The Value of Best Practice Analysis

Our clients want to know how competitors position and differentiate themselves in the marketplace, which segments they focus on, and how they are organized. Over the years we have completed best practice analyses in small business, commercial banking, retail banking, wealth management, and multiple areas of commercial finance. Virtually every project we complete includes some evaluation of competitors, whether informally or as a key part of our engagement.

Not surprisingly, over the years we have found that the same handful of competitors is of interest to clients. These players have demonstrated both an excellent performance and an innovative (a word not often used in banking) approach to how they conduct business. Of particular interest are companies like Wells, Wachovia, Merrill Lynch, Commerce of NY/NJ, and a small number of others.

Looking at industry best practices provides great value. First, from a strategic perspective, management can learn from the successes and failures of others. Evaluating competitive strategies that work can be leveraged; they serve as a foundation for possible change rather than as an approach that can simply be copied. For example, a number of banks have focused on developing segmentation strategies that are aimed at differentiating the bank from other players and positioning the bank as providing extraordinary service to select customer groups. Managements that evaluate the major elements of the segmentation strategies can then determine both whether and how a similar approach makes sense for their bank.

Second, in considering its tactical impact, best practices analysis can result in a fundamental shift in a bank’s traditional approach to doing business. For example, banks like Wachovia, BofA, and Union have all rethought their approaches to the middle market and redesigned how they sell and service their customers. Similarly, BofA has also led the wealth management industry in its focus on the “mass market” wealthy.

While clients often say, “We are unique,” most are not. Therefore, if senior management looks at competitive activities with an open mind, it is able to uncover the key tactics that result in improved revenues or greater efficiencies for others.

However, best practices must be viewed within the context of the individual bank’s culture and capabilities. Too often, we see clients attempting to incorporate the best practices approaches of other players while lacking the personnel and mind set to make those efforts work. Self-knowledge is a key element of successful best practices implementation.

Look Inside As Well as Outside for Best Practices

While the value of industry best practices analysis is almost universally accepted, banks often overlook their internal practices. Even recently, we have seen instances of business managers who literally sit next door to one another virtually never discussing their approaches or offering insights on sales and service issues that are relevant to their colleagues in other parts of the bank.

Examples of missing internal best practices: Small business groups and middle market groups do not interact; cash management sales staff keep successes to themselves rather than effectively communicating to RMs; private banking and wealth management areas operate without cross-linkage; commercial finance groups fail to share their common experiences;

In our view, a best practices exercise should start with an internal evaluation of sales and service excellence. But which banks are good at sharing internal practices? Almost none. Why?

1. Banker ego and insecurity. People do not want to open themselves to criticism or “foreign eyes” evaluating their activities.
2. The silo mentality of banking. Encouraged by culture and accounting systems, units remain focused on their own worlds. Period.
3. No process in place. Bankers do not know how to share nor even whether they should. No one has told encouraged them to do so.
4. No management support. Oftentimes, outsiders, including consultants, are given greater credibility than insiders. Sometimes, mid-level bankers even hope to use the consultants to deliver messages and information to management: “If it comes from you, they’ll believe” is a comment we have heard frequently. That comment indicates a culture in which bankers operate under a credibility cloud, in most cases undeserved.

How can banks emphasize their internal excellence?

• Senior management needs to communicate its interest in hearing about best practices. And, they must remain committed to the concept.

• Banks should consider creating an intranet that highlights specific cases and giving “rewards” to those that excel.

• Showing commitment by structuring and holding an internal best practices conference that cuts across the bank will highlight practical actions that others can adopt. You may need consultants to put this type of seminar together but the conference needs to be driven by internal people.

• Over time, management needs to set the stage for building a best practices culture across the bank so that sharing becomes second nature.

Every bank we know operates with at least some pockets of excellence, whether they involve selling, segmentation, credit analysis, risk management, or another area. Capturing them and communicating their essence throughout the bank needs to become a priority. It should also be “owned” by an executive who understands and supports the value offered by evaluating internal activities. Without doing so, banks are giving up important insights about their bank as well as potential action steps that can meaningfully increase the bottom line.