Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewsimplify your way to revenue growth
Quote of the week: "Live while you're dying; don't be dead while you're living" by Jimmy Buffet and Dick Evans
In response to these difficult times, I will offer a series of articles on organic growth, making more with current resources and other thoughts which I hope you'll find useful.
On a personal note: Dick's 60th birthday festivities lasted 10 glorious days (and 5 extra lbs.). We are blessed to have family and friends that care! Paul and Arik put together for him a beautiful book with 60 pictures (one for each year) and funny, touching and insightful captions of what makes him a great dad. You should have seen the waterworks... Perhaps as a result of this momentous occasion, Dick authored an article entitled, "Why I look forward to being an empty nester". Check it out on www.anatbird.com by clicking on the BirdDroppings tab.
Arik is playing football. He's a junior varsity player and plays both defense and offense. He thoroughly enjoys clobbering QBs and crashing into them, not to mention scoring touchdowns. Mom watches and dabs the blood that occasionally pours off his cuts and bruises...
Our second granddaughter, Cecilia, was born today at 7 lbs. 5oz. Mother and daughter are doing well, and photos of the proud parents and the baby are posted on www.anatbird.com.
Our Forum season has begun with much gusto, and I'm traveling extensively and enjoying seeing again our members, a.k.a my friends. It's a time of learning, sharing and reconnecting for me, and I cherish it. I still fly for 6-10 hours every couple of days, and must like this crazy lifestyle to keep doing it and building even more Forums in response to your requests. The next one on tap is Cash Management, January 22-23, 2009.
Article synopsis: Banks operations, products and organization are too complex. Simplify and all will benefit..
Simplify Your Way to Revenue Growth
This is the first of several articles in which I'll offer different ways to achieve revenue growth and expense controls, two critical elements in today's turbulent times and solid stand-bys in good times.
Banks' organization structure, product offerings, processes and approach to the customer are unnecessarily complicated. This is especially true for community banks, which should have great advantages in simplicity and closeness to customers. Instead, I find we continue to complicate our lives with processes, products, structures (including holding companies) and bureaucracies that look too much like mega-banks.
One important method to achieve organic growth in these crazy times is to simplify yourself across the board, soup-to-nuts, shedding the complexities and weight you carry and redirecting resources to more productive use tending to customers and prospects.
But Anat, you'll say, what about compliance, governance, BSA, Patriot Act etc etc? We'll talk about that later in this article, but I feel that even those necessary activities are over-complicated.
Organization. Start by examining your organization structure. Do you have too many boxes on your charts? Too many layers? How many levels exist between the CEO and people who touch customers? A good benchmark to strive for is no more than four layers. If you have more than four, does each level truly contribute to the success of those below it? What is the incremental value created by your team leads, city presidents, market chiefs etc.?
Evaluate the critical importance of local presence and decision-making, that so effectively separate SuperCommunity Banks from their larger brethren, against the additional cost incurred by them is a difficult task. I further believe that it's not only your costs that are negatively impacted by too many levels. The farther executive management is from the real world, i.e. the customer, the less effective it becomes, the more removed their decisions from reality.
Another question is, how heavy is your holding company. Does it truly achieve the efficiencies and service level improvements originally envisioned when you centralized processes and pulled staff into the holding company? Were your controls enhanced as planned? I find that, at times, envisioned efficiencies, process improvement and other benefits are not achieved. Instead, the "rock" that the line units must carry gets heavier and heavier without a clear payback. Simplifying your holding company and ensuring that its current size, structure and service levels truly add value to the line is a positive step at any time, and especially now.
Last, the best measure I know of management effectiveness is a positive answer to the question: "If it weren't for my manager, I'd be less productive". Do your managers add value to their teams? If not, why are they there?
Products. Most banks' product lines are hopelessly complicated. They are too numerous to differentiate (if you have more than four checking accounts, you are in this category), too difficult to sell and too confusing to the customer. Yet, management is often reluctant to eliminate any product, lest we upset the four customers who are using it. Have courage, managers. Customers and prospects are more resilient and welcoming of simplification than we give them credit for.
Our products encumber both the sales forces and the prospects whom we want to convert to customers. Our business isn't that complicated, yet we have more small print than most. While I'm most respectful of our regulators and understand the importance of disclosure, I do ask: why do we create products that require SO MUCH disclosure? Why not make them simple in the first place? A great example of this approach is the new management team at FirstMerit. They used several principals to guide their product redesign:
The results were amazing: double digit checking account growth, great improvement in sales force productivity and a counter-trend fee income growth.
It takes guts and out-of-the-box thinking to execute on this approach, but the results are heartening. Once you think about it, they make sense. If you create a simple product line that both your sales people and your customers clearly understand, both are more likely to become more effective at selling and buying the product.
One more thought: If you have grandfathered products from past years, acquisitions, etc., it's time to remap them into a simpler product line and get on with life.
Processes. All loans are made as good loans, and all processes start as efficient and cost-savers. However, we time passes, processes become more complicated. We find one-off situations that we are determined to prevent (even though they only occur once every other February 29th that falls on a Tuesday), and modify the perfectly simple process to ensure that situation shall never happen again. Before you know it, an easy process becomes a nightmare. Both you and I can recall countless examples of how these things happen: one bad audit; a board member's wife being upset; etc. The unintended end result is overly convoluted, unwieldy processes.
Ask your sales forces to collect all communications they receive in a week by email, paper etc. and bring them to you. Make sure they have a forklift with them to avoid a hernia and other bodily harm. Then ask them, what do they do with most of the stuff? The answer is: they save it for as long as possible and then chuck it. We inundate our people with directives, marketing messages, corporate information, operational updates, compliance guidelines and more. We need to reduce, simplify, so they can do what they were hired for in the first place.
I encourage you to review your major processes with a fresh eye. Scrub them like you scrub your loan files before an exam. It's a productive use of your time, SO LONG AS YOU PUT THE FREED-UP CAPACITY AFTER PROCESS SIMPLIFICATION TO GOOD USE. Too often we promise ourselves headcount reduction or, better yet, sales improvements after we free capacity currently buried in unnecessary administration. Too often these promises remain unfulfilled. Make sure you set clear expectations for the utilization of this capacity and measure how it's being applied.
Compliance. The 800 lbs. gorilla that stands in the way of simplification is compliance. Yet, I feel about it the same way I do about all other elements discussed thus far: it can be achieved with simpler processes. Ask your Chief Risk Officer, Compliance Officer, Auditor and others within your company to re-examine current expectations, check-lists, SOX process etc. For example: do we really need to count cash that we get from the Fed? When was the last time it was wrong, and by how much?
The last few years saw compliance staffs and activities mushroom under the encouragement of all our regulators, auditors and the SEC. We had a more difficult time hiring a commercial banker of a Trust officer than a compliance person. It's time to take another look to ensure we spend these resources wisely.
I do not advocate reducing compliance, much like I do not advocate reducing sales by simplifying your product line. I'm only asking: are you sure you are doing it the most efficient way possible?
Customers. Our customers have to navigate their way through our organization maze when they look for new products or solutions to problems. This can become a most confusing effort. Even when a customer is a motivated buyer, it's not easy for them to get to the right sales person. A couple of years ago I tried to buy insurance from my bank. I approached my client handler, whose team reports to the same person who oversees the insurance business. Still, I couldn't get help, despite some persistence.
Imagine how your customers feel when they look to you for solutions outside of their relationship manager's line of business. It takes significant effort for them to reach beyond that line of business to fully meet their needs. This is not only counter-productive for the customer and for the shareholder; it could even be damaging to the relationship manager, if the customer gets upset enough.
Simplify your organization and cross-selling process such that any RM can help customers avail themselves of the entire company's resources. All will benefit from such change.
In sum, I think you see where I'm going. It's time to shed layers, free capacity and do more with what we've got. It will help morale, which is sorely needed these days, and will bring well-needed relief and discipline that will serve you and your shareholders well for years to come.