Publications & Resources

November/December 2009
Focus: Directors Issues

 

Planning to Performance

By Rick Boals

Why is strategic planning important? In a recent survey conducted by Bank Intelligence Solutions from Fiserv 85 percent of responding banks indicated their strategic plans actually drive day-to-day performance. This would suggest that there is a significant connection between what banks intend to do (planning) and what they’re actually doing (execution). Yet, the reality is that overall bank performance as measured by accepted industry standards has been in serious decline.

While most banks claim to conduct strategic planning each year this decline is evidence of either poor planning or a lack of execution, or both. The only way to determine where the real problem lies is to take a systematic approach to planning for performance. In this article, we are outlining the key issues that directors and senior management should consider for maximizing the results that will get from strategic planning.

Ask the Right Questions
First and foremost, it is absolutely crucial that you ask and objectively answer three fundamental questions:

Where are we today?  Of course, this is the easiest question to answer because there are quantitative performance measures, such as ROA, ROE, net interest margin, loan losses, etc., that can provide an accurate assessment. In light of your institution’s strategic plan, perhaps the important issue is to gain consensus on what metrics are most critical for your particular bank to manage.

How did we get here?  The answer to this question is less obvious because it requires a thorough analysis of the success/failure of past planning and execution. There is often a tendency to defend our actions and attach blame to external factors beyond our control. No one could have foreseen the housing bubble and its impact, so our concentration in real estate was just a logical response to the types of loan requests in our market. Margin compression was unavoidable because of the irrational pricing in our market, so we had to meet that pricing in order to get deals. The list could go on and on, that’s why you and your fellow board members must revisit the strategic plan with senior management and ensure that adjustments are made to forecasts and execution based on how things have changed.

Where do we want to go?  In part this depends on our assessment of where we are today and how we got here; otherwise we’re plotting a course with no beginning point. Apart from what we hope to accomplish in terms of growth, bottom-line performance or otherwise, it’s necessary to understand the external factors that potentially play a role in countervailing the bank’s efforts. This includes detailed analysis of key factors such as competitive pressures evidenced by irrational pricing, changes in the economy as indicated by the recession, the effects of industry changes such as the housing bubble, market saturation levels and their affect on growth potential, and many others.  Community banks often find it difficult to gather this kind of information and build it into a decision-oriented format consistent with their planning needs. Regardless, this process must be in place or the planning will suffer.

Consult both internal and external sources
Unequivocally, the bank must consult a variety of sources to secure information relevant to both planning and execution – encourage senior management to conduct thorough research. Sources such as the Fiserv Case-Shiller Home Price Index, FDIC Regional Conditions, industry surveys, revenue growth by industry, market saturation levels, employment information, foreclosures and many others can add crucial clarity to areas of particular concern to the bank’s planning. 

Determine how you’ll get there
A bank’s strategy must drive its execution plan – establish and maintain the connection between strategy formulation, execution, evaluation and adaptation to ensure the strategic plan actually drives day-to-day activity. Now, connect the dots. Ensure that management aligns employee compensation plans with how you’d collectively like for the bank to be performing in critical areas.

Keep the plan “alive”
Recognize that the plan is an evolving work in progress; it should not be a document confined to a three-ring binder on an office shelf or something you dust off before each board meeting. Because there are so many factors out of the bank’s control, you must continually re-evaluate the bank’s strategic plans and adapt its strategy and re-align execution plans accordingly. And again, make sure that your management team goes back and revisits employee compensation as well – you don’t want this to be the missing link that hinders the bank’s execution.

Use planning to drive performance
Finally, the only way to maximize the results you get from strategic planning is to follow a methodical approach. In the absence of discipline and addressing all of the above elements, strategy can’t truly guide execution – planning loses its essential value in driving day-to-day activity and overall bank performance. 

Rick Boals is a senior bank strategist with Bank Intelligence Solutions from Fiserv. He can be reached at rboals@fiserv.com.

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