The outlook for the middle market areas within many banks appears troubled at best. In light of continued strong competition and a slower economy, significant loan growth will be difficult to achieve. At the same time, delinquencies are beginning to appear and more time needs to be spent on account review to ensure that portfolios remain strong. Cross-sell to cash management, private banking, and others areas occurs inconsistently, if at all.

Despite the challenges, the current environment offers bank management a great opportunity to refocus its approach, allowing it to establish a stronger market emphasis while increasing productivity.

Steps for Improved Middle Market Performance

Here are five initiatives that management should begin to execute on TODAY.

1. Account realignment. In the last few weeks, I have met with bankers located continents apart. Each has stated that their middle market portfolios need to be examined and cleansed of smaller accounts. Middle market bankers need to shift smaller accounts to the small business group or a central operations area that specializes in lower-profit and -potential clients. Upwards of 25 percent or more of a middle market group’s clients may be misaligned.

Middle market bankers continue to hold on to smaller accounts for one or more reasons: they may believe the customer will not receive good service from their bank’s small business group; they may be more comfortable with maintaining “low pressure” accounts than with diagnosing and providing advice to larger names; they may not want to sell. No matter. Senior management needs to insist that a process is in place for moving accounts and that it allows very few exceptions to this policy.

Similarly, management needs to ensure that larger accounts being housed within a branch are also evaluated for reassignment. Again, the bias should be toward appropriate alignment to maximize future growth. To avoid disruption, changes in alignment should begin with new accounts; once new client processes are established, banks should focus on carefully transitioning current clients. The fact is larger customers belong in the middle market area and small customers do not.

Shifting these clients out of the middle market accomplishes three goals: First, it frees up RM time for more targeted marketing to higher potential names. Success in 2008 demands excellent cross-sell and increased wallet share from each client. Allowing high-cost middle market relationship managers to spend time on low-priority names is economic suicide. Second, it often results in these smaller accounts receiving more, rather than less, attention and can result in increased cross-sales to them. Third, the cost-to-serve for these smaller clients declines. In short, this change is a huge win: more sales time, more cross-selling potential, lower cost to serve.

2. Insist on job redesign. Middle market bankers, more than any other group I know, design their own jobs. Particularly in a more economically-challenging economy, bankers need to focus on high-priority areas — for example, maintaining and building core relationships and increasing wallet share. Bankers continue to spend too much time on administrative areas that can be handed off to others and on credit topics for which they frequently have reduced responsibility. Executing on job redesign and addressing account misalignment can unleash significant marketing time and, potentially, reduce the RM staff.

3. Exit low performers. Banks allow too many mediocre-and-below performers to remain on staff. Why? In some cases “tenure” plays a role; in other instances, the perceived difficulty of replacing that person serves as an impediment to removing him. (Frankly, we have seen cases in which the bank would be better off with no one in a position rather than the person it has.) In a tighter economic environment, no bank can afford to allow mediocrity. In some cases, banks will find that the slower growth environment means that they have too many bankers, particularly once account realignment occurs. Now is precisely the right time to exit poor performers and selectively add strong players.

4. Increase incentives. Banks should use a portion of the freed-up salary from departing players to better incent the strong players who remain. Given the challenges they face, banks should consider higher incentives to drive higher performance. Despite all management’s talk about the importance of its employees, most banks refuse to truly pay for performance.

5. Account planning. Account planning is hardly a new concept. However, to this day, most banks do it inconsistently and irregularly. Why? Some bankers resist because it is time consuming (and it is); others view themselves as artists who cannot be constrained by process; in still other cases, no rigorous sales management process exists. I used to push bankers to call more and more, the idea being that the more calls, the greater the success. Increasingly, experience has shown that such an approach leads to mediocre success. Instead, bankers should focus on quality over quantity, planning both their new target and current client marketing calls to an extent that most never have done previously

Concluding Thought

The middle market continues to offer large and attractive opportunities to the banking industry. However, approaching this segment with yesterday’s organization, a traditional approach to account management, and an undistinguished marketing emphasis will result in reduced growth and subpar performance.