Making change Featured

8:00pm EDT April 25, 2007
When Claude Davis arrived at First Financial Bancorp as its president and CEO in 2004, there wasn’t much mystery about what the company needed to do.

First Financial had gobbled up smaller banks and other financial businesses as the industry consolidated. It had made 18 acquisitions in four states over the years, but some of those deals weren’t profitable, and the synergies that were supposed to come from consolidation weren’t being realized.

“The business had gotten to the point where we weren’t leveraging the power of one brand and one message, and we weren’t leveraging some of the synergies associated with one organization,” says Davis.

Davis knew the bank needed to take advantage of some economies of scale, present a single brand to its customers, shed unprofitable businesses and start restructuring to eliminate redundant positions. But to do so meant a lot of change, something the work force wasn’t necessarily prepared to handle. Employees and managers alike were going to have to not only work through the overhaul of the business, they were going to have to change their whole method of thinking.

“Culture change is very hard and it takes a long time, and really working through with people how to think differently about the business and think differently about the organization has been the greatest challenge,” says Davis.

Transforming the culture at First Financial required emphasizing growth, even as some necessary cutbacks and divestitures were made, and keeping employees informed about as many of the changes as possible.

Emphasizing growth
Changing names, selling off businesses and making job cuts can easily be perceived throughout an organization as only negatives, undermining the progress and success of any reorganization plan.

“It’s really important to have a balance when you’re going through this process,” says Davis. “One of the first things we did was, as part of the strategy, a growth plan. We felt it was important not only to go about the process of reorganizing but to make it clear that our objective long term was to grow the company. It’s important, especially for associates of the organization, to understand that the goal and objective is to be a high performer, that we want to both grow the business as well as provide superior returns to shareholders.”

One of the first steps in the reorganization was to open new operations in Cincinnati and Dayton, two markets where First Financial had not had a presence. Davis says doing so reinforced the notion that the company was on a growth track. It also added people with specialized skills in its existing markets.

“In addition, especially in the commercial banking area, commercial lending and treasury management, we recruited several new staff people in both the new markets and in existing markets to demonstrate that we were trying to grow the business, even though we were reducing costs in other parts of the business,” says Davis. “We’ve also been adding sales staff in our wealth management group to try to expand that business.”

While headcount reductions were inevitable to eliminate redundancies, Davis wanted the layoffs to place minimum stress on the organization and avoid the loss of key employees who might fear that they would be the targets of future cuts.

First Financial made sure that employees in the organization knew as soon as possible when changes were going to occur so that they could plan accordingly.

“First of all, we tried to make sure that people understood why we were making the changes and why they were important,” says Davis. “Second was to make sure we communicated the change or the decision as soon as we possibly could to provide ample lead time for individuals. Third, we tried to have a fair severance package for those people who were affected.

“Considering the level of change, we were fortunate that we lost very few employees as the result of the reorganization, and we were simultaneously able to recruit several new very talented associates.”

Delivering the message
Davis doesn’t underestimate the ability of an organization to absorb and deal with change, as long as employees comprehend the changes and understand the rationale for them.

“I believe that when an organization is in significant need for change, that the associates know it better than anyone else,” says Davis. “It’s not the changes they have a problem with, it’s understanding where we’re going to be through this change.”

For that reason, communication has been the single most critical factor in making the changes successful at First Financial. The organization, which has $3.4 billion in total assets and $125 million in net interest income in 2006, accomplishes it at several levels, including Davis communicating directly with employees, indirectly through his senior management team and through video and print messages.

“I communicate to a broader group of senior managers, which is about 35 or 40 people, where we’re trying to get the message to them so they can deliver it out in more of a cascade communication approach,” Davis says. “I’ve done three different videos where there’s an all-employee message. That’s quickly turned around and sent out in DVD form to every branch and every department.”

Additionally, the company has used a series of ongoing newsletters that identify the key points about particular initiatives. For example, a series of newsletters about the IT conversion provided explanations of why the changes were being made, how it would affect the growth plan and covered the key points of the new system. A separate newsletter was used to facilitate announcements about the strategic plan.

Davis says he also spends a lot of time in the field, meeting with employees to explain the strategy and answer questions.

While the effectiveness of its communications hasn’t been formally measured, Davis says he can judge through his own interactions with managers and line employees how well the message is being communicated.

“I will tell you that most of how we’ve measured that has been anecdotal from the standpoint of, we’re constantly asking our managers, ‘How’s morale? What are the concerns?’” says Davis. “We try to create environments where people can ask questions. I’ve always said since I got here that I’ve got an open door, people can send me e-mails, call me, do whatever they want in terms of trying to understand the issues and the message. So we are constantly asking the questions.

“Whenever I’m out at a town hall meeting, I always have a lot of time for Q&A so I can understand what’s on people’s minds, and usually from those questions I get a sense of how people are feeling, and also if people are understanding what we’ve been communicating.”

Davis says it is important to keep in mind that newcomers to the organization are hearing the message of growth and reorganization for the first time, and that they need some context to understand what the company’s goals are going forward. Without understanding that a business unit sale is tied to the larger growth strategy, employees might reach the wrong conclusion when news of a divestiture comes out. So as the reorganization has unfolded, the company has taken steps to provide the back story to new employees.

“What we can’t forget is we have a group of people who are continuously new to the organization, because at entry levels, you have higher turnover rates,” Davis says. “You can’t forget that some percentage of your work force just joined you in the last month or two or three and they didn’t hear the previous five messages about the strategy.”

The measures are a combination of providing materials that explain the company’s reorganization strategy and a concerted effort by Davis and his managers to reinforce the strategy at every opportunity.

“We made some early videos of the importance of the plan,” Davis says. “We make sure they get those. Whenever I do a major issue or address, I always remind people of the core elements of the plan. We ask managers to make sure that people understand the plan and what we’re doing and why.”

Davis says the practice of reinforcement is valuable not only for newer employees but for the veterans, as well.

“As much as people get thrown at them, they only remember a certain percentage of it, and you have to keep reinforcing it so that they eventually understand,” Davis says. “I would tell you for the most part, because we have done a lot of communication, people do understand the strategy and understand what we’re trying to accomplish.”

Cognizant of the fact that as a service business, the bank needed to continue its day-to-day operations as usual during the reorganization, even as it was making fundamental changes such as transforming IT systems, Davis structured the management to make sure that client service remained a priority.

“We made sure there’s a group of managers whose sole focus is the clients and that they are not focused on the transition process,” says Davis.

And as with its employees, careful and thorough communication with customers was a must.

“Because you are going through a transition in a live environment, you have to make sure that each of them is executed in a way that has as minimal impact on the client as possible — and it will have client impact. If it’s a new system, that the system does what you think it’s going to do and that you communicate that change to the client.”

As the reorganization strategy that Davis rolled out not long after his arrival has taken hold, visible changes have occurred. First Financial put forth a new branding effort, uniting all of its operations under the First Financial banner. It sold off a bank, several branches and some poor-performing operations and paid off nearly $300 million in long-term debt in the process.

Changing the organization is ongoing and hasn’t been easy, but if the bank had failed to meet the challenge of change — both structural and cultural — First Financial’s competitiveness likely would have suffered. “I think growth would have continued to be a struggle, and the organization was falling behind competitively with its products and services, which I think over time would have affected margins and things like credit quality,” he says.

For Davis, the key was to make the necessary changes as quickly as possible because dragging it out can hurt a company.

Says Davis: “Quickly develop a plan, do not be afraid to make quick, drastic change and do it in a defined period of time, because I think every organization has a certain capacity for change over a certain time frame. If you extend it too long, I think it’s damaging to the organization. Keep communicating why you’re changing and how it relates back to the strategy.”

HOW TO REACH: First Financial Bancorp, www.bankatfirst.com