Executive Summary: Despite the importance and economic attractiveness of small businesses to banks, the leaders of many business banking groups fail, with these managers frequently moving on internally or out of the bank. Senior management should acknowledge and address the critical roadblocks to success.
A recent meeting of small business bankers featured a discussion concerning the relatively short lifespan of many segment heads. The discussion leader stated that three years was the typical tenure for the head of a small business group.
Whether three years or slightly more is the right number, business banking managers turn over relatively quickly. Regular turnover sends a message to the field that the bank is not serious about this segment. Too often, failure to perform (either perceived or actual) rather than promotion causes the change. As the business head departs, so too does much of the accumulated knowledge related to this segment. Oftentimes, this puts a bank back at its starting line, allowing those banks that operate with a more consistent approach to win share at its expense.
Why do many banks’ business banking efforts fail? Multiple factors contribute.
Responsibility without authority.
Banks that operate with a regional approach tend to undercut the ability of the small business unit head to act with direction and decisiveness. Frequently, in those banks the business sales officers do not report to the small business unit but rather to the regional heads. Not surprisingly, regional heads differ significantly in their knowledge of and interest in the small business segment. Some regions “get it” while many others do not.
In those cases, the small business head operates as an influencer rather than a business leader. While he may control product development, he cannot cause the sales staff to act in a coherent manner. Can a small business executive be expected to succeed, if he cannot control the field sales staff? Not likely. However, even with direct responsibility, many roadblocks to success remain.
Great expectations.
Senior management often has unrealistic expectations of the effort and time required to reach the potential of the business banking segment. Banks should expect a successful effort to generate strong deposit growth, cash management earnings, personal banking revenues, and other benefits. Achieving these results requires that the product set is at a par with competitors, the bankers possess the necessary sales skills, incentives are in place, and the bank establishes itself as a small business advocate with targeted customers. All that can be accomplished, but success requires time, effort, and commitment. Nonetheless, business banking groups must often “borrow” resources from other parts of the bank, piggybacking the retail or commercial bank.
Small business success = execution.
Strategy remains important to small business success. Banks need to determine which segments to focus on (and downplay), which channels to emphasize when, and which products to highlight. However, as indicated above, strategy is insufficient for success. In addition, small business requires rigor and excellence in day-to-day execution. Many managers rightly believe that rigorous execution of a mediocre strategy beats mediocre execution of a superior strategy.
Most banks are not very good at execution.
Not only do organizational structures undercut effective execution, but many banks fail the tests of consistency and rigor in execution. Too often we have seen small business being a favored area one year and then another unit (for example, private banking or wealth management) being the focus the next year. The energy and resources that had been focused on small business is then diluted in favor of the next big thing.
The failure of sales management.
At many banks, the leaders of small business teams are in fact simply bureaucrats and not sale leaders. Team leaders should monitor and mentor selling, motivate sales staff, check calling quality, and make 15-20+ calls themselves each month. Few do. Rather, team leaders appear to be sucked into the administrative mire, offering limited input to sales success. Similarly, line bankers are spending more time on reports than marketing.
Product knowledge is mediocre.
One of the dirty secrets of small business banking is that the sales staff does not possess adequate knowledge of its products. Many small business bankers are too willing to rely on product specialists to sell cash management, merchant accounts, and other small business staples. While experts may be required to close a deal or to address technical questions, bankers need to be able to diagnose, screen, and structure, if product sales are to be maximized on a cost efficient basis.
One bank I met with recently has developed a product manual that describes the key products and their features, discusses the likely user profile and cues that the banker should listen for, and provides some diagnostic questions related to the product. Such a manual serves as a great start toward selling success, but only if sales managers follow-up with their bankers. Banks should also consider testing product knowledge and requiring proficiency certificates in areas such as cash management, private banking, and other areas of importance.
Beyond the knowledge issue, at many banks their reliance on commercial real estate limits the pursuit of opportunities related to C&I lending. These banks, particularly community banks, will remain at a competitive disadvantage unless they broaden their lending capabilities.
The Trusted Advisor job is already taken.
Most bankers are miles away from being viewed as a small business owner’s trusted advisor. Yes, if the owner is looking for a business loan, he calls the banker. However, surveys and our experience demonstrate that, to the extent it exists at all, customers view bankers as advisors only in relatively narrow areas within financial services. In addition, competition for being a Trusted Advisor is intense with accountants, lawyers, insurance agents, and financial advisors all playing that role. These advisors have often built their own book of business and intend to keep and grow it.
Incentives are misaligned.
The individual banker often receives incentives for selling products outside of the small business area, for example, wealth management or mortgages. However, while the banker benefits, the head of the small business unit frequently does not receive P&L credit for these sales. In effect, the bank is telling the business head to encourage cross-bank referrals but failing to reward him for having his staff do so.
The increasing role of Finance.
There is no doubt that banks need to track and monitor their activities much more than in the past. However, in some instances we have seen Finance groups, rather than sales managers, driving the actions of the bankers, based on centrally determined key metrics. However, the prospecting and business development process is not just about numbers. An overemphasis on metrics can result in a short-term orientation, rather than having the bankers do what is required to build a sustainable franchise.
Concluding thoughts.
Although it is hard to accomplish, bankers can effectively address each of the challenges outlined above. In our next newsletter we will discuss approaches that banks should consider to turn failure into long-tem success.