Sums don’t necessarily add up

Executives running banks frequently end up making inappropriate use of the management information they need to guide them. PwC’s PHIL TOWERS identifies the most common culprits.

Imagine you’re driving home late at night, after a long, hard meeting. It’s been wet all day, and now the rain has really started hammering down. You’ve just picked up a voicemail from your partner, asking you why you’re not back yet. How would you drive yourself home in these circumstances?

Obviously, you’d focus most of your attention on the rear view mirror, not worrying too much about the road ahead or the fact that the windscreen wipers have stopped working. Looking at the dashboard, you’d make very sure the oil pressure was OK, constantly checking the dial while ignoring the rev counter or speedometer. Noticing the fuel gauge was low, you’d continue to rev the engine hard and keep all the electrical devices full on.

Makes sense? And you’d expect to get home safely? Clearly not! But swap the scenario to that of an executive committee running a complex bank, and this illustrates how Management Information (MI) can end up being used. Steering a bank, five common MI problems emerge:

Wrong measures: Like that driver, banks can also fixate on inappropriate measures. In today’s environment, is market share really the most important measure of business success? Do you want to continue to push at all costs to take on more customers and sell more products, irrespective of funding constraints, the riskiness of customer segments or the true economic return of each product?

Executives may well understand how the postcrash world has affected the economics of their business, but if they haven’t adjusted the MI on which they’re making decisions and driving behaviour, then their understanding counts for nothing. The bank will continue on autopilot, potentially in the wrong direction.

Wrong focus: Measures such as the monthly financials give a bank a superb understanding of what it’s just done. But, like a rear view mirror, they give no real insight into what’s coming next, or the key factors that will affect the upcoming results.

What about the customers? Are they happy with the products and service they’re receiving? If not, are their complaints being dealt with effectively?

And, are the major end-to-end processes that drive the customers’ experience working well? Are there opportunities to remove cost?

And then there’s the employees: are they feeling engaged and supported in these tough times? Or are they taking more sick leave than you’d expect, or leaving in droves?

Too much noise: The most obvious source is the sheer weight of paper that thuds in front of most boards, on the assumption that by giving them everything, there’s no danger of missing something that’s important. Better to understand the measures the bank really needs to focus on and its key performance drivers. With only those key metrics and levers, the board can be sure to spend time on the most important discussions. Another MI ‘noise’ is internal or untargeted measures, which canny executives can usually hit irrespective of the bank’s real performance. As well as benchmarking against external comparators, another improvement could be to use measures with specific targets – aligned with both the bank’s strategy and individual executives’ personal objectives.

Malfunctioning meetings: Make full use of your MI. Rather than simply describing the recent history of the bank, the executive committee should decide what it really wants to achieve and stick to that. If its basic purpose is to generate action on key areas, for instance, then what are the top five issues that need action, and what are the specific actions that have been agreed?

Risk of fossilisation: Both in the use of MI and in any projects to improve it, there’s a danger that measures become fossilised – ‘we’ve always done it that way’. It’s vital to make sure that the bank’s MI really does still have value, and gives the key information that its leaders need to steer in today’s, or tomorrow’s, world.

MI is a tough area to get right. However, the rewards are significant: for the bank that really gets its MI in shape; for the executives and managers that are able to make the best decisions; and for the wider stakeholders (not forgetting regulators!) who get the improved results they rightly expect.

PHIL TOWERS is Director Retail Banking Consulting, PricewaterhouseCoopers LLP in Scotland

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