Clear strategy seen as fundamental to long-term success.

Although Jack Daly made some good points in his article, "Cost Cutting Is Key to Success in the Long Term." which appeared in the Oct. 6 issue of American Banker, I strongly disagree with his basic premise.

Cost cutting and any other actions taken by management or staff must be based on a clear understanding of a lender's strategic objectives. Therefore, developing a well-defined strategy is the true key to success in the long term.

Strategic Issues

A well-defined strategy should at minimum address the following issues:

* Customer needs.

* Financial goals.

* Product offerings.

* Perceived strengths and opportunities.

* Perceived weaknesses and threats.

Benchmarking can be helpful in identifying potential opportunities for further analysis, but absence of strategic considerations can lead to inappropriate decisions. Lenders must make certain that benchmarks ultimately reflect how they conduct their business.

Business-Related Benchmarks

This includes considerations related to:

* Market-defined needs.

* Service level standards.

* Quality control and risk management.

* Sales and distribution channels.

* Skill sets within the organization.

Other important consideration in support of strategy are the processes used by the lenders.

Process improvement and process redesign that support strategy offer a much greater likelihood of effective cost reductions that will enhance overall operations and customer service.

Analysis of existing processes should focus on their ability to:

* Satisfy customer needs.

* Facilitate strategic objectives.

* Enhance responsiveness.

* Improve productivity.

* Promote competitive advantage.

Once strategy has been defined and communicated, structure has been evaluated in support of strategy, and processes have been analyzed to ensure that they meet the lenders' business needs, the last step toward finding how to optimize cost effectiveness is determined by the benefits of adding or upgrading technology.

Technology can be a powerful enabler of competitive advantage. It is certainly an effective tool in any lender's efforts to manage cost, if used to support strategy and the processes that are most effective.

Properly applied technology should:

* Assist in achieving well-defined strategic objectives.

* Enhance process improvement or redesign.

* Improve productivity and effectiveness.

* Reduce costs ( and in many cases increase revenues).

* Promote competitive advantages.

I agree with Jack Daly that there are no quick fixes and that cost-consciousness is not the same as cost cutting.

However, I believe a more comprehensive view of a lender's business is needed to determine what cost-cutting actions should be taken to achieve business and strategic objectives. The key is to develop the discipline of constantly defining and, if necessary, redefining strategy to ensure that competitive advantage is optimized.

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