Bank chief executive officers are well aware of the high stakes involved in picking the right technology partner.

A poor technology decision can make the implementation of a strategy costly or impossible. A wrong vendor choice can obstruct the delivery of things your customers demand.

So today's CEOs have to make more informed decisions. Only 15 years ago, the biggest decision CEOs had to make about technology was whether to stay in-house or to outsource their core systems. Technology was literally a back-office function, and the choice of vendor determined the bulk of a bank's systems environment since everything was tied together in a proprietary architecture. Today, the role of the CEO is much more strategic.

I spoke with several CEOs across the country to find out whether they felt prepared for their role as matchmaker with vendors. A few very important lessons emerged from my discussions.

Lesson No. 1: The partnership gap is alive and well.

M One defines the "partnership gap" as the difference between the services and products that banks want and what they receive. Despite sincere efforts on the part of most vendors to close this gap, bank leadership continues to express frustration.

Charles Terrell, chief executive officer of New Haven (Conn.) Savings, a $2 billion-asset mutual thrift, characterized his biggest vendor challenge as simply getting vendors to deliver on their commitments. "During negotiations they promise you everything, but it was a struggle that took nine months to straighten out," he said.

In examining his current relationships, Mr. Terrell expressed disappointment in the apparent inability to leverage the vendor's large customer base. When he selected the bank's technology provider, Mr. Terrell assumed the vendor's national presence would make his life easier. "Then, you have a need, and no one has ever heard of it before," he said.

Overall, Mr. TerreIl concludes, "The relationship was sold as a partnership, but, in fact, we do most of the work to get what we need."

Thomas O'Shane, president and chief executive officer of First Western Bancorp, a $1 billion-asset bank in New Castle, Pa., has faced similar challenges.

In response to some initial problems with his vendor, Mr. O'Shane says his bank has "gotten self-sufficient." Today, as a defensive strategy, the bank modifies its core in-house software itself and asks the vendor to support it.

In the case of home banking, Mr. O'Shane feels the bank's vendor is "dragging their butt." He adds, "if they don't get on board, we'll do it without them."

Lesson No. 2: Successful strategic partnerships must be clearly defined.

Issues that arise in failed strategic partnerships often can be traced to a poor definition of roles and responsibilities in the initial contract.

Jay Sidhu, president and CEO of Sovereign Bancorp, a $9 billion-asset thrift company in Wyomissing, Pa., said the biggest mistake the bank made in its first vendor contract was not setting quality standards.

Learning from its experience, Sovereign renegotiated a contract to include penalties and rewards. "We built a measurement of standards using a 1 to 10 scale where 100% uptime is a 10," he said. "We accept only 99.9%."

Mr. Sidhu said the bank found it helpful to develop a monthly scorecard with its vendor. He added that working in earnest with an existing vendor often makes more sense than painful divorce.

Others agree: "The last thing I want to do in my life is to make a systems change," said John Kanas, chairman and chief executive officer of North Fork Bancorp., a $6 billion-asset bank based in Mattituck, N.Y.

Rated by American Banker as the bank with the best efficiency ratio last year (39.5%), North Fork has its priorities in order. "What is important about technology for us," Mr. Kanas said, "is what it can do to give the customer what he wants."

Above all, Mr. Kanas wants assurances that the bank's vendor will be able to keep up with the geometric growth his bank is experiencing.

A professed agnostic about technology, Mr. Kanas said one of the biggest mistakes banks make in choosing a vendor is not doing enough up-front research and testing a vendor's ability to deliver on its promises. "You've got to visit the vendor with your technology people and sit down with their team," he said.

Lesson No. 3: The bank's assigned vendor personnel define the quality of a partnership.

Like Mr. Kanas, Robert L. DeMeulenaere, CEO of $1.4 billion-asset Brenton Bank in Des Moines, agrees it's essential to meet the people "who would make it happen at your bank." He advises trying to find a cultural match-someone who understands and supports what the bank is trying to do.

After what he described as a "real knock-heads negotiation" he got what he wanted: savings, service, and support. Mr. DeMeulenaere attributes this success almost entirely to "the excellent person we have on premise."

Mr. DeMeulenaere feels it is important to make the vendor employees feel part of your company. His vendor representative attends senior management meetings and "not only those that are technology related. I involve them in the planning meetings as well."

Bruce Taylor, president and CEO of $1.8 billion-asset Cole Taylor Bank in Wheeling, Ill., found that a competitive bidding process for his business allowed the bank to get "more capability for less money," and strong vendor staff members assigned to his account.

His vendor has developed a sensitivity to the bank's core business of commercial customers, largely because of "excellent and responsive customer service representatives," he says.

While some users have unmet needs and expectations, Mr. Taylor considers the functionality of his bank's vendor relationship "certainly at par with the market." He concludes that his approach to technology is working; "We are operating a bank that is double its historical size with fewer people."

In the end, a clearly defined partnership and management process can be worth its weight in gold.

Sovereign's Mr. Sidhu put it this way: "Our vendor has come to understand our needs. We now have a true strategic alliance."

Mr. Sidhu has created a "CEO to CEO" dialogue between the bank and the vendor: "We put a process in place for problem resolution."

In short, CEOs need to get involved in technology decisions-especially the selection of technology partners. If both the bank's CEO and the vendor work together in defining a partnership, overpromising, overpricing, and under-delivery can be avoided.

In future columns, we'll provide some tips for making the vendor partnership work.

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