The last thing a community banker wants to hear from a new customer is that he thinks he made a mistake picking your bank.
Yet that’s just what Josh Guttau’s people told him one new commercial customer was saying.
Staff had to go back to this customer not once, but twice to get essential information about his business. And he began having misgivings.
“He finally said, ‘I’m not sure I want to bank with you guys if you can’t get these things right the first time,’” says Guttau.
It might have been a sobering slap in the face. But for Guttau, president and CFO at Treynor (Iowa) State Bank, it was merely confirmation of something he’d already observed. His frontline staff worked too fast.
“For some reason, they felt that they needed to be getting the client out the door as quickly as possible when opening accounts,” says Guttau. And they were succeeding at that self-imposed mission, he continues. “But they were speeding things up so much, they were leaving things missing so that staff in the backshop were having to fix all those items at the back end.”
Managers scratched their heads. “We wondered, ‘Where is this attitude coming from?’” Guttau says.
The bank was working with process experts from a firm that Guttau’s family had worked with on a project for a manufacturing company that it holds a part-interest in. The Guttaus asked them to adapt their techniques to the family’s $260 million-assets bank.
In assessing the state of affairs at the bank on arrival, the consultants found that the frontline team had concluded that their job was to serve people quickly, “because everybody is in a hurry.”
“Well, that wasn’t the case,” says Guttau. “This is not like selling people Ho Hos and Twinkies in a convenience store. This is their financial life we’re talking about.”
So, one of the early fruits of the consultants’ work was clarification to the frontline that it’s not only acceptable, but desirable to spend more time with clients.
Don’t think for a moment that Guttau and his advisors haven’t been interested in improving processes and throughput. But a critical lesson and mission has been to not lose sight of the goal: efficiently serving customers.
Indeed, Guttau says the consultants’ process advice turned around the bank’s human-resources planning. The consultants’ flow charts and calculations gave the bank new ways at looking at things. In the end, Guttau says, “I went from telling our management team that we needed more bodies to realizing that we were 20% overstaffed.”
Layoffs? No; the family bank isn’t about that. Instead, Guttau views the surplus as the reserves he needs to have in place as his organization continues to expand its horizons. “We have capacity to grow into,” he explains. “If we can grow to utilize that staff, we’ll be where I want the bank to be, in terms of my target for our net overhead expense ratio.”
Beating the numbers
In its yearend 2012 Community Banking Study, FDIC dwelt on the “efficiency gap” it found in comparing community banks to noncommunity banks. In discussing efficiency, productivity, and economies of scale with Guttau and five other community-bank leaders in a roundtable discussion, bankers made two things clear.
First, they know they need to improve their efficiency ratios—none had a ratio they wanted to brag about. And they have all been working on it steadily, in many ways. But second, they recognize that community banks can’t strictly play by the numbers. They need to recognize that their customers are their business, and that all efforts must revolve around that fact.
And they also recognize that when tweaking for performance, you can’t manage to national norms; you must be in synch with your own market.
You can’t force efficiency
You may be able to guide a river, but you can’t force a river. Branches and the people power necessary to staff them in traditional ways represent one of the biggest drains on community-bank efficiency.
Huey Townsend, president and CEO at $600 million-assets Guaranty Bank and Trust Co., Belzoni, Miss., knows all about mobile banking and the changing role of the branch in many parts of the country. However, the core of his business is in rural Mississippi. By virtue of its market, Guaranty is considered a community-development financial institution, and loans are much smaller—and therefore less efficient—than national averages. Furthermore, while banks nationally have seen check volume and teller transactions fall, Townsend says his customers tend not to be technologically advanced—so much so that at his bank, traditional transactions are rising.
“Many have direct deposit, for instance,” says Townsend, “but they’ll come into the bank and withdraw their whole salary by cashing a check.”
“So, our teller-transaction volume has actually grown. They are terribly expensive, but that’s the market we serve. I wish I could be more efficient,” says Townsend, “but people here want a branch to go to.”
Similarly, Kansas banker Earl McVicker takes a cautious approach to talk about the dying branch. “Evolution” fits better. “We have six full-service branches in two communities,” says McVicker, chairman of $260 million-assets Central Bank and Trust Co., Hutchinson, Kans. “We don’t see customers using the branches less—oh, maybe a little bit. What we do see is more problem solving in the branch—a tremendous amount of customer-service activity that goes on in the lobby.”
In the search for efficiency, Steve Goodenow says his bank has been emphasizing revenue, rather than immediate branch expense. In fact, over the last few years, his $700 million-assets Bank Midwest, Spirit Lake, Iowa, has been spending over $10 million to redesign, rehab, or even rebuild its branches to a smaller floor plan—10,000 square feet smaller at one site. The “concierge-style” branches eliminate classical teller lines, replacing them with teller “pods,” and put an emphasis on providing good customer service, and on cross selling. The latter is important because Goodenow, CEO, sees revenue improvement as the key to his bank improving its efficiency ratio.
This has been Bank Midwest’s strategy for larger locations. For smaller, more rural locations, Goodenow notes that traffic has been dwindling. “Of those coming in, it’s typically been our older clients,” says Goodenow. “Hard-working, younger ag operators working hard at growing their businesses don’t like to come in to spend time on their banking. As time goes by, we’ll see them less and less.”
Goodenow doesn’t plan to close these locations, but to introduce more self-service options: “We’ll train our people there to help customers learn to help themselves, so as they begin to retire, they’ll still be able to use the branches, just with less staff involvement.” In one location, he plans to minimize staff so that top managers provide the necessary human element.
Banks have been looking at what goes on in branches with an eye toward providing face-to-face meeting opportunities with flexibility. Cape Cod Five Cents Savings Bank has 16 full-service branches and three loan-production offices, mostly along traditional lines. But for an expansion to Nantucket, the $2.2 billion-assets bank has built a pair of 1,000 square-foot offices with smaller teller lines and office space that allows bankers to switch out, so that whoever needs privacy for a customer meeting can use it.
Yet, Dorothy Savarese, president and CEO at Cape Cod Five, Harwich Port, Mass., finds that her longstanding market has a preference that somewhat dictates how the branches can please customers—even as she moves toward a concierge approach.
“In the Cape Cod area, we’re very auto dependent,” explains Savarese. She notes that a competitor tried a full-fledged concierge approach, and it didn’t work.
“We have a lot of people who want to use a driveup,” she says. “If they want a driveup, we want to accommodate them. We don’t want to get ahead of that.”
You’ve got to get staff on board
“Client focus is so important,” says Savarese, and she finds that it can be the key to getting staff to wholeheartedly embrace reengineering. “What motivates people is when the process change itself is going to give a better experience to the customer. Then, everybody in the organization buys in.”
Savarese illustrates her point. The mutual savings bank had been rolling out a new method of making home-equity loans more effectively by gathering and inputting more data at the frontend. The goal: quicker turnaround of requests.
Along the way, a branch manager who’d been supportive in the early stages began to resist implementation, claiming the new process was taking too long at the frontend.
“So I sat down with her,” says Savarese, “and she asked, ‘Why are we doing this?’ I told her it was so her customers could get a same-day response on home-equity requests—within hours.” Once the banker understood, she was back on board, and “everybody bought in—they learned to handle the additional work the new approach required.”
Savarese sees the terminology of process improvement as key. For her, efficiency is about “how we do what we do, how we use resources, and how we manage workflows to get things done.” Productivity, to her, “is basically how we measure what we do.”
Economies of scale she defines by analogy: “The more coals we can put into the engine so the furnace will burn hotter.”
But Savarese believes that balance is essential—and also perspective. “If you just focus on being more efficient, sometimes all you do is take an existing process and try to make it work a little bit better,” she says. “In most cases, I think what you really have to do is be disruptive. You have to step back and ask, ‘What’s the outcome we want, and how do we get there?’ Productivity and outcome is what you are shooting for, not just improving the wheel.”
Savarese says when her bank began to develop its approach to loan-process imaging, she found staff developing a paperless process that electronically emulated what had gone on with paper.
She called a timeout. “I stopped the team, which is rare for me because I like to empower people to do their jobs. I asked, ‘Why hard wire what you do now?’” She urged the team to rethink the flow. Electronics, for instance, would allow five people to handle their role in the process simultaneously, instead of the old process’ sequential flow.
The team had evolving workflows plotted on a wall, and, at one time, Savarese heard the team’s leader say, “If this looks anything close to how we’re doing things now, Dorothy will never let it fly.”
The project wound up reengineering the process and squeezed out much time. “You only get that type of disruptive result,” she says, “if you approach it that way.”
Employees’ attitudes consistently rank as a major barrier to process improvement, says Guaranty Bank’s Townsend. “In almost everything banks try to do,” he says, “people try to hang onto old systems. They’ll try to keep them going to back up the new system, but they’ll let the new one go if at all possible.”
Disruptive thinking, according to experts, is all about changing people’s thought processes; it is not about technology.
Rethinking the role of the frontline dictated adoption of a new customer-relationship management system at $450 million-assets First Hope Bank, a national bank in Hope, N.J., according to Dan Beatty, chief operating officer.
Management decided that First Hope’s tellers had been under-utilized. They were deposit takers, when they could be doing more with their time spent with customers. Beatty says the bank’s marketing people began developing sales campaigns that stressed not the “product of the week,” but a highly customized approach to cross selling. He says this is his bank’s attempt to capitalize on “big data.”
“Everybody who walks in the door is a unique individual with unique needs,” says Beatty.
First Hope realized that this view would lead to a much more effective way of building wider relationships with customers than simply having a “product of the week” that tellers pushed to everybody.
“Not everybody who walks through the door needs a safe-deposit box,” says Beatty.
A common challenge for community banks is compliance, and it’s growing. Goodenow says Bank Midwest is developing new approaches to automate more and more of compliance, notably disclosures in the lending and customer onboarding processes.
“This reduces the human element in compliance where you sometimes get mistakes, which can lead to compliance-exam issues,” says Goodenow.
Change the game
In seeking efficiencies, a common fear is that management will “efficient” employees right out of their jobs. Central Bank’s McVicker says when his bank undertook a major effort to revamp processes a few years ago, he ran into much skepticism and fear.
“It takes some time, faith, and patience on the part of management to stay the course,” says McVicker. “Employees found out that everyone still had a job, but sometimes it was a different job. And sometimes if someone left, those duties were absorbed by others.”
One approach to process improvement is to change the task itself. McVicker undertook a major effort that centered on a surprising place: the monthly board meeting.
McVicker decided to shift to quarterly meetings, not because of his board, but because of his staff.
“Part of what led me to that was frustration,” says McVicker. “People throughout the bank kept telling me they couldn’t get a certain project done because they were working on board reports. They were working on board reports for the first 15 days of every month. It was so inefficient.”
McVicker has a small board—himself and four other directors—and he decided to switch to a meeting the second Monday of every quarter. “Now, you’ll have ten days to get ready,” McVicker told his staff, “and, technically, you’ll have three months to meet the deadline.”
Loan-committee meetings are still weekly, but now his staff, freed of monthly board meetings, can get to McVicker’s priority projects. “It’s working very well,” he says, “and our regulators [Kansas and FDIC] have totally bought into it.”
Other roundtable bankers also have found efficiencies in the board process. A common move is changing to a “consent agenda”—where routine items are covered on paper, and the board simply okays them unless someone raises a question.
Savarese says that she adopted “annotated agendas” for her board. You might say that Cape Cod Five gives its directors the Readers Digest version on top of the unabridged edition.
As in most banks, board members receive pounds of reports. Cape Cod Five provides these—electronically, through a board portal—but each is capsulized in prose.
As a result, “in a 12-page annotated agenda, they get the gist of what’s in 400 pages of board package,” says Savarese.
This frees up more time for strategic discussion—something that Treynor State Bank has tackled in another way.
In Iowa, a bank board must meet at least nine times a year. So, Treynor State’s board holds an administrative meeting in the first month of each quarter, using a consent agenda. In the second month of the quarter, the bank holds another board meeting, but it is 80% planning and brainstorming. The ninth meeting, in March, is the bank’s annual meeting. To keep the board up-to-speed, the bank sends all directors to both ABA’s National Conference for Community Bankers and the Iowa Bankers Association annual conference. Plus, each month, the board members receive a board newsletter (Bank Directors Briefing).
“If you meet monthly, you tend to keep reviewing the same things every month,” says Guttau. These days, he says, “quarterly is not that long a time period.”