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- 1. 1July 2015 BY MICHAEL RICE, CHEVY MARCHOSKY AND DAVID ZWICKL To meet rising performance pressures, roles, responsibilities and activities need to be better matched with frameworks for origination productivity and underwriting cohesion. In an era of intensifying competition, some commercial banks are reviewing their organizations with an eye to improve the client experience, boost productivity and strengthen underwriting and regulatory compliance. One key initiative is establishing a target operating model, based on an end-to-end review that defines required processes; where they will be performed; and how. Another is adopting a credit event-driven management approach that introduces standards and streamlining techniques for major aspects of the underwriting decision-making process. But while the possibilities are encouraging, attempts at fresh thinking are bumping up against some longstand- ing challenges in leveraging staff talent. Both by virtue of embedded organizational practices and the intricacies of dealing with knowledge workers, particularly relation- ship managers, precious time and talent is routinely dissi- pated because roles, responsibilities and activities are only loosely matched with overall frameworks for productivity and underwriting cohesion. For example: Up to two-thirds of relationship manager time is spent on internal processes and paperwork, a good chunk of which could be freed up for business development. Bankers skilled at client relationship expansion go under- leveraged and -rewarded because they are lumped into programs that emphasize acquisition. Client and deal information is restricted over territorial disputes about who owns the client relationship. Skill gaps are created as subjective management perceptions of individual merit overshadow job requirements in hiring, promotion and transfer decisions. Extending these and other related issues across a large commercial banking organization, it is clear that ques- tions surrounding role clarity will need to be addressed if improved management frameworks are to fully succeed. A central task is clarifying and leveraging the vary- ing roles of knowledge and service workers relative to the Asseen in the Role Confusion in Commercial Lending: What Can Be Done?
- 2. 2July 2015 target operating model, or envisioned future state of the organizational management framework. Considerations include not only job activities but also implications for ongo- ing staffing decisions, performance incentives and career development, and the optimal span of control in various management layers. CRISP DISTINCTION? On paper, there is a crisp distinction between the objec- tives and needs of the knowledge worker versus the ser- vice worker: Generally, knowledge workers design and develop solutions for clients, innovate products and processes, and have higher levels of education and expertise. Examples in commercial lending include managers, relationship managers, portfolio managers, credit managers/underwriters, and loan coordinators. Service workers are more task-driven, handling specific functions for both internal and external clients, often following set procedures. Examples include customer banking specialists, closers, loan servicing specialists and bookers. These two categories seem clear, yet in practice they are blurred in a commercial banking environment where executives long have carried blended responsibilities. In myriad ways, both subtle and obvious, organizational per- formance could be improved if the bank could better align roles, responsibilities and skill profiles with key activities. Relationship managers are a compelling example. Though pivotal in revenue generation (and also among the highest paid employees in commercial organizations), RMs across the industry are typically over-involved in task- oriented activities such as data collection, routine client service and documentation. At best they are able to spend from 40% to 50% of their time on business development; most can only devote 20% to 25% or scarcely more than a days worth of effort each week (Figure 1: Imbalance in RM Time Allocation). Similarly, loan coordinators are often diverted to tasks such as gathering client documentation, tracking exceptions and overseeing boarding. Instead they should be focused on their primary responsibility, which is acting as the first line of defense in the fulfillment process, including the detailed review of loan documents for compliance with credit policy and coordinating modifications with external counsel and internal documentation specialists. As a consequence of dis- tractions with task activities, critical skills are underutilized and the potential for risk exposure is increased. Issues with role confusion extend well beyond knowledge- versus-service conflicts, as reflected in struggles with overlap- ping objectives within a skill tier. In a typical origination scenario, for example, the rela- tionship managers role in customer acquisi- tion is lumped in with the lesser-recognized role of the portfolio manager in client rela- tionship expansion, even though few indi- viduals excel at both (Figure 2: Relationship Focus in Business Development). Credit approval is another area of role confusion. Large organizations typically limp along with a diffused and under-nour- ished commercial credit approval process. Highly-paid staffers are dragged from the sidelines to review detailed loan documen- tation. Intrusive managers lose sight of facil- itation and become roadblocks. A further challenge lies with manage- ment layers and spans of control. Often the organizational chart is cluttered with mid-management micro-teams where managers have only a few direct reports, reflecting a tendency to create positions less out of need and more as a reward for past sales success. Role Confusion in Commercial Lending: What Can Be Done? Figure 1: Imbalance in RM Time Allocation While patterns vary by bank, commercial banking relationship managers typically spend too little time on sales. Source: Novantas commercial banking research 25% 15% 40% 20% Portfolio Management Sales Admin Underwriting
- 3. 3July 2015 WALLS AND BRIDGES Whatever the impetus, role confusion has many repercus- sions: for the customer experience; cost and cohesion of origination; and the morale of knowledge and service staff. But as industry veterans know, the predicament is stub- bornly resistant to change. For one thing, efficient divisions of labor are simply less important to bankers who have strived over a period of years to acquire and expand valuable client relationships. Both for territorial and quality control reasons, many want to personally manage every aspect of client interaction and the business it produces, even if it means spending serious amounts of time swimming in task details. Indeed, a known risk of RM process redesign programs is that clients may be displeased by efficient new servic- ing routines. Banker-client ties that originally cemented the relationship may be eroded, and the possibility of omis- sions and errors increases as responsibilities are distributed across loosely coordinated teams. Elsewhere comprehensive technology platforms have proved difficult to implement on the origination side. Often in commercial banking we see fragmented information domains relationship managers; lines of business; chunks of the origination process providing patchwork support for current operations and perpetuating disconnects in roles and responsibilities. Coveted deal and client information is not shared in the manner that system designers envision, and endless customizations for various individual stakehold- ers perpetuate old processes on the new system. There are, however, prin- ciples that can be used to capture more of the potential benefits from improved role clarity without upsetting the apple cart: Target operating model. The organization cannot move ahead without a roadmap; a roadmap cannot be devel- oped without a vision of the optimal future state. The devel- opment of a target operating model addresses this situa- tion via an end-to-end review that defines required process; where they will be performed; and how. At a large bank, the model helps to clarify the activities of thousands of peo- ple and dozens of essential steps in the overall work flow. Role alignment. Pattern recognition of knowledge worker versus service worker roles becomes much clearer with a target operating model in place, plus the model pro- vides a comprehensive basis to identify constructive, fea- sible role revisions. Typically we find that commercial banks benefit from new and/ Figure 2: Relationship Focus in Business Development Within the relationship manager role, the varying priorities of customer acquisition vs. relationship development need more conscious recognition and specific support. Source: Novantas, Inc. Portfolio Manager Team Leader Relationship Manager CLIENTS CROSS-SELLSALESFOCUSNEW-TO-BANK CUSTOMER FOCUS PROJECTS Current Portfolio Sales External Client Sales Blended Objective: Emphasize Portfolio Blended Objective: Emphasize External Role Confusion in Commercial Lending: What Can Be Done?
- 4. 4July 2015 or redefined roles along three dimensions, including line of business, credit origination and fulfillment (Figure 3: Case Study on Realigning Roles and Responsibilities). Customer considerations should be front and center in operating model design and role alignment. Opinion- driven attempts at competitive differentiation can diverge from actual customer preferences. Unchecked, such dis- connects can become further embedded in the course of a reorganization, limiting its payoff. There is no industry standard operating model and competitors will still want to hone their individual approaches. But the acid test is customer resonance, a question deserving of more attention at many banks. Spans and layers. In chiseling the organizational chart, management layers and spans of control should be informed by gearing levels for knowledge and service staff, geograph- ical considerations, concentrations of skill sets and training needs, and the need to avoid single points of failure in critical tasks. Often is it possible to streamline the manage- ment structure by creating larger teams (five to eight knowl- edge workers or 12 to 15 service workers), led by people who are more carefully screened for relevant management ability and better supported by performance information for staff-related decision making. CHANGE MANAGEMENT LEVERS Even when hard-won clarity is achieved on a realignment of roles and responsibilities, successful implementation ultimately depends on change management following through in a way that guides staff into new or revised work lives with minimum fallout. One lever is performance management and compensa- tion. Clarified roles permit clarified performance metrics. Portfolio managers, for example, should be measured on their ability to strengthen product penetration and service ties with current clients, while relationship managers should Role Confusion in Commercial Lending: What Can Be Done? Figure 3: Case Study on Realigning Roles and Responsibilities Organizational models will continue to vary across the commercial banking industry, but many are in need of refinement for staff performance improvement (illustrative case study). Source: Novantas, Inc. LineofBusiness CURRENT STATE FUTURE STATE CreditOriginationFulfillment Closer Loan Committee LOB Head Relationship Manager Booker Chief/Sr Credit Officer Team Leader Officer Credit Analyst LOB Head Minimal Change Loan Committee Loan Coordinator Team Leader Chief/Sr Credit Officer QA Specialist/Boarder Relationship Manager Redefined Role Credit Officer Lending Officer Credit Analyst Portfolio Manager New Role LOB Head
- 5. 5July 2015 be measured on business development. Organizations must be able to provide effective feed- back and identify specific opportunities for individual growth and productivity improvement, cemented by pay and recognition frameworks that help to attract and retain high performers and encourage results-driven behavior. Another lever is communication and leadership style. In any kind of reorganization, concerns can run high and (mis)information travels fast. The management team needs to hash out internal differences and present a unified front when rolling out widespread changes in roles and responsi- bilities. Generally, the more information the better, including a balanced acknowledgement of transition issues. Senior executives need to be visible in championing the changes. A third lever is organizational structure. Thrust into new arrangements, staffers can become paralyzed or revert to old patterns. A clearly-designed and -communicated orga- nizational structure reduces transition uncertainty and pro- motes the utilization of current skillsets. Likewise, it creates channels for effective internal and external communication, so that staffers know where to turn to resolve workplace issues and address the inevitable client contingencies that attend the commercial lending process. A final lever is career development, education and training. With the benefit of a formal role progression map for major functional areas (e.g., origination, underwriting, fulfillment, portfolio management), the organization has a context to assess staffers, including current fit and skillset and preparation for future roles. Executives cannot expect staffers to learn new skills all on their own, or solely from job experience. Instead, they must promote internal knowl- edge transfer and other avenues for proactive skill devel- opment, not only for individual growth but also for cross- functional productivity. COMPLEX CHALLENGE Commercial banking has had a strong run following the recession, becoming the primary profit engine that carried many organizations as retail banking operations continued to limp along. The commercial space lately has become somewhat over-hunted, however, curbing trends in both balance growth and profitability. Novantas research indi- cates that a divided field has already emerged, with only a handful of players sustaining full momentum while most others have either leveled out or actually retreated to vary- ing degrees. The situation presents a complex management challenge that includes strengthening and differentiating the customer experience, improving sales effectiveness and pull-through, and simultaneously improving efficiency via cost reduction. Importantly, all three objectives can be advanced via an optimal re-allocation of knowledge and service skills to the right roles and responsibilities. As planning for 2016 begins, management teams should ask: Do we have the right role definitions for our operating model and desired customer experience? Are we assigning the proper resources to the right roles? What are the major points of process friction and revenue leakage? In the spirit of gaining immediate traction, the near- term priority is clearing up major disconnects in roles and responsibilities relative to the operating model as it stands. Goals include freeing up more time for relationship manag- ers to pursue customer acquisition and relationship expan- sion, and improving overall efficiency. Building on this momentum, the medium-term emphasis is aligning technology enablers with roles. This stage intro- duces new levels of data integration and sharing, critical in a more extensive reallocation and leveraging of knowledge and service roles. Longer term, there are opportunities to review and refine the entire operating model and its sup- porting role design, with special emphasis on market differ- entiation and delivery of the desired customer experience. Michael Rice is a Managing Director, Chevy Marchosky is a Principal and David Zwickl is a Manager in the Chicago office of Novantas, Inc. They can be reached at mrice@novantas.com, cmarchosky@novantas.com and dzwickl@novantas.com. The commercial space lately has become somewhat over-hunted, curbing trends in both balance growth and profitability. Novantas research indicates that a divided field has already emerged, with only a handful of players sustaining full momentum while most others have either leveled out or actually retreated to varying degrees. Role Confusion in Commercial Lending: What Can Be Done?