The Importance of Change Management at Community Banks

When $850 million-asset Bank of Charles Town implemented a new loan origination system in 2023, the technical details demanded far less time and attention than did the emotional aspects of the change, recalls Raymond F. Goodrich, executive vice president and chief lending officer for the Charles Town, W.Va., community bank.

“Employees want to be successful, but when you present change, it can feel like failure because they don’t know this new job,” says Goodrich.

As is often the case, the loan origination system that the Bank of Charles Town installed created new processes and changed employees’ roles, too, as the front line took on some of the loan documentation work that had been exclusively handled in the back office.

To deal with this upheaval, Goodrich regularly asked employees, “How can we make your job better?” He also made the back office responsible for quality control—a critical new role that replaced some of the documentation work being completed elsewhere.

“I can’t stress enough how the emotional side has to be cultivated as much as the technical side,” he says. “Bankers default to the technical, but here we have to default to the emotional, the heart of the concerns, because doing so makes adoption much quicker.”

“Change freaks [most of] us out,” says Andrew Silsby, president and CEO at $1.7 billion-asset Kennebec Savings Bank in Augusta, Maine. He notes that “the fear of change is usually harder than the change itself.”

He contends that change management is particularly daunting for bankers, who “tend to be people who take great pride in being experts. When there’s a technology change, no one’s an expert anymore. It can be devastating, and it rattles people’s self-confidence.”

The good news, says Silsby, is that “with nearly every change we’ve gone through at the bank, very quickly folks have become experts again.”

A change strategy is critical

Not all bank executives ace change management. In fact, 38% of banking leaders in a January EY study said that their transformations underperformed against key performance indicators (KPIs).

Jason Henrichs, CEO of banking consortium Alloy Labs Alliance, has even heard some community bankers lament, “‘We’ve tried change, and it didn’t work.’”

When change “fails,” Henrichs finds that the culprit may be “digitalizing an analog process without changing behaviors.”

In the worst-case scenario, employees outright reject a new system, turning instead to the old and familiar. As an example, he notes that when a bank implements a state-of-the-art dashboard, the data itself won’t bring about change; the data must actually be used by employees before solid improvements appear.

“The human element needs to buy into the idea that this isn’t just about learning a new technology, a new system, a new interface—it’s adapting what we do,” says Henrichs. “Where we see projects that don’t work … it’s because there wasn’t enough time spent around the people piece and the cultural changes that have to go on when you’re asking people to modify behaviors.”

Charles Potts, ICBA executive vice president and chief innovation officer, agrees. “Developing a strategic plan that answers the ‘what’ and the ‘why’ provides the guideposts and North Star for any change-management undertaking,” he says.

For Toni Lucky, chief retail officer at $1 billion-asset Legend Bank in Bowie, Texas, “getting buy-in from the team” is critical for change to take root.

Lucky emphasizes the importance of repeatedly communicating a message of change, using everything from email to team meetings or “pow-wows,” as Legend’s monthly webinars are called. By communicating and then creating internal champions, a bank can “push out the message to everyone who needs to hear it,” she explains.

When Legend recently moved away from two dated systems, implementing instead a single, more user-friendly dashboard through data analytics software company KlariVis, a former ThinkTECH Accelerator participant, the imperative for change was unmistakable given that one of the systems was sunsetting and would soon cease to be supported. Even though the ease of the new dashboard elicited “lots of wows,” Lucky explains that employees still had to be reminded to use the new system rather than defaulting to the old.

Converting the naysayers

One irony of change management is that organizations with extremely strong cultures may struggle more mightily than their peers.

Take $378 million-asset Honor Bank, whose 78 employees view themselves “as a team and as a family,” says Max Anderson, assistant vice president and commercial lender. When the Honor, Mich.-based community bank implemented a new lending platform, it took plenty of championing from the top.

“Change can be most difficult when you have longevity and a tight-knit group,” says Anderson. Knowing there would be pitfalls in adopting a new lending platform, he focused on “how as a group you adapt to the challenges you’re encountering.”

At Kennebec Savings Bank, Silsby says that, “hands down,” he as CEO is the individual responsible for the success of any new technology venture. “There’s always going to be naysayers, and it’s my job to win over those folks,” he says.

The key to overcoming resistance is providing a strong rationale for why change is occurring and then building support by involving as many people in the decision-making process as possible. Silsby is a strong believer in creating champions and then embarking upon a “train the trainer” model.

He also advocates making the most of any and all training opportunities, especially chances to interact with a new system before it’s up and running. “I’m not sure you can ever do enough pre-training for technology changes,” he says.

While change can create enormous anxiety, Silsby notes that it also furnishes opportunities above and beyond the advantages a new system or process brings. He notes that “change has a cleansing effect on an organization”—an effect that can be enormously beneficial.

“The positive side of change is it gives everybody an opportunity to learn the new system from the same starting point,” he maintains. Say that one individual has reigned as expert of tax escrow for 15 years. With a new technology and a fresh set of processes, a different individual may suddenly shine in ways that seemed unthinkable.

Silsby continues: “I often say to my staff: ‘When we do technology changes, there will be people who stand up to the occasion and others who sit down.’”

Legend’s Lucky raises a similar point. “When we start down a path of change, we often think so-and-so is going to give us trouble,” she says. “Usually, our biggest surprise is who steps up and champions a project. There may be someone we couldn’t see as a future leader who really makes a difference.”

Rewarding bravery

A well-conceived change initiative is both specific and measurable, says ICBA’s Potts. In the best of all worlds, savvy community bankers will establish KPIs early so everyone knows what success looks like. Throughout the change process, a project’s leaders can leverage data and analytics to see how a new technology is meeting objectives.

“Part of the management of change is measurement,” says Potts, citing business guru Peter Drucker, who famously said "What gets measured gets managed."

Alloy Labs’ Henrichs agrees that a clear understanding of strategy and of what success will look like can serve as antidote to a creeping incrementalism that can hijack a change management plan. “The buzz saw we see people walk into again and again is that they want absolute certainty,” he says. “If you want absolute certainty about how something is going to work out, you begin to pull yourself back into the box of the world you understand very well.”

To illustrate how a willingness to change can be reinforced, Henrichs describes the CEO of a $10 billion‑asset bank who used an in-person, all-bank monthly meeting to praise branch managers and others who took bold actions in support of the bank’s explicit goal of becoming more data driven. At this meeting, the CEO called a few individuals onto the stage to commend them for specific steps taken, even if the actions didn't necessarily yield successful results.

Henrichs notes that singling out individuals for praise is a terrific way to clarify and cement change. “As people explore and try new things, having an individual at the top publicly reward bravery really can go far,” he says.

Providing regular acknowledgment of positive change also underscores a message heard time after time: Change management, when done well, is part of a journey of continuous improvement.

“Change is a fact of life, and so the quicker organizations understand and recognize how to manage change—and how to do it well—the better off they are,” says Honor’s Anderson. “Once one change has been put to bed, there’s always going to be a new one waiting.”