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Building Your Own Best Business Model. 2014 NDBA/SDBA National Convention. Where We’ve Been. Roaring 20’s Great Recession “New Normal”. Prolonged “New Normal” Environment. - PowerPoint PPT Presentation
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Joseph H. Cady, CMCManaging Partner
(858) [email protected]
1
Building Your Own Best Business Model
2014 NDBA/SDBA National Convention
© CS Consulting Group LLC, All Rights Reserved. 2
Where We’ve Been
Roaring 20’s
Great Recession
“New Normal”
© CS Consulting Group LLC, All Rights Reserved. 3
Prolonged “New Normal” Environment
Most banks: shifting customer needs; weak loan growth; low rates; increasing costs & regulations; strong competition; compressed margins; & reduced earnings
But some banks have & continue to do well!
How are they doing it? What about their business model?
Lessons for the rest of us?
© CS Consulting Group LLC, All Rights Reserved. 4
The Top of Mind Issue for C-level & BODs Today
KPMG study: 90% of banks are re-evaluating their business models (BM)
Next questions: What constitutes an effective BM in today’s environment? How do I get my bank there?
© CS Consulting Group LLC, All Rights Reserved. 5
What is a Business Model & Why is it Important?
Defined: How a bank creates, delivers & retains value
Importance: Determines the way and how much money you make
Components:– LOB segments & structure
– Customer acquisition methods
– Customer interactions
– Internal structure & performance
– Delivery channels
© CS Consulting Group LLC, All Rights Reserved. 6
The Best Business Models: Unique Study Aims
Examine those top banks that have continued to succeed, despite tough climate & peers failing
ID effective BMs in today’s environment: commonalities & differences
Can the best be emulated? Lessons for your bank
(Copy of study results are available upon request)
© CS Consulting Group LLC, All Rights Reserved. 7
How the Top 1% of CBs Perform (mean assets = $196M)
Metric Top 50 CBs Mean$50-999M National
Mean
6 year ROAA (2006-
2011)2.17 .57
Efficiency Ratio (EOY
2011)50.25 73.58
ROAE (EOY 2011) 18.68 4.14
NIM (EOY 2011) 4.91 3.95
NPA/Total Assets (EOY 2011)
1.94 3.24
% of Core Deposits (EOY 2011)
92.56 90.78
© CS Consulting Group LLC, All Rights Reserved. 8
Key Findings: One or Many Business Models?
Traditional community banking is alive & well! (80%)– Business & retail operations
– Serving local communities; rural & some urban; many 100+ years old
– Standard products & services
– Strong referral networks
Niche players in urban areas also prosper (20%)– Niches include CRE, mortgage, ag, & asset based lending
– Local, regional, & national focus
© CS Consulting Group LLC, All Rights Reserved. 9
Lending LOB Breadth
80%
14%
6% 0%
Diversified
Niche Focus
Single Product/MonolinePrimarily ServiceOriented
© CS Consulting Group LLC, All Rights Reserved. 10
For Niche Focused (20%) , Describe Type of Niche
70%
20%
10%
0
1020
30
4050
60
7080
90100
Speciality Product SpecialityIndustry
SpecialityCharacteristics of
Client
High Net Worth/Private Banking
50%
© CS Consulting Group LLC, All Rights Reserved. 11
Primary Value Proposition (check up to two)
15%
23%
38%
92%
0 20 40 60 80 100
Product/ServiceInnovation
Pricing; Rates &Terms
Convenience
Relationship/Intimacy
© CS Consulting Group LLC, All Rights Reserved. 12
Structure & Pursuit of Credits (adj. to pricing, LTV, underwriting)
0%
42%
58%
AggressiveModerateConservative
© CS Consulting Group LLC, All Rights Reserved. 13
Typical Sales Orientation
83%
17%
Indiv. Products &Services; Sold One AtA TimeMultiple/BundledProducts & Services;Active Cross-sell
© CS Consulting Group LLC, All Rights Reserved. 14
Internal Core Competencies (check all that apply)
7%13%
13%27%
27%33%
33%
33%
40%
53%
67%93%
0 20 40 60 80 100
Training/Development
Planning
LOB Differentiation
Reg. Compliance
Effective Technology
Int. Controls
Organiz. & Structure
Compensation
COF/Sources
Leadership
Staffing/Productivity
Cost Efficiency
© CS Consulting Group LLC, All Rights Reserved. 15
Most Valuable BM Elements (forced ranking; 1-3)
1.73 1.82
2.45
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2.6
2.8
3
Execution Structure/Architecture
Alignment
© CS Consulting Group LLC, All Rights Reserved. 16
BM Changes with Recession & New Normal
9%
73%
18%
No ChangesSmall AdjusmentsMajor Revisions
© CS Consulting Group LLC, All Rights Reserved. 17
Degree of Competition
15%
23%
46%
15%
0
10
20
30
40
50
60
70
80
90
100
IntenseStrongModerateLittle/None
© CS Consulting Group LLC, All Rights Reserved. 18
Case Study: #1 Bank Nationally
Merchants Bank of Indiana (Indianapolis, IN)
Assets = $608M
LOBs = Primarily business bank w/ niche focuses (private, ag, & mortgage)
6 year ROAA = 4.51
BM/USP = Custom products; personal bankers; responsiveness; come to your office; experience; rapid growth/acquisitions; efficiency (35.80%)
© CS Consulting Group LLC, All Rights Reserved.
Business Model Design – Framework for Optimization
19
Compare BusinessModel (BM)
Architectures
ID current BMstructure in 5 keycategories
Compare againsttop performinginstitutions (usingexclusive CS data)& local peers
ID gaps to address
MonitorPerformanceImprovement
Identifyactionabletasks, toeffectchanges
Establishmonitoringprocess
Ensureinstitution isachievingdesiredchange
ImplementShifts to
Business Model
Tailor changesto your uniqueenvironment &new normalmarket needs(customers,regulatory,economy)
Find right BMformula &pathway foryour institution(LOBs,structural,processes,financial)
Implementnecessarychanges
IdentifyPossible Shifts,
to OptimizePerformance
ID possible BMstrategies &shifts
Considerstructure,alignment, &executionelements
Carefully weighpros & cons;prioritizechanges
StudyCompetitivePositioning
ID positioningvs. peers &marketconditions
Identifystakeholderrequirements
Compareviability vs.valuerequirements
Confirm longterm viability& minimumresultsacceptable
Business Model Architecture
CS Framework for Optimization
Copyright CS Consulting Group LLC
© CS Consulting Group LLC, All Rights Reserved.
Step 1: Study Competitive Positioning Identify positioning vs. peers & market conditions
– Environmental assessment
– Current vs. expected future performance
Identify stakeholder requirements
Compare viability vs. value requirements
Confirm long term viability & minimum results acceptable
Go/no go decision
20
© CS Consulting Group LLC, All Rights Reserved.
Step 2: Compare Business Model Architectures
Identify your current BM structure in 5 key categories– Map it!
Compare against top performing institutions– See CS study data
– Local peers (similar size & LOB market)
Identify gaps to address– Running vs. changing vs. reimagining your bank
21
© CS Consulting Group LLC, All Rights Reserved.
Map Your Current Business Model
22
© CS Consulting Group LLC, All Rights Reserved.
Step 2: Compare Business Model Architectures
Identify your current BM structure in 5 key categories– Map it!
Compare against top performing institutions– See CS study data
– Local peers (similar size & LOB market)
Identify gaps to address– Running vs. changing vs. reimagining your bank
– Bank of the future: What do my customers want?
23
© CS Consulting Group LLC, All Rights Reserved. 24
What’s Important for Being the Best
Customer closeness; going the extra mile (key performance driver)
Highly efficient & productive (key performance driver)
Best at your niche
Strong leadership; passion
Avoid intense competition
Control asset quality
Strong margins
Strong referral network
© CS Consulting Group LLC, All Rights Reserved. 25
What’s Not So Important
Lowest loan rates & best terms (price leader) [Deloitte study]
Aggressive structure & pursuit of credits
Most convenient
M & A; external growth
Retail/consumer bank in urban areas
Custom products & services; multiple/bundled
Extensive staff training & development
Employee stock ownership
Frequent, significant shifts to business model
© CS Consulting Group LLC, All Rights Reserved.
Step 3: Identify Possible Shifts, to Optimize Performance
Identify possible business model strategies & shifts
Consider structure, alignment, & execution elements
Carefully weigh pros & cons; prioritize changes
Reconcile LOBs vs. customer requirements vs. core competencies
– Produce value?
– Avoid complacency
– Substitution risk?
Internal or outsourcing/partnering functions
26
© CS Consulting Group LLC, All Rights Reserved.
Step 4: Implement Shifts to Business Model
Tailor changes to your unique environment & new normal market needs (customers, regulatory, economy)
Find right BM formula & pathway for your institution– LOBs
– Structural
– Processes & systems
– Financial
Implement necessary changes– Map it!
27
© CS Consulting Group LLC, All Rights Reserved.
Map Your Future Business Model
28
© CS Consulting Group LLC, All Rights Reserved.
Example of a Top 1% Business Model
29
© CS Consulting Group LLC, All Rights Reserved.
Step 5: Monitor Performance Improvement
Identify actionable tasks, to effect changes
Establish monitoring process
Ensure institution is achieving desired change
30
© CS Consulting Group LLC, All Rights Reserved. 31
Final Considerations
Not final word on business models
Must tailor solutions (e.g., relationships or niche focus)
No magical solutions or reinvention or one BM fits all
Use 5 step process to build your own best business model
Easy work now done (cost cutting, LOB shifts)
Tough work now ahead: Being a more effective competitor
Benefits of being the best; and costs of being ordinary
Which path for your bank?
© CS Consulting Group LLC, All Rights Reserved. 32
For More Information…
Joseph Cady
CS Consulting Group LLC
(858) 530-8250
www.CSConsultingGroup.com