A concerted effort will be needed to strengthen the sales function in commercial banking, which is still overly reliant on the individual efforts of relationship managers.
Although loan demand is rising in commercial banking, there still is an urgent need for growth. Margins remain weak in a low-rate environment, and fee-based businesses are mostly plodding along. How will players meet their profit goals for 2012–2013?
The answer largely comes down to winning market share. But for that to happen, a concerted effort will be needed to strengthen the all-important sales function, which is still overly reliant on the individual efforts of relationship managers. New organizational muscle will be needed to meet the sales challenge.
Future industry leaders will excel across four dimensions of sales productivity. These include the more familiar territories of process and execution, and extend into the emerging domains of customer analytics and knowledge management. The first two performance factors still need work; the second two merit aggressive attention.
By systematically evaluating the commercial sales function and addressing key performance issues, proactive banks can sharply lift the odds for sales growth. Conversely, banks that loosely rely on ad hoc managerial best efforts in the field may wind up frustrated in pursuing their goals, often not fully understanding why.
This issue has a direct bearing on one of the most promising avenues for fee revenue growth in commercial banking, which is small business treasury management. Roughly two-thirds of all companies with $1 million to $10 million of annual revenues use some sort of treasury management services, according to Greenwich Associates, yet much of that business is siphoned away by non-banks.
From a sales perspective, one major reason is that many banks remain stuck in trying to loosely adapt commercial banking and branch banking conduits to serve small businesses, without fully studying the unique requirements of the market. As a result, small businesses are under-served and under-sold.
Such disconnects cannot be solved by conventional sales management tactics. Simply demanding more output, for example, ignores larger organizational issues and can push hard-working relationship managers into a pressure zone where client relationships are damaged. Alternatively, best practice benchmarking tends to encourage mimicry instead of addressing the bank‘s unique sales issues, needs and opportunities.
The winning bank must have an advantaged sales capability that is tailored to its unique assets and capabilities, including sales culture, talent, brand and product set.
Barriers to Sales Performance
There still is a strong tendency in commercial banking to view sales largely as a question of individual talent. The bank with the most bench strength will ultimately win, it is thought, and this perspective comes quite easily to the many senior officers who reached their own levels of organizational success through individual sales achievements.
You don‘t have to look far within the commercial bank, however, to find examples of how collective sales performance is being held back by an ineffective management framework. Two self-inhibiting factors seen at many commercial banks are under-estimating client potential and poor teamwork.
Under-estimating client potential. Relationship managers and product sales specialists frequently misjudge sales potential with established clients. This tendency is especially prevalent in the mid-market segment, where sales officers routinely underestimate potential deposit balances and fee income by a factor of three-to-one or more.
Part of the problem is a misperception that if clients are in a situation where short-term borrowings exceed liquid assets, then they necessarily have limited deposit potential and cash management needs. Bank calling officers reason that if a client is in a net borrowing position, cash will be used to pay down debt.
This, however, ignores the reality that companies will hold cash even if they have debt that could be paid down. The financial crisis taught treasurers that market conditions can change rapidly, putting a premium on maintaining both liquidity and active credit facilities. The result is that many net borrowers still are holding onto significant cash.
Another trap is using a checklist approach to assess potential client demand for non-credit services. If a company is already using a broad range of cash management products, the treasury management (TM) specialists may consider the relationship fully served, whether or not there is strong product utilization. In such instances, the product sales checklist can be full, yet client revenues can be falling well short of potential.
This is an example of how corporate capabilities (customer analytics, in this instance) can be widely useful to commercial bankers in the field. A little high-level math illustrates the potential. According to the U.S. Economic Census, total sales of all U.S. companies are approximately $30 trillion. Federal Reserve data indicates that commercial deposits at U.S. financial institutions are about $1 trillion, and most estimates of U.S. treasury management revenues range between $15 billion to $20 billion. On average, then, a mid-market company with $50 million in annual sales would be expected to hold at least $1 million in bank deposits and generate $250,000 or more in treasury management revenues. Of course, potential will vary by industry sector and other factors, but overall, most mid-market relationships have more potential than sales officers realize.
Coordinating team sales. Most banks deploy sales teams to cover commercial clients and prospects, including relationship managers and various product specialists. In many cases, however, the effectiveness of this approach is diminished because the sales officers don‘t really function as a team — they coordinate, but do not collaborate.
One reason is that banks introduce too much complexity into the referral system between relationship managers and product specialists. A product specialist such as a treasury management officer may work with eight to 10 relationship managers, while a relationship manager might have to cover 20 or more product specialists to access special capabilities required by the client.
Lack of product knowledge is another barrier. Relationship managers are usually lenders by training, and when asked about unfamiliar products, they may not always know which specialists to turn to, or how to get them productively involved. The fact that RMs tend to talk about “bringing in” specialists in TM, capital markets and merchant services as needed implies that these players are not on the team‘s starting roster.
Here again, strong management is needed to sort through the issues. But even the most determined commercial banks still will fall short if they try to put out the sales management fires one by one.
Four Keys to Sales Productivity
Given these problems, executive management needs an objective and fact-based approach to look across the commercial bank and identify the best opportunities to improve sales performance. Novantas research and client work, for example, has identified 31 success factors spread across the four domains of process, execution, analytics and knowledge (Figure 1).
Process. What are the right steps in serving the customer? To interact effectively with the customer, the commercial banking sales organization needs proficiency in eight major areas. Strengths in a few areas, for example, onboarding and sales force automation, can quickly be offset by weaknesses elsewhere, for example, referrals and specialist engagement. That is why the major performance gaps need to be rigorously identified and resolved.
For example, our research identified pre-sales call planning as a differentiator in successful solution-based selling. In our study of top-performing relationship managers, we found that they share a common trait of superior planning and preparation, which in turn is a significant driver of top sales results that exceed the average by up to 150%.
There are important nuances in capitalizing on such insights, reinforcing the need for careful evaluation. Often banks have a viable pre-sales call planning framework in place, for instance, but bankers are not yet using it efficiently and consistently.
Execution. What is the best way to organize and manage our efforts? In mobilizing the sales effort, there are seven essentials, including sales force structure and governance, resource deployment, individual sales goals for relationship managers, and sales metrics/performance management.
Our strong view is that organizational structure should be shaped by the analytics that drive resource deployment and define sales goals. The key to success is leveraging underlying market revenue potential to determine staffing levels, sales management coverage requirements and individual RM sales goals.
Today, roughly half of the major commercial banks still use an ad hoc approach to determine staffing levels and sales goals. Oftentimes, critical decisions about staffing deployment are based on outdated staffing models that do not account for market changes and underlying market potential. Such models tend to get passed along over the years with outdated assumptions and practices still embedded, with increasingly significant consequences for successive users.
All markets are not created equal in terms of revenue potential, and both the RM staffing model and the sales goal structure need to reflect this reality. The best way to bolster sales execution is through a centralized function that leverages an analytic measure of sales potential by market to drive management decision-making.
Importantly, this is not a one-time exercise, given that market potential fluctuates over time based on macro-economic and market-specific factors. It is critical that the bank maintains a standing ability to periodically assess its sales deployment and sales goals model to ensure proper market alignment and profitable sales performance.
Analytics. What analytic support is needed for decisions? Novantas research has identified nine critical capabilities linked to sales analytics and sales lead generation. These include prospect prioritization, pipeline management and product cross-sell analysis. Such analytics should play a central role in determining lead generation and sales targeting activities. Sales productivity critically depends on a robust sales lead generation program, which includes both a quantitative assessment of prospect revenue potential and a qualitative assessment of client relationship potential and value.
Sales analytics provide a distinct sales productivity advantage in an increasingly competitive marketplace. Despite the acknowledged value, few commercial banks have taken the necessary steps to harness the benefits. For example, banks often struggle to define the right data inputs and calculations for prospect prioritization. A further difficulty is balancing analytically-derived guidance with RM input and feedback.
Leading institutions have adopted an integrated approach to lead generation that includes a feedback loop from relationship managers. This allows RMs to play an active role in balancing analytically defined prospect priorities with field-based relationship knowledge. In addition, a robust center of influence (COI) referral program will provide valuable local insight to help flesh out the RM feedback loop.
Knowledge. How do we keep track of staffing dynamics and valuable learnings from market trends and past experiences? The knowledge category includes the sales capabilities related to talent (e.g., recruiting, training/coaching, performance management and retention), as well as critical items related to the management of the sales organization‘s collective learnings and information (e.g., knowledge management).
The knowledge management (KM) capability is generally organized into four distinct categories — benchmarking, industry data & trends, competitive intelligence and portfolio data. Much depends on how the information is organized and maintained internally, and whether it can be distilled into a usable tool set for the sales team.
Organizations have varying levels of success with KM. Though the benefits are universally acknowledged, there have been wide variations in the commitment of resources to the development and ongoing maintenance of a KM capability.
This is especially true of the benchmarking category. Today banks have access to a significant amount of financial data on clients and prospects. The data is often collected as part of the credit approval process and is maintained as part of a rigorous and continuous risk management process. When managed correctly, this data represents a significant sales asset, and it directly addresses the expressed desire of clients to receive more value-added information from relationship managers as part of the sales process.
Many banks have attempted to harness this information, but most efforts have been limited to product-level data. To unlock the full benefits of KM, the bank needs to be able to provide relationship managers with quick and easy access to reliable industry financial performance metrics.
A banker calling on construction-related companies in a territory, for example, ideally should have trend information for that peer group, something that piques client interest, enhances credibility and facilitates conversations. Such knowledge provides a distinct advantage over the course of the sales cycle.
The Road Ahead
As executives consider the possibilities to improve sales productivity in commercial banking, three management challenges likely will surface at many institutions.
One challenge is organizational resistance, mostly from high-performing relationship managers who perceive a loss of autonomy as more standardized practices and tools are rolled out companywide. Even senior executives may not be convinced of the need for broader sales productivity initiatives, looking back on their personal histories. Suffice to say that executive management needs an enlightened attitude and an empathetic ability to usher valuable-yet-reluctant staffers through the changes.
A second challenge is building a vision, logical sequence and time horizon for organizational change. True transformations in sales productivity entail a multi-year journey. There is a continuing obligation to identify quick wins that bolster current-year results, of course, but sales productivity initiatives need to be pursued cohesively within the context of a larger organizational journey.
A third challenge is building new organizational skills. A centralized client analytics group, for example, will require the right staffing to succeed. Commercial banks may need to reach beyond their institutional (and even industry) borders to build the right staffing nucleus for their customer analytics and knowledge management groups. There also is a systems development implication, both in compiling information and in distributing pertinent findings for usage in the field.
Such challenges are well worth broaching in the current era of uneven growth and restrained margins. Ultimately, the commercial banks that address all four of the major factors in sales productivity — process, execution, analytics, knowledge — will not only fare better in the near term but also solidly position themselves for long-term growth.
Michael Rice and Steve Ledford are Partners and Robert Griffin is a Principal in the Chicago office of Novantas LLC, a management consultancy.