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Strategic Planning – Creating a Shared Vision and a Path Forward in Uncertain Times June 6, 2016
June 6. 2016
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Our Discussion Topics
1. Why Strategic Planning
2. A Process That Works
3. Walking Through That Process
4. Minimizing Execution Risk
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Converting Opportunities to Performance
Strategic Options
External
Factors
Changes emerging in the external environment
Internal
Factors
Capabilities to execute the strategy
Strategic Options: What is the best path to long-term value?
Growth
Long Term
Value
Organic
Acquired
CustomerBase
Share of wallet
Profits
Geographicfootprint
Newcustomers
New or better
products
Product
Mix
Efficiency
Invest toInnovate
Invest to reduce costs
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• Has done a critical, data-driven evaluation of internal
capabilities
• Effectively links operating and capital budgets to strategy;
strategic objectives with performance evaluation and rewards
DescriptionComponents
• Has done a critical, data-driven evaluation of
marketplace opportunities and needs
• Has strong mechanism for monitoring results on strategic
initiatives; actual performance versus expectations
Strategic Planning Components
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Customers and Markets
Understood
Internal Capabilities
Understood
Effective Linkages
Progress is Known,
Tangible
Agreed Upon, Shared
Vision
Clearly Communicated
Future Direction
• Has done an effective job of involving key stakeholders
(owners, directors, leadership, senior management)
• Strategy statement/document clearly delineates the future
path and performance objectives; strategic initiatives to get
there
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2 431
A Process That Works
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Link to operating and
capital budgets;
management
objectives,
compensation
Execute the
Strategy
Agree and
communicate the
strategy, objectives,
and road map
Develop the
Strategy
Discuss performance,
strategic options; drive
to common
understanding
Conduct Planning
Sessions
Compile
comprehensive
information for
planning sessions
Establish a Common
Fact Base
Focus the organization on a course of action to achieve its objectives
1. Where are we now?
2. Where do we want to be?
Structured, logical path to build a well-thought out and agreed upon
strategy
3. How do we get there?
4. How do we measure our progress?
Simple Question Set
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Changes Emerging in External Environment
Internet of things,
delivery channel
evolution or revolution,
cybersecurity − threats
to information assets
EconomyPolitical,
Regulatory
Technology
Customers
Industry
Competition
External
Factors
Analysis
Margin compression,
increased capital
requirements, lower
returns to owners,
acquire or be acquired
Prosperity trends, lackluster
GDP growth trends, monetary
policy, interest rates, capital
market directional trends
National elections and
business orientation,
regulatory compliance
and rising cost
Saturated markets,
scale and cost
advantages, new
entrants
Emerging segments;
changing preferences,
habits, and attributes;
brand loyalty
The ability of an organization to sense the changes emerging in its external environment
and to develop decisions and actions to mitigate risks and take advantage of
opportunities – and doing this better than the competition
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Business Segment Assessment
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Fact base established at business segment level
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• What are our major
opportunities to
improve
operational
performance?
• What are the
internal strengths
and weaknesses of
the business –
people, process,
and technology?
• How do they help
or constrain the
business?
• What customer
segments,
products, and
markets offer the
greatest potential?
• What is the
strategy to most
profitably serve
those customer
segments and
markets?
• Who are the
competitors?
• What is the basis
of competition?
• How do we perform
versus those
companies?
Operating
Model
Internal
Capabilities
Opportunities
& Strategy
Competitive
Position
1
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Community Bank ($1.0 Billion; FDIC-Assisted Transactions)
Business Lines: Commercial, Retail, and Mortgage
1 Strategy and Opportunity Alignment: Why A
Business View?
Strategy, Initiatives, and Opportunities
• Strategy: Serve chosen communities and provide
increasing value to our target customers while
improving the efficiency with which we deliver
services and returns to shareholders
• Strategic Initiatives: Improve efficiency ratio and
bank operations and technology platform to support
further growth, improved service
• Progress: Improved efficiency ratio, loan growth,
NPA, transaction readiness; solid deposit fee
revenue
#1: Commercial #2: Retail #3: Mortgage
• C&I Lending Growth
• Deposit Growth
• Service Profitability
Improvement
• Operations Streamlining
• Consumer Lending Growth
• E-banking Leverage
• Compensation,
Profitability, Growth Trade-
offs
Enterprise-level strategies and
perspectives can mask
opportunities. Acquired and
existing customers and markets
may be underserved; revenue or
profit enhancement opportunities
missed.
Long-Term Value = Profits ↑ Investing to reduce costs, ↔ Investing to innovate;
Growth ↑ geographic footprint; ↔ Share of wallet, new customers
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Integration
Strategy
Delivery
Network
Operating Model
Core
Competencies
Competitive
Analysis
Evaluating Opportunities and Options
Matching marketplace opportunities and core competencies by business
segment, overall
ProductsCustomer
Segments
Marketplace
Market
Opportunities
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• Ask tough, but
necessary questions
• Agree on business
opportunities and core
capabilities
• Ask tough, but
necessary questions
• Agree on what not to
do, as well as do
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Strategy − Focus on Course of Action to Achieve
Goals3
Plan should capture and summarize
• Strategy statement
• Characterizes the products-to-target markets and segments,
channels to reach those targets; specifies explicit profit and
performance objectives; states distinguishing operational
philosophies
• Assumptions under which the plan was prepared
• Financial projections
• Desired future state
• Primary Strategic Initiatives to reach that desired future state
• Accountability, action steps and timelines, specific milestones,
success clearly defined
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Strategy ‒ Explicit Profit and Performance
Objectives
Banks ($500MM to $1.0B)
Measures
Tier 1 Tier 4 Tier 5
Bottom
25%
Top 75 to
89%
Top 10%
ROA .40 1.37 1.85
Efficiency (%) 84.34 59.12 52.13
NIM 3.47 4.08 4.61
Loan Growth (%) 1.08 13.61 19.39
Adj. Texas Ratio 42.31 7.47 6.82
That next level and actions required to get there can vary considerably
A strategy that employees can readily embrace and takes the bank to the next
level of performance
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Source: SNL Analysis of U.S. Banks from $500MM to $1.0B, 2015 Rankings Based on 6 Factors (ROATA before tax, NCOs/Avg Loans,
Efficiency Ratio, Adj. Texas Ratio, NIM, Loan Growth Rate (2771 Banks)
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Citizens Business Bank (CBB)
The segment: small to middle size businesses, de novo in 1975
3 Top Performers Convert Opportunities Better Than Others
Source: Winning Strategies in Community Banking, Project Excellence, 1998 KPMG Peat Marwick LLP
Winning Strategies in Community Banking
(KPMG 1998)
• Top Performing Community Bank − $1.3 billion in
assets
• Clear vision of strategy and market from beginning.
Business and professional market is where CBB can
make the difference and have the greatest
competitive advantage.
• CBB put in place a customer-focused sales driven
strategy with unparalleled customer service as a
cornerstone. Sales is a top priority. “If you are good
at sales, then good business will come to you,” per
CEO D. Linn Wiley.
“Wiley believes strongly that
today’s banking market demands a
commitment to rigorous
‘professional management.’ He
asserts, ‘We are a planning
oriented company.’ The bank goes
through an annual planning
process in November formulating
specific goals and plans for the
coming year. Wiley then puts in
place the structure and people to
support the plan.”
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Citizens Business Bank155 Consecutive Quarters of Profitability 105 of Paying Cash Dividends (2015)
3 Top Performers Convert Opportunities Better Than Others continued
Source: CVB Financial Corp. Annual Report 2015; 4th Quarter Analyst Briefing
“Our team has worked hard to
execute the long-term strategy of
our bank which is to build and
maintain relationships with the best
small to middle size businesses
and their owners in our geographic
marketplace.”
- Chris Myers, CEO
4th Quarter 2015, Analyst Briefing
The Best Bank in America
(Forbes 2015)
• Top 5 Bank (Bank Director Magazine), SNL Top 100 $1 to
$10B − $7.7 billion in assets
• Vision…Become premier financial services
company...serving the comprehensive financial needs of
successful small to medium-sized businesses and their
owners.
• Mission…Achieve superior financial performance and
rank in the top 10 percent of financial institutions in the
nation in ROE and ROA…Will be achieved by delivering
the finest in financial products and services through
relationship banking commitments with businesses and
professionals…
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Minimizing Execution Risk
Commit to an
identityDifferentiate and grow by being clear-
minded about what you can do best
1
Translate the
strategic into
every day
Build and connect the cross-functional
capabilities that deliver your strategic
intent
2
Put your
culture
to work
Celebrate and leverage your cultural
strengths
3
Cut costs to
grow stronger
Prune what doesn’t matter to invest more
in what does
4
Shape your
future
Reimagine your capabilities, create
demand, and realign your industry on
your own terms
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Five Acts of Unconventional Leadership
Source: How Winning Companies Close the Strategy-to-Execution Gap, Paul Leinwand and Cesare Maindari, 2016 Harvard Business
School Publishing
4
• Have the right people on board
• Have a clear strategy and path
to execution
• Be agile in adapting to
changing external factors,
market circumstances
• Be very disciplined in plan
development and execution
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Community Bank ($5.0 Billion)
The Business: Business, Relationship Banking
4 Execution Comes First
A Vision, Complimentary Operating Model, and Execution Excellence
SNL Top 100 Bank, 2015 ($1.0 to 10.0 B)
Commit to an
identityFull service professional business bank with a high level of service
differential, a long-term view
1
Translate the
strategic into
every day
High performance standards and processes and practices that drive
customer-centric behavior and build long-term profitable customer
relationships
2
Put your
culture
to work
Sales and service culture executed by bankers who fit; cascading sales
objectives at all levels of the organization – mutual understanding of and
accountability for success
3
Cut costs to
grow stronger
Scalable and efficient operating model; use latest technology to provide
service and convenience to customers – stay “branch” light
4
Shape your
future
Disciplined, but opportunistic de novo growth – tap into experienced,
connected bankers, attract influential shareholders who bring business to the
bank
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• Planning Process: “There needs to be a great deal of intentional
discipline – a standard process that is predictable and executed every year.
– February – Executive management team looks out a couple of years; invite
experts of various types to participate in dialog
– May – Have extended meeting with board to look forward; discuss performance
– July – Update the strategy; offsite with board and executive management team
– September – Updated strategy reflected in the budgets
– Monthly and quarterly – Assess how well we are doing.”
• Strategy Execution: “Key to execution is accountability.
– Overall linkage is essential – strategic goals budget goals individual
goals/incentive plans
– Tie compensation to strategy. Some goals/aspects are easy since it’s meeting
the numbers; some are more difficult to establish because they are more
intangible – but they all need to be linked together.”
Source: Interview with CEO, Diversified Financial Services Company (Banking and Specialty Finance), 2016
4 Minimizing Execution Risk continued
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Closing Comments
• It is essential that:
Leadership has confidence in the strategy
The strategy is understood across the bank
The strategy can be or is being executed.
• Anything less makes dealing with headwinds extremely difficult.
• Q&A
With today’s external regulatory and competitive pressures and uncertain
economic environment, building franchise value requires a well-thought out
and agreed upon strategy.
