Jeff Judy

Jeff's Thoughts - November 10 , 2010

Mind the Gap!

In the last couple of years, all too many banks have discovered a "cultural gap" within their organizations. By "gap," I mean a situation where the beliefs, strategies, and vision of the bank's leadership are not consistent or congruent with actual behavior, the execution of the bank's business, at the front lines. Bank employees engage in practices with customers, and within theorganization as they work with other departments, that do not reflect the plans and tactics developed by bank management.

You could think of a two-by-two matrix: leadership vs. front lines on one dimension, simply "good" or "bad" on the other. That means you could have:

  1. A bank where the leadership has good strategies, and they are reflected in good practices at the front lines;
  2. A bank where the leadership is on the right track, but something bad happens at the front lines;
  3. A bank whose leadership is on the wrong track, whose management has the wrong strategies or values, but whose front line employees tend to do the right thing.
  4. A bank where the leadership has the wrong vision, and the front lines faithfully apply that bad vision with bad practices.

If I were to predict the financial fortunes of these banks, I would expect #1 to do well, of course, and #3 could achieve at best a mediocre performance. Bank #2 might muddle along, depending on how big the cultural gap is. But #2 is also one of the types of banks that suffered mightily in the recession, as management was surprised to discover the bank wasn't doing what they thought they were doing. Bank #2 is the classic source of "ugly surprises."

Bank #4 is a special case, perhaps one in which, say, everyone in the bank is pursuing the fast buck. A bank on the #4 model tends to make a lot of money when times are good, because they are essentially cheating to gain an advantage on their rivals. Yet many #4 banks were swept away by the recession, when the risks they had taken came home to roost.

What is interesting is that in terms of culture, Bank #4 is most like Bank #1, and Banks #2 and #3 are similar to each other. In Banks #1 and #4, the management vision is being implemented at the front lines. The culture is, as I say, "tight." Communication is strong across all levels and locations of the bank, regardless of the content of those communications.

"Tight" cultures like those in these two banks confer a special advantage: the ability to respond to change quickly. Because the front lines really do follow what management says, when management says something new -- when the leadership changes their vision and issues new directives in response to changing conditions -- employees throughout the institution quickly put the new ideas in practice.

In general, I believe that a "tight" culture that allows a nimble response, even in a bank where the strategies may be faulty, is in a stronger position than a "loose" culture where those "ugly surprises" can kill you. For example, those #4 banks, from the list above, may have been engaged in the wrong practices when the recession hit. But those #4 banks who responded to the new conditions quickly, survived, because the new approach was propagated throughout the organization very rapidly.

The #2 banks, on the other hand, the "ugly surprise" category where the front lines were following their own path, had little opportunity for recovery. Management may have responded very vigorously with new standards, revised procedures, and more. But because they could not quickly spread the new ways of doing things through their loose culture, because of the gap between the leadership and the front lines, they were not able to change in time to avoid disastrous consequences.

So how do you know if you have a tight culture?

You have to ask. You have to find a way of conducting a formal assessment of your vision and your actual practices. I have been consulting with banks on cultural issues for decades, and I can tell you, first, that almost every bank believes they are like Bank #1 above. And second, the vast majority of these banks turn out, when we look closely, to be more like Banks #2 and #3.

Cultural gaps are hard to see if you do not deliberately look for them. You owe it to your bank, your customers, and all your stakeholders to find out how tight your own culture is, right now.