Effectively managing multiple sales and service channels has gained greater priority at many of the best banks. Banks want to encourage customers to use lower-cost channels for low-value service activities, thereby freeing up banker time to focus on high-potential customers and targets.
However, across many banks, in-person resources – that is the bankers handling consumer, small business, and middle market customers – are misaligned against their assignments. In earlier newsletters, we have written extensively concerning the degree to which relatively high-cost bankers spend the majority of their time on non-sales tasks. This includes the branch manager tied down by administration and the middle market banker more focused on credit underwriting than sales. As basic a problem as this is, we think the problem banks need to address is even more fundamental.
Staffing Deleverage Predominates
Our consulting work suggests that at many banks, the branch staff deleverages the small business group, the small business group deleverages the middle market staff, and the middle market group deleverages the corporate bankers. By “deleverage,” we mean that front office personnel are not focusing on the segments most appropriate for them. Most frequently they focus on smaller accounts than they should, based upon customer needs, the product set, and internal cost structure.
To explain further: oftentimes branches are not given responsibility for microbusinesses. When the branch system is not responsible for this low-end segment, the small business group must focus much of its attention on it. As a result, the small business group may not effectively service larger small business accounts, instead using its limited resources for very small accounts more efficiently handled in the branch. In turn, if the small business group focuses on the very low end of that segment, the middle market group often ends up handling larger small businesses rather than middle market customers. Deleveraging often means that banks are not fully “exploiting” the capabilities of employees or the potential of customers. Responsibility for misalignment goes to the top; senior management is failing to put the right resources against the optimal customer set.
Inelegantly stated, the alignment of bankers and their customers is often out of whack. For example, when we analyze banks’ customer portfolios we often see the “small business” effort is really focused on very small or microbusiness customers (defined as business with revenues less than $500k-1M). These customers can and should be served by the branch system with little-to-no involvement of the small business banker. In turn, the bank’s “middle market” group focuses too heavily on smaller businesses, those that can be more efficiently served by the small business bankers.
Banking Channel Excellence
Who is good at introducing this type of discipline and the support required to make it work? Based on our observations, Wachovia appears to have invested significant time and effort in rethinking how it aligns its “people channel” with customers. Companies below $3 million are branch-based; those from $3 million to $20 million are owned by business bankers; the middle market begins at $20 million.
However, “pushing” responsibility down to the branch is hardly sufficient for bank success or improved leverage. At one bank we know, the branch has been given responsibility for smaller accounts but lacks the staff sophistication, training, or motivation required to maintain and grow its base of smaller customers.
Training, measurement systems, and incentives need to be in place to redirect branch efforts, and product offers need to be streamlined and simplified if they are to be sold across all branches.
Ironically, many banks may actually over-service their customers. Whenever we say this we always immediately underscore that we understand basic customer service levels have to be of high quality. But, most banks cannot make money, or at least the amount they need to make, by having Business Banking Officers handling companies that are relatively tiny in total revenue and revenue potential to the bank.
Even worse, we often dissect “middle market” portfolios that are heavily weighted to small business accounts with limited economic upside. Why does this phenomenon occur? In part, it is because smaller accounts are easier to accumulate and, in part, because moving these accounts to the “rightsized” channel may mean fewer middle market bankers have jobs.
Implications
The implications of misalignment include the need for much clearer and more rigorous definitions of the responsibilities held by branch, small business, and middle market line personnel. For example, in industry presentations, Hibernia Bank management has described how the branch has responsibility for loans up to a certain size and then MUST pass along other loans to the small business area; their approach is disciplined and appears to be accepted across the retail bank.
Increasingly, the smartest banks are placing responsibility for the branch, small business, and middle market under one senior banker. Of course, that does not mean intra-group clarity and cooperation will exist, but that organizational shift should increase the likelihood of success.