The taliban hedgehog

Handelsbanken has received a lot of well-deserved recognition lately. They were recently awarded “Best bank in 2012” by the magazine Privata Affärer. The motivation to the award, Handelsbanken builds on traditions, acts in the presence and plans for the future, is probably extremely well aligned with the key message in the annual booklet “Objectives & Means” that the CEO Pär Boman distributes to all employees at Handelsbanken. Though not as eloquent, a recent article in Financial Times conveys the same admiration for the successful and consistent execution of Handelsbanken’s traditional banking model when the author refers to Handelsbanken as both “the Swedish back-to-the-future banker” and “talibans”. In Sweden, we have an old saying that “a loved child has many names”. I will prove that in this blog post by adding another nickname to Handelsbanken. I will argue that they should be nominated along with IKEA and H&M if Jim Collins ever makes a European edition of his block buster book “Good to Great”. What others interpret as fundamentalism by Handelsbanken is probably the best illustration in Sweden of the Hedgehog concept, which is one of the key characteristics that the author identified among the great American companies that outperform their peers.

Jim Collins and his team coined the phrase “the hedgehog concept” from an ancient Greek parable, “The fox knows many things, but the hedgehog knows one big thing”, to illustrate their key findings. According to their research, the good-to-great companies are like hedgehogs – simple, dowdy creatures that know one thing and stick to it. The comparison companies are more like foxes – crafty, cunning that know many things yet lack the consistency. The author argues that sustained great results depend on building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the intersection of the following three circles, the hedgehog concept.

Let me give my personal motivation to why Handelsbanken qualify as a hedgehog and Good-to-Great company:

What can you be the best at?

When reading reports on Handelsbanken, you get a very consistent picture that is well aligned with the three circles above. A booklet on the history of Handelsbanken confirms that the ambition to be the best local retail bank is hardwired in their DNA since 1871, when the bank was founded. Contrary to the competitors at the time, Handelsbanken decided to focus on what they called “true banking activities with deposits and loans”. Handelsbanken sticks to this “true banking” offering and is still handling cash at all their branches in Sweden.

What drives your economic engine?

Many Internet evangelists ridiculed Handelsbanken and their branch centric business model during the internet hype. They couldn’t see beyond the brick & mortar whereas Handelsbanken persisted in their conviction that the branches drive their economic engine. To Handelsbanken, the branch is the epicenter of a local market with a branch manager that is empowered to take decisions on loan approvals and other matters that may impact the local P/L. In addition, Handelsbanken is convinced that the branch is essential to provide availability to their customers. According to one of their catchphrases, that is where they start new customer relationships and hand over the keys to the bank. In the book Good to Great, the author explained that the second circle on the economic engine is about finding your strategic denominator. It will take you two minutes with an annual report from Handelsbanken to find theirs. It is profit per branch. And Handelsbanken is not the only example to prove the branch bashers wrong. I have in a previous blog post showed that there is positive relationship between the number of branches and the Return of Equity (RoE) among the big four banks in the Nordics.

What are you passionate about?

Talking about passion in business tend to be corny, especially to us cynical Swedes. But in order to nail the third circle, I think that we have to consider that Handelsbanken is passionate about customer satisfaction. You do not have look hard to find evidence to support that case. Handelsbanken has outperformed their main competitors on Customer Satisfaction for 23 consecutive years on all their local markets. It is impressive and indicates that all the 11.000 employees share a common purpose, something that Jim Collins probably would call a passion.

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