Many medium-size banks have disappeared -- a phenomenon resulting from closures of the least profitable and acquisitions of the more profitable.

In many markets, that leaves smaller and community-oriented banks competing against the big boys.

Meanwhile, many new banks are being formed in markets where the leading banks have gotten too big to serve the needs of certain communities. Local talent identifies these opportunities and seeks the capital required to obtain a new charter.

Growing Pains

Management of small banks requires credit knowledge and general, seat-of-the-pants management skills. As long as the bank stays small (in the range of one to four branches), this simple formula is successful.

Beyond a certain size, the executives start becoming removed from operations about which they are called upon to make decisions.

The key factor that makes smaller, community banks successful is service. The big banks have professionals dedicated to meeting this objective. How can the little guy compete?

A Pool of Expertise

The answer is simpler than one might think.

The individuals who lost jobs over the past two years as the industry has consolidated have the expertise that community banks will require more and more as they grow.

Small banks may not be able to hire such people full time, but they can "rent" their expertise on a consulting basis.

Large consulting firms have ample capabilities to fulfill any need -- but at what expense? The new independent consultants coming out of banking positions have the credentials to get the job done at only a fraction of the Big Six firms' fee schedules.

Trimming Expenses

For example, take my own area of expertise.

One of the toughest jobs facing bank executives is curtailing noninterest expense. Salaries and benefits are the largest segment of this category.

Branch managers are constantly asking for more staff. Executives fielding these requests need to know the answers to such questions as:

* What branches really need staff increases?

* Are the branches staffing for peak periods?

* Are tellers in short supply while employees in other areas are underutilized?

* How can staff requirements be quantified?

A program of work measurement, which I prefer to call work management. takes staffing concerns out of the realm of the unknown.

Such a program first sets time standards for various processes.

The next phase is to examine when these functions are required, thus creating a staffing model that addresses such issues as the number of work hours needed as well as daily, weekly, and monthly peaks and valleys.

The last step is to merge this information into the management process and expect managers to make good staffing decisions, just as we expect them to make good credit decisions.

Big Benefits

Small and medium-size banks cannot normally afford such a program except through the use of consultants.

I have fairly consistently seen productivity rise about 15% after implementation of this program, which costs perhaps $10.000 to $15,000 for a five-branch bank. The annual savings run around $100,000 to $200,000. In bankers' terms, that's an excellent ROI.

No business today can operate without the assistance of an accountant or attorney. Since many small to medium-size banks cannot afford to have these professionals on staff, they retain outsiders for these services.

I suggest that this makes sense for other areas of management expertise as well.

It is foolish to try to make decisions without seeking the proper advice and analysis to do the job right.

And you have nothing to lose in speaking to consultants, many of whom have been educated at larger firms and can use that expertise to improve your operations while reducing your expenses.

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