Executive Summary: Success in banking may come down to focusing on two fundamental areas. However, many banks fail to put sufficient emphasis on them.

 

 

This week I heard a bank Chairman talk with cogency and passion about his bank’s strategy and its ability to compete against the biggest players in its chosen space. In a sense, this bank has decided how to pick its customers and determined the basis of its competition; that is likely to be a winning strategy. Contrast that Chairman’s comments with another bank head who said, “We all compete with the same products,” and indicated that his bank was operating without an approach that distinguishes itself from others. That bank is unlikely to survive.

 

Banks need to articulate a defined strategic focus. That alone, however, is insufficient for success. A value proposition or marketing angle, no matter how well stated, is worthless without intense and exacting follow-through; execution goes hand-in-hand with strategy.

 

Strategy comes first.

Many banks either ignore strategy or put a minimum of effort into planning. In fact, what is usually required is a process that at least on an annual basis evaluates the assumptions on which a bank and its key units base their activities and their success.

 

We favor a strategic process that is simple, straightforward, and very transparent across an organization. The questions we like to see addressed as part of a strategic review include:

 

* What distinguishes your bank/unit from other players?

 

* What are your competitive advantages, and how sustainable are they?

 

* How are your customer’s requirements changing? Is the customer’s view of your bank/unit changing? How does that impact the product/services you need to provide today and in the next 24 months?

 

* What should be your key initiatives over the next 12-24 months? What type/level of internal support is required to achieve these initiatives? What is the economic justification for these initiatives (that is, pro formas)?

 

* What are you doing to maintain your best people and attract new stars?

 

Basically, a strategy should serve to set a direction for the bank and its component parts. When I used the word transparency, I meant that building a strategy, either for the entire bank or individual units, should not be done in a vacuum. Business managers are often very protective/defensive. Typically, they are not very open to having other bank executives review their businesses and provide input concerning how they might operate differently. However, a strategy built within a silo tends to be silo-oriented and fails to lever the full capabilities of an organization.

 

A strategic review, whether for retail, business banking, cash management, commercial banking, wealth management, etc., should include the input of groups with which that unit currently interacts or may interact in the future. Step One is for the unit, with an internal team and, oftentimes outside help, to develop its strategy. Step Two involves meeting with colleagues to discuss, test, and add to what the individual unit created. The second step should enrich the strategy and set the framework for closer cross-bank cooperation and cross sell.

 

That sounds great, but is difficult to accomplish because of egos, organizational silos, personal rivalries, etc. Senior management has to step in to create buy-in into this level of cross-bank involvement. Incentives for the senior management team should encourage a culture of cooperation.

 

A one-off strategic planning process is of limited value. Management should revisit its strategy on a yearly basis. Just consider where most banks are today versus 12-24 months ago. The customer is changing, regulations are changing, competitors are changing; failing to revisit a strategy, no matter how well developed initially, ultimately may negate its value.

 

Good strategy is not sufficient.

I know of one past client that followed an intense and rigorous strategic planning process on a yearly basis, exactly what we are suggesting above. But, they were a lending-oriented business, and they made bad loans. All the planning in the world could not compensate for bad execution and poor credit discipline.

 

While the repercussions of that company’s inability to execute were extreme, failure to follow-up on agreed to strategies/initiatives seems to be endemic to the banking industry. Too often, senior management sets goals and then “blinks” in the face of banker resistance or even day-to-day priorities. That is understandable but not acceptable.

 

Disciplined execution.

Discipline in execution distinguishes the best players from the mediocre. In an era in which organic growth will be increasingly difficult to accomplish and stealing share becomes a competitive necessity, relentless execution is a necessity. Execution also requires planning. This planning involves setting clear action steps in support of a strategy, assigning an individual to be responsible for its completion, and setting a timeframe within which it must be accomplished. Disciplined execution establishes a process for bankers to follow and ideally results in transformation of a bank’s culture.

 

Concluding thought.

Developing an effective strategy and executing on it require the close involvement of top management. Understandably, most business managers are slow to change their current business model. Senior management needs to encourage more creative thinking and, when necessary, insist on it. Similarly, we all fall back on old habits. Successful execution requires top management commitment not only on day one but on day 30, 60, 120, etc. Over the years many bankers have experienced multiple initiatives; many have developed the view that “this too shall pass.” Only top management can ensure that the change process that the strategy process and its related execution plan promote will become reality.