Starting the Financial Services Planning Process

While the financial services industry increasingly acknowledges the value of developing a strategic plan, it has not reached a consensus on how to approach the planning process. We believe that the starting point for the development of an effective strategic plan is the definition of a business’s role in the marketplace. A clear business definition facilitates the planning process by providing a focal point for corporate decisions concerning target markets, product offerings, competitive standings and appropriate marketing activities. How management answers the question, “What business(es) are we in?” can have a significant effect not only on the company’s strategic planning, but also on its ultimate success.

Lessons from the Past

Theodore Levitt, the Harvard University marketing guru, believed that the greatest threat to a company’s growth was not market saturation, but rather the failure to create a strategy that properly defines the organization’s driving purpose. In Marketing Myopia, published in 1983, Levitt offers the railroads as an object lesson of what can happen to an industry that loses its sense of direction and purpose. Levitt illustrates that the railroads did not stop growing because the need for passenger or freight transportation declined or because others-e.g. trucks, airplanes-moved in to usurp the railroad’s transportation mandate. The truth is that the railroads allowed others to take their customers because they adopted a product-driven, rather than a customer-driven strategy, and failed to respond to the needs of the marketplace. They assumed that they were in the railroad business rather than the transportation business.

Twenty years earlier, Jacques Barzun had also studied the railroad industry and pinned their demise on a myopic nature that prevented them from staying attuned to the marketplace and focusing on consumer needs and wants. In Trains and the Minds of Men, Barzun wrote, “I grieve to see the most advanced physical and social organization of the last century go down in shabby disgrace for lack of the same comprehensive imagination that built it up. The void is the will of companies to satisfy the public by inventiveness and skill.”

Looking to the Future

Examples of the ‘disconnect’ between industry focus and customer demand abound in today’s society. Consider the high-profile efforts of the record industry to protect their “rights” from the electronic music “pirates.” They desperately fought to maintain the traditional music industry infrastructure, when they should have focused on how to best adapt to the evolving technology and the needs of the marketplace. They had only to consider the fate that befell those Hollywood studios that did not recognize the growing impact of television and continued to follow a movie-oriented rather than an entertainment-oriented strategy. Like the railroads, they failed because they were product-oriented rather than customer needs-oriented.

There are, however, companies in many different industries that are responding to changing times by redefining their business objective and developing strategies that reflect those new business definitions. For example, many copier companies have morphed into automated office systems organizations, while some telephone companies are re-casting themselves as communications-based systems firms.

Financial Services Applications

The financial services industry continues to undergo a dramatic transformation fueled by

  • evolving economic and market conditions
  • the development of new products, services, distribution channels and competition
  • the increased public awareness made possible by advances in information technology.

The reaction of different firms has varied greatly as they seek to adjust to the many changing factors that influence their business. The important thing financial services firms should not lose sight of, however, is that the definition of their individual businesses should drive their marketplace approach-not the other way around. The relevant cause and effect variables are shown in the table below:

Influence Business Definition Marketing Result
Customer behavior Orientation & objectives Definition of market boundaries
Organizational strength/weakness Relevant differentiation from competitors Organization/product positioning
Resource availability Innovative solutions Differentiated product/ service offerings

The question of business definition is relevant, not only when a major corporate event occurs, but also every time a financial product or service is

  • introduced or discontinued
  • directed to new customers or distribution channels
  • acquired or divested.

The Bottom Line

Financial service firms committed to creating effective strategy should discard convention. They should first identify the consumer groups and consumer functions they serve and then define the most effective and relevant role for their businesses. This consumer-driven focus will provide the best strategic starting point and serve as the context for responding to all other strategic questions.