The economic term "creative destruction" is like a Band-Aid. It sounds therapeutic, but it covers a great deal of trauma and pain. And "trauma and pain" certainly describes the results of the Asian financial crisis of 1997-1998: Untold numbers of companies and individuals went under, never to come back up.

I didn't know anything about banking when they hired me. Nothing except my own checking account.

On the other hand, the crisis did expose a number of poor business practices and left the field clear for innovation. Companies that used the crisis as a spur to improvement are better able to compete in a global market. One of them is Siam Commercial Bank (SCB).

Change program

The crisis wiped out many of the commercial banks in Thailand. Those that remained needed to solidify their financial standing and revive their brands. Competition to stand out was fierce because the crisis destabilized the banks' old standbys -- corporate banking was losing steam, many loans were in default, and investment banking was shaky. The smart banks noticed that retail customers were standing out in a suddenly clear field -- and began looking for ways to market to them.

But Thai banks had never put much effort into cultivating relationships with this unglamorous customer base. SCB was no different. Customers waited for 45 minutes on average to see a teller. Bank managers' offices were in the back of the bank, the most junior employees faced the customers, and it was a rare customer who spotted an employee with real authority. The bank had no clear product or service strategy to fuel growth, low levels of productivity, a limited branch network, and employees who were reliable but hardly engaged.

In 2001, SCB set out to change all that, figuring that customer service was the differentiator it had been looking for. The bank installed ATM machines throughout Thailand, especially in Bangkok. SCB upgraded its technology and improved efficiency. It started adding branches quickly, emphasizing the bank's progressive thinking through the branches' modern design. SCB focused on putting retail customers first, and it paid off: Total assets for the bank climbed 69,035,000,000 THB (2,116,202,510 USD) between 2002 and 2003.

SCB's response to the crisis was smart and effective, but the bank's best leadership move may have been its most questioned one -- it hired Kannikar Chalitaporn as the head of retail banking in January 2003. Chalitaporn learned the ropes of retail and management at Unilever Thai Trading Ltd., eventually becoming vice chairman and director of personal care products. That retail management experience, not banking knowledge, is what SCB so badly needed. So SCB hired Chalitaporn and gave her time to learn banking from top to bottom -- even though her initial understanding of the field was almost nil.

"I didn't know anything about banking when they hired me," says Chalitaporn. "Nothing except my own checking account." But SCB didn't necessarily want a banking expert when it went looking for the head of its retail banking group. The bank wanted someone to fix problems, and Chalitaporn's leadership style -- analytical, proactive, unsentimental -- was the best response to the bank's problems.

It only took three months for Chalitaporn to learn banking laws, SCB policies, and the culture of a historic, 9,000-employee bank. "Banking laws weren't the main thing [I needed to know]; it was the principles of management, of understanding customers, of leadership, and I knew them," says Chalitaporn. "I understand the supply chain." The supply chain, Chalitaporn quickly realized, was similar whether the supply was face lotion or mortgages -- and it was the problem she had to fix first.

Better, faster, stronger

Having examined the bank, she called in the top managers and told them that henceforth, their job was to make customer service part of the culture at every level. "I'm not paying your salary. The customer pays your salary," she told them.

That was the easy part. The rest was a shock: SCB would not be competing on price anymore because Chalitaporn takes a very dim view of such tactics. "It won't last, and it's all lost profit anyway," she says. "Anyone can cut prices; you don't need a brain to do that. What you should do is add value -- you should charge a premium for a valuable product." Nor would SCB add new products. Instead, it would be streamlining the ones it had. The revenue stream would have to come from the sales made by -- and the services provided by -- employees.

Branches would now be held accountable against key performance indicators, which would be announced at the beginning of the year, starting the following January. There would be an overall goal for the bank as a whole, but each branch would also be measured against its own past results. Area managers would no longer spend most of their time at the head office, and when they were at a branch, they would be at the least profitable branch instead of the most comfortable one. Branch managers who couldn't meet the new compliance and performance standards would be moved to other, less profitable branches. "Just shuffle a few. Others will get the message," says Chalitaporn.

This strategy sounds both ambitious and aggressive, and maybe it was -- but Chalitaporn didn't fire anyone, ever. Layoffs would have devastated the employees, run counter to the SCB culture -- whole families are employed at the bank -- and undermined all her efforts. But the fact that underperforming managers were moved instead of fired indicated that the old guard didn't have to move out of the way, and they could both learn from and teach fresh new talent. But Chalitaporn didn't expect SCB employees to reinvent their bank on their own. "If we succeed," she told them, "we succeed together. I'll be behind you every step of the way."

Copyright Ó 2007 The Gallup Organization, Princeton, NJ.  All rights reserved.  Reprinted with permission.  Visit The Gallup Management Journal at http://gmj.gallup.com/

Article from The Gallup Management Journal