Fit for future - Herculean tasks for banks

The ECB's zero interest rate policy has had a dramatic and direct impact on the business model of almost all traditional banks. Above all, the clear signals from the new ECB President Christine Lagarde that the low interest rate policy will not change for many years to come underline the urgency of seriously addressing this issue. At the moment, the business model is mainly based on net interest income from accepting customer deposits with shorter maturities at a lower interest rate and granting customer loans and investing in securities with longer maturities at a higher interest rate. That no longer works.

Even hitherto successful banks, which in the past had always managed to achieve acceptable results through commission income and non-interest-related business areas, thus creating the basic prerequisite for continuing their business activities, are falling continuously in terms of operating profit before valuation as a result of the ongoing low-interest policy. In mathematical terms, the necessary minimum operating result will be undercut in 3 - 5 years in many banks, although considerable efforts to reduce costs have already been made in recent years.

Now it is time to get down to business. It is unavoidable to reduce costs even further, with considerable pain, while at the same time creatively seeking new sources of income through innovative products and by making greater use of the potential of existing products. The scope for investment is very limited and new risks must be avoided at all costs. This is an extremely strategic balancing act in which many banks are largely inexperienced.

Added to this is the permanently high burden of regulatory requirements imposed by the supervisory authorities, which are becoming increasingly stringent and thus tie up important internal financial and human resources.

A further challenge for banks is to secure their competitiveness against new and more flexible providers of financial products that act like speedboats and bring technical innovation to market in shorter cycles. By contrast, when it comes to IT innovations, the banking organization is often dependent on the speed of implementation of its central IT service provider. A considerable backlog of applications is already evident here, and despite great efforts, it will not get any shorter in the foreseeable future.

After all, banks, just like almost all other companies, are struggling with the fact that both employees and customers expect ever greater flexibility, dynamism and individuality. And all this at highly attractive conditions. In terms of current and future employees, this means that a strong employer brand will be of existential importance for banks as well. Even if many banks will have to manage an increasing volume of business in the future with fewer employees for cost reasons, it is imperative to retain the top performers and to find new top performers in a targeted manner. For some years now, it has been noticeable that the people you so urgently need in your workforce are no longer queuing up. The shortage of skilled workers is a cause for concern and the image of the banks has been massively tarnished. An intelligent and credible employer branding is more important than ever and will require considerable efforts from the banks.

New thinking is required, new work is "without alternative".

Each of the challenges described above would already be a massive challenge for the banks. However, the accumulation of all challenges at one time overburdens many of those responsible. It also leads to the conviction that these problems in their entirety and drama cannot be solved with the experienced and familiar management methods.

With an intensification of the practiced management procedures of planning and control, of incentive and reward, of power and obedience, the hamster wheel may turn faster, but there is no strengthening of the organization. On the contrary. The organisation overheats and people get sick or leave the sinking ship before it does.

Promising new ways can be found in the methodological case of "New Work". Magic words such as agility, self-organization, sense orientation, resilience, responsibility culture, etc. promise a way out of the jungle of complexity and ambiguity, but here too many banks are breaking new ground. Is now the right time to practice new methods? Doesn't the whole force have to go into the Herculean tasks already described?

It is our firm conviction that these very concrete, existential Herculean tasks can only be solved with the targeted application of new working methods and tools. The energy available in the organization and its people must be unleashed. This can only be achieved with a new "mindset" of leadership, from "above" through all levels of management. People only change when it is worthwhile or when pain threatens. The latter is obviously the case. However, this is exactly what gives us a good chance to recognize the urgency of the situation and is the decisive trigger for a change in the attitude and behavior of all managers. "Our Iceberg is melting", says change management expert John P. Kotter, and it is as clear as daylight to almost all those responsible in the banks.

So the question is not whether the corporate culture needs to be modernized first or whether the Herculean tasks need to be solved first. It can only be done together. The Herculean tasks must be solved using new leadership and management principles, and in doing so, the principles of trust, responsibility, sense orientation, agility and self-organization in digestible but noticeable doses must be applied. "Walking" then successively gives rise to the action competences that will be of existential importance in the future. 

The noventum consulting approach

noventum consulting has been familiar with the New Work principles and design possibilities for one and a half decades. As a three-time winner of the Great Place to Work competition in Germany and as Great Place to Work ambassadors, noventum organizational consultants also know from many exchanges of experience with other excellent employers how to create a culture of trust, performance orientation and responsibility. And it is precisely this culture that is important for remaining successful and innovative in today's world.

The strategic realignment of a bank involves the following aspects:

• New business potential must be tapped through greater customer orientation, possibly also with partners from the business eco-system who would benefit from closer cooperation with the bank. This is the classic cross-innovation approach along the basic needs of the relevant customers.
• All employees who can and want to do this must take on more responsibility within the regulatory framework. Modern companies can simply no longer afford to overly hedge along the hierarchy pyramid. It takes too long, costs too many resources and demotivates the top performers.
• When developing new business ideas, products or business areas, a faster pace is required, where ideas can be tried out and adapted in short cycles. This creates the opportunity for continuous learning and further development.
• The containment of overflowing internal control and coordination procedures is indispensable for leaner processes. The ability to trust plays a central role and becomes a decisive competitive advantage. Of course, all compliance requirements must be met in this context, but this does not contradict the principle of a culture of trust.

Meetings, coordination rounds and committees are time consuming. In many places they have to be streamlined and in some cases can even be completely eliminated. By using information technology, selecting the right participants and checking their eligibility, meetings can be held more quickly and highly efficiently. A smart communication and exchange system must be developed for the dissemination of important information.

The concrete procedure of noventum consulting

In the sense of change management, the first thing to be made clear is the drama of the situation. This task is the responsibility of a bank's Board of Managing Directors, which, together with its controlling experts, must develop long-term financial scenarios. As a rule, if the ECB's interest rate policy is foreseeable, the scenarios will predominantly represent a falling curve that will intersect the line of minimum operating profit in the next 3 - 5 years. This can be compared to a plunge with a predicted impact. As most banks are still hierarchical, we recommend that the Executive Board first analyses and discusses these critical scenarios with the direct next management level.

Since averting the impact is usually only possible by simultaneously changing the cooperation model, a "cultural inventory" must be taken at the beginning of the process of strategic reorientation. noventum uses its Corporate Culture Check (UKC), a structured self-audit of 95 possible instruments for shaping a modern corporate culture, to systematically assess the cultural maturity of a bank. The self-audit should be carried out by the board of directors and the next management level. The interpretation is provided by noventum. Based on the financial scenarios of the bank's management board and the structured corporate culture self-assessment, we recommend that a management board meeting be held together with noventum to "stage" the subsequent steps. This essentially involves preparing and conducting a 2-day workshop to initiate all the important measures for redesigning the organisation, reducing costs and discovering new earnings opportunities. 

Preparation of the workshop / strategy meeting:

Approx. 1 week before the workshop, which is attended by the executive board, the next management level and noventum consultants, the management clarifies the situation to the next management level in a special meeting. It announces that the Bank is in a "downward spiral" and that a considerable earnings gap will arise in the course of the coming financial years. This earnings gap should be named specifically, as it will later be a very important point of reference. At this point it is important to create a sense of urgency and to draw a common picture of the current critical perspective. In this special session, the Board of Directors assigns "homework" to the next management level. These should develop their own ideas about the potential for increasing results by the time of the workshop. Topics are sales/profit increase, organizational optimization, cost reduction, innovation and corporate culture.

Strategy meeting with the board of directors and the most important multipliers:

The 2-day strategy retreat takes place in a very interactive form in an inspiring environment. If there are about 20 participants, the moderation will be carried out by two noventum consultants with culture change management competence.

A proven, exemplary agenda is as follows:

Follow-up of the workshop / strategy meeting:

After the strategy meeting, the results and the work progress are documented physically or electronically on a wall similar to the Kanban board. The participants of the strategy meeting should be able to view the strategy wall at any time. Other employees should be included, provided that there are no highly sensitive topics to be clarified on the strategy wall.

In order to control progress, an agile coach must be appointed for the project organization to ensure that overriding sprint reviews and sprint planning take place consistently and thus maintain concentration on the measures. 

The customer benefit

Through this participatory form of distributing essential strategic tasks for coping with current challenges, further energy is gained from the organization through intrinsic motivation. The high degree of transparency results in a high degree of cooperation and mutual understanding. Cultural development (trust, responsibility, performance orientation) does not take place independently of strategy development, but is automatically promoted and lived through the application of agile methods. As strategy development progresses, the culture-shaping instruments can be developed successively.

On this basis, a transformation process is initiated which both meets the business needs and allows essential aspects of a modern company to emerge "at the concrete workpiece". This is securing the future in a tangible way.