So, what does this have to do with banking? Maybe it was all the vino or possibly too much grappa after dinner one night, but the idea that banks could learn from this simplicity when it comes to developing a performance management program kept floating around in my head.
Many banks have overcomplicated their performance management programs to the point of no return. While most banks have cut expenses as much as possible, initiatives to improve processes and scalability have been few and far between. A lot of banks talk about measuring performance, but there are only a few best practice adopters out there in Gonzoland that have it mastered.
For banks struggling with performance management and efficiency improvement, I offer up:
Like all good recipes, having the right ingredients makes all the difference. For performance management to be successful, executives need to clearly define success. Typically, metrics will include financial measures like ROA, ROE and efficiency, but they can also include things like fee income to assets or assets per employee.
At Cornerstone Advisors, Gonzo’s flagship, in our strategic planning engagements we push C-level management teams to consider a balanced scorecard approach that provides specific guidelines for service as well as ground rules for pricing and risk that are communicated as non-negotiables to business line managers.
After the high level financial indicators are communicated, it’s time for the business lines to get busy defining their metrics. A couple of things to keep in mind as these “benchmarks” are being formed:
Do not over-mix. Just as dough can be over-mixed, metrics can be over-engineered. Over-engineered metrics are undesirable for a number of reasons. They take too much manual effort to calculate, can result in errors, and require extra resources; as a result, they become worthless. The more automated the program, the better the chance of success. Dashboard providers can help banks manage and share their data. Banks that don’t have the available internal data resources can look to vendors like BNControl, among others, to help unravel the data spider web.
Measure carefully. While it is important to create and track metrics, consistently measuring performance is key in any successful performance management program. I encourage my clients to measure performance internally within departments at least monthly. In some lines of business, like the call center, these metrics can be tracked and discussed within the department daily. For branches, weekly sales meetings can be a great place to not only discuss sales goals and objectives but productivity metrics like transactions per teller as well.
Share results. A little friendly competition among peers is a good thing. Measuring metrics and discussing them within individual groups is important, but the expectation of a 10 minute report at least quarterly to all peers keeps up the performance pressure.
Tie to accountabilities and incentives. While peer competition helps, there is nothing better than cash to keep managers focused. Each department should have monetary incentives tied to performance. Although very typical in the front office, this rarely occurs within back office functions.
The Secret Sauce
The challenge for most institutions is determining appropriate targets to align metrics with the organization’s higher level financial goals and objectives. Like all good recipes, every institution needs to tweak their individual recipes to deliver the benchmarks and metrics that work for them. The focus should be on simplicity and designing metrics that both meld with current strategy and are based upon high performing peers.
Thanks to a proprietary database of benchmarks developed over the past decade, Cornerstone Advisors has some of the best performance measurement metrics available in the industry. With a Performance Assessment, you can put our metrics of virtually all areas of the bank to work as your institution develops its individual goals and objectives.
Contact us today to learn more.