Jeff Judy

Jeff's Thoughts -December 5, 2012

Your Growth Targets: Absolute or Relative?

While the economy is hardly bursting with vitality, we are finally seeing fairly steady improvement. That means that, as I travel around the country training and consulting with financial institutions, "growth" seems to be the most common word in a lot of conversations.

In fact, I'm hearing things like "we have to grow our business by 10% next year," although the number being bandied about your bank might be 15% or more. We're still feeling the effects of the recent meltdown, but we're off to the races already.

And that's just the nature of banking, I understand that.

But do you understand how to recognize truly good results, in terms of growing your business? Where are these numbers coming from (hint: think "hat") and what is their connection to the real world in which you operate?

I find that there's often a disturbing lack of context in the growth goals many banks -- or, really, the bank's shareholders -- are pushing for the next year or two. Every bank's opportunity for growth is unique, depending on local trends and conditions and on that bank's strengths, strategies, and weaknesses.

That's why exactly the same results for growth (as a percentage increase) may represent a resounding success at one bank and a weak performance at another. Your goal for growing your business cannot be a one-size-fits-all number.

Simply put, size is often relative. For example, my daughters, all easily over six feet tall, were competitive volleyball players. Put them in their class picture, and they stood out in the crowd of students. Put them next to your typical college volleyball team, and they landed in the middle of the pack.

Or go to any high school or college and look at the basketball team vs. the soccer team. What is tall on the one may be short on the other.

In the same way, business and economic conditions in your market set the foundation for your growth opportunities. Once you factor in your own policies and strategies, your particular expertise, your strengths and weaknesses,10% growth could be an exceptional achievement, or a disappointment. At 10% growth, you could be the best performing, or the worst performing, institution in your market.

If your target is based only on an extrapolation of your own history -- take last year's numbers and bump them up by some percentage -- you really cannot rely on that target as a measure of success. And without a reliable target, opportunities to manage the performance of your bank are reduced. Before rewards and punishments are handed out, you need to know whether you really have done well or poorly, not just whether you have surpassed some arbitrary number, like crossing the finish line in a race.

Set your goals in context, and have the courage to celebrate if you achieve moderate growth in a very tough environment. Or, equally, have the courage to demand more from your staff if they achieve merely good growth in a great market.

Bankers love numbers. But numbers without context rarely tell us much. As you set goals for growth in the coming years, make sure you include enough context to accurately measure your achievements along the way.