Excuses. Many bankers, including senior managers, are extremely good at coming up with reasons not to take action. Some examples: “It’s been tried before and failed.” “It does not fit with our culture.” “Our customers wouldn’t like it.” “Banks don’t do that sort of thing.”
In some instances, these objections have substantial validity…in some instances. More often, however, they provide management with a reason to avoid actions that rock the status quo and could cause friction with internal staff. Our client experience convinces us that there are revenue and cost related actions that banks can take today that will likely result in a positive near-term impact. With the industry uniformly expecting a tougher 2007, now is the year to take actions that might have been avoided in a stronger macro-environment.
Insist on consistency. At many banks, relationship managers, branch personnel, and others define their own jobs. If they like to focus on customer service rather than sales, that is what they do. If they view themselves as credit experts, they focus on the sale and structuring of credit, largely ignoring other products, such as deposits, even if those products are more profitable to the bank and more important to certain target segments. Within the same bank, inconsistency results in bankers with the same title spending less than 20 percent of their time selling while others spend 60 percent or more doing so (unfortunately, the 20 percenters dominate).
Typically, inconsistency exists despite the existence of clear and detailed job descriptions. Instead, senior management in effect agrees to ignore its own requirements and encourages a kind of free-for-all among its employees.
Why does inconsistency continue to exist at many banks? Management fails to stand up to “push back” from employees who prefer to do things as they always have, indicating either a lack of courage or conviction that their approach makes sense for the bank’s bottom line and the customer.
The best banks are consistent and disciplined in how they approach the customer and their markets.
Make sales people sell. Related to the above, bank “sales people” are different from sales people in most other industries. In many cases, they spend a minority of their time selling. Instead, they administer, although banks offer admin support, or underwrite, and increasingly banks have dedicated teams to do so.
Rarely do we work with a client whose sales people spend more than 30 percent of their time selling, even if they say they do. Getting sales people to sell may be the simplest and the most effective sales-productivity opportunity available to banks.
Why don’t they sell? Many sales people (RMs, branch bankers, wealth management personnel) view sales as a minor component of their job. In some cases, management needs to develop a team approach to sales and service so that more time is available for selling. In more cases, however, bankers need to be forced to use the infrastructure that already exists.
Improve the staff. Too frequently, banks tolerate mediocre performers. Why? Some employees seem to obtain tenure, whereby removing them would be an unusual and anti-cultural action; instead, they may be transferred to another internal group. Management views replacing even mediocre staff as a challenge since strong new people are difficult to find; basically, this philosophy follows the view that the “devil you know is better than the devil you don’t know.” In other cases, salary levels are simply too low to attract and retain top performers; banks that do not want to pay for top talent condemn themselves to mediocrity.
To this day, at most banks the variance between the salary and total compensation of mediocre and top performers remains insignificant. That is a mistake.
Exit losing businesses and products. In recent years, many banks have allowed products to proliferate while also entering new businesses and/or geographies. The aim was to increase revenues/profits per customer (wallet share) and market penetration (market share). This results in banks offering products that fail to make economic sense, perhaps due to being sub scale or simply having picked the wrong area of focus. Ironically, offering too many products and/or serving too many markets may get in the way of sales success rather than promoting it.
Appropriately, the top performers are evaluating products and business with an eye to investing further in those that are top return generators and exiting businesses that fail hurdle rate minimums. Why are not all banks doing this? Lack of strategic direction, poor internal data, and politics all play a role.
Avoid over-servicing. Not all customers are created equal, some provide value to the bank while others destroy it. Banks need to do a better job of differentiating service levels and cost to serve. This type of differentiation can lead to problems if some customer segments are treated in a substandard fashion. However, the banks that effectively segment their servicing levels maintain a strong minimum level of service (albeit encouraging self-service whenever possible) while highlighting more profitable customers.
Banks continue to misalign service levels versus customer profitability and potential due to factors that go beyond limited data (the factor most often cited by banks). Most banks have spent insufficient time evaluating delivery channel options and how to match them with customer requirements. It is easier to continue to follow the same path rather than rethink traditional approaches. And, while clear payoffs exist to doing so, there are also risks attached.
Rethink the branch. Much has been written in recent years concerning the branch explosion. However, the inverted yield curve, higher interest rates, sophisticated customers, and tougher competition combine to erode branch profitability. Management needs to take a particularly hard look at additional branches versus other investment options.
In fact, many banks have too many branches rather than too few. At a minimum, banks should evaluate both branch profitability and strategy and be willing to confront past biases in favor of branch expansion. Branch closing should not be viewed as an admission of defeat, but rather, a recognition of the new economic reality that banks face.
Concluding Thought
Multiple options for positive action exist; turning the opportunity into analysis and the analysis into implementation remains a major challenge and a key differentiator in management excellence from also-rans.