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David Kerstein Aug 1, 2019

Your 2020 budget: Budging to maximize results

Believe it: We’re already starting to think about 2020 budgets. Perhaps you are, too. But it’s also that time of the year when we tighten up for the fourth quarter, so we can assume the strongest position going into the new year—and begin to pin down those new year’s numbers.

This process always eats up time but to what end? For all the effort, survey after survey reveals that more than half of executives believe their company's approach could and should improve.

Most indicate their plans accurately describe the current situation and challenges: a traditional “SWOT” (situation, weakness, opportunity, and threat) analysis. But the common complaint almost always centers on the time overspent on “where we are now.” Compare the short shrift on efforts to prioritize and operationalize critical strategic initiatives that really drive the business forward.

We must get the balance right.  Compared to the past, the speed of change has accelerated to the point where time, far from a luxury, is now a scarcity soon be measured in days as opposed to quarters.   

With increased competition from bigger, deeper pocketed competitors defining the competitive framework, the time has come to reevaluate our market positioning. Consumers and small businesses are also changing how they use financial services, leading us to rethink our distribution channels. Technology innovation and sophisticated data management? That’s moving forward at warp speed, causing us to assess investments and skills we need to stay relevant, and attract a younger demographic.

A better approach applied

Our point of view: Typical planning models successfully define paths to achieve short-term goals but fall short in helping management to make needed changes that address our industry’s rapid evolution. Granted, we need to nail both: to create success now while aggressively changing to position us for even greater future success. But planning and budget models require a fresh approach.

Traditional planning moves in increments—starting from the current situation as it aims to achieve modestly achievable improvements. The pathway to success can easily be mapped; for example, “10 percent improvement year over year.” We propose an alternative: aspiration-based planning that springboards from a vision of the future we want to achieve and then unpacks it into specific, time-based actions.

Here, we don’t mean high-sounding mission statements such as “provide superior return for our stakeholders,” “be the financial institution of choice” or “provide superior customer service.” What does that mean? Better return on assets than industry average? Top quartile peer performance? Highest regional JD Power customer satisfaction score? Best bank for millennials or small businesses?

Stepping back, how do we get where we want to go? Our model starts with a timeline that transcends the typical planning cycle, so we can break free from perceived budgetary, personnel or technology constraints. While real, these constraints often concern perceived limitations rather than insurmountable roadblocks. 

Eight steps: How the best performing organizations do it

  1. They avoid incrementalism, the “last year plus 10 percent” syndrome. Start with the goal and work backwards to determine near-term strategies to accomplish it. The most effective organizations don’t just identify and fix known problems: They identify the future results they desire and create solutions to achieve them.
  2. At the same time, they are realistic. Do the homework. You can’t make necessary changes or assign required resources without objective assessments of market opportunity, financial potential and internal capabilities.
  3. They do a deep dive on risks. Don’t just make a “threats” list as part of your SWOT analysis; rather, do a “pre-mortem” on the decisions you make. Take time to step into the future and write an imaginary obituary—the reasons why the plan failed. Then establish strict controls over identified risk factors.
  4. They focus. It’s not just what you decide to do but also what you choose not to do. In most organizations the greater problem involves deciding which good ideas have lesser value and should remain unrealized, or which current activities should stop in order to redirect resources towards higher value opportunities.
  5. They avoid getting diverted by short-term opportunities that distract from the long-term goal. In every business, new ideas or new investments come up. Take a clear-eyed view as to opportunistic versus strategic decisions. Will they distract or enhance your long-term strategy? If you buy that cast-off or struggling branch from another bank will you still be happy with the decision five or ten years on? Or will it divert resources better spent on building a digital engine to strengthen your long-term value? 
  6. They execute.  The best performing organizations implement rapidly and effectively. They recognize that a good plan in action far outweighs a great planning document that isn’t a living part of your business. Identify accountabilities for key objectives and make sure they stay on track.
  7. They update plans monthly and quarterly. They regularly monitor implementation and consistently realign for effectiveness; after all, your business is not static but dynamic and changing.
  8. They communicate, communicate, communicate. Everyone—internal and external stakeholders—must grasp the goal, their part in accomplishing it and the organization’s effectiveness in achieving results.

Getting there won’t be easy; even the best banks may fall short on one or more of these strategies. But in an age of rarified time we still have some weeks to adjust—bearing in mind, of course, that our best 2020 budgets require 20-20 vision.

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David Kerstein is President of Austin, Texas-based Peak Performance Consulting Group, which specializes in helping community and regional banks grow. He can be reached at dkerstein@ppcgroup.com.

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