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Plan in the Future, Not the Past

By Don Musso and Stephen Brown Klinger

The article is the second of a four-part article series on strategic planning adapted from FinPro’s 2016 State of the Industry speech titled “The Traditional Community Bank Model is Dead.” The first article, “Focus on Customers, Not Products,” appeared in the October issue of BankNews. The next topic is “Focus on Relationships and Not Transactions,” which is scheduled to be published in February 2017.

World War II General George Marshall re-engineered the leadership process by starting with the future and then building a road map showing how to get there. Planning needs should follow the same format and start by answering the question, “Where do we want to be?”  Then it is fair to ask, “Where are we now?”  Followed by, “How are we going to surge forward to close the gap?”

Success starts with the structure of each planning session. When conducting planning sessions, banks must model future projections while simultaneously answering the following forward-looking questions:

  1. What is the expected shareholder rate of return over one, three and five years?
  2. How can we grow loans, grow deposits, increase non-interest income, control expenses, enhance network, increase market share and utilize capital markets to produce these returns?
  3. What customer, market and franchise structures do we need in place to achieve these goals?
  4. Do future risks, governance or regulatory challenges justify returns relative to current value?

While an organization must consider its current competitive position and resources, very little of the discussion dwells on the past. When considering the future, organizations must be prepared for both evolutionary and revolutionary change. Every question point must be accompanied by multiple inputs into the forward-modeling scenarios; thresholds and trigger points must create the perimeters around future course corrections; and stress-testing output must guide the value of each risk-impacted scenario. This structure allows institutions to focus on how to meet future challenges.  A sampling of future challenges include:

  • Taking advantage of changing demographics by targeting millennials that are profitable customers and utilizing talent management to attract, motivate and retain high-performing employees. Banks must segment households with millennials who have a high propensity to utilize banking services from those who carry no debt but spend all their money at the bar.
  • Utilizing fintech by partnering with collaborative allies and mitigating exposure to disruptors and competitors. Leading banks recognize that the services customers need have not changed, just how they engage with the products. For this reason, these banks are partnering with fintech companies to continue to enhance their delivery systems.
  • Enhancing director engagement by creating processes and utilizing systems to mitigate director liability and improve quality of director’s time. Top banks understand that fintech is not just limited to client facing applications, but should be used to enhance internal efficiencies. They continue to attract top director talent by utilizing corporate governance management systems, (different from standard board portals) to combat growing director liability and streamline director engagement.
  • Managing regulatory loan concentrations to take advantage of market opportunities by staying aware of potential bubbles in agriculture, multi-family, jumbo residential and energy loan markets. At the same time it should be recognized these all have geographic influences and advanced segmentation stress testing should be performed. Some institutions employ heightened risk-management practices to safely and soundly grow already-concentrated loan portfolios.

Planning for the future goes beyond documents, data and discussions; to be successful banks must establish processes and systems that are future-oriented. High-performing institutions:

  • Integrate planning, ALCO, ERM, stress testing and budgeting into one engine.
  • Apply a talent management program that develops human capital for future needs.
  • Utilize an effective corporate governance system that streamlines routine operational activities (such as vendor management), optimizes board time, tracks assignment of responsibility and accountability, mitigates director liability, integrates documents with meeting structures and securely makes access to information available to any permissioned part of the organization on any device.
  • Deploy targeted marketing to profitable customer segments in pre-defined markets.
  • Expand delivery channels, taking advantage of technological advancements to target specific customer needs and cut expenses.

All too often, meetings start with a recital of past numbers. This is generally a waste of time.  Banks must adapt. The traditional banking model is dead. For a bank to thrive over the next decade it must plan in the future.

Don Musso is CEO and Stephen Brown Klinger is vice president of FinPro Inc. For more information, contact the authors at 908-234-9398 or finpro@finpro.us.

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