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Where consultants can add value

The relationship between bankers and consultants is inevitably fraught with tension. I happen to know because I’m a consultant.

Let me try to be objective about this. On one hand, bankers can recount many tales of consultant overreach and ineffectiveness. On the other, consultants can reasonably argue that many projects fail because bank managers are not committed to the project they paid for and/or lack the will and skill to implement the recommendations. My take: consultants can provide great value, but the circumstances need to be right for them to be effective.

Here are some anecdotes from both sides of the divide:

Bad consultant story 1: Years ago, a consulting colleague related what Charles Sanford, then chairman of Bankers Trust in New York, said to him about his firm: “You guys do great work. But getting you to leave is like trying to get gum off the bottom of your shoe.” In other words, the consultant works all possible angles to try to keep billing the hours.

Bad consultant story 2: At the beginning of my consulting career, working for a major name firm, a partner told me the following story: A senior consultant returns from vacation. Two junior consultants are waiting outside his door to meet and update him on their clients. The first consultant enters and says that over the past few weeks he and his team had solved his client’s problem; the client agreed with the recommendations he provided and had begun to implement them. Therefore, the assignment could be considered a success. Then, the second consultant enters. Basically, he tells the senior consultant that in recent weeks his client’s problem had become more complicated so he had to add staff to the assignment and lengthen it by several months.

The partner made clear to me that the second consultant was the one who really understood how to be a successful consultant – again, keep the billing clock ticking.

Bad client story 1: We completed a project in which we gave our client very specific recommendations concerning steps they needed to take and even personnel changes that were critical to the bank’s success. Three years later we were brought back in because management still had not acted on most of the recommendations, even though they agreed with them. The client had wasted a lot of time and money. This situation has occurred more than once in my career. Good for our cash flow but not good for the client.

Bad client story 2:  A client signed on for a data analytics project in which we provided detailed and valuable information about both current clients and prospects. However, the organizational structure did not change, although it needed to; underperforming staff stayed in place, although changes were necessary; and compensation was not altered to encourage more effective actions. The analytics were first-rate, but the changes required to take advantage of them never occurred because the bank’s structure and approach were misaligned with execution requirements. Data and CRM firms share some of the blame for this, pushing product, sending a bill, but failing to deal with the bigger issues that drive a bank’s success.

A pox on both houses: At a large firm I spent time working for the old Chase Manhattan on a retail banking issue. As the study began, we learned that two other bank units beyond the one we were working for had hired separate consulting firms to look at the issues from their perspectives. The self-interested bankers and consultants were all failing to put the bank’s interest first. Lots of billing dollars resulted, but little positive impact occurred.

In my experience, consultants and their clients succeed when the project’s focus is clear, end deliverables are transparent and detailed and the bank’s management shows a commitment to change. Consultants have the responsibility to actively avoid potential clients that do not have the capabilities, the culture or the courage to act on recommendations. Life is too short for wasted efforts.

Ironically, it is often the best managed banks that leverage the independence and insights that a strong consultant or consulting firm brings. Institutions that may need consultants the most are typically the least able to appreciate and take advantage of them. Mediocre and poorly performing banks need outside help, but may lack the self confidence and management depth to know how to use it; oftentimes, these banks are too intimidated and/or defensive to welcome a more provocative perspective.

Here are three specific areas where consultants can prove of value to banks:

Strategic reviews. Hardly a new area but one in which management needs more help than ever in assessing how to manage through changes in competitors, generational shifts, channel development and branch issues. Banks also need to have a flexible approach that allows them to “pivot” in light of market circumstances. Recently, I received a call from a bank that wanted to develop a strategy for the next five years, exactly the wrong approach in a world in which those years will bring multiple surprises. (That bank also claimed to be “really good at implementation,” usually a sure sign they are not.) An outsider can help banks to identify the key issues that need to be addressed and redesign the organization to make it more flexible to changing circumstances.

Alternative finance. Many banks now recognize that alternative finance is here to stay, and they are trying to determine how to work with these companies in a cooperative rather than competitive way. But, the alternative finance industry continues to develop with new approaches and new players entering regularly. Bank management needs a guide who can help highlight the options available to them as well as assess the strengths of various players. Questions include:

  • Should banks work with a direct or marketplace lender?
  • Which alternative lenders have the best compliance infrastructure?
  • Which lenders offer a turnkey approach for banks?
  • What is the reputation of the various players?
  • What new approaches or changes are emerging that banks should be aware of?

An outsider with specialized knowledge who focuses on this area brings great value. Given the amount of activity in this space, many banks do not even know what they do not know, perhaps missing out on the best approach for their bank.

Information Technology (IT). Managing IT and building a responsive technology organization has continued to grow in importance throughout my consulting career. Many banks are overly dependent on the big technology vendors who sometimes limit the options and choices available to them. Top management often yields control over this critical area to internal IT specialists who may be too close to the vendors. But, increasingly, the best banks understand that the business heads and IT need to work together as seamlessly as possible. Banks need third-party help to structure their approach to this area and determine how best to work with the multiple IT vendors required to ensure flexibility.

Before the 2008-2009 downturn, many banks were overusing consultants. When the downturn hit, some consultants went on the endangered species list as banks cut costs. While skepticism by bankers remains appropriate, the value provided by an independent voice, one with demonstrated expertise, access to industry best practices and an intense focus can give management increased leverage and help to shift the bank to a more profitable and sustainable path.

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