Key Message: In order to determine the right segmentation cutoffs for your bank, begin with the branch. The more you can give the branch to do, the better, but the branch has to be able to perform in the small business space.

 

Too often, the circumstances for branch success in small business do not exist. The results: poor performance and deleveraging of a bank’s small business effort.

Begin with the Branch

Some issues related to small business continue to surface year after year. Probably no area gets more internal bank focus than how the small business effort should be defined and organized. Some banks seem to change their definitions related to small business and realign its reporting structure every few years.

 

Ideally, small businesses (say those companies up to $1 million to $3 million in revenues) will be the responsibility of the branch. Branch personnel would market, serve, and administer this client base with the support of central underwriting and operations.

 

If branches can succeed with “smaller” small businesses, they offer substantial leverage to business bankers, who are then able to focus their efforts on larger targets providing a more significant per-client revenue opportunity. Without a strong branch-based effort, the business bankers tend to build portfolios of lower-end accounts; in effect, they have to fill the role that the branch could fill and, therefore, are deleveraged by lack of branch effectiveness.

 

The theory behind relying on the branches is flawless. Unfortunately, the reality differs substantially from the ideal. A number of the banks we know have centered their lower-end small business effort on the branches with very mixed results. Why?

 

Failure to perform results, in part, from lack of preparation and comfort on the part of branch personnel. In addition, small business leadership misses the opportunity to attract branch focus on their area. By lack of preparation, we mean that management pushes responsibility down to the branches without providing the branches with the knowledge and experience required to succeed. Typically, branch personnel are pulled in multiple directions, including serving diverse customer needs related to checking accounts, mortgages, and a myriad of other products. Branch bankers simply lack the “bandwidth” to pay sufficient attention to small business opportunities.

 

In addition, small business groups fail to make it as easy as possible for the branch. Depending upon the bank, the small business group’s competition for branch attention (and the customers to whom the branch controls access) includes mortgages, wealth management, investments, and several other areas. The small business offer has to stand out to the branch staff, and selling small business products has to be painless.

 

What to Do?

1. Simplify the product set. In general, banks offer too many products to their smallest businesses, not too few. They create confusion for the customer and, to some degree even worse, they confuse the branch sales staff. Rather than try to figure out the complexity, some branch bankers choose to focus elsewhere.

 

2. Rethink roles and responsibilities. If banks really want their branch personnel to sell more to small businesses, they need to look closely at the bankers’ current activities and actively change them. Like everyone else, branch bankers fall into work patterns; changing them is hard. Branch staff will often comment that bank management wants them to sell more in addition to their previous tasks. That is unlikely to occur.

 

Therefore, small business management needs to encourage senior retail management to strip non-essential tasks away from the branch. Frankly, this is difficult to accomplish, but it is a critical factor in improving branch sales effectiveness in small business and beyond.

 

3. Consider the branch as your customer. Branches are being pursued by many internal bank constituencies. Why should they spend time learning small business? What is in it for them, other than increased headaches and responsibilities? The answer has to consist of elements such as a more fulfilling and interesting job and, potentially, more money.  Also, it seems prudent to compare the incentives that small business offers to the branch and branch personnel individually versus the programs of other internal bank groups. The small business incentive plans need to be highly competitive versus other internal offers.

 

4. Segment branch activities. In general, we find that about 20 percent of all branches operate in areas in which a large number of small businesses reside. That 20 percent is the small business group’s critical constituency. It is that group which will drive revenue growth and which needs to become enthusiastic supporters of a small business emphasis.

 

5. Leverage technology and information databases. Part of the small business offer made through the branch should try to shift customers to a self-service approach for various requirements such as balance inquiries, transfers, and check ordering. Many customers are already comfortable with self-service because of how they conduct their personal banking; some prefer online to in-branch transactions.  While we have often witnessed clients being frustrated by technology, this is one area where technology can lift some of the time burden off the banker.

 

Branch personnel also often lack clarity on whom to target. The small business group needs to direct this effort so that branch bankers do not waste their time on low priority industry segments or other unattractive prospects.

 

Concluding Thoughts

Even when small business groups focus on initiatives like those outlined above, successfully selling through the branch remains difficult at best: branch personnel change, top bank management adopts other initiatives, bank organizations restructure, among other events. Executional excellence needs to complement strategic clarity to result in success. That is not easy to accomplish, but the economic upside of doing so more than justifies the effort.