Seven Habits of Highly Efficient Banks

Over the years I have consulted with many different sized banks with a variety of cultures. There appears to be no magic formula on how certain banks achieve greater operational efficiency than that of their peers. I have found that the most effective banks do not allow their strategies to be extensively

Here are the seven characteristics I find most common to highly efficient banks:

1. Exceptionally focused senior management. The specific challenges of any particular bank vary in nature and scope, but efficient banks tend to be driven by focused, sustainable goals effectively communicated throughout the organization. It is up to the CEO and senior management to identify the bank's mission and drive that message down through the organization, keeping the entire institution centered on the task(s) at hand.

This requires a major commitment, especially considering that executives should be familiar with emerging disciplines such as risk management and adherence to several types of compliancy. Management that wishes to unite the organization in the clear pursuit of their goals takes the time and energy to do so. Indeed, several of the following characteristics depend upon the effort.

2. A clear, consistent message of purpose across the organization. This characteristic flows directly out of focused management, as it is management's focus that is being communicated. Part evangelization and part dissemination of knowledge, the message is passed down through line management, across departments (everyone must buy in!) and shared with the board of directors who need sufficient context regarding the goals of the bank (and how to get there) to provide useful counsel and keep the CEO on track, if necessary.

A clear, consistent message of purpose helps ensure bank employees understand the institution's strategy, why these goals are important and how they can contribute. This creates a framework for a stable, positive bank culture that encourages invaluable intangibles such as integrity and trust.

3. Quick adaptation; embrace of change. We've alluded to the shifting dynamics of today's market. Times of rapid change call for flexibility. An inefficient organization is like an ocean liner attempting to negotiate a turn. A close-minded executive is like a captain who needs reams of empirical data before he will consider making a move. Efficient banks are adept at rapid change of direction.

By exhibiting characteristics #1 and #2, a bank creates an environment conducive to adaptation as an informed organization tends to be more efficient at deploying new processes and strategies-they understand why something has to be done with a minimum of discussion encouraging timely action, even when difficult decisions may have to be made, such as cutting loose an unprofitable division or service.

4. Understands the market and the competition. Efficient financial institutions study their markets, carve out a niche for themselves and gain a clear understanding of how they can best compete in them. In this day and age, this is particularly important for community banks that wish to specialize in an era dominated by mergers between generalists.

Once a bank defines its market, a strategy can be put in place. Does an underserved group reside within the market? Are there gaps in the products and services offered by competitors? Has the bank effectively branded itself to communicate its niche to the community? Does the makeup of the bank's board of directors include individuals that can provide competitive insights into the market? A customer-centric focus (see #5) supports an understanding of the market.

5. Customer-centric focus. Effective banks know that in today's hyper-competitive market, one does not take one's eye off of the customer. The best banks take it upon themselves to understand and address the needs and requirements of the customer, which should be driving the policies and direction of the bank.

Since customers are interwoven into the fabric of the market, this characteristic goes hand in hand with the understanding forged from characteristic #4. There are probably more customer touch points in place now than at any previous time, from online banking to call centers and new product offerings, including insurance and asset management, which becomes a distinct advantage in customers. Correctly-deployed business intelligence broadens and deepens that understanding. Personalized, face-to-face banking cements it.

6. Metrics that work. Efficiency can't be achieved, maintained and improved without accurate tracking and measurement of performance. There has been a proliferation of superior tools for collecting, tracking and collating data, the downside being that it is easier than ever before for those reviewing the information to be overwhelmed by its sheer quantity.

For this reason, efficient banks tend to narrow down their focus during data analysis, and pick those metrics that really work best for them. Three to five given metrics in each major area (loan risk, deposit growth, operational risk), is best. Intuitive interfaces and presentations that are easily digested support meaningful review of information, but they are of limited use unless the right information is selected to review.

7. Openness to new technologies. Technology does not drive processes, processes drive technology. Efficient banks understand this better than their competitors. There is no best technology; there is only technology that best addresses the goals and objectives of the organization.

Therefore, the details of these goals and objectives must be known before technology becomes of value, making it foolhardy to rule out any technological innovation or solution prematurely. This may be a difficult mindset for bank management to adopt, given the operational challenges posed by closed legacy systems and the fact that innovation incurs expense that can appear to have an adverse effect on traditional efficiency ratios. A bank must have the fortitude to get past that way of thinking, to understand that technology's role is to support the procedures and workflows that go into a set of banking best practices-the first step to achieving a sound technological "fit".

Given the volatility and unpredictability resident in today's financial services industry, bank management may find itself tempted to practice a reactive approach; to shift gears every time a new set of circumstances presents itself. I believe it is possible, however, for a bank to adopt a set of habits that transcends finite circumstance and adds to the stability and sustainability of the bank's operation. Strong and steady wins the race. One need look no further than the characteristics of efficient financial institutions for proof.