By Shailendra Mruthyunjayappa
Banks in the western world, over the last decade, have been investing substantially in BI initiatives and benefiting from insights which help them increase profitability and enhance their customers' experience. Banks in the emerging economies however, are largely left behind as they battled through governance overhauls, disruptive consolidation exercises, infrastructure upgrades and transactional system transformations. As a result, banks in the developing nations today are hurting because they lack critical decision support systems and are therefore in desperate need to jump start their BI initiatives.
Here are the business benefits provided by robust BI systems implemented by some of the technology savvy large banks in the advanced markets:
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Area
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Actions
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Benefits
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Capital
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Ensures that capital is being used efficiently to produce the best returns and in line with strategic objectives.
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Increase top line
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Products
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Helps determine what combinations of products and service lines customers are likely to purchase and when; helps identify the most profitable products along the product line; helps determine the seasonality of products being sold enabling focussed distribution for each product line; helps set product direction and for the product management team focus on structuring products that are both popular and profitable.
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Increase top line
Improve bottom line
Customer satisfaction
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Channels
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Helps identify most optimal channels of distribution thereby enhancing performance by way of better communication, reducing unnecessary costs along the way; helps manage performance of branches & electronic channels more effectively.
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Increase top line
Improve bottom line
Customer satisfaction
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Campaigns
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Helps manage campaign effectiveness, choose right campaign mediums, connect better with customers and improve response rates, make optimum use of campaign budgets.
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Increase top line
Improve bottom line
Customer satisfaction
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Customers
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Provides ability to take a customer centric approach, helps monitor trends & behaviours; makes it easier to identify cross-selling and up-selling opportunities, locate and better manage profitable customers, improve customer interaction by providing action points & recommendations to relationship mangers, increase customer loyalty, reduce customer attrition, offer innovative products or services in anticipation of customer's changing demands.
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Increase top line
Customer satisfaction
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Risk
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Provides the means of measuring and managing market, credit & operational risk; helps ensuring safe levels of capital (risk capital) & liquidity to guard against disasters.
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Improve bottom line
Conformance
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Compliance
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Helps adhere to regulatory guidelines; Helps establish a straight through automated mechanism to meet reporting requirements.
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Conformance
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Expenditure
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Provides visibility and helps keep the rising costs of operations down; helps better manage liquidity and cash flow.
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Improve bottom line
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People
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Provides timely actionable information and helps optimal use of human capital; provides a platform for real-time performance measurement of departments/branches/individuals leading to fair and viable performance evaluation.
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Increase top line
Improve bottom line
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Process
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Helps reduce total turnaround time to service requests, uniform up-to-date readily available data helps improve efficiency of processes; enables quick response to changes in market conditions, regulatory requirements &/or customer preferences.
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Increase top line
Improve bottom line
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Such large scale benefits have not come about overnight, but rather because of enormous investments over a period of time. While the pioneering banks in the field of BI application made the investments to build the BI practice and the BI systems, the first generation of BI systems took years to provide them the ROI and have ended up as large complex systems & teams. However, the significant positive is that the practice of BI became standardized and knowledge started getting shared to a large extent. The next generation of BI will be functionally much more homogenous across banks in various regions. There are already a few niche vendors providing pre-built productized BI systems that incorporate best practices, but at the same time provide the ability to customize easily. The pre-built BI approach not only offloads the burden of managing the lifecycle of the system and of keeping up-to-date with best practices & competition, it also gives the opportunity to skip through several stages of the conventional BI maturity curve without having to make significant investments.
So what are the choices for banks in emerging economies that are yet to dive into BI:
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Survive
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Surviving without BI is not an option as increasing profitability is fundamental to the existence of the organization; management is entrusted with the responsibility of creating wealth for the shareholders and benchmarked against the industry leaders/ challengers.
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Grow
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Growing through the conventional BI maturity curve by steadily investing in people, process & technology sophistication; while such a conservative approach allows for the banks to incrementally invest in BI and gradually realize ROI, it may lead to missing-the-bus as banks rush to capture market share by better utilizing their resources and providing improved customer experience.
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Thrive
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Implementing pre-built BI solutions that leverage banking & technology best practices is a great option to jump start the BI initiative; this option will come with the typical challenges with change, moreover the foundation for BI will need to be validated (such as banking processes, technology infrastructure, data quality, etc.). The other advantage of this approach is that banks can reach steady state BI and rapidly lay the foundation for improvement in business performance through speedy & fact based decision making without having to go through long-term integration & upgrade issues.
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In a banking services marketplace where competition is stiff and there is very little product differentiation, the key to competitiveness will be managing resources efficiently & providing better customer experience and the key to success will largely depend on how fast a bank can embrace change to achieve such competitiveness.
The cost & adverse effect on business of not moving towards customer centricity and BI/Analytics driven decision making are too high and can be clearly established with a worked example.
A worked example of ROI:
Let's use the example of bank X with has 250,000 customers with an average product consumption per customer of 1.2 (i.e. each customer has about 1.2 products) and the profitability per product is $ 10/ annum.
Now, using the established BI techniques of customer profiling, segmentation, targeted up-sell & cross-sell, assume the average product consumption per customer within the existing customer base can be improved to 1.4, approx. 15% improvement, and the following year the profit per product can be improved to $11 due to cost reduction & efficiency improvements, and the TCO (combined spend on software, hardware, implementation & campaign) is $ 800,000.
Deducing from this, the bank would make an additional annual revenue of $500,000, and by mid of the second year should get full ROI.
While ROI calculation may not be as simple and straight forward as this, the simplistic worked example makes a case compelling enough, and calls for BI to be considered not as option, but as a must-have.
Now consider the cost savings from efficiency improvements due to the BI system, and opportunity cost & cost of customer reacquisition if BI is not put in place. A clear case therefore for an alternative approach to BI is called for, which is a pre-built quick-to-implement BI, with tangible ROI & lower TCO.
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