Leadership Tenets of Strategic Thinkers

It’s difficult to be strategic when regulators are breathing down your neck, the yield curve is flat, capital markets are unforgiving and customers are painting both the good and bad guys with one brush stroke.  And yet strategic thinkers prevail in the long run (need I mention Warren Buffet, whose time horizon, per his own statement, is infinity?).  What does the strategic thinker do these days?  Some thought below, triggered by great comments from my friend Charlie Christie.

Determine what needs to be done to create shareholder value.  Shareholders gain value from two sources: current income and franchise value creation, which translates into stock price appreciation.  Strategic thinkers remember both and determine how to strike the delicate balance between quarterly earnings expectations and long term value creation.  These two are often at odds and seem irreconcilable, yet effective planning can optimize both.  Current revenue generation can fund long term value creation, but current income maximization prevents strategic investments that bear fruit in the longer term.

Since I moved to California I’ve developed new appreciation for the long-term.  I started planting fruit trees in the yard.  It was the first time I could commit to staying in one place long enough to see the trees bear fruit.  That became my definition of long term.  It could be yours too.

Develop sustainable vision and provide strategic clarity.  One of the most important things to both employees and investors is knowing what the vision for the company is.  These constituencies want to know what we are in business for, and what will we look like when we grow up.  What is our definition of success?  That’s where your vision comes in.  It sets the tone and creates a picture for all associates of what they are to build together.  It’s unifying and inspiring if done well.

A vision needs to be unique to you.  Its readers should realize immediately that it is your bank they are reading about, and no else’s.  So “being the leading financial institution in our markets, the employer of choice etc. etc.” doesn’t count as a vision.

Guide by focusing on strategic imperative designed to execute the vision.  Develop tactical execution plans for each key strategy.  Break down the vision to a handful of key elements.  This is the tough part; namely, deciding what NOT to do.  As Michael Porter says, this is the essence of strategy.  Bankers are particularly challenged in this task.  It seems that our DNA doesn’t allow us to turn down a single customer.  We strive to be all things to all people, and we can’t achieve that vision.

Strategic leaders resist the temptation to build huge scorecards.  They tackle the vision one element at a time, facilitating focus and creating impact rather than marginalizing too many concurrent initiatives.

Create metrics to monitor, teach and develop strategic execution and financial literacy throughout the organization.  “What gets measured gets done”.  We all know this is true.  The problem is, if we measure too many things nothing gets done.  So, again, choosing what to measure (and what NOT to measure) is a key decision at the onset of any strategic execution.

Every position in the company can have measurable performance indicators.  There are benchmarks for all positions, although not all are easily defined.  I like to include both leading indicators, which are effective management tools to ensure the desired results are achieved, and then the profitability and the franchise value as the lagging indicators which reflect the results we are aiming for.

In addition, teaching every team member how we make money and where they contribute to our success is an important element in strategic execution.  People do want to do the right thing, but often they don’t know what it is.  Sharing financial results throughout the organization and explaining the bank’s profitability dynamics time and time again is a cornerstone to strategic alignment and execution that should not be neglected.

Hold people accountable and align incentives to achieve desired results and time- horizon thinking.  Strategic execution relies on alignment, where the entire team is pulling in the same direction.  Unifying the group around the metrics identified above is an effective way to achieve organizational alignment and facilitate execution.  Further utilizing the same metrics to build incentives and motivate behavior brings simplicity and focus to the process.  We often tend to over-complicate our message.  Our business is generally not complex, and a small set of indicators should be sufficient to generate the results we want.  Ensuring that those are communicated frequently and rewarded through meaningful incentives is helpful to strategic execution.

Put in place key control without suffocating the organization.  We are in the business of managing and intermediating risk.  This means that controls must be put in place to ensure risk is indeed being managed, NOT eliminated altogether.  Risk management is a core activity of banking, but it must be done at the top of the house without strangling the operating entity and preventing it from executing the vision.  This isn’t an easy balance to strike, but it is an important one to achieve.

Think forward, not backward.  Too many leaders took in the rear view mirror.  We need to look forward be proactive and anticipatory.  Most of our metrics are post-factum, which is why leading indicators are so important.  Identify them and manage to them, since strategic thinking and proactive initiatives are true differentiators in our business.

Have fun!  We spend way too much time at work not to enjoy it.  An organization that has fun together is much more likely to succeed.  Remember that.  Fun is a good thing!