Performance – always paramount in the financial industry – is more critical than ever now. Even before COVID-19, FIs faced a challenging regulatory environment, rising consumer expectations and declining branch counts. The pandemic has added further rate drops, a run on small business loans and increased consumer angst to the mix. CFOs need more than just new tools to navigate the current situation; they need a whole new approach to performance.
Performance banking is based on performance management’s model but applied to banking. The same tenets of optimism, opportunity, leveraging data and reframing the challenge is solid advice at any time, but it can be transformative during these unprecedented times.
5 beliefs of performance-focused banks
Performance-based banks come in all sizes and all share some common beliefs:
- Performance begins with culture. As leaders, you must build an environment that encourages a growth mindset. One of the hallmarks of a performance banking culture is a willingness to embrace new ideas in an industry that has been known for relying on traditional approaches. You must refuse to settle for mediocrity. A growth-focused mentality won’t develop in your institution without conscious, dedicated effort.
- Performance is earned; it is not an accident. Intentional actions bring results; proactively plan for success. Specific, measurable outcomes are something to build into each day, especially during times of flux, recession, rising interest rates and other realities that affect a bank’s performance in times like this. If you want your institution to grow faster than the industry, it’s time to make intentional decisions to get there.
- High performance requires an informed workforce. Everyone in the organization, from the board room to the teller line, directly impacts performance. In some banks, the C-suite believes lower-level employees don’t understand key performance indicators, and maybe that’s true to a degree. But every employee in the bank needs to understand how they can make a difference. Just as important, they need to understand how vital they are individually in the shared goal of boosting performance.
- The market rewards the agile institution. Banks that make better, faster decisions outperform the market. If your data is old, and if there’s a lack of transparency, too much time and energy is spent crunching numbers for a “stale” view of the situation. Instead, source fresh data, quickly analyze trends, make rapid decisions and adjust your plan frequently.
- Data serves people (not vice versa). Let technology do the heavy lifting, aggregating and visualizing data for better analysis and decision-making. In the world of Excel spreadsheets, it’s easy to become a slave to the document. Empower your staff to stop being “spreadsheet wranglers” and use technology to not only aggregate your data but put it into a more actionable format that will empower decision-making.
CFOs as performance banking leaders
In today’s dynamic environment, your institution’s operating model is under attack. Every basis point in your net interest margin (NIM) matters. CFOs that can harness their data faster and focus on performance will come out on top. Traditional financial analysis and risk identification functions need to take place on a rolling, continuous basis for the institution to stay a step ahead. The CFO that brings their institution through these challenges successfully will not only keep pace with this evolution but will increasingly fulfill a role as a performance leader within the FI.
CFOs also have a critical role to play in driving that culture throughout the organization — both by encouraging performance-driven behaviors and supporting the acquisition and retention of top-performing talent. CFOs increasingly work alongside CHROs to develop KPIs, provide transparent and relevant performance reporting, and manage to FI goals. With millennials now representing the largest generational group in the labor force, and Gen Z entering the labor market — both having grown up immersed in technology, easy access to data, and real-time changes — the appetite for immediate information, measurable progress and quick decision-making in the workplace will only increase.
From concept to reality: How to build performance into your bank's culture
How do you turn the concept of performance banking into reality at your bank? As CFO, your role is to head up this effort. That may not have always been the case. The changing role of the CFO is branching into many if not all of the bank's operations. According to a report from McKinsey, CFOs may find that as their role evolves, new functions are reporting into their organization — including risk management, procurement, regulatory compliance, integration, M&A, board engagement and even IT.
Here are some concrete steps to take to create a performance-driven culture.
Encourage a growth mindset. It's business as usual in many banks that continue to rely on traditional processes and procedures. But times have changed rapidly, and business as usual no longer works. As anyone working in financial services knows, technology and heightened consumer preferences are changing everything from deposits to CDs to mortgages and more. The first step in creating a performance banking culture is creating a mindset that says challenges can be opportunities, anything is possible, and change is not a bad thing.
Involve all levels on your staff. A performance-driven culture needs to have buy-in at every level of the organization. Train and educate your staff on key performance indicators, what they mean, and what little things employees can do to move the needle. Employees need to understand the value of a one-basis-point change in NIM and how seemingly small steps can make a substantial difference. Your front-line staff can be your best advocates for new deposit accounts when growing deposits is crucial. By encouraging friends and community members to switch to your bank, they can be powerful spokespeople for your institution.
Focus on the employee experience. With everything else that’s going on, the "care and feeding" of your employees might be the last thing on your mind. But a crucial component of performance banking is making sure your own house is in order. Your employees at all levels need to feel appreciated, needed and always respected for their contributions. As CFO, you may be driving the effort toward performance banking, but your people are the ones taking the day-to-day actions necessary to carry it out. Making sure they're happy, secure in their jobs and ready to contribute is critical.
Ask for feedback. Part of creating a performance banking culture is hearing some truths that might be inconvenient or difficult to digest. It’s important to push through any reservations you may have and listen to the hard truths. You can't build a high-performance culture on shaky ground. This can be a job for human resources. Ask HR to survey employees about your bank's culture and use that survey as a starting point to change what needs changing. Finding out where you're starting is the first step to create something new, better and more powerful for your bank.
Use technology to its fullest. You need the right tools to help your people make better, faster decisions. Performance banking software puts financial data and key performance indicators at your fingertips daily, helping you analyze performance and make fast, informed course corrections to achieve the goals of your bank. These tools visualize information in a way that's easily understandable, and help you:
- Track key indicators like asset yields, funding costs and net interest margin daily
- Spot changes in performance immediately
- See data in easily digestible formats
- Access loan and time deposit pricing and maturity data daily
- Facilitate transparency and accountability across the FI
- Provide leaders with access to actual metrics in order to respond more quickly to changing conditions
- Automate financial reporting and analytics
Involve the board. Your board members probably aren’t bankers. They’re often business owners in the markets where you operate and can bring in investment. They can also share new ideas and perspectives from their own diverse experiences. In times of uncertainty, it's more important than ever to communicate openly and frequently with your board and critical stakeholders. Open communication and exchange of new ideas are the foundation of performance banking.
Remain agile. All this work does no good if you aren’t willing to adapt as your situation changes. This might mean adjusting how you manage reporting or how you structure your staff. Also, frequently monitor performance and make necessary portfolio changes quickly. The willingness to change, try new approaches and embrace the opportunities that surface is the essence of performance banking. It's what will get your institution through tough economic times stronger and more ready to grow in whatever "new normal" comes out of this crisis.
In order to not just survive but thrive in these economic headwinds, it's vital to reorient yourself around performance banking. Keeping your “eyes on the prize” during difficult times, empowering your staff, fully leveraging data and quickly pivoting when necessary can help make you a better CFO and your bank a more vibrant and successful institution.
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