This week’s Consumer Banking Association’s Small Business Banking Conference featured a keynote address by Peter Raskind, National City Bank’s Executive Vice President and head of Consumer and Small Business Financial Services activities.
Peter took a page from the famous Steven Covey book to outline “Seven Habits of Highly Effective Small Business Groups.” He underscored a number of fundamental concepts, many of which still have not been adopted by bank competitors.
1. Small business should be a separate business unit under retail. National City has both small business and retail as separate groups reporting up to Peter. In Peter’s view (and one we have also frequently stated), small business “represents the single biggest opportunity in retail” and merits a distinct organizational unit.
2. Small business is not “corporate banking lite.” In his view (and ours), small business should report through retail and largely emulate a retail approach in key areas such as marketing and channel management.
While small business can be successful within a commercial organization, we find that the bankers must constantly fight for equal footing with the needs of the more established commercial bankers. For example, one participant at our presentation mentioned that product management activities for small business reported into the commercial banking group. Frankly, we think this puts her group at a competitive disadvantage versus those players who can better control their resources.
3. Success requires “highly structured sales management routines” for both the business banking officers (BBO) and the branches. Peter used a phrase that we seldom, if ever, hear within a bank: “highly proscriptive.” By this, he meant that the BBO must deliver on a selling plan that is “not negotiable, not optional.” In effect, the BBO is told what the job is rather than “designing” it him or herself, a phenomenon we often see with commercial banking RMs.
Our observation is that, almost as a rule, senior bank management is too genteel or too uncommitted to require the degree of rigor that Peter believes has played an important role in his group’s performance. Going forward, we see this “flexibility” changing at the best banks to a greater demand for consistency in activities and performance.
4. Banks need to align motivations and incentives of the branch staff. This topic was picked up frequently throughout the conference: How do you gain the active support of branch personnel in selling and servicing small businesses? Peter addressed the need to eliminate internal competition for the small business customer between the branch and the BBO. NatCity allows for double counting between these two areas. Transactions that the BBO completes are also to the benefit of the branch. His comments indicated that, next year, branch performance would also be reflected in the branch-assigned BBO’s numbers as well.
5. Small business is not just a lending business. Peter mentioned that with loan volume being “lower than desired,” the deposit business has played an increasing factor in driving the group’s earnings. Of course, all banks understand the value of the small business deposit. However, NatCity tries to make sure that there is strong execution behind this: ”We heavily encourage and incent the pursuit of deposits.”
6. Small business has important links to personal banking. Admitting that this is not “our strong suit,” Peter said that it is receiving an increased focus within the bank. In the past few years, the standard wisdom has become that linkages between selling to the business and its owner create greater “stickiness” and significantly increase the full relationship’s net income. The issue continues to be how to execute this approach effectively across the institution. Banks that are making this dual personal and business approach work have a clear mandate from top management to cut across the organization and create a “holistic” offer to the customer. Of course, incentives and accounting policies must also back up such an effort.
7. Back office efficiencies need to be developed. Peter mentioned that the “front office evolved faster than the back office.” The bank is now assessing multiple functions such as underwriting and collections to improve its cost-to-serve. What he also appeared to be saying is that the bank focused on sales more than it focused on process; that is not a bad thing.
8. The need for a retention strategy. Yes, he added an eighth habit, this one focusing on the need to keep and grow customers. We would expand the retention focus even further to include the BBO and key branch personnel.
One handicap that most banks face is the regular turnover in their best salespeople, losing them to management or to other areas of the bank. In our experience, banks have enough managers; they do not have enough good salespeople. The industry has a significant opportunity to create a salesperson professional class. This might more closely follow the model of the Merrill Lynch brokers who view themselves as franchises of Merrill versus the current bank model. Banks need to look at both external models and internally at groups such as mortgage.
Final comment. We think the way to win in small business has become increasingly evident; the levers to pull are relatively few but very powerful. The game now moves to implementation and execution, a much more difficult terrain.