Which exec is banking on franchising?
COMMONWEALTH Bank chief executive Ralph Norris believes he can teach the “elephant” to dance. And because the “elephant” has enormous economies of scale – if it actually does dance – then smaller banks will need to watch out or they will be trampled.
To make sure everyone understands he is serious, Norris declares that by 2010 most CBA branches will be run as a “virtual franchise”.
Never before has any major bank embraced a franchise system in its mainstream operations, despite the fact that smaller banks have used forms of it with great success and retailers like Harvey Norman swear by the franchise model.
But the Norris elephant dance goes much further. He is determined to substantially increase the bank’s share of small and medium-sized business bank lending, which could start a dogfight between the majors as the other three big banks seek to preserve market share won at the Commonwealth’s expense over the last decade or so.
Norris concedes that the dancing lessons will take three years – that’s the time it takes to change the culture of an organisation as big as the Commonwealth Bank but he is already one year into the task.
“We have got to be a tougher competitor” he says.
What he doesn’t say is that many Australian banks and mortgage brokers have been enjoying the fact that the Commonwealth has been concentrating on its costs and not so much on its market. If Norris can change the Commonwealth culture, then competition in Australian banking will enter a new phase and there will be an even greater pressure for mergers.
About one-third of the Commonwealth Bank’s home lending is arranged by mortgage brokers. And Norris believes that they will always have a big share of the market. But the CBA has been researching why home owners prefer to deal with the Commonwealth via a broker rather than going direct to a branch.
The bank discovered that the overwhelming reason was convenience and accessibility. Brokers, like Mortgage Choice, open seven days a week and are available whenever the home buyer wants them. Norris believes that if the CBA continues to restrict branch opening times and does not become as flexible and accessible as the broker’s branches, then even more of the home loans will go to brokers.
Longer term, this will affect the economies of branch banking. “We have to match them,” he says.
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