Create Operating Discipline at Your Bank

Bankers have made great strides in developing the strategies to succeed over the long-term, analyzing the customers that most value their strategic direction, and gaining the buy-in from their Boards of Directors and employees. The next challenge is to build the environment and culture where the organization moves toward its aspirational future. To create operational discipline that greases the gears toward the bank you want to be without continuous leadership intervention.

In the video blog I give one specific example of how to do that. Make your own choices on the operational discipline you need to move you closer to your aspiration.

Link in case the video doesn't appear on your device:  

https://www.youtube.com/watch?v=3BdjHvF4OAw

 

~ Jeff

Barriers to Entry In Banking Spell Opportunity. But Do We Seize It?

There are numerous and significant barriers to entry in banking. Regulation, capital requirements, competition, and the concentration of customers at the largest institutions have all contributed to only one bank charter being granted over the past three years. 

But I rarely hear of opportunity as a result of high barriers to entry in bank strategy sessions. I mostly hear lamentations and gnashing of teeth over the sluggish economy, aggressive regulatory environment, and irrational competition.

We are missing an opportunity, in my opinion. Here are the 10 strategic issues banks should address to position themselves to take advantage of high barriers to entry:

1.  We have thousands of customers, but do we understand who they are and what they want? Don’t believe me, ask your head of retail or commercial for an analysis of your customer base, including trend. If you get it immediately, good for you. I have my doubts.

2.  Do we have employees that grip old habits with white knuckles?  And, if yes, have failed to move them forward or out?

3.  We speak of relationships, but have we defined in detail what that means?

4.  We spend tens of millions in operating expenses, but do we direct expenditures to strategic priorities? Or have we failed to identify strategic priorities?

5.  We talk of service, but have we communicated service expectations?

6.  We expect customer contact staff to reach out to customers, but do we train them to do so?

7.  We speak of sales, but what percent of our staff have sales responsibilities?

8.  We spend millions on technology. But breaking it down, does our budget look like we are more focused on replacing Windows XP than building the distribution network of the future?

9.  Do we focus more on building the bank of the future or making budget?

10.  Do we identify the bank of the future, and the bank we want to become? Or do we remain some slightly modified version of the bank we were in 1950.

It is time for bold thinking to break from our past. We can no longer be some slightly modified version of what we once were. If we don’t bust our business model, someone else will.

And hey, I need community banks to thrive. So do your communities. So let’s get to it.

~ Jeff

Flawless Execution: Plan, Brief, Execute, Debrief

How do we connect our strategy to our vision? Can bankers identify, in high definition detail, the bank they want to become to remain relevant to their constituencies, and translate this future bank vision into action?

Regular readers of Jeff For Banks know I recently read Flawless Execution by former Air Force pilot Jim "Murph" Murphy by my post about defining your High Definition Destination. Far be it from me to send multiple shout-outs to an Air Force guy. The Navy has more planes (GO NAVY!). But, as the book's title suggests, Murph has some interesting thoughts on execution that I think can help banks bring vision to the ground floor.

Murph outlines how pilots plan for missions in a model represented in the accompanying picture. Could this work for community financial institutions? Let's walk through an example.

Suppose the FIs vision, or "high definition destination" is to be the number one business bank in the counties served for businesses with less than $10 million in revenue. The strategy team identifies a few Strategic Objectives that are critical to achieving the vision. For example, one Strategic Objective could be to develop a robust, yet simple suite of products designed to make the business persons' lives easier.

In the Flawless Execution model, a team would be assembled with all functions critical to the execution of the Strategic Objective present... commercial and retail banking, IT, compliance, marketing, etc. A plan is developed with responsibilities and timing. The team completes the game plan, and disperses to execute, re-assembling for regular updates and inter-dependencies.

After the product suite is developed and launched, per the plan, the team comes back together for a debrief to dispassionately discuss surprises, hurdles, miscues, and successes. This debrief is critical to organizational learning, ensuring the next Strategic Objective is executed better than the last. Yet, in my experience, the debrief rarely happens. 

Part of the reason is the increasing lack of candor in banking, and our society as a whole. I dedicated a blog post to this subject over three years ago, and I haven't noticed much improvement. How do we construct a culture of continuous improvement if we do not recognize execution flaws and impediments through a candid, yet dispassionate and impersonal debrief process?

Fighter pilots debrief this way because flaws in plan execution could end up in tragedy. Get better or risk death tends to add greater urgency than get better or have your FI relegated to the dust heap of irrelevance. 

But, as the numbers bear out, FIs need to get better at execution or risk irrelevance.  

How do you execute and do you debrief?

~ Jeff

Bankers: What Is Your High Definition Destination?

Future Picture: "A high-definition picture that shows in great detail the future as you want it to be." Future Picture and its definition are from James D. Murphy's ("Murph") 2006 tome, Flawless Execution. I liked it so much, I e-mailed Murph at his consulting firm, Afterburner, for permission to quote from it.

Murph and his colleague, Will Duke, called me back. Since the 2006 book, their thought process has evolved. They created a more versatile version of Future Picture, one that can be applied to multiple industries with greater precision. They termed it High Definition Destination ("HDD") in their as-yet to be released book, Courage to Execute. 

In an excerpt of the book, HDD is described as follows:

" A HDD should be so described as to provide a beacon-like objective that drives the entire organization forward.  It should be clear and simple, yet high-definition."

In other words, Future Picture, and it's successor HDD, describe in vivid detail the organization you want to be. So vivid, in fact, that all levels of the organization know it, understand it, and can describe it in less than five minutes. 

I discussed with Will and Murph our industry's vision problem. Many if not most of our banks date back many generations, in simpler times when we had one branch that did all things banking to an entire town. Competition was limited and sometimes non-existent. So our vision started as something like this... Schmidlap National Bank. We're a bank. To the town of Schmidlap. 

Now things are more complex. We are in dozens if not hundreds of communities. Our products sometimes number in the hundreds. We compete with financial institutions that are located within those communities and outside of them. We don't just compete with banks, but also with credit unions (and vice versa), insurance companies, brokerage companies, virtual banks, and non-bank financial intermediaries. 

Yet our vision has evolved to something like this: Schmidlap National Bank. We're a bank. But not just in Schmidlap.

Don't believe me? Take this vision statement from an anonymous bank that I found randomly looking through bank vision statements on the web:

"Our vision is for [bank name] to build value by employing those human, financial and technological resources which will enable and insure its expansion, prosperity, and reputation for superior quality, performance and value returned to the communities, customers, team members and investors it serves."

How about that for a High Definition Destination? There's gotta be a yadda yadda yadda in there somewhere. Does this vision statement read like yours? Even a little bit? Does your vision provide that vivid picture where all employees know your HDD and make decisions and develop tactics to achieve it?

As Murph told me on the phone call, general vision gets general execution. Executing to achieve some general HDD promotes wasted effort. And minimizing wasted effort is critical to flawless execution.

So tell me, how specific is your vision? Do you have an HDD?

~ Jeff

Five Things I Don't Understand

Some people see far more gray areas than I do. When common sense, reason, and facts support one direction, I am confused why we don't move in that direction.

If I listed everything I don't understand, you would be reading a long, long time. So I will limit myself to five things that recently confused me, and are relevant to banking.

1. Vision Doesn't Matter

I hear this a lot and a recent quote from General Colin Powell convinced me to put this on top. At a recent speaking engagement, he was reported to have said "If you want to make sure to keep moving forward, have a destination." I can't think of many, if any, renowned strategists that believe vision doesn't matter.

But I can't think of many financial institutions with a vision that clearly identifies a hoped for future. Most vision statements read like they came out of a Dilbert cartoon.

I think smarmy vision statements are the reason I often hear bankers and their consultants say vision doesn't matter. If you can't point to your hoped for future, communicate it and inspire your team, then maybe your bank doesn't matter. Could this be the reason for the incredibly shrinking number of financial institutions? I only wish those consultants saying vision doesn't matter would go away instead.

2. Our Money Is No Different Than the Bank Down the Street

If you believe this, then price is your only differentiator and the only way to achieve an advantage over your competitors is efficiency. Look to Oritani Financial Corp. as an example of this. But believing that you sell a commodity and pursuing a "relationship" strategy confuses me. Building a high quality staff of employees empowered with building customer relationships is more expensive than building efficient processes, using efficient systems, with a small number of high deposit branches needed to be a price leader. 

If you believe you sell greenbacks, dump the relationship platitude and get efficient.

3. We Need Experienced Bankers

Back in 2010 I wrote that our drive for experienced bankers limited banking's talent pool. Specifically, I was writing about hiring veterans. The corporate world is chock full of leaders brought in with little experience and taking those corporations to extraordinary levels. Think of Southwest Airlines Herb Kelleher, or IBM's Lou Gerstner. In banking, I identified the top 5 total return financial institutions. One was BofI Holdings Inc., whose CEO was a former consultant. Go figure.

Look through the long list of bank failures since 2008. Most were run by experienced bankers. So excuse me if I'm at a loss as to our fascination with finding more of them.

4. Finding Joy in Other's Failures

So, if you read my bio, you know I'm a Yankees fan and I'm fielding lots of questions about how I feel about Arod. Personally, I don't know Arod. Based on my limited knowledge of him, I don't think I would like him. He comes off as an extreme narcissist. But I refuse to boo the guy, or take joy in his downfall from baseball royalty. Perhaps when I reach perfection, I would be more comfortable taking pleasure in watching others fail. But I don't see that happening in my lifetime.

Failure is not testimony to your intelligence. It is testimony to your effort, and wisdom.

5. Employees Don't Match Your Strategy

Strategy shifts faster than culture. If you are moving your financial institution away from being transaction focused to relationship focused, yet leave the transaction focused people in place, you are setting yourself up for failure. How often do I hear from bank leaders that they are having difficulty getting their employees to do what they need them to do in our new banking world? 

Daily.

What is confounding you?

~ Jeff

"Without vision, the people perish."

Is it not politically correct to quote the Bible? There, I did it anyway. The title of this post was lifted from the Book of Proverbs. Bankers must not be Bible readers. Clearly, most banks’ vision is to be “just another bank”. Right?

Vision clarifies the kind of bank you want to be. It is a future, hoped-for state. I am not stating something esoteric, you can read it on Wikipedia (see link). Yet when vision is brought up to most bankers, they roll their eyes and look at me like I have two heads. Marsico must be from the Marketing Department!

Today my 11 year old had a soccer game 90 miles away from home. To determine how to get there, my wife looked up the address of the field, we plugged it into our GPS, and set out to get there. But we in banking have different ideas. We don’t determine our destination. Instead, we get in the car, drive, and hope we happen upon a soccer field where, coincidentally, the rest of the team stumbles upon. We don’t identify our destination, yet we set about a strategy to get somewhere.

Where, I’m not sure. My guess is to the holy grail of banking, the “General Bank”. Don’t laugh, there once was a bank named General Bank in Los Angeles. At least they were honest. Should your bank’s name be General Bank?

Erika Anderson, the founding partner of Proteus International, a personal and business strategy firm, identified strategy steps in her book, Being Strategic, as follows:

Define the challenge; then

Clarify what is;

Envision the hoped-for future;

Face what’s in the way; and

Determine the path.

Bankers embrace all facets of the above in most strategic planning sessions I have attended or facilitated, except for that pesky “envision” part. But if we skip this step that Erika has so aptly identified, how in the world do we face what is in the way or determine the path. Determine the path to what? These steps are interdependent and if we are to evolve the community banking industry to be more relevant to customers and communities, we have to develop a long-term vision for our bank.

One method to create a vision was done by Xerox in 2000, under then-new CEO Anne Mulcahy. She assembled her senior management team and asked them to write a press release describing how various constituencies (i.e. customers, employees, shareholders) talked about the company, and date it five years forward. From this exercise, Xerox mapped their way from a death spiral to a return to relevancy.

One thing to avoid in clarifying your vision is a satisfy-all-constituency statement. Your vision statement should not only identify your future, hoped-for state, but bring clarity to decisions made every day by your employees. Stating you want to be the “best of class” community bank without specifically identifying what that means is, well, meaningless. I suppose this is why eyes roll when I discuss vision. Just because it has been done badly in the past, doesn’t mean we shouldn’t do it. A strategic plan should be your GPS. Your GPS is worthless without telling it where you want to go. Your vision is the address. Are you navigating without a destination?

- Jeff
http://en.wikipedia.org/wiki/Strategic_planning