IS INFORMATION TECHNOLOGY SUFFICIENT FOR ASSURING COMPETITIVE ADVANTAGE IN BANKING?

INTRODUCTION

Having just participated in a very helpful Business Times Breakfast Roundtable on ICT which touted the benefits of Information & Communication Technologies (ICT) on businesses in general, I was particularly wondering if Information Technology (IT) “really really” gives competitive advantage in the Business of Banking.

As a Chartered Banker and someone who appreciates the application of IT in the Business of Banking, I have deliberated on this for a very long time and “daringly” tried to conclude that IT on its own, cannot and will not ever give any Bank a competitive advantage if the Bank in an off-line” mode has no well laid down management and corporate governance structures and brilliant  competent “out of the box” thinking people who can use IT (a mere tool) in an “on-line” mode to drive the Bank. Basically, if the structures cannot support and people do not understand the Business of Banking to run the Bank without IT, inefficiency will collapse the Bank despite the continuous introduction of this costly monster we have to live with.

This article is just to navigate through, structure my thoughts to attempt to carry along anybody who reads it to “daringly” join me in my unpopular conclusion. The IT sales guys may not be amused.

INFORMATION TECHNOLOGY AS A STRATEGIC NECESSITY IN BANKING

Can modern day Banking be done without technology? Can a Bank be efficient in the delivery of services and be profitable without IT? In my opinion, this is a big NO so the question is why do  Banks bother about issues like Return on Investment (ROI), Net Present Value (NPV) and Pay Back Period when it comes to the deployment of technology in undertaking the business of Banking. So are we saying if the NPV is negative you will not deploy Internet Banking? An accountant would feel uneasy by way of how he has been trained to take investment decision but as a Banker I really have no choice than to deploy. What I may have to do is look for a good bargain by way of price for what I want to deploy depending on how I understand the business and not just deploying what I can afford which seems to be what most Banks end up doing. You have to deploy to keep the pace of being in business. I would treat it as a sunk cost (not investment) and be innovative in its use. You want to deploy ATMs or Internet Banking and you want your business/finance team to justify the deployment with respect to ROI? In my opinion, just deploy but have the right people who can be innovative in its use to attract and keep customers.

Banks really have no choice than to continue to deploy IT to make life easier for their customers just to maintain them. Eventually, IT and its associated competition creates a “welfare” customer who wants Banking Anywhere, Anytime and on Any Device without wanting to really pay for its use. It has become a way of life to the customer and therefore must be a way of doing business for Banks.

The primary focus of technology in banking adoption may therefore not be for making money but at least for retaining the Bank’s image as innovative, defend its market position whilst building relationships all to just be in the business of Banking. Once IT is deployed, it is vital for a Bank to quickly diffuse the service to customers before obsolesce sets in or act faster than its competitors to absorb some limited market through revenue enhancement initiatives which can only be created by the quality of staff it has employed. Banks have no choice, the more you postpone its deployment, the more you lose out on acquiring customers and even lose what you already have. It is what you do with the acquired customers to make money that matters.    

INFORMATION TECHNOLOGY AS A COMPETITIVE ADVANTAGE IN BANKING

What seem to make the unique advantages (increased revenue, increased customer base etc) of using IT elusive in Banking is to me the fact that we seem to have “Right Brain” Bankers with “Left Brain” IT Professionals” working together. I will be walking a tight rope if I say IT will not give a Bank a competitive advantage. Of course under certain conditions IT properly enabled can bring a lot of competitive advantage to a Bank for as long as the right mix of resources continue to be present. In my opinion, the lasting real enablers are:

·         A collective collaboration between Bankers who understand how banking technologies work and IT Professionals who understand how the Business of Banking works.

·         An integration of IT and Telecommunication technologies (ICT). A combination of Information & Communication Technologies and not just Information Technology is what is likely to give a Bank the touted competitive advantage. Banking anywhere, anytime and on any device is the vision I see. This means a Bank that can strategically partner a Telecommunications provider (eg. Airtel, Vodafone) and IT solutions providers (eg. Microsoft, Oracle, IBM) can continuously create that edge which will keep competitors chasing a mirage of goals for whatever it is worth..

·         “High Touch, High Tech” Banking. I truly do not believe in the selling proposition the IT sales professionals keep using to load all sorts of technology with the Ghanaian Banks in the name of reducing “Brick & Mortar” or promoting “Branchless Banking” hence reducing cost.  Banking in Ghana at this point in my opinion, requires both the ICT enabled environment or Branchless Banking (High Tech) and the “Brick & Mortar” (High Touch).  High Tech is for the relative e-youth (electronic youth) with High Touch for the relatively t-elderly (traditional elderly) and what did the latest population census say about the proportion between the two. Banks need both ends. The present cash strapped e-youth is for the future survival of the Bank and the fully loaded t-elderly and e-disadvantaged need to be catered for to survive the present. Dicey situation but Banks that can combine “High Touch with High Tech” will have the advantage of being profitable. I once heard  Prof. Azuma Nelson saying the only problem with Ike Quartey  as a boxer was he (Ike) has the punch, the power but does not know what to do with it. This in my opinion is GCB and what it can do with ICT considering the backbone of its physical presence all over the country if it is able to create a strategic fit with ICT. A Ghanaian Bank like GCB with its size, given the right strategic partnership and outlook can create a “High Touch, High Tech” environment which can move it to be a very competitive Pan-African Bank.   

·         A well thought through ICT strategy, combining an information strategy with a technology strategy. This must answer what Banking services the Bank wants to deliver and what technologies it wants to employ and how? This is where “out of the box” innovation comes in. Here one has to ignore what the competition is doing and concentrate on what it wants to do. Whether the service is possible now is irrelevant, it is up to the IT guys to keep searching for solutions. If the competition is providing the service then they can find out how they are delivering the service but not necessarily adopt their technology unless it matches the Bank’s own futuristic technology strategy.

 

·         An “out of the box” thinking, innovative and experienced staff is the real strategic enabler for IT. The contributions of all employees in terms of their knowledge, skills and creativity are vital and this cannot be over emphasized. In a competitor Bank, it is the people who have adopted a technology and diffused it in a particular way based on the envisaged Banking services they intend to deliver and their strategic understanding of the future as well as business processes. If you really want the technology then you are better off wanting the people. The technology can be copied not the people. Let us take any Banking application, eg Temenos T24. Yes it is a robust good technology but its deployment is as good as the people who implemented the technology (both from the business side and the vendor side). To think a Bank is doing well with its technological processes so you just decide to deploy the same T24 technology is not a guarantee of having the same value. The technology is an empty box made full by the right people (the human capital) who must be retained.         

 

 

 

WHAT NOT TO DO

In my opinion, the common mistake Banks keep making with IT deployment is not knowing what they want but asking “What Are Other Banks Doing”? By this they keep copying and putting together piece meal technologies not knowing the big picture of the technology strategy of the Banks they are copying which eventually makes IT costly for the copying Bank

It is okay to find out what other Banks are doing, if it is just only to make sure you are being at least competitive or at best have an edge. If it is exactly what you plan to do, then by all means adopt but remember you are not copying the technology but the thinking of the people running that other Bank. May be what you are copying now is a means to an end for them and when they move on you will be stuck with no ideas. First get an excellent team since deploying IT on inefficient internal structures, processes and failed people is the fastest way of increasing operational risks  and costs associated with the use of IT in Banking.

Over-reliance on IT personnel in running the operations of Banks must not be encouraged. Most processes have been automated and in deploying the systems, business has taken a back seat for IT professionals. The result is that business do not appreciate the technology to push it to its limits or be in a position to adapt or diffuse the technology to improve their processes. Most staff therefore run their processes on what the technology can do so the IT department may end up running the operations of the Bank since they end up understanding better what the system does. Banking training becomes synonymous to Banking application training and likely to be facilitated by IT staff. This in my opinion is the beginning of disaster. Banks should not get trapped in this quagmire.   

CONCLUSION

In an industry where the use of Information Technology is a “sin qua non” just for a Bank to open its doors to the public, IT cannot be a sufficient ingredient in the complex mix of resources needed in running a successful competitively advantaged Bank. What use is a fast modern car being driven by an unskilled, inexperienced driver who cannot even understand, appreciate and operate the various gadgets that makes the car that dreaded machine on the road. The car will not give any advantage to the owner. The owner can only brag about what car she owns at a very high cost to her but no benefit. A status symbol.

So what I am saying is, it is only the Bank that has” IT compatible Bankers” working with “Banking compatible IT Professionals” who can together push technology to its limits to create that first mover advantage of attracting more customers or becoming more efficient and to a some extent create any competitive edge. Once others understand what is happening and start copying, it eventually makes it a zero sum game but unfortunately you need to keep updating the technology just to protect what you have. IT spend will not go down but the differentiator is the quality of Bank staff which have to guarded jealously to make the spend worthwhile. The limitation of IT in my opinion has a direct correlation with the limitation of the users and whilst I believe IT is a strategic necessity in the Business of Banking, its competitive advantage lies with the “out of the box” thinking, innovation, capabilities, experience and understanding of the business by the staff.

Finally, I would say IT is necessary but not sufficient in giving competitive advantage in the Business of Banking. Do not invest in IT and recruit PEOPLE, instead INVEST in PEOPLE and “recruit” IT. Have I made sense? Your guess is as good as mine.