By
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
, executive editor
No room left for good intentions. Bankers increasingly press consultants for concrete
results.
Often they hand over the keys and say, "You drive"
Mankind has always stood in
need of good advice, and often went far to seek it. The Greeks had the
Oracle at Delphi. What is the Bible's Book of Proverbs but an extensive
guide to right action? George Washington had General Pulaski, a
foreigner who gets much of the credit for turning a rabble into the
Continental Army's crack cavalry. Charlie Brown had Lucy Van Pelt in
her sidewalk psychiatric booth. Nancy Reagan and countless others have
their astrologers.
Businessmen and women rely on
consultants. This is hardly a 21st century idea. Consider this quote
from Hal Higdon's The Business Healers:
"Business has become so complex
today, particularly with the advance of computer sciences, that no one
man can possibly have all the answers. He is forced to go outside for
help to succeed. Š And so the management consulting profession has
experienced its greatest period of growth within the past decade."
Take a guess when this was written. 2001?
Try 1969. Higdon's book was
rich in references to such names as Booz, Allen & Hamilton; Boston
Consulting Group; Fry Consultants; A.T. Kearney and Co.; McKinsey &
Co.; and more. Some remain, others have faded through mergers or
otherwise.
Banking has not only dipped
into the pool of advice generated by such titans of the industry, but
has spawned nearly countless legions of more specialized consultants.
If a megabank redefines its
mission in life, odds are a consultant has been involved. If a
community bank introduces overdraft checking, insurance brokerage, or
asset finance, odds are strong that a consultant designed and helped
implement the program. And, as with AmSouth, one of the first things a
bank in compliance trouble must agree to is engagement of an outside
expert.
Sources of consulting expertise
have grown and blurred as the dividing lines between law firms,
accounting firms, and traditional consulting firms have blurred.
Increasingly, the line between consultant and client itself has
blurred, as business process outsourcing has turned advisors into
implementers.
Regulatory emphasis on "risk
management," in all its variations, has heavily influenced the shape of
both newcomers and consulting firms of longstanding. Even the
Sarbanes-Oxley Act, bane of so many bankers today, has exercised its
own influence.
In putting together this look
at the modern consulting business and banking, ABA Banking Journal
spoke with both bankers and representatives of more than 20 consulting
firms, from giants to boutiques and specialists to one-person shops.
We've also looked to our own experience‹the symbiois between banking
press and consultants teaches much over the years.
This first instalment of this
two-part article concerns bankers' use of consultants, how it has
evolved and why. In January, the second part will examine how banks can
get the most out of their consulting bucks. A listing of consultants
interviewed, with more about their firms, appears on the homepage.
Widening industry, narrower needs
Traditionally, when a banker thought of a consultant, the term connoted a visionary, a strategic thinker, a management guru.
"There's a lot more things that
are called 'consulting' today than were called 'consulting' 20 years
ago," says James McCormick, president of First Manhattan Consulting
Group. Back then, McKinsey and its peers, and some major banking
specialists like Golembe and his own firm were the names that came to
mind. "Now," says McCormick, who continues to concentrate on management
strategies, "the list of where consulting dollars go is dominated by
those firms that deal in technology and implementation." McCormick,
whose firm does risk management and other services as well, sees demand
as cyclical, with a resurgence of major interest in strategic
consulting, with an emphasis on revenue growth, in the offing.
At one time in Corporate
America, as Higdon's book traces, using a major consulting firm was
something of a status symbol, and one that more than likely was
controlled and metered from the corner office or even the boardroom.
Big experts meant big bucks. Major banking firms were, and are, not
immune to the allure of management strategists. But consulting has so
broadened in scope and purpose that of very large banks contacted for
this article, representatives said that the decision to bring in a
consultant of any kind more often than not is pushed down to individual
business units.
Consulting for such companies
has become not an elixir for the elite, but a workaday solution to
various types of challenges that managers closer to the front line
bring in like infantry commanders call in air strikes. A spokeswoman
for Wells Fargo, for instance, said consulting usage is completely
decentralized, so broad and deep are that megabank's activities. This
was heard from other large banks too.
Even in banks out of the top 50, consulting has often become less a bankwide event and more a very specific purchase.
"We're using consultants at
about the same volume we always have," says Dave Kuhl, chairman and CEO
at $1.5 billion-assets Busey Bank, Urbana, Ill., "but we're much more
pinpointed in how we use them." While ten or more years back banks like
his brought in consultants to assist in improving operational
effectiveness, "when we use consultants now, it's for specific items
that we feel we need to address."
Case in point at Busey now is
the issue of compensation. Management recently brought in a
compensation firm to help frame a new pay scheme.
"It's more of a rifle approach
now," says Kuhl, "than an overall strategic approach. And we are more
specific about what we expect to get out of any given consulting
arrangement." Regarding the compensation engagement, Kuhl notes that
before the consultant began, management presented it with a list of 15
criteria.
Robert Wholey points to the
paradox of modern banking: "The deregulation of the business has
warranted a tremendous amount of additional regulation which has
resulted in more need for consultants to help bankers deal with these
added duties." That, and technology, says Wholey (pronounced "hooley"),
who is vice-chairman of Central Financial Corp., a mutibank holding
company based in Hutchinson, Kan. Prior to 2000, Wholey spent 22 years
as a banking consultant with an accounting/consulting firm that
eventually became part of RSM McGladrey, Inc.
Much of what a bank runs on
today is beyond the ken of the typical midsize or smaller CEO. "It's
like getting TiVo at home," says Wholey. "You buy it, and then you have
to get your kids to help."
It's important to recognize,
too, that not all banking institutions hang out the welcome sign for
consultants. At New York's North Fork Bancorp, for instance, CEO John
Adam Kanas doesn't believe in consultants, insisting that his
organization can get by quite well, for the most part, on its own
internal expertise. Jamie Dimon, chief executive of Bank One, now part
of J.P. Morgan Chase, was notorious in consulting circles for firing
those whom he felt weren't delivering value.
Community banks and consultants
This limited use of consultants
is not solely a big bank matter. For example, Ronald Wilbur, president
at Merrimack County Savings Bank, a $350 million-assets mutual savings
bank based in Concord, N.H., says his institution chiefly uses
consultants for highly specialized technological challenges where the
cost of getting staff up to speed for a one-time event would make that
more costly to handle internally.
"We do it when there's no point
reinventing wheels," says Wilbur. For a pending imaging project the
bank is using a consulting firm, for instance.
In other banks, the usage of
consultants in episodic. Richard White, chairman, president, and CEO of
$330 million-assets Community National Bank, Derby, Vt., says that,
other than the bank's ongoing use of an asset-liability management
consultant‹and periodic consultation with an investment banker‹his
institution hasn't used consultants significantly in the last few
years. A while back consultants were used to devise a strategic plan,
and later to devise a technology plan, but there hasn't been the need
in some time.
Among community-bank oriented consultants, Dr. Douglas Austin has seen it all in 37 years of advising banks.
"I've always been something of
a transactional consultant," helping community banks engineer deals of
one kind or another, says Austin. His consulting career actually began
as a freebie. He was on the staff of the Federal Reserve Bank of
Cleveland and he found that community banks frequently needed to revise
their regulatory applications before they would pass muster. In time he
found himself with six children to support, and Austin realized what
he'd been doing as a government service could be a business.
Austin notes that banking
evolved into a business that less often had to apply for permission to
do things and instead became a business that could move ahead but had
to comply with rules as it moved. Austin's practice evolved, too.
Frequently he found himself functioning as a strategic planner and
facilitator and a professional confidante to community bank CEOs.
"Many CEOs didn't have anybody to talk to," Austin explains.
That part of his old business
is gone, says Austin. Changing demographics among community bank
leadership teams have brought that change about. Austin explains that
community bank CEOs of today bring more education to the job than the
previous generation and they tend to be more sophisticated as well.
More CEOs in small banks have MBAs, for instance, and have taken pains
to surround themselves with strong lieutenants.
At the same time, the nitty
gritty has in many cases spawned the need for specialized help. Jeff
Gerrish, chairman of Gerrish & McCreary Consultans LLC, says
capital planning, succession planning, and the whole area of
shareholder value keep people like himself quite busy.
"I have a found a lot of banks
focused now on how to do a good job for shareholders because they
realize that they can no longer rely on them to stick with management
for the long term otherwise," says Gerrish. He explains that as
ownership passes to successive generations, loyalty goes out the window
and money comes in the door. Keep them happy, says Gerrish, or work on
getting the best price for your bank in a sale.
Community banking has seen its
own consulting metamorphosis. RSM McGladrey's Koltveit now runs his
firm's community bank CEO peer group program and has been compiling
results of a survey of program members regarding the consulting
services they use. Among the top uses are asset-liability management
and interest-rate risk; investment portfolio management; regulatory
compliance; and strategic planning.
But the full list goes on, and
on, and includes marketing; compensation plans; branching strategy;
deposit and loan pricing and structuring; and training.
Consultants' many modern roles
Author Robert A. Heinlein's
1950's short story "We Also Walk Dogs" told of a dog walking service
that evolved into a firm called "General Services" that provided any
service the client asked for, provided it was legal and possible.
Perhaps Heinlein was ahead of
his time. Today, the consulting firms that serve banking have evolved
into additional roles beyond the two basics: 1. the classical paid
thinker who turns out a report, and 2. the consultant-cum-lobbyist, the
go-between with connections. Among the new arrangements are the
following:
Consultant as
subject-area specialist. Some generalist firms do it all, providing
both high-level consulting as well as more discrete services, they been
joined by leagues of specialists, focusing on compliance, compensation,
payments processing, and more.
Consultant as contract worker. Increasingly, individuals doing business with banks as "consultants" are contract workers, virtually shared employees who spread their expertise over multiple organizations but who function essentially as staff while there. Many of these "contract workers" are experienced folks made redundant in the course of consolidation.
"Even though people grumble about the price of consulting services, this option can be a very effective way to address a task," says Jo Ann S. Barefoot, a compliance expert, who consults under the name of Jo Ann Barefoot & Co.
Consultants as soldiers. More consulting firms are functioning as mercenary soldiers brought in to supplement a banking company's existing "army."
"A lot of the work we do today is not so much the bank looking to us for insight, as it is the bank looking to us as qualified people who can help them get where they are going," says Christopher Formant, EVP at BearingPoint's North American Financial Services business unit.
Consultant as outsourcer. Increasingly, large consulting firms are providers of service and software, not just recommenders of same.
The advent of consultant as outsourcer really began to register from 2000 to late 2003, according to Toni Langlinais, managing partner at Accenture for Financial Services North America Business Consulting. She notes that in this period Accenture and its competitors evolved their own workforces to become "implementers and owners of the processes we designed" or redesigned. Firms went from simply advising big banks on running business segments to actually running those segments. In a recent assignment, Accenture is assisting a large client to grow customer relationships through cross-selling.Accenture‹not the client‹staffed up with expertise and resources and has been carrying out the effort directly.
Besides the Accentures of the business, other shops offer outsourced labor. The Secura Group, LLC, for instance, with a strong contingent of former regulators, branched from regulatory consulting into such nitty-gritty functions as loan review.
Consultant as vendor‹or vice-versa. Which came first, the consultant as vendor or the vendor as consultant? From the vendor side, part of what has driven this is the growing belief that the tangible product quickly becomes a commodity. The place to profit appears to be from value added. From the consulting side, there is the argument of providing one-stop shopping.
An archetype of the vendor turned consultant is Unisys, where a change at the top seven years ago led to a new attitude that hardware didn't matter so much as what you did with it, Dominick Cavuoto explains. Today 80% of Unisys' business consists of services and software and only 20% from hardware.
"Unisys knew how to build clocks and did it well," says Cavuoto. "But Unisys formerly didn't have the ability to help a client tell time."
Consultant as "all of the above." The consultant of the future may already exist in the guise of Promontory Group, LLC, established by former Comptroller Eugene Ludwig. Its staff is drawn from regulatory, financial, and academic circles‹hardly unique, but what the firm is doing with it represents a shift in direction. Besides more traditional consulting and compliance and risk management work, Promontory has made headlines with high-profile assignments such as Ludwig's involvement earlier this year in assisting Citigroup with the dismantling of its Japanese operation. But what sets Promontory further apart is willingness to step into the role of "manufacturer."
When the firm finds a need that many institutions share, it will not only invent the solution, but operate it as a business line. One big success is the CDARS service, which enables banks to substantially increase deposit insurance coverage. BJ
A veteran's viewpoint on the evolution of big bank consulting
The advent of the web, PowerPoint, cell phones, and wireless hotsites still amazes veteran bank consultant Ed Furash.
These powerful technology tools, all part of the standard consultant's kit now, weren't even dreamt of in the beginning. In the late '60s and into the '70s Furash had stints teaching at some of the most prestigious business schools and then started in the consulting business with the Arthur D. Little firm, where more than one bank consultant began.
At Little, Furash recalls, "you had to find a secretary when you had to retype your consulting reports because of revisions, and you quailed before you made a change. I remember what a great relief there was when Wite Out was invented."
Now, of course, computers have helped make consultants serial tree killers, producing charts, handouts, and more by the pound. But the semi-retired Furash feels that the time to think, really think, has passed by.
"People expect things in two hours now," he says, "and they don't feel the slightest pity for you." He ruminates on the change of business pace that everyone over the age of 35 feels today, and concludes, "Once, you could rely on the fact that people slept now and then. Now, nobody sleeps."
Furash is one of small number of experts still on the landscape that one could call the deans of big bank consulting. He went from Little to a strategic planning post at Shawmut Bank to the famous Golembe consulting firm, run by mentor Carter Golembe, to launch his own firm in the late '70s. He sold Furash & Co. in 1995 when it was 50 consultants strong after he decided the business had veered from what he liked. After specializing for a time in opening new banks for nonbanking companies, Furash and his son, Jim, established Treasury Bank, taking on Countrywide as an investment partner and running the big company's Countrywide Bank as a division. After serving as chairman, Furash more or less retired, keeping his hand in a bit by association with Capital Performance Group, Washington, D.C.
One of the most articulate and thoughtful of the breed, Furash is better equipped than most to chart the evolution of big bank's use of consultants.
Mid-1970s: Furash traces this as the beginning of truly bank-oriented consulting. "At that stage, it was mostly regulatory consulting," he recalls. Remember, this is when some of the industry's pioneers began probing the regulatory envelope to see how they could grow. Firms were small and like enough in size and scope that everybody played at the same level.
Late 1970s-mid-1980s: Cycles of big trouble among banks and savings institutions created demand for consultants who could help management‹either original or new teams doing a turnaround‹turn sows' ears into silk purses. At this point, too, large banks and many others began to realize the banking business was changing and that a strategic view was called for.
This is when Furash established a strong reputation for strategic consulting, and he and the early entrants soon had company. Large consulting firms saw banking as a veritable gold mine of fees, and accounting firms piled in as well.
Increasingly, he says, cookie-cutter solutions began to be peddled, warmed-over stews of trendy ideas. "As long as you had an imaginative approach to strategy, you could come in under the radar," says Furash, somewhat curmudgeonly.
Mid-1980s to mid-1990s: As the industry stopped reeling from oil crisis to real estate crisis to other trouble, big-league banking came under the shadow of the pernicious second-guessing of the newly empowered Wall Street analysts. Furash says they didn't want to hear about five-year plans that would fruit out someday. They wanted instant results.
Many consulting firms, sniffing the new wind, shifted towards quick fix solutions that would help big bank clients please the demigods of the Street. "Slash and burn" consulting plans became the rage. Chandrika Tandon became famous for her reengineering and restructuring programs for large banks. Tandon and others had large banks exiting entire business lines, laying off thousands, rebuilding processes from the ground up, all in the name of chopping big bucks out of budgets and showing Wall Street and stockholders who followed its mantras how quickly they could change stripes.
Much as an increasingly obese America embraced the "low-fat diet" revolution, America's large banks embraced corporate liposuction.
Mid-1990s to present: Furash says by this point large-bank CEOs increasingly began to patronize firms that went a step beyond suggesting ideas. This led to "shops that did business with a lot of hands on."
Simultaneously, says Furash, with the exception of large monoline institutions like Capital One, the nation's large banks have predominantly turned back in the direction of being generalists. As a consequence, "just about everybody" in that league pursues similar overall strategies and the game goes not to those with the bright plans, but the best execution.
"So now consulting for the big banks is not about what to do, but how to get it done," says Furash. A key example is the emphasis on information technology consulting seen in all banks, but especially large ones.
Hence there has been the melding of true traditional consulting into the business of consultant as participant.
"Today's consultant," says Furash, "is much more a spare pair of hands. Banking has become a business of paying unusually strong attention to details." — Steve Cocheo
What bankers want
By all accounts, bankers have grown more exacting about consulting, in terms of the goals they set for consultants and the end products they expect from them.
"Bankers are smarter today about laying out parameters regarding what they expect the results of assignments to be, and they manage the process a lot better," says Jim Koltveit (pron. "Colt-wait"), director at RSM McGladrey Inc., and a 41-year veteran of bank consulting.
Nowadays, bank CEOs tend to pounce on consultants' suggested solutions, picking them apart, questioning their bases, says J. Kevin McGrath, executive in charge of the financial institutions group at Crowe Chizek and Company LLC.
Indeed, when any paid advisor walks in the door, any vestige of learning his trade on your bank's dollar is gone. In this day of internet backgrounding, bankers expect consultants to not only know their stuff coming in, but to be thoroughly familiar with everything an outsider could learn about the bank.
Here are those other must have's:
1. More tailored work. Increasingly, banks aren't willing to settle for off-the-rack solutions. Tim Smith of Alex Sheshunoff Management Services L.P. credits much of this to the sheer pace and volume of change that bankers face. They need their outside advisors to give them final products that are close to ready to go, not something that the bank must figure out how to fit to its own staff, client base, budget, market, and such. Smith, president of his firm, says that the clients who get the most out of consulting arrangements are those that treat the consultant like a coach.
"Even Tiger Woods has a coach," Smith points out.
Frequently, there is also an impatience with the "big picture" solution. Often, says consultant Mark Lutchen, where banks once bought the whole pizza pie, they now want to buy advice by the slice, and not just any slice, but the one with the toppings they want. "Bankers want specifics, not generalities," says Lutchen, a partner at PricewaterhouseCoopers for global risk management solutions and leader of its IT Business Risk Management Practice..
2. More reality in the work. Banking has become like Major League Baseball; all the teams know what you have to do to succeed. They don't need anyone to tell them that they must touch first, second, third, and home to score. They want to know how to score runs.
"What banks need today is to take the theory and turn it into reality," says Dominick Cavuoto, corporate vice-president and president, Global Financial Services, at Unisys.
Adds Steve Hill, managing principal, global payments system consulting at Carreker Corp., "They want to know what the best guys have done and where people have failed and why."
3. More actionable recommendations. Increasingly, the days when a consultant could deliver a big bunch of blue sky bound with plastic ringlets is gone.
"Client banks are very concerned with whether they are getting a good ROI with their consulting dollars," says Margaret Kane, president and CEO of Kane Bank Services, a retail bank consulting specialist. "There is a stronger focus today on implementation of ideas being suggested."
Kane is a 17-year veteran of Wells Fargo and she recalls that many of the consultants she engaged were better at concepts than action. Even today, in the five years she's been on the other side of the desk, she has not only worked on numerous original assignments of her own, but also on the types of assignments that might make you think of a relief pitcher. These are cases where banks have received a report from a consultant that hasn't been clear enough on steps to take. — Steve Cocheo
Trackback(0)
|
TrackBack URI for this entry
Subscribe to this comment's feed
