Monday, October 16, 2006
Bank Marketing and The Hedgehog Concept
by
In Jim Collins landmark book, Good To Great, the author discusses the importance of The Hedgehog Concept. Collins describes this concept as an understanding and focus that emerges from the intersection of three important circles:
1. What you can be the best in the world at?
2. What drives your economic engine?
3. What you are deeply passionate about?
This post deals with a perspective on just one of those circles: What drives your economic engine? There are all types of ratios and benchmarks that are important for a bank to monitor: return on equity, total fee income, efficiency ratio, revenue, return on assets, net new accounts, accounts per household, etc. So, with all of these important ratios, what is the secret answer for driving a bank’s economic engine and providing increased shareholder value?
According to a recent article (Growing The Bank) in Bank Director Magazine “the ‘secret’ turns out to something banks often have taken for granted for years—deposits. Based on proprietary research that it has performed over the last few years, New York-based First Manhattan Consulting Group says the variable most responsible for driving a bank’s stock price is organic growth—particularly the growth of consumer and small business deposits.”
The article points to a number of reasons deposit growth is so vital. First, core deposits lower risk by creating a low-cost source of funding for expansion. Second, unlike loans, you don’t have to add equity as you add deposits. Third, checking accounts are usually the central feature in core deposit growth, and that tends to open the door to a whole list of other services that contribute to the bottom line. And lastly, deposits are universally valuable no matter the timing on the bank environment.
Ensuring deposit growth deals with the other two circles in The Hedgehog Concept, but the Bank Director artice has some clear advice here, too:
1) Focus on what you do well and don’t try to be all things to all segments
2) Develop a 360-degree view of your customers and empower it to deliver outstanding customer service
3) Concentrate your most visible efforts at the local level
