Archive for May, 2011|Monthly archive page

The incredible shrinking U.S. banking industry

The U.S. banking sector is beginning its long-anticipated consolidation.  Will this be a good thing for consumers and corporations?  A number of Professors at the Wharton School recently weighed in on this question.

According to the Federal Deposit Insurance Corporation, the U.S. banking sector is expected to end up with 6,529 commercial banks and 1,128 savings institutions by the end of 2011.  This represents a 4.4% decline from 2010, leaving the country with nearly half as many institutions as it had 20 years ago.

Compared to earlier times, most of the consolidation has been due to failures as opposed to higher M&A activity.  This failure rate has many causes including reduced economic activity, escalating costs and higher bankruptcy and foreclosure rates.  For many of the failures, the coming of the recent Dodd-Frank Wall Street Reform and Consumer Protection Act had been the final nail in the coffin.  This legislation stipulated higher capital, liquidity and leverage requirements as well as significantly tougher regulatory controls.  Smaller banks, particularly those with less than $500M of assets, have suffered the most with many experiencing valuation declines.  

Most experts believe consolidation will continue for the foreseeable future.  They differ, however in the implications for businesses and consumers as well as the banks themselves.

A modest to positive impact…

Concentration in itself is not necessarily bad.  “We don’t really need as many banks as we used to,” says Jack Guttentag, Wharton professor and former economist at the Federal Reserve Bank of New York. “Banks now have the power to [set up branches] wherever they want to, so what really matters is how many options a customer has in a certain market.”

As well, there is the argument that a smaller number of larger banks can improve their global competitiveness by leveraging scale economies in areas like IT, distribution and Capital Markets.  And, higher scale economies also have the potential to reduce the overall cost of banking much like Walmart achieved in retailing.

…Or less choice and control

Not all customers and markets will benefit from greater consolidation. Businesses and consumers will be uneasy in an environment where a handful of banks dominate the market of certain types of products or markets. As an example, Four “mega banks” – Bank of America, Citigroup, JPMorgan Chase and Wells Fargo – now hold 60% of the U.S. home mortgage market.  According to Guttentag, “It’s a textbook issue of a concentration of power. A limited number of firms control the market, and they will engage in implicit collusion” with negative implications on pricing, service and product availability. Business concern around oligopolistic behaviour was not uncommon in Canada where the market was served at one time by only a handful of large chartered banks and small credit unions.

A declining number of low-cost and local U.S. community banks may offer fewer choices for currently under-served customers such as small business, rural and lower income group segments. Furthermore, some geographies may end up with just one dominant bank. “There are a few markets in danger of becoming a one-bank or two-bank town,” say Ken Thomas, a Professor at Wharton. For example, in the Pittsburgh metropolitan area, PNC Bank has 47% of the deposit share, according to the FDIC.

Market opportunity?

Growing consolidation offers many opportunities for the bold and well capitalized:

  1. The current economics of banking will result in lower (short term?) valuations for many U.S. banks.  Well-heeled banks, especially Canadian ones, could take advantage of this opportunity by ramping up M&A activities;
  2. Consolidation will not be good news for many small businesses or millions of people (e.g., immigrants, students, working poor) who may not fit into the marketing plans of the larger banks. This ‘under-banked’ sector is a potentially large market for non-traditional financial institutions like Canada’s Money Mart or ING whose business model is a good fit with this segment.
  3. Increased concentration may end up delivering the scale needed by small to medium size banks to justify large IT, product and risk management investments.

For more information on our services and work, please visit the Quanta Consulting Inc. web site


Are you ready for Cloud Computing?

Over the past few years, few technologies have been hyped as Cloud Computing.  According to the pundits and early adopters, CC is transforming the face of corporate IT at the same time as delivering compelling business value.  Simply put, CC is a suite of enterprise-level technologies that enables organizations to draw their computing power and data from a separate and centrally managed pool of compute resources including servers and software licenses. CC has a compelling basket of benefits for firms of all sizes in all industries.  Company’s can significantly reduce IT operating costs and increase server utilization.  Additionally, CC can enable a more agile and scalable computing infrastructure that better aligns IT to business requirements, including reducing new product time to market.  Importantly, CC allows firms to focus on its core mission of delivering goods and servicing customers while outsourcing a big chunk of their IT (read: fixed costs and headaches) to experts.   

Currently, there are many business functions delivered through a cloud, from CRM ( to messaging and collaboration (Google Apps) and high performance computing (Amazon Web Services). Not surprisingly, all the IT heavyweights including IBM, HP, and Microsoft have committed billions of dollars to marketing a plethora of products and services.    No wonder Gartner, an IT research consultancy, named CC the second most important technology focus area for 2010. 

Yet, CC has received a couple of black eyes recently arising from security breaches at Amazon and Sony that impacted millions of users.  And, there remain important challenges to fully exploiting CC’s potential.  Not all first generation initiatives have met expectations.

Given its young age, it is not surprising that CC carries a variety of definitions and connotations.  For the sake of clarity, I use the US Department of Commerce’s National Institute of Standards and Testing definition.  NIST defines 5 characteristics of cloud computing:

  • On-demand, self-service computing – allows business units to secure the resources they need without going through internal IT for servers and licenses;
  • Broad network access – enables application to be deployed in ways the business operates such as mobile and multi-device;
  • Rapid resource elasticity – provides for quick resource scalability or downsizing depending on computing needs;
  • Compute resource pooling – enables computing resources to be pooled to serve multiple consumers;
  • Measured service – allows IT usage to be measured like a utility and charged back to users according to demand.

How do managers determine whether this technology is right for their business?  Our firm has developed a quick and dirty checklist to test a company’s cloud readiness: 

  1. Are your revenue-driving business applications hampered by inadequate computing power?
  2. Would significantly quicker resource availability enable you to reduce time to value with new products and key operational initiatives? 
  3. Are your operating units and managers always fighting for more IT resources?  
  4. Is your business environment characterized by unexpected surges in demand? 
  5. Is IT redundancy an important risk mitigation strategy? 
  6. Do new or short duration business projects have difficulty “making the cut” for IT priority? 
  7. Are server, software license and data center costs rapidly out-pacing profit growth? 
  8. Are you frustrated with the flexibility and responsiveness of your enterprise IT infrastructure?

If you answered yes to only 4 of the above questions, your business is being seriously impacted by IT constraints and higher than necessary operating, hardware and software costs.  A compelling business case for CC exists and a pilot program should be investigated as soon as possible.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Nagging employees can improve their performance

Conventional wisdom says that employees disengage when their managers frequently repeat the same messages.  In this line of thinking, people would view repetitive communicating as nagging and tune out.  Worst case, nagging would breed resentment of the manager and create strife. Perhaps this is the case, but do the benefits of redundant communications outweigh its perceived challenges?  New research out of The Harvard Business School explored the impact of persistent communications on message acceptance and effectiveness.

The researchers studied the daily communication patterns of 13 project managers in 6 firms in the IT, health care and telco sectors.  The findings were conclusive:  those managers who are deliberately redundant communicators drive their projects forward more quickly and smoothly than those who are not.  However, there was a caveat. The amount of direct organizational power had a major influence on the frequency and type of communication as well as the pace of team performance.

In many companies, PMs do not possess power over the people and projects they coordinate. Since they lack direct authority, these managers understand that they must work harder at influencing and directing others.  As such, they will attempt to enlist support from team members through more repetitive communications.  For example, they will time first and second messages close together, typically starting with a phone call or face-to-face meeting followed up by an e-mail.  Not surprisingly, higher frequency communications will create a greater sense of individual urgency and quicker follow up, very often leading to higher team performance.

On the other hand, PMs who possess direct power will tend to communicate less frequently, at least initially.  Relying more on their formal authority, these PMs will often delay communicating.  Typically they would only send one e-mail, assuming that one notice is enough to incite an employee to undertake their task.  Because a sense of urgency is not always created, the recipient may not feel a strong impetus to action.  As a result, team performance can suffer in the short term, forcing the PM to re-exert their authority to get the project back on track.

Surprisingly, the researchers found that message clarity mattered less than repetition in boosting team performance. It’s not the message but rather the frequency of the message that matters in driving results. 

In spite of the differences in communication styles, the study found that both types of PMs delivered on the same deadlines and budget goals with the same frequency regardless of the amount of power.  However, managers who communicated more frequently over different channels got employees to perform at a higher level, and with less mop-up needed later.  While some employee resentment would naturally occur, the performance benefits of persistent communications were clear.

How can managers leverage the power of redundant communications without breeding antagonism?

  • Include and publicize high-frequency communication strategies as part of a standard project management or employee communication process;
  • Utilize advanced and automated collaboration management tools that makes the software the nagger;
  • Make high frequency communication strategies a part of standard employee training and on-boarding.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Can new Tide Pods reinvent the laundry business?

P&G is betting hundreds of millions of dollars that a new version of Tide will reenergize its flagship but challenged laundry business.  Coming this September, Tide Pods is being billed by the Company as the biggest innovation in laundry detergent in over 25 years.  Tide Pods are a new line of highly concentrated liquid-filled tablets with two times the concentration (i.e. less water) than the popular Liquid Tide detergent.  This format leverages the same technology as the successful Cascade Action Pacs automatic dish detergent.    Tide Pods promises better cleaning power, improved convenience and a smaller environmental impact through reduced packaging.  According to the Company, Tide Pods has recorded the highest customer satisfaction scores the company has ever seen with a laundry detergent.   Importantly, executives claim that there will be no price increase on a usage basis, a common tactic used in previous concentrated detergent launches to take hidden price increases. 

P&G has told retailers that the liquid-filled tabs could generate up to $2B in sales which translates into a 30% share of the $6.5B U.S. laundry market.  This is not a grandiose forecast.  In the U.K., currently the most developed market for this type of detergent, all forms of tablets (including powder) make up more than 30% of the market.  Significantly, the Tide Pods introduction will be backed by a large –  even by P&G standards – $150M marketing budget with activity kicking off in the summer.  The launch is a big risk for an American market that has rejected a variety of laundry tablet products dating back to the 1960s.

Tide Pods can not come soon enough.  P&G laundry margins are stuck between a rock – increasing raw material costs – and a hard place – on-shelf price deflation.  If you think the former is not a concern for the company, then consider that the phrase “higher commodity costs” occurs eight times in its most recent earnings release. At the same time, P&G is trying to cope with market pricing pressures. While P&G’s products are consumer staples, they are still positioned as premium brands in most of its categories.  In an environment where most consumers are looking to economize in their household purchases, this puts significant pressure on premium, leadership brands like Tide who must simultaneously support pricing levels and build market share.

In a previous blog post, I was highly critical of Tide Basic, P&G’s most recent laundry detergent launch.  This time, I am more optimistic.  Assuming their research is valid, Tide Pods looks like it will deliver compelling consumer value.  Furthermore, P&G stands to gain in many other ways including increased product consumption (which increases market size) and reduced packaging & logistics costs though these will be partially offset by higher manufacturing costs.   Moreover, the Company will bring some real sizzle to a flagging American laundry market.  According to research firm SymphonyIRI as reported in Advertising Age magazine,  retail sales of liquid detergent (excluding Walmart) for the 52 weeks ending March 20, 2011, fell 3% to $3B, while sales of powder detergent fell 10% to $506M.  Market softness may be even worse at the largest American retailer Walmart, where Deutsche Bank has reported sales down 10% in liquid detergent and 20% in powder in the last quarter.

P&G’s survival does not depend on the fortunes of Tide Pods.  Even though P&G has diversified heavily into developing markets, beauty and other household categories, the U.S. laundry business remains vital to the firm’s long term prospects. With more than a 40% market share and high margins, the Tide franchise is crucial to overall company health and long term success.  Time and an embattled consumer will tell.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Digital marketing: the power of social apponomics

One challenge continues to beset a large number of companies looking to generate higher returns from the Web:  How do you enhance your online business model to increase revenues and customer satisfaction while reducing costs?

According to strategy+business, a newsletter published by the consultancy Booze & Company, the secret lies in the development of a new go-to-market model called “social apponomics.” A new concept, SA is the blend of three compelling and symbiotic online developments: social media-powered community mobilization and interaction; the maturation of CRM-based e-commerce applications and; the emergence of powerful mobile functionality.  For firms that have discovered the SA success formula, the payoff has been impressive:  higher product sales & loyalty; an improved customer experience and; lower operating costs.

SA deployments are a work in progress in many companies.  However, some market leaders have got it right: 


This e-tailing colossus ($31B 2010 revenues) has led the way in delivering a world class sales and customer experience platform.  Amazon’s shoppers are regularly exposed to useful features such as product recommendations, customer reviews and special offers.  With only one click, customers can purchase Amazon products directly or through a huge and governed third-party marketplace.  This market access is enabled through a variety of mobile devices including the Kindle, their own e-reader.   


Intuit, a $3B provider of tax and accounting solutions for individuals, accountants and small businesses, brings its consumers directly into its product development and testing process.  Through, the firm has been able to rapidly roll out more compelling product upgrades.  In addition, Intuit cultivates a vibrant user community by:  bringing together small businesses and entrepreneurs, offering local classified ads and providing an audience-driven wiki for educational purposes.


A unique SA model has helped this online movie distributor attract 15 million North American members and generate $1.3B in revenues.  Netflix goes beyond customized interfaces, personalized recommendations and iterative filtering technology; the Company’s offering allows customers to access movies on-demand as well as manage lists, explore 3rd party reviews and add movies to their queues, all through variety of regular and mobile channels. 

Many lessons can be gleaned from these early SA adopters, including:

Humanize the experience

Customers are more likely to transact at a site that is focused on them versus corporate interests.  Firms like Amazon engage individuals in free and open dialogue, foster trust and feature unique, personalized service.  They also provide intuitive user interfaces, ease of support and aesthetically pleasing visuals.

Think local

Product and customer experience designers should heed research that suggests that local tastes, preferences and physical proximity are still important to customers in a virtual environment.  Moreover, firms should facilitate mobile consumers by providing location specific products, services and offers.  

Target micro segments

New web analytics tools allow companies to track customer need states in real time on a highly granular level.  Access to richer amounts of customer data enables marketers to target high potential, hitherto unexploited segments with tailored products, customized promotions and user experiences.

Recruit your customers

Firms now have the ability to inexpensively and rapidly enlist their customer as product reviewers, referral sources and support staff through the use of Crowdsourcing strategies that leverage “the wisdom of crowds” and reduce operating costs.  Market leaders like Apple have gained significant competitive advantage using Crowdsourcing programs.

The above examples suggest that there is no “one size fits all” SA solution.  How SA is exploited will depend on the firm’s business strategy, culture, partners and IT infrastructure.  Fortunately, there are now a number of best practices to learn from.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.