There is a lot of advice and prognostication about how AI, specifically generative AI technology like ChatGPT, will impact society. There’s just as much rumination about how jobs and entire industries will change in the coming year.
Most of this is framed in terms of individual productivity and the potential to partially or wholly replace labor in practice. In particular, AI is breathlessly predicted to eliminate white collar jobs like, well, almost every job inside a financial institution.
However, the real potential for differentiation is using this capability to amplify your biggest strength.
In his book 7 Powers: The Foundations of Business Strategy, author Hamilton Helmer presents a framework for looking at what makes a business more profitable than its competitors over the long term. More than just a catalog of “moats” or competitive barriers, Helmer’s model frames these powers for how a business benefits from holding power.
A company or organization benefits from power through an advantage in value delivered or cost savings in operation. Cost advantages can come from cheaper inputs or the costs/approach of production and distribution. Value advantage comes from a demonstrable superior product/service, brand or affective value, reduction in risk or uncertainty of buyers, or benefits from the use of others.
On the competitive side, Helmer’s identified powers hinder competitors either from their unwillingness or inability to match strategies. The competitor (often a larger incumbent) is held at bay by the damage or loss of share they would incur, the history or inertia of their situation, or just not having access to what enables the power.
So in this view, long-term profitability requires not only making your offer better, it must make your competitor worse off or dull in comparison.
For example, the classic disruption of Blockbuster by Netflix checks several boxes in this analysis. Netflix positioned itself in such a way (“No Late Fees”) that Blockbuster was unwilling to follow until it was too late. They also took advantage of scale economies by creating their own content (a single fixed cost) vs. only licensing Hollywood studio content (variable costs).
So what does this all have to do with AI now, and how is this relevant to community banks and credit unions?
JP Morgan will spend more the $15B on technology this year. Ditto for the other large nationals. Even in a world where the 9,000+ banks and credit unions < $10B in assets banded together, you could not outspend them.
However, their focus is efficiency/legacy modernization and capabilities like robo-advisors.
And what they are missing, and could not buy or replicate, is the insights into your local market that you have. All of the 1st party data you already have presents an opportunity to lean into the strategy you are already winning with.
Personal, relevant, and differentiated service.
The emerging capabilities of generative AI, among others, can enable you to narrow your focus to the individual. The mythical “segment of one” is quickly becoming not only possible but available to even the leanest and low-tech organizations.
Now is the time to get started. Consolidation is coming. Draw closer to your served market, and extend your killer in-branch experience to all your touch points. This effort, well executed, can create a formidable advantage and position you for success no matter which way or how fast the market moves.