Strategy Execution Viewpoint: Challenges Should Be Explicitly Addressed and Embraced

Strategy selection is about making well-informed strategic choices and accepting trade-offs. Too few community banks formally address risk during their strategic planning process, while establishing objectives or evaluating strategic options. Being forthright about challenges, from the beginning, creates a healthy management-board dynamic; after all, the worst scenario for management is to be perceived as constantly springing too many surprises on the board. This is more than call report peer bank comparisons; it is about an intellectually honest discussion about the idiosyncratic risk inherent in your unique business situation. Posing appropriate questions, in conjunction with open communication between management and board around those questions, can improve strategic decision-making and managing risks to long-term objectives.

Be very clear about assumptions and “known, unknowns”

Creating consensus on macro-economic factors – economic and business conditions, the political and regulatory environment, industry competitive situation, customer segment requirements and technology evolution – is an essential building block. Often, this is a perfunctory exercise; assumptions by the management team are not challenged against external data or questioned by the board.

Undoubtedly, many community bank leaders rely on external economic forecast data, embedded bank knowledge and business metrics to carefully vet economic and business condition indicators and credit cycle assumptions and agree on “known, unknowns.” Shifting customer expectations and buying patterns are the trends least likely to be well-vetted in strategy setting. Here, “unknown, unknowns” could have a profound impact on long-term objectives and execution.

While data on customer expectations is often less robust than desired, leadership should develop and debate assumptions based on business intelligence that is available, and the collective knowledge residing with bank management. The core questions to address are (1) what do we know or surmise about the characteristics, behaviors and preferences of our customers today; (2) how are our customers’ requirements likely to change over the planning horizon; and (3) what are the implications and potential risks for our strategy and operating model?

Carefully assess the capabilities required to make the strategy work

In a global survey of senior business executives, two-thirds said they did not think their organizations had the right capabilities to execute its strategy1. We doubt two-thirds of community bank executives would echo this; however, in our experience, insufficient attention is paid to execution risk – particularly, whether the bank has the right people and technology capabilities.

  • Talent. For top-performing community banks profiled in DHG’s 2017 research, effectively translating strategy into the everyday, meant acquiring, developing and appropriately compensating superior highly-productive talent2. The challenges associated with addressing gaps between the talent on-hand and that required to execute a chosen strategy are less likely to be on the strategic planning agenda than technology.

    Selected comparative external and internal peer productivity metrics that are readily available at most banks, along with qualitative assessments of workforce characteristics and compensation, and development program competitiveness, can provide the foundation for a frank discussion. Leaders should be asking, to what extent, its existing talent (1) contributes to or inhibits profitable growth objectives, (2) is appropriately compensated and rewarded for productivity performance, and (3) is capable of achieving future objectives that could be very different. And, if gaps exist, explicitly what practices/programs, activities, or attitudes need to change to successfully execute strategy?
  • Technology. One hundred percent of the CEOs participating in DHG’s research on top-performing community banks agreed that, “technology-driven products and solutions are becoming a must-have for community bank customers.” They saw the march to digital banking as inexorable and transformative2. Often, a broad statement of target technology position (early adopter, rapid follower, stay with the pack, etc.), accompanied by an extensive list of individual technologies to be installed over the planning horizon is presented and accepted as a digital strategy – it is not. In developing bank strategy, leadership should be evaluating responses to three questions; namely, (1) do we have a clear and coherent digital strategy aligned with business objectives, (2) does that articulate a clear vision of how the bank’s operating model will be transformed, and (3) do we have sufficient skills and experience to lead the strategy?

Contacts

Walter McNairy | Managing Partner, DHG Financial Services | benchstrength@dhg.com