ORLANDO, Fla. - Retail banks are accustomed to hearing MichaelPorter's blunt comments about their industry, and this year was nodifferent. Building on themes he first touched on when he spoke atBAI's Retail Delivery Conference & Expo in 1997, the HarvardBusiness School professor gave attendees at the 2005 conferenceanother harsh piece of advice: learn to differentiate yourselvesand develop an effective strategy, or you'll die. "Most banks don'thave a clear strategy," said Porter. "They're trapped by theirsize, existing customer base, legacy delivery systems andfootprint. The banking industry is basically riddled with `me-toocompetition'. "That works fine when tides are rising but notforever," he continued. "Banks have been protected a lot by inertiaand stickiness on the customer side. But the pressure will grow asthe era of consolidation and restructuring abates. We're entering aperiod of strategic positioning. Increasingly banks will have to beable to deliver something distinctive to their customers." He addedthat, "Just bulking up and being big and having lots of branches inlots of states is soon not going to be any sort of advantage.Ultimately you are going to have to deliver something distinctive."But not only do banks not have a clear strategy, they don't whatthat means, he offered. Wanting to be the best is not a strategy,he said. Porter said an effective strategy has to include fiveelements: * a unique value proposition * a different, tailoredvalue chain * clear tradeoffs, or deciding what not to do *mutually reinforcing activities that support the value proposition* continuity, or sticking with the strategy. "Competing to be thebest is not a strategy," said Porter. "Although it's a natural wayof thinking, it's also a dangerous one. You're competing to beunique, not the best. Strategy is what will allow you to be unique,how you're going to create a distinctive value and the action stepsthat value. Banks have to start making some strategy choices."According to Porter, winning strategies that lead to competitiveadvantage fall into one of two categories: differentiation ofproducts and services, and lower overall cost structure. He citedWhole Foods and Southwest Airlines of examples of companies thathave achieved a superior return on invested capital in theirrespective industries. "There are too many banks with similarinfrastructures that are trying to come up with gimmicks. Thatcreates a `me-too' competition that won't work forever. Every bankneeds to know how it will get to be distinctive," said Porteradding that, "operational effectiveness is not a strategy." Portercriticized banks for trying to serve all customer segments andtrying to be all things to all people. Customer segmentationtactics, he said, make no sense at all. Banks need to decide whichcustomer segments they want to serve and then mold their deliverysystems around those choices or value propositions. However, hetold the audience, "Very few banks have the courage to have adistinctive value proposition from their competitors. You must haveclarity of purpose." While devising a strategy is difficult andthere are a lot of barriers, Porter stressed it's incumbent onbanks to have a strategy. We are entering an era of strategicpositioning, he told the audience, and commitment to strategy istested everyday. -


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