For many financial institutions, strategic planning meetings often include “blue sky” sessions alternating with rounds of golf. They may make everyone feel upbeat, but they seldom result in any meaningful change.
Mark Weber, CEO and Chairman at Weber Marketing Group, has seen this pattern of behavior time and time again. He knows what he’s talking about. He’s been conducting strategic planning sessions with senior leadership teams at banks and credit unions across the U.S. for the last 35 years.
“It’s astonishing how often millions of dollars of capital and operational funding really have no strategic purpose,” says Weber.
“It’s easy to build a new branch for $2.5 million to gain a foothold in a new market, grow your base, or increase market share,” Weber continues. “But if that investment is not also tied to a clear longer-term growth strategy that accomplishes something greater, then it’s only tactical.”
For Weber, many strategic planning mistakes boil down to “opportunity cost.” Without a plan that lays out concrete steps to future success, financial institutions will suffer fiscally and hemorrhage critical resources.
“That same $2.5 million could be used to fund a comprehensive rebranding effort that redefines the culture and engages the entire organization,” Weber explains. “Is a new branch going to have the same strategic ROI as something that refreshes and modernizes your overall brand and repositions you in the market — something that aligns the institution to a shared future focus?”
Many experts like Weber believe banks and credit unions are wasting both time and money on strategic planning sessions. Some institutions fail to focus on the right topics. Others waste time on items that are unessential.
For instance, Susan Mitchell, CEO at Mitchell, Stankovic and Associates, says far too much strategic planning time goes to discussions about regulatory compliance, taxation, and operational issues.
“They need to shift the conversation to future behaviors of consumers,” says Mitchell. “What makes a transaction-oriented institution relevant when there are so many options a finger touch away? They need to ask, ‘Why do we keep doing this?'”
Such misfires produce what Sam Kilmer, Senior Director at Cornerstone Advisors, considers the worst sort of strategic plan, one that is “neither memorable nor creating energy or purpose for the team.”
“Good strategic plans should have decisive attitude, not milquetoast platitudes.”
— Sam Kilmer, Cornerstone Advisors
“Good strategic plans should have decisive attitude,” says Kilmer, “not milquetoast platitudes.”
Many senior leaders are hazy about the process. They are hold strategic planning meeting because… well, “isn’t that what you’re supposed to do?” Tragically, they don’t know how to conduct a productive strategic planning session, nor what one should really accomplish.
“The most common mistake made is confusing the strategic planning process with the budgeting process,” says Chris Nichols, Chief Strategy Officer at CenterState Bank. “Strategy is the act of creating ‘alpha’, or performance above the average. To do this, institutions need to figure out how they can differentiate themselves in a manner that adds higher than average risk-adjusted return. ”
Elephant in the Boardroom
Often what prevents a financial institution’s strategic planning from producing more than an expensive unused tome are the “elephants in the room” — factors or assumptions that the participants don’t see, or won’t acknowledge. These may be people, shared attitudes, culture, or methods.
Outsiders often see them readily.
One elephant in the room that banks and credit unions typically don’t address has to do with their culture.
“Quite often new strategic priorities demand different — or expanded — skill sets and a more agile decision-making and operating environment,” says Joe Sullivan, President and CEO at the Market Insights.
But changing an institution’s culture takes more than ordering cool t-shirts with “Agility!” printed on them or starting a Twitter account.
“Deliberate effort is required to shift aspects of a culture to bring it into alignment with strategic priorities,” Sullivan explains.
Jeff Marsico, EVP at The Kafafian Group says C-level leaders in the banking industry could be better in two key areas: project management, and an appetite for failure.
“Without a bigger appetite for failure, we only move forward with ‘sure things,’ which creates tremendous drag on innovation,” Marsico says.
All this assumes that a financial institution’s board and top management actually want to change. Don Musso, President at FinPro, suggests that many two-legged “elephants” in boardrooms hold institutions back. “This was an old gentleman’s game for a long time,” he says. “In some organizations, the leadership remains rooted in old thinking and culture.”
According to Brandi Stankovic, SVP/Strategic Advisory Services at CU Solutions Group, many financial institutions’ future survival hinges on “the need to build a board of directors prepared to lead the institution into the future.”
Sacrificing Sacred Cows
The typical planning meeting or strategic planning retreat is usually replete with voluminous reports loaded with colorful charts and extensive presentations by both executives and outside speakers. But according to experts, strategic planning as currently practiced in the financial industry is rife with outdated, useless, repetitive, and counter-productive practices.
For instance, Jeffrey Gerrish, Chairman at Gerrish Smith Tuck Consultants, says the old strategic planning standard, the “SWOT analysis” (Strengths, Weaknesses, Opportunities, and Threats) has had its day. It’s time to retire it.
“It seems every planning session involves a lengthy SWOT discussion,” bemoans Gerrish. “Spending a lot of time on SWOT analyses and the bank’s mission or vision statements is a total waste.”
Marsico points out that SWOT discussions can also be exercises in sheer fiction — where hubris wins over facts.
“Some institutions believe they enjoy a competitive advantage that they don’t. Saying it over and over doesn’t make it so. ”
— Jeff Marsico, The Kafafian Group
“Some institutions believe they enjoy a competitive advantage that they don’t,” says Marsico. “Saying it over and over doesn’t make it so.”
For Joe Sullivan at Market Insights, too many institutions dwell on the past.
“Something that often receives more attention than it should, is looking backward at prior years’ plans and performance metrics instead of moving forward,” says Sullivan.
One of Sullivan’s financial clients recently shared a planning packet with him that ran 50 pages, including dozens of the obligatory graphs and tables.
“There was no hint of future strategic priorities,” recalls Sullivan. “This is a recipe for recreating the past. Strategic planning is about determining where you are, where you’re going, and how you’re going to get there.”
Save Some Trees and Stir Up Debate
One of the major errors banking execs make, according to Sam Kilmer, is “confusing presentations and numbers with having an important, engaging discussion.” He believes leaders frequently “underappreciate the value of debate, healthy conflict, and being challenged.”
Kilmer says that inundating boards with volumes of immaterial information can dilute or suppress the discussion that should be taking place.
“Kill fewer trees and spend the resources elsewhere,” Kilmer advises.
While outside facilitators can address some of these issues and stimulate discussion, Kilmer says financial institutions must avoid a common trap: the strategic planning gadfly.
“Beware of just bringing in charismatic and likeable personalities and presenters,” warns Kilmer. “Institutions need to be looking for an ongoing method to provoke and tease out grit — a sustainable process to generate consensus for strategic intent and real action.”
Getting to the heart of a challenge and identifying potential solutions takes time, and the initial point of discussion may not really be where the matter should stop.
“Often institutions are not asking the real question behind the question,” notes Susan Mitchell. She says there are issues and initiatives that are important to big banks or the industry as a whole, but aren’t meaningful for community banks or credit unions — at least not worth addressing within the limited block of time set aside for strategic planning sessions. Take regulatory compliance — that won’t be solved in strategic planning meetings no matter how much you talk about it — but increasing profits that can offset such costs will help.
“Don’t follow the pack,” says Mitchell. “Focus specifically — and relentlessly — on your mission.”
Several experts stress the need to guide discussions onto things that the institution can improve and control. Strategic planning shouldn’t bog down in matters better suited to trade association meetings. Even concern about examiners should be limited.
“Sometimes it comes up, ‘What will the regulators think of our new strategic direction?’,” says Jeff Marsico. “So long as the new strategic direction doesn’t ‘bet the bank,’ everyone should be more comfortable making bigger strategic bets.”
Set Realistic Goals… And Achieve Them
While there should be freedom of discussion and expansive thinking, strategic planning shouldn’t venture so far into “blue-sky territory” that the end result doesn’t provide direction to those who have to make the actual improvements happen.
“We spend a lot of time helping leadership teams understand why having too many lofty goals, project initiatives and unlinked programs works against you,” says Mark Weber. “Having fewer, smarter, highly-focused goals and their corresponding success metrics will have deeper impact. That means greater growth and more alignment across all teams in the organization.”
“People operate more effectively when they focus on getting a few critical things done exceptionally well.”
— Mark Weber, Weber Marketing Group
“People,” says Weber, “operate more effectively when they focus on getting a few critical things done exceptionally well.”
Setting realistic goals should not result in a mindless mathematical exercise either. Sullivan says he’s see that kind of robo-planning happen.
“Too often, setting growth goals is an exercise in applying a random percentage across the balance sheet without considering the internal and external drivers that will determine whether or not goals are met,” Sullivan says. “Applying the same arbitrary goals for loans and deposits to each branch without considering the profile or product fit for households in each market.” Nor does it acknowledge how quickly consumer behavior, markets, and competitors evolve today.
“Growth,” he warns, “isn’t achieved by assuming growth.”
Everything Must Be Assigned to Someone
The other side of goal setting is accountability. Several commenters pointed out that without specifically assigning someone the duty of following through from the plan and hitting the goals set, the result can be a jump ball where nobody grabs.
“Strategies must have specific internal champions that take ownership for their implementation,” says Sullivan.
“Plans have got to be more action-oriented,” adds Musso. “You have to ‘what-if’ them at every trigger point. But there’s no doubt that by putting somebody’s name on a goal, people can’t hide.”
How much should be on somebody’s plate at a time? Or, more broadly, on the institution’s plate?
“It depends on the complexity of the pushes and the efficiency in execution of the institution,” says banker Chris Nichols. “As a rule of thumb, a $1 billion institution should be working on around 20 strategic projects at any one time, with the goal of bringing three to market every year.”
How Far Out Should You Plan?
Most experts agree that the duration of a plan shouldn’t be matched to a pre-set calendar, but to the strategic tasks the institution has committed to. They also stress the importance of reviewing plans regularly to make sure they remain realistic and appropriate.
Recommendations for the right strategic planning time frame vary, but typically range between 12 months and three years — no more than five years.
“We generally advise no more than 18-24 months, maximum,” says Joe Sullivan. “The pace and scope of change within the financial services industry is happening far too quickly for plans to adequately reflect real-world opportunity for any longer than that.”
Sam Kilmer says five-year plans, once a staple, don’t work well anymore. However, he suggests institutions not get too hung up about time.
“It doesn’t have to be an exact year count as much as a future-forward perspective that looks beyond the current operating environment,” says Kilmer. However, the perspective of the plan must look beyond a year or two, otherwise the discussion becomes more tactical than strategic.
Jeff Gerrish suggests thinking in terms of rolling three-year plans, subject to annual adjustment.
Mark Weber, on the other hand, thinks five-year plans still have relevance, as long as they embrace a framework with both short-, mid- and long-term goals.
“Institutions need a five-year strategic plan laced with vision, aspirations, big goals, and dreams,” says Weber. “Not having one can stifle innovation, inhibit bold thinking, and even make it harder to retain key employees.”
Weber adds that marketing must also be a central element in the strategic planning process. “A three-year marketing plan should address issues like digital adaptation, building brand awareness, and competitive positioning,” says Weber. “And this can’t all get done in a year.”
One exception to the general trend among advisors recommending shorter plans comes from banker Chris Nichols. “Banks and credit unions should adopt a ten-year planning horizon,” Nichols insists. “Looking out ten years allows your bank to accomplish anything that it needs to. Removing self-imposed limiting factors results in a better strategic planning process.”
Weber also proposes a new metric — a perspective, really — for determining how change is progressing: “Return on Objectives” or “ROO.”
Financial executives traditionally think in terms of Return on Investment (ROI), but ROO helps assess whether an institution is getting any nearer the level of performance its plan is working towards.