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Strategic Planning: Board Approach

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7 minute read –We have spent thousands of hours working with Boards and Leadership teams on strategic planning and we regularly get asked, “How can a Board, made up of individuals who often are only able to focus on the financial institution during monthly meetings or annual planning sessions, be more strategic in their thinking?” 

Most of the Boards we work with want to support the financial institution’s Senior Leadership Team and the long-term viability of the organization, but a challenge for many volunteers is the infrequency with which they get to immerse themselves in this world.  We have some suggestions on how Senior Leadership Teams can support their Board and how Boards can set themselves up for a rapidly changing future. 

  • Thinking for the sake of thinking – As suggested in a previous blog, we believe there is incredible value in making and taking time to think without the pressure of decisions.  This is just as important for Boards and can be an opportunity for Leadership and Boards to check in with each other as far as risk tolerance and awareness of potential game changers.  Taking time to work through possible future scenarios can help Leadership and the Board develop a clearer understanding of necessary steps for the longevity of the financial institution. 
  • Rework Board packets – In order to make time for thinking for the sake of thinking, many boards and leadership teams are reevaluating what goes into the board packet.  What does the board really need to know?  Imagine the board member only has 10 minutes to look at the packet.  How can you make it easy for them to zero in on what is most important?  How can industry jargon be made more digestible by volunteers who may not be in it every day?  Get agreement from the board on items you can stop including – are there reports that were requested in response to something that is no longer relevant?  
  • Committee structures – Another way some boards are working to create more time for thinking is by reducing the number of standing committees they have, opting instead for short-term committees created to address specific needs such as a Hiring Committee.  Otherwise, we have seen boards struggle to develop clear expectations of engagement and communication to work better together.   
  • Range of right mindset – Eventually, thinking does turn into decisions.  Historically, many organizations have set their goals for desired financial performance (such as ROA or Net Worth) as specific numbers.  Many of our clients are finding that this methodology and mindset is no longer serving them in a world of swift market changes and even faster consumer behavior changes.  Instead, organizations are aiming for a “range of right” – this allows for flexibility to respond to an unpredictable future. 

As we have mentioned before, more and more organizations are approaching strategic planning as a year-round process: this includes boards.  Taking time at each board meeting to practice thinking for the sake of thinking can help prepare for multi-year, multi-path possibilities, which can enable institutions to be more flexible and change to meet the challenges of tomorrow faster.   

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To Grow or Not to Grow? That is NOT the Right Question

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7 minute read – In the continually evolving landscape of finance, growth is not just a goal, but a necessity for survival and prosperity.  Financial institutions operate in highly competitive environments where growth not only helps to ensure but also signifies relevance and progress.  Not all growth strategies are created equal, and some may prove harmful if not guided by sustainability, value creation, and customer focus.  So, what types of growth are the most impactful?  This blog explores the benefits of growth for financial institutions while addressing concerns of growth strategies that may not yield favorable results, emphasizing the importance of sustainable and value-driven expansion.

In times when the cost of growth is higher, successful financial institutions may elect to focus on strategies that lay the foundation for higher growth in the future rather than “forcing” less meaningful types of growth.  This can come in many forms, including investments in talent and technology that better position the organization to deliver value to their future customers.  This can also include outreach to existing customers and communities to make more meaningful connections today that may yield higher growth in the future.  Keeping the focus on long-term growth potential is an overarching imperative.

  1. Enhanced Financial Performance: Growth typically leads to increased revenues and profitability, enabling financial institutions to reinvest in innovation, technology, and talent.  Expansion can allow for economies of scale, lowering average costs and improving overall efficiency.
  2. Greater Market Penetration: Growth can also enable financial institutions to reach new markets and demographics, expanding their customer base and diversifying their sources of revenue.  Increased market share helps to strengthen competitive positioning and fosters brand recognition and customer loyalty.
  3. Opportunities for Innovation: Growth often provides financial institutions with the resources and incentives to innovate, develop new products and services, and adopt emerging technologies.  Innovation not only potentially drives differentiation but also enhances customer experience and satisfaction.
  4. Risk Diversification: Growth can allow financial institutions to diversify their assets and revenue streams, reducing reliance on any single market or product.  Diversification potentially mitigates risks associated with economic downturns, regulatory changes, and industry disruptions, enhancing resilience and stability.
  5. Talent Attraction and Retention: Growth can also create opportunities for career advancement, skill development, and higher compensation, making financial institutions better able to attract top talent.  A talented workforce is essential for driving innovation, delivering superior customer value, and sustaining long-term viability.

Where Growth Strategies Can Go Wrong:

  1. Quantity Over Quality: Some growth strategies prioritize quantity over quality, focusing solely on expanding market share or asset size without regard for profitability, meaningful impact, or customer satisfaction.  Such strategies may lead to costly unsustainable growth, dilution of brand value, and increased operational risks.
  2. Short-Term Focus: Pursuing growth at any cost often leads to myopic short-term focus, where financial institutions prioritize immediate gains over long-term sustainability.  This can result in aggressive lending practices, speculative investments, and neglect of risk management, exposing institutions to heightened volatility and possible scrutiny.
  3. Regulatory Compliance Risks: Rapid growth can outpace the institution’s ability to ensure regulatory compliance, leading to legal and reputational risks.  Failure to comply with regulatory requirements can result in fines, sanctions, and damage to stakeholder trust, undermining the institution’s credibility and long-term viability.
  4. Cultural and Organizational Challenges: Inorganic growth through mergers, acquisitions, and some other indirect channels can introduce cultural clashes and organizational complexities, hindering integration efforts and potentially eroding employee morale.  Failure to address cultural and organizational challenges can impede synergies, disrupt operations, and undermine the intended benefits of growth.

Common drivers of short-term focus are the organization’s key performance indicators (KPIs) if they are not aligned with beneficial growth or are not adjusted for rapid environmental change.  If an organization’s growth KPIs focus only on short-term growth goals, which are frequently based on one calendar year, this might yield unintended consequences.  For example, if bonus payouts depend on reaching certain near-term growth goals, that could provide a powerful incentive for focusing on the wrong types of growth.  It is generally a better approach to consider growth goals that encompass a wider time frame perspective.  This can allow for the natural ups and downs of the cost of growth to level out.  Think of the last few years.  During the pandemic, growth was excessively easy and inexpensive, but more recently the cost of attracting growth has increased dramatically.  Having 3- or 5-year average growth goals can factor in this kind of overall environmental impact into account.  Take the time necessary to have thoughtful discussions with the Board and Management as you consider what KPIs are best for your organization.

In conclusion, growth is essential for financial institutions to thrive in dynamic and competitive markets.  However, the pursuit of growth must be guided by principles of sustainability, value creation, and customer-focus.  Financial institutions must prioritize meaningful growth strategies that enhance financial performance, foster innovation, and strengthen market positioning, while mitigating risks associated with short-term focus, regulatory compliance, and cultural challenges.  By embracing a balanced approach to growth, financial institutions can achieve enduring success and contribute to the prosperity of their stakeholders and the broader community.

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Shifting Finance From a Function to a Strategic Driver

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7 minute read – Today’s high-performing finance teams are seeing a need to shift their mindsets and their internal reputations in order to enhance the integral role they play in the strategic progress of their organization.  They are being intentional in their efforts and actions to change the way they are viewed in the organization.  Specifically, their focus is to shift from being viewed as the gatekeeper of the financials to being seen as a strategic partner across the organization.   

One of the ways finance teams are being successful in shifting the view is by moving beyond the numbers in their communication.  Naturally, finance leaders will usually take a “numbers first” approach in their presentations and conversations.  While the numbers are important, “finance speak” can form barriers to creating more engagement with the non-financial areas of the business.   

Finance leaders are shifting to use more stories and analogies.  In doing so, they are finding that others are able to better understand the concepts and intent, which is leading to improved engagement.  These finance leaders are also really focusing on using the common language of the organization.   

  • For example, one CFO we work with found success using the common language around efficiency.  In their organization, they talk about the number of clicks for employees and customers.  When discussing a recent idea, the CFO asked how the idea would help improve the number of clicks rather than stating the idea would increase expense.  The shift of using the common language, as well as asking a question vs. making a statement, resonated with the team, and led to a deeper and more productive conversation. 

Another way finance teams are finding success is by increasing their genuine understanding of the other areas of the organization.  Finance teams have the ability to see the whole organization through the financials.  This gives them the benefit of already having a broader understanding than many.  They are engaging with non-financial leaders to understand the opportunities and struggles they are facing.   

One CFO we work with said they are being more intentional about asking questions and trying to understand the “so what”.  Asking more questions has helped this CFO create more connections and openness with the other areas of the organization.  They are learning more about how to partner with the other areas that helps drive strategy, progress, and understanding.  An additional benefit the CFO noted is that by being more collaborative, other areas are also more receptive to the alternative viewpoints they bring up.   

Another approach that some finance teams have taken is to develop their brand as an educational resource.  One CFO found that their team was brought into more conversations when they moved from a “training” focus to a more collaborative, frequent, and interactive learning approach.  This has helped elevate financial acumen across the organization.   

Many finance teams are bringing more focus on being adaptable.  They are finding that the speed of change in the environment is requiring them to be more open to doing things in a new way.  In a recent call with finance team leaders, several of them identified adaptability as a key trait to consider in their succession plans.  They noted that while there are processes that are durable, their teams need to be flexible in their approach in order to help position their organizations to grow and evolve. 

The need to shift the way finance teams are being viewed and participating is clear.  As one non-financial leader put it, “I understand the need to know the numbers, but I don’t see the same effort from finance leaders to understand my areas.”  By moving beyond the numbers and increasing their genuine understanding of the other areas, finance teams can enhance the role they play in making their organizations strategically successful. 

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5 Ways to Prepare for Tough Conversations

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7 minute read – The following blog post was written by c. myers and originally published by CUES on March 20, 2024.

 

It seems like there are innumerable tough conversations to be had in the workplace for situations like mediocre performance reviews, cancelled projects, peer feedback…  These 5 tips will help you prepare ahead of time, so you’re positioned for better outcomes more often.

Before getting into the tips, there’s a type of tough conversation that deserves special mention – tough conversations that never happen.  These tend to be the ones that aren’t required in the strictest sense, but they often have great potential.  After all, a cancelled project must be discussed, but telling someone that their body language makes them seem disinterested is a conversation that could, but shouldn’t, be avoided.  The tendency to avoid or postpone can be especially strong when the subject is something personal or embarrassing.  If you’re thinking, I’d want to know if it was me, then remind yourself that the conversation is a gift – not a burden – that you can bestow.

Also, a word about timing.  In most cases, issues that call for tough conversations should be handled sooner rather than later.  However, use common sense in scheduling ample time to have the conversation and to process it.  For example, timing it right before a stressful presentation wouldn’t be ideal.

Now for the tips.  There are a variety of skillsets that are helpful in having tough conversations, but preparation is one of the keys:

  • Practice makes better
    • The more tough conversations you have, the easier and less uncomfortable it will become. Just like any other skill, repetition usually leads to improvement.  Don’t expect it to go perfectly but do take time afterwards to think through how it went and what you could have done differently to make it go better.  Remember you’re building skills, not just trying to survive it.
    • Roleplay can be extremely effective because it helps you practice a specific conversation ahead of time. Enlist someone to play the other person, then switch roles.  The conversation won’t go the same as the roleplay, but it’s invaluable for deeply considering different points of view.
  • Clear objectives
    • Get as clear as you can about why you’re having the conversation and what you’re trying to accomplish. Writing it down for yourself can help keep the discussion focused, as these things have a tendency to go in unexpected directions.  For example, if someone is consistently missing deadlines, an objective could be to encourage them to reprioritize so they can get more things done on time so the organization can move on it’s strategy more quickly.  This will result in a different conversation than one where the objective is to get the person to communicate better and sooner about roadblocks so they can be handled more quickly and efficiently.  Different still is the conversation when the objective is to communicate the seriousness of the issue, find out what is causing deadlines to be missed, and decide on actions to take.
  • Stick to the message
    • Now that you’re clear on the objectives, decide on the message you want the person to receive. Thinking about this in advance increases the chances of the message landing the way you want, even though it’s not completely in your control.  Don’t dilute the message during the conversation.  Confusion can creep in when people attempt to soften the blow or broaden the conversation with other messages.
    • What is the desired minimum outcome of the conversation and what is the ideal outcome?
    • What tone is needed from you as you deliver the message? Delivering a tough message in an overly soft tone can be confusing and an overly harsh tone may cause the message to be lost in the delivery.
    • Clarify the points you want to make to support the message. Think about the essential facts, events, timelines, etc. the person needs to know and make sure any supporting information or examples are at your fingertips.  Stick to your strongest points – quality examples over quantity is key.  Also identify questions that you want to ask.  It’s not unusual to have some missing information that needs to be filled in.
    • Think through what questions the other person might ask and what points they may make.
    • Identify any non-negotiables ahead of time so there isn’t confusion. If the person is being transferred to a different position and that decision won’t be changed, it’s best to be clear on that coming into it.
    • What potential solutions or action plans are you prepared to suggest?
    • What do you need to see and hear from the other person that will let you know if they are clear on what you are trying to communicate?
  • Be curious
    • Tough conversations are typically tough because you think – right or wrong – that the other person will find it hard to hear what you have to say. This means that you may be on different pages, which makes it critical to be prepared to listen and be open to what is going to be said.  It could change your mind.  Be curious so you can learn and see the situation through a different lens.  That said, keep the non-negotiables in mind.
  • Emotions check-in
    • Take a moment to consciously think about your emotional state prior to the conversation. Check in with what’s happening in your body, too, since that’s a reflection of your emotional state.  The idea isn’t to eliminate emotions, but to be aware of them.  A check-in may reveal that you’re nervous because you don’t want the person to dislike you.  It’s good to know that this is a source of your discomfort.  Acknowledging it can help put it into perspective.
    • Also, think about how you want the other person to feel during and after the conversation. Recognize that you don’t have control over how the person receives the message or feels, but thinking about it in advance and being intentional in the delivery increases the chances of a better outcome.

Regardless of the reasons for your tough conversations, these 5 preparation steps can help bring more successful outcomes.  The conversations won’t always go as planned, but with preparation and more practice, the better and less uncomfortable they will be.

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Strategic Planning: Areas of Focus for the Senior Leadership Team

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4 minute read – In a previous blog, we discussed shifting from the traditional approach to strategic planning toward a more continuous approach in order to help your team be better prepared for the unpredictability of tomorrow.  If you haven’t read that blog, we recommend starting there.  This blog outlines some of the important topics that have come out of strategic planning sessions in which strategic thinking has played a significant role.  The following topics are just a few sparks for conversations.  As you approach these topics, practice incorporating the mindset tips from the previous blog: 

  • Data and Business Intelligence – The world is estimated to have generated 120 zettabytes of data in 2023.  (For those of us not familiar with the term zettabyte, one zettabyte is equal to a trillion gigabytes and one gigabyte is about 350,000 emails.  That’s a lot of data.)  The average financial institution does not have access to quite that much data but compared to even just a few short years ago, we are swimming in data.  Having said that, raw data does not provide much insight so for many of our clients the focus is on how to utilize data through business intelligence.   
  • AI Governance – If you have looked at the news headlines in the last 18 months, you have probably heard about ChatGPT and know that AI has become the buzz across numerous industries.  We believe that AI is a powerful tool that can be harnessed broadly within the financial industry from in-depth Business Intelligence to enhancing call center experience. However, like any powerful tool, it is essential to establish policies, practices, and rules that govern how to manage, develop, and use AI.  While engaging in discussion around AI governance, consider bias risk, fairness, and safety.  And don’t forget that AI policy needs to include third party usage – how are your vendors engaging with AI and how do you mitigate those risks.  Keeping your organization’s purpose front and center can help you determine what policies are right for you and your consumers.  
  • Talent Development – This is not a new topic for most organizations but with the aforementioned shifts in the world of data and technology, the conversations around talent have changed.  Financial institutions are rethinking their organizational structures, taking a strategic approach to people planning, and acknowledging that the future of roles and responsibilities are open to changing along with the world at large.  Many places are approaching talent development with a focus on critical thinking and adaptability, upskilling precious talent.  No one knows what the future will bring but we do know that it will require individuals and organizations to think differently.  
  • Growth – Similar to talent, this isn’t necessarily a new topic, but organizations are changing how they approach the topic.  It has become essential that financial institutions are clear on what is meant by growth and the why behind it.  Growth can be measured in membership, assets, loans, branch, revenue, digital footprint, and more so it’s essential that organizations are clear what kind of growth is important and the implications of working towards that growth.  Consider environmental factors and the cost of growth.  The KPIs of the past ten years may not be as relevant given the rapid and complex pace of change.  Bringing stakeholders together to determine what growth looks like can help link strategy, financial performance, and risk tolerance. 

These are just a few of the areas of discussion that financial institutions have been pushing their thinking.  The crucial component to each of these discussions is to be willing to imagine and prepare for multiple futures beyond the next 12-18 months or even the next 3-5 years.  Acknowledging that how the financial industry has functioned for the past three decades is transforming, can enable the thinking behind strategic planning to advance by leaps and bounds.