In light of the poor near-term economic outlook, senior line and finance managers industrywide are focusing on productivity and cost reduction. Rather than choosing to make across-the-board cuts, smarter banks will carefully focus their search for efficiencies and productivity enhancements.

The commercial banking area is ripe for this focus. At many banks, traditional high-cost sales and delivery approaches still dominate, relationship managers continue to spend too much time on low-value-added activities, and cross-selling has been more talked about than successfully accomplished.

Radical restructuring of the commercial organization and rethinking of personnel needs and business focus can significantly improve the bottom line. Rather than harming customer relationships, in fact, a cost reduction effort aimed at commercial banking activities can actually result in better customer service.


Many commercial banking units continue to operate as they did 10 or more years ago:

Job responsibilities have not changed significantly. Limited change has occurred despite a relatively high current cost structure and the opportunity to shift operational and credit functions, among others, to lower-cost specialists.

Relationship managers at many banks still spend up to half of their time on operational issues that could be handled at least as well by cheaper operations specialists.

Account loads have not increased significantly, even with enhanced technology. At the same time, per account revenue at many banks has remained flat or even declined.

Cross-sell initiatives have had marginal impact despite internal hype and attention. Usually, customer profitability centers on deposits, cash management, and loans. The costs involved in selling non-core products, particularly to smaller and midsize companies, have not yet generated a strong return.

Too often, self-justification reigns. We have frequently heard managers say, "We already do that." "That" may be a marketing approach or a tactical suggestion to enhance the sales effort. However, we often find that the "that" is only being pursued in theory, or happening sporadically or half-heartedly.

Lack of consistency exists across many banks, limiting synergies. Too often bankers in different units or geographies are allowed to "define" significant elements of their job.


Unit profitability and growth goals are increasingly difficult to achieve. Commercial unit returns are under severe pressure. On the deposit and cash management side of the balance sheet, large corporations have long aggressively managed their cash positions. Similarly, the middle-market and small-business segments are becoming increasingly savvy concerning their available options. The bank's "free" balances will continue to erode, requiring a profit fix.

As for lending, banks need to tread carefully during this economic period, balancing their need for growth with portfolio management concerns. Many banks will be unable to increase loan balances in the face of appropriate internal constraints and customer hesitancy to borrow.

Nonbanks have succeeded at skimming some of the most attractive clients. Merrill Lynch and Morgan Stanley focus on capturing high-balance deposits from small and midsize businesses. As a customer in this category, we made over $10,000 last year from our sweep account. That is hard to compete against. The major investment banks have long moved down into the core middle market to satisfy their financing requirements.

Banks are losing opportunities to increase wallet share. Even in a tighter economy, commercial customers are being approached, either through direct sales efforts or advertising with greater investment, finance, and advisory choices than ever before. Bank franchises have been whittled away by poor customer service and sales practices as well as the strong efforts from nonbanks.


Given the above circumstances, what approach should management pursue?

Quickly take a status check. Managers need a mechanism to address the key issues facing the bank's commercial unit. Agreeing on the current situation (for example, key products, skills, customer focus, economic performance, and opportunity) creates a baseline for action.

Streamline processes and realign job responsibilities. Bank processes are like the bottoms of boats. Barnacles collect, slowing down the efficiency of the ship. Within a bank the barnacles are unnecessary processes and personnel not focused on the optimal tasks.

Create strong separate sales and service teams. Serving the customer with a team approach is not optional; banks must develop a team culture both for their own profitability and the customer's satisfaction.

Rebalance account loads and further segment customer marketing. Low-value accounts need to be moved to a lower-cost servicing area. High-priority accounts demand better attention than they have received in the past. Assessing and reassigning accounts can give some relationship managers more accounts, while others handle a reduced number of high-priority names.


How do you get started? An effective starting point requires management to complete a preliminary assessment. This initial review highlights: opportunities to realign job responsibilities and reduce personnel costs; processes to be streamlined; commercial banking revenues being "left on the table" due to insufficient marketing or inadequate pricing policies; initial analysis of the total bottom-line effect of optimizing your approach (the "Where is the money?" exercise).

Mr. Wendel is the president of Financial Institutions Consulting in New York.

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