Myth #1: Using Internal Resources for Profitability Enhancement Initiatives Produce Better Outcomes

It is not uncommon for banks and credit unions to evaluate and conduct their own profitability enhancement initiatives. This process usually consists of an internal team coming together from various departments within the organization to undertake an extensive project in hopes of improving the financial institution’s profitability by either increasing income, reducing expenses and/or improving processes and overall efficiency.

The Myth: Banking Consultants Don't Provide Value

Although most organizations have the ability to perform their own profitability enhancement initiative with their internal team and resources, there are several questions that should be asked before embarking on such a journey, many of which have been outlined at the end of this blog post. But perhaps some of the first few questions should be, “Should we consider partnering with an outside, independent third-party consulting firm to assist our leadership team during this journey? And what are some of the benefits or trade-offs of partnering with an experienced company versus taking that journey alone?”

The Truth: Outside Consulting Firms Bring an Wealth of Knowledge  

When you look to third-party experts, many banks and credit unions receive a dramatic upgrade in the following areas.

1. Visibility 

Often, one of the most significant challenges for financial institutions around the country is garnering all the necessary data and information required to perform an effective, thorough profitability enhancement study. This process is extensive and very time-consuming, as it requires an extraordinary amount of hours and resources to gather the many hundreds of data points and information necessary, not only for the organization itself, but also the data required to understand more about its competitors and peer group to be able to perform any kind of thoughtful, comprehensive analysis.

Another large challenge, among many others, is discernment. In other words, what type of data and information is needed for the analysis? Which data is relevant and irrelevant? And ultimately, what methodology and process will be leveraged to transform this data and information into meaningful, actionable intelligence? For a moment, imagine that you are attempting to assemble a 1,000-piece jigsaw puzzle. However, you bought this jigsaw puzzle pre-owned at a garage sale and you are most likely missing several pieces, perhaps as many as 200 pieces, to complete the puzzle.

The first challenge will be finding these missing pieces since you will not be able to complete the puzzle without them. If you can identify and secure the missing puzzle pieces, the second challenge, of course, will be taking the time to determine how the puzzle pieces fit together and then assembling the puzzle to completion.

The moral of the story is that all financial institutions possess many of the critical pieces to begin the process of assembling their puzzle, but at the same time, every financial institutions is also missing many other puzzle pieces necessary to ultimately complete the puzzle. In other words, no one is immune to having blind spots in their data and information.

By partnering with a third-party consulting firm, you are dramatically increasing the likelihood that you will have all the necessary puzzle pieces, while also benefiting from the wealth of data, information, knowledge, experience and unbiased opinions to assist your leadership team in completing your profitability enhancement puzzle.

2. Speed & Efficiency 

As we previously mentioned, putting together an internal team to conduct a profitability enhancement analysis often pulls team members away from their regular responsibilities. This can lead to internal struggle and conflicting priorities, or more commonly, the profitability analysis takes significantly longer and is slowed down due to other necessary areas of focus while putting additional strain on shared resources.

For example, some other important time commitments that are often prioritized over a profitability enhancement analysis when conducted internally are ongoing regulation and compliance requirements such as weekly or monthly reporting, taking care of employees and customers, other ongoing projects, as well as updates in operations and technology. Is your branch currently undertaking a digital transformation, or are you going through a core conversion?

All of these are important time factors to review before deciding to take on an internal profitability enhancement analysis. By hiring an outside consulting firm, the main goal is to complete a specific project within a timely manner so employees can focus on their jobs and what they do best, while the financial institution is able to reap the benefits of the project sooner rather than later.

3. Scope & Depth

Did you know that there are more than 360 revenue areas and more than 390 cost and process areas of opportunity you should evaluate in a properly executed profitability analysis? These areas span categories covering all departments and functional areas, and from a product and service perspective, both sides of the balance sheet.

This exercise is often an extremely daunting task for an internal team because you are not only reviewing all of these areas for your own financial institution, but you are also evaluating these same areas from a specific set of competitors and peer groups within your various markets. A third party will be able to provide much more visibility in each of these areas, which will yield a more comprehensive, in-depth analysis for effective decision-making. 

4. Perspectives 

It is a common best practice to bring in a third party every 3 to 5 years for a refreshed perspective and to foster innovation around product pricing and design. The financial services industry is changing rapidly through the adoption of new technology as banks and credit unions struggle to keep up and compete for business within their communities. Since a third-party company is afforded the opportunity to work with many financial institutions across the country, they are able to quickly identify and evaluate the best practices and emerging trends in the ever-evolving financial landscape.

This is even more paramount today, particularly given the current climate created by the Coronavirus pandemic, as banks and credit unions continue to be challenged with responding to the crisis and with adapting to the “new normal”. In our view, a third-party perspective can play a critical role in helping financial institutions devise strategies to maintain or enhance profitability for the long-term in a post-pandemic world.

If you want to learn more about the truth behind these myths, check out our Profitability Enhancement Playbook, a 3-step guide to increasing your profitability and improving your efficiency ratio by leveraging competitive intelligence and business intelligence to optimize income, enhance operational performance and productivity, and minimize costs.