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SUMMARY PREFACE
/ NEW ECONOMY By Ahmet Hamamcıoğlu/Editor Volume of the world
trade reached to $6 trillion, according to $326 billion of 1970’s, because of
the acceleration in the economy was brought by IT. It can be seen in
developed countries that, as parallel to innovations in information technologies,
speed of development, and levels of revenue are increasing, while unemployment
and inflation rates are going down. According to the findings of an
investigation, productivity coming from B2B eTtade will rise 5% more in 10 years
indeveloped countries. This means %0.5 rise in GNP. All these innovations,
started in 1980’s and then accelerated after 1998, created a new concept:
“New Economy”. Today, USA is the leader in this race. Differences of the
new economy according to its predecessor are; digital life style, increasing of
R&D activities, strong global relationships and the importance given to
human resources. Communication comes into front, and thus; right person, right information, right programming and
right costs are being realized. New economy; brings
fair share, security and transparency to the front line, too. Consumer’s
dominance increase. Orders of magnitude
in developed countries ranks as consumer, supplier, bureaucracy and politics.
This situation is in reverse order in our country. Turkey must catch the
transformation. New economy and communication space will more add to this
development. Unfortunately, bureaucracy is stay away from catching the speed of
technology. Now, everybody can
reach to the information which was attainable from limited sources before. This
gives the competition opportunity to small businesses against big ones. We can say that the
innovations were brought by new economy are the applications of banking sector.
Technology both developed and became less expensive. A lot of additional
possibilities occurred, then benefiting from them by companies came into agenda. New economy creates
new business processes, and upon putting into practice of these processes all
our businesses will be able to open to the world. REVENUE PLAY
Kenneth Cline / Banking Strategies
The emerging view on
big bank mergers is that they don't work. But Richard M. Kovacevich wants to
prove the exception to this rule. The president and chief executive of Wells
Fargo & Co. is determined to show that a union of two of the nation's
largest banks can indeed generate improved revenue growth. So far, the November
1998 combination of Wells and Norwest Corp. has avoided the missteps that
hobbled others. Nevertheless, Kovacevich confronts a special challenge. Unlike
some of his rivals, who can extract major cost savings from mergers within their
own markets, Kovacevich did a long distance deal and thus is limited in his
ability to realize efficiency gains. He is counting on
cross-selling to help him succeed where others have failed. Such a dramatic
surge in cross-selling is key to generating the revenue growth he needs to
declare the Norwest/Wells merger a success. There is disagreement, however,
whether cross-selling is always a profitable activity. Nor has Kovacevich
completed the cultural integration of Norwest and Wells, which operated under
starkly different business models. Minneapolis-based Norwest, Kovacevich's
former bank and the acquirer in this transaction, took a community bank approach
focused on relationship selling. San Francisco-based Wells, by contrast, was
known for its centralized, line-of-business structure and product sales
orientation. Realistically, until these disparate models are reconciled,
Kovacevich can't expect to see dramatic improvements. One reason banks have
undertaken big mergers is to provide the broadest possible array of products and
services for their customers in order to wrest back market share from nonbank
competitors. Though cognizant of the challenge, Kovacevich insists that his
revenue-generating formula will work. The edifice of cross-selling must be built
on a foundation of tremendous persistence and discipline, he says. Kovacevich is on the
hook to deliver. His targets call for at least 13% annual growth in earnings per-share,
predicated on at least 10% revenue growth. Given the ground the old Wells lost
in 1997 and 1998, he says, reaching the 10% level will take a few more years.
That can't last forever. At some point, the deal flow generated by the high-tech
sector will slow down and Wells will need to make up the difference in its vast
retail operation (42% of earnings). Despite these
pressures, Kovacevich is proceeding at an excruciatingly deliberate pace. He
simply cannot afford to repeat the operational disasters that have destroyed
other mergers. The old Wells' 1997 acquisition of First Interstate Bancorp, for
example, was a textbook case of how not to do a bank merger. The debacle drove
Wells into Norwest's embrace. From start to finish,
the systems conversion will take three years with the biggest chunk, California,
left to the last. Kovacevich says he "doesn't understand the logic of
trying to do it faster." As an out-of-market deal, Norwest/Wells would be
expected to generate modest cost savings anyway. For that reason, Kovacevich has
taken a "pick the best of each" approach to integration. Transition
teams, composed of representatives from both sides, spent a year analyzing which
systems and practices should be retained. Kovacevich admits that this method is
difficult and slow but insists it's worthwhile. "It's a little like the
race between the tortoise and the hare," he says. "It takes longer
when you try to bring people together in a unified culture, but you win in the
end." Much has been made of
the cultural differences between the old Wells and the old Norwest. In shorthand
form, this is usually described as a contrast between "high touch" (Norwest)
and "high tech" (Wells). Kovacevich argues that the real difference is
in business models. Wells, predominately
a California-based, urban-oriented bank before the First Interstate acquisition,
employed a line-of-business organizational structure to deliver a streamlined
product menu at the lowest possible cost. Norwest, by contrast, employed a
decentralized (and more costly) community bank-style distribution system
designed to serve customers within a relationship context. The Norwest
relationship approach is unquestionably pervading the new Wells. Two of the five
regional presidents in California are from Norwest. Although line-of-business
structures are being retained for certain products, like small business loans
and home equity lines, the retail branch system has adopted a more geography-centered
organizational structure with a more diversified product menu. Customers of the
old Wells, who were used to relying on that bank for a few basic services, like
checking accounts and small business loans, will now be cross-sold insurance,
mortgages and mutual funds. This cross-selling process will be aided by the
introduction of Norwest's computerized customer profiling system, which allows
branch employees to engage in consultative selling with customers and refer them
to specialists who handle nonbank products.
Kovacevich himself is
mindful of the need to control expenses. But his bias is clearly to focus on
sales, noting that the efficiency ratio depends on the denominator (revenue) as
well as the numerator (cost). "Improving your ratio on cost alone doesn't
work over time," he says. "A better way to improve it is to grow
revenues faster than expenses." Like all the other
challenges facing Wells, this will require effective execution on the front
lines. There's always a point at which the top strategist must rely on his
troops to implement the plan. The careful approach Kovacevich has taken to
merging the two companies, his avoidance of demoralizing, slash-and-burn tactics,
increases the likelihood that Wells employees will rally to the cause.
PHANTOM
SYNERGIES By Bill Stoneman / FreelanceWriter -BAI
That would be unfair.
Reviewing the recent history of cross-sector acquisitions by banking companies,
it seems clear that these deals - when they work well - can bring tangible
benefits. Perhaps foremost, they can get banks into businesses that are growing
faster than traditional deposit-and-loan operations. A second goal in cross-sector
deals is to sell an expanded range of proprietary products and services to
current clients. But as recent misfires illustrate, hybrid deals carry serious
risks. That raises the question of how dealmakers can increase the odds for
success. There is no simple answer, obviously, since each transaction has its
own dynamics.
Considerable upside
can still be had if the acquirer improves the management of a new property and
the dynamics of its market sector remain strong, although these two propositions
can't be taken for granted either. Synergies are more
tangible when the acquirer can point to specific customer segments that will
benefit from the transaction. This seems to be an important key in selecting and
implementing business combinations. Asset management capabilities appeal to high
net-worth individuals; corporate clients are appreciative of investment banking
services; niche players can do a good job of serving customers with specialized
needs.
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