Is all this hype about the information superhighway beginning to scare the directors of your community bank? Have the countless articles about home banking, the Internet, and megamergers caused your board to talk more seriously about cashing out?

The rapid pace of technological change has become a serious concern for community bank directors. Many directors are asking: Do we have the right technology to compete? How do our spending and investment levels compare to peers? What are the risks involved with new technology? Are we taking more risk by maintaining our old technology?

In this column, we discuss what mind-set bank CEOs must have when they approach technology upgrades.

We often hear community bank directors lament that they cannot compete with larger organizations that have superior technology and economies of scale.

Community banks that do not innovate with new technologies will wither away through consolidation. But small banks that view new technology as an opportunity rather than a threat will become permanent and profitable fixtures in the next century of banking.

These surviving community banks will evolve into true "virtual banks." Like the mini-mills of the steel industry or the rapidly growing microbrewers, the community banks of tomorrow will be highly niched, customer focused, and driven by new information technologies.

When deployed properly, these new technologies will increase rather than detract from the personalized nature of community banking.

Will this evolution be easy? No.

Are all community banks equipped to make this transition? No.

Do directors need to decide whether consolidation or reinvention is the best strategy to maximize shareholder value? Absolutely.

Whether the choice is consolidation or reinvention, maintaining the status quo in your bank will ensure failure in an age of rampant change.

Community banks that are serious about reinventing themselves need to embrace four key principles concerning technology. Here are two:

Technology should be viewed an opportunity, rather than a threat.

Over the next few years, large banks will create shareholder value primarily by taking capacity out of the industry through mergers and acquisitions.

Community banks will create value through growth and innovation. They will steal highly profitable slices of local banking markets during the industry's intense consolidation.

Without the liability of a large branch distribution system, community banks will build new models of delivery around their small branch networks and adopt new technologies earlier than their large competitors - most especially client/server and imaging systems. They will realize that new client/server architectures open unlimited new product and delivery opportunities. Through focus, innovation, and the evolution to a virtual bank, these community banks will prove that traditional economies of scale are often illusory in the information age.

Technology should be treated as an investment, rather than as an expense.

Reinvention will be nothing more than a dream for community banks that seek to keep their technology spending in line with historical figures.

CEOs and directors must realize that technology spending should consume an increasing proportion of their bank's operating expenses, while personnel and facility costs should be decreasing on a relative basis. Astute bankers will realize that it makes economic sense to replace costly labor resources with technology whose price drops every year.

Banks have plenty of capital to make these technology investments; they just need to become more comfortable that the financial returns on these initiatives are real.

Tomorrow: Developing a long-term plan, and senior management's role in executing it.

Ms. Seymann and Mr. Williams are president and managing director, respectively, of MOne Inc., a technology consultancy in Phoenix.

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