Page 140 - Performance Leadership

Chapter 8 Balancing Performance and Risk • 129

Case Study 2: Direct Banking

How could we design an explicit process that balances opportunities
and risk? Or, a process that leads to the right discussions while going
through the various design steps? Consider a large global bank open-
ing up direct-banking services in various countries. Its value proposi-
tion is clear: straight-forward standard products such as savings
accounts and home insurance, with a low-cost structure, so that it can
offer higher interest and lower premiums. The Internet and a call cen-
ter per country will serve as the customer contact channel. Its bottom-
line goal is to meet the return on the capital-employed goal of the
parent company. This can be achieved by growing the assets under
management, combined with a profitable reinvestment of the savings
and premiums. Growth of assets under management, particularly for
an Internet bank, is very dependent on the trust the target audience
has in the bank. Trust depends first on the awareness level the general
public has, as you can’t trust somebody you don’t know. This trust can
be won by introducing transparency in the reinvestment processes, to
show there is no customer risk. Another factor that builds trust is by
having swift and reliable integrated operations, spanning the two cus-
tomer contact channels. If we model these value drivers, it could look
like Figure 8.5.
The rollout of direct banking is a great success, and the bank’s ambi-
tions grow. As part of these growing ambitions, corporate increases its
targets for the return on capital employed (ROCE). The management
team brainstorms and comes up with a few options. Trying to increase
the operational excellence by centralizing call centers in multiple
countries will certainly cut costs and increase margins. Another option
is to reinvest the assets under management in a more aggressive way.
The marketing director offers to start a large campaign to increase mar-
ket awareness. Lastly, a junior manager brings in the idea to create a
5
product for “Islamic banking,” unlocking the large ethnic communi-
ties in various countries where the bank is active. The management
team summarizes the four options as follows:
A. Cut cost by centralizing call centers: Easy.

B. Take more risk in reinvestments: Risky.