Those in the financial sector have come to a crossroads. For some, the path they were on failed them and now they are trying to keep their heads above water. For others, the fear of failure has frozen any new approaches to business.
Unfortunately market and consumer behavior is still shifting and likely will never return to the way it was before the recession. Financial institutions can either hunker down or embrace this change and take a chance on a new way of doing business.
Taking risks in today’s economy is not something many business people want to consider. When times are tough, human nature says to decrease expenses, not take any risks and try to ride out the storm.
Looking at it from a different perspective, the bigger risk may come from staying still. Not moving forward and evolving with the industry is going to have a higher cost in missed opportunities and the exacerbation of current pain points.
Economic Pace
Considering the increased pace of change in today’s economy, it is critical for financial institutions to take a holistic view of their situation and determine how their technology can enable their success. If your technology is keeping your business strategy from evolving, and being able to take advantage of the opportunities in the market, that technology needs to change.
Those that choose to remain conservative and continue to use approaches that were successful in the past will be at a disadvantage and will find it difficult to compete in the years to come.
Here’s an example. Let’s say your strategy is to strengthen relationships and grow wallet share with your best customers. Your call center has the technology capability to prescreen customers for a variety of credit products - that’s great.
However, after six months you find that your delinquency rates for new customers are high and acceptance rates of existing customers are extremely low. Your underlying goal of selling more products is being met, but your overall strategy of strengthening relationships and growing wallet share with your best customers is not.
Also, you have opened yourself up to risk with your new customer base. Not to mention your existing customers might be pursuing new product offers elsewhere. What you need is the capability to examine the performance of your strategy and be able to adapt to changes dynamically. In this scenario optimizing offers for your best customers and tightening policy for new customers is going to be a key element of meeting your strategy. Your technology must be flexible enough to adjust your policy, test its effectiveness and ensure that your strategy is being met through your goals.
Finding Solutions
We all know you can’t just buy a solution, cross your fingers and hope that it all works. You need to have the right technology applied in the right way to help you enable your strategy. While there are risks associated with investing in new technology one thing is clear; not acting doesn’t reduce your risk and may even amplify it.
Once you identify that changes need to be made there is additional risk in not implementing them quickly enough. If you wait to improve systems to improve customer service levels and, meanwhile, you lose prime customers, it creates a huge problem. You may not be able to get those customers back and losing them likely cost you more than the investment you would have made enhancing your current systems.
Once you’ve decided to make a change, the hard part begins. Factors that financial institutions must consider when making a change to their business process through technology include: can the provider deliver what you need; will the technology enable your strategy to fulfill your business needs, and; can it evolve if needed.
Those are reasonable risks to consider and probably even greater today with extremely tight budgets and a push to do the best you can with what you already have. Justifying the price tag of a new technology is going to go hand-in-hand with showing a good return on investment (and how quickly that return is going to occur).
The biggest concern is can the technology provider deliver what you need? Select a company who has assisted their clientele with unique solution needs. Ask for references that can support the company’s ability to deliver a tailored solution on time and on budget. Make sure the technology selected is stable, effective and has a reliable, redundant infrastructure.
The Right Choice
Ensuring you have chosen the right technology to solve the right problems is critical. If you have done that the return on your investment will come.
This brings us to concern number two. Will the technology enable your strategy to meet your business needs? Here is where the need for flexible systems comes in. You are the only one that can determine what your business needs are and must be able to communicate to your provider what the technology needs to do.
There are a lot of choices out there and a canned solution is not always going to be the right fit. The larger and more innovative the institution, the less likely an out-of-the-box solution is going to produce the results you are looking for.
For some, the fit may be right initially but that is going to change over time. You need the flexibility to deal with economic upheaval, customer behavior changes, emerging markets, and new technologies. Begging the question, can it evolve as needed?
A tools and services approach with solutions that can be configured to meet your exact needs is the right option to address unique business requirements. A configurable solution provides business users with the flexibility to incorporate new strategies over time as market conditions change and alleviate pain points as they arise.
Flexibility allows you to adjust the performance of projects leading you to meeting your strategy. You should never choose a solution that defines your objectives and boxes you in to one way of achieving them, you need to be able to define your business objectives and adjust them as needed.
In the end, the decision comes down to staying sheltered from the storm or facing it head-on and moving forward with a clear business strategy. It is clear that in today’s changed and ever evolving economy, strategies of the past are not going to work and the cost of pulling back and not meeting your customers’ needs is unacceptable.
It’s time for financial institutions to put risky lending practices and recession woes to rest and build a strategy to take advantage of the opportunities presented in our current economy.
With the economy and consumer behavior changing as quickly as it is, adaptability and flexibility will be the keys to profitability and success. If your institution’s current technology isn’t meeting your current business strategy - or allowing it to evolve - it is time to change that technology
Tom Johnson is SVP of Product Development at Zoot Enterprises. He will be speaking at the 14th Annual National Collections & Credit Risk Conference next month in MIami.
