Strategy 101

By Cass Bettinger, Cass Bettinger & Associates

Having been a strategic advisor to bank owners, boards and executive teams for more than a quarter century, I frequently receive calls or emails from bankers around the country who ask if they can “bounce an idea off of you to see what you think.” 

Invariably, these ideas are strategies in one form or another. After hearing them out, I always ask “what is/are the measurable end result(s) you expect to achieve with this strategy, i.e., what is your objective? In the vast majority of the cases they struggle to provide an answer. Absent a clearly-defined objective, it is virtually impossible to evaluate the relative merits of any strategy. One of the biggest problems in community banks is a failure to clearly define the objective prior to developing and implementing strategy.

To provide definition, “Strategy is a pre-determined course of action designed to achieve one or more specific objectives (measurable outcomes), usually by creating meaningful advantages over direct competitors.” 

Strategic planning, therefore, is a process by which we achieve consensus on where we must take the organization (our Strategic Vision); prioritize and quantify the specific objectives that will allow us to control our own destiny well into the future; confront and define the realities of the world in which we operate; explore thoughtfully the options available; design a portfolio of strategies that, if executed properly, will ensure that the objectives will be achieved; foster a High-Performance Corporate Culture that puts everyone on the same page with a shared emotional commitment to success; and manages the continuous execution of all strategies.

The need for strategic planning is driven by two factors; change and competition. If conditions remained unchanged there would be no need for planning - and if we had no competitors there would be no need for strategy. (The Greek derivation of the word strategy focused on creating military advantages over one’s enemies.)

Strategic planning is not budgeting. Budgeting is about the numbers, while strategic planning is about how the numbers will be achieved. All too often, strategic planning in  community banks is budgeting masquerading as planning. 

Nor should strategic planning be an annual event. Rather, it should be seen as a continuous process of anticipating and interpreting change, the proactive exploitation of emerging opportunities, and relentless and affective execution. In many banks, strategic planning occurs during a month of frenzy in the fall, after which the completed plan goes on a shelf (in case the regulators ask for it) and everyone goes back to work, secure in the knowledge that they won’t have to go through the exercise for another full year. Instead, the strategic plan should provide a mechanism for holding everyone accountable on a monthly basis for executing the strategies and achieving targeted results. Both execution and results should also be reviewed by the board at least quarterly.

All bank strategies, in the final analysis, will be directed at achieving the specific financial performance objectives needed to satisfy the owners/shareholders. These strategies fall into two broad categories, those that impact directly specific financial directives and those whose impact is indirect. Examples for both types of strategies will be provided in future columns.

Financial performance objectives will likewise fall into two broad categories; those which relate to ROA (and it’s six drivers) and those which relate to the management of capital and the equity multiplier. This relationship is expressed in what I call “the shareholder value equation”; ROE = ROA x EM (equity multiplier; the reciprocal of the capital/assets ratio).  Equity multiplier strategies include mergers and acquisitions, stock repurchase, and diversification but are primarily about achieving specific quality growth targets in assets, revenues, and net income.

Specific strategies for ROA and quality growth will be the focus of the next column.

  <back to March 2006 Directors Digest>