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The following article appeared in Bank News, April 2000.

STRATEGIC PLANNING INTO THE NEW MILLENNIUM

As the banking industry continues its evolution, the need for strategic planning becomes more critical to help assure the long-term viability of each bank.  Strategic planning is equally important for community banks and nation-wide bank holding companies.
Strategic planning is defined as an organized process of developing and implementing specific objectives to focus the future efforts of an entire organization.

The initial step in the strategic planning process should involve requesting input from all employees concerning the issues they feel are most important to the future of the bank.  Information should also be gathered concerning customer relationships, product structure and profitability, economic conditions in current and prospective markets, and various financial performance ratios.  This information should be used to develop the agenda for the strategic planning conference.

Most community banks involve directors, officers and in some instances, first-line supervisors in the strategic planning conference.  It is important to involve the employees who will be responsible for the implementation of the strategic objectives in the conference.  In this way, they develop ownership because they participated in establishing the objectives.

A bank’s first formal strategic planning conference should involve fourteen to sixteen hours of structured discussions to develop the bank’s specific objectives for the future.  After the first year, it should be possible to update the strategic plan each year with an eight hour planning conference.

There should be three phases to the strategic planning process.  A bank should first understand its Strategic Position.  This involves analyzing the bank’s internal operations, including existing policies, procedures, information processing and product profitability.  It also includes an external assessment of current and prospective customers and the economic environment.  This phase should include a SWOT analysis of the bank’s strengths, weaknesses, opportunities and threats.

The second phase is to determine the bank’s Strategic Direction.  This involves defining future operating philosophies and policies, establishing corporate objectives and developing the strategies and action plans to accomplish these objectives.

The third phase is the Technical Strategies.  This is when the bank integrates the strategic objectives with its financial planning and budgeting process and its asset/liability management.
 
The discussion during the conference should cover all issues that are relevant to a particular bank.  Some of the issues that could be considered are:

Profitability – stockholder satisfaction with the return on their investment, utilization of capital, asset quality, asset-liability management and the structure and pricing of loan and deposit products.

Organization Culture – management philosophy, sales and marketing orientation, referral programs, training, management succession planning and incentive compensation programs. 

Organization Structure – retail, commercial, credit, operations, and financial.

Technology – core processing systems, network administration, hardware and software upgrades, marketing central information files and training.

Customer Demographics – ages, utilization of services, and wealth transfer.

Customer Satisfaction – customer opinion surveys, focus groups and cross sales.

Market Demographics – urban, suburbs, and rural.

Locations – traditional branches, grocery stores, discount stores, shopping malls and the Internet.

Products – analysis of cost and profitability of each loan and deposit product, merchandising, non-traditional products and tiered pricing of deposits.

Competition – nation-wide organizations, regional organizations, local organizations, brokerage firms and insurance agencies.

Image and Reputation – financial stability, local decision making, community involvement and progressive attitude.

Legal and Regulatory Issues – competitive barriers, compliance and safety and soundness.

For many years, senior management in most banks consisted of a senior loan officer and a senior operations officer reporting to a chief executive officer.  However, today even small community banks have begun to develop a more refined organization structure. 
This change in the organization structure is the result of banks becoming more focused on customer needs and credit quality.

Most banks have determined that the needs of retail (non-business) customers are different than the needs of commercial (business) customers.  A position for senior retail sales officer is created to coordinate residential real estate lending, consumer installment lending, marketing, personal trust services, investment services and teller and new accounts services.  A corresponding position for senior commercial sales officer is created to serve the needs of business customers for loan, cash management, leasing credit card and deposit services.

A position for a senior credit officer is created to oversee the largest portion of most banks’ assets, it’s loan portfolio.  This position has responsibility for loan review and grading of credit quality, credit analysis, collections, loan documentation preparation and maintenance and loan compliance.

In the area of customer satisfaction, banks should consider conducting a customer opinion survey every two years.  This is a key method to help determine the opinions of customers concerning the quality of existing services and the need for new services.  The survey can also identify problems within a specific branch or department.

A bank must consider who will be its customers in the future.  Will they be from the WWII Generation (age 65 and over), the Swing Generation (56 – 64), Baby Boomers (33 – 51), Generation X (19 – 32) or Baby Boomlets (under age 19)?

The age of a bank’s current or prospective customer base will help to determine the types of delivery system that must be available to serve these customers. The WWII Generation, and to a lesser degree, the Swing Generation are still very high touch. These customers will want to visit a bank and handle transactions on a face-to-face basis.  Since the vast majority of a bank’s retail deposits come from these two customer segments, some banks have developed private banking centers to assist high-balance customers.

The Baby Boomers feel very comfortable using ATM services, telephone banking and computer banking.  Their need for face-to-face service may only become necessary when they wish to utilize loan services.

The Generation X and Baby Boomlets are high-tech and require little, if any, face-to-face service.  These two customer segments grew up with computers and feel as comfortable using the Internet as the telephone.  A bank must provide Internet service to attract and retain this customer segment.

Which customers in the future will be interested in utilizing investment services, trust services, insurance, Internet banking, specialized loan products or specialized deposit products?

Customer profiles have changed significantly in recent years.  Some of the statistics which must be considered are: 45 years of age is approximately when people begin to save a larger portion of their income; the death rate doubled between 1995 and 2000; since 1992 there have been more single parent households than dual parent households; and since 1990 there have been more second marriages each year than first marriages.  A bank must be alert to modify its products and delivery systems to adjust to these changes.
Consideration should be given to how products will need to be packaged.  The products could be stand-alone, club accounts, generation relevant, high-touch or high-tech.

The bank must also determine whether products and services will be delivered through traditional branches, mini branches, the Internet, ATMs, automatic loan machines (ALMs) or video banking centers.

When the strategic planning conference has been completed, and the objectives of an organization have been determined, these objectives should be communicated to all employees.  Task forces should be established to develop potential strategies and action plans to accomplish each objective.  Then a comprehensive implementation timeline should be developed.

A strategic planning steering committee should be formed to monitor on at least a quarterly basis the progress on attaining the strategic objectives.  Formal quarterly status reports should be prepared to document the progress.

All employees should periodically be updated on the organization’s progress toward attaining strategic objectives.

The organization should formally update its strategic objectives on an annual basis.  In some instances, previous objectives will be reaffirmed and continued.  However, new issues will always surface which must be considered.

Many organizations already utilize an annual strategic planning process.  However, for organizations which have not conducted a formal strategic planning process, the time to begin is NOW.