In the past (HERE), we highlighted how an employee handbook can have a colossal impact on culture that can radically alter your bank’s trajectory. We talked about how culture alone allowed Zingerman’s, a little Michigan deli, to have a worldwide following. We showed employee handbook examples from Netflix, Zappos and Nordstrom to demonstrate how their cultural tone can be leveraged into a strategic difference.
Tag: Organizational Structure
While it is all the rage to flatten your organization and take away management layers to improve efficiencies, there is a dark side to that tactic. Having too many reports spreads bankers too thin leaving little time for “white space” or the ability to be creative and look forward. A “span of control” is how many direct and indirect employees a leader has reporting to him or her.
We published an article on whether a centralized or decentralized banking model was best (HERE) last month that generated many comments both for and against. One such rebuttal, from a well-respected bank CEO of a $1B community bank, summed up the counter argument nicely.
Once you hit about $500mm in total asset size, your bank should be asking what organizational architecture it wants – centralized or decentralized. A smart bank lays the ground work at $500mm, and then by $750mm can start to reap the benefits of design. By $3B, the bank should be fully leveraging the results of the decision. In banking, success has been had both ways. We can point to many banks that centralize management, credit, marketing and many other functions.
A traditional bank is organized along a hierarchical structure. The CEO presides over executive vice presidents that head up various divisions supported by senior vice presidents, then vice presidents and so on. Commercial loans, retail, branches, mortgages, etc. all report up to their chain of command. Most banks are essentially organized along product lines with a rough geographical overlay so that every region has a representative for each product. This worked well for the first 175 years in banking, but now the organizational structure is starting to fail us.
The Kansas City Fed released an interesting research paper titled The Effect of Risk and Organization Structures on Bank Capital Ratios. The research looks at how risk and a bank’s organizational structure impacts its capital levels. In times of stress, does a bank holding company (BHC) structure help protect a bank or hurt it?