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Success factors for fixing the bank

When channel switching on TV, I always tend to linger on three programs: Kitchen Nightmares with the always-profane Gordon Ramsey, Restaurant: Impossible with Robert Irvine, and Bar Rescue with Jon Taffer. Each host operates as a consultant dealing with booze or food rather than financial issues, but the situations they address, their approach to problem solving and the type of recommendations they provide offer some relevant lessons for bankers.

When initially introduced to the restaurant, bar or hotel under inspection, these three diagnose the situation and quickly develop a game plan. Typically, they find some combination of outdated approaches, poor management, uninspired or incompetent staff, internal dysfunction and lack of understanding of profit dynamics. Irvine and Taffer will supplement their own experience by bringing in hands-on expertise in areas such as design, construction, cooking and mixology. These outside resources can make specific recommendations that can be implemented quickly if management follows through – although that’s a big if.

Time and, in some cases money pressures, intensify the effort. While the shows all last 60 minutes, the protagonists seemingly (with some pre-show preparation) have only a few days or at most a week to turn around a crisis situation. That is one reason “converting” an often-intransigent owner plays a critical role in the change process. Breaking down the owner’s mindset is step one and some episodes show failure in this area. My own experience suggests that breaking down a senior banker’s mindset is even more difficult, since bankers do not face the life or death situation that many owners do with their businesses.

What are some of the success factors these programs identify?

Consistency. “Consistency is so important! If you’re not consistent, you won’t be successful,” says Jon Taffer. Likewise, Gordon Ramsey: “If there’s one thing I respect, it’s consistency.” Yet, banks continue to allow many individuals to determine their own jobs. For example, at one institution we know, established rules for the size of loans different bankers handle can be ignored by those bankers based largely upon their personal preferences and desire to increase their incentive payout. This can result in insufficiently trained bankers writing incomplete credit memos, leading to decision backlogs and customer frustration.

Simplify. A review of the drink and food menus on these shows often results in shrinking them, as these experts emphasize doing fewer things well increases the number of returning customers. Banks continue to suffer from product proliferation with product groups sometimes creating new offers without input from the line. The problem is that line bankers, like waiters and bartenders, may know customer needs best.

Teaming. The nature of a restaurant or bar is that its operation demands teamwork. A star or solo mentality undermines the customer’s experience. Banks need to continue to emphasize teaming and destroy the silos that dominate many banks. Relationship planning and teaming should become second nature across a bank.

People. Sometimes, the outside experts on TV highlight the need to fire a bartender, manager or chef. Staff needs to be both onboard culturally and also possess the requisite skill set. Owners need to deal with difficult personnel situations that may require moving out a friend or long-time employee. Tenure cannot be allowed when survival is at risk. These are facts that bankers often ignore. Many banks shift failed employees from one position to another rather than making the appropriate exit decision. They may be doing the employees a favor but the bank burdens itself with a heavy weight. Too many bankers allow paternalism to stand in the way of profitability, something a restaurant owner cannot afford to do.

Leadership: act like an owner. In many cases, the owners featured on these shows have given up or become reactive in the face of day-to-day challenges. Ramsey, Irvine and Taffer then challenge the owner to step up, engage fully, confront past mistakes and make the necessary decisions required for successful change. Today, more than ever, bankers appear reticent to make decisions in which they stick their necks out, even for good reason. Many bankers think no decision serves them better than the risk of making a wrong decision. Leadership is often in short supply in an era in which leaders can have a substantial positive impact.

Follow through. “You can have an opinion and be stubborn, but if you follow the plan that’s set out in place for you, by me, you will succeed,” Irvine told one owner. Banks often start to travel down a path of change and then, three to six months later, switch direction in light of execution difficulties or internal resistance. Many fail to follow through. Perhaps even worse, we see bankers assessing their success at implementing change and giving themselves high marks despite their actual performance. Change within a bank takes time and requires commitment and an independent scorecard.

Technology. As part of their solution, the TV experts upgrade technology, providing point of sale (POS) systems and other tools to manage workflow and track performance. However, they introduce these tools only after they address organizational, personnel, and other more fundamental issues. Importantly, these tools, once introduced, are not optional. Everyone has to use them if they are to work at the restaurant or bar. Compare this to some bankers still being allowed to choose if they wish to opt into using sales management and similar technology, an unacceptable approach for success.

Metrics. Each of the program experts focuses on the numbers. How much does each food item cost? Which dishes have the highest profit margins? How well does management know its per-seat breakeven point? This requirement carries over perfectly to banking, where profitability of products and business lines should be essential knowledge but is frequently unknown. Too many restaurant owners and bankers fail to delve into the numbers.  

“My work is done.” Jon Taffer often ends his episodes with that catch phase right before he exits, a culinary version of the Lone Ranger riding off to the next crisis. He has set up the bar for success but then he leaves, not to return. That’s understandable as each show needs to go on to the next story. Unfortunately, too often the same situation occurs with banks and how they respond to consulting. Making recommendations and creating an implementation plan also sets up a bank for success. However, recommendations are the beginning of a change process, one that will take months or years to become part of a company’s fabric. Banks need to ensure that implementation remains on track once the official project has ended. Some banks decide to retain a consultant on a part-time basis to revisit and assess progress.

One fundamental difference between restaurants and banks is that restaurant rescues benefit from an intensity that seldom exists within a bank. Owners know or come to realize that their back is against the wall and act accordingly. Bankers would benefit from operating with a similar sense of urgency and a willingness to act based upon an outsider’s targeted expertise that provides clear recommendations and paths to profit.

Mr. Wendel is president of New York City-based FIC Advisors, Inc. He can be reached at [email protected]