Eight ways for your financial institution to boost performance now
Regardless of economic conditions or competitive position, every organization should always be seeking ways to improve. Given the intense competitive pressures they face, this is especially true for financial institutions. Following is a high-level overview of eight key areas where financial institutions can often make real and significant improvements to their operations.
1. Technology – leveraging your investment
The plain fact is that most financial institutions are not getting the ROI they should from their technology spend. Ask yourself these questions:
- Do you suspect that the organization is not using the full functionality and capacity of your existing systems?
- Are you struggling to get key systems integrated with each other?
- Have you postponed implementing key functionalities due to lack of time and resources?
- Do you continue to use manual processes that were originally meant as temporary stop-gap measures?
- Are you running outdated versions?
- Has it been more than a couple of years since you last explored outsourcing?
If you answered YES to even one of the above questions, there is likely opportunity to improve system functionality and deliver greater ROI. The fact is that most financial institutions are only utilizing between 25 and 30 percent of the capabilities of their current technology for a variety of reasons. Many organizations suffer from phase 2 syndrome, in which systems with impressive potential capabilities are installed but the training and follow through necessary to fully exploit those tools isn't completed. And, it is difficult to keep up with the accelerating evolution of technology. Server consolidation, cloud computing, mobile technology – all of these can offer real advantages to financial institutions when strategically evaluated and implemented.
Here are some ways to get started evaluating your current technology optimization quotient:
- Compile a list of all of your key technology systems – both those managed in-house and those outsourced to a data center or purchased as a service
- Determine the main purpose of each listed system and determine if there is any overlap among the capabilities of the systems
- Survey system users to see if there is data that they have to re-enter into multiple systems
2. Less is more - improving your expense management
Financial institutions sometimes focus efforts to save money in the wrong areas and end up cutting activities important to the organization's mission or value proposition. This can happen for several reasons:
- Unwillingness to address sacred cows because of internal politics
- Looking at past successes instead of future opportunities
- Following benchmarks without appropriate analysis
Effective expense management starts with a more detailed understanding of your spend throughout the organization. By better understanding how your organization spends money and what is being purchased, you can more easily identify savings opportunities that will have a meaningful bottom line impact. To achieve this, consider these steps.
- Collect and categorize spend data throughout your organization from sources such as accounts payable, procurement, payroll, contracts, procurement cards, and expense systems.
- Identify specific categories of spend that could be reduced without significant customer-facing impacts
- Define and implement specific savings strategies such as supplier consolidation or renegotiation, elimination of non-essential spending, demand or specification management, and tightening of expense policies.
- Track and report hard dollar savings delivered from each strategy, showing the impact by business unit and service line.
In addition, consider longer term expense management strategies to help ensure an objective evaluation and to guard against inefficient expense management based on precedent and inertia. Consider using the phase zero-based budget approach when performing annual budgeting and planning. Each department should start at $0 and will have to justify every FTE and dollar spent when creating their budget. This will help to ensure each department is committed to spend management.
3. More is more – boosting revenue
Managing expenses is vital, but growth still depends on increasing revenue. What can your financial institution do to grow the top line? Here are some ideas:
- Review all prices for products and services on a rolling three-year basis, reviewing a third of all products and services annually
- Compare prices of all core products and services against your competitors at least annually. Increase prices on services prices below market while lowering prices and increasing sales activities on services prices above market.
- Identify opportunities to create products and services that can drive new revenue streams.
- Create revenue strategies that lead customers toward desired outcomes. For example, institutions want consumers to switch from paper statements to electronic statements. So announce a price increase for paper statements to cover postage costs. This will drive some consumers to use e-statements and generate additional revenue from those that don't.
4. Quality – are your measures effective?
Quality matters. But, as with any effort, so does ROI. In today's economically and competitively challenging environment, all financial institutions should ask themselves some hard questions about quality control efforts.
Take the CAMELS rating system. Many financial institutions strive to maintain a CAMELS 1 rating. But can you afford to push for that rating in today's market? The right answer depends on your institution's specific circumstance and goals.
It's important to be able to clearly articulate how your institution measures quality. What objective and subjective measures do you use? How do those measures support your goals? When these measures are laid out, it should be clear as to whether you are measuring the right things and measuring them accurately.
In addition to quality measures, it's important to indicate where you are investing time and resources to ensure quality. If you are investing in services or activities that are already performing at the top end of the quality scale, you might want to consider diverting some of the investment to other, lower performing areas. Ultimately, it's about ensuring those investments are going where they will make the biggest difference.
Here are some quality strategies to consider:
- Focus on baking quality assurance measures into your processes instead of layering quality control steps at the end.
- Create clear, ongoing channels for communicating quality issues throughout the organization and ensure they are raised to the appropriate level of leadership. Review quality measurements and results with leadership at least quarterly to ensure quality issues are addressed and those quality measurements are still relevant and effective.
- Communicate quality success stories internally to employees and externally to shareholders and customers through channels like annual reports and newsletters to leverage the benefits of your quality efforts.
5. Productivity – getting the most from your people
Every organization preaches productivity, but only those with a culture that supports improving it with clear goals, transparent accountability and real rewards achieve the best results.
Start by accurately defining current productivity levels at the workgroup and employee levels. Identify how well they are supporting the mission, goals and objectives of your institution and define the qualitative and quantitative measurements to rate them.
Encourage a culture that questions the status quo in any process. Set clear standards so that all employees know that they must meet defined productivity standards and that they are being measured relative to their peers. For example, tellers can be rated for improved transaction levels, reduced outages and increase in simple sales.
Set multi-year strategies for significant productivity increases for specific workgroups. Strategically target workgroups where re-engineering needs to occur and the highest potential for cost savings exists.
6. Service – focusing on what matters
Effective service is vital to retaining and building customer relationships. But are you focusing on the right services and the right customers? Consider these three questions.
- Most financial institutions have service standards, but do your customers share your impression of your service? What have you done to find out?
- How would an increased or decreased level of investment affect service levels – could you be over- or under-investing in service?
- Are your services focused on the evolving needs of today's market or are they only focused on your historical customer base?
Here are three strategies to help focus your service efforts:
- Be sure that every employee understands the services expectations associated with their position and how they are measured. Those expectations must be communicated clearly and updated regularly.
- Establish clear three- to five-year service improvement targets that directly support your institution's mission and goals by focusing on key markets and that have clear accountability at all levels. For example, set improvement targets for metrics like average products and services per customer, average revenue per customer and customer retention.
- Use service strategies to drive customer behavior in desired directions in areas like e-statement adoption, ATM usage, and online and mobile banking.
7. Business development – growing your future
For many financial institutions, the key to business development is understanding the current market position. Only by understanding how well the current mix of products and services meets customer needs can you make appropriate decisions on where to focus development efforts. Ask yourself these three questions when looking to identify your business development opportunities.
- Are you the primary financial services provider for your customers or a secondary player supporting their needs? What percentage of the financial services buy (aka "wallet share") do you own in your customer base?
- Why are some customers choosing other financial institutions for certain needs?
- How well-trained is your sales force – are they better trained at understanding your products, service and market or at filling out forms and screens?
Develop sales training programs that enhance both product/services knowledge and general sales skills. At many financial institutions, sales people are not even aware of the full range of products and services offered. Consider developing product/service specialists to accompany sales people on calls involving more complex products and high-value targets. This will help ensure that prospects fully understand the features and benefits of your products and that their questions are answered completely and accurately. Create sales objectives and reward mechanisms for the sale of targeted products to boost penetration into key market segments, but be sure to guard against inappropriate responses to those reward systems, such as sales people steering prospects to the wrong product just to boost their numbers.
By understanding your customer wants and your sales team needs, you can most effectively target your future business development efforts.
8. Customer retention – keeping what you have
Every financial institution is looking to increase business with existing customers. Every lost customer represents more than just the business they were already doing with you. They represent all the other business that you could have sold to them. And the cost and effort of securing new customers far exceeds that of building relationships with your current customer base.
The BAI states that the average bank loses 13 percent of their customers each year. The first step in customer retention is to assess the size of the problem. Identify your loss rate and see how it compares to this average. Then dive into those customer losses. Identify the number of services they took advantage of and which services specifically. Ask them questions around why they left and what you could do to win them back.
Once you have evaluated your organization's situation you can better gauge how to improve your customer retention.
For more information contact Bob Browne, Director, at 816-751-4072 or Linda Mackey Krygier, Director, at 415-848-5354.