Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
the ten management principles of supercommunity banking
The "sheep dog" article got many responses from you. George Walker, CIO of First Community bank of NM said, "I really like this article abut the sheep dog and biting at people's ankles to change their habits. It also drives technology value to have a sheep dog in IT helping foster change among the front lines, someone they trust and knows tyhe "secret handshake"."
Dave Maraman, EVP and Chief Credit Officer for First indiana, says: "I feel like a sheep dog quite often; however, I do keep a "cattle prod" in my desk at all times, because an occasional non-lethal electric shock sometimes seems to be the only effective method of getting the herd to the correct water trough."
Melissa Holtan, AVP at Citizens Financial, wrote: "This article is great!! The behavior parallel is so true to what goes on in the banking world. Especially with our sales initative! We're experiencing the baa's from the ewes but working on redirecting them. Incidentally, I also happen to be the owner of two shetland sheepdogs who herd me through my huse and yard on a daily basis. I guess all of us need a little "herding" once in a while!".
Thanks for showing me the myriad of applications we can all have for sheep dogs amongst us; I didn't realize how many opportunities there are in our business for effective herding!
As an update to my Starbucks article, two interesting articles appeared recently in the media. In the first, Howard Schulz, Starbucks CEO, expressed concern about losing the special atmosphere and "feel" of the cafes given the enormous growth of the franchise, and urged his people to return to the roots. We all know how this has proved true in banking, and must be vigilent to protect the unique feel of our respective organizations despoite growth, mergers etc. In another, Starbucks announced the introduction of book sales in their cafes. They will sell only one book at a time, and keep each book on the shelf for a limited period. Again, starbucks is thinking out of the box and adds an unrelated yet natural extension product to their product offering. We shuld all chalenge ourselves to thinking beyond our current boundaries to find such natural extensions to our business that will enhance the brand identity we strive for while adding shareholder value.
Last, check out Liat's and my Food Pilgrimage path on which we will embark starting June 20th. it's posted on the website www.anatbird.com under BirdDroppings. I'd love to hear from you what spots we're missing!
The Ten Management Principles of Supercommunity Banking
Managing SuperCommunity Banks is no different from managing other companies, with the exception of the strong need for decentralized decision making while maintaining controls and building the entrepreneurial spirit of the enterprise. Several tried and true management principles work especially well for the leadership of SuperCommunity banks.
Embrace and seek change. One must adapt in a restructuring industry that experiences daily change. No one likes change. The human mind is built to seek certainty and does not have good tolerance for uncertainty. Changes are tough to implement and even tougher to embrace. However, ability to handle change in a critically important survival skill for people in all businesses, but particularly in the financial services industry. The environment is going through rapid, intense changes, all happening at a much faster pace than ever before. We must recognize that one could not avoid change and welcome the opportunity to put our companies through appropriate alterations. Only companies that are ready and eager to rewrite their agendas while looking reality in the eye and seeing accurately, will win.
Take a hard look at your business and decide as early as possible what needs fixing, what needs to be nurtured, and what needs to be jettisoned. The world is moving at such a pace that control has become a limitation. It slows you down. As the business grows increasingly competitive, and regulations become more onerous, no leader can choose to stick their head in the sand regarding competition or regulation. For SuperCommunity banks to survive and thrive in a rapidly shifting environment, a clear and ever-evolving vision needs to be set, accompanied by crisply articulated strategies to realize that vision.
Some may not be able to cope with change; some may be able to, but unwilling to try. Both will pay with their independence. Strategy needs to evolve, not become a straight-jacket etched in stone. Strategies should emanate both from the local markets and lines of business as well as from the holding company, to assure that the whole is greater than the sum of the parts. Senior management need not tell each business unit how to lay out the roadmap for success. They should do so by specifying their goals and making sure the people who work for them pursue those goals. Some of these goals will not optimize to each business unit or geography but rather to the entire enterprise, which is beyond the line of sight of each business unit.
Managing is about defining and acting, not about waiting for the next plan, thinking and rethinking, but getting on with it, doing it. Don't assume that things will get better because time will heal what's wrong. Look reality in the eye about your competitive position, people, structure and products, then act decisively and quickly on that reality. It is not size that is crucial; it is creating a vision and making sure that everyone working with you shares that vision and knows how it will guide decisions down the road.
As you plan, consider also the value of being one of the top three banks in your market. This has a lot of value to your shareholders and can contribute to your success. Because of this leadership position, you could apply more aggressive (that is, less costly to the bank) pricing. Because of your SyuperCommunity Banking size and strategy, you have the resources to bring new products and marketing into your competitive arena. At the same time, acting locally and customizing delivery to each market can protect and enhance your position. This is particularly handy when you operate in markets with different cost of funds structures, capitalizing upon that by generating more deposits from the low-cost-funds markets and lending more in the higher cost-of-funds markets. One specific bank I know yielded 12 basis points of additional spread through local market loan pricing, and another bank reached 50 basis points. Reap the benefits of your strategic position by building share in local markets (which could be as small as 1 ½ mile radius around your branch) and employing that power to your advantage.
Be nimble. A company needs to be able to reinvent itself frequently and quickly without losing its core identity. It's like keeping your feet firmly on the ground and your head in the clouds, gaining from both perspectives and not forgetting who you are and where your roots are. In deciding how to evolve your business, nothing should be sacred except your values and identity. Stop looking inward and step into the world. Shed businesses, managers and employees that are not producing. Bring in new businesses that fit your strategy and new staff that can produce. As the world changes, so must we in delivery, product line and workforce composition.
Fix, close or sell. Get rid of weakness. Ask yourself three questions:
What have you done in the last two years to improve your relative position?
What moves have competitors made during the past two years to change the playing field? What frightens you most about what the competition might do to change your game?
What dynamic moves could you make in the coming two years to change the playing field in your favor?
Take a good hard look at your business and don't be afraid to make some major changes to get your costs down, even within the SuperCommunity bank paradigm. Decide which of your employees and businesses you truly need and which you do not need. Don't dither. The quicker you make those decisions, the better off you, your people and your business will be. No one appreciates working with people who retired on the job...
Create a culture, and then spread it. Make clear what are the key values oof your company. Make sure that people know that sharing those values is a non-negotiable component of their jobs. A cohesive value system is important in all companies, but especially in community banks, where consistent application of corporate values across the system is essential. Those banks attempt to differentiate on service, and seamlessness at all points of customer contact is truly key to achieve such differentiation.
One of the most important values is candor, a rare value in many businesses. Create an atmosphere in which employees feel free, even encouraged, to speak out; where speaking out is rewarded and is considered a path to success. People should be able to speak up to somebody who can do something about their problem. They should be expected to engage in open dialog with their superiors, or possibly one level above that. Banks are known for command rigidity. When you speak to someone above your boss, you've violated corporate ethics. This chain needs to be broken.
Expect your people to do more than simply work. They are capable of more. Harness their energy and talent. When managers and workers talk to one another, they are then able to explore ways of improving the day-to-day workings of the business. Managers do not have a direct line to God. The people who really know what's going on are the people in the trenches who touch the customer or bank operations every day, who execute local market management and corporate strategy. It is the brainpower of those people that needs to be unleashed.
It should be a part of each manager's job to listen to employees' views and, when consistent input is provided, act on them. Listening to the people who actually do the work is the first step to learning and tapping into the creativity of the workforce. They might not have your line-of-sight, but their input is invaluable for you to make the right decisions.
Four goals can be accomplished by breaking down the hierarchical barriers and open a company of mutual listening between management and staff.
Developing trust. An employee must feel comfortable speaking out to a boss or his boss's boss without worrying about being dismissed. Candor permits the company to benefit from the employee's ideas and knowledge.
Empowering employees. Those closest to the work are more knowledgeable than their bosses. The single best way to have workers pass on that knowledge to their superior is to give them more power. In exchange for that power, employees are expected to assume more responsibility and accountability for their job.
Eliminating unnecessary work. Higher productivity is an important ingredient in building a competitive advantage. So, too, is eliminating tasks that no longer support the goal. Getting rid of unnecessary work identified by employees with give them fast, understandable dividends to their brainpower investment and clear evidence that management listens. Don't expect your people to work harder; expect them to allocate the same time differently, more productively.
Spearing your culture. Mutual listening helps spread and foster the culture you choose for your company. Many successful companies have a culture where everyone's input is welcome and rewarded, helping create an irreverent, energetic and independent workforce. One important way of getting there is facing your workers and answering their questions. Employee breakfasts, town-hall meetings and staff-only meetings where the boss faces the employees and gives answers to uncensored questions on the spot provide an extremely effective way to break down barriers, humanize management and open precious lines of communication.
Redefine the role of management. Management's role is to lead. Leadership means transferring ideas to the people who execute them, allocating resources to them and then getting out of the way. The leader's job is to put the best people on the biggest opportunities and the best allocation of dollars in the right places. Employees must be supported in setting priorities. The less important tasks have to be left undone. As a company becomes leaner, a necessary component of success in the future, remaining employees will have to get permission not to do less important tasks. Leaner and flatter companies communicate better with fewer interpreters and filters. With fewer layers, one has winder span of management, a greater sense of empowerment and therefore less need for active management, which is better.
The term "manager" has often come to mean, in the banking industry, someone who controls rather than facilitates, complicates rather than simplifies, acts more like a governor than an accelerator. Some bank managers of the past were Dr. No, finding reasons why we can't do things. Leaders of successful banks inspire people with clear visions of how can be done better.
My definition of a good manager is someone who helps their people be more successful, become better employees, more valuable in the marketplace, more productive for the shareholders, happier and better skilled. If a manager doesn't create value to their team, what is the purpose of their presence?
Some managers muddle things up with pointless complexity and detail. They equate managing with sounding smarter than others. They inspire no one. Many of the traits traditionally associated with managing are not effective in truly empowered companies that are determined to create a competitive advantage inherent in their operations. Activities such as breathing down your people's neck, micro-managing, wasting time with trivial or non-actionable reports, hoarding information, are all destructive yet present in today's business world. Instead, what a leader should do is to provide an environment where people have the resources to grow and the educational tools to develop, so that they can make decisions that approximate the way senior management makes decisions. An organization with the right decision making discipline will be indifferent as to who makes the decisions. The end result should be the same.
Successful banks are often managed by shareholders for shareholders. The people who run the business should have a keen sense of ownership so they will run it as entrepreneurs, not caretakers. The mindset should be for openness: raising issues, debating them, resolving them, rather than accepting compromise and non-performance. Strong managers rally people around their vision of what the business CAN become. They replace a bureaucratic style with an inspirational one, surrounding themselves with people who seek responsibility and the accountability that comes with it. Not everyone will be successful in such an environment. Some will wilt, which is okay. Others will shine and take the entire organization with them.
Strong decentralized management doesn't imply chaos. It means less supervising, more delegating and letting each branch and unit develop plans that make sense for their marketplace, including decisions how, when and where to spend some marketing, hiring and advertising dollars.
Maintain the entrepreneurial spirit. Act like a small company. Small companies move faster; they know the penalties of hesitation in the marketplace. SuperCommunity Banks need to get the small company soul and speed within the big company body, setting a healthy balance between managing each unit for its own success and yet making the whole greater than the sum of the parts. Small companies communicate better. They have fewer layers and less camouflage; leaders show clearly on the screen. They waste less, spending less time in too many reviews, politics and paper drills. They have fewer people and therefore cannot afford to waste resources, forcing focus on the team and directing attention to the customer rather than fighting internal issues. Small companies create excitement. They tend to be uncluttered, simple, informal. They thrive on passion and grow good ideas regardless to their source. They get more people involved and reward or remove people based upon their contribution to winning. Merit prevails in small companies. They are also close to the customer, because the customer's perspective means the difference between prosperity and death.
Large companies have advantages too. Size gives staying power through market cycles and geographic diversification beyond a single economy. Size allows for R&D and investments in products that sometimes take years before they pay back. It allows for a broad product line and for attracting specialists.
SuperCommunity banks need to combine the best aspects of large and small banks, true to their core competitive advantage: out-local the nationals and out-national the locals. Capitalizing on their size and running lines of business in a focused way that can compete with large banks while thinking and acting like a small company in each market is a winning strategy.
No mater how great the resistance. Get those costs down. If you don't become very efficient, someone else out there will do the job for you. If you think out of the box about your business, you will find that some people once perceived essential to success become superfluous. While service levels and product excellence can go a long way to reduce customer price sensitivity, they do not eliminate it altogether, especially not in today's deposit-crazed market. Consequently, cost effectiveness is an essential competitive factor in the future. Cutting the fat, outsourcing when it's economical and reducing the number of cents that go to expenses out of every dollar you earn is paramount. Acquirers and new CEOs don't have any compunction about cutting costs to the bone. Incumbent management is better able to prudently cut costs and put the company on parity with more efficient competitors. Unfortunately, too many managers believe they have more time before they make the hard decision, only to find the helm taken away from them.
As you pursue the goal of improving efficiency, you will likely meet opposition. Arguments will be made by those who want to stave off cost cutting that seem logical, compelling and persuasive. When thinking about cost cutting or any business step that is unpleasant or painful and seems to go against the grain of your culture, keep your eye on the company's future. The past is no guide it's what got you into the situation in the first place. Be tenacious in your pursuit everyone will benefit from that experience.
Calculate how many less dollars you'll need to make to achieve 10%+ EPS growth in 2007 if your efficiency ratio was 1% or 2% lower; it will give you heart and inspiration to find a way to make it happen.
Get faster. Speed is becoming so very important in our business. Mortgages are made in a day, car loans in five minutes, and those who started deploying Remote Deposit Capture two years ago are reaping the benefits by increasing market share and core deposits. There is something about speed that transcends the obvious benefits of greater c ash flows and profitability, higher share due to greater customer responsiveness, and increased capacity from cycle time reductions. Speed exhilarates and energizes. This is true not only in driving, but also in business, where speed tends to propel ideas and drive processes right through functional barriers, sweeping bureaucrats and their impediments aside in the rush to get to the marketplace (RDC again comes to mind, as some banks are still dealing with perceived compliance and risk issues while others have been in the market for months if not years).
Before it's too late, act to speed up the way you make decisions, the way your bank functions. Ignite the company with passion, hunger, appetite for change and innovation, customer focus and, above all, the speed to see reality more clearly and act on it faster.
Companies follow predictable life cycles. At their start, new businesses are invigorated by an urgency to rush to the marketplace and carve out their niche. In an environment like that, bureaucracy can't get a foothold in the same way that moss doesn't grow on a rolling stone. But as institutions grow and prosper, getting more comfortable, priorities begin to shift gradually from speed to control, from leading to managing, from winning to conserving what has been won, from serving the customer to serving the company. We begin to erect layers of management to smooth decision making and controls, and all that growth does slow us down.
In the era of financial services innovation and intense competition, when start-up banks and investor capital are at a long-term high, if you're not fast you can't win. Others will be hungrier than you, more responsive to market changes and evolving customer needs. You must reduce the barriers created by years of turn and fiefdom building. If you have silos, you have a bunch of management layers that do not talk to each other. It's like going out in the cold with six sweaters on your body doesn't know what the temperature is. Speed is the best vaccine against lethargy. It is the simple ingredient that drives small companies, and its absence gets big companies in trouble. They grow so big that customers become a vague abstraction to too many of the company's employees, or, worse still, an annoyance. Remembering the customer and the shareholder at all times is what will assure your on-going success, and speed facilitates that top-of-mind attitude.
As you read this, you will say: speed can get us in trouble; it can lower quality, disrupt our crucial command and control systems; interfere with regulatory compliance; cause serious organizational errors and mishaps. Of course we must not put on speed at the price of lowering quality, disregarding compliance etc. We must preserve all standards and at the same time figure out how to get faster. It is absolutely doable. We too often assume that the way we do things is inherent in the business, only to find out that others who didn't make that assumptions have sped up their operation. Just look back at mortgage underwriting, teller training and other internal processes that changed dramatically over recent years.
Breakdown the silos. We no longer have the time to climb over barriers between functions, geography, front and back office, staff and management etc. In designing high-performance aircraft, engineers work incessantly at eliminating or flattening any protrusion that produce drag. The result is a clean design that moves quickly and smoothly through the air. As you read in a recent BirdsEye View, a flock of geese have 73% more flight capacity because of their team formation. Olympic swimmers shave every hair on their body for the same reason. Why shouldn't we function the same way, seeking to eliminate unnecessary drag and friction? The negative impact of these may not be as apparent as in the examples given above, but it's certainly there.
In a bank, the drag comes from silos, the walls that grow between commercial and retail banking, between finance and marketing etc. These walls ultimately creep outside the company, creating barriers between the bank and its customers, or its vendor partners. Each piece of turf within the walls is defended by watchdogs within the fiefdom. Each of these walls is a speed bump that slows down the company. Knocking down the walls between functions, levels, locations and lines of business is so important to leveraging the entire company for every customer. Everyone must join in a common purpose, satisfying customers. Some banks have initiated cross-disciplinary team calling and customer sharing. This is an excellent example of an organizational commitment to break down the walls and optimize the entire company rather than each line of business or geography.
Empower your employees. The way to harness the power of your people is to turn them loose; let them go, get management layers off their backs and functional barriers out of their way. This doesn't mean eliminating controls; empowerment is NOT chaos. However, we want our employees to be fully engaged, which means we'd like their brainpower in addition to their brawn. You will be amazed how much people do when they are not told what to do by management, and where incentives are aligned with main corporate goals. We should prop up our employees make them f eel good, acknowledge their contributions and successes, reward them handsomely for performance and treat them as an integral part of the business and our main asset. Every employee's wish is to feel they are important to the enterprise. In truth, no one is more important than our people; why not let them feel this way.