| Technology
Tradeoffs
 By
Thomas P. Johnson Jr.
The ultimate criterion
for prioritizing technology investments is what benefits
customers most.
Information technology investments certainly
can be hard to swallow in a down economy. In 2001 alone,
for example, U.S. banks spent an estimated $701 million
on the "analytics," or segmentation, component
of customer knowledge technology, according to TowerGroup.
Facing outlays such as these, many bankers will be tempted
to make across-the-board cutbacks.
Such a move would be tantamount to saying
that the company is unable to set priorities. Over and
over, we have seen institutions try to preserve all projects
by cutting each of them back by a uniform percentage.
It is glaringly obvious that all ventures are not equally
valuable, and that the company does itself no good by
crippling the most important things in order to preserve
the least important. Yet senior managers routinely fall
into that trap.
The better approach is to prioritize,
and customer impact — as each institution defines
it — arguably provides the best basis for doing that.
Segmentation, for example, has the potential to improve
multitudes of relationships by allowing institutions to
customize their approach to target market segments. Institutions
such as Pittsburgh-based PNC Financial Services Group
and Toronto's Royal Bank of Canada are able to use segmentation
data to design accounts that are optimized for major customer
groups. The success demonstrated by these players shows
that this technology is here to stay.
Account aggregation, by contrast, has
a steeper hill to climb. While this technology clearly
appeals to an elite group of customers, the evidence is
mounting that it does little for the majority. Only 0.7%
of online households currently use aggregation, according
to Forrester Research Inc., Cambridge, Mass., and strategists
clearly are struggling to build a solid business case.
The fallback justification — used
for a variety of emerging technologies — is that
aggregation appeals to the most profitable customers.
That argument, however, is badly overworked. Furthermore,
a growing body of research suggests that banks are spending
too much time chasing after upscale clients, while downplaying
the 80% of the market that is actually more receptive
to bank products and services.
When it comes to making technology tradeoffs,
then, institutions need to think about what will do the
most good for the largest number of customers. The point
here is not to downplay aggregation in favor of segmentation,
but to highlight the very different potential offered
by these and a host of other emerging technologies.
In this era of integration, senior managers
should be in the position of making major project commitments
on a collective basis, not within individual silos, and
that implies a consensus understanding about the ventures
having the greatest customer impact. In this light, expense
reduction is not about uniform cuts, but about reaffirming
priorities.
Copyright © 2003 by Banking
Strategies, published by BAI.
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