Strategic Thinking: It Has Never Been More Critical

Strategic planning has never been more critical to the continued success of any financial institution. After all, the financial services environment continues to be extremely challenging, and these are no ordinary times. Many institutions are thinking about a rebirth in strategy as they get back to the basics and focus on their core business model. As you approach your forthcoming strategic planning initiatives, you will need to focus on several external and internal themes that demand attention and require ongoing, fluid strategic solutions.

Key External Themes to Keep in Mind

1. A “wave of consolidation” is expected to accelerate. If your financial institution is going to be a survivor, how will you compete successfully? What does that portend for strategy?
2. The core business model should be examined to decide what strategies will maximize shareholder value and ensure a return on investment. There is a limit to how far expense reduction and recapturing loan-loss provisions can boost industry earnings. At some point, profitability must come from the ability to grow revenue. Margin is not likely to come roaring back, efficiency ratios have remained relatively flat and the increasing regulatory burden and new delivery channels have added to expense. The supposed lower cost of electronic/mobile delivery has not hit the bottom line.
3. The ultimate challenge is to identify the source of tomorrow’s profitable growth. What markets are growing? Which niches within those markets should the bank target? What are the habits of your customers? What role should technology play?
4. Regulatory reform has changed the game. At the end of the day, it’s still about our ability to manage risk within a complicated, complex web of regulation.
5. A distinctive competitive advantage needs to be ensured. Simply put: Why do customers choose your bank?
6. The key to success is to focus and to prioritize. Reaffirm what your institution does really well and build the strategic direction on core foundational strengths and on the most significant opportunities. Motivated execution of strategic priorities equates to sustained bottom line performance. Implementation and execution of a well-developed strategic plan will significantly enhance earnings.

Key Internal Themes to Keep in Mind

1. Strategic planning should result in sustained bottom line performance and should be the highest yielding annual investment a financial institution makes.
2. The planning process has a defined purpose: To help an organization focus its energy on clearly aligned goals and to assess and adjust strategic direction as appropriate in a dynamic, rapidly changing environment.
3. The process must be customized to meet the unique needs of each organization. A “cookie cutter” process or “glorified budgeting” meeting will not produce forward-looking strategies, nor will it maximize shareholder value.
4. Strategic planning requires discipline and a focused, productive planning meeting where questions can be raised and assumptions tested. The leadership challenge is always about making choices. As we frequently say, “If you emerge from a planning session ‘exhausted…but invigorated,” you have likely had a successful session that propelled needed action and a renewed commitment to aligned results.
5. Organizational structure needs review. Look forward, not backward. Pretend you are starting from scratch. Reaffirm what works and what does not work for your organization.
6. Leadership does matter. In fact, it is all about the “M.” The quality of management is probably the single most important element in the successful operation of a financial institution. Proactively assess the talent within your organization. Develop a deeper culture of accountability that rewards implementation, execution and sustainable high performance.
7. Board governance has never been more important. It has never been more challenging to find competent, qualified directors willing to assume the personal risk associated with being on a board.

The Outlook

All components of your strategic plan should align with the strategies the bank needs. Even if you have a well-crafted strategic plan, that is not enough. All critical issues must be addressed in an executable plan implemented within a well-led culture of accountability.

Difficult times can be an opportunity in disguise. On the other side of most challenges lie great opportunities. To survive and flourish, financial institutions must exploit the current opportunities—carefully, deliberately, and thoughtfully.