Not sure if it’s all of those 1998, getting-ready-for-Y2K contracts coming due or what, but it seems that system selection engagements at Cornerstone, GonzoBanker’s mother ship, are heating up like a frat boy’s belly after a Jagermeister bender. In the past six months, we’ve seen our system selection practice take off like almost never before. It’s not just us – vendors and our fellow consultants alike confirm that the season to evaluate banking systems is in full swing, Chachi.
Let me take you down the road a bit. The RFP (request for proposal) responses have been studied, picked apart, analyzed and otherwise digested. The bank has witnessed countless daylong product demonstrations conducted by cuff-linked sales reps. The field of vendors has been narrowed to a proud one or two that stand a chance of winning (or retaining) the bank’s business. As much as our esteemed clients love the quality time with their charming consultants, there comes a time when they have to go off on their own, do some hard core due diligence, and make a quality decision. Due diligence is dirty-fingernails detail work that simply must be done by the bankers themselves – the people who are at risk after the decision has been made and the conversion is over.
This is the point where a system selection process is in danger of grinding to a halt (like the basketball season at Syracuse is about to do on Saturday). The bank is tired (not to mention behind in its day-to-day duties) from the many days of product demos and meetings with distractingly delightful consultants. The last thing the bankers want to do is MORE analysis of banking systems.
But analyze they must. This next step is arguably the most important phase of the entire selection process. It’s when the opinions of consultants and the spin from the fast-talking salespeople are at least temporarily put aside, and bankers talk with their peers about how the systems in question work in the real world.
What follows is some typically straightforward Gonzo advice on how to get the most out of your due diligence process. We recommend a two-step process:
Telephone Campaign
For every hour spent on RFP analysis and product demos, plan to spend two hours on the telephone with peer bankers. It’s that important. Put some serious time into this as it will be the most frank and useful information you will get on the systems you are evaluating.
Now, I don’t mean one person should be making all the calls. Start by creating issues lists by line of business. These should be lists of items that during the product demos didn’t make sense, were obviously glossed over, or weren’t covered at all. The list should be limited to the potential deal killers (no more than five or six) in each line of business. While your comprehensive list of unknowns might be longer than a handful of issues, remember that you are going to have limited time and patience from the banker answering your questions on the other end of the phone line.
Develop a quality calling list of true peer banks – as similar to your bank in terms of asset size, account volumes, strategy, balance sheet composition, etc. as you can find. This list might include three to five different banks per vendor for every business line. Force your prospective vendors to give you detailed contact information based on each business line’s criteria. Request best practice users of their systems: hotshot commercial lenders; sales-driven retail bankers; rock-solid, efficient back office professionals, etc.
Your I.T. group should concentrate on two types of peer banks – new customers of each vendor who can provide feedback on the vendor’s conversion skills, and long-time users of the system who can tell you volumes about the staff necessary to run the system and about any nuances of the system that should concern (or impress) you. Your consultant will be able to supplement the vendor’s contact list with clients that use the systems in question.
Senior or mid-level personnel from the business lines (not the CIO and not the consultant) should conduct the peer interviews. Lenders should call lenders. Ops people should be talking to ops people. Get your CFO on the phone with peer CFOs. You need people conducting interviews who can talk the talk. It’s the only way to get the detailed information you’ll need to feel comfortable with the decision your bank is about to make.
Take copious notes during your due diligence calls, and compare notes frequently during the process so you can fine-tune your questioning as you go. At the end of the telephone campaign, each business line should meet to discuss its findings and compile a list of final questions that must be answered during the site visits. The telephone campaign should be conducted over a short period of time – aim for two weeks at most. If you do not put a deadline on the campaign, it will drag on endlessly.
Site Visits
Now you’re ready to visit a peer bank actually using the system(s) you’re evaluating. The key will be to have each line of business visit a bank that is as similar to your own as possible. You could get lucky and have all of your business lines visit the same bank, but the bigger your bank, the more likely it is that you will have to split your various departments across two or three different banks. Commercial and Mortgage might visit a bank in Wisconsin while Retail, Financial and Ops make a jaunt to a bank in Virginia.
We highly recommend visiting only one bank per business line per vendor, and send a maximum of two people per business line. The logistics will strangle you if you try to do too many site visits or bring too many people with you. Moreover, your feedback tends to be more direct and honest if you’re not flooding a peer bank with a horde of your people. Now is the time to forget about political correctness and inclusiveness and get brutally practical.
To be thorough, you have to make site visits, but we seriously discount site visits’ overall importance in the due diligence process. Why? Because while we may have one or two banks per year change their minds about a vendor during a concerted telephone campaign, we have never once had a client change its mind after a site visit. Look at a site visit simply as a way to confirm what you learned in your telephone interviews, product demos and RFP analysis. The chance that you’ll learn anything earth shattering during a site visit is negligible. (For this reason, particular consideration should be given to peer banks in Hawaii, Miami, San Diego, or Aspen.)
Go heavy on the phone calls and light on the plane trips, and you can rest easy knowing that your bank has done its homework. You’re cooler than Fonzie and Vincent Vega COMBINED!
-smh