In banking, as it is in any enterprise, managing risks constitutes a very important aspect of the business. The longevity and even survival of the organisation depends on how well are risks managed. There are instances of otherwise well run organisations with long vintage facing bankruptcy due to misses in this important domain. And yet, we see many organisations treating this important subject with surprisingly low attention and priority.
This blog is no thesis on risk management and is rather a introduction to the subject. The objective of this blog is to create awareness and ensure due weightage is given to this important subject in the course of managing ones business.
There is a story of a man who once fell inside a well and was shouting for help. One good Samaritan, who was passing by, came to the well and offered to throw down a rope and pull the man up. The man who had fallen down asked the following questions:
1. What if the rope is not strong enough to bear my weight?
2. What if it slips off your hand when I am on my way up?
3. What if you are unable to lift me up due to lack of strength?
4. What if you too fall inside attempting to rescue me?
Obviously, he would have made a good risk manager. A good risk manager always thinks of the risks of any plan, process or strategy. He is always obsessed with failure possibilities. Besides thinking of known risks, he should also ponder about unknown risks. His objective, of course, is only to ensure success and come up with a fool proof plan. Under no circumstances should he keep thinking risks without offering solutions. Otherwise he risks staying inside the well !!
Risk management is covered under the following broad heads:
a) Operations Risk - Risks arising out of the operations of the bank due to failures in the design of the processes or in the execution of the same.
b) Market Risk - Risks arising out of changes in the market place which are beyond the control of the bank - for e.g. change in the interest rates or changes in share prices which can impact profitability of the book or reduce the security cover for credit lines.
c) Credit risk - Risks arising out of failure of the borrower to repay due to a variety of reasons like business failure or wilful default.
Each of the above needs to be managed differently and I will cover them at length in future blogs.
Every bank needs to have a structure in place to manage risks and I cover some of the key elements of a good structure below:
1. Well established process for creating and approving products, policies and processes.
2. Clear guidelines on trigger events which can cause alarm.
3. Systematic and objective analysis of data and periodic reviews of each product / portfolio.
4. Strong system of internal checks and controls including audit at regular intervals.
5. A proper system of delegation of authority and empowerment.
6. A process of reporting - frequency based on type and significance of transactions.
7. Fraud management processes.
8. An effective recovery system and process.
9. Good documentation and custodial function.
10. An overall control in form of limits.
11. A strong culture in the organisation which prevents problems.
The operative word for effective risk management is to have independence and objectivity in the process. Also, risk management needs to have independent reporting to the board to ensure that issues are highlighted to the appropriate level. Sufficient empowerment in form of veto rights may also be considered to prevent disasters from occurring.
Risk management is one of the pillars which give a solid foundation to any organisation and its importance cannot be belittled. An organisation which cultivates a strong risk culture will be able to deliver a steady and profitable growth with no surprises. At the same time, risk management should not forget the prime objective of the organisation - which is to do business.
To reach a port, we must sail – sail, not tie at anchor – sail, not drift – Franklin Roosevelt
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Friday 27 August 2010
Sunday 8 August 2010
Find, Win & Keep Customers
The title of this blog is based on a slogan I heard long ago while working for GE Countrywide. Essentially, it is a strategy for customer management. I will explain this in the following paragraphs.
In the retail banking space, one of the key challenges is how to identify customers. Products can only be successful if it addresses the needs of customers and are designed with the customer in mind. It is, therefore, essential to identify our target customers and their needs. We must remember here that we are not talking about 'a' customer but about segments of like minded customers. The find part of the title is all about how to identify customer segments.
This can be done in a variety of ways. The easiest of these is to look at competition and what they are doing and whom they are focused on. There is no need to 're-invent the wheel' in a mature market. However, by doing this, a bank is only successful in taking away share from competition with better offerings. Sometimes, one can discover flaws in the competitors products and improve on them.
The other approach would be to do a market research to identify possible segments. Market research can be a costly affair and time consuming and, with changing needs of the customer, may also not be the best method. Most of the time, the best method would be to 'hear' the voice of the customers through formal / informal feedback and move accordingly. Most effective organisations extensively use the method of making 'test' offerings and closely analysing the results.
Once the activity of finding customers has progressed, the task of winning the customer is upon us. There are many imperatives for this. I will try to capture them in the form of bullet points below:
1. Solid brand image built through past performance and not merely 'brand ambassadors' or marketing efforts
2. Well designed product meeting customer needs
3. Smooth and speedy processing of transactions
4. Convenience and reach through multiple channels
5. Simple documentation
6. Effective methods of reaching out to target customers
7. Motivated and passionate sales team
Winning customers is not easy especially when there are so many banks offering similar products. More often, the banks with an effective sales team and sales management process wins the battle. More on this in a future blog.
The costs of winning / acquiring customers is usually high. This can best be offset by putting efforts on retaining the customer. Also, when one retains a customer, it provides opportunities to increase income by cross-selling or up-selling more products to the customer. This where the 'keep' part of the title plays a role. Most organisations fail in this crucial area.
In order to retain the customer, banks have to make sure that the customers is delighted with its services. This includes things like speedy processing, transparent dealings, value for money, convenience, complaint redressal and tracking etc. This is also about understanding the need of the customer through regular communication and also about anticipating the customer's changing needs. An effective team with its 'ears to the ground' and focus on customer can make this happen.
There is a need to constantly monitor attrition levels and have triggers based on this. Tracking of customer longevity and share of wallet is also important. Every customer attrition, whether natural or voluntary, whould be treated with concern and attempts must be made to retain the customer. A useful method would be to have an exit interview with attriting customers to understand the causes. A bank which is sincere with the customer and has an empowered front desk stands a better chance of retaining customers than others without these.
Find, Win & Keep Customers is a simple and effective slogan capturing the essence of customer management.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
In the retail banking space, one of the key challenges is how to identify customers. Products can only be successful if it addresses the needs of customers and are designed with the customer in mind. It is, therefore, essential to identify our target customers and their needs. We must remember here that we are not talking about 'a' customer but about segments of like minded customers. The find part of the title is all about how to identify customer segments.
This can be done in a variety of ways. The easiest of these is to look at competition and what they are doing and whom they are focused on. There is no need to 're-invent the wheel' in a mature market. However, by doing this, a bank is only successful in taking away share from competition with better offerings. Sometimes, one can discover flaws in the competitors products and improve on them.
The other approach would be to do a market research to identify possible segments. Market research can be a costly affair and time consuming and, with changing needs of the customer, may also not be the best method. Most of the time, the best method would be to 'hear' the voice of the customers through formal / informal feedback and move accordingly. Most effective organisations extensively use the method of making 'test' offerings and closely analysing the results.
Once the activity of finding customers has progressed, the task of winning the customer is upon us. There are many imperatives for this. I will try to capture them in the form of bullet points below:
1. Solid brand image built through past performance and not merely 'brand ambassadors' or marketing efforts
2. Well designed product meeting customer needs
3. Smooth and speedy processing of transactions
4. Convenience and reach through multiple channels
5. Simple documentation
6. Effective methods of reaching out to target customers
7. Motivated and passionate sales team
Winning customers is not easy especially when there are so many banks offering similar products. More often, the banks with an effective sales team and sales management process wins the battle. More on this in a future blog.
The costs of winning / acquiring customers is usually high. This can best be offset by putting efforts on retaining the customer. Also, when one retains a customer, it provides opportunities to increase income by cross-selling or up-selling more products to the customer. This where the 'keep' part of the title plays a role. Most organisations fail in this crucial area.
In order to retain the customer, banks have to make sure that the customers is delighted with its services. This includes things like speedy processing, transparent dealings, value for money, convenience, complaint redressal and tracking etc. This is also about understanding the need of the customer through regular communication and also about anticipating the customer's changing needs. An effective team with its 'ears to the ground' and focus on customer can make this happen.
There is a need to constantly monitor attrition levels and have triggers based on this. Tracking of customer longevity and share of wallet is also important. Every customer attrition, whether natural or voluntary, whould be treated with concern and attempts must be made to retain the customer. A useful method would be to have an exit interview with attriting customers to understand the causes. A bank which is sincere with the customer and has an empowered front desk stands a better chance of retaining customers than others without these.
Find, Win & Keep Customers is a simple and effective slogan capturing the essence of customer management.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
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