Community banking at Norwest Corp. and elsewhere is under siege by banks and nonbank competitors who are all fighting for our customers.
How does one manage a community banking franchise in a way that lets it increase speed to market, become much more nimble than ever before, keep management heads in the clouds, and yet keep feet firmly planted on the ground? Here are a few sound management principles that will serve you well:
Realize that we are in a high-fixed-cost, low-variable-cost business. This means that revenue after fixed costs have been covered drops directly to the bottom line. The next dollar coming in is more profitable than the last one. Beware of traditional cost accounting that may not reflect this dynamic. As you manage your business, realize that market share, and marketing volume have different value to a high-fixed-cost business such as ours.
Customers become profitable over time. This has been proven again and again by many authorities. Therefore, customer churning is the enemy of profitability. Productive retention strategies, particularly associated with premier and excellent customers, are critical success factors in attaining profitability. Replacing seasoned customers with "green ones," even if they are profitable ones, will have a depressing effect on profitability because it takes three to four years for an account to season and blossom into a moneymaker.
You can't tell when a customer walks in the door whether he or she will be profitable or unprofitable. You cannot segment them yet. You must ask them some questions to understand which profitability segment they fit. There is one more variable that no information-based marketing can give you.
In community banking, it is critical to know about this person's network in the community. If the customer's grandmother is a premier customer, you must behave accordingly, even if this customer is not profitable.
A prime example: A bank mistreated a customer who only wanted a checking account. The customer had just moved into the area and was the human resources director of a 5,000-person company. Needless to say, this company will not recommend the bank to its new employees. The lesson for community bankers is that information-based marketing is important but doesn't override all other concerns.
People are considered by accountants to be an expense item. By management, however, they should be considered the greatest assets the corporation has. Therefore, we need to care for them and maintain them more than we do any computer or building the company owns.
Maintaining human assets requires a concerted effort and an explicit one, including training, positive reinforcement, the introduction of diversity, etc. Nurturing and caring management is a cornerstone of any bank but especially a community bank, where people are even more important than in any other mode of banking.
In sum, community banking requires managing the fundamentals. But in order to do so, we need to understand the underlying factors and establish a cultural context for decision-making. The four points outlined above are the management principles espoused by many outstanding community bankers.