Frank Schwab

I help navigate digital transformation

Why PEST is Still Relevant


PEST remains relevant as a strategic analysis tool for digital banks, provided it evolves to capture the nuances of the digital age. By focusing on how external factors specifically impact digital operations, PEST can help digital banks navigate the complexities of a rapidly transforming industry.



1️⃣ Political Factors


📌 Regulation & Compliance: AML, KYC, GDRP, DORA, …

📌 Licensing Requirements: which licenses are required?

📌 Government Initiatives: are there beneficial programs or restrictions?

📌 Cross-border Regulations: are there compliance requirements?



2️⃣ Economic Factors


📌 Interest Rate Environment: influence on profitability?

📌 Economic Downturns: appropriate risk management in place?

📌 Cost of Capital: funding secured? 

📌 Consumer Spending and Saving Trends: impact on demand for digital financial products.



3️⃣ Social Factors


📌 Consumer Preferences: the growing demand for digital financial services.

📌 Trust & Security Concerns: how to deal with concerns about data privacy, fraud, and cyber security?

📌 Financial Inclusion: potential to reach underbanked or unbanked populations through mobile-first solutions.

📌 Demographic Trends: younger, tech-savvy consumers are more likely to adopt digital banking.



4️⃣ Technological Factors


📌 Innovation and Digital Transformation: rapid pace of technological innovation (AI, blockchain, cloud, …) is both an opportunity and a challenge.

📌 Cybersecurity Risks: a strong focus on cybersecurity and continuous investment in protecting customer data is essential.

📌 Fintech Integration: collaborations, partnerships, and APIs can expand service offerings.

📌 User Experience (UX) & Interface Design: intuitive, user-friendly, and accessible across various devices to retain and grow their customer base.









Published in strategy, banking, DigitalTransformation, all on 29.08.2024 9:30 Uhr. 0 commentsComment here

Strategy Isn't One-Size-Fits-All: The C-Suite's Impact on Strategic Choices


For nearly a decade, I have served on various advisory and supervisory boards of banks and financial services companies. In these uncertain times, discussions about strategy have become increasingly crucial. Surprisingly, many argue that strategy can be formulated independently of the people who will execute it, implying that any competent C-Suite should be able to successfully implement a given strategy. While this may hold some theoretical merit, the reality is often quite different.


Consider the case of a large investment bank attempting a rapid expansion into retail banking. While the strategy might look promising on paper, its success hinges on whether the existing leadership team possesses the skills and experience necessary to navigate this new market. A C-Suite accustomed to high-risk, high-reward investment strategies might struggle to adapt to the more conservative, customer-centric approach required in retail banking. Conversely, a retail banking specialist thrust into the leadership of a high-frequency trading firm might find themselves out of their depth.


Conversely, a well-aligned C-Suite can elevate a seemingly mundane strategy to new heights. For example, a fintech startup with a strong leadership team in technology and customer experience could turn a simple digital banking app into a disruptive force in the industry, leveraging their expertise to create innovative features and seamless user experiences that traditional banks struggle to match.


In my view, a strategy can only be successfully executed if there is a strong alignment between the strategy itself and the skills of the C-Suite tasked with its implementation. This is a two-way street: the skill set of the C-Suite both enables and constrains the potential strategies a company can pursue. I believe it is perfectly acceptable, and even advisable, to tailor a strategy to the specific strengths of a company and its leadership team. Just as a skilled conductor brings out the best in an orchestra by selecting music that suits the ensemble's strengths, so too should a company's leadership leverage their unique talents to craft a strategy that plays to their advantages.

In the ever-evolving financial services landscape, recognizing and embracing this symbiotic relationship between strategy and the C-Suite is not just a matter of good practice; it's a matter of survival.




http://www.FrankSchwab.de





Published in SundayThoughts, strategy, BoardMember on 11.08.2024 10:39 Uhr. 0 commentsComment here

'Why Do Strategies of Banks Fail?' - Poll with Surprising Results

The failure of banking strategies stems from a combination of factors, including leadership issues, a lack of alignment between strategy formulation and execution, and challenges in adapting to industry evolution. Understanding the core functions of banking, setting realistic goals, and fostering a culture of innovation are vital steps toward sustainable success in an ever-changing financial landscape.

Last week, based on some desktop research and reading books such as 'Successful Strategy Execution' by Michel Syrett and 'The Space Between Strategy and Execution' by Gregg Harden, I asked my dear colleagues about 


'Why Do Strategies of Banks Fail?‘


Literature suggests that 60 to 70% of all strategies fail due to poor execution. 


This aligns with the poll results (78 participants), indicating that only 22% of failures stem from the wrong strategy and 78% for other reasons. 


Nevertheless, the various comprehensive and insightful comments from 18 senior people from four continents, including academia, experienced consultants, and current & former CEOs & board members of banks, surprised me.




Here are my 8 key takeaways on ‚why bank strategies fail‘, drawn from all the valuable comments:


1️⃣ Evolutionary Forces in Banking


The banking and finance industry undergoes significant evolutionary forces, marked by non-physical products, high competition, and escalating costs. Ulrich Cartellieri's 1990 assessment of German banking as the "steel branch of the 1990s" resonates today. With up to 50% more bank branches than gasoline stations, questions arise about the need for such proliferation in a digitized era.


2️⃣ Strategy Formulation and Execution Gap


The challenge lies not in lacking awareness or foresight among decision-makers but in bridging the gap between formulating and executing strategies. Alignment in understanding, ownership, accountability, incentives, and corporate culture is crucial for successful implementation.


3️⃣ Missing Ownership and Incentives


Strategies falter when those tasked with execution lack a deep understanding and ownership. Incentives play a pivotal role, aligning personal goals with organizational objectives. Without the right motivations, even well-intentioned strategies can fail.


4️⃣ Lost Core Business Focus


Failure occurs when banks deviate from the core of a functioning business model. For instance, neglecting payments, a core function, can jeopardize consumer and merchant retention. The importance of focusing on the essential aspects of banking cannot be overstated.


5️⃣ Unrealistic Profit Goals


Prioritizing unrealistic profit goals over a sustainable risk portfolio is a recipe for failure. Striking a balance between profitability and risk management is crucial for the long-term health of a bank.


6️⃣ Implementation Challenges


Even well-crafted strategies can falter due to challenges in implementation. Banks may excel in devising strategies but struggle with the practical aspects of bringing them to life, including project management, resource allocation, and change management.


7️⃣ Poor Leadership and Communication


Leadership, from the top to middle management and front-line employees, plays a key role in strategy execution. Communication gaps and a lack of understanding at different levels can lead to poor implementation.


8️⃣ Lack of Consistency


Consistency is crucial for successful strategy implementation. Shifting strategies due to leadership changes or lack of continuity can impede progress. Successful strategies often have clear objectives that remain unchanged throughout their execution.



📌 Conclusion


In conclusion, the failure of banking strategies stems from a combination of factors, including leadership issues, a lack of alignment between strategy formulation and execution, and challenges in adapting to industry evolution. Understanding the core functions of banking, setting realistic goals, and fostering a culture of innovation are vital steps toward sustainable success in an ever-changing financial landscape.



To the (closed) poll here on LinkedIn: https://bit.ly/429OxCD 


🙏🏻 Thank you for your comments 


Christopher Schmitz Clare Walsh Ewan MacLeod 

Gerald Faust Hans Radtke Henri de Jong 

Jim Marous Julian Mattes         Karl Ivo Sokolov 

Kęstutis Gardžiulis         Khaled Abbas Matthias Kröner 

Michael Harte         Rajeev Kakar Rene Gruner 

Robert Caplehorn Tim H. Wolf Wössner





Published in banking, strategy, transformation, failures  on 19.01.2024 17:00 Uhr. 0 commentsComment here

7 Reasons Why Strategy Implementations Fail in Banks

Conclusion: Even if a bank's strategy is future-proof, there are numerous reasons why its implementation could fail. Avoiding the mentioned factors does not guarantee successful execution. However, there is hope that the chances of success will significantly increase.



A strategy that attracts customers, sets itself apart from the competition, and leads to a sustainable and profitable business model is particularly crucial for German banks. For many, it is even a matter of survival. Between 2012 and 2022, more than a quarter of all banks, approximately 600, bid farewell to the German banking landscape. Savings banks and cooperative banks were mostly merged, and many private banks were either acquired, forcibly liquidated, or gave up. The strategies of the banks that disappeared from the German market evidently did not succeed.




For the supervisory boards and executive boards of the remaining 1,450 banks, the question arises as to why strategies and their implementations often fail and whether they might soon be affected themselves.


One approach to addressing the issue is to better understand the causes of failure with the aim of avoiding them. While one might assume that failure is mostly rooted in a poor or vague strategy, consulting literature on the topic, such as "Successful Strategy Execution" by Michel Syrett or "The space between strategy and execution" by Gregg Harden, reveals that approximately 50 to 70% of all business strategies fail in their implementations. Another approach is to analyze the strategies and implementations of individual banks in order to learn from them.


Unstable leadership, conflicts in management, and distraction from necessary implementation measures


Deutsche Bank has been pursuing the strategy of the "Global Universal Bank - as the leading bank in Germany with strong European roots, a global network, and a diversified product offering." Interestingly, the bank has been following this strategy since its founding in 1870. The acquisition of Postbank, on which the bank has been working, albeit with varying intensity and focus, since 2007, does not quite fit into this picture. Most German retail customers do not need global products such as currency accounts or global wealth management. The majority of these customers require few, easily accessible, reliable, and efficient banking products, such as affordable accounts with cards, fast transfers, low-risk investment products with satisfactory returns, and affordable loans.


Since 2007, the Deutsche Bank has seen five (co-) CEOs - Josef Ackermann, Jürgen Fitschen / Anshu Jain, John Cryan, and Christian Sewing - and with each change, the approach to retail customers and Postbank has changed, sometimes aiming for full integration, sometimes contemplating a sale. The acquisition of Postbank is certainly not solely responsible for the stock market losses of occasionally over 90%. These developments can be attributed to the risks undertaken in the Deutsche Bank's investment banking and the consequences of the financial crisis. However, it seems that the purchase of Postbank has significantly diverted the leadership of Deutsche Bank from the core strategy of being a "Global Universal Bank."




Few significant milestones for the global universal bank have been reported in the last 15 years, while there have been numerous global scandals, regulatory irregularities, and very high fines in several countries. From my perspective, Deutsche Bank has the right strategy but lacks consistent implementation. The frequent changes at the top of Deutsche Bank have repeatedly led to power struggles and conflicts in management, at the expense of a focused strategy implementation.


American banks like Goldman Sachs and J.P. Morgan, with whom Deutsche Bank competed on equal footing around the turn of the millennium, demonstrate that a different approach is possible. Both banks implemented their strategies despite the financial crisis, more than doubling (GS) or nearly quadrupling (JPM) their stock prices between 2007 and 2023. This success is likely tied to leadership stability - Jamie Dimon has been the CEO of J.P. Morgan since 2006, and Goldman Sachs had only one change at the top in the last 18 years, with Lloyd Blankfein serving as CEO from 2006 to 2018 for 12 years, succeeded by David Solomon in 2018.



Overestimation, lack of online and IT expertise, and insufficient transformation experience


Sparda Bank Baden-Württemberg (Sparda-BW) is a regional cooperative bank with 640,000 private customers, 35 branches, and a balance sheet total of 15.6 billion euros (2022) in Baden-Württemberg. Faced with increasing competition from specialized online and neobanks such as N26, DKB, and ING, Sparda-BW took the lead from 2017 onwards (together with other Sparda banks) in developing a new online strategy with the aim of modernizing online banking for private customers (Project "TEO") and began the transformation of its existing core banking IT system landscape from 2019 onwards (Project "SFT"). As a customer of Sparda-BW, one was forcibly migrated to the new TEO platform. The usability, functionality, and convenience of TEO are not even close to the extensive and user-friendly features offered by direct competitors like N26 or Revolut. This can now also be seen in customer numbers. The number of Sparda-BW customers has decreased from 704,521 in 2017 to 641,591 in 2022, while competitors have gained hundreds of thousands of new customers in Germany. Between 2017 and 2022, the Cost-Income Ratio (CIR) also deteriorated from 65% to 75%, and Sparda-BW's profits fell from 25 to 6 million euros. During the same period, three branches were closed. 





The poor results of Sparda-BW are the result of a poorly executed and excessively expensive implementation. According to Finanz-szene, a German banking news platform, the implementation costs for TEO amounted to 63 million euros, while N26 needed only 24 million for a comparable solution. Moreover, the core banking transformation project SFT has completely failed, as reported by the operator and Sparda-BW. The reasons for the failure of Sparda-BW's strategy are apparent. While the strategy of becoming a modern online bank for private customers is undoubtedly correct, the challenges of implementation were greatly underestimated, and their own capabilities were overestimated. There was a lack of necessary online expertise, IT know-how, and the essential experience in transformation to successfully carry out such an implementation. In any case, it was not due to an unstable top management. Between 2017 and 2023, Sparda-BW had the same CEO.



Essential framework conditions are changing, rendering the implementation of the strategy obsolete


Launched with an elaborate advertising campaign in 2012, the Dutch Robobank discontinued its Rabodirect direct banking offering in Germany at the end of 2021. What had happened? The strategy of attracting money from German savers with attractive savings and fixed-term deposit offers failed due to the low-interest rate phase of recent years. Unexpected negative interest rates in Germany and a too narrow product offering (account and savings deposits) resulted in a sustainably loss-making business for Rabodirect, which the Rabobank ultimately abandoned.



Conclusion: Even if a bank's strategy is future-proof, there are numerous reasons why its implementation could fail. Avoiding the mentioned factors does not guarantee successful execution. However, there is hope that the chances of success will significantly increase.



https://FrankSchwabSpeaks.com



Published in banking, strategy, transformation, failure on 16.01.2024 13:01 Uhr. 1 commentComment here

Navigating the Jungle of Strategy Meetings - Taming Zebras, Wolfs, Hippos, and Rhinos

Strategy meetings play a crucial role in helping organizations achieve their objectives and propel their implementation efforts forward. However, these meetings can sometimes encounter disruptions in the form of Zebras, Wolfs, Hippos, and Rhinos - colorful metaphors for challenging personalities that can negatively impact the decision-making process.



When seeking to understand the key reasons for the failure of strategy implementations, one can pinpoint recurring themes such as ‚inability to manage change,' 'conflicts with established power structures,' 'encountering cultural resistance,' and 'ineffective communication.' Consequently, achieving success in your business transformation efforts greatly relies on your ability to comprehend and navigate the individuals and dynamics you will encounter.

 

Let's examine a specific component: strategy meetings. Strategy meetings play a crucial role in helping organizations achieve their objectives and propel their implementation efforts forward. However, these meetings can sometimes encounter disruptions in the form of Zebras, Wolfs, Hippos, and Rhinos - colorful metaphors for challenging personalities that can negatively impact the decision-making process.

 

Let’s have a look at the characters first: 

 

The ZEBRAs “Zero Evidence But Really Arrogant”

 

Zebras, often hailed for their confidence, can unwittingly sabotage strategy meetings. Their penchant for asserting opinions without factual evidence can derail discussions and lead to decisions grounded in subjective views rather than objective data. Their arrogance may stifle alternative viewpoints, creating an echo chamber of ideas.




The WOLFs “Works on Latest Fire”

 

Wolfs thrive on tackling the latest fires, often at the expense of long-term strategic discussions. Their ability to focus on immediate concerns can divert the meeting's attention and impede progress toward long-term goals.


The Hippo “Highest Paid Person's Opinion”

 

Hippos, often revered due to their position, can unintentionally cast a shadow over other voices in strategy meetings. Their opinions, given undue weight, might suppress diverse perspectives and discourage open dialogue.


The Rhino “Really Here In Name Only”

 

Rhinos, while physically present, may lack active engagement, leading to unproductive meetings. Their passive presence can hinder meaningful discussions and lead to missed insights. 




It is not about getting rid of the wild animals - it is about taming them

 

While Zebras, Wolfs, Hippos, and Rhinos are wild animals they also come with benefits. A Zebra may have innovative ideas and a diverse perspective that stimulates the strategic discussion. The wolf is able to address urgent matters swiftly and effectively and has skills in crisis management and quick problem-solving which can be valuable in certain strategic situations. And a hippo can bring to the table their ability to provide strategic direction, guidance, and decision-making based on their experience, expertise, and authority within the organization. And the main benefit of a rhino is their potential for passive observation and awareness. Their presence allows them to absorb information, gain insights into ongoing discussions, and stay informed about the organization's direction and decisions.

 

The influence of Zebras, Wolfs, Hippos, and Rhinos can undermine the efficacy of these meetings, leading to suboptimal outcomes. However, by adopting counter measurements, organizations can navigate these challenges successfully. That raises the question, how to tame them best.

 

Facts & figures are king to tame zebras 

 

The best way to encounter zebras is by encouraging a data-driven approach, where opinions are backed by solid evidence. It is recommended to gently challenge Zebras to present substantiated facts supporting their claims. Or you can provide alternative viewpoints supported by data, showcasing the importance of a balanced discussion to tame Zebras. And it is helpful to lead by example by presenting your own arguments with well-researched facts and figures.

 

Allocate time, delegate responsibility, align with strategy and balance the discussion when dealing with wolfs

 

To tame wolfs it is recommended to allocate specific time slots for addressing urgent matters in order to maintain a balance between short-term and long-term discussions. And you can assign someone to handle immediate issues outside the meeting and provide a summary during discussions. A further measurement to tame wolfs is to emphasize how addressing urgent matters aligns with the organization's overarching strategy. It is also recommended to strive for equilibrium between addressing immediate concerns and discussing long-term objectives.



 


Foster an inclusive culture, emphasize data, ask for equal input and challenge hippos respectfully

 

It is important when dealing with hippos to foster an inclusive culture where all participants feel valued and encouraged to share their insights. You also should encourage data-backed opinions, demonstrating the importance of evidence in decision-making. A proven method to tame hippos is to create opportunities for input from all team members to ensure a comprehensive view of the situation.  It is also helpful to politely challenge hippos' opinions and present alternative viewpoints supported by data.




 

Set clear expectations, create opportunities for input, assign follow-up tasks and establish feedback loops to awakening rhinos participation

 

A measurement to encourage rhinos participation is to communicate the purpose and role of all participants to set clear expectations. You may designate specific moments for Rhinos to share insights or ask questions during discussions. It is recommended to assign follow-up tasks related to meeting discussions to encourage engagement beyond the meeting. You may also gather feedback from Rhinos to make improvements and enhance their participation.

 

A structured agenda, a facilitator role, data-driven culture, diverse participation and an inclusive environment are overarching strategies to make best out of your strategy meetings

 

To effectively manage all types of participants consider implementing the following overarching strategies:

 

1.     Have a well-structured meeting agenda that includes dedicated time for urgent matters, strategic discussions, and input from all team members.

2.     Assign a skilled facilitator to guide discussions, manage contributions, and ensure everyone's voice is heard.

3.     Cultivate a culture of evidence-based decision-making where opinions are supported by data and facts.

4.     Invite a diverse group of participants to ensure a variety of perspectives and insights are considered.

5.     Create a safe and inclusive environment where all participants feel comfortable sharing their thoughts, regardless of their rank or role.

 

By proactively addressing the challenges posed by Zebras, Wolfs, Hippos, and Rhinos, you can promote effective, balanced, and productive strategy meetings that lead to well-informed decisions and successful outcomes.



Published in strategy, transformation, digital, meeting, zebra, wolf, hippo, rhino, Navigating-the-Jungle-of-Strategy-Meetings on 04.10.2023 17:15 Uhr. 0 commentsComment here

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