In the first part of this article, Dr. Ed and Jay discussed the premise in their book The Art of Strategic Planning in Community Banks-why boards and management should have a 10-year vision. Using the example of an "average" bank, they made the point that even "average" can produce excellent returns.
The question that boards and management want to know is, "How do we get there?" The answer: Focus on what creates value!
How Do We Get There?
Our strategic planning process focuses directors on understanding their business model. We challenge them to ask, "Does it need to be changed? What business model works best?"
We believe the future of community banking is in relationships. With the advent of the information age, many visionaries predicted banking would become a purely digital, computer-driven business. No more bricks and mortar. Remember when some larger banks actually started charging customers to visit with a teller? Well, they quickly reversed that corporate decision! Technology enabled a touch point to become a profit point-but at the cost of losing a valuable relationship. The CEO at Jay's bank looks at technology-and just about everything else-from the viewpoint of customer service. If it doesn't positively impact the relationship with his customers, it doesn't make sense.
If you look at the efficiencies of consumer lending, credit cards, and home mortgages, you already notice a reduction in customer contact. However, these types of retail products happen to lend themselves to technology. Of course, technology has driven the margins on these products to very low levels. Community banks will continue to offer retail products; however, retail products are no supplement for relationship banking.
We use "The Profit Wheel of Community Banking" to illustrate relationship banking. Your bank is probably engaged in parts of the profit wheel. As a bank director, Jay wants the business relationship plus all the products associated with that relationship-the checking account, cash management, the credit line, and any other products you can think of. Don't stop there. Jay also wants the personal relationship of the owner and executives of the business. He wants their checking accounts, their money market accounts, their home equity lines, their wealth management business ... and don't stop now! Jay wants the employees' relationships-their checking accounts, their home mortgages, and their overdraft privileges.
And finally, Jay wants all the people in these relationships to be shareholders of his bank. He wants them to experience ownership of their bank. At Jay's bank, the mantra is "Every customer is a shareholder, and every shareholder is a customer." With the connectivity of the profit wheel relationships, why would anyone ever leave you for another bank? Relationship banking can help you achieve your 10-year share value goals. You should openly invite people to purchase your stock. Make a great impression with a new loan customer by saying, "We value you as a new customer and would like you to consider buying our stock."
With focused, value-creation planning, you, too, will be saying, "The future of community banking is dynamic and exciting!" Be proactive. Adopt the strategies and tactics necessary to bring the core deposits through your door. Pursue the appropriate opportunities and have monitoring systems in place. And remember, the future of banking is not offering the highest CD rate!