"Banks should rethink their growth strategies and give up product innovation in favor of process and service improvements."

Major domestic and foreign banks have adapted well to the opening up of the banking sector, but to break free from the pack they must micro-manage processes to gain the competitive advantage in the next five years.

So said Norman Sze, managing partner with the China consulting practice of Deloitte Touche Tohmatsu.

Sze made the remarks on the sidelines of the China Daily CEO Roundtable sponsored by Deloitte, one of the global Big Four accounting firms.

Sze said banks should rethink their growth strategies and give up product innovation in favor of process and service improvements. Deloitte estimated the world's top 100 financial services companies invested a combined total of nearly $11 billion a year in product development,” Sze said. “Yet their products are rarely differentiated and competitors quickly copy those that are.” Process and service innovations, however, focus on simplifying operations and giving customers what they really want. “These types of innovations also tend to be much harder for competitors to replicate and so give a more enduring advantage.”

Sze said banks needed to commit to enhancing the customer experience. “Process and service innovations also tend to reduce complexity and cost. They are likely to prove themselves the most effective levers to achieve sustainable growth and differentiation from the competition.”

Process and service innovations show their worth when banks determine their most important customers and what they want, he said. Although banks already focus on this VIP category of customers, Sze said, “They fail to see that not all VIP customers are created equal. For example, some VIPs could be expatriates working for multinational companies; some could be C-level executives in large China enterprises. Each segment has different needs.” He said management must ask: Are we failing to maximize revenue because we provide the same wealth management service to all our VIPs?

“If the answer is yes,” Sze said, “management needs to get complacency out of the way and raise the urgency for change, perhaps by comparing the bank's market share of high-value clients against its peers.”

Having identified target segments, banks must build an emotional bond and long-term relationships through improved service. Sze suggested banks copy successful retailers by instilling a customer-oriented approach across all elements of their operation. Also, banks should use technology to analyze customer data to offer “what will sell”, as against the traditional approach of offering “what we want to sell”.

Much of a bank's customer relationship success will come down to having employees who are a good fit with the bank's brand and service environment, Sze said. Banks need to take a systematic approach to identifying and developing talented employees throughout the organization. China's growing economy has seen bank employees leave for greener pastures because they were not receiving the career-planning support they sought, Sze said. This is not helped by demand for new talent outstripping supply. “Forward-looking banks need to embrace a talent-management approach that looks holistically at training, performance management, and workforce planning.”

Sze said an increasing focus on retail business is the key reason training has never been more important. “Banks need to train branch staff to focus not only on processing transactions, but more importantly on selling sophisticated financial products.

Frontline staff need to be able to explain and sell a broader range of complex products, including securities and insurance offerings. They need additional training in sales techniques — engaging customers, probing to learn their needs, finding solutions, closing sales.” Development efforts should also cover branch managers, who play a critical role in motivating and encouraging the best people to stay.

Addressing risk management concerns, Sze said not only would banks need to answer to stakeholders, they would also have to comply with the regulatory requirements of the China Banking Regulatory Commission, the China Securities Regulatory Commission and the Ministry of Finance. He said an integrated approach to company-wide risk management was needed.

By Jing Ji