In working with several banks recently I have been considering what day-to-day actions make for a successful bank. We all define success differently, but in my view it requires a bank to satisfy all its stakeholders, namely, generate solid earnings and growth for investors, distinguish itself with customers, and provide employees with a positive work environment. Consistency and sustainability are two hallmarks of success.
Obviously, leadership is always key, but of greater interest to me are the practical ways in which a bank manages itself, both internally and in regard to its market focus. Several items pop up on the success checklist:
* Multiple opportunities in the business “funnel.” The more at bats the more hits. That cliché, like so many others, captures a fundamental truth. Banks with the best track record see multiple transactions from clients and prospects, allowing them to be more selective in the deals they do, price better, and emphasize stronger risk management. For example, one senior banker told me he wants to see a lot of loan deals in good times and bad, to avoid “reaching” in order to make quotas.
Of course banks want to avoid garbage going into the opportunity funnel. However, market analytics exist today to allow banks to focus on high opportunity customers for cross sell and prospects for new account opportunities. Realistic opportunities based upon target need, the solutions the bank offers, the competitive environment, and other factors serve as the first screen before a potential transaction goes into the funnel. And opportunities do exist, although not always in the first area a banker pursues. When I hear bankers say that their markets offer few new business targets (a disappointing statement), my concern is that they are operating without a sales management process or are selling products rather than pursuing a relationship or a solution. Alternatively but less likely, they are right, in which case that bank may have too many relationship managers. (By the way in fact many banks are overstaffed in this expensive and often underproductive job area). Too few deal opportunities can result in bad pricing and bad risk management. Good banks avoid this situation by filling the funnel with reasonable opportunities that do not stretch risk management or pricing too far.
* A middle pendulum. Decades ago, a senior credit officer suggested that banks often operate with an approach that mirrors the path of a pendulum. The emphasis shifts to sales and lending and, then, once that goes too far and the inevitable happens, switches to intense credit and risk management. That lasts for a while until earning pressures push the pendulum back. We continue to see this tendency all the time in our work, and too often it is the sign of a bank that lacks direction and management strength.
The best banks find a balance between sales and credit, a situation in which mutual respect results in a united focus on generating bank revenues without putting the bank at undue risk.
* Internal cooperation. Banks want their customers’ trust, but at many banks trust across internal areas of the bank is hard to fine. I have seen trust issues crossing to and from relationship managers, credit product specialists, IT, and other areas. In those cases, banks with trust issues sometimes seem to spend more time bickering internally than in combating the competition. Much energy is wasted with time being spent on activities that can erode a bank’s creditability with its customers. Over 20 years ago in a speech that Dick Kovacevich made to Norwest bankers he told them to get over their insularity and work with their colleagues. Many banks are still not there.
* No defensiveness. The best banks like to be challenged and operate with enough self-confidence that they do not fall into defensiveness. Other banks seem to operate like hedgehogs, in a defensive stance all the time and unwilling to challenge traditional perspectives. Too often I have heard clients respond to our recommendations saying, “Yes, but we do x or y really well,” as if suggestions for improvements need to be balanced by self-congratulations. That’s not a sign of an appetite for change.
* Niche for success. One of the basic strategic approaches we usually recommend centers on segmentation, that is, focusing on an industry, a customer type, a product rather than spreading yourself too thin. Effective segmentation lowers the cost of business origination, enhances the quality of risk management, and often results in a pricing premium for the bank. Still, may banks resist or underinvest in this proven method for success and continue to try to be too many things to too many people.
* The Vision Thing. Another accurate cliché involves the elevator speech, that is, the need to be able to describe the distinctiveness of your business in a 15-second elevator ride. A client told me about speaking to a bank colleague about how that person is managing a very difficult business line. When he asked this leader about his vision for the future of the business, the business head said he was moving from tactic to tactic much like a pinball that bounces from bumper to bumper. Business managers need to be able to articulate and, as important, believe where their business is heading and how it is going to get there. Otherwise, the business may bounce along from one crisis to another without the clear direction and end point required.
While the above is hardly a complete list of what makes a bank succeed, banks without these characteristics will be hard pressed to meet the increasing customer and competitive demands that the industry will inevitable face.