January 6, 2003

Financial Services Industry Newsletter

Strategies for Success

Branch Planning "Do's" and "Don'ts"

After years of cost cutting and consolidation, retail branch expansion is "hot" again. But building distribution is an expensive, long term capital investment -- and that translates to higher risk. You can significantly improve the return on your investment by following a few simple rules:

DO

• Understand the growth potential of your existing branches before investing in de-novo expansion. We almost always find there is more revenue opportunity than management may have realized. Have you analyzed all your existing branches to determine opportunities for growth? Are sales goals based on growth potential, or are they just a function of historical growth ("last year plus 10%")? Are no-growth and low-growth branches being dealt with appropriately?
• Look at "capturable market share", not just the total market potential. One of the most frequent analytical mistakes we see is the failure to take into account competitors in the market place, and the shift in behavior of your own customers. The issue is not just how much market potential exists, but rather how much can you capture. And remember, when you open a new branch there may be some positive network effect (greater overall market convenience), but will also be some cannibalization of existing branches as customer shift to new, more convenient facilities.
• Do the analysis -- but don't over analyze! We look for the "80% solution". There's a point where the answer (from a strategic perspective) is clear and the issue shifts to implementation rather than further analysis. After all, the goal of is not data collection per se, but rather sufficient data to help management identify the best investment of human and financial capital to move the organization forward.
• Most importantly -- remember that the job is just beginning when the branch is built. Selecting the right markets is just the first step in optimizing success and reducing risk. But then the hard work begins. A typical branch takes 3 years to become profitable. Do you have the right marketing, sales management, staffing plans in place to achieve your results?

DON'T

• Make your decision primarily on real estate availability. How many times have we heard or "it's a great real estate deal" (often property owned by a customer), or "if we don't take it, the competition will." That may be true, but stick with your strategy. Focus on the right markets, and you'll have the greatest success.
• Let the squeaky wheel drive your decisions. Aggressive market presidents will often push forward their plans. You need aggressive and committed managers -- but just because the market president in the Western Region is more forceful and articulate doesn't mean it's the best decision for the stockholders.
• Assume that a branch is necessary -- there may be better distribution strategies for generating revenue growth. Branch expansion isn't always the answer. Sometimes the best opportunities lie in your own backyard -- in doing better with what you have. Or in non-branch distribution.
  Our distribution size up can help you identify the optimal distribution network to meet your current and future customer requirements. We have helped numerous clients improve their retail branch effectiveness resulting in significant improvements in service delivery, sales effectiveness, and cost management.

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