Penny Pinching - The Independent Community Bankers of America

June 2005
76 independentbanker
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ike a Hollywood
starlette, IT spending’s star is on the
rise. Technology
consultancy
Celent Communications is
forecasting a 4 percent or $44
million increase in IT budgets this
year, and ICBA’s own survey found a
similar trend: 48 percent of community bankers (59 percent of whom
manage banks with assets in excess of
$100 million) said their latest IT budget was more than the previous year’s
allotment.
But is the spending justified? Ask
about the reason to increase line-item
budget for IT initiatives and you’ll
likely hear concerns about increased
competition; widespread focus on superior customer service; and new
regulatory requirements, all of which
have technology implications. These
concerns, coupled with ongoing costs
to support existing technology, are driving IT expenditures, community
bankers frequently report.
But not everyone has joined the IT
spending bandwagon. Dissenting industry voices, arguing against the fait
accompli of continually rising technology costs, continue to grow louder.
Leveraging and stretching current
IT systems to maximize returns
by Robert Brannum
L
measure
the full
Alternative strategies to larger
IT budgets are a prominent industry theme this year and
were discussed in det ail at
ICBA’s National Convention
and Techworld conference in
March.
During one conference presentation, consulting firm RSM McGladrey
argued that community bank IT companies haven’t offered many “real
technology advances” for the last two
or three years. Vendors who want to
“partner” with your bank are really
selling old milk in new bottles, maintained Chip Fradet, manager of RSM
McGladrey’s technology risk management service, who delivered the
presentation.
One of the key premises Fradet presented is that banks are not fully
leveraging the system and infrastructure technologies they’ve already
purchased—and therefore banks
should “maximize the potential of
their current systems” before considering significant new IT expenditures.
Fradet cited a study that estimates
that banks use only 40 percent of their
already purchased and available technological functionality. Similar to
those among us who realize that we
June 2005
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77
measure
the full
only use a fraction of Microsoft Word’s word processing capabilities, Fradet said, there is
significant functionality lying dormant within
current systems used by many banks. “A common
example of unused functionality,” he said, “involves simple reporting. Bankers often purchase
sophisticated report generation packages, when
report generation tools already built in to their
MCIF would serve them perfectly well.”
There are many reasons bankers unintentionally
fail to fully leverage that functionality, some of
which include lack of sufficient training by technology vendors, lack of an internal bank sponsor to
drive the implementation and training processes,
and simply lack of time. Regardless of the type of
system or application in question, bankers must ensure they
fully utilize all vendor-offered
training, assign an internal
product champion and network with fellow technology
users.
Many technology vendors
er than
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ag
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C le a n in g H o u
June 2005
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which doesn’t necessarily include employees who
actually implement and assess a system’s functionality for the bank. The result: Many technology
decision-makers don’t fully understand the compatibility between the new and the existing systems.
This can lead to “technology overbuy,” when senior
managers don’t know enough about the technologies their bank already owns.
Fradet cites teller system interfaces, which essentially sit in front of yesteryear back-end systems, and
Web banking products that “link” to core systems as
two typical examples of technology systems banks
often don’t fully employ.
Even when a technology
purchase is justified, getting
Capacity Issues
ne area where community
bankers should look before leaping is in their data
network investment expenditures, according to Chip
Fradet, manager of RSM
McGladrey’s Technology Risk
Management Service.
Before investing in expensive
T-3 and T-1 broadband lines,
for example, Fradet says bank
executives should ask: Are
they necessary? Are they
strategic? What ROI or market
advantage will they bring? Can
improvements be made to our
current infrastructure to raise
optimization while keeping new
expenditures down?
Fradet suggests examining
your bank’s telecommunications bill. Review the services
provided and the rates
charged. Like residential telecom bills, there is a tendency
for telecom customers to “find
and forget”—to find a provider
and forget about the service.
Don’t overlook hidden costs
in your bank’s infrastructure,
he cautions. “Usually banks
add applications without
careful consideration to infrastructure, and they deal with
bandwidth and configuration
problems afterwards.”
June 2005
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the full
June 2005
buy-in from the user community after the installation can be problematic. Fradet suggests managers
identify and involve all essential constituencies in
the due diligence and selection process.
Midwest Independent Bank, a $205 million-asset
banker’s bank in Jefferson City, Mo., tries to lever-
82 independentbanker
age the most functionality from its technology systems. To do this, CEO David Vandeven says he
believes in assigning responsibility and ownership
of technology within the bank. “By assigning specific applications and processes to individuals, you
require someone in the bank to become proficient
with those systems,” Vandeven
says. “In the absence of ownership, you dilute the
functional expertise in those
areas.”
The moral of Vandeven’s
tale is that when there is no
ownership, the technology
lives in a vacuum with no
sponsor driving its implement ation, and not enough
energy is spent on ensuring
that all systems perform at
peak efficiency.
When to Invest
While there has been significant discussion in the
industry about preventing
unnecessary IT investments,
there is little about recognizing when it’s time to invest.
When are new expenditures
warranted? Are there obvious
signs that it’s time to dig
deep and spend on new
technology?
Tom Riffe, executive vice
president and chief operating
officer for $580 million-asset
Highlands Union Bank in
the southwest region of Virginia near the Tennessee
border, says he relies on colleagues and industry sources
of information to assist in his
decision process. Currently,
the bank is buying a new
proofing system so its tellers
can image customer checks
at the teller window. “The
need to invest in imaging
and Check 21 has been discussed in the industry media
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for some time,” Riffe says. “On a smaller scale, I
network with colleagues at industry events to better
understand the latest technologies and how to
utilize them.”
Getting technology buy-in from user and other
bank constituencies can make or break an expensive
technology project. Sometimes new functionality
isn’t properly introduced to the user community and
the implementation slows or fails, which is very costly. Such was the case at Highland Unions involving
an account inquiry function that had been in place
for about 10 years, says Riffe. “The new browserbased application had a
convenient point-and-click format. But it was different from
the old system, and people
didn’t like it, so they put it on
the shelf. We had to train and
retrain staff to use the new format,” he explains.
Banks should also bolster
the oversight of their IT purchasing process. Vandeven of
Midwest Independent Bank
recalls an experience. “In the
past, the IT requisition
process was decentralized,
and our resource acquisition
process was not efficient. Over
the last two years our technology committee, which
includes senior management,
became the clearinghouse for
technology hardware and software purchases above a
minimum amount.”
Bankers must continually
pursue an optimal balance of
IT innovation, management
and re-investment to maximize their ROI. As banking
and technology become even
more integrated, the ability to
effectively utilize technology
will become a key competitive advantage. Bankers who
focus on key issues
today—IT efficiency, vendor
selection, technology oversight and management—will
be best positioned to succeed
tomorrow. ib
June 2005
Robert Brannum is a free-lance
writer in Boston.
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