What’s the biggest question in board rooms and among smart bank executives right now?

Easy: “How will we replace PPP income in 2022?”

That is the hottest question from call-ins to our office from bank CEOs over the last few weeks.

And this may be the most important question you answer in your bank’s strategic plan for 2022.

If your plan has the old tired “strategies” of “hire more lenders” and “make more calls”—which aren’t strategies at all—2022 may not be as forgiving as past years.

When you are being left in the dust by those who discover how to pull in far more desirable prospects at a substantial premium, you might be too late to recover from the damage as they pick off your best customers one by one.

Let’s be frank: You don’t pull off the “better quality at premium pricing” strategy with the proven-not-to-work “strategy” of “more lenders, more calls.”

Why? Because it’s not a strategy. And it never works. 

Of course, it sounds like it should work. It seems logical.

So, why doesn’t it work?

Let’s go back to fundamentals.

Two Key Questions for Facing Opportunities and Threats in 2022

What are the two most important strategic questions you must ask during strategic planning every single year?

1. What business are we in?
2. What value proposition should we go to market with for that business?

Banks whose identity and worth are based on rising above commodity pricing while targeting better quality prospects do not belong in the low-margin, price-competitive space. Period.

And yet, most are. Trapped.

They don’t know how to get out, and the writing is on the wall that if they don’t get the right action on both their strategies and the culture to support the “premium-priced” strategy, there will be an inevitable end result.

At that point, the only question about losing their independence will be: “When?”

Look at the hard trend line. Esteemed futurist Dan Burrus postulates that hard trend lines are extremely predictive and rarely shift. If we follow the hard trend line, it is inevitable–we ARE going down to 2,000 banks.

The hard question is: Will you be one that doesn’t make the cut?

Mega-banks that work off the “operational excellence” model of business belong in that model. They have economies of scale.

As a community bank, you simply can’t operate off the operational excellence model of matching rates. If you don’t believe it, go talk to some of the 13,000 CEOs of banks that no longer exist but were around a few decades ago. Ask them what went wrong.

When a healthy NIM doesn’t keep feeding your capital, the vultures begin to circle.

Is Your Bank’s Strategic Plan Congruent with Customer Experience?

This was probably the most fundamental teaching in business school—choose the right business model.

Of the four models that Treacy and Wiersema shared in their foundational book Discipline of Market Leaders, the only model that is suitable for almost every community bank is the customer intimacy model.

That service leadership approach should be so well developed that if you’re not commanding 100 to 150 basis points in premium pricing on quality deals, the proof is in the puddin’… That is clear evidence that you are still operating under the pricing of an operationally excellent low-cost model.

But you simply can’t compete against a $100 billion bank in how inexpensively they can offer their services. They are operationally efficient. They don’t need premium pricing. They have economies of scale.

And yet, community banks make this most tragic fundamental error year after year… after year. They are hoping to be rescued by a better yield curve when the very premise of their existence makes their failure imminent.

Cultural congruence should be an essential building block when determining a corporate strategy.

Are You Brave Enough to Admit Your Strategic Planning Process Needs Help?

If as a part of your strategic planning process you change your target markets to target the affluent, and you “decide” that you need to command better pricing, your culture must be aligned. If it isn’t, your strategy will not be effective.

And yet, as autumn turns to winter, thousands of bank executive teams in khaki pants will gather  in hotel rooms, sit with a “facilitator” who has absolutely no idea how to command premium pricing or shift the culture, and think that by listing a bunch of goals to replace that income, it will magically happen. 

And then they’ll be surprised when it doesn’t.

This should NOT be a surprise. 

The most fundamental of all business universal principles are being violated: “Choose the right model” and “align your team to transform to become those who command premium pricing on the most desirable and safest prospects.”

You simply can’t have yet another strategic planning session where you have a list of “goals” to hire more lenders, add an incentive program, hire a sales training company, yada yada. 

If those “strategies” could ever have worked, don’t you think that they would have over the last three decades?

Newsflash: Those are NOT strategies.

The Complimentary Livestream Event “Elite Strategic Planning Fundamentals MasterClass” was held on September 2, 2021. Watch the replay with your executive team now.

About the Author

Roxanne Emmerich is the Founder and Chair of The Institute for Extraordinary Banking™, Editor of Extraordinary Banker® magazine, and CEO of The Emmerich Group®. For nearly 30 years she’s shaped the thinking and the results of the best banks in America to take them to a level of performance they never dreamed possible. She can be reached at: [email protected].

This article was originally published in Extraordinary Banker^® magazine. Click here to subscribe and get your digital copy free.