Can You Say What Your Strategy Is?
such customers and provides access to a very wide range of sophisticated products based on a Monte Carlo simulation of the probabil- ities of running out of money according to different annual rates of return on different categories of assets. How does Merrill intend to deliver this value to its chosen customers in a way that’s unique among large firms? First, it is pushing brokers—especially new ones—to become certified financial planners and has raised internal training requirements to put them on that road. The certified financial planner license is more difficult for brokers to obtain than the standard Series 7 license, because it requires candidates to have a college degree and to master nearly 100 integrated financial- planning topics. Second, Merrill offers all forms of insurance, annuities, covered calls, hedge funds, banking services, and so on (unlike Edward Jones, which offers a much more limited menu of investment products). Since several of these products are technically complex, Merrill needs product specialists to support the client-facing broker. This “Team Merrill” organization poses very dif- ferent HR and compensation issues from those posed by Edward Jones’s single-adviser offices. Merrill’s compensation system has to share income among the team members and reward referrals. Wells Fargo. This San Francisco bank competes in the brokerage business as part of its tactic to cross-sell services to its retail banking customers in order to boost profit per customer. (It aims to sell each customer at least eight different products.) Wells Fargo’s objective for its brokerage arm, clearly stated in a recent annual report, is to triple its share of customers’ financial assets. The brokerage’s means for achieving this goal is the parent company’s database of 23 million customers, many of them brought into the firm through one particular aspect of the banking relation- ship: the mortgage. Wells Fargo differs from Edward Jones and Merrill Lynch in its aim to offer personalized , rather than personal , service. For example, the firm’s IT system al- lows a bank clerk to know a limited amount of information about a customer (name, birth- day, and so on) and appear to be familiar with him or her, which is quite different from the ongoing individual relationships that Jones and Merrill brokers have with their clients.
and unique configurations of activities to support them. Merrill Lynch. During the five-year tenure of former CEO Stan O’Neal, who retired in October 2007, Merrill Lynch developed an effective strategy that it called “Total Merrill.” The company’s value proposition: to provide for all the financial needs of its high-net-worth customers—those with liquid financial assets of more than $250,000— through retirement . While a lot of brokerages cater to people with a high net worth, they focus on asset accumulation before retirement . Merrill’s view is that as baby boomers age and move from the relatively simple phase of accumulating assets to the much more complex, higher-risk phase of drawing cash from their retirement accounts, their needs change. During this stage, they will want to consolidate their finan- cial assets with a single trusted partner that can help them figure out how to optimize income over their remaining years by making the best decisions on everything from annuities to payout ratios to long-term-care insurance. Merrill offers coherent financial plans for
The Strategic Sweet Spot The strategic sweet spot of a company is where it meets customers’ needs in a way that rivals can’t, given the context in which it competes.
CONTEXT (technology, industry demographics, regulation, and so on)
COMPETITORS’ offerings
CUSTOMERS’ needs
SWEET SPOT
COMPANY’S capabilities
harvard business review • april 2008
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