Optimization vs. Growth

by David McSwain

When it comes to management, we are always looking for ways to increase the bottom line.  My MLK jr McSwain-2observation is that most CEOs 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  I could provide added value to my current clients and readers.

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, 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 re-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 mousetrap 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 mousetrap, GROWTH!

Community banks, if you are interested in OPTIMIZING your loan portfolio and your customer relationships, MCSWAIN CONSULTING can help.

 

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You Should Read This: Bank 3.0 by Brett King

41AzJecTO+LAs I’ve written about here in my personal journey through banking from my childhood in the 70’s to present day, banking has done more than “change” or “evolve” – it’s practically morphed from a noun to a verb. As Brett King says in his book, Bank 3.0, banking is quickly becoming something we “do” not somewhere we go.
From online transactions to apps to stand-alone ATMs, the days of standing in line and getting a sucker or gum at the counter are becoming a thing of the past. My role as a banking consultant is to look for what’s ahead to help prepare banks for success, not just survival.
Find out more about Bank 3.0 here. 
From the Publisher:
In BANK 3.0, Brett King brings the story up to date with the latest trends redefining financial services and payments—from the global scramble for dominance of the mobile wallet and the expectations created by tablet computing to the operationalising of the cloud, the explosion of social media, and the rise of the de-banked consumer, who doesn’t need a bank at all.
BANK 3.0 shows that the gap between customers and financial services players is rapidly widening, leaving massive opportunities for new, non-bank competitors to totally disrupt the industry.
“On the Web and on Mobile, the customer isn’t king—he’s dictator. Highly impatient, skeptical, cynical. Brett King understands deeply what drives this new hard-nosed customer. Banking professionals would do well to heed his advice.”
Gerry McGovern, author of Killer Web Content
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David McSwain is an Oklahoma bank consultant and president of McSwain Consulting providing loan risk management solutions, loan reviews, and bank consulting services to community banks in Oklahoma, Texas, and Kansas.