OPTIMIZATION vs. GROWTH

When it comes to management, we are always looking for ways to increase the bottom line. My
observation is that most CEO’s or Managers automatically go to the obvious, GROWTH, right? STOP!
While cooking breakfast this morning, I was listening to the podcast “Smart Passive Income”. The
podcast host, Pat Flynn, was hosting Paul Jarvis author of Company of One which is a very misleading
title, but that’s for another day. Listening to the podcast gave me the idea for this blog and how I could
use it to relate to Community Banking and in doing so how can I could provide added value to my current
clients and anyone else who reads this.

So, why not concentrate exclusively on Growth? The new buzz word for businesses as it relates to
Banking is Scalability but I believe we may be missing a step. After listening to the podcast this
morning, I asked myself, “What if, in most cases, we have it all wrong or at least we have it in the wrong
order”? I turned to an indirect mentor and book I often refer to when thinking about a subject. That
would be The Road Less Stupid: Advice from the Chairman of the Board, by Keith Cunningham. So I
read a couple of related chapters on Growth.

I realized we are missing the boat by focusing solely on GROWTH! Banks think they need to grow their
loan portfolio in order to achieve the desired level of compound earnings. Time and time again when we
are in Community Banks performing Loan Reviews and other related services for our clients the subject
of strategy comes up. And inevitably, the number one strategic subject that arises is GROWTH. After
Thinking about Loan Reviews, Credit Analysis, ALLL Reviews and Analysis, I realized as an industry,
we are NOT OPTIMIZING the assets we already have. As Mr. Cunningham describes it, “we just build
another machine.”

Suppose that you are the CEO of a mining company. You operate one mine at a time until the lode plays
out and then you move on to the next site. Sometimes you might get to thinking that you need to move on
to the next site more quickly and maybe increase your production. Maybe, maybe not! After all you
already have the mining equipment in place. You have already done the site work and you have built the
tunnels, shafts and transportation infrastructure necessary for production. So why be so anxious to move
on when you haven’t fully leveraged the assets you already have in place.

In Banking, it appears we look for the next new mouse trap that will create external GROWTH, but it
appears we absolutely avoid OPTIMIZING the systems and/or processes that we already have in place.
Long-term growth is not sustainable for any business, including Community Banks, without also
OPTIMIZING their existing systems and processes. Part of OPTIMIZING systems and processes is
instilling disciplines inside those systems and processes before Strategic Growth should occur, but it
doesn’t seem to work that way.

What we should be doing is OPTIMIZING Credit Analysis on new or renewed loans, OPTIMIZING our
servicing processes and credit administration systems. And we should be utilizing Data Mining on our
current customer base to create internal GROWTH. I would guess there is so much more opportunity
inside your own loan portfolio to hit your growth strategies for the next several years, but we miss
OPTIMIZING what we already have, and we go search for the next best mouse trap, GROWTH!

If you are interested in OPTIMIZING your loan portfolio and your customer relationships, MCSWAIN
CONSULTING can help!