Culture is a critical requirement for any business to achieve its business objectives. As the popular saying goes, “culture eats strategy for breakfast”. Well-thought out strategies, processes, policies, frameworks and models; without an enabling culture won’t return desired corporate values for any organization.
A lending business, like any other business requires the right culture to achieve its business objectives; whatever those may be. It should be noted that what the “right” culture is in this case varies from organization to organization.
What exactly is culture in the context of your business?
We can describe culture as the summation of how things are done within an organization; the deep-seated unwritten rules that guide the behavior of stakeholders within the organization. Amongst other influences, culture tends to reflect in how relationships are sustained within the organization (authoritative or empowered), the risk appetite of the organization (risk averse or change ready), the operating environment of the organization (structured or flexible) and the overall approach to driving results (competitive or collaborative).
What culture should you adopt in your lending business?
There’s no clear-cut template for what culture an organization must have; each organization must draft its own culture to suit the strategy it seeks to pursue. For instance, a lending organization seeking to primarily drive profitability must adopt a conservative approach to risk management. This will influence all activities executed within the organization: from how the sales team generates and assesses leads, to how the customer support team manages customer relationships.
Alternatively, an organization seeking aggressive market expansion must be willing to adopt a more risk-taking culture, cascading down to how the sales team engages customers and how their risk acceptance criteria are implemented.
Your risk appetite in lending, more importantly, will influence how loan applications are assessed by your credit risk management team. On one hand, risk averse lenders will tend to go with stricter rules for credit scoring; assigning lower points to riskier loan profiles, giving out small loans and generally playing it “safe”. While on the other hand, risk neutral lenders or those who have an appetite for taking risks might allow their decision process to cater to what maximizes profitability; give out larger ticket loans and cater to a wider segment of borrowers.
How to define culture within your lending business
The need to align culture to strategy can’t be overemphasized. To penetrate new markets and pursue niche market segments, large lenders across the world quite often set-up a different strategic business unit (SBU) from their primary outfit to ensure that the culture within the new team is not hindered by that of the parent body in a way that limits it from achieving its objectives.
To ensure you have the right culture for your organization, there’s a need to review your business objectives and define the modus operandi that will enable you to achieve this. Some of the key questions you’d need to ask yourself include:
- How must we communicate with each other to achieve this?
- How must we communicate with our customers?
- How must the managers relate with the subordinates in the organization?
- What risk orientation must we adopt as an organization?
- What operating structure should we adopt?
- Should our sales team be collaborative or competitive?
- What decision making approach should we adopt?
- Should we be an achievement driven organization or a people-first organization?
Once the right culture has been established, this must be properly communicated to all staff within the organization to avoid misunderstandings or possible actions that go directly against the culture of the business.
How to determine if your business needs a culture change
Given that culture can’t be quantified, there’s no fixed way to measure its effectiveness. However, there are some warning signs to indicate that your organization might have a bad or toxic culture.
A bad culture within your business will tell on employees’ attitude towards their work. Employees become more frustrated, detached and experience increased negative emotions towards their work and may eventually leave the organization. A high employee turnover rate is a red flag for any business and so is low morale.
If the toxicity is not addressed timely and effectively, it harms the overall profitability of your lending business. Imagine having loan officers who no longer care about their jobs enough to conduct the thorough checks or customer support officers who feel apathy towards the organization and begin to treat customers poorly, driving them away. The cost of frequent recruitment and lost business if left unchecked over time can completely cripple your lending business.
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