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Is your organizational structure creating inefficiencies and turnover?

Jun 26, 2022
By: Danielle M. Heidemann

Financial institutions’ success depends greatly on their structure. Is yours leading to the results you expect?

Merriam-Webster defines structure as the aggregate of elements of an entity in their relationships to each other. A structure should have the capacity to withstand forces that could break or change its shape. A strong structure is a key element to creating an enduring organization.

If you were going to build a new office building, you would hire architects, engineers and other experts in their trade to ensure the building would withstand tangible forces such as weather, operate efficiently, provide functional spaces and, of course, look great.

A structure that serves your goals

A strong organizational structure is developed with a strategic focus that organizes roles and tasks into similar groups to achieve the financial institution’s goals and objectives. The structure can be based on process, function or even from the perspective of the customer’s journey.

If you apply the same thought process to the internal organization structure of your financial institution, you should be taking particular care to purposefully create the structure that would best support achieving strategic objectives. Still, it’s more common to see financial institution organizational charts developed as an afterthought based on arranging current individuals into groups.

Creating a strong organizational chart for community financial institutions can be a challenge. Because of their size, smaller financial institutions tend to lean toward hierarchical structures that are individual- focused or incumbent-based. In a hierarchical structure, employees are grouped under their supervisor. It’s common to see few individuals with large number of employees report to them, even if the roles and responsibilities don’t align. Incumbent-driven models assign tasks based on the employee’s aptitude or knowledge, instead of alignment with the role.

While there are often human capital cost-savings to this structure, hierarchical, incumbent-driven structures can also create inefficiencies and lead to turnover. Because tasks are assigned by aptitude, it’s common for senior management to focus on completing daily tasks, leaving little or no capacity to manage, coach or carry out strategic-level objectives.

This structure makes it difficult to pass on knowledge and build a strong next generation of employees. It’s also common to see tasks disproportionality distributed to a few trusted individuals, even if the tasks may not be consistent with the employee’s role.

Institutions tend to reward their highest and best performers with more work, which can eventually lead to burnout and ultimately turnover. Because this structure concentrates tasks and knowledge to a few individuals, when they leave or retire, much of that knowledge is taken with them.

Path to a role-driven structure

Is your financial institution experiencing some of the challenges described above? If so, it might be time to evaluate the current organizational structure to determine whether your financial institution has a role-driven structure or an incumbent-driven structure.

What would it take to move toward a role-driven structure? Comparing individuals’ tasks to their job descriptions to determine if a task is appropriate for a role is the first step. If the task does not align with the role, reassign the task to a role where it does align.

When this process is complete, the tasks assigned to each role should be based on the function of the role and not individual. You may find that key roles should be added to the organizational chart. If the appropriate roles are included in the organizational chart, tasks will be more evenly distributed, preventing burnout and freeing up capacity for managers to train and develop the financial institution’s future leaders.

Contact Wipfli to discuss whether your organizational structure is meeting the goals of your financial institution. We’ll help you identify and address operational inefficiencies that are affecting your objectives.

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Danielle M. Heidemann, CIA
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