ABA Banking Journal - February 2008 - (Page 53)

Some see it as a commodity. A 30-year veteran of the core banking software business shows how banks can extract maximum competitive advantage from their “core” Answering that question makes for an interesting debate among bankers, vendors, and the consulting community; but let’s get some facts out on the table. First, no single vendor organization or core software product can lay claim to the fact their product will deliver better results when it comes to ROA, ROE, or efficiency ratios than any other core product. Surveying the top performing 25 or 50 community banks in each of those categories will leave you with a list of progressive, well-managed banks, all having great success and yes, running on a variety of different core systems. No single vendor or product is clearly dominant in these measurement categories. Second, if one digs deep enough into any vendor’s user base, you will typically find a wide range of client satisfaction and success with the product. You have users that are ecstatic (typically the vendor references), some that are reasonably satisfied, and those that are totally dissatisfied and looking to make a change. It’s a puzzling phenomenon: The same core software from the same vendor organization, implemented using the same methodology, supported by the same customer service organization produces totally different degrees of satisfaction. Understanding these two points and acknowledging that every core vendor has challenges to some degree integrating third party products with their core, one can see how consultants may have adopted their position that core systems are a commodity. So where does the hype end and the logic start? Why new runs like old Community bank consultant Art Gillis once said when speaking on the subject of core systems (and I am paraphrasing), it is important that you find the right system for your bank, not necessarily the best system. So, a logical starting point might be, “Is your bank on the right system for your bank?” Like many bankers, you may feel your core system is lacking. Case in point, “core systems” is listed as the number three spending priority in the 2007 ABA/ABABJ Community Bank Competitiveness Survey. This is ironic if core systems truly are a commodity. But, before you take yourself down the timeconsuming path of a complete due diligence study, understand that despite your concern, you may already be on the right system for your bank. Here’s why: It is an accepted fact among both core banking software vendors and the consulting community that banks, at best, use only 30-35% of the functionality available to them in their core systems. This happens for several reasons. Upon selection of a new core system, banks are faced with the dreaded and often very stressful implementation/conversion process. In order to simplify this process and reduce anxiety for the bank, vendors will often convert the bank pretty much “as is” introducing as little change as possible as part of the conversion. In doing so, the bank ends up running their institution on the new software very much like they used to run their bank on the old software. Much of the newer functionality is either lost or minimized. Also, over time, there will be turnover at the bank among key individuals who may have been part of a core evaluation. As these people are replaced, the new employees often just “accept” that what the system does is all that it can do. How to find if it’s right There is a logical process that any community bank can take to determine if it is on the right core system. The first step your bank must take is not an IT step at all. It is to go through a formal strategic planning process/business assessment meeting. Your senior management team if not already doing this, needs to come together on an annual basis to honestly and candidly discuss the most critical aspects of everything you are attempting to do—from re-visiting your mission statement to determining what is (are) your market(s). Most importantly, what specific, measurable business objectives will you set for your bank to measure your success in the coming year? These all may sound like basic questions, but in my 30 years calling on community bank executives, you’d be amazed how many times I asked these questions only to be met by blank stares. This first step will help determine the basic criteria for identifying the “right” core system for your bank. Second, you need to determine if, and how, your current core system can help you achieve your performance objectives. This is where you need to get your current vendor involved. Essentially, you need to have the vendor come on-site and www.ababj.com/subscribe.html ABA BANKING JOURNAL/FEBRUARY 2008 53 http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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