The Alpha Strategies by Alan W. Kennedy & Thomas E. Kennedy

Author:Alan W. Kennedy & Thomas E. Kennedy [KENNEDY, ALAN W. & KENNEDY, THOMAS E.]
Language: eng
Format: epub
ISBN: 9781477152867
Publisher: Xlibris Corporation
Published: 2013-02-05T08:00:00+00:00

False Alpha

Our second issue with current strategy practices is the use of the false alpha. This occurs when an organization markets a strategy as its alpha even though it is not the organization’s alpha.

This practice can make employees and customers cynical because employees and customers know, at least intuitively, what the real alpha strategy is. Don’t forget, we believe alpha is reflected in the dominant culture of the organization. Therefore, we think employees and customers can feel the disconnection between what the organization is telling them and what they experience at the organization.

When there is a disconnection between what we are told and what we see happening, the outcome is usually frustration and cynicism. These are not qualities that should be cultivated in employees or customers.

Let’s explore the false alpha idea by looking at major banks.

Banks are legendary for the amount of marketing they do to capture customers. The essence of their marketing campaigns is touting the false alpha of customer service (i.e., the service delivery alpha) as though it is the dominant culture of the bank.

Yet a review of any bank website, annual report, and other filings clearly points to financial management as being the alpha. We have made the case already that, because of industry regulatory requirements, the primary focus of banks needs to be on financial management. We could go one step further and also say that risk will always be one of the influencers guiding and constraining financial management implementation.

We have made the case that when financial management is not the alpha for a bank, shareholders, depositors, and regulators should become very concerned. The results have been disastrous. Time has given us plenty of examples of failed banks pursuing an alpha, usually growth, other than financial management. The Icelandic banks come to mind as do Royal Bank of Scotland and Swiss banking giant UBS.

To make it more interesting, service delivery is not even one of the influencers at many banks.

The influencers typically include risk because capital risk is such a huge issue for a bank. The influencers also usually include technology because of regulatory requirements. Data centers at major banks have come to have the look and feel of military installations.

Growth is invariably on the list of influencers even though it almost always plays at backseat role to risk, technology and marketing. Finally, just the size of the marketing effort required to sustain the mirage of customer service as the alpha makes marketing an influencer. The end result is customer service (i.e., service delivery) is invariably an enabler.

Review the annual report of any major bank and you will quickly see the extent of the preoccupation with financial management and risk.

To the extent there is compensation disclosure, you will note that management will be compensated primarily on the performance of capital (financial management). If they are paid bonuses for customer satisfaction measures, the amounts pale in comparison to those awarded for financial management and risk measures.

It would seem that while the banking industry apparently lost its focus

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.