Strategic Planning – 8 Lessons from the Facilitator

August 8, 2016

By: Gary J. Young, President and CEO

For 30 years, I have had the pleasure of working with community banks across the country in developing a strategic plan. Yes, my first strategic planning engagement was in 1986. I recently completed a strategic plan for a great bank in Alaska, the first one in that state. There are two banks in Ohio that I have been facilitating strategic plans for since the mid-1980s. And there is another bank in New Mexico in which I am approaching 20 years. Many others are new clients. I certainly feel that I have helped those banks succeed in the way they define success. I also have learned from
all of my strategic planning clients. Those main items are the subject of this article. Regardless of how you approach strategic planning, I believe these concepts will help make your plan meaningful to the management team and the board of directors.

The following are the 8 lessons learned from the facilitator:

1. There is no value in a strategic plan. I know this is a strange thought coming from a strategic plan facilitator. But, I have learned that value is achieved only when the plan is implemented to the benefit of the bank. It is absolutely critical to build consensus and buy-in. If participants believe the plan is from the facilitator, you have lost. The facilitator is there to achieve consensus on the bank’s plan, then write that management and the board want to implement for success.

2. A strategic plan is not about predicting the future, but making the future. Nobody can predict the future. But, that’s not what strategic planning is about. An effective strategic plan is about making the future not predicting it. That’s why I often ask plan participants, “If you could envision the perfect future for your bank, what would it look like, or be like in five years?” The goal is to then build strategies and tactics to deliver the consensus of that perfect future. Of course, there will be deviations from which a change-in-course will be made. We call that good management.

3. There is no one best plan. I have seen successful banks run in an extremely conservative manner and successful banks run in an extremely aggressive manner. There is never one best way. Whatever the strategy, I can give you an example of a successful bank that took a different position. The key is to have a consensus in strategy that exists between the board of directors and senior management. I don’t mean there needs to always be agreement on issues, but agreement on the basic core values that lead to direction.

4. Every good community bank needs to fill in the blank. However you might define this statement, it is wrong.  Community banks are incredibly unique. While Bank A may have 80% of things in common with Bank B, they are still incredibly different. To the facilitator, keep your EYES WIDE OPEN. Only in that way, will you see the nuances that make the job of facilitating a strategic plan rewarding and down-right fun.

5. Banking is about risk. Without risk there is no bank. This relates to 3 and 4 above. But, it is critical that the facilitator help define the risk appetite of the directors. This will then help define capital adequacy which ultimately is at the heart of every strategic plan. Management and the board of directors need to understand there is no right answer. Your risk appetite is all that matters. But, I will tell you one thing that is absolutely wrong: taking risk that is beyond your appetite and that you don’t fully understand. Please, never do that.

6. Define your target or goal for capital. This is a part of 5 above, but it is critical. Let’s assume that capital adequacy based on risk is 7.5%, but the board wants to maintain 9.5%. This is certainly OK, but understand there is a cost to the excess capital. Excess capital could be viewed as an insurance policy against potential losses. Many banks that had excess capital during the Great Recession were certainly happy they did. Excess capital could also be used as pportunity capital in case it is needed for a branch purchase, bank purchase, etc. But also remember, as the tier-1 leverage ratio increases, the return on equity decreases, all other things being equal. A decrease in return on equity is a drag on shareholder value.

7. Asset quality can kill you. Discussing asset quality is not as exciting as many other issues. But, nothing will derail a bank’s plans quicker and more completely than problems in asset quality. Even though loan growth drives asset growth, which is a key component of bank success, we must remember to aggressively seek and conservatively underwrite, and thoroughly understand the risk associated with the loan growth.

8. A facilitator will never know your bank or your market like you do. I am like most other facilitators. I have had the experience of working with hundreds of community banks and seeing how things work positively and negatively. That is my perspective and it is good to have that voice at the retreat. But, I always remind new clients that while I have an experienced perspective, just because I share an opinion does not make it right for your bank in your market. It might be right for 95% of other banks, but that doesn’t mean that it is right for your bank.

I hope that you will consider these concepts as you complete your next strategic plan. And, if you are considering a facilitator, I hope you consider Young & Associates, Inc. If you would like to discuss this article or strategic planning, please call me at 330.283.4121 or click here to send an email.

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