What Does And Doesnt Matter In M&a Strategies Continued
Growth and operating effectiveness are conflicting objectives.
We also found no correlation between the rate of asset growth and performance indicators. A widely held belief among bank executives is that you have to choose growth or operating effectiveness. Our findings did not support this view.
A widely held belief among bank executives is that you have to choose growth or operating effectiveness. Our findings did not support this view.
Among the 150 largest banks, 21 had compound annual asset growth of over 25%. There are less efficient, high-growth companies, like Commerce Bancorp Inc., with a 66% efficiency ratio and 36% annual growth, but companies like U.S. Bancorphave achieved similar growth levels over a longer period and have demonstrated outstanding efficiency.
The other end of the scale - the banking companies that actually contracted - contains a full spectrum of performance, from bottom-decile performerslike UMB Financial Corp., with compound annual asset growth of minus-1.2%, a 0.5% ROA, a 6% ROE, and an efficiency ratio of 85%, to Bank of Hawaii Corp., which by focusing on its core markets has reduced assets by more than 10% annually since 1999 yet delivered a 22% ROE and a 1.7% ROA.
So what distinguishes the banks that achieve consistently from those that do not, if size and growth rate are not per se primary drivers? In our experience these are the four key components:
Sticking to the strategy.
The former Signet Corp. created Capital One Financial Corp. As an integral part of its growth. Signet, recognizing that it could not realize its vision for information-based consumer credit growth within the constraints of the existing company, let Richard Fairbank and Nigel Morris drive Capital One as a separate entity.
In the following decade Capital One grew to $20 billion of market cap and delivered staggering annual shareholder returns of 34%.
Focusing on execution.
Ambiguity is the best defense for protectors of the status quo and the worst enemy of change agents. Action programs must be specific - what is expected when, by whom, and at what cost and benefit?
Quantifying expectations, specifying time lines, and tracking results achieve real impact.
Focusing on customers.
Staying close to changes in customer behavior and monitoring and countering any developments in attrition is critical.
Establishing effective measurements and tracking.
The right tools for monitoring strategic impact are vital.
You should develop measures such as customer and employee satisfaction, process change achievement, and financial effects - that fit the company's objectives and needs. In addition to financial measures, success indicators include tracking core customer segments in terms of share of wallet and channel usage; production and cross-sales; and in-depth customer attrition data. What gets measured gets done.
Mr. Ryen and Mr. Sommers are managing directors of Aston Associates, a Greenwich, Conn., advisory firm that specializes in strategy and operational design.
by: Ricky Mcelroy
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