27 FEBRUARY 2002

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Restructuring to Compete

Addressing the Federation of Industry’s ‘Restructuring to Compete’ conference, Frank Xerri de Caro – Bank of Valletta’s Chief Officer for Credit Management and Retail Business – explains the Bank’s creation of a customer-centric organisation concept. Following are extracts from his speech

I would like to phase my presentation today by adopting a two-way approach, namely by sharing with you the paths of the restructuring exercise which Bank of Valletta has gone through and by highlighting the Bank’s services made available to support our clients’ own restructuring exercise to assist them to compete more effectively in today’s highly competitive environment.

During the last few years the business world has been inundated with catchwords and phrases such as globalisation, regionalisation, liberalization and deregulation. The underlining message behind all this is that we need to change our "modus operandi", in order to keep up with competition. We, at Bank of Valletta, understood that changes needed to be well planned and that these had to be introduced at regular intervals. In fact, for the last four years we have been implementing a major change to introduce our relationship banking strategy in order to become a Real Customer Centric financial services provider.

In today's hyper-competitive financial services environment, incremental improvement is no longer enough. In order to be successful, financial services organizations need to undergo massive changes - a fundamental reinvention of our strategies and operations that will allow us to delight customers, exceed investor expectations, retain the best and the brightest professionals and retain quality of assets.

Customer expectations

Financial institutions have experienced a wave of rising customer expectations. Although proceeding at different speeds around the world, customers are becoming more sophisticated in investing in collective investment schemes and in local and foreign debt instruments and equities. Customers are less likely to remain loyal to a particular institution and are ready to switch for better services or lower prices. And yesterday's innovation has quickly become today's basic requirements. A customer may withdraw cash at an ATM; apply for a loan through a call centre and then access account information through his PC or through the telephone. And when the next technology or service options are available, customers will expect that, too.

Searching for the right strategy and business model

Financial Services Providers are continuously searching for the right strategy to respond to these new realities. Yet retail financial services companies are finding success pursuing a wide variety of different strategies. Some are expanding internationally to create global and regional brands, whilst others are concentrating on their domestic markets. Some institutions are merging across industry lines to create financial services supermarkets, yet others have risen to prominence by becoming world class in a particular line of business.

The desire to achieve economies of scale has driven many mergers, whilst on the other hand, many small firms have proved more efficient and profitable on their own. Clearly, each financial services firm must craft a strategy that complements its skills and market positions. But the greater challenge is to develop the systems and processes needed to execute that strategy successfully.

Creating a Customer-Centric Organisation

The first question we had to answer at Bank of Valletta was, What will distinguish the winner within the local retail financial services industry in the years ahead? Within the international financial services industry some firms have based their competitive position on offering superior products at a competitive price. But today leaders within the industry believe that the differences between financial services products are dwindling. To a certain extent products such as index linked bank deposits, pension plans and home mortgages have become indistinguishable.

When an innovative product hits the market, its leads uniqueness is measured in weeks, not months, because competitors quickly introduce similar products. As differences between financial products decline, they will be treated increasingly as commodities and come to compete more on price. Firms that specialize in product development can be successful, but over time they will command lower profit margins. In contrast organisations such as Bank of Valletta are concentrating on being "customer-centric" organisations that build their strategy on the relationship-banking model.

An organisation that puts stress on building strong relationships with its customers will gain an enduring competitive advantage. While products can be copied, other licensed customer services take years to develop and sustain. With a fine-grained understanding of it's customer base, the customer-centric firm will offer the right products to the right customer at the right time in their lives.

At BOV we have learnt that changing a bank into a financial services provider that is customer-centric is not a matter of speeches, marketing slogans or company directives. Instead, it required transforming this financial organisation from a product based activity adequately supported by the relative information systems to a customer based activity fully supported by state of the art technology. In order to achieve successfully this transformation, or as we can also describe it – restructuring – we had to go through changes in systems, premises, procedures and most importantly of all, a deep cultural change.

Basically we had to base our strategy on three focused areas, namely:

Know the Customer

At Bank of Valletta we needed to turn our massive databases into a continuing source of knowledge about our customers’ needs and preferences – today and in the future. Armed with these insights, we can assess the net lifetime value of each customer, develop appropriate products and pricing for each customer segment and then make that information instantly available to the staff at our branches, business centers, corporate centre and in the near future our call centre.

Most firms within the financial services sector have yet to successfully integrate these databases so that they can move from a focus on the profitability of individual products to a focus on each customer’s lifetime value to the firm. A number of technology tools exist, such as data warehousing and data mining, separate customer databases and extract usable information on the profitability and needs of each customer segment.

Integrate Delivery Channels

Alongside with the familiar bank branch, stockbroking office and bancassurance agency, there has been an explosion of alternative delivery channels. Financial institutions have added call centres, direct mail, ATMs, videoconference facilities and on-line service delivery – all of which cost a fraction of the traditional face-to-face channels. The plan was that less profitable customers would be migrated to the alternative delivery channels.

Companies would then be free to rationalize face-to face channels. Large cost savings were on the horizon. Customers aren’t choosing any particular alternative channels. They are using them all. Learning from what has happened overseas we at Bank of Valletta have the challenge of integrating all our present and future e commerce delivery channels into a coherent whole. Our traditional in-person channels have been reinvented as sales centres for complex products and for cross-selling products to more profitable customers. Routine transactions and sales of less complex products will soon be transferred to alternative channels such as call centres and the Internet.

Creating a customer-centric culture

To succeed, at Bank of Valletta we needed to extract knowledge from customer data and integrate a variety of new delivery channels. As hard as this has been to accomplish, we had a third challenge that required even more far-reaching changes. We felt the need to create a customer-centric culture. Financial services institutions, especially in banking and insurance, have traditionally been bureaucratic and slow-moving. This set of behaviors posed less of a problem when consumers had little financial information and the competitive landscape changed slowly. Today, however, consumers are continually offered an array of new financial products from non-traditional firms that bring expertise in marketing, sales and customer service.

Clients have come to expect customized products at a fast response. At the same time, new competitors and new technologies are driving change in retail financial services at a speed that was unimaginable just a few years ago. In order to further foster our customer-centric culture we have divided our customer base into personal, business, and corporate and high net worth customers. We have also established a number of regional business centres to deal with the needs of our business clients. Our corporate centre is catering for the needs for our larger clients.

Like us, our corporate and business customers are facing the need to change and in order to assist them with these changes the bank is offering a number of services to sustain them, namely:

1. The opportunity to tap new export markets and investment opportunities particularly in the Euro-Mediterranean Region through the services offered by our Regional Representative Offices;

2. and offering the required products and services at the most competitive prices.Mediterranean Regional

Representative Offices

Bank of Valletta has three strategically located Mediterranean representative offices. These offices are located in Italy, Tunisia and Libya. The main objectives of these representative offices are fourfold, namely:

1. Extension of corporate and business services: that is the extension of our corporate and business relationship services to Maltese and foreign companies that have a presence in the region. For example our Libyan office is there to assist Maltese and expatriate companies operating in Libya. I would like to pause a minute on this point by inviting you to a conference on business opportunities in Libya that is being organised by BOV on the 28th February at the Corinthia San Gorg.

2. Niche market opportunities: To get a foothold in emerging markets and assess niche market opportunities, which are beneficial for the bank and its business and corporate customers;

3. Targeted marketing and services: The provision of niche service products and services other than traditional banking in specific target markets, for example market research and trade finance;

4. Fostering Regional Investment: To participate and encourage investment in the Mediterranean region. Through our regional representation offices we are acting as catalysts by identifying new business opportunities for both the bank and our corporate and business customers.

Offering competitive products and services

As the pressure of competition increases, Bank of Valletta is continuously evaluating the needs of our clients. Through the continual interaction with our clients we are designing innovative products that suit the needs of our clients. We also ensure that our products are rightly priced.

Every business carries major strengths that are able to capitalise on opportunities. Every business must also carry weaknesses that can be severely tested by threats coming from many a quarter. The last fifteen years has been characterised by a bullish sentiment that brought many a project to the table.

Banks provided their unstilted support in backing initiatives that brought wealth creation to our shores. The tourism sector for example became a backbone of our economy as banks regularly supported major initiatives that sustained the competitivity of the sector against raging competition from near and a far.

This process is inherently characterised by many start-ups, some of which are by their very nature high risk. The accumulation of a sediment of slow operators does in the final analysis weigh down on the key economic elements, and a time-out is a natural process in climbing from one economic peak to the next.

We as a nation, like all other nations, are presently catching our breath, consolidating on our past achievements, learning from them and also from our experiences, whilst embarking on our next climb. At this stage we have the opportunity to look critically not only at ourselves, but also at how our region, our world is evolving. In this moment we are not simply bankers providing financial services to the critical mass of creative thought, but we have the prime responsibility of ensuring that creativity will be applied concretely to produce ideal and sustainable results.


Becoming customer-centric required Bank of Valletta to make changes in their information systems, delivery channels and most importantly of all, changes in corporate cultures. Industry executives realized that they needed to make these changes to succeed in the escalating battle for the consumer’s wallet. Firms that become customer-centric by successfully mastering these challenges will earn superior returns by building strong, lifetime relationships with their customers. Those that don’t will watch helplessly as their customers flee to competitors that set a new standard of customer knowledge and service. At Bank of Valletta have taken the bull by the horns and worked very hard during these past few years to convert our Bank into a customer focussed financial services provider. We think that we have been successful in our restructuring exercise; however it does not stop here, because as we have seen, restructuring is a continuous process.


The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt