The risk function as growth enabler

RMA Journal, The, Sept, 2004 by Sally Hawk

Bank of America has 5,700 banking centers, or "stores," 65,000 Consumer Banking associates, and serves 33 million U.S. households. That's a lot of retail banking. In this article, a risk management executive with the bank talks with Liam McGee, president, Consumer Banking.

Whether large or small, public or private, banks are looking for new sources of growth while also facing a growing diversity of risks. More specifically to consumer banking companies, the challenge is to manage risk and emerging growth opportunities in a balanced, integrated way that enables sales-and-service associates to pursue ambitious goals with greater freedom and confidence.

As president of Consumer Banking for Bank of America, Liam McGee wakes up to this challenge every business day. Here are some of McGee's perspectives on managing operational risk in a high-growth retail culture and how risk management can serve as a "growth enabler."

Q. Is it possible for a bank to perform like a growth company and remain anchored in safety and soundness?

A. Absolutely. "Safety and soundness" is just a regulatory way to say quality and quality is fundamental to sustainable growth. Bank regulators, Wall Street analysts, and investors alike ask:

1. Can banks achieve and sustain higher levels of growth?

2. Can they maintain quality or risk profiles while doing it?

We've already demonstrated that we can grow customer relationships and profitability significantly faster by being very disciplined with our fundamental sales-and-service protocols--in other words, by consistently getting better at what we do every day.

Q. Do you worry about the quality of that growth?

A. Of course I do. We work constantly to ensure the quality of sales. But more than that, we're building a sales culture that focuses our competitive energies, our goal setting, and our reward systems on relationships and "customer delight," rather than on transactions. We regularly talk to customers about service and how they feel about their banking relationships, test to ensure compliance with our standards, and monitor the profitability of relationships. Consistent execution of these basics gives us quality assurance and translates into a consistent customer experience.

We see immense capacity for quality growth, largely because our performance currently varies throughout our franchise and our share of wallet is lower than we think we can achieve. We can do more to leverage our distribution network. In the same cities today, we find average daily sales per seller of three to four in one banking center, while in nearby locations, our associates are achieving nine to 10 daily sales per seller. Customer satisfaction scores vary just as widely in many locations.

Without citing specifics, we see a parallel phenomenon in market share. We may have over 50% penetration with one target group, for example, which is good news. But then we have 10% or less of that group's share of wallet. We have developed balanced scoring approaches to measure our progress in reducing variability and increasing wallet share while keeping risk and reward in balance. All the metrics tell us we have a lot of room to grow.

Q. You set consistent double-digit sales growth goals. How do you put big stretch goals in front of associates without tempting them to stretch their efforts into unsound or even unethical practices?

A. Greater knowledge and understanding allows us to be more strategic about taking prudent risks. The key for us is staying focused on the value of relationships. Our industry is quickly learning that sales alone do not grow the business. In fact, a transactional focus is a prescription for losing customers out the back door faster than you bring them in the front door. Transactions are an expense. Retaining and growing customer relationships are what generate revenue and grow the business.

Relationship implies that both the customer and the bank have a vested interest in the quality of products and services. In this context, the quality of the customer's experience is, in fact, a daily risk management process. Our primary management approach is to coach associates on specific sales and service behaviors consistently and relentlessly, and then trust that good financial results will come. This approach engages leaders at every level of the company in managing risk. In fact, it involves every associate.

We measure the performance of every banking center on the same standards of quality. These measures cover the processes, behaviors, and results that we have determined to be most critical to the balance of our customer, associate, and shareholder goals. This is a profound change. Not that long ago, each center operated more like an individual store, focusing on whatever was top-of-mind for them. This created unnecessary variation and complexity. It also resulted in inconsistent customer experience and lower than desired customer retention. Don't get me wrong, the regional and market executives still take a very strong lead in running their businesses, but they do it with more clarity about what's really important than ever before.