I recently gave a presentation to the Board of Directors of a community bank regarding digital transformation. At the end of the presentation, I was asked a series of questions that seemed to indicate that my central message about the need to change the bank’s traditional business model had at least gotten people thinking.
Afterward, I met privately with the CEO and he asked me an interesting question: “Is it worth it?” Meaning that even if the bank did decide to invest in transformation projects, could they realistically hope to catch up enough to more progressive banks and FinTechs to ensure the company’s longer-term survival?
This was certainly a valid question, and one I’ve been asked before by CEOs and Board members at other institutions. There are various ways to look at that issue, and here are a couple of potential responses:
- The Board of Directors and the management team are fiduciaries of their shareholders’ investments; their customers’ financial well-being; their employees’ livelihoods; and the overarching needs of their communities. As professional managers, they cannot ignore an existential threat to their business that could affect all of these constituencies. They are being paid to provide the leadership and assemble the resources needed to address the challenges the business faces. If failing to act will lead to the company being placed in an increasingly non-competitive position, then there’s an obligation to at least try to address the issues if there is any chance of success.
- Management may genuinely believe that they cannot successfully implement change due to internal factors such as lack of financial resources, vision, leadership, Board support, qualified staff, or some combination of all of these. Or there may be factors more external in nature in play, like a niche market no longer being viable, or the emergence of very strong competitors with deep pockets, or reputational issues that may be difficult to overcome.
If in management’s professional opinion the longer-term situation is truly hopeless, then the best option may be to sell to a stronger institution. That’s an option that should probably be pursued sooner rather than later since the bank’s valuation is likely to continue to slide over time as they fall farther and farther behind their competitors.
I have worked with a couple of companies where I would honestly have to say that their chances of success are extremely low. That may be a result of a lack of leadership and talent in the Board/management ranks, or a target market that is either over-banked or in serious decline. In that case, the best alternative would likely be to evaluate merger/sale opportunities.
That was definitely not the case for the bank whose CEO posed the “is-it-worth-it” question. They operate in a somewhat isolated market with a strong community reputation, good branch footprint, and untapped market segments that could help drive future growth. If they were to combine their physical presence with a strong digital platform and digitize their legacy back-end operations to improve efficiency and the customer experience, I’m convinced that they would be well-position to survive and thrive. It would be “worth it” to make the necessary investments.
The real question becomes whether or not they have the leadership and motivation to try.
