EXCELLENCE. ALWAYS. MVPs. 2006. 0103.2007

Commerce Bank

The Power of WOW! How Commerce Bank Created a Super-Growth Business in a No-Growth Industry Vernon W. Hill, II

“ Our whole story is growing revenue.” —Vernon Hill (Top-line driven; standard is bottom-line driven by cost cutting)

8,000 Radio City Music Hall … J.D. Power/Customer service/Bank/NYC/1 st in 5 of 6; 2 nd in #6 … Inspired by Ray Kroc … $36B ($100B in 6 years); +$750M per month/373 branches in 7 states/900 in 6 years … player piano … Penny Arcade/$25K per machine … 9M lollipops, 2M dog biscuits … stupid rule (red) button … call center not “cost center,” but opportunity/human by second operation … over-invest in real estate … design-experience fanaticism … Red!/Red Friday/Hot music … deposits available next day (vs ½ on 3 rd ; ½ on 5 th ; focus on 99%, not 1%) … LONG HOURS!!!! (7/week/12 hours/Fridays/15 minutes before) … “Do whacky things for customers” (VH) … “create magical moments of surprise and delight for employees” (VH) … “Hire for attitude. Train for skills.” (VH) … Chinatown/10K first day; 28K first week … Commerce U in ’93 (“underlying theme is fun”—VH)

Commerce Bank: From “Service” to “Experience” 7X. 730A-800P. F12A. * * ’93-’03/10 yr annual return: CB: 29%; WM: 17%; HD: 16%. Mkt Cap: 48% p.a.

Thesaurus of WOW! “ They” hate it if you call them “bankers.” “They” love it, on the other hand, when you ask to see their #s—stupendous. “They” are … Commerce Bank. These absurdly fast growing, insanely profitable “retailers,” rewriting the rules of East Coast retail banking, sent me a copy of their booklet, “Traditions.” It explicates their “Wow the Customer Philosophy.” At the end there’s “A Collection of Commerce Lingo.” I won’t define (use your imagination), but simply offer a small sample: “Fans, Not Customers.” “Say YES … 1 to say YES, 2 to say NO.” (A staffer has to get a supervisor’s approval to say “no” to anything.) “Recover!!! To Err Is Human; To Recover Is Devine.” “Leave ’Em Speechless.” “Positive Behavior.” “Positive Language.” “Kill A Stupid Rule.” (Get cash rewards for exposing dumb internal rules “that impede our ability to WOW!”) Make the ‘WOW! Answer Guide’ Your Best Friend.” “Buzz Bee.” “CommerceWOW!Zone.” (A K-12 financial education program.) “Doctor WOW!” “Ten-Minute Principle.” (“Stores” open 10 minutes before posted hours, stay open 10 minutes after posted hours—and the hours, such as open 7 days a week, are already incredibly generous & tradition-shattering.) “Wall of WOW!” “WOW! Awards.” (The annual recognition ceremony—Radio City Music Hall, with the Rockettes, in ’05.) “WOW! Patrol.” “WOW! Spotlight.” “WOW Van.” “WOW Wiz.” (A service superstar.) Etc.

S.M.A.R.T. S. Say Yes M. Make Each Customer Feel Special A. Always Keep Customer Promises R. Recover! T. Think Like Our Customers

Standard bank: Keep ’em out of branches; ignore middle income; cost-driven following mergers. (“No great American retailer was ever created by doing acquisitions”—VH “No examples of seriously broken retail models that have been fixed.”) CB: deposit focus; customer experience; best facilities; no stupid rules; revenue driven; better experience for lower yield

“ … cut costs at most banks. ‘We have to push them out of the branches.’ ‘We have to push them to machines.’ We have to push them to the Internet.” Source: Vernon Hill

“ We defy conventional wisdom, operating more like the young bucks at Starbucks than the old farts at the Bank of America.” —Vernon Hills

TP: Experience … Top-line fanaticism (vs Cost-fanaticism) … Deposits …Drive ’em to the branch … Experience/Wow! … design … little touches … no stupid rules … Talent/Attitude/ Recognition

John Laing Homes

“ We don’t ‘close units,’ we build homes.” —Larry Webb, John Laing Homes

“ If you want to gain competitive advantage fast, the best place to do it is in sales .” —Larry Webb, John Laing Homes

“ Builder of the Year”/ Professional Builder … Experience … Communities/ Family values/ Relationships/After-sale “ …talk to our customers …” J.D. Power awards … Warranties … Price premiums … Design!!!! (all Divisions winners) (Top “names”) … Data/market research … Top company to work for … Team development … “I just love being a home builder.” (LW) … Brand … Emaar Properties (Robert Booth/Int’l: “They have a tremendous focus on the customer, and that is hugely important to us.”)

“ Soft Skills, Hard Dollars” Source: Headline, BigBuilder, September 2006

“ A couple of years ago, the Los Angeles division [of John Laing Homes] decided it was going to become the king of Hispanic housing [sarcasm], because our research shows there’s a huge demand. They were right to go after that market, but I looked around the room, and it’s full of white guys. They were telling us how much they know about Hispanic buyers, and they were making it up. … We’re getting better now. We hired two smart, young Hispanic managers. … We are working through a partnership with [former HUD secretary] Henry Cisneros. We’re learning, but we have a long way to go.” —Larry Webb

“ We are a ‘life Success Company’” Dave Linegar, RE/MAX

jim’s group

Jim’s Group : Jim Penman.* 1984: Jim’s Mowing. 2006: Jim’s Group. 2,600 franchisees (Australia, NZ, UK). Cleaning. Dog washing. Handyman. Fencing. Paving. Pool care. Etc. “People first.” Private. Small staff. Franchisees can leave at will. 0-1 complaint per year is norm; cut bad ones quickly. *Ph.D. cross-cultural anthropology; mowing on the side Source: MT/Management Today (Australia), Jan-Feb 2006

X.06

X.06.23 : Whole Foods Markets … Starbucks … Wegmans … Commerce Bank … John Laing Homes … Apple … London Drugs … Griffin Hospital/ Planetree Alliance … The Met School/Big Picture … Carl Sewell … Progressive Insurance … Stanford women’s sports … Stanford D-School … HSM … Washington Speakers Bureau … Build-A-Bear … RE/MAX … Donnelly’s Weatherstrip Service … Jim’s Group … Cirque du Soleil … (U.S. Grant) … (Horatio Nelson) … (Stew Leonard’s) … (DeMar Plumbing) … (FBR/Friedman Billings Ramsey)

X.06.23 : Whole Foods Markets (high-end, experience-design, demographic) … Starbucks (people, experience) … Wegmans (people) … Commerce Bank (nuts about customers, WOW, people, execution) … Apple (design-experience, breakthrough, “virus management,” resilience, talent, “seriously cool”) … London Drugs (design-experience, people, “solutions”) … Griffin Hospital/Planetree Alliance (customer-centric, “whole person”) … The Met School/Big Picture (engagement, self-control) … Carl Sewell (experience!) … Progressive Insurance (speed, IT) … Stanford women’s sports (demographic, Blue Ocean) … Stanford D-School (design-biz-engineering, Blue Ocean) … HSM (execution, experience) … WSB (integrity, broad view of customers, execution) … Build-A-Bear (experience) RE/MAX (people/“create success stories”) … Donnelly’s Weatherstrip Service (high end, execution-reliability, simply the best) … Jim’s Group (imagination-Blue Ocean, demographic, customer-centric) … Cirque du Soleil (talent, R&D, Imagination, resilience, design-experience, partnering) … (U.S. Grant/ execution, delegation, people, K.I.S.S., action-at-all-costs, win, bold ) … (Horatio Nelson/ execution, delegation, people, K.I.S.S., action-at-all-costs, win, bold ) … (Stew Leonard’s/ people, experience-design, Wow ) … (DeMar Plumbing/ experience, people, Blue Ocean ) … (FBR/Friedman Billings Ramsey/ research, focus )

High end. Experience. Design. Crazy for customers! Crazy for Patients! (“Whole person”). Wow! People first, second, third. Breakthrough or bust. “ Seriously cool.” “ Virus management.” Resilience. Tippy top talent. “ Solutions,” not “just” “satisfaction.” Engagement. Self-control. (Customer/Patient/Student control.) Blue Ocean. “ Mundane stuff” made great. Great demographic. The best. Period. Effective partnering. K.I.S.S. Play to win. (Offense > Defense.) Bold! Action! Always! Integrity-as-strategy.

* Focused on growth and revenue and “ offense ,” not defense and cost containment. * People-talent obsession. * Provide mind-bending experiences. (Driven by design primacy.) * Nuts about customers. * Happy to use words like “Wow.” * Pretty close to the high end of the market. [* Ability to make silk purses filled with gold out of sows’ ears: Wegmans-Whole Foods-Stew Leonard’s and groceries; Jim’s Group and dog-walking; Donnelly and weatherstrip installation; DeMar and plumbing. ] * Execution!