The difference between principles and rules.

• Author: Hall, Robert
• Position: Marketing Solutions - Financial institutions deal with customers - Brief Article

"Rules without relationship result in rebellion."

A favorite quote of my colleague Joe Rowell

Research shows that physical channels and human interaction drive revenue disproportionately. Community banks, thrifts and credit unions are growing deposits at 10 times the rate of the top 30 banks. Schwab opens 80 percent of its new accounts at its 429 branches, Customers transact increasingly in automated ways, but their human interactions are drivers of loyalty, referrals and revenue.

Have customers developed a renewed desire to return to branches and stores? Have sales and service personnel suddenly gotten better? Probably not.

Rules-based systems drive much of the call center, e-commerce and voice response systems. They can provide an efficient, scaleable way to take care of basic transactions like getting balances over the phone, withdrawing cash at an ATM, or ordering a book over the Internet. Once a relationship is in place and customers know what they are doing, rules-based systems are invaluable as long as the sequence is not too long or complicated. But they can be inefficient and ineffective when they are asked to do more than what they were designed to do.

Customers are increasingly repelled by rules-based systems that are inadequate.

Rules are binary and often rigid. They do not anticipate all the shades of gray in the real world. They tend to homogenize customers who want to feel special and unique. They empower arbitrary and sometimes self-righteous decisions and bureaucratic directives for customers who are increasingly in a hurry. They force the customer to conform to the rule--with no flexibility for meeting customer need.

And finally, they can undermine the spoken commitment to "customer centricity."

The Enron debacle, the controversy over auditing of public companies, and the proliferation of corporate earnings restatement by prominent companies such as Xerox show that following the letter of the law does not always yield the desired outcome.

By contrast, principles are imbued with a higher purpose and value. First, they target a certain desirable, if not virtuous, outcome. Second, they leave latitude for how that outcome might be reached, so long as the outcome is achieved. Implicit in this approach is...