Bank management knows that the effective use of the branch serves as a key determinant of small business success. If your branch is closely linked into the small business effort, the chances of success with this segment (particularly on the lower end) increase dramatically. A disaffected or uninvolved branch manager creates an almost insurmountable hurdle for a bank wishing to pursue the small business segment.
However, most banks do a, at best, mediocre job of positioning branch managers as leaders in the small business effort. What’s required to make the branch manager a small business advocate and sales leader?
* Narrow and refocus their jobs. When banks decide to focus their branches on small business sales they often add that area to branch management’s other responsibilities. Frequently, the added responsibility is neither welcomed by the branch nor even fully understood. If management wants the branch to become proficient at sales and service to small businesses, it needs to shift other tasks out of the branch, for example, operation and service activities that can be shifted to a self-service or other more automated channel.
* Offer leadership. The typical branch bankers have traditionally focused on consumers. To many, businesses provide a challenge outside their comfort zones. Many require ongoing one-on-one coaching to help make them comfortable with recognizing and capturing opportunities with small businesses. Management needs to provide some sort of sales management and/or training process to encourage a small business focus.
* Define the target customer. We have written extensively about the importance of segmentation in directing a bank’s efforts on its most important customers. We all know that not all customers are economically equal. In addition, branches operate with a limited bandwidth to spend on small businesses. Unless management provides strong direction on the type of small business to focus on as well as those to downplay, both productivity and profitability will suffer.
Whether the bank wishes to focus on certain demographic groups (for example, women business owners or Hispanics), product types (e.g., SBA lending, working capital, or deposit-only accounts), or key industries, the branch needs to know the priority level of the bank’s interest.
* Simplify and specify the product set. Banks offer too many products and too many of those products are too complex for either easy selling by the banker or easy understanding by the customer. Past analyses of small business profitability that we have conducted demonstrate that a relative handful of products generate most of a unit’s profits. Product complexity demands a complex and more costly infrastructure and may also affect risk quality. (Beware bright and creative product people creating products that destroy shareholder value.) Complexity also turns off your branch sales staff; they require simple, straightforward products to sell.
* Compensate. The linkage between compensation and action is greater than ever before. This may be obvious to most of us but many top managers seem blissfully unaware of the motivating power of money. Three basic ideas for a compensation checklist follow:
- Make sure the branches get full credit for business deposits. Our assumption here is that much of branch incentive compensation rests on overall deposit growth. If that is not the case, consider a change.
- Overweight incentives to encourage opening new small business accounts
- Overweight for deposits versus loans
* Narrow, refocus, lead, define, compensate, and, then, replace. Bottom line, many branch managers will never be able to reorient themselves to the small business segment. Initially, a refocusing and training effort makes sense, as banks want to retain and grow as many employees as possible. But what percentage of “traditional” branch managers can really make the shift to become small business marketers?
Our experience suggests that expecting more than 50 percent of your branch bankers to make this transition may be unrealistic (the square peg in a round hole phenomenon.) Therefore, management either needs to supplement the staff in place or change them. In general, banks have found that an increased focused on selling to any segment often demands new personnel.
Concluding Comment
More banks have seen the light concerning the attractiveness and economic value of focusing their branches on small business. However, in our view, rethinking branch related products, processes, and roles are some of the prerequisites of execution success.