A few weeks ago I taught Bank Organizational Structure at the North Carolina Bankers Association School of Banking. The School is divided into four classes: Freshman, Sophomore, etc. My course was to the Freshman class.
But the class was very diverse, ranging from junior level people to Senior Vice Presidents. This presents a challenge. Part of my task was to demonstrate “how it is” in organizational structure. This part of the class may not have been very interesting to the more seasoned bankers.
As part of the “how it is” discussion, I outlined org structures evolved to where we are today by:
1. Past experience of Board members and/or Management;
2. Legacy structure… the way it has always been;
3. Entitlement structure… making management positions and reporting lines to promote key managers; and
4. Regulatory requirements… maintaining certain Board and management committees, processes, and policies.
These key drivers resulted in most financial institutions being organized by product group, in my experience. For example, there would be a Senior Lender that has commercial, consumer, and residential loans reporting to them. This puts staff serving very diverse customer groups with different needs reporting to one executive, who is charged with serving only a portion of their need.
The second part of my topic revolved around the evolution of org structures. What if, I posited, a bank were to organize around customers instead of products? See my post a few months back relating to this topic and a Forrester Research study here. Shouldn’t the FIs strategy drive its structure? How would such a structure look? This was probably more interesting to the seasoned bankers, because it challenged how we are typically organized.
We did an exercise regarding a bank, called “Blue Collar Bank (BCB)”, that wanted to focus on working class families. How would such a bank be organized around the needs of its niche customer base, I asked the class?
The results were interesting. The two students that presented their org structure to the class separated support and line functions. This is not atypical to how we do it today. But neither student separated out lending from deposit gathering. Credit, as I recall, was separated out by one student but not the other.
It was interesting that the responsibility for serving all of the niche customers’ needs channeled up to one executive. There were specialties within that line of reporting, but there was no passing the ball across the organizational continuum, as is typical today. This passing of the ball leads to holes in customers being served. In countless strategy sessions FIs struggle with who is going to serve small businesses… the branches or the lenders?
For example: a long time ago I was a branch manager for a commercial bank. Any commercial loan referrals were passed across the org structure to the commercial lending line of business. One customer wanted to expand his car wash by one bay and was seeking financing. I phoned into the commercial department, where the loan officer told me to “not bother him with this sh**.” My guess is he was busy working million dollar deals and didn’t want to be bothered with a $50,000 one. Because I continue to hear this in FI strategy sessions, I don’t think this is unusual, even today.
But would such a reaction be unusual if the bank was organized by customer? After the class, a student from Newbridge Bancorp in Greensboro approached me to proudly hand me her bank’s quarterly financial report. It had the bank’s org structure (see photo below and link here). This bank is organized differently than most, and is more closely aligned around customers versus products.
Could aligning structure with strategy be the next step in changing the culture in community FIs? What do you think?