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Executive Interview – Gail Kelly & David Gall – St George Bank

Executive Interview – Gail Kelly & David Gall – St George Bank

(9 November 2004 - Australia) St George Bank’s impressive business banking performance over the past few years continues to be recognised by a variety of industry and media awards. The bank’s business banking offering is based around a strong customer relationship model and is consistently ranked first or second in East & Partners’ customer satisfaction ratings. This strong focus on the customer via a strong relationship manager network has led to sustained growth in St George’s business banking market share. According to East’s Commercial Markets research the bank has 5.5 percent market share while St George’s own metrics indicate its business banking has grown by 20 percent over the past two years. East & Partners senior consultant Paul Bartholomew spoke with St George Bank managing director and chief executive officer, Gail Kelly; and co-head and general manager, Corporate & Business Banking, David Gall. This interview was conducted for the October 2004 JPMorgan and East & Partners Australian Corporate, Commercial and SME Banking Survey.

Where is St George’s business banking market share currently sitting at and how has it changed over the past couple of years?

David: Certainly our market share has been growing over the last couple of years. We’re now sitting at around six percent market share and that’s up from around the low four percent about this time two and a half years ago. So there has been steady and sustained growth and good momentum in the business over that time and we certainly see that momentum continuing into the future.

Traditionally, St George’s business customers have been SMEs but how important is the commercial or middle market to the bank?

Gail: The middle market is an engine of growth for the group as a whole; it’s one of our priorities and as a consequence we’re resourcing it and are putting our best people in that part of our business. I think to some extent we’ve got quite a sweet spot because we don’t compete at that very top end; we’re not dealing with publicly listed companies like Woolworth’s, Qantas or Coles Myer. Most of our middle market companies would fit in to the A$1 million to A$5 million borrowing category but clearly we have a lot of companies who go a lot higher than that.

These customers get the very best from us and our size works in our favour. There’s responsiveness, flexibility, focus and dedication. Customers know that if they pick up the phone and wanted to ring me, they’d reach me or I’d ring them back that day. Of course, it’s one of those things that when you’re in a sweet spot momentum builds, so it’s a recipe for success and we’re in a little bit of that now with our customers because they have a good experience of St George and refer us to others. That’s always got to be the trick.

For example, a customer recently joined us, who’s now one our larger ones. I heard about this so decided to ring the customer just to say "thank you for joining us" because they’d gone to the trouble of leaving another bank to join us. So I called the customer to say "hello" and the customer was thrilled to bits and said "look, I want to have a cocktail party for you" – this happens to be a hotel customer – "because I want to introduce you and your team to all my associates. I want them to know about St George Bank." Now that’s the kind of advocacy and referral when you get into a particular zone and it builds. It’s absolutely crucial and we’ve almost taken a leaf out of our middle market book for the rest of our organisation in actually showing what can be achieved if you get that equation right, of having the right people in your business, who stay with us, coupled with really understanding your customers’ needs and delivering to those needs to the point where they stay with you, do more with you and ultimately refer you to others.

One of the things we track and measure in our middle market is our cross sell relationship, the deepening of the relationships with our customers. We’ve got two sets: we’ve got a very top end tier that we call our key account relationship management which has six products per customer. Across the whole middle market area there would be about three products per person and it’s building quite strongly.

David: At the lower end of what East & Partners defines as the commercial segment (A$20 to 340 million turnover) we are very much in that segment and we are expecting a lot of our growth to come from there rather than corporate or even indeed the SME segment. Certainly the top end of the SME segment is a marketplace that’s growing strongly and we’re certainly capturing more than our fair share of customers there and will continue to do so.

The other thing about the segment that we really target is that it’s business that we believe we can add value to as well so whereas in the top end of town we might be seen more as a commodity, a provider of funding or transaction banking services, but the reality is we think we have the most value to add is in that commercial sphere where a lot of the advice that we can provide, a lot of the product specialists are actually being sought by those customers as they don’t have those kinds of resources or expertise in house. From that point of view, it’s really matching like with like and it gives you an opportunity to not just have basic price there but to price to the value that you’ re actually providing those customers.

Is it a challenge convincing larger commercial customers that St George has comparable business banking product and service offerings to larger banks?

Gail: It takes time. Really, the team has done an awesome job over the past three or four years from the time that we really got going in this particular segment and established the model that we’re now operating in and enhanced. There’s no doubt that there’s been an active strategy of building our awareness and communicating what we stand for and what we have to offer along the way. I would say that NSW has a strong understanding of what we have to offer. We’re still doing more work in Victoria and Queensland to make sure that customers really understand the breadth and depth of the offering that we have. Winning awards such as the CFO Award (for Best Business Bank) and of course our showing in East’s reports are very helpful for positioning us with customers and we actively work on word of mouth too and our own customers are very effective at linking us with others.

The major banks have restructured to focus on the middle market and certain regional banks are aggressively moving interstate with the small business sector in their sights. How is St George going to fend off competition from these players?

Gail: To some extent by staying true to our own model and enhancing our own model. Execution is the key here and it comes back to having the right people in the right jobs as a starting point and having the right model that you’re true to. The big four have gone through changes of their models and the one thing that customers really hate is when the model keeps changing. We’ve been quite consistent in building a platform and improving, building new capabilities and extending those, and we’ve created a very steady and sustainable business flow. Some of the smaller players are more specialist or niche in their areas, so we’re not necessarily head on competitors with those. Bank of Queensland is a lot smaller than us and is operating at a different level and wouldn’t have the breadth of capability or expertise that we have. Suncorp is very strong in the property segment and is clearly a head on competitor with us there, no question about that. But we think we stand up very well in a competitive sense with them or anyone else in that particular industry segment.

HBOS/BankWest have big intentions with regard to the eastern seaboard but again they’ll have to execute it; there’s operational risk in terms of rolling out new business banking segments; they’ll have to make sure they get the right people for the job and build a model that’s sustainable. So again, we would say that we think we’re very well positioned. There’s no complacency; we continue to enhance our model. Over the course of last year the team rolled out our integrated services program which deepens our ability to meet customers’ needs, to ask the questions, to support the relationships across the group and even now we’re taking the next step with regards to our relationship model.

David: The other thing is that we’re nicely positioned in the marketplace. We often talk about the big enough, small enough position. We have the full product range and set of services to service the commercial customer and enough horsepower to deliver what they require, but the beauty of our size is that we’re not and don’t aspire to be one of the majors where the middle market customer that we’re after gets lost in the system and I think that’s particularly important for existing and prospective middle market customers.

What would you say are the strengths of St George’s business banking offering?

Gail: Well, you’ve got to start with the people, the quality of David and his team. This is a personal business, it’s based on relationships and our model is a relationship model whereas some of the niche players that have come in are product specialists, particularly some of the offshore type players, which might be offering a structured finance product or a fund management product or an investment trust product. Our model is a relationship model with the customer, where we say "we’ll look after all of your banking and financial services needs and you can do what you do best which is run your company".

That’s the proposition and for that you need fantastic people so we spend a lot of time in making sure the people we bring on board are the right people; we put an incredible effort into recruitment, we don’t skimp on that at all and I think that’s the most important test because we’re rigorous that the person passes the values test, fits the organisation from a values and alignment point of view and attitudes point of view. They’ve got to be a team player and able to contribute to and be part of the team as well as clearly having the expertise and capability to manage the business and relationships, so we’re very thoughtful about recruitment and induction and then thoughtful about the training and development that we put our people through. We have a model that all of our relationship managers go through which equips them in relationship management skills. You’ll be impressed to know that all of the appointments we’ve made over the last year have been internal, which demonstrates the developing capability and potential that we’re providing people with. We’re becoming the employer of choice in this category as people can see we have a successful model and that they have an opportunity to grow in this model.

We also remunerate well and encourage people to run businesses rather than just sales or service or cold calling, people are running end to end businesses with bottom line accountability which means they’re accountable for the bad debt aspects of it and the return on equity aspects of it and they’re thinking intelligently around pricing and returns and what they need to do to protect for tomorrow. People like that because they get a sense of empowerment so I really think it does start with having the right people in the role and if people aren’t the right people we’ll very quickly deal with that.

Is there a danger that the relationship manager can become almost too close to a client and that too much rests on the shoulders of that one RM?

David: We’re very careful to make sure that our people don’t work as individuals but work as teams. We don’t have any relationship manager in the middle market space working unsupported, without an account executive. We’re very focussed on continuity as you never know when a relationship manager is not going to be there for any sort of reason. Also, it’s not just the two of them working together; they’re supported by what we call a profit centre and a whole region so there are multiple contact points for any one of our middle market customers at St George. They are certainly not overly reliant on a single relationship manager and that really helps in a number of ways as you can’t expect a relationship manager to be an expert on everything. But it’s important they can act as the customer’s advocate and navigate their way around St George once they identify their needs.

With new players coming into the market targeting the SME sector, is there a danger they might try and pinch your RMs who contain vital customer information and the relationship with the client?

Gail: There’s always a risk of that. You never ever become complacent on this issue and we are alert and aware of those risks but there is something different and special about working at St George so people would really have to evaluate whether that was a risk they wanted to take. People are genuinely happy working here. We’ve just got the responses back from our internal staff survey, which are benchmarked against the rest of the group and benchmarked against the rest of Australia and globally. The business banking business is always at the top end of our entire group responses, with very high levels of engagement and satisfaction. That’s not to say there aren’t risks but there’s no complacency and people are quite well remunerated and structured appropriately with a longer term element to it as well to try and encourage people to grow.

How important is the culture of an organisation and as chief executive Gail, how do you impact the culture at St George Bank?

Gail: The culture is hugely important and it’s something I spend most of my time thinking about. There’s not a day goes by that I’m not focussed on some aspect on reinforcement or support or encouragement, discussion or development. Everything we do we evaluate against our culture. We’re particularly doing that at the moment as when you are perceived to be becoming successful then you’re at risk as being seen to be more like a big bank and becoming a little more arrogant and focussed on profit rather than customer and service, so we’re running even harder to make sure that’s not the case with us.

So you go the extra mile to make sure you bring on board people who fit the culture and align with the values of the organisation. You’re running extra hard to communicate those values all the time and rewarding those values all the time. We are an organisation that is warm and friendly, with a remarkable absence of arrogance. By our behaviour every day we have a huge role to play as role models to make sure that we live that and never become cynical or arrogant or above things, or are unapproachable. So whether it’s a session we’re leading internally or a communication to the market or a session with the media or whatever, we need to reflect those values every day, to be straightforward, down to earth, keep it simple and friendly, tell the truth and be accessible. So we work on that all the time and as a result St George has a different culture to the majors and that’s something we’ll work extra hard to maintain.

Is the culture that has been created at St George a key reason for the bank’s success in winning business banking customers from larger banks?

Gail: There’s no question about it. Because when you reinforce the accessibility you reinforce the responsiveness; it’s not one size fits all. When you get to a larger organisation you tend to have to think almost in cookie cutter dimensions but it’s not like that with us. We can think individually about a certain circumstance and what makes sense there. We have fast turnaround times, we’re responsive and flexible, we’re honest and straightforward about the way we go about doing things. It’s very important to us and will always be important to us. As we become bigger and stronger and more successful these values have to be reinforced even more.

I think it’s my biggest job, to be the custodian of those values and to seek to do the best job I can by ensuring everyone we bring on board guards, nurtures and grows those values. The other thing I spend a lot of time thinking about is making sure we don’t run so hard that people get exhausted. Because highly talented people who want to be successful sometimes feel that they’re on a treadmill and you want to make sure that people refresh themselves and find the joy in what they do, and that people are allowed to make mistakes and can invest in their families and other things that matter to them because at the end of the day you want whole employees. You have to refresh yourself and energise if you want to be the best you can be.

Some of the larger banks have undergone and are undergoing major internal restructuring in the aim of becoming more efficient and customer centric. What’s your view on this?

David: There will be examples of outstanding customer service at any one of the banks but you have to ask whether that’s consistent across the whole network. Again, I think that’s where our size actually helps us as it makes it easier to provide consistent service across the whole organisation.

Gail: The fact that our portfolio is in such a good condition from a quality point of view is very helpful for us because we don’t have to spend a lot of time on the issues. We can spend a lot of time on the business, on the future and people, instead of spending a lot of time dealing with problems, so that’s very helpful for us. We have a very tiny list of impaired assets and we know them by name and the status of all of them at any one time, which means you’re not in with the crocodiles but are developing the business and focussing on it for the future, that’s a huge help for us. It also means that you can prevent things from becoming a problem because you see them coming.

How efficient is St George’s business banking division?

Gail: The efficiency of our business comes from the fact that we’ve got a number of things working for us: we’ve got the retention of customers; more business out of one customer; acquisition costs have been reduced because they’re coming through referrals from existing customers, our staff stay with us which means you don’t have the costs associated with that. We also have very low credit issues so all of those economics together means that you have a very efficient model which allows us to run a relationship ratio of RMs to customers at a very low level. Again that reinforces and perpetuates the situation the bank is in.

There’s been evidence in the business lending markets of very competitive pricing and even talk of a price war. Does the bank see price cutting as a threat to its business customer base?

Gail: Our model is a relationship based model, it’s not a price based model and we’re really clear about that, and our customers tell us that.

David: Some of the feedback we get says we’re not the cheapest bank but we really enjoy dealing with you and that’s why we’re happy to pay a little bit extra. I suppose given our size in the market place there is always going to be some people who just want to deal with a bank on price but a lot of the market sees the value proposition we offer and are willing to pay for the value that we provide. Our challenge is to make sure we can clearly articulate to our existing and prospective customers the value St George brings to the table. If we can do that effectively then we can charge for that, so we’re not pretending it’s not an issue, there is certainly more price competition out in the market but we feel that we’re in a very sound position to mitigate that risk.
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