“This issue is so important, we can’t let things that are more important interfere with it.” (Advertising/Marketing manager, UPS)
GonzoBankers, if you think about it, there has been a fairly logical pattern in how bank organization charts have evolved over the last 10 years. It goes something like this:
- We see a significant change in customer behavior or other external circumstances. Typically, the change is pretty rapid. Customer examples include usage of debit and Internet banking. An example of another external circumstance is the increased regulatory focus on compliance and fraud (has anybody noticed that?).
- The way we deliver the services or solutions that meet the new behavior and related needs adapts and evolves. New support and reporting areas are common.
- As the new delivery matures, the organization and org charts evolve and change. We now have Electronic Delivery, Internet Banking, Risk, and Fraud departments that either didn’t exist 5-10 years ago or that have morphed into something very different.
Oftentimes, these new groups are “vertical” in that they may cover the issues related to their job for branches, small business, lending and other customer delivery groups. Risk management is an example of a function that has cast a very broad net across the bank in terms of its responsibilities.
So, to handle these changes we have new job functions, job titles, corporate titles, salary grades, straight line/dotted line org charts that look like engineering diagrams, new committees, new cross-functional working groups, new project teams … hey, it’s enough to make any HR person tear up with joy or tear up from all the new work.
But, to this point most of the changes have occurred at the line and middle management level. What has not changed at many banks is the composition of responsibilities at the senior (“E”) level. The division of responsibilities related to customer delivery is still:
- Consumer lending (maybe under retail)
- Wealth management
In many cases, the new delivery channels are a subset of the operating groups. While there is certainly cooperation in selecting systems and there are standards IT will set for investments/systems, at the end of the day your mortgage group probably picked the online application system, retail picked the Internet banking platform, somebody in retail picked the EFT/debit systems, and commercial picked the cash management system.
The question of the day is this – is it time to change the structure of how we manage channels? Is it time for a senior executive to be the channel manager?
Well, before you laugh, shut this tome down, and head for the espresso refill, let’s consider a few things:
1. The current structure made sense as long as consumer behavior drove the new channel investments. But the truth is that this has changed – more and more, it’s the new channel or the new channel capability that changes consumer behavior. Think about some examples:
- Mobile – for the most part, we’re not defining what mobile banking systems need to do and waiting for the code to be written. We’re discovering what they can do and we’re trying to figure out how to get it to customers.
- Groupon and other promotional programs – our customers didn’t come to us and ask for merchant-driven offers to be presented to them. A new technology has become available and we need to figure out how we’ll incorporate it into our product offering.
- P2P – we didn’t have a conference and demand another payment channel. There is new technology becoming mainstream at a breathtaking pace, and we need to decide how to offer it, when to offer it, and what the impact might be to cost/revenue.
None of these are starting with the consumer and then impacting our delivery. It’s starting with changes in channel delivery and then impacting consumer behavior. If it starts with the channels, the senior level organization chart needs to recognize this, adapt and change.
2. The sheer impact of new channels on things like sales goals, growth goals and service goals is growing as fast of the channels. Examples:
- Depending on the age of the customer, somewhere between 40% (aging baby boomers like, well, uh, me) and 65% (Gen Y) now prefer a channel other than a branch to do their banking (recent BAI study and several others).
- The sum of Internet banking log-ins, mobile banking contacts, views of the bank Web site, IVR calls, ATM transactions, remote deposits (business customers more than retail at this point) and other non-branch touches is starting to rival branch encounters and at some point will exceed them.
- Many banks now get 20% or more of their loan applications on the Web.
- New deposit accounts are still almost entirely branch based, but most institutions are already trying to figure out how to use online account opening systems to start chipping away at that behavior. And they will succeed more and more.
- Marketing is moving to the new channels because customers did. Anybody asking for a bigger direct mail campaign budget this year?
So, as the impact of the new channels on sales, service and growth increases, and as branches increasingly are one part (and at some point not the biggest one) of a multi-channel world, the senior management organization chart needs to recognize this, adapt and change.
3. This is getting expensive. To this point, every new channel has been additive – to transactions, to technology costs, to support costs, and to compliance costs. In other words, none of the new channels to this point have done a great deal to reduce branch transactions. They have stayed flat for many banks, but have not gone down to any extent to cover the costs of new channels.
Most management teams have recognized this and are taking aim at overall delivery costs. New channels must not only be cheaper at the incremental transaction level, they must allow banks to reduce costs in other channels. The hard reality is that there are only two big ways to do this. One is to manage contracts carefully. The difference between good contracts that get the right costs (Internet banking, debit, bill pay, etc.) and revenue (debit) can be millions of dollars even at a small institution – reason enough for senior manager focus. The other is to reduce the cost of branch delivery over time. This is an important and very difficult goal. But, as banks focus on reducing the cumulative cost of delivery, the senior management organization chart needs to recognize this, adapt and change.
So, here’s the pitch. Banks need to assign accountability and responsibility for channels to a senior level manager. That manager needs to have a seat at the table with retail, commercial and wealth management. This person will have some component of the sales and service goals of the bank. Ultimately, he/she may have P&L responsibility. Banks will not be successful with channel strategies if they are managed a bit here and a bit there by many people. New channels are becoming too instrumental in affecting consumer behavior, too impactful on sales and growth, and too costly to manage as a group.
There will certainly be issues that need to be negotiated with a new senior position. There always is. For example, who owns the sales/service goals for a customer who uses non-branch channels 100%? Who is ultimately accountable for the online loan origination goal? Who owns customer issues when a business has more deposit problems? And, if you think about it, those are exactly the discussions that need to take place as new channels grow.
We can call it what we want – “EVP of Channels,” “Channel Master,” “Omnipotent Channel Guru” – but we need senior level expertise and accountability.
Promote and/or hire away.
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Our Delivery Channel Assessment provides observations and recommendations in key areas including:
- Delivery strategy and desired customer segments
- Delivery channel functionality; gaps between strategic goals and current systems
- An evaluation of system functionality, utilization, technology, cost, vendor/product stability, and risk management capabilities vs. peer and best-in-class
- Delivery channel strategy/sales/support organization structure and staffing as well as support skills and sourcing
- Assessment of key delivery channel-related processes such as marketing/sales, fulfillment, service/support, and risk management
Cornerstone’s Delivery Channel Plan takes the Assessment a step further, with an outward look at technology trends and a forward look at the future of your financial institution.
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