Some mid-size banks are spending double what their peers are spending on data communications circuits. That’s right, twice as much. And if that news isn’t mind-blowing enough, get a load of this: they’ve been doing it for years, according to The Cornerstone Performance Report.
Gonzobankers, what would make one institution pay twice as much as another for data lines?
OK, OK, telecommunications isn’t sexy to talk about. I get that. But it’s something every institution needs, and it is the underlying technology that enables our branches, ATMs, phone systems, vendors and Internet to talk to each other. It is the most expensive monthly recurring piece of any infrastructure budget, and one that can be drastically affected by vendor types, architecture decisions and internal institution choices. While bandwidth, architecture, and vendor type all apply to the cost of data communications, three common themes directly affect the bottom line.
Network Architecture: Design elements relate to how a data network contributes to the cost structure disparity. A review of an institution’s network architecture is the first step in understanding how architecture may be contributing. To get the conversation started, a number of questions must be asked:
An institution’s decision making process, level of risk tolerance and sensitivity to cost will all affect how it answers these questions.
Market Commoditization: Every seven or so years a new technology emerges in the telecom space. Frame Relay was the rage about 15 years ago; in 2007, multiprotocol label switching (MPLS) was the hot technology. Today it is Ethernet. Ethernet offers greater change management flexibility, additional stability and a desirable cost structure at higher bandwidths. However, the cost benefit curve for Ethernet is only beneficial at higher bandwidths. At lower bandwidths it is often much more expensive and may not be the right choice given the fact that MPLS is very reliable and, in most cases, satisfactory. As technology matures, newer technology is introduced and the need for more bandwidth proliferates. While the cost per unit of bandwidth declines as higher volumes are purchased, if left unmanaged this can quickly lead to an overspending situation.
Vendor Choice: Four classes of telecom vendors are contributing to the pricing inconsistency:
Gonzobankers can manage this very important piece of the infrastructure budget by following these three simple techniques:
An unmanaged or undermanaged telecom environment will eventually put an institution on the upper end of the spending spectrum, but implementing a few simple techniques can go a long way and produce eye-popping results in the bottom line of an I.T. budget.
A financial institution’s technology solutions play a major role in its growth and success.
A Telecom Contract Negotiation from Cornerstone Advisors can help you determine whether your organization’s systems and processes are supporting your strategic goals and helping you stay competitive.
Contact Cornerstone today to talk about reaching best practice levels for your telecom contract management.