Balancing Revenue and Expenses for IT
When adversity happens, bankers seem to adopt one of two strategies for their Information Technology (IT) projects.
In the fall of 2008, for example, with the credit crisis creating fear across the industry, the immediate reaction was to slash spending. Many approved projects – new branches, new technology and new technology integrations – were put on ice, along with hiring and compensation. The watchword was, “No unnecessary expenditures.”
Not long after that, in anticipation of fees being decimated by Reg E and Dodd-Frank, the almost universal rallying cry swung to: “Quick, find new sources of organic revenue.” Pushed to the back burner were enhancements to existing IT systems that would have automated manual activities and also core systems optimizations. The explanation often went, “We will get to those later, but right now we need to focus our resources on revenue.”
Not to exaggerate – neither strategy was ever exclusive. But definite swings in focus were and remain detectable, alternately consuming the focus of decision-making executives while diverting the concentration of their IT project teams.
These swings are costly in their very nature, sometimes gutting expense initiatives just when they are about to produce results, and almost always causing employees to question the relevance of initiatives to which top management had only recently expressed its full commitment. Today, in some of those banks, we see a top-heavy emphasis on expense reductions threatening the gains of last year’s emphasis on organic revenue.
Confusion, distraction, uncertain commitment – not likely ingredients for success in difficult times.
But more harmful than the inconsistency is the fact that the swings in management attention are at odds with financial wisdom: revenue and expenses are not opposites. They are yin and yang, seemingly polar opposites but interconnected, interdependent and complimentary. For best results, short-term and long-term alike, it is important that the bank’s chief information officer (CIO) and the businesses IT supports make sure that their initiatives take both sides of the spectrum fully into account.
A Question of Balance
Not all initiatives can deliver on both sides, or at least in the shortened timeframes bankers (and their shareholders) demand these days. It wasn’t long ago that “strategic” signaled three to five years. Nobody expected major strategic alterations to deliver their full revenue or savings load much before three years. Now, it is common to hear bank executives decline to consider revenue initiatives that take more than 12 to 18 months, or expense initiatives that can’t begin delivering in six months.
There aren’t many initiatives that can meet those desperate timeframes, unless the project teams virtually ignore one side of the spectrum. It is possible to wrest most headcount savings from a new acquisition in six months but at what cost to the acquired revenue streams? It is possible to blitz the customer base with new products, advertising, and marketing that attract customers from competitors and drive a rapid revenue boost, but will those new customers be profitable and loyal?
Clearly today’s situation calls not for desperation but for balance. The examples below demonstrate how projects that might be in your IT portfolio today can deliver results on both sides.
If you’ve applied for a mortgage or a refinance lately, and done it at a bank that has yet to invest in enterprise content management (ECM), including image processing at the point of customer contact, the piles of paper probably made you wonder whatever happened to image processing. Few banks have fully leveraged this cost-saving, customer-pleasing, sales-improving technology, often settling for just archival uses.
ECM has advanced to the point that it can truly and significantly improve the customer experience from start to finish, even making easy interactions a selling point. And employees love it. As soon as they see they can spend more time satisfying the customer than working with paper, they improve their sales performance. And it still can, as it always could, save the enterprise huge amounts in terms of headcount, storage, errors, lost paper, search time, and so on. And it can do so quickly these days. From the moment a piece of paper is converted at first-touch, the savings clock starts ticking.
Customer relationship management (CRM) projects also contain yin-yang opportunity, even though the overriding motivation for many CRM projects, like Customer 360 View or Channel Integration, is revenue. But CRM’s currency is customer data, which is often scattered around the enterprise, hard to compare, hard to update and taking considerable employee time to manage. CRM initiatives that connect these dots, creating a centralized, authoritative source of customer data, improve productivity and get information to the front line when it is fresher and more valuable, paying off in both revenue and savings.
Banking’s enthusiastic embrace of analytics demonstrably delivers on both sides of the ledger. Good analytics tell you where to spend your money – and where not to. They keep you from creating costly campaigns targeted to unlikely-to-buy customers. They show you when and where to zero in on likely-to-buy customers, and with what kind of offer. They keep you from spraying your ammunition into the dark. If your analytics tell you that new customers are most receptive in their first 45 days – and that after 90 days their receptivity falls off a cliff – that tells you when to invest your time in them profitably (revenue) and when to stop (savings).
The high cost of in-person, in-branch transactions, combined with the popularity of online and mobile have made channel investments a reliable source of both revenue and savings. A friend told me about accessing a line of credit at her bank’s website and finding several offers of fee-based services, two of which she accepted on the spot. Thanks to analytics, and ever more sophisticated online investments, that bank increased its revenue at almost zero variable cost of sales.
Finally, with employee compensation being any bank’s biggest ongoing expense, it is a bad time to skimp on training to use these valuable resources, especially training programs that inculcate powerful time-saving behaviors that “create” more time for sales and service.
Tackling expenses while taking your eye off revenues, or vice versa, is never the conscious choice, but it is often the result of an urgent swing in management attention. Any initial relief quickly turns to grief when expense cuts diminish revenue opportunity, or an exaggerated revenue focus damages margins.