A Recipe for Performance Management Success

Earlier this month, my wife and I took a few days off and went to Tuscany to enjoy some great wine and food – along with some much-needed relaxation. During our stay, the owner of our villa offered cooking lessons. My wife was not about to turn down the offer, and I was certainly not going to stop her. Every night, the food seemed to jump off the plate and tasted incredible. What was so amazing was the simplicity in the recipes. For example, the unbelievable homemade pasta was a simple mixture of just flour and eggs … the tomato sauce was basically some crushed tomatoes and a few fresh spices. The lesson in all the recipes was clear: use fresh ingredients and let the food do the work. In short, keep it simple.

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:

Gonzo’s Performance Management Recipe for Success

The Ingredients

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:

• Compare to peers and best practice leaders. Don’t set expectations that are unrealistic based on things like size or geography. For example, a $100 million bank probably won’t be as efficient in managing compliance as a $5 billion. Areas like information technology, marketing, operations and enterprise risk usually benefit from scale. Other groups like branches, investment management reps and loan officers are more self-contained and can be compared to both larger and smaller banks. The goal is to base metrics on relevant peer data that is reliable. I don’t know how many times I’ve heard the chant from above to “increase productivity 20 percent across the board” or “every business line needs to cut staff by 10 percent.” These goals are without merit or value and are destined to fail.
• Dig for data. While data can be hard to find, there are plenty of sources if you dig deep enough. One place to start is with technology providers. In particular, loan origination vendors typically have good data when it comes to loans closed per underwriter or applications per officer, for instance. This data can be quite powerful given the data is based on current clients that are using the same technology. Consulting companies and research firms are other good sources of data.
• No one is a high performer in every department. To date, I have as yet to find a bank that’s a high performer in every line of business. When setting goals keep this in mind; many times there are circumstances regarding the bank’s strategy or the market that need to be factored in. For example, management may set goals that require additional staff. I’ll use the call center to illustrate my point. Most call centers have service levels that look to answer 80 percent of all calls in 30 seconds or less. If the goal is to answer 90 percent of calls in 20 seconds or less to achieve higher customer satisfaction, the staff required to make it happen will likely be greater than peers. Accordingly, goals and benchmarks should be adjusted.

The Preparation

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.
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BENCHMARKS ‘R’ US

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.