By Cass Bettinger, Cass Bettinger & Associates  

As discussed previously, strategy is “a specific course of action designed to recognize and interpret changing realities; create, enhance or maintain competitive advantages; and achieve specific objectives (measurable outcomes).”

Reality drives strategy and, as realities change – as they inevitably and relentlessly will – strategy must change as well. Reality is simply what it is, not what is once was or what we wish it were. Strategy is what we must do, not what we would like to do, or what makes us comfortable. If our perceptions of reality are flawed, for whatever reason, our strategies will be flawed as well. For this reason, all strategic thinking and planning must be built on an objective and realistic understanding of the ever changing realities which define the organization’s competitive environment.

One of the most important realities facing bank strategists today, and one of which many bankers remain in denial, is that banking is a mature industry. As Michael Porter explains so well in Competitive Strategy:

“When it occurs, the transition to maturity is nearly always a critical period for companies in an industry. It is a period during which fundamental changes often take place in companies’ competitive environment, requiring difficult strategic responses.  Firms’ sometimes have trouble perceiving these environmental changes clearly; even when they are perceived, responding to them can require changes in strategy that firms balk in making.” (pp. 237-238)

It is not hard to understand why so many company leaders remain in denial when it comes to required strategic change; it is almost invariably painful, often costly, and, to a greater or lesser degree, always entails risk, not just for the organizations but for the decision maker as well.

Porter lists several changes in the competitive environment indicating that an industry is transitioning, or has already transitioned, into industry maturity. Eight of these new realities are listed below. Obviously, given the pervasiveness of these changes, past strategies will not be sufficient and new strategies are essential. For the eight changes, please ask yourself whether a) this is happening in your market and your bank, and b) what specific new strategies your leadership team has conceptualized and executed in light of the new realities.

Changing Realities as Industries Transition to Maturity

• Slower growth in most markets and, as a result,  increasingly intense competition for market share.
• Buyers are increasingly experienced, knowledgeable and discriminating; it becomes a “buyers market.”
• Increased competition results in greater emphasis on cost/price and/or superior service to attract and keep customers.
• Market saturation occurs, making it difficult to profitably add capacity and/or personnel.
• Because the competition for customers becomes so intense, discernable and fundamental changes in strategy take place with respect to market research: product production, distribution and delivery; marketing, and sales.
• New products and applications designed to differentiate the company and its value propositions become more costly and risky.
• Competition from outside the market, including internationally, increases.
• Industry profits often decline, at least temporarily, as competitors struggle for market position under slower growth conditions.

Many, if not most, of the major challenges facing banks today are caused by the fact that banking is now a mature industry, with new realities, requiring new strategies. These challenges are exacerbated, of course, when the bank’s geographic markets are transitioning, or have already transitioned, into maturity demographically.

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