Chartered Management Institute: In my opinion

Sir Peter Ellwood, a CMI Companion and former CEO of Lloyds TSB and chairman of Rexam, on why banking and manufacturing are not so different.

by Peter Ellwood
Last Updated: 06 Nov 2012

Banking and manufacturing are often presented in different lights. The former represents the supposedly corrupted source of the financial crisis, whereas the once neglected British manufacturing industry is now considered the saviour of the economy. Yet, after decades of leadership experience at the top of both sectors, I am convinced that they are not so different and it is important for business leaders not to get caught up in such emotional arguments.

Whether running a bank or a manufacturing company, managers and leaders need to recognise that business is business, and it is the quality of their leadership that will make a real difference to competitiveness, regardless of the current image of their industry.

We all know the banking sector is regarded with much indignation, so I would like to make it clear that I am talking about the responsible high street bankers looking after the day-to-day needs of millions of individual and business customers, and not the casino-capitalist investment bankers gambling with toxic sub-prime debt. Regardless of this distinction, my old colleagues in banking are the target for much criticism and my associates in manufacturing now operate in a rediscovered paradigm of virtue. The public images of these industries could not be more opposed; however, under the surface they are not so different.

Of course, there are differences between manufacturing and banking. These can be summed up in three words: tangibility, trust and transparency. Let's use an example of someone buying a can of paint and someone buying an investment product. The paint is tangible. It will do what it says on the tin. Because the bank product is often not tangible, the banker needs to work much harder at open, transparent communication about the product to win the trust of the customer. But do these differences lead to different business models? I would argue they do not - and that leaders in both sectors share the same four core business challenges.

First, let us consider the role of the customer. This applies whether you are providing a savings account, a life policy, a tin of paint or an aluminium beverage can. If customers feel that their needs are not being met with a quality product or service at an acceptable price they will rightly go elsewhere. All businesses need that focus on the customer.

The second challenge is to know who your competitors are and not underestimate them. If you start with the presumption that you are of course better than your competitors and have little to learn, then whether you are a banker or a manufacturer you have major problems ahead. It is essential to identify where you are ahead and how you can build on that strength, and where your competitors have the edge, so you can remedy your own deficiencies.

Third, businesses must focus on cash and capital, otherwise they will not survive. While an SME might struggle to pay the wages if poorly managed, leaders in larger companies have to worry about the balance between a generous dividend policy and leaving enough cash in the business to invest for future growth, as well as grappling with making the correct level of return over the cost of capital. This has been a source of tension in many companies.

Interlinked with these points is the fourth similarity: costs. I have not seen any business in any sector where an unremitting drive on costs is absent. I mention these areas as examples but there are many, many more. It is therefore unsurprising that similar leadership skills are required for those running banking and manufacturing businesses. So what are those common leadership skills?

One is the ability to see the big picture and lead with vision. Leaders need to absorb and understand the macro political, economic, customer and product trends in a way that will help form the vision of where they want to take their company.

Leaders need a healthy dose of curiosity. The day a leader loses an insatiable thirst for knowledge and information is the day he or she stops being a good leader. You cannot have a true sense of curiosity if you are always in 'send' mode, rather than 'receive' mode. It is a dangerous chief executive who fails to listen and listen hard.

Also, it is important to accept that your own knowledge is finite. Never believe your own PR or an acolyte's sycophancy. Arrogance, built on a lack of self-knowledge, is a disease that has brought down many once fine companies, both in banking and in the wider industrial scene.

But most important is a strong sense of integrity. The overriding leadership quality for bankers or manufacturers is integrity. Integrity of behaviour is about treating other people as you would like to be treated. Integrity of decision-making is about doing what you know to be right, even if it leads to adverse consequences. Nothing is more important than integrity.

So I conclude that business is business whether it is banking or manufacturing. Public opinion may favour one over another but for leaders the most important thing is to concentrate on the critical business challenges of their sector, and this is the real key to success.

CV:

Peter Ellwood spent more than 40 years in banking at Barclays, TSB and finally Lloyds TSB, where he was group chief executive for seven years, before retiring in 2003. He was chairman of ICI from 2004 to 2008 and chairman of Rexam between 2008 and 2012. He is a director of Azko-Nobel. His interests outside business embrace family, music and a wide variety of not-for-profit organisations.

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