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Strategic Alignment, Structure, and Managing Change

When we talk about “centralizing” in business and commercial banking, its often received with a negative connotation. Centralization to many implies reorganizations and layoffs. This session is intended to educate attendees on centralization initiatives, communicate the potential upside, potential downside, and dispel myths that are often associated with this dichotomy. The session will also discuss if and when centralization efforts should be contemplated by financial institutions, steps/best practices in doing so, potential change management/cultural implications, and what parts of the organization should be involved. Lastly, the session will secondarily address portfolio segmentation efforts necessary to achieve efficiencies.

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STRATEGIC ALIGNMENT,
STRUCTURE, AND MANAGING
CHANGE
Josh Thompson – Baker Hill, Advisory Services
Thomas Bennett – SVP, Risk Strategic Initiatives Officer
Confidential & Privileged DocumentConfidential & Privileged Document
Business banking at Rabobank
Confidential & Privileged DocumentConfidential & Privileged Document
“Centralization” – the what and who
• What does the word “centralization” mean to you?
– Centralization relative to loan underwriting, loan decisioning, and
ongoing portfolio management
– Consumer and Small Business portfolios and community-sized FI’s
• Not for every function and for every financial institution
– Hybrid model typically works best among most mid-sized community
financial institutions
Confidential & Privileged DocumentConfidential & Privileged Document
What factors drive centralization?
• Size, footprint, organizational culture
• Strategic initiatives
• Risk appetite
• Composition and profitability of loan
portfolio
• Experience level of bankers/BDOs
• Investment and comfort level with
technology
Confidential & Privileged DocumentConfidential & Privileged Document
Pros of centralization
• Standardization, automation, objective
approach
• Specialization, quicker turnaround
times, lowering cost structure and
generally promoting higher profitability
• Efficiencies in the allocation of work
• Eliminates replication of work
• Regulatory environment
Confidential & Privileged DocumentConfidential & Privileged Document
Potential downsides of centralization
• Can limit open communication, sharing of ideas?
• Human resource challenges
– Attracting and obtaining top-tier talent?
– Silos?
• Inhibit creativity – “group think?”

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Strategic Alignment, Structure, and Managing Change

  • 1. STRATEGIC ALIGNMENT, STRUCTURE, AND MANAGING CHANGE Josh Thompson – Baker Hill, Advisory Services Thomas Bennett – SVP, Risk Strategic Initiatives Officer
  • 2. Confidential & Privileged DocumentConfidential & Privileged Document Business banking at Rabobank
  • 3. Confidential & Privileged DocumentConfidential & Privileged Document “Centralization” – the what and who • What does the word “centralization” mean to you? – Centralization relative to loan underwriting, loan decisioning, and ongoing portfolio management – Consumer and Small Business portfolios and community-sized FI’s • Not for every function and for every financial institution – Hybrid model typically works best among most mid-sized community financial institutions
  • 4. Confidential & Privileged DocumentConfidential & Privileged Document What factors drive centralization? • Size, footprint, organizational culture • Strategic initiatives • Risk appetite • Composition and profitability of loan portfolio • Experience level of bankers/BDOs • Investment and comfort level with technology
  • 5. Confidential & Privileged DocumentConfidential & Privileged Document Pros of centralization • Standardization, automation, objective approach • Specialization, quicker turnaround times, lowering cost structure and generally promoting higher profitability • Efficiencies in the allocation of work • Eliminates replication of work • Regulatory environment
  • 6. Confidential & Privileged DocumentConfidential & Privileged Document Potential downsides of centralization • Can limit open communication, sharing of ideas? • Human resource challenges – Attracting and obtaining top-tier talent? – Silos? • Inhibit creativity – “group think?”
  • 8. Confidential & Privileged DocumentConfidential & Privileged Document Portfolio segmentation – the 80/20 rule • Over 80% of relationships are <= $500M • However, only make up just over 1/4 of outstandings Rel. Range ($M's) # Rel. Cumm. % Total ($Ms) Cumm. % 0-50 638 34% 9,865$ 2% 50-100 253 48% 12,270$ 5% 100-250 380 68% 40,876$ 13% 250-500 267 83% 68,899$ 27% 500-750 129 90% 55,762$ 39% 750-1,000 48 92% 35,741$ 46% >1,000 145 100% 261,567$ 100% Total 1,860 484,980$
  • 9. Confidential & Privileged DocumentConfidential & Privileged Document Portfolio segmentation – the 80/20 rule • Use 80/20 rule to define or refine “Small Business” segment • Aggregate commercial exposure • Best practice to employ centralized functions Data Entry Underwriting & Decisioning Due Diligence Documentation Portfolio Management
  • 10. Confidential & Privileged DocumentConfidential & Privileged Document Portfolio segmentation – the 80/20 rule • Size & complexity dictate segmentation • Gradual steps toward further centralization is critical to ongoing success • Executive-level support drives pace and extent of evolution
  • 12. Confidential & Privileged DocumentConfidential & Privileged Document The Complex Change Model Strategy Work Processes Company Culture Information Systems Human Resource Policies Organization/ Structure
  • 13. Confidential & Privileged DocumentConfidential & Privileged Document Kotter’s 8-Step Change Model 8. Institutionalize New Approaches 7. Show Improvements & Produce More Change 6. Plan for & Create Short Term Wins 5. Empower Others to Act on Vision 4. Communicate Vision 3. Create a Vision 2. Form Powerful Guiding Coalition 1. Establish Sense of Urgency
  • 14. Confidential & Privileged DocumentConfidential & Privileged Document Why change?
  • 15. “There are many ways of going forward, but only one way of standing still.” - Franklin D. Roosevelt

Editor's Notes

  1. Josh Intro the session, intro Thomas Bennett – SVP, Risk Strategic Initiatives Officer
  2. Thomas Strategy and Configuration Review, Portfolio Segmentation with Baker Hill Thomas: Speak to some of the centralization efforts with small business lending at Rabo.
  3. Customer experience -> customer satisfaction -> employee satisfaction -> profitability Takeaways Segmentation When was the last time you evaluated your bank’s processes? Do you have a strategy? – Has it been communicated? Continual cycle – improvement never ends