Executive Summary: Senior bank managers wanting to grow in small business need to give greater accountability and authority to line of business heads. Geography remains important but should be focused on executing strategies and tactics developed by the line of business.
Today, decentralized responsibility.
Many regional and community banks continue to organize their business banking sales efforts around a local, geographic focus. Branch managers (BM) or regional presidents (RP) directly manage the business banking sales force, and they operate with significant latitude related to how (and whether) they manage the day-to-day activities of the sales staff. In fact, many community and regional banks pride themselves on giving BMs and/or RPs significant decision making authority. These players contrast themselves with the big banks that are more centralized and, they believe, fail to meet customer needs.
Not surprisingly, given this degree of decentralization, field performance varies widely. Typically, a handful of BMs and RPs “get it,” and effectively target the business segment. However, in many if not most cases, field staffs lack the focus, skills, and/or interest required to build a meaningful local small business franchise. We frequently hear from management that no more than 10-15 percent of current staff performs adequately at serving the business segment.
In responding to this mediocre performance, some banks have tried to improve performance by training field personnel in areas such as product knowledge and sales skills. While we believe that in most cases this type of training is probably critical, it is insufficient for success. Additionally, since some of those being trained are simply untrainable in sales and relationship management, some portions of these dollars are wasted.
Leveraging the small business group.
Regional and community banks usually also have a centralized small business group. Oftentimes, this is a support unit and its head has no sales staff reporting in. Rather, this group’s focus may center on product development, market positioning, credit, and operations. Loans may be decisioned by this group (or a credit area) with senior field management holding a credit override.
In the above operating model, the field is king and the central small business office serves as support and influencer rather than proactively directing small business activities. In many cases, banks that give the field small business authority lack consistency in their sales efforts, usually operate with poor productivity, and exhibit little discipline in the intensity and consistency of their relationship management process. It is not unusual for us to see banks with ten or more regional heads attacking the small business segment with ten or more different approaches, most of which fail to capture anywhere near the market potential.
We think that future business banking success demands a different approach. In short, banks need to consider giving their small business unit managers more direct responsibility for the bank wide success of the business banking effort. In a nutshell, the future business banking environment may be as follows:
* Increased competition for business customers. This segment has been rediscovered, again. Whether it be the biggest banks, community banks, regionals, or credit unions, the focus on this segment now is greater than it has even been.
* Cross-sell is key. Banks need to retain the best customers and increase wallet share.
* Traditional credit declines in importance. While credit remains important, banks also need to be able to provide good cash management and other fee services. At the same time, they must sell both to the business owner and employees to build a full relationship.
* CRE lending declines in importance. Remarkably, many smaller banks have only a rudimentary knowledge of real C&I lending, having relied on real estate as collateral. For many reasons, “true” C&I lending has to be a major product offer to attract small businesses.
* Strong productivity is critical. Banks need to do more with less. Selling deeper into a relationship increases productivity as does greater discipline in the sales process.
* The quality of the business banker must improve to match competitor activities and customer requirements.
All of the above indicates the need for a bank to move in one consistent direction rather than permit multiple individuals to determine how to exploit the business banking opportunity. Success in small business may require one strong leader who is in charge or organizing and implementing the effort.
The field remains an essential partner.
Building up the role of the business banking head does not mean that BMs or RPs are less important in the small business effort. To some extent, the opposite is true. BMs and RPs should know the local market better than any centralized group ever could. Branches will be the ongoing information and service hub for small businesses and need to work seamlessly with the business banking group in executing on the bank’s approach to the market and its sales management process.
Banks that operate with a strong central business head encourage close branch involvement by, among other things, ensuring that the local branch receives full credit for loan or deposit balances generated by local business bankers. The success of business banking adds to the success of the BM and RP, a win/win for the bank.
Concluding thought.
What we are suggesting here is countercultural for some banks today. However, this culture change may be necessary for economic success in the small business space today and in the future.