June 3, 2010


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The Robert E. Nolan Company is an operations and technology consulting firm specializing in the banking industry. Since 1973, we have helped banks innovatively redesign processes and apply technology to improve service, quality, productivity, and costs. Our consultants are senior industry experts, each with over 15 years of specialized experience. This depth, coupled with our collaborative approach, enables us to expedite and magnify improvement initiatives for our clients.

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A Shared Wrong View

In his book The Age of the Unthinkable, Joshua Cooper Ramo notes an observation by a Nobel Prize winner that "big science"—multibillion-dollar science programs—almost never produce meaningful discoveries. The notion is that scientists accept a "common picture" of how things bind together, which the author characterizes as a "shared wrong view" or more simply, a delusion. One of my Nolan senior executives has long classified this phenomenon in financial services as "honest wrong beliefs." It is a tricky area to consult clients on since discovery must be absolutely documented and quantified to be presented.

For example, many senior executive teams believe that their branch networks are the backbone and key interface with their customers, but many banks are selling more than 50% of their retail and small business new products through alternative channels at a lower cost. Some management teams still believe that human interface and attention is what their customers want. In fact, 70-80% of inquiries are either electronic or Web-based. With the advent of mobile banking, we see the percentage increasing in the near future. Excellence in banking does not need to be about more human interaction with the customer; it needs to be about making the service (human or electronic) easier and more convenient.

Another area where there is a possible common wrong belief is on cross-sell ratios. Many marketing executives focus on this as an area of improvement and, if designed effectively, it may be a good area for revenue growth and anchoring valued customers. The fact is, there is evidence that, in many banks' unprofitable customer segments, the number of products per customer is as high as or higher than that of the most profitable customer segments. This leads us to believe that a purely sales focus may lead to higher cost when incentives are included for those campaigns if not properly targeted at break-even customers who will become profitable with the new product or service.

There are honest wrong beliefs in nearly every company that limit organizations from realizing true profit potential. Why else would banks in the same market with similar products and the same labor pools have wide gaps in profitability? There is no crime in having strong beliefs, only in limiting your search for breakthroughs based on those views.

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