Old Banking Skills Won't Make It

Financial institutions are not just redefining their business, they are redefining the skills and experience levels required of their management.

A new generation of managers must make the changes required by banking's new direction with the utmost speed while instituting cost prevention and moving into emerging markets.

Although many industries have experienced downsizing over the past few years, the financial services industry has been singled out by the media and management think tanks as the symbol of the current recession.

Is the Action Appropriate?

"Rightsizing" has become the human resources term. The knee-jerk reaction is to cut costs in an industry whose maximum employment is long past and whose employment trend continues to be negative.

What has happened to the individuals who left the industry? More important, what are financial organizations doing about filling management positions normally staffed by on-call experts?

These are the individuals in areas such as funds transfer where the manager grew up from manual systems and low volumes, through bankwire, the growth of Swift, straight-through processing, and, finally, customer input of transactions.

Expertise Outdated

The need for rightsizing showed that many of our on-call experts in management had lost their perspective in viewing only a few trees when their institutions needed to view forests.

They were expected to be the experts but were unable to grasp the concepts of market niche focus, quality, innovation, and decentralized units, to name a few. Now that the experts are gone, existing managers, middle and senior, will need to be augmented and, in many cases, continue to be replaced with some outside expertise.

What Are the Basics?

Financial institutions are getting back to basics after ventures in London, LBOs, and above-average lending in real estate. The basics - consumer banking, corporate fee-based services, balanced loan portfolios, and risk management in trading and capital markets.

Helping to get us focused on basics are our two pillars of business management - Peter Drucker and Tom Peters.

The Renaissance Manager

Mr. Peters has touted that the middle manager must be an expediter, barrier destroyer, and facilitator. To do this effectively, I believe, will require individuals grounded with solid skills in operation management, marketing, economics, technology, and financial analysis.

Think of every major project on the drawing board today - projects such as global custody, trust, branch banking, EFT, risk management. For any of them to be successfully implemented will require the expediter and more importantly the barrier destroyer. The facilitator replaces the turf builders and guardians; it's the only way to survive and compete.

A few months ago, an article appeared in The Wall Street Journal titled "Permanent Cost Cutting," by Mr. Drucker. In it, he said, "Cutting staff to cut costs is putting the cart before the horse. The only way to bring costs down is to restructure the work. This will then result in reducing the number of people needed to do the job, and far more drastically than even the most radical staff cutbacks could possibly do. Indeed, a cost crunch should always be used as an opportunity to rethink and to redesign operation."

The Survival Factor

Perhaps it is the recession that leads into discussion on cost cutting, but for the financial services industry, it is the critical component toward survival.

Financial services firms have been successful when they realized what skills levels were needed to capture a market.

Technology appears to be a good area to reexamine. The key words in the 1990s are open systems, interoperability, reengineering, and Case (computer-assisted software engineering). If you are a manager in this brave new world, you would be surprised to still find development staffs, large maintenance staffs, and committees, for example, trying to define what "open systems" means.

Front office automation for some means putting a PC on the desk. It appears that the brave new world is as tangled as before. Break the barrier here, now, quickly.

Start with a new definition of an open system as one where anyone can access any information in the enterprise, on any system/platform from any access point (PC, terminal, workstation, etc.) at any time. Insure that any investment uses industry standards to foster future growth.

I always thought that a money transfer was a fairly simple process - a communication, a debit, a credit, and an advice. How much has been spent to develop in-house in the 1970s and 1980s a system to accomplish this simple definition? Development of the next generation of funds transfer systems will again propagate the development staffs, maintenance staffs, and so forth for another decade.

In their book "Technology in Banking - Creating Value and Destroying Profits," Tom Steiner of McKinsey & Co. and coauthor Diogo Teixeira point out:

"Margins [in wholesale payments] are constantly under pressure because of overcapacity. Recurring rounds of investment in technology are met by too many noneconomically driven players." New approaches are needed.

A Fresh Look at the Flow

All too often, proven software solutions are purchased in this area and 40% of the code is modified! Explore software solution shortfalls, but insure that you carefully explore your current process. Modifications and workflow design may be needed.

Should you be in this business? Can you streamline your process flows and interfaces? Can you better leverage your knowledge workers. Remember Mr. Drucker's thought that as we explore cost cutting, we need to rethink issues and redesign operations.

In summary, the marketplace is defining a new era requiring innovation, market creation, increased technology, decentralization, leadership in change and information management. The successful organizations will employ expediters, barrier destroyers, and facilitators. It's back to basics and a steady program of cost prevention.

Mr. Armenia is a senior financial industry consultant in New York with Digital Equipment Corp.

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