover but do not see the sign. There have al-ways been ups and downs in business so they still have hope for better times. These businesses ignore the fact that this slow decline in turnover is not a one-off event but is forming a steady trend over time. Ocelot businesses don’t realise that their business partners could as well live without them (maybe not want to but definitely could). So they don’t feel the urge to do something against the upcoming danger – especially if the danger is not yet pressing and there still is time to react. Like ocelots they are happy with themselves and think everybody else is too.

The morale of my tale is: If you go through a zoo or a wilderness with open eyes, you may discover an ocelot. It you go through our business world with open eyes, you may discover a different kind of ocelot too.

Or: If you want your business to be more than a cute cat, check its ocelot-potential regularly.

Months before the actual collapse the US investment bank Lehman Brothers faced serious problems. With cheating its balance the bank covered their problems and misled investors, business partners and authorities. This is the final outcome of a 2,200 page investigation report. The table of contents alone consists of 45 pages. The report has been authorized for release by the relevant court for insolvency. The blog in the Wall Street Journal has published a copy of the Court Examiner’s Report on this website.

The court-appointed investigator Anton Valukas (from Jenner and Block) summarizes that the investment bankers made expert bookings to erase risks from their balance. As the result the bank was able to present itself as a healthy institution to external parties. With some tricks was able to create an outward impression to reduce its debts in 2008. In fact the bank had to manage a 600 billion USD debt burden.

It says at the Real-World Economics Review Blog:

‘Alan Greenspan has been judged the economist most responsible for causing the Global Financial Crisis. He and 2nd and 3rd place finishers Milton Friedman and Larry Summers, have won the first–and hopefully last—Dynamite Prize in Economics.
They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy.’

My first thought on this post was that it was interesting reading but nothing more – there are countless polls around in the Internet and ‘economists-bashing’ at a time when we all know what had happened and why is fairly easy. However, this poll is about more. In fact, the Real-World Economics Review Blog had launched two polls simultaneously:

‘The  Real-World Economics Review Blog is holding polls to determine the awarding of two prizes:
The Dynamite Prize for Economics , to be awarded to the three economists who contributed most to enabling the Global Financial Collapse (GFC), and
The Noble Prize for Economics , to be awarded to the three economists who first and most cogently warned of the coming calamity.’  

As they write:

‘It is accepted fact that the economics profession through its teachings, pro-nouncements and policy recommendations facilitated the GFC.  We also know that danger signs became visible long before the event and that some economists (those with their eyes on the real-world) gave public warnings which if acted upon would have averted the human disaster. … To date, however, the world’s major economics associations have declined to censure the major facilitators of the GFC or even to publicly identify them. … Nor has the economics establishment offered recognition to those economists who were not taken in by fads and fashion and whose competence, if listened to, would have prevented the collapse.’

This double-poll gives me a positive outlook. They don’t simply want to blame somebody, as too many others have done. They want to direct our awareness to those who were outspo-ken with a different opinion.
I am deeply convinced that the next bubble or the next crisis will come up sooner or later. This little double poll should remind us not only to listen to the mainstream-voices that can be heard all over the mainstream media. It is convenient to agree with their convincing ideas. However, there are always some critical voices with a different opinion too. We should make it a habit to listen to those voices as well. On that basis, we can make up our own mind on whom we believe. Maybe that could help to make the next crisis a little less severe.

By the way, the poll for the Noble Prize for Economics, which was named Revere Award in Economics, named in honour of Paul Revere and his famous ride, is still open and in the nomination phase.

We participate in the amazon-associates program with our management portal. We recommend books on the portal and when one of our visitors buys a book though our links, we get a small referral fee (unfortunately really smaller than it used to be in the early years). For these sales amazon provides us some statistics from which we know which articles were sold. It is not surprising that most of them are business books.

As of today, our sales / referral fees for this month look quite good. They look definitely better than in most of last year’s months, which were pretty weak. That may indicate two different things:

• People think that the worst of the current financial and economic crisis is over and start again to invest in business books. Or
• People think the crisis is not yet over. Hence, they decide to do something for their education while they are not so busy in business and hope to be well prepared when the economy booms again.

Well, this is no rocket science and no valuable indicator. More interestingly, I realised that the proportion of M&A-books among our referrals has risen considerably. I assume people expect M&A-transactions to increase again. Maybe many of our visitors work for a company that is either planning to take over another one or that is under threat of being taken over. So they want to prepare themselves with more knowledge about the process to come.
So I think that I will have a closer look at the mix of topics covered by our referrals.

I found the results not overly surprising, but nevertheless interesting: The number one risk seen for 2010 is political interference, followed by credit risk on number two and too much regulation on number three. Political interference made its first appearance in the banana skins table this year, whereas too much regulation was on number eight in the last survey 2008.

The study states that these perceptions of banana skins is common to all major banking regions and shared by bankers and non-bankers alike. It is shared by me too. There is no doubt that the banking industry needs a new regulatory framework, since the existing one was not able to prevent the latest financial crisis. This crisis had an extraordinary impact on the worldwide economy and at least a perceived impact on almost everyone’s personal life. Hence, there is a high public awareness and a potential pressure on governments and regulators to act quickly and decisively. This is where my personal fears come in. Banking regulation is a complex issue. Even today scientists and practitioners alike are still debating on what measures might be helpful, without any effect or even contra productive. There is a serious risk that the upcoming changes in regulation will be too fast (i.e. not well enough analysed for their real impact) and not target-orientated enough. It won’t do to make it more difficult for banks to earn money and to grow beyond a pre-defined size. Who, by the way, knows at which size exactly is a bank too big? In the end of the day, this might act as a stimulus plan for consultants and other clever folks to find ways to increase profitability despite any new regulation. We must not forget that the majority of banks still have owners who expect a particular return from their investment and who compare the profit earning potential from an investment in banks with other investments. Banks still have to compete for investments. In my view the more important (and more difficult, of course) issue is to impose a regulatory framework that monitors the stability of the whole sector more precisely and that allows to react quickly to early warning signs of potential problems.

Back to the Banana Skins Survey. It lists a league table of the 30 most dangerous banana skins for 2010 and discusses these in detail. It also compiles the top banana skins from 1998 on. This is an interesting review of the changing issues that have troubled bankers during the last years. There is also a ‘Who said what’ section that breads down results to different re-gions and respondent groups. All in all it makes an interesting reading for anyone interested in or affected by the banking industry.

The establishment of a single market for services and goods – including banking - has for several decades been one of Europe’s core policy objectives. The way towards these objectives is termed integration process. The benefit of integration is to offer new business opportunities in Europe for the banks through more competition and the option to increase returns to scale. For customers integration offers EU access to a similarly broad and fair prices range of banking products. The potential segment regarding Pan-European retail banking has been estimated with approximately 40 million customers among EU-25. Across the markets for goods and services different levels of integration has been reached. COM (2007) argues that significant progress has been made in establishing a single market for retail financial services with the introduction of legal frameworks regarding financial soundness of retail financial service providers. However, according to DIECKMANN (2006), COM (2007), BDB (2008) and SCHÄFER (2009) one of the least integrated markets in the EU is retail banking. A full integration of retail banking markets would represent “a truly single internal market for retail banking products would imply consumer demand for bank services EU-wide and provision of these services EU-wide by banks”.

DIECKMANN (2006) and SCHÄFER (2009) describe several economic benefits of retail banking integration. In general integration can increase economic welfare due to two channels. The first reason is an intensified competition on formerly national markets. In an integrated market “foreign” retail banks are able to launch banking business there at any time. In this case consumers have a broader selection of better banking products at lower prices. Secondly market integration would enable banks to realise economies of scale if they could offer their banking products across the countries of the EU. This option would lower the costs of making their banking products. Furthermore the break-even point of innovations would be reduced. Economies of scale could also be achieved in risk management, since banks could diversify their risks more in a larger market, e.g. by offering personal loans in different countries. Furthermore a better integrated banking market should improve the competitiveness of EU financial centre globally.

Despite several benefits on the European level consumers and banks are still focused on their national domestic markets when seeking or offering retail banking products. Surveys by the European Commission indicate that only 1 % of EU consumers buy financial services abroad at a distance; while 26 % of bank customers do so within their country by phone or internet. Of course, it has to be considered that the demand regarding “banking abroad” might be quite different. In Europe the commitment levels among customer differ widely across Europe:

According to this data from European Health Barometer and Schroder Salomon Smith Barney customers in Nordic Countries are fairly satisfied with their banking services. Opposite to this customers in Germany as well as in France and UK are less pleased with their banks and are highly interested in offers from external market players.

DIECKMANN (2006) sees other reasons for the low level of integration; he distinguishes between artificial and natural barriers. Artificial barriers are primarily set by legal issues, in particular regulatory. Potential regulatory barriers are set by the need for a bank to design its services with reference to up 27 different legal systems, i.e. consumer protection legislation, national taxations or particular civil law aspects. Moreover, “EU legislation is often open to different interpretation in different member states”. Natural barriers exist in terms of language, geographic nearness, and cultural preferences. New entrants have also a lower degree of brand awareness in comparison to long-established banks.

Trust related issues have also an impact on European retail banking. Trust in banks outside the familiar home market is very important on the customer side. In particular information on the services offered and their comparability, protection against low quality, cancellation options and possibilities of withdrawing from a banking contract have an impact on customer confidence. Uncertainty over their legal position establishes a barrier for buying products from non-national retail banks in the domestic market. As a result most customers still opt for services distributed locally through branches, intermediaries and subsidiaries.

However, there are some contradictions between banks’ needs and customer needs. SCHÄFER (2009) highlights that well-intentioned proposals to improve customer confidence may reduce the motivation to banks to offer their services outside their domestic markets.

In summary it can be argued that the process of market integration in retail banking has not come to a final stage. To improve integration it is recommended to harmonize the legal requirements for banking in general and to establish a level playing field. A specific emphasis should be given to a harmonization of customer protection policies and procedures.

The summary:

1. BUSINESS AS UNUSUAL | Forget the recession: the societal changes that will dominate 2010 were set in motion long before we temporarily stared into the abyss. And even when the downturn ends, there won’t be a return to ‘business as usual’.
2. URBANY | Extreme urbanization will lead to more sophisticated and demanding consumers around the world. Urban culture is THE culture.
3. REAL-TIME REVIEWS | Whatever new product or service gets launched in 2010, it will be reviewed in real time. Transparency tyranny (or triumph) is upon us.
4. (F)LUXURY | With status symbols becoming more fragmented, luxury is whatever consumers want it to be in 2010.
5. MASS MINGLING | Online lifestyles are actually fueling real world meet-ups, shattering all predictions about a virtual and socially isolated future.
6. ECO-EASY | In 2010, corporations and governments will force consumers to be more green by restricting the alternatives. Say goodbye to consumer choice.
7. TRACKING & ALERTING | Tracking and alerting are the new search. Next year, consumers will further expand their sphere of control.
8. EMBEDDED GENEROSITY | Generosity as a trend will further adapt to the zeitgeist, leading to more pragmatic and collaborative charity.
9. PROFILE MYNING | With hundreds of millions of people now nurturing their online profiles, 2010 will be about consumers making money from these profiles, from intention-based
10. MATURIALISM | 2010 will be even more opinionated, outspoken and raw than 2009; thank the anything-goes online world for that. Which brands will be equally daring?

The full, free briefing of consumer trends 2010 can be found on this site (pdf-file).

So what’s the matter? Trust is the fundament of our economy (and of our banking system!). To be more specific: Trust is the decision to rely on another party (i.e. person, group, or organization) under a condition of risk. This definition can be applied to persons, groups as well as organizations. And in terms of one of my favorite research objects: Trust is a very important matter for retail banking: Before customers are willing to risk their capital in a financial transaction, they want to have appropriate assurance that they will receive the product what they closed the deal for; i.e. when customers deposit their money in a bank, they trust the bank not to fail and to pay back the money. Hence intending to buy a financial product from a bank may represent a willingness to be vulnerable in many ways: The product purchase can be faulty and the bank can refuse to refund the customer; the product may require service or adaptations in the future, or the bank or the bank’s product supplier can fail to provide such services or even payback in an adequate manner. Financial products are very sensitive services, since customer cannot overview the bank’s ability to offer the promised service at the time when they sign the contract. Customers have to trust in the bank and its promised reliability. It also is impossible for the customer to check and compare the bank’s ability in advance, since some of the products are not easy to compare. At last the customer has to trust the bank as a whole, and not just to focus on a single product.

Furthermore it is important to understand the nature of financial products. Financial products are abstract; therefore they require a specific level of explanation. In comparison with other goods and services, some financial products also require a high level of customer’s economic expertise. GRUDZEWSKI et al (2008) describes such a situation as an information asymmetry: The bank enjoys not only organizational and financial advantage, but mainly advantages based on information. Unfortunately, there were some players in the market who employed marketing techniques to hide the true character of certain products; at the end of the day those players were using this information asymmetry to sell products to customers.

To analyze the situation and to offer ideas to gain new trust in banks and the banking industry I had the opportunity to write a paper for a conference at the Robert Morris University in September this year. My paper analyses conditions and options for retail banks to develop and to maintain trust. For this purpose it provides an overview of the nature and concepts of trust as well as of criteria of retail banking. The paper also reviews studies that investigate the recent development of trust in banks. In the first section trust management aspects in the context of financial services are discussed. This section is an attempt of how trust can be changed over time. This approach is in line with the view of others as KOZA and LEWIN (1998), who have discussed that trust should not be viewed as a static concept. In the following section characteristics of retail banking business are outlined briefly. Some conclusions and recommendations for developing and maintaining trust are discussed in the last section. Recommendations consider a trust report, an improved communication for the deposit protection and the introduction of a Standardized Product Signing (SPS).

The paper is available as pdf-file on this website.

Let’s start with the time before the baby arrives. The expecting parents are more or less in-formed about their future challenges. By this time, most parents have a general idea of how they want to live with the baby, how they want to bring the baby up and what kind of person it should (hopefully) become. Most parents wish their baby to become a strong, self-confident and happy person. Hopefully it will be very intelligent and will outsmart its little friends in the toddler group. Nevertheless, many issues still are very vague to them and they need to figure out many details. But not all of these details need to be decided right now. Many issues can wait until these particular situations arise. It will be easier and wiser to solve these questions with the detailed knowledge of the real-life situation.

You can compare this stage with the pre-startup phase of a new business. In this stage, the expectant entrepreneur has a general idea of what kind of business he is going to start and what he wants to achieve with it; i.e. he has developed an overall vision of his business. However, many details of his business plan still need to be worked out.

Than, the baby finally arrives. The young parents find themselves more than busy in their day-to-day live with the baby. They find out that there are a lot of questions they never thought about before and that need to be solved immediately. By that time, they have proba-bly developed a more detailed idea of their relationship with their baby and their general principles of childcare.

This is comparable with the start-up phase of a business. Despite all advance planning, managers have to work out the businesses routines and processes in detail. They have to bring their strategy to life. It is more than likely that they encounter some problems in this process. As with a new baby, they will come across questions they had not thought about before, and some aspects of their well-thought strategy may already turn out unrealistic.

So far, there is nothing surprising in my parallel between living with a baby and business strategy. It is, however, my experience during the next couple of months with the baby that reminded me of an important aspect of strategy: During baby’s first year, parents develop some routine and self-confidence. They develop their ‘strategies’ for major aspects for live with their baby, e.g. how they will handle sleeping problems, or how they find the fine line between baby’s needs and their own needs. Everything could be fine, except for the fact that the baby does not remain unchanged in its needs, behavior and circadian rhythm. What worked well until yesterday may be totally contra productive today. Hence, parents have to adapt their ways of doing almost constantly. They have to keep their ‘strategy’ very flexible. Ideally, they have a strong overall vision of how they want to bring their child up. This can serve them as a guiding line. For instance, parents may have decided that it is not right to let the baby cry to sleep. When their baby changes its sleeping pattern, they will have to find a new way to bring it to sleep. They won’t however start a sleep training program because that would violate one of their fundamental principles.

You may easily guess that businesses can find themselves in very similar situations. Some external conditions change and what worked well until now will not be as beneficial any more. As young parents, companies have to keep their strategies flexible and adaptive. Their overall vision and mission may serve them as guiding line for their overall direction that they intend to follow, even with their adapted strategy. This is very much what Mintzberg and Waters describe in their model of intended and emergent strategies.

There is one big difference, however. The difference is the rate parents and managers real-ize that they have to change something and take appropriate actions. Babies have a very powerful tool to enforce their needs. This is their voice. When something is not longer fine for the baby, it will ultimately start crying. Few parents will not react to that crying immediately. For managers, the situation is more difficult. Internal or external changes that would require an adaption of strategy are not always that obvious. Often they develop slowly and unno-ticed. Thus managers lose valuable time for their reactions.

My moral of the story is that managers should keep in mind what young parents always know: Remain flexible within your overall (strategic) directions. Look out for early signs of changes. The quicker you react, the better your results and the lower the damage.