In recent weeks, we have had several client discussions around the issue of whether separate dedicated groups should be formed to focus on specific market opportunities; for example:
 
-         Do larger middle market companies merit a dedicated focus?
-         Should industry groups be formed to emphasize a bank's commitment to certain sub-segments?
-         Should small businesses be handled separately from lower-end middle market names?
 
In each case, our view has been that a separate initiative will more effectively contribute to revenue without disrupting the internal organization.
 
The August 10^th Financial Times presented an article focusing on this topic: "A tough choice; to split up or stay together." Its theme is "groups must weigh the benefits of focus against those of unity." The author offers eight diagnostic questions that are relevant to bankers and other financial services industries.
 
1. Is the activity focused on a different product or market segment? As banks continue to try to differentiate themselves they need to rely more on product packaging, positioning, and service. They also must move well beyond words to excellent execution around these and similar requirements.
 
A segmented focus on an industry, a demographic group, or a certain size company (for example, microbusinesses versus core small business) requires an intensity of focus that will likely be diluted if that focus is spread over multiple areas.
 
2. Does the activity depend on a different source of advantage? To quote, "It is hard for one unit to focus on multiple sources of advantage…there are only two sources of advantage: low cost and differentiation…Organizations are more effective if they focus on one source of advantage." Expecting the RM to handle both lower-end and larger middle market companies demands that the banker and the organization stretch in too many directions. The product needs, servicing requirements, and profit potential are distinctly different for those two groups. The most effective bank's approach to lower-end middle market companies is increasingly becoming closer to how it executes against small business. Larger companies require more timing for opportunity diagnostics and detailed follow-up.
 
3. Does the activity require a different culture? Splitting small business from middle market or consumer is an easy choice. Splitting a segment out raises more issues. However, we are not suggesting separate fiefdoms in which the silo tendencies of banks are further encouraged. Importantly, small banks, as well as the biggest, can emulate this approach. In some cases a "split" may involve one person who becomes the "go to" man or woman for a particular industry, acting, in effect, both as product expert and the hub for the bank's activity.
 
4. How difficult are the synergies? The issue here is that "synergies are usually considered impossible without integration." Not so. This is a risk and, again, silos must be avoided. Management needs to be involved here to make certain that the personnel selected for these new spots and their compensation works to encourage cooperation.
 
5. What is the best for accountability? In the writers words, "The smaller the unit the greatest its focus and motivation. Separation, it seems, is good for accountability." Number generation may be an integrated and centralized process, but responsibility is "split." Banks should know how the low end of small business performs versus upper end, how small business activities in the branch match up with the SBBO's (small business banking officers) results, how specialized industries are performing, how different segments within wealth management are driving returns. This is all basic stuff; however, we find that both the data and even the desire to create it are all too rare within banks.
 
6. Do we have the people? Specialized employees can develop an economy of focus that can lead to an improved knowledge base and an ability for them to differentiate themselves with customers. The alternative is to continue to "stretch" employees in directions they cannot go -- for example, the branch manager who has to add on sales responsibility to everything else or the banker who must call on the small and large customers.
 
We have heard managers say, "We already do this. We make sure that the best RMs are matched with the toughest accounts." And they may, but what is really required is an institutional approach rather than one that depends on individual capabilities or preferences.
 
7. How important is flexibility? The customer wants flexibility, but banks are notoriously inflexible. Unfortunately, the typical banker is much better at explaining why he (usually it is a he) cannot do something rather than finding a way to get something done. Breaking through this psychological constraint is a hallmark of the best banks and, in our experience, the big banks are way ahead of community banks in doing so. This is a major argument for splitting groups into smaller units and creating new cultures.
 
8. Are there any constraints? Of course, banks operate with multiple constraints tied to regulations, cost, skill bases, etc. Any changes need to be evaluated within the context of this "fact." But going back to number seven, the "winner" mind set is one in which management thinks how to avoid or go around constraints rather than allow them to be roadblocks to success.
 
Final thoughts. It seems easier to manage an organization that operates with few units or sub-groups. However, we believe the potential payoff to banks of increasing their "split ups" more than compensates for management inconvenience. Banks need to unleash creativity and sales energy. This is one organizational approach for doing so.