Commercial Loan Automation
Small Business Banking
Don Miller, CIO of 1st Source, has recently shared with me some outstanding tips for successful system conversions. I'd like to pass the wisdom on:
Make sure the new system truly duplicates the functionality of the old system that you're leaving behind.
Find out in advance who owns all the systems in your "package" and who maintains them. It might NOT be your primary vendor.
Make sure the systems are CURRENTLY integrated vs. inter-dependant.
Spend more due diligence time on the specific details of what the new system actually will deliver.
The main issue oftentimes is not the core but the ancillary parts.
Keep copies of every vendor presentation you receive; accept nothing in a verbal form.
My only addition to the outstanding list is: ensure you have an experienced negotiator for contract negotiations; legal counsel typically does not have the requisite expertise to identify the hidden pitfalls.
Thanks, Don, for your insights!
Also, Liat and I are currently in Bangkok, concluding our Food Pilgrimage around-the-world trip. We reported daily in our blog, blog.anatbird.com, and uploaded pictures to both the website and the blog as well. Ariks bar mitzvah was also awesome. He did a great job, we were right among the excavations of the second temple 2000 years ago and by the recently uncovered part of the Western Wall, and he made me very proud. Again pictures are posted.
The financial services industry has been struggling with the concept of measurement for decades. Until recently, cost and profitability were elusive ideas, only to be vaguely estimated. Today, most profitability systems on the market prove ineffective, as their mathematically accurate formulae "discriminate" for high-balance products and against low balance ones, such that an average balance retail free checking account is worth much less than a high-yield, low margin MMA account. The information then becomes dangerous, as it could lead to poor decisions.
With the new recognition of the critical importance of accurate information to manage the business, financial institutions are approaching the subject with renewed vigor. "That which is expected must be inspected", some say, and I, for one, support that idea. The question is, what should be measured? If we measure too much (as many banks do), we end up measuring nothing, since the data becomes overwhelming, and one report indistinguishable from another. How do we determine which key measurements to focus on, and how to develop a comfort level with their accuracy?
Industry Week magazine regularly conducts studies on the activity of measurement. As we know, service industries lag behind manufacturing, so it is interesting to see where manufacturing is going in advancing measurement.
Industry Week examined how executives measure six strategic performance areas that are crucial to long-term success:
Innovation and change
Community and environmental issues
As I read the list, I was struck by how similar this list is to the issues facing banks' long-term success, and how universally applicable executive-level information requirements are.
Industry Week explored two simple questions: First, how highly do you value the information in each strategic area? Second, would you bet your job on the quality of information in each of the areas? Their responses are interesting:
HOW DO YOU MEASURE PERFORMANCE AREAS CRUCIAL TO LONG-TERM SUCCESS?
|Measurement Performance area||% of execs valuing info||% willing to bet their job on the quality of the data
Interestingly, customer satisfaction ranked as the single most important piece of information for senior-level corporate management. Unfortunately, they did not have a high confidence level in the quality of information pertaining to this area. Predictably, financial performance was both of crucial importance and represented highly reliable information. Banks experience similar gaps as their manufacturing brethren.
Two other areas, employee performance and innovation, ranked very low in management confidence in the quality of data, although both were recognized by at least 50% of the respondents to be quite important.
Few managers feel that their organization has been able to define in clear, unambiguous terms what it hoped to accomplish in certain areas. Even customer satisfaction wasn't among the crisply defined areas, and banks can certainly empathize with that issue, using the same mystery shops across the board and coming up with great numbers that predict and explain very little...
The Industry Week study indicated that, while executives need a broad array of information across several performance areas, the one area they rely the most on is the financial data where the information is reliable and easily accessible. In other areas, some of which are of pivotal importance, particularly customer satisfaction and employee performance, executives feel their organizations were unsuccessful in generating reliable information, and therefore did not include that information heavily in their decision making.
The underlying assumption - measurement equals better performance - also needs to be questioned. Industry Week identified those organizations that were "measurement-managed" (as defined by agreement among senior management on measurable data and criteria for determining strategic success, and where management updated and reviewed at least twice a year performance in three or more of the six primary information areas described earlier) and compared them to others that did not place much reliance on measurement.
Below is the value of performance measurement in terms of financial performance and change management ability:
THE VALUE OF MEASUREMENT MANAGEMENT
|Measurement of success||% of measurement-managed companies||% of non-measurement-managed companies|
|Perceived as industry leader 3+ years||74||44|
|Financial ranked in top 33% of industry||83||52|
|Successfully led major cultural or operational change||97||55|
It is particularly striking that 97% of the measurement-based companies experienced successful cultural or operational changes, as compared to 55% of non-measurement based organizations. This figure is particularly impressive and critically relevant to the banking industry where, if nothing else, there is clear consensus that change is happening and ever-present, accelerating in pace, and therefore its management is a critical survival factor the future.
The study's conclusion is that good measurement is essential to good management. This is not magic; it is simple blocking and tackling. Importantly, the components of this hands-on measurement approach go way beyond pure financial performance and operational efficiency, and are rigorously applied to the soft side of the business, addressing customer satisfaction, human resources and innovativeness. Complex organizations require greater alignment and a balanced set of performance gauges. The four key elements in achieving such balance are:
Agreement on strategy.
Only 7% of measurement-managed companies (as compared with 63% of the others) reported lack of agreement among top management on the business strategy of the company. They then translated the vision, or strategy, into measurable objectives. If high specificity helps surface and resolve hidden disagreement, it often gets buried when the strategy remains abstract.
Clarity of communication.
Many senior managers in the banking business feel they clearly communicate their strategy, but while the vision is crystal clear in their minds, it does not cascade throughout the company. A prerequisite to good communication is a clear message. If the strategy itself is unclear, insisting on measures for strategic goals can force clarity. Without such clarity, employees are left uncertain about how they can contribute and which direction is forward. Linking employee performance to corporate goals through scorecards is one mechanism by which an effective information measurement-managed company can mobilize its workforce to achieve success.
Measurement also provides a common language for communication. People talk about how they get measured. A common language requires openness, however, and indeed in measurement-managed companies, 71% of the managers reported that information within their organizations was shared openly and candidly, compared with only 30% in the non-measurement based companies.
Focus and alignment efforts.
Measurement-based companies reported more frequently that unit performance measures were linked to strategic company measures (74% vs. 16%), as well as individual performance measures being linked to unit measures (52% vs. 11%). As the banking industry moves toward the portfolio theory of banking, where core banking is open of several lines of business run within the holding company umbrella, but where core banking provides the synergy to make the whole greater than the sum of the parts, the focus and alignment efforts are critical to success. Without them, silos deepen even further
Measurement-managed companies further support this concept by linking multiple measures of performance into compensation (47% vs. 9%). Motivating employees and telling them you put your money where your mouth is clinches the deal.
Every company has a culture, a set of common values and attitudes that characterize it. Successful companies which are measurement-based emphasize values such as teamwork, self-monitoring performance against agreed-upon standards, or willingness to take risks to accomplish objectives much more than other companies. Have you achieved such alignment?
What I've described thus far is motherhood and apple pie. Who can disagree with the proposition that a good management-measurement system is an important management tool? If that is the case, why aren't more companies managing by deploying and reviewing a balanced set of measures? Here are some of the reasons:
It's tough to run a business without clearly defined objectives, and in an industry in such a state of flux as ours, where measurement itself is questionable, it is often tough to develop objectives with sufficient precision to be measurable. Many companies do not invest the time needed to define with precision the areas of performance that go beyond the purely financial and operational measures. If you struggle with the question of how to quantify soft areas, ask yourself what is the desired result and how can it be measured. If you take the approach that everyone in the bank has a customer, then customer satisfaction can be measured on the customer's terms. Other areas such as employee performance and other stakeholders' satisfaction can also be quantified.
Second, articulate your company's non-negotiables: what are the things that are absolutely essential to become a successful member of your team? What are the key execution elements you're looking for? The real issue is what behaviors look like every day, job by job, and do they reflect the values you are espousing. Just read my recent article about Starbucks; they figured this one out...
Reliance on informal feedback systems
Many companies place unwarranted trust in informal information channels and anecdotal data as mechanisms for measuring performance. While these are valuable, they are, by definition, imprecise, do not provide an early warning system, and are unreliable.
Entrenched management systems.
Most banks already have some type of measurement system in place. Inertia and resistance to chance prevent many from scuttling what they have and going for a new program. Few companies have been courageous enough to say, we are going to try something new because we believe it is right and we will measure it accordingly. Most others want to see their current measures work and therefore are closed to the need to obtain and integrate new yardsticks into day-to-day management.
Measurement can be debilitating if overdone. Too many measures trivialize the effort. In building scorecards, many end up with 20+ measures (even if they are under 4 or 5 categories). People cannot focus their attention in a meaningful way on more than a dozen measures; a handful is "capacity" for most of us. As a result of management's reluctance to truly prioritize, employees end up prioritizing in their own minds, creating a smaller sub-group of the measures on which they concentrate. We might as well weed those up-front and apply the appropriate weight to each of a handful of measures that will signal how critical they are to overall corporate performance and individual success.
With all the change taking place in our business, organizations are becoming more like molecules operating under the Heisenberg's Uncertainty Principle, rather than sure-footed organisms
Past mechanisms and approximations do not optimize an organization. While an effective measurement approach is not going to make the world stand still, or reduce the need for strategic clarity, it should help your bank anticipate change and provide a set of coordinates to monitor progress and manage through troubled waters so you can chart your own course and achieve your clearly set objectives.