Bridging the Gap

Ask the leader of any commercial financial institution, "What keeps you up at night?" and you'll likely hear a myriad

At the crux of this paradox are the traditional models of credit and sales in which credit decision-making is focused on uncovering and minimizing risks in loan deals and sales on account acquisition, expansion and growth. Though these disciplines appear to be mutually exclusive or diametrically opposed, each plays a critical role in assuming the most worthy risks while achieving the greatest profits for a financial institution.

Omega Performance research shows that by abandoning the traditional models and aligning proactive credit and sales practices as an organizational strategy, a financial institution creates a stronger foundation upon which a more sound and profitable book of business can be built.

This is great news for community banks. There are several benefits banks can expect to gain from integrating these two disciplines and practical strategies they can employ to achieve the right balance between minimizing risk and increasing sales.

Proactive Selling Enhances Risk Management

Proactive selling is based on developing strong, long-lasting relationships through a consultative, advice-giving approach that addresses each customers unique business issues. When a bank's performance system is structured to embrace these selling behaviors, there are a number of benefits that are synergistic with strong risk management practices:

Improved deal flow. Proactive selling should generate more opportunities. With the potential for deal volume increased, the potential for good deals increases as well. In short, increased selling equals increased opportunity to select and build quality deals.

Pricing. With more deals in the pipeline, you can be more selective in pricing deals profitably.

Increased use of non-credit products, With a proactive sales force examining a customer's total business needs, your bank can provide more non-credit solutions. Non-credit products increase your profitability without increasing risk.

Proactive Risk Management Cultivates Sales

Proactive risk management is the practice of managing existing credit relationships and examining new loan opportunities with proper due diligence and impartiality. This type of credit culture provides benefits to new business origination, including:

No distractions from poor portfolio performance. In a proactive risk management environment, there's a better quality portfolio. When the portfolio is sound, your sales resources aren't redirected to, or burdened with, the task of managing a poorly performing portfolio.

Fair treatment of customers. A proactive risk management policy increases the likelihood that existing loans and new opportunities are considered objectively, and that the relationship managers goal is to build effective relationships by becoming more responsive to customer needs. If a deal doesn't fit your banks model of risk, the relationship manager is better able to position the denial in a customer-focused way and may be able to direct the customer toward a more amenable solution.

Strengthened communication. A proactive risk management culture demands a thorough understanding of borrowers. This strengthens customer relationships by showing that the relationship manager knows and cares about each borrowers unique needs. Understanding risks fully also promotes candor between the sales force and risk managers. Through improved communication, your bank is better able to monitor the process and provide improved solutions to customers.

Achieve and Maintain Balance

What steps can your bank take to successfully integrate the sales and risk management functions? Through our work with more than 2,500 financial institutions, Omega Performance has identified four commonly used organizational structures, each of which has pros and cons and specific techniques to achieve integration. (see sidebar on page 70.)

When choosing a structure, it's important to select one that fits within your banks existing culture.

Regardless of the organizational structure employed, high-performing banks focus on aligning the purpose and objectives of sales and credit for successful integration. Alignment doesn't necessarily mean that sales and credit teams have the same objeclives; it means that their objectives are mutually supportive. A mutually supportive objective is to attract and retain profitable business, with acceptable risk parameters, for your bank.

Once your objectives have been defined, individual techniques-including cross-training, development of a shared language, reinforcement through management practices and performance incentive plans-can be implemented to bring the integration initiative to life.

The Core Challenge Revisited

The functional separation of credit and sales that has historically fueled dissension between the groups need not and should not prevail in today's financial institutions. Clearly, you can balance the need to minimize risk with the need to sustain profitable growth. Synchronizing proactive selling techniques with proactive risk management practices is the key to reaching this all-important balance and positioning your bank for maximum success well into the future.