Strategic Planning for Banks
Why I hate the first six weeks of the year – If you have been a member of any gym for more than a year, you will know what I am talking about. Whether you go to the gym twice a week or all seven days, you have a routine and see the same people.
Then, January 1 hits. The parking lot is so full that it takes you ten minutes to find a spot. You enter the gym and there are three times as many people as normal. What used to take forty-five minutes to finish your routine now takes an hour and a half because every piece of equipment is being used!
What makes it worse is that most of these new people have no idea what they are doing. You say to yourself, just wait until Valentine’s Day. Almost all of these newbies will be gone by then and things return to normal. And how do I know which ones will stay and which ones will leave?
The ones that leave wonder aimlessly from machine to machine not having a clue what they are doing. The ones that stay all have one thing in common. Do they have six pack abs, bulging biceps, and a massive chest? No. They have a strategic plan. Many of them have their workout written out in advance on a piece of paper. While working out, they track their performance by writing down how many sets and repetitions they did for each exercise.
Arnold Schwarzenegger said it best in the movie Pumping Iron. Arnold is probably the best known body builder of all time as his body was so aesthetically pleasing to the eye. He would stare intently in the mirror at every muscle in his body. If he thought that his medial deltoid needed to be a quarter inch bigger, he would come up with a plan that worked the daylights out of his shoulders until the deltoid grew to the right size. Arnold was very strategic in his planning and would constantly track his progress.
So what makes a bank a champion? – Just like Arnold, banks need to take a long hard look at themselves and figure out what they want to look like. This typically involves a review of all of their key performance indicators (KPI’s). The typical list includes things like Net Interest Margin, Earnings Per Share, Return on Assets, Return on Equity, Nonperforming Loans as a Percent of Assets, and Efficiency Ratio.
Many banks will then ask their accounting team to prepare a Peer Bank Analysis that stack ranks their performance to other banks that are in their market. By comparing the bank’s Corporate Performance Management (CPM) to their peers, they will see where they need improvement.
Let’s say they need to improve their Net Interest Margin. They will need to come up with a strategy to offer loans at a higher interest rate and deposits at a lower interest rate. They need to understand what type of prospect fits this model. Performing Product Profitability on their own customer base is a first step in understanding who currently has higher rates on loans and lower rates on their deposits.
They will need to come up with a marketing plan to then go after these type of prospects. Do you run a direct mail campaign, an e-mail campaign, or TV ads to achieve your goals? There is a lot of planning involved to improve the bank’s net interest margin. How are they tracking towards their goal? It just doesn’t happen. It takes work.
Strategic Planning for Banks Keys to Success! – Jeff Gerrish has written an excellent article on Strategic Planning for Banks called, “Get real about strategic planning in 11 steps.” The steps are summarized below:
- Make sure directors and officers buy in to the planning process
- Make it is enjoyable for the team
- Focus on the desired outcomes and not the process
- Make sure that the mission statement of the bank is practiced
- Do not spend too much time dwelling on where you are now
- Follow the four “Cs” of planning: Communication, Candor, Consensus, and Confidentiality
- Strategic Planning is not the Budget
- Focus on the big picture (where do you want to be in five years?)
- Track your progress
- Bounce ideas off an outside and objective person
- Never let one person dominate the narrative
The key to success is to spend much of your efforts on what you want the bank to look like one, three, and five years down the road. Do not spend too much time on the current state of things and what performance was last year. We don’t drive our cars looking backwards, so why would you do that for your bank.
- Where are we now?
- Where do we want to be?
- How do we get there?
- How do we measure our progress?
After senior management has addressed to first three questions, they will come up with several KPI’s that will need to be tracked to see how they are progressing towards the strategic plan. The first step in this process is to come up with a formal budget to track all the financial measures.
Who are you going to call for help? – There are many solutions that help with financial portion of the strategic plan for banks. Some of the most popular financial planning tools are Oracle Hyperion Financial Management, SAP Business Planning & Consolidation, IBM – Cognos TM1, and Solver’s BI360.
When you are ready to go after the non-financial pieces of your strategic plan such as customer, internal process, and growth and learning measures, you will need a data warehouse with that has good reporting capabilities. The most common solutions are IBM Cognos, SAP BusinessObjects, Oracle Business Intelligence Enterprise Edition, and again BI360 by Solver.
Whether you are just getting started on your strategic plan for your bank or are three years into its journey, BI360 by Solver is a solution that will grow with your bank and complexity as the solution is very scalable. Solver, Inc. is happy to answer any questions and generally review BI360’s easy-to-use, Excel-powered reporting and strategic planning solution for banking and finance industry users. Start tracking your bank’s strategic plan today by collaboratively budgeting and planning the various measures of your balanced scorecard. Soon your bank’s figures will be the envy of your peers!