Business — Banking — Management — Marketing & Sales

1. Customer orientation

The banks have a clear answer to this question: As many other industries, they have rediscovered the client as their sole raison d’etre. «Customer Orientation» is the catchword of the day, and, indeed, both small and medium-sized enterprises as well as multinational corporations can profit considerably from the services a bank can offer. There are still a number of services only banks can offer. In order to best serve their clients, many banks have asked themselves the following questions, which may — at first glance — look simple and obvious, but during long years of financial success these simple truths have almost been forgotten:

—          Who are our clients?

—          What are their needs?

—          How do we best serve their needs?

—          What services and products do we need to do so?

—          Where and in which organizational structure do we do all this?

—          How do we measure our performance?

Answering these questions has led many banks to reorganize and re-engineer themselves along this value chain into totally different organizations. One of the most important steps has been to set up divisions responsible for each client group.

Which are the most significant target groups for commercial banks? The customer base of Germany’s leading banks can give a good example:

2. Small and medium-sized enterprises (SME)

More than 95 % of both Deutsche and Dresdner Bank’s corporate clients are small and medium-sized enterprises, according to their 1995 annual reports. At Deutsche Bank, they had a share in total lending and deposits of roughly 75 % and a share in interest income of 80 % 6.

These SMEs comprise companies with an annual turnover of up to 250 million DM. The contribution SMEs make to the German economy cannot be overestimated. They are the very backbone of western economies, as can be seen in Germany’s example: almost 99 % of all 2.1 million German enterprises are SMEs. They make up for 40 % of Germany’s gross national product and provide 60 % of all jobs and 80 % of all professional training in Germany. SMEs have earned a reputation for being innovative companies that react quickly and flexibly to new situations in their markets. They are often headed by their owners who have a high personal interest in the success of the company. Some of these SMEs — although hardly known — are world market leaders in their particular field, because they have successfully found a market niche. In general, SMEs are even more profitable than large enterprises: Whereas companies with 20 to 1000 employees earn profits before tax of 8 to 10 percent of total revenues, corporations with more than 1000 employees make only 5 percent profit before tax.

3. Multinational Corporations (MNC)

MNCs are both clients and competitors to international banks. According to the American business magazine «Forbes», in 1991, more than 26 million people were employed by the 500 biggest companies worldwide earning revenues of a total 5200 billion US dollars. The 100 biggest firms in the European Union occupied more than 10 million people and reached a turnover of almost 3000 billion DM. German statistics in 1991 showed 359 companies with revenues of more than 1 billion DM each and total revenues of 1431 billion DM. Since all that money has to be channeled via banks, one could be led to the conclusion that this should be the target group banks should focus on. Many MNCs, however, have taken a lot of financial operations that formerly were conducted by their banks into their own hands. Some have even entered into banking, becoming direct competitors to their banks. But, nevertheless, MNCs remain extremely attractive clients for those banks which have positioned themselves in a way that best serves their specific needs: as far as traditional banking in terms of taking deposits, handing out loans and payment transactions is concerned, only those banks will continue to do business with MNCs that have envolved to be low-cost producers. At the other end of the value chain, international MNCs are willing to pay for customized high quality value added services. But only a handful of large international banks have the resources and know-how to provide these services.

4. Municipals

Recently many commercial banks have turned their interest to offering their financial services to municipals. This is especially true of Germany, where national reunification has shown that many towns and cities in the former German Democratic Republic are in desperate need of reconstructing their decayed public facilities which have been nearly destroyed by forty years of socialist neglect. The amount of money needed to put East German municipalities anywhere near to western standards has not yet been completely calculated, but estimates for West Germany show that up to 3700 billion DM could be needed just to keep the standard that has been achieved so far. In times of ever shrinking tax revenues municipalities have become interested in innovative ways of financing their activities. Banks with a broad experience in corporate and structured finance are therefore well positioned to utilize this knowledge for the financing of the public sector.

5. The product range of modern commercial banking

Today’s commercial banks are geared to serving all the needs of their corporate clients. They establish special centres of competence at those locations, where companies demand a sufficient number of banking services. Far beyond financial services, many banks or their subsidiaries offer advice on management matters and help their customers to improve their entire business process. Deutsche Bank, for example, considers it especially important to strengthen the innovation potential of small and medium-sized companies. This applies equally to start-up firms and to well-established companies. They want their bank to provide a comprehensive package of technology transfer, advice on innovation, management and financing. Besides loans and government subsidies, Deutsche Bank Group supplies a growing volume of equity financing. As a result of the last recession, the survival of many companies is still in danger. Many banks have established special workout groups that help to avoid the collapse and assist in the restructuring of those companies that can be rescued.

In the public sector, owing to tight budgets, more and more local authorities look for new ways to solve their financial problems. Many services that used to be provided by local authorities can be performed by private companies as well — and they often offer a better service at lower costs. Deutsche Bank Group helped municipals by providing a number of funds using leasing financing in 1995.

Multinational corporations demand individual, tailor-made solutions to their problems. The bank’s relationship management co-ordinates all the different activities and services a banking group and its subsidiaries can offer, ranging, e.g., from investment banking to stock financing and computerized payment services. Banks offer sophisticated electronic payment systems that enable worldwide companies to handle their money transfers, foreign exchange and interest management transactions.