In theory you could hire someone to drink the coffee you just bought from the local beanery. But something would be lost in the process—at least for you.
The analogy is not perfect. But the point is, just because you can outsource just about any function in a business doesn’t mean you should.
Terence Roche, partner and a founder of Cornerstone Advisors, made this point in a recent interview.
Roche is not anti-outsourcing, but in several areas of the banking business, he feels it is not the way to go. He focused on one in particular in the interview: data analytics/information management.
In that area, he maintains that banks would be better off building or acquiring talent rather than outsourcing to a vendor.
Regional, midsize and community banks are buyers of technology, Roche says; they rely heavily on their vendors. They often outsource core processing, internet banking, and maybe loan origination, he observes.
“One of the things banks are beginning to realize they cannot outsource is the entire issue of data analytics and good information,” he says.
One of the reasons for this, he says, is “that every bank has a different set of systems they use.” They have different systems for internet banking, loan origination, risk management, CRM, etc. “There is no vendor who has a data strategy that addresses all of your unique systems.”
Vendors can’t connect the dots
“Think about how many places there is information within a bank that is needed to be effective with information management,” Roche continues. Even in a simple bank there can be a dozen or more data sources—core, cards, leasing, trust, lending, profitability, CRM are a few, he explains.
“If you want to get actionable information,” says Roche, “someone has to build a strategy that includes all those sources. No one vendor has ever done that.”
Secondly, says Roche, “it is very hard for a vendor to understand what every frontline manager really wants in terms of good information. Data is one thing, but knowing specifically what is important to your team is another.”
Information is strategic
For these reasons, Roche believes banks—of any size—will realize “I have to have internal expertise in data management, reporting output, etc.”
Speaking of the consulting assignments and peer groups he and his team are involved with, Roche says, “We don’t go anywhere right now where people aren’t talking about information management, data, customer views, and the need to be information-based. I don’t think banks that are going to be successful five or ten years from now can say, ‘We are going to rely on a third party or hope we can hire talent that someone else developed,’ for something that is so strategic.”
Continuing, he says, “A bank has to treat certain skills like information management as areas where they have to come up with ways to start selectively finding talent for certain pieces of it, but also begin to grow skills in-house.”
For example, a bank could hire someone on a one-time basis to help set up its data structure, and in the short term it could bring in a company to analyze its data, although that could be expensive.
Even so, says Roche, each bank has unique strategies and needs and the knowledge that goes along with them. Each bank, for example, would have a different concept of what a “single view of the customer” would represent.
Growing your own not easy
Roche says he understands developing talent is not an easy or quick process no matter what the discipline. Asked if, given the competitive environment, banks have time to develop in-house talent, Roche dismisses that by saying, “No bank would say, ‘I don’t have time to build lending expertise’.” And besides, he says, “if you don’t have the time to do it now, you’ll be in the same position a year from now.”
In the case of information management, he points out that almost all banks have one or more 20-somethings who are smart and very familiar with the digital environment, “even if they challenge your dress or tattoo policy.” He recommends career-pathing them in information management.
This will, of course, make them very marketable, he acknowledges, so you have to give them good reasons not to leave. One is to provide training on a regular basis.
“People who excel in these areas need to know they are progressing and improving their skills,” says Roche, adding that the training is continuous because the tools mature so rapidly.
Roche covered this topic more broadly in a post in Gonzobanker, the Cornerstone Advisors blog.
- Data Insights Drive Personalization
- As Predicted, the Economy is Strong But Auto Loan Delinquency Rates are at Record Highs
- Bitcoin “ATMs” Come to Nevada and Arizona
- Ned Davis Research Points to Another Potential Tactic for the Federal Reserve
- Belgium, Netherlands Customers Top Charts for Mobile Banking: Could Fintech Threaten Market Share?