|Issue:||Asia-Pacific IV 2001|
|Topic:||Coming Around Again: Old Solutions Surface in the Digital Revolution|
|Organisation:||The Hongkong and Shanghai Banking Corporation Limited|
Recent times frothy with spectacular stock market and business growth and equally spectacular decline have not been able to suppress the digital revolution. David Eldon, Chairman of The Hongkong and Shanghai Banking Corporation, outlines the consumer benefits of the continuing revolution and convergence of telecoms and Internet technologies. He offers participant companies six ingredients vital for a recipe for success in these difficult times. It includes customer proximity, strong branding, operational integrity, flexibility, reach and differentiation.
Despite the bursting of the new economy telecom and Internet bubbles, the revolution they inspired lives on-but you need old economy tenets to survive. Much has been written about the Internet revolution and the new age of telecommunications. Many forecasts of a golden new era have been made, of exponential growth and a paradigm shift. In their heyday, it seemed Internet dotcom and telecom gurus could do no wrong. Like all market bubbles before them, it seems the good times in the Internet and telecoms sectors are over, at least for the time being. It turned out much of the marketing was just that: hype. Some dotcom companies continue to struggle on and no doubt a few will survive, but many have already gone to the wall. Many telecom companies have also gone to the wall and a large number are burdened with heavy debts. The Financial Times recently reported that the glorious hopes of the telecoms industry were now on a “trillion dollar scrap heap”. The telecom and Internet bubbles may have burst, but the revolution being wrought on society by both changes is still alive and well. >Our company and our customers are major beneficiaries of the recent changes in Internet and telecoms. In many cases consumers and corporations have benefited from more choice and cheaper products and services in both sectors. In fact, we continue to prudently invest in our Internet services and telecommunications network to grow and develop our business and the range of products and services we offer customers at a competitive price. As it has been pointed out so many times in the past in the wake of previous bubbles, it is not always the prime or industry movers in an economic revolution who benefit the most from the changes they inspire. First mover advantage does not always pay. In the past ten years, technological change and deregulation have meant that more customers have received more services for less money. Telephone banking is a direct descendant of these changes. In the past, telephone banking would have been too expensive for the consumer to consider. The telecom service infrastructure would have been too unreliable and inflexible for the banks to offer it. Now, a very large segment of the banking population in many major markets around the world could not imagine doing their banking without the telephone or mobile phone. In the United Kingdom, our direct banking subsidiary was one of the first of its kind to successfully recognise and then realise the opportunity in this fast-growing sector. Today, it has more than a million customers and after ten years remains a leader in its sector. This is just one example of how consumers have benefited from the telecom revolution. It is not just the consumer who has benefited from changes in telecommunications. Back office systems have been transformed. For the price of running an international direct line for one or two hours ten years ago, we are able to run the same line for more than a month today. A change of this magnitude has not been ignored by an international bank like us. We are in 78 countries and territories with more than 6,500 offices. Our telecommunications network is a vital life support, the sole purpose of which is to ensure we can deliver the products and services our customers want, how they want and when they want it. Banking at its most basic is a customer transaction delivery system. If you can place the paperwork involved in completing the customer transactions online and centralise their processing on a lower-cost platform than your competitors, then you can gain an advantage. With our international data processing centres in Hyderabad, Guangzhou and soon Shanghai, we believe that we are gaining a competitive advantage by reducing the cost of processing customer transactions. The bank is not the only party to benefit from this online data processing initiative. With the back office centralised, staff and space in branches are being freed up to serve customers. Without the toil of administration to deal with, the front-line can become truly customer-focused. Branches are increasingly becoming sophisticated sales platforms from which we can fully service our customers and provide for their changing habits. This brings me to the changes effected in financial services by the Internet. Our Group launched its first e-banking offering in Hong Kong in 2000. The service now operates in over a dozen countries and territories with more than 2 million customers registered who regularly log on and transact. Our roll-out of this service continues and we continue to add to the range of products and services available through this new and exciting distribution channel. E-banking has changed the way those customers bank. Online bank customers now take care of their own basic banking needs. They can handle their account transfers, autopay arrangements and bill payments themselves. This service, combined with telephone and mobile phone banking, means that there is a growing generation of customers who never see or speak to bank staff, let alone walk into a branch. Customers are increasingly buying and selling securities online or by phone. They are buying or applying online for other products like travel insurance, unsecured personal loans and credit cards. Banks are also branching out by offering non-banking products and services online. Without the changes we have seen in telecoms and the Internet, these services that we take so much for granted today would not have been possible. That is not to say the branch is dead. The death of bank branch networks has been long forecast, from the days of the introduction of the earliest ATMs to the launch of phone banking and e-banking. The fact is, for some transactions, customers like to see someone in person. These face-to-face contacts tend to involve the higher-risk, higher-value transactions such as retirement planning and investment planning in general or for education fees. So if large corporations like us and our consumers are still benefiting from these revolutions, why the carnage? Why is it so many companies at the heart of these changes appear to have come unstuck? The simple answer is that it takes a lot more than a good idea and a big marketing budget to be successful. You may have read telecom revolution and dotcom post-mortems already. Management gurus are already dreaming up new schemes and ideas that make for successful companies. I would contend, however, given the range of consumers in any market and the diversity of their needs, that there is no set recipe for success. There are, however, a number of vital ingredients. Firstly, you must stay close to your customers. If you don’t understand the customers and their needs you are going to fail. A good brand is a second crucial ingredient. Given how crowded and competitive the marketplace has become, the importance of a respected name should not be overlooked. Having a well-known brand is more than just an exercise in name recognition. A brand is the promise of performance that can be delivered to the customer time after time. In financial services, trust is paramount. Tied to this ingredient is a third vital component: operational excellence and integrity. As traditional customer relationships continue to weaken, banks must become truly customer-driven. Traditionally customers had to organise their financial management activities around the bank. This has changed. The telecommunications and Internet revolutions have enabled banks and other service providers to deliver products and services to customers where they want, when they want and how they want. People want to do business with organisations that will deliver seamless, secure and reliable services. Fourth, if you are going to be successful, you have to be flexible. Just as technology has helped companies to deliver products and services to their customers, it has also made it easier for customers to switch to a competitor. In an increasingly tough and competitive marketplace companies need to stay close to customers and be flexible enough to quickly change to meet their changing needs and habits. A fifth ingredient is reach. Customers are more international than ever, and increasingly their financial needs are transcending national borders. Companies therefore need to manage a broad international physical and online distribution network. To achieve these ingredients you also need to conservatively husband your capital and control your costs. Without either of these you will not be in a position to make and control the investments necessary to gain competitive advantage and maintain success. Finally, technology has lowered entry barriers across a broad spectrum of sectors. Incumbent operators are finding that they are competing against new entrants from outside their industry. A successful company needs to be able to successfully differentiate itself from the rest of the pack. Conclusion As an international banking group, we have some advantages in these respects. It was not long ago that organisations like ourselves were being criticised for being too slow. Some thought we were dinosaurs. Apparently, new economy banks were going to win the day. Well, as we all know things have turned out differently. Large banks are showing how they can excel at embracing change to succeed while standing by a few prudent and proven old economy tenets. Against a backdrop of technological innovation, it is important to remember that in banking you still need integrity, common sense and discipline. Above all, you need to stay focused on customer needs. After all, a bank can only be successful if its customers are successful.