You can either embrace change or be run over by it. Ken Burgess prefers the former.
The chairman of Midland-based FirstCapital Bank of Texas says this about his $1 billion-assets institution: “We aren’t the same bank we were last year, and we won’t be the same bank next year. Change is a given.”
Launched as a de novo in 1998 with six employees, FirstCapital Bank now has more than 200 employees. Its growth rate has averaged 15%, topping 20% in some high-growth years. “You need to embrace change if you want to be a part of this team,” laughs Burgess.
Burgess credits a strong, positive culture in which employees feel part of a team as making change less traumatic. “It’s easier to make changes when employees feel part of a team,” he says. “They don’t feel beaten down by all the changes coming at them.”
FirstCapital Bank, while not unique, certainly, is outside the norm. According to McKinsey & Company, about 70% of the changes attempted in an organization—including financial services institutions—fail.
That’s partly because change management means balancing a lot of balls in the air. “Financial services organizations have a lot of change to navigate,” says Tyler Degenhardt, managing director and lead for Accenture’s Financial Services Talent and Organization practice. “Digital disruption, regulatory and compliance pressures, and nontraditional competitors are a continual challenge for banks,” he explains.
Degenhardt calls out regulations as a particular detriment to change. “Compliance requires so many resources,” he says, “that banks have difficulty focusing on implementing those big changes that could really drive value for the bank, such as reinventing the organizational culture to fully leverage digital delivery.”
Following are 11 recommendations for navigating change, which are distilled from wide-ranging interviews with bankers, analysts, and consultants—all of whom are familiar with the peculiarities of financial services.
1. Make a decision
Ross Perot said, “If you see a snake, kill it. Don’t appoint a committee on snakes.”
Committees and lengthy studies are a change buzzkill, agrees Tom Brown, CEO and founder of financial services-focused hedge fund Second Curve Capital and creator of bankstocks.com, a news website. Senior management tends to study a problem for so long that the initial challenge is no longer relevant due to a shifting competitive market or regulatory changes.
And these lengthy studies often result in project scope creep, which delays needed changes even further. “Banks will decide to upgrade their online banking system, and the next thing you know, they are now adding mobile banking to the project,” explains Brown. “The project keeps getting bigger and bigger, and the bank never makes a decision.”
When a decision is finally reached, it’s often based on the lowest common denominator the committee can agree on, says Brown. An initial recommendation for a $10 million investment becomes watered down to a $1 million investment, notes Brown.
2. Create a leadership team willing to change
According to an Accenture survey of 1,300 senior executives, “building the right leadership team” is one of the key success factors in fostering change. “Having leaders committed to change is the number one element in change management,” says Degenhardt.
But the role of a leader in a changing environment should shift. Rather than making decisions, senior management sets a clear vision that can inform decision-making by others in the organization. While effective, it can be difficult to give up decision-making in a bureaucratic management culture.
For example, cross-functional teams could be given decision-making authority so they can quickly respond to disruptive technologies, regulatory changes, or new market opportunities.
3. Fail quickly
Brown believes that senior leaders should encourage experimentation and “fast fails” in which failure becomes a learning opportunity, rather than a liability. He says that the difficulty of fostering an environment of fast fails is illustrated by banks’ propensity to keep floundering branches afloat.
“By year two, only 8% of the de novo branches in the bottom 20% have ever risen to average,” Brown says. “At the end of year two, banks know if they made a mistake opening a branch. But most banks won’t admit that, so they continue to operate subpar branches.”
FirstCapital Bank’s Burgess explains that the bank encourages employees to be creative and experiment, and doesn’t slap their hands when they make a move. “We have risk tolerances, of course, but we try to give employees enough freedom to try new things. If we fail, we adjust and try again,” he points out.
4. Learn from banks
When asked if banks should learn how to manage change by studying organizations outside of financial services, Brown says that’s the wrong approach. Instead, banks should learn from other banks. “Banks don’t spend as much time as they should on intelligence—what other banks are doing,” he explains, adding, “Intelligence requires broadening your horizons, and looking beyond the obvious competitor down the street or in the next town.”
“A bank in Chicago should be analyzing what’s going on in a bank in Washington state, rather than just looking at Chicago-area banks,” says Brown. “A $20 billion bank should look at what’s happening in the biggest banks as well as $500 million banks.”
To gather this intelligence, Brown suggests hiring a young employee and tasking her with scanning the banking landscape and summarizing changes.
5. Find an internal change agent
While the strategy of bringing in talent from other industries to facilitate change was popular a few years ago, James McCormick, chairman and founder of First Manhattan Consulting Group (recently acquired by Deluxe Corporation), says it has lost favor as banks recognized that few outsiders really understand the uniqueness of the financial services industry. “The idea was to jumpstart change by bringing in someone from another industry, such as package goods, who understands marketing or customer service,” explains McCormick. Some of these hires were successful, but most never really understood the economics and regulatory realities of financial services, he says.
Accenture’s Degenhardt agrees that bringing in an external change agent may backfire. Often, he points out, the change agent is viewed as an outsider brought in to tell everyone else what to do. “Successful change comes from the business and relies on buy-in from within,” he explains.
Instead, Degenhardt recommends that banks select an internal change agent. However, that change agent doesn’t need the highest-level title. “Select someone who people respect, regardless of title,” he suggests. “A change agent could be the most tenured branch employee. Invite them to management meetings to keep them informed and get them on board with the change.” Degenhardt adds, “These respected employees can help pull everyone else along.”
6. Communicate: Repeat, repeat, and repeat
Getting bank employees to embrace change can be difficult. The only strategy that Second Curve’s Brown finds successful is for the organization to reiterate the change needed and publicly reward the desired changed behavior. On the flip side, he points out that banks also need to publicly punish the behavior that they don’t want.
“Repeat, repeat, and repeat,” maintains Brown. “All too often, top executives believe they have communicated the changes they want, but the message hasn’t sunk in at the lower levels of the organization.”
7. Hire right
FirstCapital Bank uses personality assessments as part of the interview process to measure a potential employee’s propensity to adapt to change. For officer-level positions, candidates spend a full day at the bank, speaking with everyone they would work with to judge whether or not they would fit with the other personalities on the team.
As a result, the vast majority of employees thrive within change, including Burgess. “I would get bored with the same thing every day,” he says. However, the transition to a growing institution can be difficult for some. “There are people who are well qualified to work in a $100 million bank, but can’t transition to working at a $500 million bank,” he points out.
Even if employees are, by nature, adaptable to change, FirstCapital Bank recognizes that change can create stress. To combat potential stress, the bank plans a wide variety of fun events for employees, such as quarterly celebration days and bowling events. “We are constantly planning departmental parties or awards to keep it light, so employees aren’t stressed out,” says Burgess.
Change is hard, agrees H. McCall Wilson, president and CEO of the Bank of Fayette County, but hiring really good people who care about the bank, other employees, and customers helps the bank adapt. “If you have good people, change isn’t a problem,” he says.
By good people, Wilson means those employees who have a willingness to serve. “I’m less concerned about someone’s background or experience,” he explains. “If you are a good person and have the desire to take care of people, we can make you into a banker.”
8. Look to the future
Wilson, 51 years old, says he will be facing personal change as he prepares for his eventual succession. Although he has no imminent plans to retire, he feels that it is his responsibility to ensure that when the change occurs, the next president of the Bank of Fayette County will be ready.
“When it’s time, I will relinquish my title and responsibility willingly, so the person in line behind me has an opportunity to grow,” says Wilson. “You have to be strong enough to let go of your current situation to allow the bank to continue. Not grooming my successor would be a disservice to the community, to our employees, and to our customers.”
9. Put change in a box
Second Curve’s Brown is a proponent of a change-management strategy outlined in Vijay Govindarajan’s 2016 book The Three Box Solution: A Strategy for Leading Innovation. The book recommends putting all activities into three boxes. Box one contains activities that the organization no longer needs to do; box two contains activities that need to be done in today’s environment; and box three contains activities that represent the bank of the future.
Brown acknowledges that the bank may need to hire a different skill set for employees working within box three. “Box three is where the business is headed, so it can be difficult for employees used to working in box two to adjust,” he explains. “Box two is necessary because that is where the bank makes money today, but box two is often in conflict with box three.”
Brown tells the story of a CEO of a Peruvian bank who used the three-box solution to upgrade staff from BlackBerrys to iPhones. Knowing that his management team would follow his lead, the CEO announced that he was getting rid of his BlackBerry. To formalize the change from box two to box three, the bank held a mock funeral for the devices, including giving the BlackBerrys last rites. While a BlackBerry funeral may seem a bit extreme, the point, according to Brown, is that the CEO believed the current technology in box two was inhibiting the bank from moving forward to box three, and felt that a high-profile event would help employees accept the change. The strategy worked.
10. Try the champion/challenger paradigm
Consultant McCormick frames change as the juxtaposition between champion and challenger in which the champion represents the current method, and the challenger is the new approach. “The challenger has the potential to replace the current champion,” he explains, but it is difficult to complete the transition within the culture of many banks. Banks, he says, need to embrace a culture in which employees are never satisfied with business as usual and are seeking new challenge approaches.
McCormick says marketing is one function in which the champion/challenger competition can help drive change. For example, many banks find it difficult to accurately calculate the return on investment on their marketing spend, particularly for digital marketing. He suggests banks perform a champion/challenger test that compares the current measurement approach to a new one.
“There are banks with marketing ROI over 1,000%,” points out McCormick. “Being open-minded to change could pay dramatic returns.”
11. Measure the change readiness
Accenture’s Degenhardt recommends that banks establish a process to measure their employees’ readiness for change—something he admits is difficult. “When it comes to change management, banks often use the strategy of hope: If leaders say the right things and you put the systems and processes in place, you hope people will be ready to embrace the change,” he says.
Instead, Degenhardt advocates that banks use tools, such as surveys and interviews, to better gauge if employees are engaged and prepared for change. If not, the bank can consider the training or messaging needed to move employees toward readiness.
Having a centralized, controlled message about a change is important, says Degenhardt. The danger, he says, is that leaders can get so excited about the change that they either overpromise or overburden already stressed or busy employees. “You don’t want to have to backtrack on the good news that you promise. Counsel leadership on the right way to communicate about change,” he suggests.
Some parting words
McCormick sums up his advice to banks grappling with change: “Acknowledge the impediments to change and tackle them with cultural change from the top. Make sure those people you challenge to be the catalyst for change have the necessary knowledge of the business at hand, competencies, and respect from others. And empower them to win the battle.”