M&A fever is in full gear, GonzoBankers. Every morning I pick up yet another press release announcing that a friend has been acquired or merged: Community First Bankshares, Quaker City Bancorp, Waypoint Financial, Gold Bancorp, Union Planters, Seacoast Financial, Abington Bancorp, BSB Bancorp. the list has grown quite long in only the last few months.
The days of “eat or be eaten” seem to be alive and well again. Whether it’s a small community bank or a growing national giant, everyone seems to be bulking up. Just look at these FDIC stats to see how much our industry is increasing in scale:
Growth is in the air, and banks are once again beginning to struggle with the challenges of “scaling up” their organizations.
For those of you who were in a monastery during the past decade, our industry didn’t have the greatest luck in melding banking organizations together. While talks of “synergy” abounded, most acquisitions turned out to be chaotic messes. Disparate systems multiplied, cultures clashed, and revenue growth slowed to a molasses dribble as talent streamed out the door. When we see our friends get acquired, we immediately worry that they will start to hate their jobs. Why are profanities often used to describe an acquired bank’s new organization?
So our industry messed up this “synergy” thing in the ’90s, but maybe there’s a chance to learn from history. What if we took stock on every merger screw-up in the past decade and made some adjustments? It’ll be tough, but heck, there’s nothing better to do. Any bank that wants to successfully scale up in the years ahead must follow Gonzo’s 12 Laws of Scalability . Here’s how to avoid being FUBAR’d as you aggressively grow your organization:
Law #1: Standardization is a good word.
While banks may seem highly standardized today, these standards tend to fall apart with growth and acquisitions. When disparate processes are allowed to be “grandfathered” through different acquisitions and business unit initiatives, integration and efficiency become nearly impossible. In a model bank approach, flexibility should only exist on the very edges of standardized core processes. The rapid scalability of businesses like McDonald’s, Starbucks and Home Depot illustrate the power of standardization.
Law #2: Control is a bad word.
While standardization is a good word, control is a bad word in scaling the organization. Most auditors, accountants and regulators will disagree, but banks control things too bluntly, with log-jamming activities like multiple approval requirements, routing of tasks, etc. In the name of control, banks take away too much authority from the front line. For instance, it almost takes the board of directors to change a customer address in many banks. Instead of top-down control, banks need to worry more about exception reports, system edits, and user training/incentives to control risk without being controlling to every employee.
Law #3: It’s all about process design.
As organizations become large and complex, carefully crafted processes become the only hope for efficiency and service quality. Banks too often let process evolve from every department and business unit without an eye toward integration. Unfortunately, as architect Mies van der Rohe once remarked, “God is in the details.” Growing banks need to become obsessive about user navigation, data flows and report design to be effective.
Law #4: Product managers and process owners make or break you.
In a growing organization, success often comes down to the quality of folks who “own” specific product lines and operational processes. Instead of dweebs who sit on top of the corporate hill and spout orders, Gonzo product managers and process owners understand that they must actively “sell” their product lines and processes internally. They focus on great design, great training, and great internal communication, and they constantly seek feedback from the sales and service force. There is tremendous leverage in these corporate positions. A dozen outstanding product managers and process owners can literally change the nature of a 1000+ employee banking organization.
Law #5: Infrastructure and architecture hold it all together.
From a technical standpoint, the need for a standardized systems infrastructure (e.g. all Microsoft, HP and Cisco) and a clear architecture becomes critical. Too often, technical architectures only exist in the PowerPoint presentations of idealistic techies. Although it is difficult to get to a completely pure technology environment, bank CEOs and executives must endorse the need for all business areas to play according to the same technical vision.
Law #6: The internal books need to have teeth.
Because bank lines of business share a great deal of operational and administrative resources, cost accounting moves from a cool idea to a non-negotiable mandate. If senior management does not treat organizational and product profitability measures like hard currency, there is simply too much room for waste and bureaucracy to creep in.
Law #7: Pray for a small and humble corporate group.
The success of large banks in the future will be inversely proportionate to the bloat and arrogance of the corporate management group. Cultures that emphasize that the real “action” in the bank is on the front line with customers will thrive. Behemoths that treats headquarter like Camelot will constantly ponder why it’s so hard to grow organic revenue. Keep the HQ modest and send the right message to the troops.
Law #8: Unfettered dumping on the front line is punishable by death.
Big banks are just plain too abusive to the front line. Every five minutes, some new e-mail, memo or information request comes from a regal corporate department, further stressing out busy folks serving customers. Winning banks in the future will carefully coordinate how information and requests float down to the line. The intranet provides a great vehicle for growing organizations to better coordinate this flow of information.
Law #9: Benchmarks drive capacity planning.
As larger banks begin to consolidate their operational functions, single departments begin to resemble large cities – rows and rows of cubicles as far as the eye can see. These cubicle “gopher fields” become breeding grounds for inefficiency. Banks that scale successfully will drive their operational groups with clear performance benchmarks and staffing models. Absolutely no new resources should be approved until managers have blown through established productivity targets.
Law #10: Mutual SLAs stamp out politics.
While every bank operations group offers sound bites about serving their “internal customers,” the truly great ones back this philosophy with aggressive service level agreements or “SLAs.” They measure everything from the average research times to error rates to internal satisfaction scores. They post this stuff on the lunch room wall and they emphasize the importance of SLAs in every management activity.
Law #11: Project management determines who moves and who stagnates.
Banks that scale successfully in the next wave of consolidation will make project management a core competency. These banks will have GonzoBankers with the knowledge and the spunk to work across the political minefields of different business areas. They will also ensure that strategic projects do not get bogged down by long, boring meetings with dozen of managers.
Law #12: Fact-based cultures keep the earnings pumping.
Finally, successful banks in the future will simply live in reality. Too often, banks begin a downward spiral when party line at the very top goes unchallenged:.
I have to credit BB&T for integrating the need to keep things real in its corporate values. Here’s an excerpt:
“What is, is. If we want to be better, we must act within the context of reality (the facts). Businesses and individuals often make serious mistakes by making decisions based on what they ‘wish was so,’ or based on theories which are disconnected from reality. The foundation for quality decision making is a careful understanding of the facts. At BB&T, we believe in being reality grounded.”
Amen fellow bankers at BB&T!
Time to Scale Right
The flurry of current M&A activity will significantly alter the banking landscape over the next few years. Hopefully, the new players that emerge will learn from history and prove that banks can grow without becoming the chaotic monsters we’ve seen in the past.