Surviving the Treadmill
By Steve Klinkerman
The pressures for rapid growth are tremendous, but so too are the risks.
Are performance pressures getting out of hand? In late 2000, a study by BAI and Xchange Inc. found that an "alarming" proportion of front-line employees and managers in banking say their companies push them to sell beyond customers' needs. Reinforcing that conclusion, a completely different study released this spring by Schneider Sales Management and the University of Colorado stated, "approximately half of sales personnel in large financial service organizations believe that they are encouraged to 'push' products that clients don't need to meet sales quotas."
A lot of factors go into this, but one of the root problems seems to be unrealistic expectations for growth. Somehow, financial service executives have been placed in the position of trying to expand their institutions faster than the economies they serve — and do so indefinitely. Everyone wants to out-perform the market, but aggressive growth does introduce a variety of risks.
Credit risk would rank at the top of any lender's list. During the Texas banking and thrift crisis of the late '80s, for example, regulators routinely blamed failures on rapid loan growth. Other types of operating risk include breakneck merger consolidations and shoot-from-the-hip technology ventures, both of which have proved fatal for careers and even whole companies in recent years. The common theme in all these situations was that change occurred too fast for the company to absorb on a day-to-day basis.
Relationship risk is another drawback of hyper-growth. In calmer moments, we realize how hard we've fought just to put current businesses in place, and how important it is to nurture our best relationships. Then the growth gremlin strikes. Management attention and organizational resources are strained to the breaking point. Established businesses and relationships suffer, as do new ventures. Customers are disappointed all around.
So how can senior managers stay grounded as they tackle the growth challenge? One key is to stand for something other than dollars and cents — something distinctive that connects with customers. There are lots of interesting ways to focus organizational energies, including excellence in products, distribution and service, an emphasis on certain psycho-demographic segments, and so on. But you can't race down each and every avenue. A skillful strategist is a selective one.
Staying in touch matters as well. The Holy Grail in financial services is organic growth, or expansion that is achieved without having to resort to acquisitions. This requires an excellent interplay among employees and customers. Once managers become senior executives, however, they tend to become isolated from the very customers and employees whose cooperation and support they need to achieve their most important goals. This is a powerful tendency that must be steadily resisted.
It's also important to control excessive optimism and outsized expectations. A BAI/First Manhattan study published last year showed how bankers' internal growth projections often sharply exceed those of the analysts who cover their institutions.
Within this context, perhaps organizational stress fractures — such as reports about pressures to sell beyond customer needs — can serve as an early warning system that things are moving too fast. Merrill Lynch & Co.'s recent $100 million fine over its sales practices is reason enough for everyone else to stay watchful.
Mr. Klinkerman is editor-in-chief of Banking Strategies.