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10 keys to a solid strategic plan for banks; Part I – Know the “now”

By: Sageworks
By John Owens, president, and David Harrop, chief operating officer, of financial services consulting firm BCI LLC

Why do banks need a strategic plan? There are numerous reasons, but the best one is that banks that plan well and execute their plans are better organizations. In our combined 70 years of experience as bankers and consultants, we have seen some common traits among banks that excel, and a solid strategic plan is one of those.

USAA Federal Savings Bank is a prime example:

Forrester Research recognized USAA as the top performer in their 2012 Customer Experience Index.  (The first bank so recognized in the five-year history of the survey.)

It ranks 20th in Fortune’s “100 Best Companies to Work For.”

It consistently ranks in the top 10% of bank financial performance.

It ranked first in financial performance for privately held banks above $2.5 billion in assets for 2011 by The Wall Street Journal.

So what should every strategic plan contain? We believe there are 10 key components, and the first five have to do with making sure the institution knows the “now” — itself, its competition and its differentiation. The second five, which we’ll discuss in a later post, have to do with planning where you want to go and how you’ll get there – planning the future.

1. Shared Core Values (Who we are and what we are made of). As one bank president commented, “The values provide guidance to help us set priorities and make decisions. They guide us as we strive to achieve our mission and vision.” 

The Ritz Carlton has their values embedded in what they refer to as “The Employee Promise:” “By applying the principles of trust, honesty, respect, integrity and commitment, we nurture and maximize talent to the benefit of each individual and the company.” As Jim Collins and Jerry Porras stated in their classic “Harvard Business Review” article, “You do not create core ideology. You discover core ideology.” 

2. Outcome (Mission) Statement (The result of all we do).  Jeff Easley, USAA’s executive director of deposit products management states, “Our mission is to facilitate the financial security of our members. It is our DNA.” Notice that there is no mention of earnings, service area, return to shareholders, giving back to the community, safety and soundness, etc. While they are able to do these things, each results from USAA’s values and excellent strategic execution.

3. Purpose Statement (Why we do what we do). Jim Collins observed that the most successful companies he worked with possessed core values and a core purpose that remained fixed, even as their business strategies and practices endlessly adapted to a changing world. 

Some examples of core purposes are:

Nike: To experience the emotion of competition, winning and crushing opponents.

Disney: To make people happy.

4. The Competitive Edge (What do we do better than anyone else?) This is the value proposition, the differentiator. As Michael Porter, Harvard professor, writer and consultant, wrote in Competitive Advantage, “There are two basic types of competitive advantage: cost leadership and differentiation.” Fundamentally, the competitive edge grows out of the value an organization is able to create that exceeds the cost of creating it. In today’s environments, bankers must create an irresistible reason for people to do business with them.

5. Situation Analysis.  This is a critical component. Realistically, you must assess the bank’s strengths and weaknesses in comparison to current and future competitors. Identify opportunities and threats. Analyze peer and market data.

Part II of this blog post will focus on 5 strategic plan components that take charge of the future, including strategic goals, action plans, and measuring results.

For more information on what financial institutions can do to balance each component of the CAMELS rating, download the whitepaper, Bank Examinations: Balancing CAMELS Ratings.

John Owens is president, and David Harrop is chief operating officer of BCI LLC, a financial services consulting firm that helps clients resolve and manage complex business issues, streamline business practices, mitigate risk, and enhance their performance. Owens is based in Pawleys Island, S.C., while Harrop is based in Bella Vista, Ark.

 

About the Author

Sageworks

Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest real-time database of private-company financial information in the United States. The company was acquired in 2018 and is now part of Abrigo.

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About Abrigo

Abrigo is a leading technology provider of compliance, credit risk, and lending solutions that community financial institutions use to manage risk and drive growth. Our software automates key processes — from anti-money laundering to fraud detection to lending solutions — empowering our customers by addressing their Enterprise Risk Management needs.

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