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5.4.2 The Value Chain in Banking

The key activities of banking are the development and maintenance of customer relationships, the provision of financial advice, product development and provision, and the processing of transactions. The supporting activities, which must be carried out across all phases, are in part sector-specific (risk management, compliance and regulation, and financial analysis) and in part generic (HR, IT, management). The key processes can also be summarised in terms of their value-creating potential (Gehrig 1996, p. 25) (Fig. 5.2).

Fig. 5.2 The value-creating potential of the core competences of banking (Source Koye 2005, p. 101, based on Gehrig 1996, p. 25)

1. Basic and implementation transactions guarantee the processing of transactions.

Customers demand the perfect processing of the basic and implementation transactions of bank business. For this reason, a processing error can only lead to a negative differentiation in terms of the competition, which is why it is also known as a killer element. Transaction processing is fixed-cost intensive and allows an increase in economic benefits only via economies of scale, as long as a sufficient volume can be processed. Smaller providers cannot achieve these economies of scale with their own customers—or only to a limited degree—so that greater emphasis is placed on fixed costs. Larger providers are better able to cover their fixed costs with a high transaction volume.

2. Asset allocation comprises product development and provision, and asset management. A good asset allocation leads to a quantitatively measurable good performance. A qualitative differentiation becomes possible, and asset allocation is a potential winner element.

3. The advisory functions combine the activities of developing and maintaining customer relationships and the provision of financial advice. A good advisory process generates a feeling of trust among customers. Therefore the greatest differentiation potential can be found in this area. Gehrig (1996) defines the advisory functions as the primary winner element. They are based above all on personal know-how. Once the capacity limit of an employee has been reached, no further increase in performance is possible without appointing new staff. The starting point here is identical for both small and large providers.

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