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4.7 Wrap Up: Change Frameworks

This chapter examined the framework for the analysis of the redesign of banks' business models—building on the dangers identified in Part I, which are presented by the thought traps and the new providers in the digital age.

Ø The Digital Age as the Key Driver of Change It is essential to include the regularities of the digital age in the redesign. It is accompanied by a ground-breaking change. Thanks to the internet customers are questioning the price/performance configurations offered by banks due to their much improved information situation, and they converse online about the quality and the experience of dealing with the bank in question. Gradually they are becoming less willing to pay for the mere communication of financial information by banks.

Successful business models will be “critical mass systems”, which will succeed in reaching a large number of users. Structures must become more networked in order to attain the necessary flexibility and reaction speed, and to continue to facilitate attractive price/ performance configurations. It will become less and less possible to provide all components of the value chain in one's own bank. The transformation will take place gradually, as individuals decide at a different speed to adopt new models—the ability to keep a gradual balance between maintaining things for existing customer groups and changing things for those customers who desire change will be the decisive core competence when rebuilding banks' business models.

Ø Customer Benefit as a Central Determinant of Successful Bank Services (WHAT) When providing bank services—the “what”—the fundamental question is that of customer benefit. Only when this is provided to a satisfactory degree from the customer's perspective will the services be demanded and the medium and long-term survival of banks be possible—if customers no longer have this impression, there is no longer a right to exist.

Ø Structural Configuration of the Provision of Bank Services (HOW) Not all components of bank services must be provided from within one bank. The coordination of these services is a decisive competitive factor; the tailored combination of the configuration is a potential distinguishing feature. As long as the transaction costs of the market procurement of partial steps are higher than the costs of providing the component themselves, banks' business models are based strongly on the principle of “everything from one source”. Prior to the beginning of the digital age, the market costs of gaining information, drafting contracts and then asserting these were often higher than the hierarchical costs for organisational structure and operation—which is why almost all business models of banks provided the partial steps themselves until now. In the digital age, search and information costs have decreased drastically, which means on the one hand that customers are better informed and margins are sinking, and on the other hand it is becoming more attractive to buy additional partial services on the market in order to complete the full service provision; indeed it is necessary in order to keep the price/ performance configuration at an attractive price for the critical customer.

Ø Shareholder Value as a Decisive Financial Control Factor In the last 20 years the management of publicly-listed banks was always measured on the maximisation of surplus value to the shareholder. Since the financial crisis of 2008 there is growing concern that the ever more one-sided focus on this financial success and the ever greater risks taken by banks to increase profitability contradict economic goals. What is decisive from a business perspective is whether customers continue to be willing to buy the services on offer at the defined price, because they regard their financial needs as being satisfied. If this changes, that would be a business-driven reason for managers of banks to change sustainably the control objective for the management of the business models. It is in the customers' hand; customer behaviour makes the difference.

Ø Core Parameters of Financial Services Financial intermediation meets five basic financial needs (transformation, transfer, risk balance, service and logistics, and information functions). It is important to understand precisely the prerequisites for bank customers to demand these functions from a bank. In other words, only when bank customers have the impression that their transformation, transfer, risk balance, service and logistics and information needs with regard to financial flows will be satisfied in a trustworthy manner by a provider with an attractive price/performance configuration, will they take up the offer.

If other providers can produce these functions more cheaply and/or with better quality and/or with greater trustworthiness, the existing business models of banks will be eroded. Only when the service offered by the individual bank—the price/performance configuration including the question as to which services a bank should provide itself and which it should procure—is attractive to customers will they effectively buy these services from this bank and not from the competition.

Existing success positions can erode completely in the digital age, but not overnight. Understanding changes in customer needs is the central competence when it comes to transforming the existing success position of banks in the future—with ground rules that are themselves changing enormously.

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