Yesterday’s Financial Times ran a profile of Wells Fargo’s had over from its former head, Dick Kovacevich to its new CEO John Stumpf (The Monday Interview – Wells Fargo cracks the whip). The bank is one of the few to have resisted the temptation of the subprime market — even though it is a major mortgage originator. Instead, Wells Fargo concentrated on the whole retail experience:
For the past decade, Wells’ knitting has consisted mainly of two patterns: selling as many products as possible to its existing customers, from bread-and-butter bank accounts to investment funds, and buying companies that sell financial goods it does not yet offer.
Cross-selling, often seen as the holy grail of financial services because it enables banks to reap more profits at a lower cost from consumers they know well, is a veritable mission at Wells. Mr Stumpf proudly reels off the average number of products purchased by Wells’ retail customers (5.64, well above the industry average) and says that nearly one in four have more than eight – the company’s long-term goal.
The economics of Wells’ strategy are indisputable. It costs it less to offer extra products to existing customers than to acquire new customers, so it can offer better deals on interest rates, lower premiums, and still make money.
Mr Kovacevich, who got his start at General Mills, the food company, stole that simple but powerful idea from the retail sector; it is no coincidence that Wells refers to its branches as “stores” and makes the most of its stagecoach logo and history as the bank that helped America conquer the West.
However, the key to success has been much more than its retail focused strategy:
But in addition to its Coca-Cola-like focus on customers and branding, Wells appears to have succeeded where many would-be financial one-stop shops have failed: getting different parts of the bank to talk and share customers with one another.<br
Mr Stumpf’s explanation of how the company pulled off such a feat would sound wishy-washy were it not for the fact he has the evidence to back it up. “Financial services is the ultimate team sport,” he says, recalling how he learned teamwork first growing up as the second of 11 children and then spending much of his youth playing table football. “We think of ourselves not as a hierarchy but as a series of concentric circles with the customer in the middle.”
He maintains that banks are wrong to assume that co-operation between different parts of the organisation can be fostered simply through monetary incentives for customer referrals and joint selling. Unless there is a common sense of purpose, bonuses alone cannot eliminate internal rivalries and jealousies, he says. That is why Wells asks Gallup periodically to measure the ratio of “happy to grumpy” employees. At the last count, it stood at 8.5 to 1, compared to 2 to 1 for the US population.
A strong balance sheet, an enviable competitive position and a satisfied workforce: Wells is such an outlier in the ravaged US financial sector that rivals have begun to wonder if it has a secret formula.
Mr Stumpf shakes his grey-haired head: “It’s about culture. I could leave our strategy on an aeroplane seat and have a competitor read it and it would not make any difference”.
Corporate culture has long been recoginzed as an important intangible asset. It is also one of the hardest to analyze and, as Mr. Stumpf recognized, to replicate. As such it remains an individual company’s competitive advantage. But from a public policy perspective, it raises a fundamental issue. How can a nation (state, region, city) foster this asset in order to remain competitive? Or are locations simply dependent on the idiosyncratic nature of corporate culture, i.e. this company located here is competitive and this company over there is not – for reasons having nothing to do with the location?
Some might argue that corporate culture is out of the realm of public policy. But if education—the betterment of the individual—is an important economic and social goal worthy of public policy attention, then isn’t organizational improvement as well?
Something to think about in waning dog days of summer.