It’s a competitive, fast-changing world out there. A world where businesses in every industry are engaged in an endless scramble to get a leg up on their competitors. That’s particularly true in the banking industry, where banks of all sizes vie for the consumer’s attention. Take all that competition, throw in a healthy dose of regulatory oversight, a handful of demanding customers, dump in a bunch of technology and you pretty much have the makings of…..a huge challenge.
Marie Kondo, the Netflix queen of Tidying Up with Marie Kondo and author of The New York Times best-seller The Life-Changing Magic of Tidying Up has made a killing selling a simpler, tidier way of life. Her organizational strategies impact practically everyone: women, men, corporations…references to her method pop up everywhere. She may be right, but how does a tidy sock drawer affect you? You’re trying to compete in the ever-challenging banking industry, and your bank has a cash drawer, not a sock drawer!
What if the same principles apply? Stripping things down to their essentials and maximizing what you already have is just as applicable in banking as anywhere else. A bank’s job is to maximize shareholder return by building and serving a customer base while staying within the framework set up by the regulators. Those are three tough masters. The regulators keep changing the rules and the requirements. The customer needs morph and expand, requiring continual adjustments in strategy and technology. And the shareholders expectations certainly aren’t dropping.
You’re trying to compete in the ever-challenging banking industry, and your bank has a cash drawer, not a sock drawer!
Community banks – or banks of any size, really – thrive when they are operationally efficient. Which means it’s time to purge the clutter and tidy up the bank. The technical term for this is Operational Assessment, and it addresses all operational areas of the bank: lending, deposits and retail. It may not sound sexy, but the practice leads to a focused business model, a strong infrastructure, streamlined processes, and maximized utilization of your people and technology, resulting in happier, stickier customers, empowered employees, readiness for growth and expansion, an improved efficiency ratio, reduced expenses and increased income.
“Tell Me Why This Matters”
Why does efficiency matter so much? The short answer is that when your bank is inefficient, it impacts everything. The long answer has at least four parts:
1) Competitive markets demand peak performance. Treat your banking organization as if it were a high performing athlete, and it will perform as such. To that point – know your strengths, weaknesses and opportunities your bank may need to pursue. Depending on your market, you may be able to narrow your focus, possibly identifying underserved niches. Regardless of the market size, however, it is always wise to look at market opportunities, the skills within your personnel and craft a strategic vision.
2) Customer Expectations. Much to the chagrin of bankers everywhere, the customer just won’t stand still. Not only do they expect to be able to accomplish basically every banking task from their devices, they still expect to be able to walk into a bank and have a serious conversation about their credit and other financial needs. Their expectations for mobile integration are high, which means your bank can’t keep struggling to keep up. You must provide the services that the customer demands, and that costs money. Gaining efficiencies helps you absorb those costs while maintaining shareholder return.
3) Regulatory Compliance. Those lines in the sand keep shifting as do the rules for playing the game. Rather than feeling the need to hire additional staff to sort through the requirements, build the compliance into your technology and related processes, rather than updating your staffing count.
4) Reduce Risk. Remember the game “telephone” where you whispered a message down a line of people and the message became distinctly garbled by the time it reached the end? The same holds true for operational processes. The more touches and steps a project has, the more opportunities for error, the more time wasted and the more risk to security. You may not realize it, but if your staff has “always done something a certain way” regardless of how much paperwork is required, how much manual involvement there is, how much room for error, how little technology they utilize….they are essentially “process hoarders.”
“I didn’t mean to be inefficient!”
The same way our houses acquire clutter and “stuff” in the general course of life, the life cycle of a bank can lend itself to natural inefficiencies. There are numerous causes: rapid growth, acquisitions, resistant personnel, new technologies…but it all boils down to infrastructure: people, processes and technology.
People: Across the country, community banks are aging along with their staff. Capable and knowledgeable as the staff may be, their processes are frequently too slow, too high touch, too manual. Does this mean purging staff? No. It means fully utilizing existing staff by means of re-allocation or job role expansion. For example, train employees to become “universal bankers” with diverse skills sets which fully address increased customer expectations.
Processes: Legacy processes go right along with legacy staff. That’s not to say all processes in place are bad, but as technology has advanced with the ability to automate so much of what used to be manual, it is foolish not to take advantage of available technology. In all departments, automate as much as possible. Reduce paperwork. Utilize imaging. Automate compliance and documentation. Reduce touches. Take a hard look at every single area and simplify.
Technology: The dreaded but absolutely necessary T word. It’s no point being a Luddite (look it up) when it comes to banking technology, because it really does make everything easier, faster and more efficient. Technology doesn’t blink at high volumes. Not only does it not put your current staff out of a job, it has the potential to free them up to assume more valuable, potentially profitable roles in your organization and with your customers. It enhances their true value to your bank. Inefficiencies occur when technology is not up to date or technological investments are under-utilized by employees who take their existing processes and work around the technology rather than making the technology work for them.
“I Think I Need Help”
Perspective is key to operational assessment, and realistically, Operations Officers aren’t the best person for this task. They’re too busy to interview employees, analyze processes, assess technology needs and compare to benchmarks. They can’t see the forest for the trees. Which is why our recommendation is to get outside help.
Start at the very beginning. First, work with your consultant to take a holistic look at your organization. Yes, you can certainly jump straight to process analysis, but would a good doctor treat a rash if your kidneys were failing? Holistic health and success needs to begin by looking at the big picture. Which means that the wisest place to start is with strategic planning. What are the expectations of your customers? What are the holes in your infrastructure and services? What are the weaknesses of your organization? Identify the systemic issues that are impeding your success. Strategically plan for your future. When you have a clear idea of your strategic direction, then it’s time to go deeper.
Tackle the Messy Closets. Management usually has a pretty good idea of problem areas, pain points and suspected weaknesses. Work with your consultant to identify those and define your perceived customer experience. Make a list of targeted opportunities. Analyze the work with onsite investigation and detailed systematic process review. This involves employee interviews, hands-on observation of current workflow processes, evaluation of current procedures, evaluation of risk-based processes, and evaluation of adequacy and utilization of technology systems. Ideally, look at all components of your operations: lending, deposit and retail.
Plan the fix. Once the data has been analyzed, consultant recommendations can be used to devise an implementation plan, establish priorities and form an action team.
It has been said that Warren Buffet counseled a friend on tackling obligations and prioritization by telling him to make a list of his top 25 priorities, circle the top 5, and ignore all the others until those 5 were accomplished. His strategy is reminiscent of the 80/20 rule where 20% of our efforts result in 80% of all results. Perhaps that strategy is worth applying when it comes to implementing steps towards improved efficiency. It does seem rather…efficient.
Another important thing to remember here is that tidying up your bank takes far longer than an in-home de-cluttering session. In reality, even if you prioritize and tackle those priorities, it might take up to 2 years. While some infrastructure changes have an immediate impact, others take time to produce results.
“What does efficient feel like?”
Once you’ve made the wise decision to engage in an Operational Assessment, you will see both operational and strategic benefits.
Operational benefits: There is clarity as to why your bank was feeling pain. You weren’t imagining it – something was really wrong and you know it’s being addressed. Now that you’ve taken a look from the top down, your bank is able to plan a strategy and craft the steps to get there without the interference of existing inefficiencies. You will get the full benefit of your technology investments as your systems are fully utilized. Your employees will benefit from the removal of those frustrating pain points. Your customers will be better served, and your profitability will be maximized.
Strategic benefits: With efficiencies (now) built in to your infrastructure, your bank is ready to seek growth opportunities whether in footprint, assets or technology on a solid and efficient operational foundation.
The Wrap Up
Achieving operational efficiency requires intentionality because in the same way our houses somehow re-clutter day after day and require constant upkeep, we tend to hang on to our old ways if we’re not careful. Maintaining that holistic perspective of your bank’s health, look closely in your closets for the clutter of inefficiencies. Set your priorities and tackle them systematically. Maximize your use of technology, develop the simplest processes to complement technology and maximize your people so they can be some of your greatest assets.
An efficient operational platform allows you to maximize your success all around – which will definitely benefit your stockholders, the regulators, your employees and most importantly, your customers.