Have you ever turned a simple shopping trip into a complete and utter failure? Just a few weeks ago, my wife made out a detailed grocery list for me, including specific brands and how much of each item to purchase. It looked idiot proof. But looks can be quite deceiving.
I spent the next 90 minutes driving around town like a mad man, visiting three different stores to get everything on the list. I returned home triumphant, ready to be praised for my grit and determination. I had only forgotten one thing (milk), which is way better than my typical trip.
My wife, though, was not nearly as proud of me as I expected.
“What is all of this stuff? And where is the milk?!?”
You see, it turns out that when I got to the store, I grabbed the wrong list from the passenger seat of my truck. It happened to be the list from a few days before, and I never noticed. The correct list only had four items, and the milk had a star beside it, because it was the one thing we REALLY needed to make dinner. Oops.
In this case, my shopping mistake wasn’t too disastrous. Sure, we had no milk and doubles of everything else, but in the grand scheme of things, we will survive it.
What about banks, though? Is it possible for them to be as bad at shopping as I am? When it comes to technology, the answer is a resounding YES.
The issue, though, is that mistakes in technology shopping don’t just leave banks stuck with expensive, inefficient systems. Those subpar systems also provide a lousy experience for their customers. This is especially true now, as banks around the world are busy spending unprecedented amounts to overhaul their technology stacks (see chart below). These shopping blunders can cripple an organization for years.
After years as a banker sitting through meetings with vendors, and a few more sitting on the other side of the table, I’ve seen plenty of examples of technology purchase decisions gone awry. I still remember sitting in a board room around 10 years ago trying to explain to our directors how a virtual server works. Let’s just say that they weren’t thrilled with the idea of spending thousands of dollars to have their bank run on “imaginary hardware.”
While a lack of technical knowledge is certainly a hindrance, these five recurring issues are the ones that cause real damage. We’ve included a typical quote for each. If you are sitting in a meeting and hear one of those lines, some red flags should immediately be raised.
1: Either IT or a procurement team makes every buying decision.
“Is this software? Then IT has to decide.”
Your IT and procurement staff should absolutely be a part of every purchasing decision. But, remember what their goals typically look like. Their jobs are to A) make sure new systems don’t break anything or expose the bank to undue risk, and B) save money.
Both are necessary, but are actually due diligence items that should be addressed after the business lines have found a tool that meets their needs. If the IT or procurement groups are running the show, the process is generally slow and tedious, as the team searches for reasons not to buy.
The best banks let the business lines run the process and make final buying decisions, of course subject to verification that they don’t break anything. When prospects are struggling with this while evaluating our pricing tool, we suggest the approach used by one of our now favorite clients.
He gathered his top commercial lenders in a room for a demo and told them, “I’ll be back in an hour. Tell me if this is something that you would actually use and would help you do your job.” In an hour he not only had his answer, but also early support from the people who would be the system’s end users.
2: Decisions get derailed by “turf defenders.”
“Why do we even need this? My Excel model does the same thing, just without the bells and whistles.”
There is a saying in the sales world that you are always competing against an established competitor. This is especially true in banking, where there are very few brand new categories of systems and typically a budget that’s built around what’s already in place. Therefore, when a new system is added – even one for which the bank has no current solution – someone in the bank is getting something taken away.
The problem arises when that person starts defending their turf, putting their self-interest ahead of the bank’s interest. This is basic human nature, but some banks allow this to have an outsized influence on the decision. The results can be ugly. These banks are now not only working with inferior legacy technology (or often homemade solutions), but they also have allowed little fiefdoms to crop up in which individuals are using their specialized knowledge to protect themselves or elevate their own status.
3: Resources are not allocated by the ROI of the project.
“We agree that this is a MUST HAVE and could make us a lot of money. But, we have so many other things going on, we just can’t do it yet. Check back later.”
Would you like to venture a guess on how many actually implement it “later” at that check in? There are always a bunch of projects going on, and new things being implemented. Celent’s study on bank technology spending found that more than half of the total budget was being spent on security, compliance, and core systems. Should you really delay something that is accretive to earnings or customer experience because you are too busy with a multi-year (!) rollout of a back office system?
4: The process is owned by a committee instead of an individual.
“We will discuss internally, and then someone will get back to you.”
Like most things involving a committee, if everyone owns it, then really no one owns it. The best banks insist on naming individual owners of every project. Someone’s name is attached to every decision, adding both responsibility and accountability.
One champion pushing for a decision will get to an answer much faster. A quick yes means that the project stays on track, but a quick no is just as valuable. It saves an entire team of people countless hours of sitting through demos, follow-up calls, and “check-ins” from salespeople that ultimately aren’t heading anywhere useful.
5: There is no defined process or timeline.
“I’m not sure what the next steps are. I think we have a few others that need to see it, so let’s set up another demo and we’ll go from there.”
This is probably the most marked difference in the banks that excel at purchasing versus those that don’t. The best banks know exactly how they go about making these decisions. They have a clearly defined process, including precise steps, expected timeframes, and clear designations of who is responsible for making final decisions.
The process at most banks is much fuzzier; no one is sure who has the official authority to decide, and so no decision is ever made. Plus, any decision that does get made is then thrown into a chaotic budgeting process where it may or may not actually get funding.
Quick to Decide = Quick to Revenue
While the symptoms and causes may vary, nearly all of these issues result in wasted time. The best banks move through the decision process as quickly as possible so they can focus their time on actually implementing tools instead of evaluating them indefinitely.
Once the process is in place, it becomes a powerful feedback loop. The best banks choose the best tools and quickly get them up and running. Those tools then help add revenue or improve efficiency, leaving the bank with more resources to invest in even more tools. Wash, rinse, repeat, and pretty soon they have left their competitors in the dust.
The banks that struggle with this, though, end up with the bank equivalent of no milk and doubles of everything else: old, expensive systems and no ability to differentiate themselves.