“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:
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:
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:
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:
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.
-tr
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Terry: Thanks for the thoughts! The issue of the incremental additional cost of delivery is material. Recently, we agreed to invest more heavily in a different mobile solution. Key to the issue is having text alerts, iPhone and Android apps, and remote deposit capture. The cost of sending alerts by text are particularly alarming. There is no ROA on this investment! Who is supposed to pay for this stuff? It doesn’t save any money from any other delivery channels, and it isn’t cheap. We’re still trying to figure out how we get something out of bill payment. Another valuable service that costs a lot and returns nothing. I’m expecting some kind of relationship package to emerge where every customer has to produce a net return somehow, anyhow…
Other thoughts: We recently participated in a facilitated organizational structure exercise. I made a list of all the new senior executive positions that were suggested from a number of resources we reviewed. Here’s a list: Innovation, strategic planning, risk management, payments, collaboration, products, sales, deposits, growth, non-interest revenue, remote delivery and (my favorite, sarcasm noted) projects.
Arguments could be made for the importance of all these things, and that if not owned by an executive, perhaps won’t be as successful.
We aren’t going to add any of these senior executive positions, but will be clear on which executive owns each of these areas. For what it’s worth.
Take Care!
Doug Ferraro
Bellco Credit Union
Terry,
Good insights; fully agree with “That manager needs to have a seat at the table with retail, commercial and wealth management.” The Channels are more an after thought with a fragmented / siloed approach and not part of the systems thinking.
With your permission, I will share this link on Linkedin.
Thank you,
Kevin
https://ca.linkedin.com/in/kevinfernandes