Information gathering and monitoring are still rudimentary at many banks. But more banks are funding systems that can track the characteristics and product usage patterns of their customers.

Information alone isn't enough. A pile of printouts indicates only a possible competitive advantage. To put the information to work, top management must pick someone to be in charge of the decision-making process, assigning the authority that will result in customers being allocated to the right part of the organization.

When should a handoff take place? Typically the need first arises when the small-business account begins to look more like a commercial than a retail customer and demands more sophisticated handling. At this point, branch location becomes less important to the small business, whose preference is now for advice, loans, and product knowledge.

Again the guide should be the characteristics of a small-business account, not its size. Most small businesses have a single bank, are highly relationship-oriented, but not overly sensitive to prices. In most, the president serves as the chief financial officer. As the small business grows, the banking relationship alters. The founder hires a professional manager as chief financial officer, and that person often looks to more than a single bank. Now the relationship is driven by transactions and becomes more sensitive to price.

As this evolution takes place, the original bank must ensure that it remains part of the core bank group and always gets invited to bid for new services and financings.

Market and customer information, properly analyzed, helps managers understand the profit dynamics of different customer types. Better banks invariably seek to identify growth firms at an early stage, monitoring them and anticipating changes in their product needs. By tracking customers, the bank can switch service channels earlier and focus account officer attention on customers with high potential before competition grabs them.

All small businesses are not alike when it comes to generating profits for a bank. For example, in one large metropolitan area, professional services were the cream of the crop, outranking wholesalers and manufacturers and providing significantly larger profit opportunities than retailers or nonprofessional services.

The needs of service and nonservice firms vary markedly. Banks may find the former more attractive because service firms are net fund suppliers and more frequent users of cash management and deposit services. True, service firms want uncollateralized loans, but as a group, they are growing faster and their owners are more receptive to personal banking services.

In contrast, firms outside the service segment are net fund users, seek working capital finance and letters of credit, and are more likely to be maturing or even declining. As their growth slows, they become less attractive, both as credit risks and as deposit suppliers.

Of course, the potential for profits in either group varies, depending upon the mix of products, the specific bank's cost structure, and branch locations.

In dealing with service businesses, location is usually more critical, particularly where deposits must be made frequently. As banks open, close, and acquire branches they need to assess the opportunities for tapping into small-business accounts within the catchment area of those branches.

By definition, a small business is entrepreneurial, and in every small business, there's an entrepreneur with substantial personal banking needs. Capturing that added business can boost a bank's return on assets dramatically.

One of our studies showed that, in cases where there is only a business relationship, the return on assets typically runs around 1.1%, an adequate return, but hardly spectacular. In accounts that include fees and services from both a business and a personal relationship, returns soar. On average, the return jumps to a highly attractive 1.9%, an increase that no bank can afford to overlook in these competitive times.

Yet here is another area where organizational impediments frequently block business growth. Many banks waste energy and time disputing where the account rightfully belongs. Often the private banking department joins the fray between the branch and the commercial division. A better way is to look at the problem through the eyes of the customer and arrange for the account to be handled appropriately.

Mr. Mara is a vice president and Mr. Gregor is a senior vice president of Gemini Consulting, Morristown, N.J.

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