vBlog: How to break down organizational silos in financial institutions

There are a number of challenges that nearly every financial institution faces, in my experience. Regulatory over-reach, check. Compliance woes. Got it. Branch under-utilization. Ditto. 

One such omnipresent challenge is how to blow up thick-walled organizational silos to serve the customer well over several banking and neo-banking disciplines. The below video highlights some of my ideas on how bankers can break down barriers to win more of their customers' business.

What are your ideas?

~ Jeff

Note: Here is the YouTube link of the above video in case you can't view it in the Blogger application.

https://www.youtube.com/watch?v=kK0bhrY_b7U

Strategy drives structure... in theory only?

Strategy drives structure, so says Peter Drucker. Do you believe him? Does your strategy drive your structure?

I taught Organizational Structure this week at the North Carolina School of Banking. I was the one in the room with the accent, by the way. But I digress.

I created a case study of a bank called Blue Collar Bank, a New Jersey thrift whose vision was to be the #1 financial institution for working families in its markets. The assignment was to develop an organizational structure conducive to executing its strategy.

 

For the sake of time, I could not call each student to present their results, so I asked for volunteers. One student bravely came to the front of the class and presented an organizational structure that looked like the below chart.

 

I have never seen such a structure. When the student first described it, I imagined that this could be an Apple or HP structure... a company that was strong in product management. Imagine having Marketing and IT reporting to the executive in charge of Product Management and Distribution?

 

Upon reflection, this structure has merit. I have heard from multiple heads of IT that they lack clear direction in managing projects... which ones to undertake, and in what order. IT steering committee projects are driven by anecdotes and compliance. What if the project list is driven by the bank's strategy and managed by an executive responsible for delivering the right products over the right channels to target customers as described in its strategic plan? That would be revolutionary to our industry!

 

IT and other traditionally operational areas in FIs often report to other operational executives that are focused on making sure the back office runs efficiently. Now that most of our customer interactions are occurring through electronic channels, doesn't it make sense to re-think this structure?

 

Hats off to this creative student. Is it no surprise that he works for a marketing company that supports FIs, and is not a banker?

 

What are your thoughts on FI organizational structures?

 

~ Jeff

 

 

Note: Below is a picture of the books at the UNC Chapel Hill bookstore. In case you were wondering about the seriousness of that rivalry.

 

 

Common Sense to Successful Strategy Execution

The title of this post is a modification to the original, The Secrets to Successful Strategy Execution, originally published in Harvard Business Review in 2008 by Booz & Co. consultants. As the authors noted in the article, "A brilliant strategy, blockbuster product, or breakthrough technology can put you on the competitive map, but solid execution can keep you there."

The authors' research, querying 125,000 employees from over 1,000 companies, identified four fundamental building blocks to create an execution culture. These are:

1.  Clarify Decision Rights. Sometimes called empowerment, this building block is critical for quick, effective decision making. Have you ever worked for a boss that frequently questioned decisions you made? The result: you push the decision up the chain of command so you don't get blamed for mistakes. This behavior is endemic in a dysfunctional organization that requires senior leadership to make even the most mundane decisions. This, in my experience, is a common challenge with community financial institutions (FIs). Clarify the kinds of decisions that managers and rank-and-file can make at every level, and don't second guess those decisions when made. Learn from mistakes, but don't punish or second guess less than optimal decisions. Because we all make them.

2.  Design Information Flows. If we are to push decision rights down the chain of command, we must provide the necessary information to make informed decisions. Clarifying decision rights does not mean creating a culture of winging it. To supplement the culture for successful execution, ensure the needed information flows across organizational silos and up and down the chain of command. This is a challenge in financial institutions, as our silos are Superman strong. For example, in a recent meeting I attended the head of retail banking was pleased at the level of new account acquisition. However, we did profitability measurement that demonstrated the aggregate number of accounts barely budged. Why? Nearly as many accounts closed as were opened. Had Finance shared information with Retail, perhaps this trend could have been uncovered earlier and Retail could have implemented strategies to stem the outflow of customers.

3.  Align Motivators. I would report that this is the easiest to put in place. But I would be wrong. So many FI strategy sessions include revamping their incentive compensation system to align with strategy. I wrote a post specifically about branch incentives on these pages. But FI's remain doggedly attached to compensating on volume versus profitability for lenders, and the traditional holiday bonus for staffers. If you want to create an execution culture, develop incentives that motivate strategy execution.

4.  Change Your Structure. I teach Bank Organizational Structure at two banking schools *yawn*. In those sessions I dream of an FI that organizes according to their strategy versus legacy. FIs are starting to look at their org structures to determine if it inhibits strategy execution, a promising development. But history remains, and change is slow. Take small business banking as an example. Most FIs are struggling to serve this important customer base well because responsibility for service rests squarely between commercial and retail. Small businesses typically don't borrow or use credit cards and home equity loans for early stage funding. Not fertile ground for commercial lenders. Branch bankers are uncomfortable talking about cash management or financing with the small business owner. What results is a confusing web of responsibilities in serving small businesses. If you want a to foster successful strategy execution, ensure your organizational structure is consistent with your strategy.

There you have it! Four common-sense building blocks to create an execution culture. Thankfully, FIs are more often looking to develop strategies for a sustainable future instead of looking only one year down the road through their budget. Executing on such a strategy is critical for us to remain relevant to our customers, our employees, and our communities.

What do you see as critical to successful strategy execution?

~ Jeff

Does your strategy drive your structure? I doubt it.

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?

~ Jeff