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The world of banking is changing, and in this new study from Financial Executives Research Foundation you can get a first-hand look at how financial executives and bankers are redefining the substance and practice of corporate banking relationships. Learn how companies and banks are carving out new parameters for provider-customer relationships, as both sides seek to mutually create value. The author ties together the disparate elements and tensions in the banking industry through case studies of eleven companies and four banks, including Chase Manhattan Corporation, Citibank, Northwest Airlines, The Gillette Company, and more.
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From Chapter 1: In the current economic environment of rapid technological change and globalization of business, corporations are focusing on building core competencies, shaking up complacent business cultures, and using new performance measures to ensure the continued enhancement of shareholder value. In all these cases, finance is playing a leading role. Today's long-term business strategies require concomitant financial strategies. And that fact makes corporate banking relationships a growing business priority for companies around the globe. However, corporations have changed over the past decade. As discussed in a related research study, The Empowered Organization (Financial Executives Research Foundation, Inc., 1994) corporations today are more focused on managing their resources by principles and values. They are placing more emphasis on teamwork, partnering, information sharing, and organizational learning. And these changes have been eagerly adopted by financial executives. They have become team players and have transformed internal budgeting from a process of control to one of business advocacy. They have dismantled their silos, become line integrated, and are closer to the customer than ever before. To fully appreciate today's paradigm of corporate relationship banking, one needs to view it in this developmental context. It has not emerged in a vacuum. Rather it is part of a continuum of change that is transforming all aspects of financial behavior and relationships.
The Paradigm of Corporate Banking Relationships All corporate financial executives interviewed for this study saw their bank relationship management responsibilities and objectives in terms of three themes: being a valued bank customer, demonstrating principled behavior, and understanding the changing roles of the corporate banking relationship. Each of these themes has its own message, behavior, and practice implications. Together they express a common direction: Banking relationships are not about gaining or losing competitive advantage or relative power; rather they are about creating mutual value and sustaining the mutual value-creation process into the future. The Valued Customer With regard to how they manage their banking relationships, corporations today focus almost exclusively on either achieving, maintaining, or enhancing their status as a valued customer to their banks. Corporate financial executives strongly feel that being a captive or dependent customer is harmful to building long-term relationships. Interdependence through valued customer status-the centerpiece of corporate relationship management practices and behavior-is the only route to mutual satisfaction and relationship success. Companies use fewer banks today mainly because they have less business to go around. A company cannot be a meaningful and valued customer to hundreds of banks at a time. Using fewer banks allows companies to focus on what each bank best brings to the relationship table and allows companies to compensate those banks with a more appropriate and meaningful share of its business. The practice seems to work. More and more banks prioritize their resource attentions by referring to their "share of customer wallet." "Market share" is going the way of the dinosaurs. Today it is far more fashionable for a banker to speak in terms of "customer share." As one banker recently observed, "We are prepared to purge our customer ranks of rate surfers and expand our services with relationship-oriented customers." Being a valued customer is a major theme that keeps everyone focused on the priority of relationship building. It is the major driver behind a myriad of corporate relationship management practices and strategies. Changing Roles The corporate banking relationship is changing. Corporations are emphasizing the importance of being a valued customer to their banks. They are emphasizing the importance of principles and values in their supplier relationships. And they are taking a new look at their banking relationships in terms of their changing roles and responsibilities. A "duality" of relationships-or simply the fact that any party to a relationship can have more than one role to play or master to serve at a time-is appreciated by both parties. Sometimes this duality takes the form of recognizing that a supplier can add more value by complementing a company's business strategy, rather than trying to meet its needs directly. This "supplier-as-business-partner" observation was underscored throughout the interviews. A company may not need financing to produce its products, but its customers may need it in order to facilitate the purchase of the company's products. Or a company may not need financing to expand its operations, but its strategy of spinning off its non-core businesses may falter if its banks should refuse to provide stand-alone credit facilities. A growing number of banks also are making their technology available to their most important customers. Being a direct supplier of financial products and services is also important, but being a partner to a company's business strategy may add even more value to a relationship. Both bankers and corporations seem equally excited about these changing relationship dimensions and their inherent possibilities. This duality of roles is also clear in the way companies manage the relationship. While all companies stressed the importance of trust as an element of principled behavior, many also emphasized the significance of viewing and managing a relationship within the framework of changing roles. Bank relationships are an ebb and flow of movements between advisory and counterparty dimensions. Every relationship has both cooperative and competitive elements and should be openly managed as such. This recognition has numerous practical implications. However, its end result is a better future for relationships, built on healthier assumptions, and a more balanced view of relationship roles and responsibilities. By recognizing the importance and reality of changing roles, the relationship and the mutual value-creation process remains in focus and can be enhanced. Chapter Summary The new paradigm expresses the corporate banking relationship in terms of achieving and sustaining mutual value-creating or win/win outcomes. The practices that best achieve these outcomes are driven by three main themes of relationship behavior: the critical importance of being a valued customer, demonstrating principled behavior, and appreciating the significance of opportunities derived from changing roles.
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