Technology Guru: The New Member of the Board?

For an industry driven by a seeming lust for new technologiesu00e2u20ac”ATMs, call centers, the Internet, to name a fewu00e2u20ac”banking has not been an industry driven by technologists. In recent years, this has begun to change, with many of the largest banks appointing chief technology officers or chief information officers, “technology gurus” you might say, to orchestrate the use of technologies throughout the organization. Still, to the majority of small- to mid-sized banks, these folks are considered an extravagance and are a rarity. “It`s tough, especially for community banks that really need someone to play that role for them,” says David Furnace, a director with Alex Sheshunoff Management Services, Austin, Texas.It`s not that the executives at these institutions don`t perceive a need for technology. Grant Thornton LLP, a management consulting firm that surveys community bank executives each year on technology and related issues, reports that 93% of executives agree that technology is the single most important factor in the continuing success of their banks. Technology is also an important tool for improving efficiency ratios. “Technology is critical to profitability and to the future viability of these institutions,” says Linda Garvelink, national director for marketing in the financial services practice at Grant Thornton. “They really do need to focus on technology. They need somebody at a senior level who is able to pull everything togetheru00e2u20ac”someone who can lead a team of experts from throughout the bank.”But that`s not the case at most community banks. Consider Amarillo National Bank, a $1.3 billion bank in Amarillo, Texas. Amarillo National has a fairly successful Internet programu00e2u20ac”15% of its customer base, or about 10,000 individuals, access the bank via the Internet, according to Darren Jinks, assistant vice president and Internet banking coordinator. Operation of its full-service financial portal, however, is outsourced to Home Account, an Emeryville, California-based service bureau that specializes in Internet-based financial activities. The bank`s transaction processing work is outsourced to Fiserv, which interfaces to Home Account for transaction reporting. Jinks reports to the manager of operations, along with various others who coordinate technology initiatives within the bank. The manager of operations works with a steering committee, which reports to the board of directors. “It`s pretty informal,” says Jinks of the bank`s technology reporting structure. David Medeiros, a technology consultant with TowerGroup, Needham, Massachusetts, says this is not an unusual organizational approach to managing technology, especially at banks that outsource technology operations. Not so at larger institutions. “If you`re a big bank, you`re going to want to do it [design and run the technologies] yourself, because you don`t want to get behind others in line,” says Medeiros. While outsourcing may be common in banking, Furnace and others agree that even those banks that outsource technology operations are well served by in-house specialists. “Banks as a rule don`t seem to hesitate to invest in technologies, but as an industry we haven`t learned to leverage that [willingness to spend],” notes Furnace. “To stay competitive, banks need to spend their money wisely, and they need to understand how to leverage technology.” But staffing can be a problem. That`s why Sheshunoff has unveiled a service Furnace refers to as the “virtual CIO.” A new idea in the bank consulting arena, Furnace says the concept of the virtual CIO has been well received, though he declines to say just how many banks use the service. “Banks that know they need this [kind of visionary], but can`t afford it, engage us,” he says. It`s not your run-of-the-mill consulting stint, however, with periodic reports to management. The virtual CIO has monthly communication with the client bank, oversees efforts of the technology steering committee, regularly meets with the board of directors, and works closely with operations managers to organize and implement the bank`s technology plans. “To be effective, you have to have regular communication,” explains Furnace. “You can`t just have one meeting a year.” The virtual CIO is an “action-oriented `doer` who is capable of creating fresh ideas and approaches, puts them together in workable plans, and implements them quickly, efficiently, and cost-effectively,” Sheshunoff emphasizes in a document provided to clients. “It truly is a struggle for a lot of them,” says Furnace. “CEOs are recognizing increasingly that they don`t have [technology savvy] as a core competency, and that they need it.” Cathy Allen, CEO of the Banking Industry Technology Secretariat (BITS), is even more emphatic. “It used to be that technology was a backroom activity. Today, it`s integral to the bank`s strategy.” Explains Allen, whose career included a stint as a technology vice president at Citicorp, “It drives what new markets they enter, what new products and services are created, what partnerships they enter into. It drives competitive advantage.” Evidencing the growing awareness of this, BITS, the technology group of the Washington-based Financial Services Roundtable, includes as members the CEOs of the 15 largest banks in the country, as well as representatives of two general banking trade groups: the American Bankers Association and the Independent Community Bankers of America. The CEOs, in turn, appoint CTO/CIOs and similar high-level management titles to steer individual BITS committees.”The CEOs on the BITS board have gone from just knowing that they needed to understand technology to actually understanding technology,” Allen says. Evidencing this, the latest initiatives approved by the BITS board focus on issues like account aggregation services, wireless technologies, the Electronic Signature Act (a new law that attempts to place digital security techniques on an equal legal footing with pen and ink signatures), and business-to-business electronic commerce. Similarly, Allen adds, the technology gurus on the BITS committees, many of whom are recruited from other industries, are finding it increasingly necessary to better understand their banks` business strategies. It`s a trend she sees continuing. “The CIOs of the future will increasingly come from the business side,” says Allen, “just as the next generation of CEOs increasingly will come from technology or e-commerce.” Allen, who is also founder and chairman of the Santa Fe Group, a consulting firm that specializes in emerging technologies, says the ideal technology guru at a banking company has several key competencies: vision, insight, and the ability to explain technologies in terms of business strategies. Perhaps more importantly, they`re not afraid to work with others, both inside and outside the bank. “The savvy CIOs and CTOs really have to forge strategic alliances with their technology providers and providers of outsourcing services,” she insists. It`s no longer just a vendor-customer relationship. Allen notes that during her tenure with Citicorp, long considered visionary in its application of new technologies, the bank had strategic relationships with five different outside vendors. The advantage to Citicorp was obvious: The bank got to participate in the development of new products and to be the first to test the products and supporting technologies. Inside the bank, CTOs/CIOs should function more like facilitators, bringing together various silos within the bank to work as a team. “You have to be able to bring products and services to market quickly, and they need to be flexible enough to meet business needs,” she says. “Technology is a focal point where all the various silos really need to work together.” So what about banks that have no technology gurus? They may soon become a rarity. Regulators, notes Grant Thornton`s Garvelink, are placing increasing oversight on banks` uses of technology like the Internet. The Office of the Comptroller of the Currency, in fact, has appointed a staff director of technology. Now, in addition to lending rules, accounting rules, consumer rules, advertising, and security, you can expect bank examiners to be eyeing your bank`s technology purchases and implementations. And members of the board need regular contact with the technology executive in the know. “If you don`t have a chief technology officer in your bank, who`s going to be responsible for watching out for these investments?” asks Garvelink. |BD|