A Roadmap for Effective Strategic Planning

Thursday, January 20, 2022  |  Greg Ulankiewicz


There is a common expression that “failing to plan is planning to fail,” but simply having a plan does not guarantee success. Many financial institutions periodically go through the exercise of strategic planning. To do that effectively, it is important to have the right approach to developing your strategic plan.

Data, Data, Data

Data is at the heart of effective strategic planning. It provides objective insight, allows for continual measurement and guides refinement of the plan. Data should include relevant operational and performance metrics along with trends and benchmarks to provide context.

Validating the importance of data, a study by McKinsey Global Institute found data-driven organizations are six times as likely to retain customers, 19 times more likely to be profitable and 23 times more likely to acquire customers than their non-data-driven competitors. Let’s look at five key areas where financial institutions should leverage data to inform their strategic planning.

  1. Understand Today’s Environment

For financial institutions, understanding the current environment entails factors such as economic growth – nationally and locally – interest rates and industry trends. If economic growth is robust or modest, how does that influence the institution’s growth strategy? If interest rates are rising or falling, how will that affect pricing decisions and optimal portfolio mix? How does the financial services industry look today compared to prior years? Which trends are structural or persistent versus others that are transitory or fleeting? Answering these questions provides your institution with a macro-level perspective for informing your strategic plan.

  1. Determine Your Competitive Position

Benchmarking your performance against select peers allows your financial institution to determine the strengths, weaknesses and differentiators in your business model compared to your competition. For this exercise, identify peers in three key areas:

  • Strategic peers – Institutions that operate a similar business model involving factors such as comparable loan mix, funding strategy and off-balance-sheet income
  • Geographic peers – Institutions that operate in your local markets or desired markets
  • Custom peers – High performers, merger and acquisition targets, and online competitors.

Publicly available financial data is clearly useful, but you should also consider other sources of comparative information that can offer more granular insight beyond institution-level financial performance. A program such as Performance Analytics from Raddon provides a variety of benchmarks, including accountholder demographic mix, individual product performance and depth of household relationships. Bank Intelligence Solutions from Fiserv combines financial analysis, market analysis and expert advice to help maximize a financial institution’s opportunities.

Armed with this knowledge, your financial institution can readily identify strengths that must be preserved, along with areas of improvement and opportunity.

  1. Understand Your Accountholders’ Perceptions

Without customers, businesses have no purpose of existing. And without adequately serving customers, strong business performance will prove elusive. An effective strategic plan must include efforts to understand your accountholders’ perceptions. The most obvious way to obtain this insight is through surveys. But what does it mean, for example, if 42 percent of your accountholders say they are very satisfied with your mobile banking? This is where benchmarks prove critical, and programs such as Raddon Relationship Survey can inform your financial institution if that 42 percent is better than, worse than or on par with peers.

  1. Evaluate Opportunity in the Marketplace

The first step in evaluating your market position and opportunity is to define the appropriate geography for each market. Branches located in more densely populated areas may have a more narrowly defined geography than branches located in suburban or rural markets. After defining the market geographies, identify the number of competitors in each market to determine what your share of the market should be. Which competitors hold a greater share of the market and where does your institution rank compared to those competitors?

Also measure the market growth potential for loans and deposits – both retail and commercial. There are a variety of services available, such as Bank Intelligence Solutions, to help quantify market growth potential, often through the demographic makeup of the market.

Market household demography should also be understood. Which markets have an older or younger population? What are the household incomes and rate of homeownership in each market? How is each market’s demography projected to shift in future years? With an understanding of the market demography, identify which segments in which markets have untapped growth potential based on the segment’s product propensities.

From a commercial banking perspective, you need to know what industries dominate your markets. Do your products, services and messaging align with the needs and expectations of those industries?

Once you’ve established a comprehensive profile for each of your markets based on the above criteria, tailor your strategy for each market based on your current share of the market and the market’s growth potential. For instance, in markets where you hold a strong market position and there is strong market growth potential, the strategy should focus on cross-sales to drive both continued growth and profitability. Conversely, in markets where you have weak market share and growth potential is limited, you will need to rationalize your presence in that market and consider consolidating or removing office locations.

The following chart further illustrates how financial institutions should approach each market’s strategy. The triangles represent individual branch locations and their related market growth and market position metrics based on the geographies defined for each.

  1. Identify Metrics for Ongoing Measurement

The final component of the plan for effective strategic planning is to identify metrics for ongoing measurement. Consider ratios and benchmarks related to growth, efficiency and profitably. How is your growth trending versus peers? Is your share of your accountholders’ wallets improving? How well are you leveraging expenses to drive revenue and efficiencies? Is your return on assets (ROA) improving faster than peers?

Executing the Strategic Plan

Once the strategic plan has been codified, it is important to establish a process for implementation, ongoing measurement and process repetition. This ensures the organization continually adheres to the plan and can adjust it in a timely manner as conditions change. Perhaps the most important aspect of the execution process is to clearly communicate the strategy to all associates to ensure the organization is moving together. Associates who are not fully aware of the strategic priorities and the reasons the plan is in place can quickly undermine the ability for the financial institution to achieve its intended goals.

Failing to plan may indeed be planning to fail. Embarking on a planning exercise without having the right plan in place for doing so may only be slightly better.

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