Delivering CRM “on-demand"

In 2001, Meridien Research suggested that “twenty percent of your customers generate 150 percent of profitability, 30 percent contribute zero percent, and 60 percent cost 50 percent of your profitability. So you better know who the 20 percent are and you’ve got to make sure you retain them…” Not much has changed over the past five years. Financial institutions are still trying to understand which customers are their top performers and which are not. What has changed is the speed at which they need access to this information. Today’s dispersed, mobile sales force has added a new need to the CRM mix…financial institutions need customer information “on demand”.
CRM has been on the project list at almost every financial institution at one time or another. These institutions have the foresight to understand that, as GonzoBanker™ recently wrote, “there has to be better access to customer information, front line employees need better sales and fulfillment tools, compensation needs to be tied more closely to sales and service, and systems need to be better integrated to accomplish this…” Today’s on-demand solutions are positioning financial institutions to better meet the needs of their customers by offering a faster return on investment, with better technology, more complete data, improved solution configurability and faster time-to-market.

On Demand – A New Spin on an Old Idea
The term “on-demand” commonly refers to a standardized, configurable software solution paid for on a termed basis that is accessed over the Internet. All hardware, software and data are maintained by the solution provider. Another common term used to describe the same model is the “application service provider,” or ASP.

On-demand is not a new concept in banking. Service bureaus have provided software remotely, on a termed basis, for a long time. About 50 percent of banks use service bureaus to run their “core” applications. The biggest difference between today’s on demand or ASP providers and the service bureau concept is that many service bureaus use dedicated communication lines rather than a public network (the Internet).

Many financial applications are already available remotely or on-demand. Core processing, credit decisioning, Internet banking, lockbox reporting, credit collection, and image storage and retrieval systems are all now commonly delivered on-demand.

Regardless of the application, the appeal of the on-demand solutions is the same. Security, availability 24/7, and accessibility from anywhere there is an Internet connection, make on-demand a real boon for today’s mobile branch and sales staff.

An Unbeatable ROI
There are legitimate IT and deployment benefits to the on-demand model that make it an option to consider for your CRM solution.

On-demand shifts the burden of deployment to the vendor. Your IT staff does not need to spend time building the hardware and software infrastructure typically required for complex, server-based applications. IT doesn’t need to acquire, implement or test the application. And IT doesn’t have to develop and manage a disaster recovery plan or handle desktop support.

On-demand solutions are standardized and configurable. Mature on-demand solutions often offer enough configurability to meet most organizations’ unique needs. As a result you can move quickly to deploy your CRM solution and begin to reap your ROI.

How does the ROI for an on-demand solution differ from the traditional perpetual software license approach? This graph illustrates the points at which a typical on-demand project and a traditional software project begin to deliver benefits to the buyer.

The traditional software model requires up-front investments in hardware, system and application software licenses, IT personnel and project management. These expenses are loaded at the beginning of a traditional project, as seen on the vertical axis of the adjacent chart. Up-front expenses for an on-demand model are quite small, so the project starts near breakeven.

Once the model is deployed, benefits accrue more quickly for the traditional software solution — and its line has a steeper slope — than the on-demand model. This is because the software solution does not have a recurring hosting fee associated with it.

Because the on-demand model minimizes IT infrastructure requirements, associated project management and implementation time frames, the overall project risk for the on-demand model is dramatically lowered in the first two years. ROI also is more quickly realized in the first few years of the on-demand model. After five years, though, the on-demand solution will cost more.

Not All Vendors are Equal
Common objections to the on-demand model relate to data control and software reliability. With on-demand solutions, control is being passed to a third party — a handover that is not taken lightly in the banking industry. The risk of a breach to data security or loss of data makes control a primary concern.

Don’t assume that all on-demand providers have the ability to provide sufficient protection against application or data breach. It simply isn’t true. Writing software is much different than managing production systems. Each requires very different skills.

How can you assess whether or not your provider has what it takes to protect your data ? There are two simple questions you can ask, “Who controls my data?” and “How reliable is your solution?”

You can confirm your provider’s commitment to data control by asking if they have performed an external audit, most likely a SysTrust or SAS70 audit, of their on-demand solution. Conducted by certified agencies, these audits evaluate and provide an external opinion on a service provider’s controls. Depending on the type of data maintained, an external opinion alone may not be enough. You may want to conduct your own due diligence with an on-site visit to the provider.

Reliability can be evaluated by reviewing a history of unscheduled outages. One hundred percent reliability is not realistic for a business application. Ninety-nine percent reliability might sound good, but it means that the system is down 87 hours per year. How long can your institution’s mission-critical CRM solution be unavailable? In a lending department, downtime means lenders cannot process or decision loans, essentially putting that department out of business.

Your provider may pass the reliability and security tests but their commitment to you and your data is not over. Be certain you have the ability to get to your data, easily. It is, after all, your data. The on-demand provider is simply safeguarding it. Data transfer typically is accomplished by moving the data to a more accessible format that can be imported into the bank’s resources. Be wary of the provider who might be inclined to hold data hostage.

Leverage Data Across the Customer Lifecycle
Quality customer data is a critical piece of CRM, especially when stemming the tide against “client drift.” Recently, the ABA Banking Journal commented that “new business is all very nice, but it’s like adding water to your bath when you have a defective stopper. As fast, or faster, as water goes in, other water is going out…that may not matter much to a bathtub, but in a bank, if the rate of attrition outstrips the rate of new business, the bank may soon be in the wrong kind of hot water.” By leveraging data across the customer lifecycle you’ll build a knowledge base of information that can help you fill the tub and slow the drip at the same time.

Consumer and business data has come a long way since the 90s. Traditionally, data was delivered in the form of reports. Those reports contained all the information that a data bureau had developed about an entity. As technology has evolved, the ability to offer new methods of data delivery has allowed users to integrate discrete data elements directly into their software systems. And, the benefit has been significant.

Technology makes it easier for users to focus on the most important bits of data for an entity. This might include demographic data or credit scores. Today’s, technology also better supports detailed portfolio level analytics. Together, technology and analytics improves the way in which data is used in the decision making process.

Data collection methods have also become more sophisticated. Configurable CRM solutions are delivering valuable business analytics to a relationship manager’s desktop “on demand.” A customer’s credit history and current behavior patterns are helping to predict future risks and opportunities at every stage of the customer life cycle — targeting, acquiring, managing and maximizing relationships.

Change – Sooner, Rather than Later
Mention the word “change” and take notice of the reaction. Most people either love it or hate it. Few meet halfway. Unfortunately, change is more often perceived negatively than positively. People believe change will negatively impact what they do, how they do it, or what they receive in return for it. Resistance to change can be great. To avoid the confrontation that often comes along with change, many do nothing.

Students of life have observed that leaders of the most successful organizations prosper because they are willing to invest in change, good or bad. Successful CRM projects follow this premise. Defining, documenting and communicating a change strategy is the first step, followed by changes in processes, behaviors and culture.

Historically, financial institutions have been reluctant to reengineer their processes. If they realized that their processes were ineffective, they reengineered with a chainsaw rather than a scalpel. Today reengineering is no longer a word that should be avoided because reengineering is not a “project de jour”; rather, it is a key component of the progressive financial institution’s culture. After all, when do we want to stop getting better? Understanding your processes, cost structures and the details of individual departmental operations enable middle and senior management teams to make better (and more) informed decisions.

Importantly, the best technology makes no difference when implemented on top of poor processes or a change-resistant cultural environment. Thoughtful process change is well worth the investment. If you don’t do you on your own, your competitors might just force it on you.

About Baker Hill
For more than two decades, Baker Hill has been focused on the banking industry, delivering solutions that address business process needs and working as a trusted advisor to its banking clients. Baker Hill understands banking processes, knows how to implement technology to enable those processes, and has a long history of client success from which to mine best practices. More than 1,200 financial institutions in all segments have drawn on the company’s business expertise to improve critical processes, and have chosen Baker Hill’s relationship management, credit origination, and portfolio risk management solutions as their enabling technologies. Baker Hill is a subsidiary of Experian (www.experian.com). For more information, visit www.bakerhill.com.