Moving From a Branch-Based Hierarchy to a Retail Bank Structure

As smaller banks develop from domestic service providers into larger or regional banks with high growth aspirations and targets, many find themselves trapped in a structure that inhibits growth and standardisation, and which compromises efficient replication of the business model. This article examines the issue of expansion, and suggests ways in which to support growth strategies with the appropriate organisational structure in order to ensure a successful expansion process.

Smaller, locally-focused, community-driven banks pride themselves on their ability to understand their customers' needs, and to deliver high-quality, relationship-based, one-on-one service to all of their customers. Customer service is their key differentiator, and their services are typically delivered through a hierarchical, branch-based structure, headed up by a local manager. This guarantees an excellent focus on customer needs and delivery at local level, but too often means that the needs of the expanding organisation cannot be met.

The most significant problem with a branch-based hierarchy that is tasked with managing regional operations is that the expanding organisation finds it increasingly difficult to achieve growth targets. Product development suffers due to a lack of co-ordination and ownership. Sales targets are all too often based on the previous year's achievements, and there is little or no focus on overall business development. Individual roles and responsibilities become "customised" in each area, which makes incentives and promotions difficult to manage.

Inevitably, this affects the bank's competitiveness a situation like this, the local, branch-based bank has reached the classic growth-phase dilemma described by Greiner(1). It is faced with the challenge of moving from a focus on growth driven by creativity - and dependent on individualistic and entrepreneurial management - to growth driven by direction, which requires a centralised structure, a directive management style, and standardised, controlled systems.

What is not clear to many smaller organisations is how to achieve the necessary shift from one focus to the other, or even what the benefits of doing this would be.

Examining the issues

Organisational growth and the continued ability to deliver

There is little doubt that successful smaller banks in developing markets are able to achieving double-digit growth, often reaching over 25% per annum, even in these trying times.

However, without a suitable structure within which to manage this growth, these smaller banks are finding they are unable to efficiently and effectively allocate resources in key areas. This is often exacerbated by limited formalised processes, as each local manager manages his or her own regional structure and customer base according to its specific needs, and this, in turn, leads to a blurring of roles and responsibilities, as well as to competent resources being overstretched.

Performance management and enhancement

In any organisation it is important to be able to answer questions on how the organisation is doing, and to be able to respond to changes in performance and in the trading environment based on a common understanding of the metrics and data. Questions as to how well the organisation is performing, why certain results have been achieved, and what the organisation should be doing in a given situation are all part of a measurable, transparent and process-driven approach to doing business. This, however, cannot be achieved through local management of data, customers and sales.

The centralised, functional management of customers, products and channels is essential in order to facilitate growth into new regional markets, as is a standardised value proposition that meets the needs of all of the bank's customers, and allows it to compete effectively with larger banks that have entered the local market.

Continued growth can only be achieved through regional and product-driven sales targets, which extend from business unit level to branch staff, and cover all products from both an asset and liability point of view.

Developing customer value propositions across a region

Although smaller banks pride themselves on the level of service they deliver to their customers, the concept of an overall customer value proposition that incorporates elements such as appropriate products, pricing, service levels, delivery channels, risk management and branding, is less clearly understood, and may even be impossible to implement in a branch-based hierarchical structure.

Only centralised analysis of customer data, aimed at determining the characteristics of target customers, can enable a bank to develop a comprehensive value proposition. It is also vital that this proposition, once developed, be delivered in a standardised, cost-effective way that continues to meet customer expectations. Cost and efficiency implications in a regional environment mean that delivering a one-on-one service to all customers, and escalating all queries and complaints to a senior manager for resolution is no longer practical or even desirable. With a larger, more diverse and geographically disparate customer base, integrated, streamlined systems and processes are required to deliver products and services to targeted individuals and groups.

Product development

Further, as the delivery of products and services through web-based and mobile channels increases, more and more focus is being placed on the development of new products to meet the specific needs of individual customers.

This, of course, requires an integrated effort that encompasses IT development, business process design and new risk management processes. Simply enhancing existing products, or designing new products that use existing systems and technology, does not enable banks to maintain competitiveness in a world of ever-changing technological enhancements. A centralised product development and product ownership model must exist in every regionally-focused retail bank in order to ensure that products and services remain on a par with those being offered by competitors.

It is also important that any new products be aligned with the bank's value proposition, and that there is a formalised product development process to ensure that this takes place, as well as to ensure that risk and compliance requirements are met.

In a bank servicing a regional customer base, the responsibility for product economics and profitability should lie with the product owner, in a centralised structure that provides for the centralised setting and monitoring of sales targets. Appropriate negotiations with channel owners should then be used to ensure that these centrally-developed products are marketed at the right pricing and service level to support the bank's value proposition.