It's relevance, not differentiation, that matters

Financial industry leaders talk about competition with an emphasis on differentiation. Add to the conversation the many threats to survival of small financial institutions, and in that context we hear rhetoric that has bombarded the industry since the mid-1990s merger boom and upsurge in start-up community banks.

Recently a friend and mentor, herself a senior financial executive, confirmed that today's financial industry conferences frequently focus on how to differentiate. So I conducted a bit of research.

Merriam Webster Online defines differentiation as: 1 : to obtain the mathematical derivative of; 2 : to mark or show a difference in : constitute a difference that distinguishes; 3 : to develop differential characteristics in; 4 : to cause differentiation of in the course of development; 5 : to express the specific distinguishing quality of : discriminate.

But it's not that easy. Let's start with the basics of competition.

Momentarily put aside the top two competitive factors most often touted: location and convenience. Banks and credit unions can offer only so many different products and services. Each has access to the same delivery options. It’s the consumer who has to wade through products, services and promises to make a decision on who, where, what and how to conduct their banking services.

When you add in competition from insurance agents, investment houses and big box retailers (is everyone saying Wal-Mart?), consumers have the daunting task of digging further into the pile. When they search on the Internet, the results are overwhelming -- check out the number of Google results for commonly searched financial terms:

• Money Market: 238,000,000
• Banks: 150,000,000
• Investments: 124,000,000
• ATM: 87,500,000
• Online banking: 78,000,000
• Free checking: 63,000,000
• Branch locations: 5,160,000
• Savings account: 2,710,000
• Credit unions: 1,870,000

That's a lot of information for everyday people to wade through. And it's a lot for any given financial institution to try to stand out from. When you think about differentiation, do you:

1. Get a deer in the headlights look
2. Shrug it off as not applicable to you
3. Start thinking of ways to add products and promises
4. Redefine differentiation
5. None of the above

I chose No. 4 because it's not about differentiation at all. It's about relevance. It's about the issue or matter at hand. It's the ability to provide information that satisfies the needs of the user. Better yet, relevance is practical, socially applicable and simple.

It isn't about making your service relevant. It's about making the customer relevant. Once your organization is aligned with this approach, service will become relevant and result in an effective alignment of strategy, people, process and technology.

I set aside discussion of locations and convenience earlier. Here's why.

Relevance is largely a local state of mind. This is validated by the employees you hire and the customers you serve within each community. Community is defined as city or suburb, not region or state. Analyze rural vs. metro performance any day of the week and you'll understand why. Simply having more locations will not guarantee success if your customers do not feel or believe they are relevant to the organization. Financial investment in branch locations is significant, so why not focus on matching the customer with the right mix of employees, products, marketing and community involvement?

The most important component of relevance is knowledge. The circle of knowledge includes customers, employees, and boards. You have to connect the dots with people, process and technology. Success requires an understanding of not only the products your customers want but why they need those products. You then have to make sure that your entire financial organization understands the "why." You can never invest too much in educating your employees, nor too much in "marketing knowledge" -- both what they can learn and what you have learned -- to your customers.

So consider taking a few initial steps toward creating relevance.

1. Look at psychographic data and customer satisfaction surveys for communities served, both current and future -- not just the buying trends for your customers.
2. Examine current and future product selections and performance to compare and align with the data.
3. Assess employees to align their strengths with the right job. Don't try to fix their weaknesses. Focus on their strengths. Be willing to make decisions to move or replace.
4. Educate, educate, educate. And that's not just your employees, but your customers. Marketing messages always promise but fulfillment happens when the customer interacts with an employee. Don't underestimate the importance of education in your financial institution or try to scrape by with the training department personnel. The wrong person in the wrong job can devastate morale and create havoc in service delivery.
5. Make sure that organizational structure supports customer relevance. For example, does it take a VP or non-branch department to approve refunding a fee? Avoid territorial battlegrounds and establish a hub-and-spoke approach to serving the customer. This allows departments such as accounting, marketing and lending to support the retail branch system instead of creating procedures or strategies that are easier on employees than customers.
6. Make sure organizational strategy supports customer relevance. Executive management and boards must be mutually committed to growth through relevance. Comparing your $200 million financial institution to the $2 billion powerhouse down the road is not effective or relevant. Develop a strategy that focuses on the customer and you’ll see results faster.

Create a customer-centric organization with knowledgeable employees that know how to listen and offer solutions and service that are exactly what the customer needed and expected.

Then your customers will know they matter. They will know they are relevant. And your products and services will be relevant to them.