Case Study: The Case Of The Classy Mass Banker

CASE STUDY
The Case Of The Classy Mass Banker

By R Chandrasekhar

The Case Of The Classy Mass Banker Synopsis: Tom Sullivan hated Ed Jones. Sure, he had been the one who, two years ago, had appointed Jones the (youngest-ever) CEO of Everest's India operations. But that had only been to prevent the 35-year-old MBA from staking his claim to a place on Sullivan's A-Team. And, as he watched the shocked reactions to his new strategy flicker across Jones' face, Sullivan realised why he disliked him so much: the damn Boston brahmin fitted in at Everest while he, the son of a Texas cowhand, still didn't after being CEO for 8 years. All that would now change, he thought viciously to himself, since the class bank would now go mass. Centurion's R. Venkat, NIBM's G. Subrahmanyam, PwC's A. Parekh, and MTV's N. Hiro explore the alternatives before the hapless Jones. A BT Case Study.

Monday, May 4, 1998, 6:30 a.m.

Ed Jones woke up in a hot sweat. The noisy early morning sounds from the road below, wafting up to his sixth-floor home on Mumbai's Warden Road, had jogged him wide awake. His memory of the last 24 hours was a distant Alka Selzered blur. All he could remember was somehow getting home late in the night on Sunday, completely exhausted after a terribly bumpy 18-hour flight from New York. With the mother of all headaches, and an upset tummy to boot.

Monday morning was better. Much better. He stretched out, half-fearing that the bed's loud cracks would wake up his bottle-blonde wife, Frances. They didn't. Stepping out onto the balcony with a mug of java, Ed tried to focus on the week that had gone by in a daze. Soon, he would have to return to work-and reality.

The 7-day off-site workshop at Mexico's Hydel Bay had never been meant to be relaxing. CEO Tom Sullivan had always made it clear that he wanted to use all the time they all had to talk business. After all, it was the one occasion in the year that all 55 of Everest Inc.'s country managers, who managed its worldwide banking operations, met with the top team. With an income of US $44 billion in 1997, Everest was already among the Top Three banking companies in the world but, with just 2 more years to go as chairman, Sullivan had wanted to leave a permanent imprint on its future. So, over the past year, he had quietly assembled a core group of Everest's brightest managers to draft a fresh blueprint for accelerated growth.

Ed had initially been a bit miffed that he had been left out of that select group. But, what the hell, India was actually a plum posting for him. In Sullivan's scheme of things, the OECD countries weren't priority markets. Not only was the population greying, the rate of growth of banking and financial services was stagnating at barely 2-3 per cent per annum there. Even the Vision 2010 Team-or V-2010 Team, as Everesters liked to call it-had, willy-nilly, come to the same conclusion. ''One out of every 7 people in the world should become an Everest customer by 2010,'' stated their V-2010 document, rather grandiosely. In simple terms, this meant that Everest's global customer-base had to grow from 60 million to 1 billion in exactly a decade. Ed couldn't help feeling that, this time round, they were biting off more than they could chew.

Just before they were readying to head back to New York, Sullivan had asked Ed to join him for a drink and a tête-à-tête at the bar. ''All pumped up?'' asked Sullivan rhetorically, not a CEO who liked to hear dissent. Ed turned on the charm: ''Yeah, I'm looking forward to getting my team behind me on this one. It's a great opportunity and a glorious challenge.'' Sullivan was pleased as the punch he was drinking. ''Remember, we want you to chart your own course within the broad parameters. We'll be monitoring your progress. If you need anything, feel free to ask. I just want to see some action,'' Sullivan had said animatedly.

Ed's ruminations were cut short by the sound of the ringing telephone. He could hear Frances sleepily answering the call. ''It's for you, Ed,'' she cursed, ''Rangan.'' Rangan Venkitesan, Everest's President (Operations & Marketing), couldn't wait to hear what had happened. ''Hi, Rangan. Yeah, it went off well. Let's catch up at 11. We have plenty of stuff to discuss,'' said Ed, as cheerily as he could muster.

He had already FedExed a copy of the V-2010 document to Rangan with a request to circulate it among their top managers. And a yellow Post-It had requested the team to keep themselves free the following Sunday. The gap would give him, and the others time to prepare their arguments. Neither Frances nor the other wives would take kindly to a working Sunday, thought Ed. But, surely, by now, everyone knew what life at Everest was all about.

Tuesday, May 5, 1998, 11:15 a.m.

Vikram Krishna Mathur, 31, an Account Director with the Chennai branch of one of the country's biggest ad agencies, had had enough. He'd spent the better part of his morning in his bank, trying to encash a cheque. The teller was slow, and had suddenly decided to take a coffee-break in the middle of the rush-hour. Angry, Mathur had barged into the manager's room, announced that he was taking his business elsewhere, and stormed out. Elsewhere was Everest, whose local branch was located in the same building as Mathur's agency. Which was why, at 11:45 a.m., he was seated comfortably in a cubicle at Everest, sipping iced tea, and watching K. Srinivas, a customer-service executive, fill up a form. This, Mathur told himself, was the way to bank.

Even as he was congratulating himself on his choice, 1,000 miles away, in Everest's corporate office in Churchgate, Sudhir Acharya, 41, Everest's Vice-President (Retail), was fuming over a piece of paper. The offending statement was on page 5 of the V-2010 document: ''Everest should no longer be content with its premium focus. In every market, our focus should be marketshare. By 2010, every local operation should be among the Top Three in its market. We should offer customers a broad range of new products and services through a wider local network.'' ''We can't suddenly dilute our brand equity in pursuit of volumes,'' he screamed to himself.

But Acharya was also intelligent enough to realise that if the bank's focus was to be volumes, the consumer banking business did present the best opportunity. Therein lay the risk. Everest had, traditionally, targeted high net worth individuals in the cities; going mass was certain to dilute the brand's equity, and drive the former away. That worried Acharya, who was already scared that the new non-public sector banks were all nibbling away at Everest's marketshare by promising well-off customers private banking services at a lower cost.

Thursday, May 7, 1998, 3:00 p.m.

Arun Bewoor, Everest's Vice-President (Corporate), was petrified. He'd read the V-2010 document. And re-read it. Still, Bewoor, whose obsession with the bottomline was the butt of the management team's humour, had a bad feeling about the poa detailed in it. He had no problems about Everest trying to increase its marketshare manifold, but he did not want margins to dip. His fears were based on his contrarian understanding of the bank's financials. Since almost 75 per cent of Everest's income came from interest, he had felt that increasing fee-income-which accounted for a mere 19 per cent of total income in 1997-98-ought to be Everest's focus.

And Bewoor knew that Ed, who would, obviously, toe the corporate line and defend the V-2010 document, would try and proclaim technology to be the solution to all their problems. He had one pet argument, which he often used: ''When a customer personally visits our branch, each transaction costs us Rs 450. When he uses the ATM facility, which does not require that kind of servicing at our end, each transaction costs us Rs 20. On the other hand, if the customer uses the Net, the transaction cost is as low as Rs 2. The only way to ensure margins in the retail banking business is to cut costs by deploying the best technology.''

But everyone knew that the argument was fallacious. Studies from the National Council of Applied Economic Research had showed that there were only 33.75 million households with incomes exceeding Rs 50,000 a year in the country. That translated into 182 million individuals. Out of this, just 1 in 3 households-which meant 10.55 million households, or 55.50 million individuals-lived in the metros and large towns. And it was only in these towns, Bewoor knew, that the deployment of technology would be viable.

Friday, May 8, 1998, 1:45 p.m.

Rangan Venkitesan knew that Sujit Berry, Everest India's Vice-President (Human Resources Development), had the V-2010 document in mind when he suggested that they meet for lunch. They had moved to Everest around the same time from DLZ Bank, a Dutch bank, and had stayed friends. A visibly impatient Berry waited only till their orders had been placed: ''What do you think of this move to tap the mass market?'' Venkitesan was candid: ''I'm sure we will make a loss till we reach a critical mass. In the short run, we can stem the losses by cross-subsiding them. Through subsidies from high-margin products, like big-ticket project financing and M&A funding...''

Berry did not agree: ''Subsidies are all very well, but for how long? Given the scale of this transformation, we must now address some basic questions. Who will be our customer for the future? What will be the basis of our competitive advantage? We also have to search for a core competency which will drive our strategy. Infotech could well be it...''

''I have a different point of view,'' said Venkitesan. ''Banks depending on technology to deliver products are likely to lose out to the competition since technology can be duplicated conveniently and quickly. Look at it this way. What is the purpose of technology? To deliver quality products and services to the customer on time. But a more sustainable way of delivering quality is to ensure that every employee is driven by the goal of customer delight. We handle 20 million cheques per annum. Our defects-level is 100 for every million cheques that we handle. Using better processes, we could easily bring that down to 5 for every million by 2002. Good processes are the bedrock of any bank's strategy, especially if we are going to chase volumes.''

Saturday, May 9, 1998, 11:30 p.m.

Frances had insisted on their going to a theme party hosted by the business attache at the local American Consulate. But it proved to be a crashing bore, and the Sullivans were back home by 11:30 p.m.. She went off to bed immediately, but Ed decided to prepare for the all-important meeting with his top people.

He knew what the decision had to be. He only had to carry his team with him. He began by rehearsing his closing speech: ''We have only 60 branches in India. The RBI isn't likely to give us permission to open more. Thus, we must look at affiliate banking. We could set up separate affiliates for activities like car-financing, housing-finance, equipment-financing, and the underwriting and distribution of financial services. I have seen newspaper reports about BankFrance looking for a buyer for their retail business in India. Tom, incidentally, isn't averse to acquisitions if they add muscle to our operations here. Besides, organic growth alone won't help us grow as quickly as we need to...''

Sunday, May 10, 1998, 6:30 a.m.
Ed Jones woke up in a hot sweat...

POSTSCRIPT. Eventually, Ed didn't take over BankFrance, agreeing with his team that organic growth was a better option. So, they focused on re-engineering their operations to target volumes. That meant making Everest a mass-market brand, and changing the profits-model from a low-volumes, high-value one to a high-volumes, low-value one. The next year was sheer hell for them, with their infrastructure proving to be utterly inadequate. Profits plummeted and costs zoomed. Only Sullivan was convinced that Everest and Ed were on the right track in India.