Why Discipline, Not Momentum, Drives Better Bank Performance
In this episode, Nick Koutouras explores what it takes to build a repeatable operating rhythm that strengthens pricing discipline, portfolio oversight, and relationship decision-making. The conversation looks at how governance drift begins, what signals leaders should watch for, and how banks can maintain consistency even when business conditions are strong.
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[Blog] Designing the Operating Rhythm of a Relationship-Focused Bank
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Transcript
Cheryl Brown
Welcome to The Purposeful Banker, the podcast brought to you by Q2, where we discuss the big topics on the minds of today's best bankers. I'm Cheryl Brown, welcome to the show.
For many banks, the challenge isn't knowing what good discipline looks like. It's maintaining that discipline consistently over time. Today, we're talking about the operating rhythm behind strong banking performance, how governance drift starts before results clearly deteriorate, and what leaders can do to spot and correct those patterns early.
Nick Koutouras is back in the studio with us again. As a reminder, he leads Q2's Relationship Pricing and Profitability team, and he's been doing a lot of writing on our blog and on his LinkedIn about his Beyond Pricing playbook, which explores the practical side of relationship economics, pricing discipline, and governance in banking.
His perspective's especially valuable because he focuses not just on strategy, but on the routines, review structures, and management habits that help banks turn good intentions into consistent performance. So Nick, welcome back to the show.
Nick Koutouras
Cheryl, thank you for having me back.
Cheryl Brown
So let's dig right in. This playbook that you've written—which we'll be sharing pretty soon. We haven't shared it yet. We're kind of keeping it under lock and key, but we'll be sharing it pretty soon—but in this playbook, you talk about an operating rhythm. So what does that really mean in practice for a bank leadership team?
Nick Koutouras
So in your opening remarks, you referenced discipline. And I think it's rooted kind of in a few different, I would call it perhaps cliches, but discipline, muscle memory. It's just about establishing the cadence and the practice of continuously looking at the relationships inside of a commercial bank.
When you start setting standing meetings and you look at perhaps the more difficult relationships or the vulnerable relationships, you start establishing this pattern. And over time, what ends up happening is you implement this thinking that: Let's focus on our relationships. Let's drive this rhythm. So that way, when we're faced with new pricing decisions, we can look at it in the lens of we've looked at others in the past and it's now becoming a consistent framework.
Cheryl Brown
So, you know, speaking of framework, you describe in your playbook a four-stage cycle and you've talked a little bit about this on, you know, previous podcasts here on The Purposeful Banker. But that cycle includes stakeholder readouts, account planning, pricing review, and measurement. So, can you just talk a little bit about how those pieces work together and why they work together better together than as separate activities?
Nick Koutouras
So if you visualize for a second four boxes, one at 12, one at 3, one at 6, one at 9, and it defines this continuous loop or the boundary of the circle. And really, where do you start? And it's always difficult when I describe this to pick a point where we start, but let's start with stakeholders.
So stakeholders is the starting point when you begin or launch this process. But stakeholders really are focused in on what's happening in the business and how does that apply to what's happening in the commercial bank. And then more specifically, I've found that stakeholders are more interested in understanding what's not working, less interested about celebrating consistently with the leadership team inside things that work because their expectation is things are working and they really are there to try to figure out what's not working.
And so we always start with the stakeholders when I describe this. But the stakeholders will then tell us what is on their mind at that moment, something that would measure to be underperforming, whether it's a return threshold, a liquidity profile, a net interest margin result, or the depth of the relationship typically measured in the proportion between fee income and revenue. But in that assessment will come out relationships that they view as underperforming.
And so when you start there, then you can easily assign those relationships to the banking team to then assess whether they're low potential. So you've got underperforming and the request that comes from executives. Are these low potential? In most cases, they're not. In most cases, the deal teams get together with their product partners and they begin the conversation.
But also what you do is now you add in time because the worst thing that you can do when you're approaching someone to make a decision, especially in a relationship that has perhaps a thinner return, is to do it, “Can you just approve this right now because I've got to go to the client tomorrow.” So adding some time allows for those conversations to unfold and for credible account plans to develop. You also can find new opportunities. Really that's what you're trying to do is find new opportunities for the bank. But this is way before a binding proposal goes out.
So now we've moved, if we started with account planning at six o'clock, let's move to nine o'clock. I'm sorry, stakeholder readout at six o'clock. We moved to account planning at nine o'clock. Now we're at top of the hour. And then we're going to issue a binding proposal to the client. That's the pricing phase. This is when you are actually making that commitment to the client. And this is where you have that final check to make sure that we're all aligned on the relationship opportunity.
Then you move down to three o'clock and the relationship is … the client accepts it, and we begin cultivating the rest of the account plan. And then you have a measurement cycle there at 3 o'clock. And then it feeds right back into the account planning routine. I'm sorry, the stakeholder readout routine, where they come back and they assess, did the account plan blossom the way we thought it was?
And so having that rotation and that constant rotation is what really then builds the rhythm because we as a banking team are looking at the relationships throughout the cycle, throughout the cycles in the market, throughout the constraints that we have inside the institution. And we really then come back to finding that peak performance.
Cheryl Brown
Well, and then, you know, sometimes that cycle may result in finding out that maybe a client isn't as profitable as they should or could be. And so one of the more interesting points in your work is that, you know, you assert that some of the toughest conversations happen when longstanding relationships are reviewed through a new economic lens. So what makes those conversations so important?
Nick Koutouras
I think it touches a few different things. First, the data is the prompt and the results that start the conversation. But really, then you get into the emotion and really confronting the fear of losing this relationship.
So let me talk about first emotion. These relationships are hard to get. The banker will build very close relationships with the leadership team at their clients. They go to conferences together, they go to lunches together, they understand the intricacies of their business plan. So they've invested a ton of time and relationships are hard to cultivate. So this is never a frivolous or trivial conversation when we talk about relationships that may have to, we may have to decide that we're not the right bank for that client.
So you pluck that string of emotion. But then you also then come back in and you find that really there are other opportunities there that for one reason or the other, there's been a blocker, whether it was confidence with the product team or confidence with the banker on the the new product or concept that they're promoting to the client. So those kinds of obstacles are the ones that kind of come out in these conversations.
But that's where it really starts is first that when you look at a relationship, you've always said, hey, perennial, we've been doing this relationship forever. And the results have been acceptable before. Why is it not now? And then it raises the follow-on questions on, well, I can bring more, but I'm concerned that my product team is not strong. Or I can bring more, but I'm not quite sure how to speak to the client about it. And so there's that fear of losing that relationship. And what this process does is you kind of get in front of that, and you help confront that anomaly or that uncomfortable situation.
Cheryl Brown
Yeah, you make the assertion also that governance usually drifts before performance does. So underperforming is not even the first indicator, it's like the last indicator. So there's, you know, there's earlier signs. What are some of these earlier signs that leaders should be watching?
Nick Koutouras
Yeah, the biggest sign is just this subtle drift in key metrics like net interest margin. You start seeing that slide down. You start seeing forecast misses. So where you are expecting a certain fee trend that didn't materialize. When you start seeing these misses and they're unexpected misses because you haven't seen the relationship in a while. Those are the signs that something is drifting.
And that's where it can compound because if the institution has made pricing decisions and they layer on top of each other, those pricing decisions are going to survive for two and three years. And so now you've embedded this slow erosion of performance into the line of business. So that's really what you ... What's one big piece, you see?
The other piece that I talk about a lot is the differences between averages and medians. And sometimes averages can conceal what's really happening because you may have large relationships that are carrying the financial performance of the entire unit. But when you go down and look at the medians, all of a sudden that average is producing a false positive. And I have a great example that sometimes I use.
In my prior life, we would have this one product that would appear to have been the averages were really high. That's exactly what we would expect on these averages for this product revenue. But when we looked at it more carefully, we found that the revenue was concentrated in the top three clients and the medians were actually very, very low. And what would suggest is that we were performing poorly in that product, and then that average concealed what was really happening. It was a false positive.
So you've got to really kind of lift the hood of the numbers and get into it. But first, I would look at your financial forecast. And if you're starting to see unexpected misses, that's a sign. Then get into the averages, but then go underneath or into the medians and get comfortable that the median is growing or the median is moving in a way that you expect it. Because if the median's not, then you also have a sign.
Cheryl Brown
Yeah, you know, it's when everything looks good that things can actually be dangerous because then you're not looking for the issues. But governance, you know, you've already given a few ways that governance can keep you from falling into that dangerous territory. What about documentation and what about, what other parts of discipline play out here?
Nick Koutouras
So the caution I always kind of raise is let's not get hypnotized by success. So a lot of times if you're crushing the financial plan, so you kind of look at the other side and say, well, Nick, you just told me that if my financial forecast is missing, then I got a problem. So if it's hitting, I must be OK. And the reality is what you don't want to have happen is a relaxation. And sometimes people get lulled into this relaxation and all of a sudden pricing review meetings get canceled. It's like, we're doing well. Oh, we had a good quarter. We can back off a little bit. And I kind of look at it more as dials. And you could alter your expectations and targets. And that's critical with your stakeholder readout.
But you can't stop. And if you stop, then you start losing that muscle memory. You start losing that discipline and you start creating confusion in the messaging to your bankers. This process, no one's looking to have meetings for sport. But what this really does is this is the hallmark of transparency and communication to the bankers. You're helping the bankers know what is good and what is not. And so when you start relaxing or start being uneven, hitting the brakes and then hitting the gas and hitting the brakes, that creates that variability, creates then variability and performance, and then you're headed to some tough conversations. That's really, for me, that's the big driver.
Cheryl Brown
Well, and measurement seems to be where real accountability happens. Despite all discipline, it's where you measure and where that comes in. So how should banks think about closing the loop between what was approved and what actually happened?
Nick Koutouras
That is so important. It's the trust and verify. So this entire process operates on the belief that everyone's well-intentioned and everyone is producing a credible account plan and a credible pricing calculation and pricing sheet, and then going out and delivering on those commitments as best they can.
But what ends up happening is in that trust/verify process, I view that not as the stick, but it's a mechanism that kind of comes back and says, let's identify the patterns and the signals that are coming out of the portfolio. So if we had a lot of opportunities that say in swaps or some foreign exchange opportunities, and we're finding that consistently, we're missing those, then that would suggest that there's some other blocker that's out there. The blocker could be there is an operational issue. There could be an educational issue. There could be an incentive issue, but there's something that's blocking that achievement.
But that's really where you have the system that's closed because your stakeholders tell you what needs to happen. You shape account plans. You issue binding proposals to the client, and then those have to come back around and begin revealing themselves in the financial results. And so this trust/verify process is absolutely the most critical piece of it because it also does send a signal back through the system that, hey, look, we want to give you as much as we can so that way you can continue to delight your client.
However, we want to make sure that those account plans are credible. And that sends the signal throughout the system that we're going to approve the deals and we're going to trust that you're going to do your best to go get them. And then if we find that we've got patterns, then we can go back in the system and find out where those blockers are and then learn from it and then come back around. And next time we see those relationships, we may find that we may not be the right bank because we can't execute on that trade that we think we can get.
Cheryl Brown
So Nick, this sounds great. But for some folks who are listening, like maybe our relationship managers, some of the folks who are really on the front line talking with their business clients, this may sound a little bit like red tape, more blockers to moving quickly, blockers to agility. So for banking leaders who are listening today, what's one practical step they can take to strengthen discipline without creating unnecessary bureaucracy? Like this doesn't have to necessarily mean making things harder and making things less agile, right? What's one practical way that they can do this without creating that red tape?
Nick Koutouras
So that was a concern I've confronted in my prior roles. And I think when you asked that question just now, my mind went to two different spots. I think they're, and maybe they're companions. But it gets back into some of the things I've talked about in the past on simplifying the metrics. If you can simplify the metrics that way, it's very quick to say, this one's working, this one's difficult, let's talk about this a little bit more, what else can we do here? But that transparency and simplification then gets you down to really where you want to get to is trust. That's what you want to find is trust.
And so when bankers believe that we're trying to get answers to their opportunities and even get to yes and find everything we can to get to yes. And once they hear the words, but they're still skeptical, but once they see it in action, that's what you want to find.
So what ends up happening in my view is simplification of metrics bring trust and then that brings speed. And then the muscle memory that you develop by having this rhythm established will get you to a point where you can quickly signal yes or no, in most cases yes, within minutes of a meeting. So it actually improves speed. So we have found that in practice, when I've deployed this, we found that it was actually getting us to a speedier outcome.
Cheryl Brown
Yeah, because, you know, sometimes objections are just really not about less agility. It's really about change and not wanting to do something differently. Like you're used to doing it a certain way or, or you also interpret discipline as you're locking me down. I don't have the ability to, you know, build the relationship the way that I see.
Nick Koutouras
Yeah.
Cheryl Brown
Did you experience that when you rolled this out in the bank that you worked for? Was there a transition period where the RMs just had to be sold on the idea first?
Nick Koutouras
Sure, yeah. I've got four stages, and it almost aligns with maybe grief, but really these four stages have changed. It's like stage one is that it's pure rejection. And we as a deployment team need to be flawless, flawless with the numbers, flawless with everything that they're seeing so we can build that confidence. So that's kind of stage one. Stage two is this reluctant acceptance. Fine. Nick, I'll believe these are your numbers, but fine, we'll manage to your numbers. Stage three, you get into a little bit more active acceptance. Now you're starting to, they're starting to craft plans. And then by stage four, it was their idea. And that becomes my nirvana. It's like getting them to stage four.
But what's really, again, rooted in all of this is trust and transparency. And for me, the happiest day was when some of the more, let's call them prickly bankers, knew they had a difficult relationship because the numbers were there and they could trust me enough to come and let's talk about it, let's syndicate the support that we need to get you to yes. So is there anything else that you can bring? I can go talk to Treasury, maybe we look at this deal a little differently when we do our calculations. But they found that I became their advocate and that's how I got their trust. But that's how you implement and then ultimately win them over.
Cheryl Brown
Well, I think that's a great place to stop for this time. I know we're going to bring you on the podcast at least one more time to talk about the rest of the playbook, but we're kind of breaking it into little chapters for you. So thanks, Nick, for coming on.
Nick Koutouras
Thank you, this was great.
Cheryl Brown
And correct me if I'm wrong, will you be speaking about this topic at CONNECT, our upcoming customer conference?
Nick Koutouras
Absolutely. This topic and many more topics will be presented at CONNECT in June. So I'm looking forward to sharing more with everyone who makes it to Austin June 1st, 2nd, 3rd.
Cheryl Brown
Yeah, awesome. So yeah, if you're coming to CONNECT, look for Nick's sessions. But in the meantime, check out our blog. Nick's writing on our blog. He's talking about some of these same topics that he covered in his playbook. And also go check out his LinkedIn. I'll put a link to it in the show notes.
And that's it for another episode of The Purposeful Banker. You can subscribe to the show wherever you listen to podcasts, including YouTube, Apple, and Spotify, and you can see your archive of podcasts at hub.q2.com/podcasts. Until next time, this is Cheryl Brown, and you've been listening to The Purposeful Banker.