The big unknown of the corona crisis brings banks in uncharted waters. In order to weather the storm, banks need to make a shift from crisis measurements to a long-term solution. Although Dutch courts are hesitant to file unnecessary corona bankruptcies¹, the situation urges to make this shift quickly. Latest figures corroborate this urge, as they demonstrate that support already came too late for a rising number of companies. Despite crisis measurements, 2/3rd of the Dutch hospitality industry is now on the brink of bankruptcy².
This situation requires strong collaboration between entrepreneurs, banks and the government to find a solution that fits both the short- and long-term. In this article we describe how management can remain firmly at the helm, while navigating the bank into calmer waters.
Source: CBS, April 2020
Lessons from the financial crisis
The crisis of 2008 teaches us that having a forward-looking perspective will significantly increase the odds of a long-term survival. Research shows that just 9% of companies came roaring out of the last crisis³. Most companies battened down the hatches, while some continued to run a tight ship. Companies that dared to innovate, refrained from rigorous cost cutting and focused on efficient investments in their core business, jumped the curve and outperformed their peers after the crisis4 . Inspiring examples from last crisis are not only well-known tech start-ups (e.g. Adyen, Uber) but also traditional companies that were able to reinvent themselves (e.g. Lego, Domino’s Pizza).
Source: Gartner expo 2019, Barcelona
Although each crisis is unique, history shows that a forward-looking approach can be rewarding for every company.
Break away from crisis management, to focus on the future
While some companies are already adapting to the new 1.5m economy, most banks are still tangled up in crisis management. How can banks break away from crisis management and focus on the dot on the horizon? In order to do this, fact-based decision making is paramount (see our previous article). This can be hindered by the fact that current forecasting models are not designed for these unprecedented times and are based on historical data.
At IG&H we notice that this uncertainty requires banks to accelerate their efforts to become more adaptive and data driven. Examples that we already see or you could think of are:
- Next level digitalisation of key customer journeys as the new standard (e.g. digital signing of mortgage)
- Introduction of continuous monitoring – providing both credit departments and entrepreneurs insight into their short-term liquidity need and longer term outlook (e.g. stress test app)
- Call centre automation by use of AI and robot technology to reduce operational pressure
- Data-driven lending – make application and review process for emergency loans data driven
- Active use of dashboarding and Management Information to monitor large volumes of applications and keep track of progress
- Strengthen financial restructuring activities to prevent clients from bankruptcy
Maintain your crisis execution power
A much-heard positive side effect of the crisis, is that a lot of companies have had a crash course in fast decision making and execution power – and found their true agility. The trick will be to maintain and nurture these new learned habits and embed these into your daily practice when social distancing restrictions will be lifted.
Start with data driven customer insights and learn by doing
No company can turn itself around overnight, but every company can learn by doing. For example, developing a data driven solution for emergency loans for SME (BMKB-regeling) could be the new blueprint for the long-desired digitalisation of all regular commercial lending processes. Data driven lending as a solution, not only to cope with Corona impact but also to control risk, improve NPS & sales and reduce costs after the crisis.
Because of the urgent need for survival for a substantial group of entrepreneurs, some parallels can be drawn with medical triage. Clients do need a quick fix, but only one that helps them for a long-term survival. To do so banks need to answer several difficult questions fast:
- How can we determine which clients are in direct need and how to support them with forward looking perspective instead of a quick fix?
- Which clients do not have a chance for survival?
- How could we offer smart monitoring to our clients and what is the impact on operations, IT and client interaction?
- What solutions would help clients to become financially more robust so that they can survive a double dip or any other setback?
By making the leap to becoming a more strategic partner in business for their clients, banks can be part of this long-term solution. And this might just be the key for banks to come roaring out of this crisis. By making their clients successful, banks become a true success themselves.
Bas de Jong
¹ FD, Rechters krijgen oproep om onnodige coronafaillisementen te voorkomen, April 2020
² Koninklijke Horeca Nederland, April 2020
³ Harvard Business Review, Roaring out of Recession, 2018
4 Gartner, Barcelona Expo, 2019