Q & A: Thomas Thamara: strategic banking innovation.

• Position: Marketing News - Company overview

Thomas Thamara is the author of "Bankers Guide to New Growth Opportunities." He is a principal of FSIC Associates, a consultancy that works with mid-sized banks nationwide.

Q: Why is strategic innovation critical in banking?

A: Because banks are serving a mature market, offering primarily commodity products and services. Banks face intense competition from all industries, including automobile companies, even financial advisory firms such as Ameriprise Financial, health insurance companies--such as Blue Cross/Blue Shield, etc. Banking is facing continuous consolidation, opportunities for growth are limited, except cross-sales to core customers, and acquisitions, or by creating aggregate market demand by offering customers value at accessible price.

Without innovation, products and services become more and more commoditized, resulting in customers playing one bank against the next. It is important to note, that increasing fee income to make up for earnings squeeze, or alternatively cutting prices are not innovations, since in each case others can easily follow suit, and the latter can be fatal. It is likewise important to identify the right areas for innovation, where it will pay off by creating a competitive edge by providing differentiation sufficient to separate your institution from competition....

Q: What are some of the roadblocks to successful innovation?

A: When times are good, management typically asks: We have been successful so far in what we do, thus, why change? A bank I worked with, under a previous management, told me exactly those words about their aggressive merger strategy that ultimately resulted in a major change in senior management, due to loan risk issues mandated by regulators. Conversely, when times are tough, banks tend to say: Let us focus all our energies on building our core businesses to good performance, hence why rock the boat. It is therefore sufficiently clear that waiting for an opportune time will never happen, until we make it happen. Hence, a bank will need to target an innovation strategy type to which it can make an exceptional commitment to stand out from the crowd. Let us not forget that companies do not innovate, people do, therefore, the need for cultivating and nurturing a committed staff that buy into your vision and strategy.

Q: What are some of the ways to get around these roadblocks?

A: Many banks as well as nonbank financial institutions exhibit the "not invented here" syndrome that inhibit...