Ryan was one of our most frustrating clients.
He “got” our product. He understood the power of pricing. He was the treasurer at his bank and a very, very bright guy.
Ryan’s problem was that he didn’t think his lenders were very bright. He didn’t trust them. So Ryan tried to put strict limits on how much pricing information his lenders had access to. He wanted a bunch of progress reports that only he could see.
Ryan was afraid that more data in the hands of lenders meant more chances they’d somehow muck things up.
As it turned out, things did go south, but not in the way that Ryan was trying so hard to avoid.
Instead, the lenders grew tired of trying to operate in the dark. They rebelled against the new pricing software Ryan had implemented. With so little information available to them, they couldn’t distinguish the new system from the old ones, tools that hadn’t worked.
The good news is that Ryan eventually came around, and his bank is now one of our best performers. The story of his early struggles is a painful one for us, but it does have a silver lining – it now serves as a cautionary tale that helps us make the case for transparency with our clients.
(In that spirit, we should note that “Ryan” is a fictitious name.)
Nature Abhors an Information Vacuum
Take a moment and walk in the shoes of Ryan’s lending team. Let’s say you’ve been given some aggressive ROE targets to meet and that those numbers represent a significant jump up from your previous targets.
Why did the goals get pushed up so much? (You don’t know, because Ryan’s not sharing that information.)
How was the ROE target arrived at? Why that number? (You don’t know, because Ryan’s not sharing that information.)
Is anyone else struggling to meet these ROE targets, or is it just me? (You don’t know, because … you get the picture by now.)
Does the bank need to reach these targets because it’s in trouble and it’s trying to climb out of a hole? Or is it just getting greedy? (More than likely it’s neither, but in the absence of information, you’re probably jumping to one of those two conclusions.)
Let There Be Light
You can see how the atmosphere at Ryan’s bank quickly became toxic. And you can see how taking this approach nearly doomed any chance Ryan had of getting his lenders to adopt the new pricing software.
How can your bank avoid those struggles? Instead of keeping your lenders in the dark, try a little sunlight instead.
Let’s rerun the Ryan scenario, but this time with transparency as our guiding principle.
The bank announces it is setting new, aggressive ROE targets for its lenders. The management team holds a meeting in which they walk the lending team through the numbers. They explain how the targets were arrived at, and why they were set at those levels. They put the ROE into the bigger context of the bank so the lenders can understand how those targets fit into the overall direction for the institution.
Keeping Up With the Joneses
Everyone’s performance is then put on display. Lenders can look at their own performances, but they also can see how each of their peers are doing. And they can see how their boss is faring, and his boss, all the way up to how the bank as a whole is performing.
Maybe you thought that initial ROE target was nuts. Now you have the facts that can either prove or disprove your assumptions. Without transparency, you likely would have just moved straight to, “These numbers are absurd and my manager is a moron.” With transparency, you may still conclude in a month or two that the goals were ludicrous. But since everyone in the bank will have visibility into the results, you won’t be alone in that conclusion and it won’t be hard to quickly change direction.
Or you may just discover that most of the other lenders aren’t having a problem with the new targets. Now you can see why the shift was made. Now you know YOU need to get it in gear.
A motivated lender is a better lender, and nothing motivates quite like peer pressure.
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