The following article appeared in Bank
News, April 2000.
STRATEGIC PLANNING INTO THE NEW
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
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:
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
Organization Culture –
management philosophy, sales and marketing orientation,
referral programs, training, management succession planning
and incentive compensation programs.
– retail, commercial, credit, operations, and financial.
Technology – core
processing systems, network administration, hardware and
software upgrades, marketing central information files and
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
Products – analysis of
cost and profitability of each loan and deposit product,
merchandising, non-traditional products and tiered pricing of
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
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
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
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
All employees should periodically be
updated on the organization’s progress toward attaining
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.