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BirdsEye View

The reactions to my last newsletter were many. Among the most poignant was the comment below from Russell Marshall, CEO of First Victoria in Texas: "I agree that the mega-banks have many advantages over their smaller brethren... opportunities for efficiencies in operation seem to rise exponentially as a company grows. Mega-banks are far more disciplined when it comes to cost-containment and managing non-interest expense. And they have radically better processes for measuring profitability and performance and feeding the divisions that drop the most dollars to the bottom-line. However, many mid-size banks have begun to realize our weaknesses. We too, have begun to measure what is important to our company's profitability. We strive to diversify our sources of non-interest income... that lesson has not been lost on us. And we continue to look for ways to push into other profitable niches. However.....

WAMU, BofA and Citi and the investment banks, Merrill, Bear, etc. are reporting staggering 3rd quarter losses with warnings of additional losses in quarters to come. CEO's of those companies fired or in jeopardy of losing their jobs... the question is did they really understand the complexities and risks of all of the divergent business lines they entered into? Few of my peers are grappling with those issues. And while the economy may soften and things get tougher on all of us, who will be able to weather the storm? I think if we look at profitability as the end of 2007 and 2008 it may paint a very different picture of profitability by size... and opportunities abound for the nimble mid-sized banks who can take advantage of the shift of focus in the mega-banks away from growth and to stanching the hemorrhaging in some of their mortgage and investment divisions! Carpe diem! ".

And Billy Beale, CEO of Union Bank in VA said, "Anat, you hit the nail on the head with this message. We, SuperCommuntiy, are too dependent upon margin, not tough enough on expense control and unwilling to hold people accountable for meeting growth or performance goals. At Union, we are trying to focus capital allocation toward those lines of business or business units that have produced results".

In response to member requests, we are initiating a Product Management Forum. Details are on www.anatbird.com, and I'm excited to report that it's getting full as we speak. In the meantime, below are my views on this critical topic.

I also received an insightful comment from Rick Thayer, SVP at First United, regarding branding. As he put it, paraphrasing from another source, "The role of Marketing is to tell the brand story; the role of the line is to prove it". Well said!

By the way, as the holiday season approaches, folks have been asking what family picture will show upon our holiday cards this year. After the elephants, camels, giraffes etc., this year's picture might seem like an anti-climax to you, so I wanted to explain. It's our family sitting on a bunch of rocks in front of a wall. It was taken right after Arik's bar mitzvah, and the rocks came from the western wall of the Jewish second temple, destroyed over 2000 years ago, which is in the background. It might seem unimpressive to the casual observer, but for us it was a very special moment.

Have a joyous and delicious Thanksgiving (our Thanksgiving dinner menu is posted on BirdDroppings), and enjoy the time with your family,

PRODUCT DEVELOPMENT AND MANAGEMENT

Banking is largely an undifferentiated industry. In almost all our Forums, attendees say, "We all sell the same products". Without debating whether this is true, I'd like to consider other successful companies that have sold a largely undifferentiated product successfully. Starbucks wasn't the first coffee shop, but it created a strong brand identity that was not based on coffee. Similarly, Disney might have inferior rides to its competitors, but it offers an experience that others can't claim ("The Happiest Place On Earth").

Notwithstanding possible differentiation on elements other than brand or customer experience, bringing product to market, even "me too" products, has been a challenge in our industry. All too often the product is introduced to employees almost simultaneously to being introduced to customers, and the "product kits" are all about features and functionality, peppered with administrative directives, and lacking benefit statements and sales tips.

A prime example of the need for product management has been Remote Deposit Capture, a product which has been introduced extremely successfully in some banks, selling north of 100 installations a month, and poorly in others of similar size and means, selling 5 a week and considering that an accomplishment. The difference could have been a CEO focus, but also might be explained by a stronger product development and management function.

Product management does NOT necessarily mean large staffs and long delays in bringing product to market. What it DOES mean is that, for every new product, someone's neck is on the line for its success. Here are some thoughts regarding structuring the Product Development and Management function without too many resources and bureaucracy while focusing on the right issues: profitable, timely and relevant product introduction.

1. Define "A new product".

   Too often it's unclear what counts as a new product: a breakthrough innovation only? A tweak to an existing product? Personally I believe any product that is uniquely targeted or marketed counts as a new product, but if you expect your product development function exclusively to create and innovate, enhancements to existing products don't count.

2. Require a business case

   A simple, two page business case (one narrative, one numbers) is the best way to evaluate whether a product enhancement or innovation makes sense. If the product sponsor can't articulate the value verbally and numerically in two pages there might be an issue with the initiative altogether. Spell out in advance your ROE or IRR expectations, and clearly identify your expectations from the business case content to ensure you'll get responsive business cases.

3. Listen to the field

   In many banks, the main initiators of product innovations come from staff functions and from headquarters. Open the lines to the field to hear their perspective on what's needed, what will work and what won't among your customer bases. They know best, yet we don't typically listen to them very well...

4. Look back

   Once a business case is approved and acted upon, looking back to ensure that initial expectations as per the business case were met is essential. It serves many purposes, including building the product sponsor's credibility as an effective predictor of results; holding folks accountable for their promises; rewarding where appropriate; learning from mistakes etc.

5. Don't get too analytical

   Product management is typically staffed primarily by highly analytical folks. While their contribution is indeed invaluable, and discipline is at the core of the function, don't forget that ultimately this is a people business, so heart and intuition should play a role as well, especially in product introduction.

6. Use of management or pricing committee

   Many banks have pricing committees that meet weekly to discuss product pricing. These forums typically are comprised of executives from all walks of banking life, who can also function as the approval body for product management ideas. Leverage these committees to get insights from your executive teams regarding product ideas, their worth, and other relevant elements to the product management process.

7. Get input from others

   Other partners, including vendors, can help the product management function and help avoid pitfalls encountered by others. Utilize their input to improve your efficiency and get additional ideas. Outside eyes certainly help thinking out of the box.

8. Test and learn

   Too often we want to get things right immediately. Major R&D companies realize that the process requires minor adjustments time and time again, and we should accept that limitation. Testing ideas in limited markets and isolated branches is a valid way to refine value propositions, learn from market reactions and improve ultimate results.

9. Roll-out process

   Ask your folks, especially in the retail bank, when did they find out about your latest product introduction. In all likelihood this took place within 48 hours of roll-out. We have been ineffective in planning product roll-outs such that the distribution sales forces do not have sufficient time to prepare for the product introduction. Paying attention to this part of the product development process and correcting issues where they exist is an important contributor to a successful launch.

10. Product management

    What happens to a product once it's launched is no one's job in many banks. Unfortunately, where no one is responsible, results are spotty. Having a person's success tied into the product performance will enhance the likelihood of success and ensure that at least one product champion is following the product performance and making the changes needed to optimize results.

11. Where should it report?

    Product management is placed in different spots in many organizations. I find that it is most effective when it is housed at the distribution sales force line of business, i.e. retail, commercial etc. The reason I prefer this line of reporting is that it limits the finger pointing that takes place when a launch is unsuccessful (the line says development failed, and development says the line didn't sell it well). There are pluses to centralizing product management by type of product (e.g. deposits, loans, payments) as well, but there are minuses as well...

I hope you find this outline helpful as you contemplate the success of your own product management function, whether it has been formalized or not. Given the competitive environment, I believe it is important to make product introduction and performance expectations more crisp, and establishing a clear process to introduction, performance and monitoring is the first step.