The parade of headlines can make your head spin.
A bad bit of economic news. Then a good one. News of a promising vaccine. Word that one hoped-for “cure” was dashed. A retailer announces nationwide layoffs. A major tech company announces record earnings. This area is reopening, this one is shutting down again due to a COVID-19 spike. And on and on…
And amid this murky soup of information, disinformation, misinformation and opinion masquerading as information, financial services executives have to try to put together a strategic plan for 2021, with an eye further down the road.
In most banks and credit unions strategic planning is an annual event. Today’s atmosphere, however, is enough to make a planner leader shut their laptop and wait for some sense of normalcy to return.
And they’d be wrong.
Don’t Hit ‘Pause’ Despite Pandemic Uncertainties
Seven experts on strategic planning queried by The Financial Brand say that most banks and credit unions they work with plan to move forward with strategic planning for 2021 — or already have. Out of the seven, only one could think of a single institution they knew of that had punted their planning into next year.
“Strategic planning can never wait until the playing field is level or change stops, because those dynamics are no longer part of our real world,” says Jim Marous, Co-Publisher of The Financial Brand and Owner/CEO of the Digital Banking Report. “Banks and credit unions are now in a period of dynamic and constant change and need to build plans that reflect the current and future state of the marketplace. COVID is an event. The needs that COVID exposed are what must be taken into account — not COVID itself. We need to shift from crisis mode to urgency mode.”
Veteran strategic planner Jeff Gerrish suggest a two-tier approach these days. Part one deals with near-term permanent changes that must be adopted as a result of the impact of coronavirus — more digitization, more working-from-home and rethinking offices. “From a long-term standpoint,” says Gerrish of Gerrish Smith Tuck Consultants LLC, “we still look at three years out for most other items and for geographic expansion as long as five years.” Some still advocate for an even longer view.
Gerrish says he’s urged clients to focus on surviving the short term so they have a long-term to plan for.
“This was the mantra back in the Great Recession of 2008, due primarily to asset-quality problems,” says Gerrish. “Things are not that different now.”
To Mark Weber, CEO & Chairman at Strum Agency, the attitudes he’s seen at early strategic planning meetings have varied. “Institutions are either planning for the worst year in decades, with a basic, practical focus on results,” he says, “or they are proactively readying to pivot in new directions through digital advancement, new customer analytics or even product line launches. We’ve already helped write some dynamic data-led growth optimization and new product strategies this year.”
He adds that “waiting on the sidelines will prove costly.”
Financial institution leaders also have to avoid a hunker-down mentality. Jeff Marsico, EVP of The Kafafian Group, points out that the largest banks have been gaining market share during the pandemic. Smaller banks and credit unions have to watch for ways to regain share.
“With challenges from the pandemic, social unrest, wildfires and recession also come opportunities,” says Marsico, “so it is important for clients to identify the opportunities, determine if they can pursue them and then build the strategy to do so.”
We put a series of emailed questions to the experts. Here’s a sampling of what they told The Financial Brand.
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1. Is it possible to build too much of your strategic planning effort around COVID-19?
There are two schools of thought on this. Chris Nichols, Director of Capital Markets at CenterState Bank, N.A., believes for years too many financial institutions have been treating strategic planning as a budgeting exercise.
“If a bank had their strategic planning process correct to begin with, they wouldn’t need to change a thing” in the face of the coronavirus and the recession, Nichols insists. “The only thing the pandemic did was speed up some trends taking place already — concern over health, more remote work, digital transformation, less delivery through branches and compressing margins.”
Jeff Gerrish says too much focus on COVID will distract from bigger long-term issues. “Most of our clients realize this will be a short-term, temporary problem,” says Gerrish. “Of course, it may be followed up by another longer-term problem.”
The ripple effects — “ripple” could be replaced by “wave” — of COVID and the shutdowns are significant. Gerrish says many of his firm’s strategic planning clients are community banks with significant concentrations in the hospitality business. While the banks believe that their restaurant, bar and lodging clients will survive their immediate difficulties and pay down their loans, eventually, their present predicament must be managed carefully.
One product of COVID may be a sharper focus for strategic planning efforts, according to Joe Sullivan, CEO at Market Insights. He says traditional strategic planning tends to go too far out and to produce too many initiatives, splitting an institution’s energies.
“COVID-19 is a rare global reset button,” says Sullivan. “It has disrupted everyday life on many levels and upended our sense of normalcy. Its impact is not just physical, but also political, emotional and economic. Even if we have a vaccine in 2020, the residual effect on the economy and consumer behaviors will be evident for at least two or three years, if not longer.”
Sullivan is not arguing that strategic planning focus solely on tactical COVID issues, but be regarded as a means for finding a new baseline.
“Financial institutions shouldn’t miss the opportunity to take an honest, strategic look at the role they can play in the future lives of consumers and communities,” says Sullivan.
2. Should the results of the Presidential election be factored into strategic planning?
Actually, all of the experts say this has not been the attitude of the institutions they work with — and they agree.
“The level of political polarization that exists in nearly every community has generally made the topic of the upcoming election off-limits in strategic planning meetings,” says Sullivan. “Other than a few comments and concerns about taxation and possible shifts in regulation, the election’s possible outcome has been implied, but not directly mentioned.”
“If the institution’s value proposition and business model cannot withstand government change, then there are bigger problems”
— Sam Kilmer, Cornerstone Advisors
Sam Kilmer, Senior Director at Cornerstone Advisors, cautions against spending much time on the topic. “It’s outside of where the institution can exert much control,” he says, “and this is an area that can easily become a time vampire. Besides, if the institution’s value proposition and business model cannot withstand government change, then there are bigger problems.”
Banker Chris Nichols sees the election as a nonsequitur.
“If a bank’s planning process is right, the political, tax or economic environment is negligible. More stimulus, more regulation and more taxes will only tweak every bank’s asset allocation percentage, but it likely will not alter the major direction of a good strategic plan.”
He adds: “Banks should be focused on a ten-year horizon of where the industry is going and not be sidetracked by the noise of a single election cycle.”
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3. Should financial institutions start 2021 strategic planning by ditching the 2020 plan?
Experts don’t agree on this question. Jim Marous would head for the shredder.
“‘Traditional’ strategic plans have always been an iteration of previous strategic plans. This is unacceptable,” says Marous. “We need to blow up previous plans because the old rules no longer apply. The consumer has changed, the competition has changed, and the technology to impact transactions and engagement has changed. Today’s strategic plans need to be built with the ability to pivot immediately when marketplace dynamics change.”
“Traditional strategic plans have always been an iteration of previous strategic plans. This is unacceptable .. the old rules no longer apply.”
— Jim Marous, The Financial Brand and Digital Banking Report
Many others feel that’s extreme. “Most of the prior plans are salvageable,” says Sam Kilmer. “For example, previous plans for digital delivery strategy, merger strategy or risk strategy are usable, but now they need to be implemented with more urgency. Most often we’ve found that our clients’ order of priorities within strategic priorities has been changing.”
Gerrish says the strategic plans are viable, but that the 2021 budget will have to be weighed carefully.
“For example,” Gerrish says, “if a community bank decided to branch every year or so, they may now scale that back for economic reasons or because they want to make sure they understand what the next brick and mortar locations — if any — should look like.”
Mark Weber believes what will change most is the scrutiny of ongoing plans — taking a much more critical look at underperforming branches, for example.
“This is an example of where research and behavioral data are critical to mine,” says Weber, “as assumptions about the death of branches still proliferate.”
4. What should definitely be on the strategic planning agenda?
Issues like digitization and the role of branches have already been mentioned, and considerations such as capital growth and acquisition stance are a given in today’s circumstances. Other issues and suggestions flagged by the experts include:
• Talent Management: In a year like 2021, cost cutting will be in vogue. But this is no time to stint on recruiting — and retaining — the right kind of employees. “Community financial institutions must be deliberate about talent management,” says Jeff Marsico. “Having employees that advise, help and care about their customers’ financial wellbeing can be a significant differentiator. Talent is critical for speedy responsiveness and crafting flexible solutions.”
• Consider “DEI”: That is shorthand for “Diversity, Equity and Inclusion.” “We’re hearing of younger prospective employees asking financial institutions if they have DEI policies and if they take public positions around these important issues,” says Weber.
“Community financial institutions must be deliberate about talent management. Talent is critical for speedy responsiveness and crafting flexible solutions.”
— Jeff Marsico, The Kafafian Group
• Reconsider your mission statement: “There are many ‘relics’ at banks and credit unions in the form of mission statements that no longer reflect the values, motivations and purpose that truly drive the organization and staff today,” says Weber.
• Dig into enterprise technology: Digitization is sexy and apps are hot. But the technology that most don’t see is essential too, says Nichols: Financial institutions need to not only serve their customers better but be more efficient and productive, he points out.
• Talk about AI and fintech partnerships: Experts say these can’t be ignored as the industry pushes through the COVID recession.
• Learn from COVID: Gerrish says strategic planning sessions make good ground to discuss what the institution learned, what worked and what flopped — and what to do about it all.
• Ask the uncomfortable: Given all that’s going on, poses Weber, if your institution disappeared tomorrow through a merger or failure, who would notice and who would care?
• Look for a gamechanger speaker: Nichols thinks a fresh voice would be very helpful now. “We are in uncharted territory in many cases. Someone who can some speak to larger issues to open up the team’s mind on some topics like branch closings and racial tensions would be a gamechanger. ”
5. Do we hold a live planning session or do we go with Zoom?
One common point of agreement: Do live or do virtual, but don’t mix the two if you can possibly avoid it.
“When everyone is on Zoom it works well and when everyone is in person it works well,” says Kilmer. Mixing the two may leave remote attendees not feeling as connected due to audio/visual challenges, he warns
Not everyone likes virtual strategic planning meetings, and it’s not because there’s no golf.
Jeff Marsico says the nature of virtual video meetings can make disagreements harder to register and harder to talk out. In fact, Mark Weber cringes at the thought of the typical virtual strategic planning meeting.
“I’ve watched some painful Zoom sessions that struggled to engage people, generate any response, let alone stimulate fresh thinking towards adaptation,” he says.
If virtual is your choice, Sullivan recommends these measures:
- Hold it to three-quarters of day.
- Break the day into 45-minute sessions with breaks.
- Definitely include guest speakers to educate and inspire.
- Focus on building consensus around a maximum of four initiatives.
- Break the group into small groups for some discussions.
“Nobody wants to sit in front of a Zoom for five or six hours,” says Gerrish.
“I recently had a meeting that had 31 participants,” says Gerrish. “It was held in an event hall. Although it sounds terribly unwieldy, it actually worked very well.”
Says Nichols: “I think most strategic planning sessions will be remote. However, for big changes or bold banks, there will still be no substitute for an in-person meeting.”