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The Story

May 2011

Bye Bye PPI? – another Financial Services mis-selling ‘scandal’ – Business versus Customer Thinking” 

PPI, Payment Protection Insurance, became the latest mis-selling ‘scandal’ to hit media headlines after Lloyds Banking Group broke ranks and agreed to compensate customers at a cost of £3.2billion. Major rivals Barclays, RBS, and HSBC are expected to follow with provisions ranging from £1bn down to £270m. This Story is about Business Thinking taken to excess, and it can affect any industry that has a commanding position over its customers. We also point out the opportunity for new entrants – Opportunity Thinking. And we wonder what happened with the bank’s Management Controls that allowed the situation to get this far – Controls Thinking

The not-so-fine balance between Business and Customer Thinking in some industries

Business Thinking is about making profits and growing the business – it is the fundamental purpose. Customer Thinking (by business managers) is focusing on customers’ needs and satisfying those needs. These are two virtually opposite ways of thinking (Thinking Styles).

In industries where there is little real competition, such as Financial Services, or where products are ‘commodity’, such as Energy Provision, managers will tend to focus more on Business Thinking. PPI mis-selling is a typical outcome of this unbalanced thinking. Energy companies’ (dubious) claims of ‘savings’ if customers switch supplier is another. In most cases, because of customer lethargy, these practices continue. In the PPI case, however, the mis-selling got way out of control. The true cost, eg to reputation and trust, will only emerge with time – especially if new market entrants seize the opportunity.

The size of the ‘scandal’


About 16 million PPI policies have been taken out and there could be as many as 3 million cases of mis-selling, ie PPI’s being aggressively sold to borrowers who either did not know they were buying it or would not have been able to claim because they were ineligible, eg if self-employed.

Customers who were mis-sold these policies will be able to claim a full refund on their premiums plus interest at 8%. The number of complaints made against banking and insurance services are at the highest level for 10 years. PPI accounted for over half of new cases reported to the financial ombudsman, more than 100,000 claims logged. 


Analysis and Lessons

Buusiness Thinking ... Customer Thinking ... Opportunity Thinking ...
Controls Thinking … Contingency Thinking

Business Thinking 

In many industries competition and innovation is such that companies are forced to consider how customers will respond to their products and marketing. In the financial services industry however there is a huge level of customer lethargy, in large part caused by the perceived lack of ease in switching supplier. Banks are in a very fortunate position.

However, they are also in a slightly awkward position in that they feel obliged to offer so-called free banking on current accounts. This means that they need to constantly think of ways to make money from their customers in other ways. In the main, the banks are extremely good at this Business Thinking and are usually highly profitable.

The energy companies are simply selling gas and electricity – commodities, with little room for differentiation. So they are forced to constantly dream up increasingly cleverer ways of selling. It is no surprise that Ofgem, the energy regulator, has accused the energy companies of failing to “play it straight with consumers” and bamboozling them with complex tariffs. They have little choice. They are businesses, not public sector.

Getting a Balance between Business and Customer Thinking

In most businesses, managers are forced to achieve a balance between Business Thinking and Customer Thinking, constantly having to switch between both Thinking Styles. Customer Thinking should result in satisfied customers whilst Business Thinking maintains profitability. Think Tesco. The balance is crucial. However, the competition situation allows the banks and energy companies to focus more on Business Thinking than Customer Thinking. But this situation could change if the UK coalition government encourages new entrants or gets tough on advertising claims and selling.

 Opportunity Thinking

We once sat in on a ‘sales’ presentation given to a local chamber of commerce meeting by a High Street bank. But despite talking about his bank for over 40 minutes the manager made absolutely no attempt at differentiating his bank from rivals. It is of no surprise that most people think all banks are the same and there is little point in switching supplier.

However, with the advent of the credit crisis, and now the PPI ‘scandal’, the stage is wide open for new entrants, or even incumbent banks, if they grasp the OPPORTUNITY – Opportunity Thinking. The level of customer trust in the banks must be at an all-time low. Now is the moment; if the government can also do some Opportunity Thinking and assist new entrants.

 Controls Thinking


Finally, we have to ask the question: did senior management in all these banks know what was going on? Did they know that a very large number of customers were being mis-sold PPI policies? Whatever the answer, the magnitude of the problem is such that all the banks would appear to have lacked the level of Controls Thinking that would have prevented this PR disaster.

Contingency Thinking

It is also now clear that the banks fought tooth and nail to avoid accepting blame. But all it took was one of the banks to break ranks and ‘come clean’, pressurised by the media. This whole sorry situation was foreseeable, and could have been prevented by adequate Contingency Thinking“What could go wrong?”

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