Recently, I received a call from a reporter who was writing about banks increasing their training activities in the small business and commercial spaces. The training centered on strengthening product knowledge, sales, and credit skills. These are all critical areas for success with customers, and bankers benefit from management working to enhance their capabilities in these areas. However, as important and valuable as this type of training can be, it often fails to have a long-term impact because management has not first addressed the seven basic questions that determine the type of training required and who needs to be trained for which skills.

 

1. Definition. Who is the primary target? Frequently after a presentation, the first audience questions asked is, “How do you define small business?” That is one of the questions each bank needs to ask itself before setting a training schedule. For example, businesses less than $1 million in revenues may have different product and service needs than the $5-10 million company. Businesses from $0-3 million or so are less attractive to some of the big banks and could be an attractive focus for the targeted regional, community bank, or credit union. Serving the smallest of businesses requires close interaction with the branch, and they need to be part of any training program.

 

Beyond size, what type of industries does the bank wish to focus on and, alternatively, avoid? Too often banks all head in the same direction (for example, professional services firms) and avoid more volatile industries (for example, retail and construction). Valid reasons exist for doing so, but this can also lead to competition based solely on price. What is the make up of the current small business customer base you already have and can you build off of it?

 

Determining your small business customer focus should include internal agreement on:

 

• What is the best customer need and size range for your bank to focus on?

 

• What industries match the bank’s appetite, capabilities, and competitive situation?

 

• Are there certain products or other specialties that the bank wishes to emphasize, for example, asset based lending or CRE?

 

• What role should the branch play? What changes are required to the branch to make this work?

 

2. Ownership. Who is in charge? Some one person, not a group, needs to be responsible for the success of the small business effort. Banks with a geographic focus (e.g., Market Presidents) often struggle to offer a consistent and disciplined focus on small business as each geography operates with a different level of emphasis on and interest in this segment. A geographic focus can and does work for some banks, but those banks have a strong culture and leadership that in effect regulates the bank’s focus on small business. You cannot expect to succeed with different geographies operating differently. In general, a small business head whose authority cuts across geographies is more likely to succeed, but that person needs to be sensitive to and work with market heads.

 

 

While the products are largely the same, each bank’s culture and style is different. Management needs to consider:

 

• What type of organization is best for my bank?

 

• How can we ensure that the geography and the small business center work well together?

 

• What are the roadblocks that need to be addressed?

 

• Where does small business report?

 

3. Credit. How are credit decisions made? At most banks the line business banker has little to no credit responsibility. However, related to training, the banker does need to have some credit knowledge if he is to provide value to the customer. Related to the organizational issues above, a central risk management group should oversee credit decisions, but a team of small business experts should determine the approval process for these loans. Small business loans differ in many ways from commercial loans and applying a middle market process to small business loans increases the cost and decreases likely success.

 

 

In this area issues include:

 

• How can the credit process be both streamlined and remain rigorous?

 

• How should credit scoring be managed to avoid overreliance on it?

 

• What steps must the bank take to avoid the past credit mistakes that have plagued the industry?

 

4. Products. What is the product/service set? We find that banks often have both too many products and too few. Product proliferation has occurred at many banks with the product groups introducing products faster than either the banker or the customer can absorb them. (BTW, this also increases the difficulty and cost of product training.) One large bank we know has literally dozens of products aimed at the small business customer but a handful drives most of the revenue. At the same time banks lack the right products for certain customers, particularly for the smaller or less established business. Hence, the growth of merchant advance and crowdsourcing lenders, as well as other nonbank players.

 

Based upon determining your customer focus:

 

• What are the critical products/services?

 

• What are your product gaps? Do you fill them internally or from third parties?

 

• What products do you have that are unnecessary and can be eliminated (thereby reducing costs and complexity)?

 

5. Tracking/Compensation. What is the tracking system and compensation structure? Banks need to develop a performance scorecard not only to track short-term productivity and sales but also to ensure the bank is on track with its long-term goals. A “balanced scorecard” needs to be agreed to and followed. As for compensation, banks are slow to change how they pay even though they expect dramatically different results from their bankers and managers. Compensation cannot be out of sync with bank expectations, but it often is.

 

Consider:

 

• What are the key measures for determining success?

 

• Who should judge if the qualitative measures have been achieved?

 

• What next steps will address performance failures?

 

• Does compensation support the changes that management wishes to achieve? Have your checked with the bankers or just HR?

 

6. People. Now, given that you have addressed 1-5, do we have the right people? Once bank management agrees on what it wishes to accomplish and how, it needs to assess current staff and determine if it has the right people for the redesigned jobs. Banks continue to try to squeeze square pegs into round holes, namely, move around the employees they have rather taking the time and pain required to find the right person, even if that means an external hiring process. This results in banks training people possessing the wrong DNA for the jobs they have been given.

 

This area is extremely difficult for many banks to confront, as banks do not want to disrupt the culture or upset the community in which they operate. But, not addressing this fundamental area will result in mediocre performance, increasingly unacceptable today.

 

7. Seriously? When I discuss the above topics with banks, often the response is that they have already dealt with most or all of these issues. I am tempted to reply the same way my teenage son does when I ask him to do a something he does not want to do or I say something he finds particularly dumb: “Seriously?” If bank management can really attest they have resolved the six issues above as well as related areas, then, they should be on track to succeed. Bring in the product, credit, and sales trainers and exploit them to the fullest. However, if management uses training in lieu of addressing the above, banks will fail to generate sustainable growth with small businesses.