Jeff Judy

Jeff's Thoughts - February 21, 2018

Corporate Memory I: Why It Matters

Your institution has its own unique way of handling credit.

Oh, sure, there are lots of things in common among credit institutions. And some of the differences between you and your competitors may be small, but they are real, as are some larger differences in the way you practice credit. After all, without differences between you and your rivals, how can you expect to beat the competition.

If I wanted to enumerate all the differences between your credit practices and those of another institution, what would I look at?

The obvious place to start is with your written policy and procedures. While many things might overlap, I'm pretty confident that I'd find some interesting differences between your manuals and your rival's. I could also look at your analysis software and other tools that are fairly "locked in", where your front-line staff little choice but to follow a consistent path from one step to the next in the credit process.

But I'd be making a big mistake if I stopped my investigation there. Just as important as what we might call the "official credit culture" based on written documents and software constraints are the habits, the tendencies, the assumptions that go into the execution of those official starting points.

Imagine a cardboard box in which you deliver the policy and procedures to your staff, especially new staff. You wouldn't just throw the manuals in the box and ship them off, as they would be pretty battered by the time they were delivered.

So you pack those styrofoam "peanuts" all around the manuals to make sure they arrive intact. And the habits and tendencies I mentioned above are the peanuts. We might also think of them as "corporate memory," a collective understanding of how things work in your organization that wraps around what your manuals say. These "peanuts" should reinforce and reproduce policy and procedures, bringing the manuals to life as they are implemented in the day-to-day efforts of your credit staff.

In reality, some institutions have plenty of reinforcing, protective practices to back up the official culture. And others have practices that are at odds with the manuals. At those places, it is like mixing rocks with your peanuts: some practices protect the culture, and others actually do it harm.

If you have found an effective, competitive way of conducting your credit business, you want to preserve that approach going forward. To do that, you need to be aware of the entire "box," including the peanuts. Unless you have an explicit understanding of what the institution "remembers" as the preferred way to do things, if you think your culture begins and ends with the written manuals, you are bound to go astray, sooner or later, from the strategies and tactics you have worked so hard to develop.

For example, how tightly do practices mirror procedures? Is there very little room for interpretation of the procedures, or do credit staff have more leeway in applying them? When analysis lands a request right in that gray area between approval and decline, do you tend to go for it, or do you tend to walk away? Which exceptions do staff pretty much expect to get rubber-stamped, and which ones are taken seriously?

The problem is that most of the peanuts live inside the heads of your employees. It takes a dedicated, consistent effort to bring those tendencies and habits out into the light where everyone can see them.

And now is the time to do it, as the conversations I'm having with credit staff all across the country point to "corporate amnesia" as a widespread threat to preferred practices. In the next issue of Jeff's Thoughts, I'll examine that threat and offer some suggestions for reinforcing "corporate memory" at your institution.