Addressing organizational issues and revisiting them when necessary play a critical role in a bank’s success with the small business segment. Issues include: who should own the small business effort? Should it be part of the regional head’s responsibilities? What is the optimal role of a centralized small business group and under what circumstances should that change?

 

Organization: A Global Issue

Whether working in the U.S., Europe, or Asia, one issue we often address involves determining the area or areas within a bank that should be responsible for the small business effort. Typically, in Europe or Asia the country heads operate with full responsibility for the SME segment. Centralized support groups act as influencers but can seldom dictate approaches or practices in the field, even though they possess in-depth knowledge of the segment and should have both internal and industry best practice insights.

 

Within the U.S., a similar phenomenon exists. Community banks pride themselves on differing from the big players by their local decision-making. In turn, regional and national banks try to emulate their smaller competitors by placing more responsibility with regional market executives.

 

Depending upon the bank, the role of the central small business group ranges from minor to critically important. At some banks, we have seen small business support personnel tiptoe around the geographic heads while at others the line seeks them out for their guidance and insights.

 

The Myths Behind Regional Control of Small Business

Why require local decision-making in areas such as market positioning, sales management, and staffing, among other areas? Some reasons center on perceived customer requirements while others tie into personal preferences and the desire to retain political power:

 

• Small businesses require local decision-making. Some bankers believe that a geographic focus gives their bank a marketing/service advantage over banks with greater centralization. However, this perspective appears to be based more on anecdote and personal preference than on facts.

 

• More line-of-business expertise exists in the field than in the head office. While significant expertise does exist in the field, it is often inconsistent from one area to another. Further, no effective mechanism exists for communicating between geographies so that internal best practices can spread across the community, region, nation, or world.

 

• Regional or country management wants to retain as much control as possible. Wanting to retain control is a basic instinct in business; however, some managers have found that in return for giving up some local control they have gained greater consistency in their small business effort and, consequently, improved performance.

 

• Centralization results in increased bureaucracy and reduced customer responsiveness. Centralized groups, including small business, may have failed to establish themselves as adding value and/or may lack a significantly strong political position within the bank. Top management needs to step up and support centralized groups. Of course, the group itself needs to clarify the role it wishes to play and demonstrate the value it can offer.

 

The Potential Benefits of a Strong Centralized Small Business Group

Given the value of being close to the customer, why do we view increased centralization of the small business effort as critically important to growing the segment’s revenues and income? Five reasons:

 

1. Without a strong central effort, the value and potential of the small business segment can be overlooked by a bank. Too often, we see the small business area fighting with lower-value business areas for internal shelf space. We have seen this occur around the world in banks with assets ranging from $1-2 billion to over $1 trillion.

 

This may occur because of the limited knowledge of certain geographic heads or their prior poor experience with a centralized small business initiative. In our fact-based view, small business economics match or outperform virtually any other business line typically offered by a commercial bank. A strong central group can develop and communicate this perspective to top management.

 

2. Without a strong central small business group, field practices vary dramatically between geographies. Consistency simply does not exist in areas such as the intensity of the small business effort, the role of the branch manager related to small business, the number and role of dedicated small business bankers, incentives, and performance metrics. In most cases, consistency across the footprint leads to better results.

 

3. Corporate requirements demand coordinated regional support. Within the last few months, I have heard banks on three continents (using probably 20 different languages in total) discuss their need for a greatly enhanced focus on deposit generation. A central small business organization can leverage its experience and research to provide the products, sales management processes, incentives, and tracking mechanisms required to launch and effectively execute a strong initiative effort. A coordinated effort lead by a central group working with the field on execution has a better chance of success than multiple local initiatives.

 

4. A central group is more effective for communicating internal best practices. Top management often seems to believe that internal best practices will be communicated by some magical process rather than by instituting a rigorous procedure for their collection and communication. Left to their own devices, field bankers in one geography seldom “share and compare” with bankers from another. A knowledgeable central group has to play this role.

 

5. Growth and revenue metrics need to be consistent. We have seen small business groups from different geographies within the same bank calculate profitability with different methodologies. Meaningful internal profitability benchmarks are impossible to obtain and, frankly, many the bankers want to keep it that way.

 

So, What Should Banks Expect From Their Centralized Groups?

As effective as they can sometimes be, we are well aware that centralized groups can be impediments to success, setting up bureaucratic procedures and meaningless rules. We are not advocating that all small business efforts report into a centralized head.

 

What we are suggesting is that the role of the “center” be strengthened and, that, at a minimum, it should operate with a strong dotted line relationship with the field with revenues and earnings shadowed or doubled-counted between the two areas. Over a period of time, we expect that the central small business group at many banks will assume more and more direct authority as it demonstrates its knowledge and value and as the factory-like nature of the small business sales and service process becomes evident to senior management.