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  • JP Nicols

3 Moves to Make in Your Bank’s Budget Now

Updated: Aug 31

We are entering another strategic planning and budgeting season, this one amid more unpredictable circumstances than ever before. An emerging “K-shaped recovery” scenario is already starting to create wildly different outcomes-- positive for some, negative for others; and even within those directions, a steeper curve for some and shallower for others.


We have been getting a lot of questions from board members and senior leaders about the best way to move forward in the face of such uncertainty. Two central goals of this annual process should be 1) to chart a course intended to create maximum long-term enterprise value, and 2) allocate what are always limited resources to the activities most likely to advance you farthest along that course. With those goals in mind, here are 3 counterintuitive moves you should be making now to separate your institution from the pack:


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Don’t Slow Down, Speed Up

You might be inclined to slow down and delay bold action given so much uncertainty, but you can’t afford to just sit back and just see how things unfold. The answers you need to win are not in your conference rooms or forecast models. They are out in the market, and you need a better way to find them and incorporate them quickly into your planning and your day-to-day activities. You need a disciplined and urgent focus on uncovering and meeting the changing needs of your customers and prospects.


This starts with building flexibility and agility into the planning and budgeting process itself. If you require a full business case and financial forecast before you can decide whether to move forward with a new initiative, you’ll be stuck in circular internal meetings while your top competitors are already in the market getting the answers and building market share.


You need to break down high-stakes projects into smaller actionable pieces to be able to turn those questions into answers quickly and cheaply. Internal teams have to be empowered with the ability to act urgently on what they learn without unnecessary bureaucracy and with risk management practices scaled appropriately to support flexibility and agility.


Pick one or two of your most important customer initiatives and figure out your biggest questions. What’s the most important thing to know in order to be successful with this? What has to be true in order for this to work? What’s the most likely way this could fail? Then figure out the fastest and cheapest way to get answers to these questions. It might be testing a simple prototype with your target customers, it might be simple customer interviews, it all depends on the questions you need to answer.


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Usually it’s best to test questions around the potential customers and gaining a deeper understanding of their wants and needs and how to fulfill them. Questions around the technical feasibility or business economics can usually be solved one way or another, but there is no easy solution if you’re not focused on something your customers care about.


This is about launching new solutions faster, but it can also help you figure which projects to kill sooner. We’ve seen teams happily relieved to scuttle multi-million dollar projects after investing some minimal but well-spent resources with potential customers up front. Whether you end up more quickly launching or killing your new project, you’d be surprised how much you can save by spending a few dollars and a couple of months before you commit to any specific solutions.


Don’t Bet Against the Long-Term Trends

As you think about how to answer the biggest unknowns, think also about what you do know. You know that, like everything else in our lives, all aspects of banking have been becoming more digital and more mobile for well over a decade now. Customers of all types and all ages are increasingly comfortable using digital technology, and the pandemic forced most of the stragglers to finally cross that Rubicon.


Straggling bankers crossed along with them as they were forced to serve customers in new ways, with many pleasantly surprised by the results of even their improvised efforts. Think about how your team and your customers adapted during the early days of social distancing, and think about how you can build on that to meet changing customer needs and preferences.


We are hearing from many institutions that current branch traffic is a tiny fraction of prior volumes, and it appears unlikely to come all the way back for a long time, if ever again. You need to take a hard look at branch locations and activities to free up valuable resources. Look at reinvesting some of the savings into ATMs, ITMs, mobile banking, chatbots, and other digital tools that can meet customer needs more efficiently. These long-term trends are not going away, no matter how we are able to move past a pandemic, and now is the time to double down.


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Find Spots to Play Offense

A recessionary environment, falling revenues, and rising credit costs are all good reasons to take defensive measures like rationalizing branches and other non-interest expenses, but don’t ignore the unique opportunities to play offense now. It takes both offense and defense to win over the long run, and it’s important to understand the differing implications for each.


The overarching objective in playing defense is not losing. That includes cutting costs, but also taking defensive actions to blunt the impact of competitors, such as digitizing basic transactions and servicing. Only a handful of institutions with big teams and budgets can truly vie to win the digital arms race. Sometimes ‘good enough’ really is good enough, so any efforts that go beyond achieving parity in some areas amount to a waste of limited resources that could better be reallocated towards other objectives.


Playing offense is all about winning, and that means finding opportunities to build and maintain real differentiation from the competition. The biggest risk when playing offense is backing off the gas before you cross the finish line. That’s not to say that whoever spends the most always wins, but any resources conserved through avoiding waste in playing defense should be considered for reallocation to make sure that offensive moves achieve victory.


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Smaller institutions in particular like to tout their intimate customer relationships and perceived superior customer service when they talk about ways to win. Too often they also cite that advantage to explain their reluctance to lean too far into digital banking because they fear this might dilute those intimate customer relationships (both real and perceived). This is a false choice.


You can win through digital relationships, and examples abound, but you need to find out how to do it the way that works for you and your customers. This is exactly where the best opportunities are to play offense and win, and this is exactly why you need to allocate resources now for urgently meeting customers’ needs and preferences that are changing in the post-pandemic world, especially in light of K-shaped divergent paths. Differentiate to win.


Times of great change are also times of great opportunity, and the time to act is now.


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