Page 1: Introduction
Banking is currently undergoing significant structural change. Large building societies have demutualised. Newcomers, such as supermarkets, are entering the banking market with a growing range of financial products. At the same time, banks are increasingly recognising the attractions of developing new delivery channels and re-engineering traditional channels in order to meet changing customer preferences and improve efficiency and productivity. Many personal customers continue to use their local branch for most of their banking needs, whilst others prefer telephone or PC banking. Business customers need local access to a decision maker who can handle their day-to-day banking requirements.
The last ten years have seen great changes in the ways in which customer needs are met by business organisations. Increasingly, the emphasis is on customer focus - i.e. providing the types of goods and services that customers want, where they want them and when they want them. For example, in the financial sector, bank assurance organisations have developed which provide a full range of financial services for individuals. Customers are able to have all (or most) of their financial needs met by one provider in a user-friendly way.
There has also been the development of 24-hour telephone banking which enables customers to bank from the comfort of their own home. In retailing, the development of multifunctional supermarkets means you can now buy your bread, fruit and vegetables, and at the same time take in your dry cleaning for a same-day service. For today’s consumers, time is precious and convenience is placed at a premium. The modern consumer will buy from those outlets that best listen to and then meet their requirements. Most recently, supermarket banking has been introduced.
This case study examines the development of Sainsbury’s Bank, which pioneered and developed the concept of supermarket banking in this country. The study shows how the success of the new bank benefited from the input of one of the UK's best established banks - Bank of Scotland.
J. Sainsbury plc has recently further developed its extensive presence in the UK through the setting up of Sainsbury’s Bank. In order to do this, J. Sainsbury looked for a partner with the necessary knowledge, and experience in the financial services market. Although a retail organisation such as Sainsbury’s could, in theory, set up a bank alone, it made more sense to work with an established financial organisation. As a result, Bank of Scotland was chosen to provide full processing services for Sainsbury’s Bank. During 1997 and 1998, Bank of Scotland increased the number of its employees substantially due to its joint venture with J. Sainsbury plc and a strong growth in its direct banking business.
The creation of Sainsbury’s Bank involved the bringing together of two previously distinct types of organisation:
The net effect of the integration process was to create synergy, i.e. a situation in which the sum of two parts is greater than the whole (2 + 2 in this case is greater than 4). The logic of this process is plain to see. Bank of Scotland was able to gain a presence in the retailing world with J. Sainsbury, the second largest supermarket chain in this country. At the same time, Sainsbury’s was able to provide a range of financial services for customers including the convenience and ease of access to 24-hour telephone banking.
The advantages of this synergy seem so obvious that it is surprising that it has not happened sooner. For the large retailers, it makes sense to move into a new industry at a time when they are finding it increasingly difficult to grow their core business organically. For example, supermarkets’ coverage of Great Britain is so great that they are now encountering difficulties in getting planning permission for new stores. For supermarkets, moving into an entirely new industry makes strategic sense.