While each organization has its own reasons, it boils down to one word: RISK.
Risk to the Customer: Posting errors, wrong balances, and the negative press that results – particularly from a disastrous implementation – can be a revenue killer.
Risk to the Organization: A failed effort could invite scrutiny, shake investor confidence, and impact the appetite to take on future large-scale initiatives.
Risk to Self: This heavily drives the psychology around whether to pursue, and whether they would readily admit it, it’s about career impact on those who champion and drive the effort.
The question is, can all of these risks be mitigated? The answer is yes, and let me explain how.
Risk to the Organization can be mitigated by strong executive commitment, active Board involvement, and the proper risk management structure. Strong executive commitment is gained when they understand and believe the business case for transformation. When the executive team is in this state of mind, they will ensure the organization gets on board; parochial agendas are dealt with quickly and firmly. A committed executive team combined with an active Board is key; effective messaging to the Board ensures ongoing support.
Finally, the proper risk management structure (with the right resources) will provide visibility at the right level of detail, providing assurance the organization is not exposed to undue risk.
Risk to the Customer can be mitigated through a well-developed implementation strategy and plan, along with thorough, rigorous, state-of-the-art testing.
Risk to Self can be mitigated by doing something. This may seem counterintuitive; the first thought that runs through the C-level mind may be the potential career impact from a failed Core Effort. Frankly, not doing something means the organization cannot advance and will likely fall behind the competition; this type of stance could result in the same level of career risk as not being successful on a Core Effort.
For years, we’ve heard the chatter about the need to transform the Core. Why are more banking industry leaders now considering a Core Transformation? In our research, three paramount reasons for performing it consistently surface:
1. Financial institutions are under intense pressure from competition
They need to rethink their business model and how they serve customers. That brings into play elements of streamlining and enhancing operations, having better business processes (think customer and employee experience) and tools that allow Core systems to be open and available for digital banking channels.
Much of the approach of U.S. banks to date has been to surround antiquated core systems with a digital look and feel; this amounts mainly to “Digital Window Dressing.” The true benefit of digital is better services and improved customer experience through direct access that allows for self-service and speedy processing; the ability to allow the customer to initiate their own loan request through an automated loan request process with real-time underwriting decisioning, followed by loan documentation that is automatically produced and signed electronically, leading to a loan booking that can occur without back office intervention. This type of straight-through, seamless customer experience is not possible without digital systems that are integrated with a modern, real-time Core.
Some banks have pursued digital through integration between modern, front-end applications and an updated services layer. These banks are in a better place for having taken the digital front path; yet they are realizing the Core still must be addressed due to time-to-market delays for digital initiatives stemming from integration complexities with legacy systems. Additionally, the high operating and maintenance costs of legacy Core systems diverts funds that could be invested to enhance the digital customer experience and make other critical advancements.
2. Happy Employee + Happy Customer = Happy Bank
An improved operations function providing a great user experience means happier employees and customers. An improved operations function means an improved customer touch from a digital standpoint, better response time, and a more satisfying employee and customer experience. A fully integrated, open Core paves the way for this.
3. Banking and the Four-Minute-Mile Effect
Just as the breaking of the four-minute mile barrier changed the running world forever, banks that have been through a successful Core Transformation have seen the culture of the organization change and leap forward. Employees develop a level of empowerment and confidence that they can accomplish anything. Along with a continuous improvement mindset, this transforms an organization into a high-performance machine; the act of tackling the Core unleashes the bank’s creative power. Initiatives spring up, bringing with them new efficiencies, improvements, and a wave of creativity; these could consist of cost savings initiatives, restructurings, data management improvements, among others. Some may be needed to support the Core Effort, others may not.
For banks that have taken the leap, Core Transformations (and their related improvement initiatives) have generated a 20-30% reduction (improvement) in operating efficiency ratio.
Ultimately, structuring and executing the program in a way that ensures the highest probability of success is the single most important factor in achieving success, in concert with strong executive leadership and support. In addition, a comprehensive, long-term strategy that includes digital, data and core ensures that transformational initiatives are in alignment with critical business needs and objectives.
Clearly this whitepaper represents the tip of the iceberg as it relates to Core efforts, benefits and impacts. What’s important to keep in mind is that “Transforming the Bank While Running the Bank” is possible – and the rewards are worth it for the bank that takes the step.
AARON SCHLENZ, Managing Director, Core 20/20 LLC
Aaron Schlenz is a creative and dynamic financial services executive who has made a career of delivering groundbreaking and transformational efforts in support of business strategy across a wide spectrum of domains, including application, governance and operations. Complimenting his expertise as a highly effective cross-functional collaborator bridging operations, business and technology, Aaron possesses a natural ability to identify customer needs and partner for results, tackle ambiguous, complex problems, and develop workable solutions. Utilizing his skills in program and project management, execution strategy, and transformation, Aaron managed the successful Zions Core Banking Transformation program, with responsibility for planning, delivery and governance. In addition to Zions, Aaron has deep financial-services transformational experience with Fannie Mae and Freddie Mac. Aaron took his skill set and leadership experience and partnered with John Kershner to create Core 20/20 LLC. Aaron received his MBA from Mount Saint Mary’s University in Maryland, and his B.S. in Accounting from Illinois State University.
JOHN KERSHNER, Managing Director, Core 20/20 LLC
John Kershner is an executive leader with proven experience developing and executing strategies that deliver bottom line results utilizing creative abilities, knowledge and skills gained as a management advisor and coach. Key areas of interest include strategic technology management, business process improvement, change management, and organizational design and development. John successfully led three large core banking transformations and many other core and non-core technology improvement and replacement initiatives. Most recently, John organized and led the program for the first U.S. implementation of the TCS BaNCS global core banking platform at Zions Bancorporation. In 2018, John partnered with Aaron Schlenz to create Core 20/20 LLC. John received his MBA from The University of Texas at Austin, and his BBA in Finance from the University of Houston.
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