Changing an entire organization is never easy. Only about one-third of transformations at large firms succeed, according to consultants at McKinsey & Company.
One problem many organizations run into as they try to implement a major change is faltering momentum because employees just don’t change the way they work. Sometimes they don’t want to, and sometimes the reason is a poorly structured plan that makes change more difficult.
McKinsey’s recent experience at a retail bank shows the benefits of focusing on the employees who have the most influence over the daily work that needs to change. This approach can ensure that a successful transformation happens faster and that employees remain engaged for the long term.
That’s what eventually happened at a national bank with more than 6,000 branches that was facing increasing competition from local banks. In an attempt to close the gap, the bank developed a new organizational model designed to remove layers of centralization and supervision and give branch managers more authority to tailor offerings, marketing, and other promotions to local interests.
The bank’s approach was top-down, attempting to drive change through branch managers and their supervisors. Everyone received the same information, and everyone was expected to adopt the new model at the same time.
But when the top managers assessed progress a few months later, they realized that most employees simply hadn’t changed how they worked. Managers, afraid of making mistakes or annoying colleagues, were still using the old structure. What’s more, the regional-level supervisors of the branch managers now weren’t supposed to tell branch managers what to do—instead they were to act solely as coaches, but neither the supervisors nor the managers had made this change successfully.
Many supervisors didn’t have the skills they needed to coach, and many branch managers similarly didn’t have the skills they needed, such as time planning and communications, to run things on their own.
The bank’s leaders realized they didn’t have the right model for transformation, and decided to shift focus to the employees who could facilitate change the fastest.
Start in the middle
The bank’s leaders looked at three criteria:
1. Which employees have a direct, substantial impact on the desired business results?
2. Which employees are connected with a large number of subgroups in the organization?
3. Which employees can decide how people get the relevant things done?
The bank found that its branch managers were the people to focus on because they had the right combination of managerial impact and local control to meet the program’s goals. Senior executives revamped their top-down rollout process and reorganized their plan so it focused on branch managers. The bank later restructured those activities for all the other roles, so employees could understand what was being asked of them in light of the changes the branch managers were making.
McKinsey believes the experience of this bank reveals two lessons that any organization can use to help implement change successfully:
1. Change the pivotal people first. Identify what your change program’s pivotal role is and make sure the people in it have the tools and the willingness to change. Without this step, even the best organizational model will fail.
2. Build a comprehensive program. Make sure the goals of the change program are clear and meaningful, as are the links between the people in the pivotal roles and the rest of the organization. Otherwise, the initial positive momentum won’t last—no one can create meaningful change in a vacuum.
The Federal Financial Institutions Examination Council (FFIEC) has reiterated "the need for sound management of interest rate risk (IRR)" and highlighted sound IRR practices in a new frequently asked questions (FAQ) document. The FAQ answers a number of questions that were submitted following a January 2010 FFIEC advisory on IRR management.
The FAQ addresses appropriate measurement and reporting, robust and meaningful stress testing, assumption development reflecting the institution's experience, and comprehensive model validation. It also provides examples of risk management expectations for institutions of various risk profiles and includes direction on how to adjust processes as profiles change. How financial institutions can determine which IRR vendor model is appropriate for their unique situation, what types of IRR measurement methodologies institutions are expected to use, and other more technical IRR issues are also addressed.
The FFIEC is comprised of the leaders of the National Credit Union Administration (NCUA), the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), and the newest member, the Consumer Financial Protection Bureau (CFPB). NCUA Chairman Debbie Matz succeeded FDIC Chairman Sheila Bair as head of the FFIEC last spring, and Matz is serving a two-year term.
Reprinted with permission from Anthem, the publication of the Northwest Credit Union Association (www.nwcua.org).
In an April 2011 survey, mid-market company executives told Deloitte researchers they were cautiously optimistic about the economy. Since then, expectations have gone from modest to minimal.
The fading optimism is among the findings highlighted in “Mid-Market Perspectives: America's Economic Engine—Competing in Uncertain Times,” a new report based on Deloitte’s second mid-market company survey in July and August of last year.
Deloitte claims mid-market firms—typically companies with between 50 and 5,000 employees—are “the engine of the economy.” In terms of output, the sheer number of mid-market firms account for approximately 40% of the U.S. gross domestic product.
The survey results provide insights into what executives are thinking and doing to retain a productive edge for their companies. Deloitte reports four key findings:
1. Companies are prepared to work harder to achieve growth in a difficult economy.
2. New hires will be based on specific skills targeted at areas of strategic need.
3. Firms will employ business analytics and technology to find high-value customers.
4. Despite a massive number of unemployed Americans, many companies report they can’t find people with the right skills.
Not surprisingly, respondents became more pessimistic throughout the year. In April, executives estimated 2011 economic growth at 2.3%. By July, it had dropped to 2.1%, and by August it was down to 1.6%.
Despite declining expectations, executives continue to focus on improving their respective businesses. A full 70% said productivity had increased by an average of just over 6% at their companies since the onset of the recession. And 44% said their companies are prepared to increase the size of their workforce and to increase hiring over the next 12 months.
Key findings emerging from the research include:
Less low-hanging fruit. Easy growth in revenues and profits is gone, and future opportunities are unlikely to come from an expanding economy.
Caution on hiring. Executives at mid-market companies talk about hiring in the context of targeted hires to boost productivity. The single cost category they say they focus on controlling most is labor.
* Tech trumps talent. For now, improvements in business processes and new technology, rather than hiring, ranked higher for most mid-market companies.
The executives surveyed admit the future is difficult to read. About 64% said factors such as taxes, regulations, credit availability, and the economic outlook are “more uncertain” or “much more uncertain” than normal.
Nevertheless, the companies surveyed are keeping up with, or even increasing, the pace of capital spending. Three out of four companies surveyed are maintaining or boosting the level of long-term investments, despite higher levels of uncertainty.
Deloitte regards this as good news because long-term investment typically drives higher productivity, which—if accompanied by rising output—is associated with job growth. In an open and competitive world, productivity gains are crucial to U.S. job creation and prosperity. About 58% of respondents said that if they could increase productivity, they would engage in “strategic hiring in critical areas.”
Today, your bank is issuing time deposits at rates significantly below what they were just a few years ago and renewing CDs at a lesser rate than they were just last term. So, what’s the goal? Should bankers be pleased when they find that CDs renewed at 20 basis points below last term’s rate? Does it matter if the volume is shrinking or growing? How should the term-to-maturity of your newly booked CDs impact your assessment of their profitability? How can you make decisions about CD pricing and know that your measurement process will consistently help you understand if those decisions are contributing to or detracting from your bank’s profitability?
Many bankers will point to current cost-of-funds when asked about their bank’s funding performance. To declare that your bank’s funding is well managed because your cost-of-funds is declining today is superficial and dangerous. While cost-of-funds is certainly a relevant accounting measure, it doesn’t help us understand if the pricing decisions made last month regarding funding are contributing to profits, and if so, to what extent.
The solution is simple. We need to measure newly booked CD performance consistently. Without a measurement method that is capable of assessing the contribution to profit of the current activity within our portfolio, bank leadership has no legitimate way of gauging success.
Measure and track your bank’s newly booked CD performance results by using reports generated from these six data fields: branch, balance, APY or rate, maturity date, last renewal date and original creation date. With this data and current market yields such as Federal Home Loan Bank advances, your bank can create reports showing count, volume, weighted average term, weighted average APY/rate, spread weighted by “dollar-months,” and the mix of auto renewed and not-auto renewed CD production for the month. Plotting volume and spread weighted by “dollar-months” will clearly reveal the contribution to profitability your bank is getting from its recent management of time deposits.
Without taking and tracking these measurements a significant piece of your managerial effectiveness is left to circumstance. When tracking these results, your bank will find, as in other areas of business, that what is measured can then be better managed.
This is an executive summary from a more detailed article by Neil Stanley, president of Bank Performance Strategies, an Omaha, Neb.-based consulting firm. Read the complete article in BAI’s online publication Banking Strategies at http://www.bai.org/bankingstrategies. Reprinted with permission.“Expand your Loan Portfolio with Small Business Government Guaranteed Loan Participations,” written by Margaret Gilbert of Coastal Securities, Inc. is available for CFO Council members to download as a Financial Flash.
Gilbert explains how credit unions of all sizes can employ an investment strategy using secondary market government guaranteed loans to help grow their loan portfolios, address interest rate risk and reduce concentration risk in a safe and cost effective manner with no principal or accrued interest credit risk. Secondary guaranteed loan participations work well for credit unions that want to increase their loans-to-shares ratio as well as for those credit unions that may be near their aggregate lending limits. Gilbert provides a roadmap for credit union CFOs and lenders to evaluate these programs.
The paper discusses the three primary government guaranteed programs and examines the process by which originating lenders sell and credit unions can buy the guaranteed portions of loans made from these programs. Regulations are cited that clearly explain the reasons why small business government guaranteed loan participations are an exception to the statutory and regulatory restrictions that govern traditional loan participations. Processes for evaluating these participations and strategies for managing the associated risk are discussed.
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