He has been portrayed, as "Jack the Ripper" and "the chain-saw banker," an executive whose zeal for efficiency is a white-hot flame melting anyone nearby.
John F. Grundhofer has the numbers to prove his approach has been financially successful at Minneapolis-based First Bank System Inc. He joined the $26 billion-asset company in 1990 as chief executive, and has engineered a grand turnaround.
The once plodding institution, which posted a 68.2% ratio of operating expenses to operating income in 1990, weighed in with a svelte 59.2% efficiency ratio in 1993's third quarter.
It is no coincidence that the company's return on average assets simultaneously leaped to an annualized 1.41% from 0.55%.
Behind the scenes, Mr. Grundhofer has been doing more than counting paper clips and putting the troops on forced marches.
Jack, as he prefers to be called, has instilled a technological soul at First Bank, basing most strategies and operations on computerization and management information systems.
Mr. Grundhofer says the company's continued independence demands computer-driven streamlining.
"You are not going to be a survivor unless you are a low-cost producer," he says. "We are constantly reengineering things to make them more efficient."
In a recent interview with the American Banker, Mr. Grundhofer expounded on the relationships between efficiency, technology, and consolidation.
Q.: What's the status on First Bank's efficiency, and what further goals are you pursuing?
GRUNDHOFER: We hit a 59.2% efficiency ratio this quarter. It was the first time in the history of the bank to go under 60%. It is going to go even lower in the fourth quarter, we believe.
Our goal is to drive that ratio down to the mid-50s, and eventually the low 50s. We are very, very cost-conscious. That never ends. It is never ending.
Q.: What tools are you using in pursuit of these goals?
GRUNDHOFER: A major thrust is leveraging technology. We spent a lot of money on technology, more than $150 million.
We had 1950s' technology when I got here. We had 47 different banks, 47 data processing centers, and 715 types of demand deposit accounts. Today, we have one data center. By yearend, we will have just one bank charter per state in which we operate.
Q.: Do your aspirations for further efficiency gains imply even greater degrees of computerization and centralization?
GRUNDHOFER: We have made this investment in technology. Further progress hinges not so much on cost take-outs as it does on leveraging what we have. We can carry a lot more volumes in all of our consumer products because of our processing capabilities.
Q.: So the strategy is loading the system.
GRUNDHOFER: Exactly. The more you load it, the more scale economies you realize. It's not brain surgery, just basic economics. We have the systems in place, so now we are focusing on new software releases, and new feature functions that will allow us to do even more. And that's where the leverage comes in.
Q.: How is this playing out in terms of banking products?
GRUNDHOFER: In the Twin Cities, for example, you can come into the bank, and within 10 minutes, get a cashier's check for an automobile loan.
On small business loans, we offer a 48-hour turnaround. We have two-page applications on loans up to $250,000, and we are working on raising (the amount) to $500,000. We are constantly reengineering things to make them more efficient.
If you have an account with us in Duluth, Minn., and you go into one of our offices in Colorado Springs, the teller can go into a screen, and find out about the entire relationship.
That kind of comprehensive information helps us deepen relationships with customers and compete more effectively, both with banks and with nonbanks.
Q.: What about the bank's employees? Where do they fit?
GRUNDHOFER: From a transition standpoint, the people side of this was difficult. We've gone from an entitlement atmosphere to one of pay for performance, and that takes a different kind of person.
But now we can drive behavior with the technology, and it really works.
Our entry-level branch person manages accounts as well as sells our basic branch products. The average salary of that person is around $28,000 a year. Last quarter, our leading personal banker made a $21,000 bonus by selling products. That is how we motivate performance.
The arrangement hinges on technology, because people who like to sell like to have products. And technology enables us to get the products on the shelves of our branch stores.
Q.: First Bank System has acquired about $7.5 billion of banking assets over the past two years, and the company just agreed to buy the $1.5 billion-asset Boulevard Bancorp in Chicago. Could you comment on the role that technology plays in acquisitions?
GRUNDHOFER: Colorado National Bank was a $3 billion institution, and we converted it to common systems within 60 days after the papers were signed. We conceivably could have Boulevard converted within 30 days after it is acquired.
Basically, you come into a new property and say "Here it is. Here are the processes, the systems. Here are the products." You just lay that on, and it is very efficient.
Technology allows us to do things quickly, and then get on with our lives.
In turn, that has important implications for deal pricing, and Wall Street's perceptions. We are not going to overpay. We can't afford to. Because you can get put in the penalty box.
Q.: For years on end, if you are not careful.
GRUNDHOFER: For years on end. But technology still permits us to pay more than we otherwise could, because the market knows we can deliver projected cost take-outs.
We have been fortunate. In every acquisition, before closing, the stock prices of our company and the selling company have increased. So I think the market understands that when we say we are going to do something, it's a credible story.
Q.: It strikes me that systems capability, to the extent it helps certain practitioners expand market share in the banking industry, in itself becomes an impetus for consolidation. It widens competitive disparities and heightens the propensity of weaker players to seek buyouts.
GRUNDHOFER: I think that's right. That's our thrust, and we think systems prowess will enable us to be a survivor in this consolidation wave, which is going to continue at an accelerated pace.
In the short run, pricing may stop some deals. Acquisitions can become terribly expensive if you overpay and get put in the penalty box. So we are very careful not to get in that box.
Q.: You are saying that the consolidation cycle feeds on itself, but that in terms of individual transactions, there has to be discipline every step of the way.
GRUNDHOFER: Right.
