Navigating Cloud ERP for Banking

 

Changing expectations, exciting opportunities

 

Five years ago, leading-edge digital banking meant you had an app capable of opening an account. Today, that’s table stakes. Customers want more — a digital experience not bound by location, the ability to access account data in real time, and personalized recommendations for better ways for them to spend, save, and invest. Netflix and Spotify help them decide what to watch and listen to. Why shouldn’t their bank help them optimize their financial lives?

And the desire for a robust digital experience crosses generations. The forced move to digital prompted by the pandemic has transformed Generation Xers and Boomers into digital consumers. In the words of one executive, “The pandemic did our technology strategy for us.” These new digital consumers refinance online, apply for mortgages, and take out PPP loans.

At the same time, banks themselves want more efficient processes that give them an operational edge and rich lodes of data that give them a strategic advantage.

The problem is that, while 60% of banks are moving toward transformation, only 14% feel they have achieved this level of digital transformation. Their IT strategies can no longer support their business strategies. A full 75% percent of the banks in the 100–150 million-dollar market admit that they are “not adept at using data to make the next best decision.” The good news is there’s a clear opportunity here.

Grant Thornton’s Transformation Principal Richard Sittema summed up the case for moving forward: “When three-fourths of your competitors say they’re bad at something, that’s a good time to get good at it.”

 

 

 

The current state of ERP

 

Existing back offices are typically chaotic amalgams of commercial and custom-built apps residing on a mix of hosted, on-premise, and virtual instances. Components were acquired piecemeal as needs became critical. The architectural limitations of these legacy systems, especially in the midmarket, can limit growth because they cannot integrate customer-focused capabilities. Aging, vulnerable and costly to maintain, they force workarounds that steal away time which could be better spent on innovation.

Five years ago, implementing ERP was an arduous process that could take up to three years. You still need to follow the same steps — planning, vetting legacy systems for decommissioning, creating business and test cases, etc. However, the bench of implementation professionals has never been deeper, and those professionals can draw on their experience to drive more efficient implementations.

ERP also used to mean costly ongoing support contracts for fixes and customizations. Now, providers are evolving products to include low-code suites, which enable users to extend an ERP’s capabilities. They are also adopting Agile and DevOps development and project management frameworks that can deliver enhancements as frequent as every quarter.

And there are clear best practices for achieving that transformation.

 

 

 

 

Five components of success

 

 

1. Focus on user experience. Cost optimization will follow.

 

It’s tempting to view digital transformation as a cost optimization strategy. But any initiative focused merely on cost optimization won’t allow you to compete. It’s essential to view digital transformation through a customer experience lens.

How can you improve their experience, remove points of friction, and understand and meet their expectations? The goal of the design process should be to identify friction in the customer’s experience and eliminate it.

This could mean eliminating any unnecessary hurdles between the customer and their data. For example, one provider removed bothersome hard apps and indirect email transmission by linking a browser portal directly to their commercial banking application and digital suite. This connected their customers directly to the bank’s core.

Of course, while you are examining your processes, you might discover ways AI and automation could improve it. While cost optimization should be the framework, there are obviously plenty of opportunities for greater efficiency, given the current state of IT systems.

After evaluating the customer experience, express your findings as design imperatives — specific outcomes that you can judge progress against. For example, “data should only be entered once.”

This careful consideration of customer needs will help you build a powerful business case.

 

 

2. Build a business case, establish design criteria and define success.

 

Most implementations fail to realize their ROI. Some organizations fail to develop an ROI estimate, while others base any estimate on soft assumptions that can’t be validated.

Your ROI should be defined by stakeholders and driven by the business. Metrics should be agreed upon and tracked throughout implementation. This involves a frank discussion with executive leadership regarding their expectations — and input from functional leaders about their needs. Questions to consider when setting ROI metrics include:

  • Which capabilities do they want to enhance?
  • How will this enable a customer-centric strategy?
  • Which costs change and by how much?
  • How much revenue growth can be expected?
  • Will this transformation position you to pursue an acquisition strategy?


Your success criteria will be objective measures that justify the investment. It should be something more than “go live.” It should be measurable and attainable — such as a 20% reduction in help desk calls.

 

 

3. Choose a technology solution that fits your needs and a partner who fits your culture.

 

You can select from abundant ERP options. ERP licenses alone are a $30-billion market, with a projected growth of $50 billion over the next five years. The impact of ERP advances is further amplified by cloud computing and other storage-driven innovation.

Your options include banking-specific modifications to mature preexisting ERP products, dedicated banking providers expanding into ERP, and a range of disrupters and emerging variations. Seek out tech that enables flexibility and a provider that gives you a voice in the development of solutions. “A good provider will treat your bank as a development partner,” explained Stuart Reeves, Grant Thornton Senior Manager, Transformation.

But in a process that involves teams working together day after day, cultural fit is as important as technological attributes. The brand names may not be your best choice, especially if they are sized for larger engagements. Ask for references from institutions which are close to your bank in size, culture and trajectory. An RFP can help you review your options against some basic criteria.

Use your power as a client to shape the selection process. Candidates will start with a “commercial” explaining their capabilities. Since you’ve already viewed their web site, ask them to skip it. They will introduce you to their sales team. Ask to engage with the people who will be working with you. Determine their delivery model. Do they work remotely or thrive as an in-person team? Do you? Have they assigned part-time team members? That might be a red flag in such an intensive process.

 

 

4. Concentrate on the differentiated requirements distinct to your application.

 

Concentrate on the 20% of requirements that address your uses cases and matter to your users or customers. These differentiated requirements not only help ensure the most effective product for your specific needs, they save time during selection and demonstrations by focusing on the functionality that will add the most value for your organization. Accounts payable, for example, may be the same from solution to solution, but how those solutions leverage intelligent automation or vendor self-service platforms can point to the right solution for you. Ask each provider to script their demonstrations with a deliberate focus on your differentiated requirements.

 

 

 

5. Develop integration, data, reporting and application strategies prior to implementation.

 

Selecting your new system requires a strategic and tactical review of your existing technology environment, beginning with integrations. Many existing systems transmit data across a diverse portfolio of applications, with gaps which force data re-entry and compromise data integrity.

Aim for seamlessness and integrity, efficiency and security — a smooth flow of data without the need for reentry and without the threat of loss or degradation. Integration makes data accessible and, when combined with data strategies, is the engine behind the data-driven organization. Start by outlining the process from data source to data consumption. Can data be easily entered, safely transferred and easily accessed?

While integration looks at how data moves, data strategy looks at how it is used. Given your objectives, what tools do you want to use? What rules do you want to apply? What’s the fastest route between data and decision?

Reporting — data in a useful format — is often left until last but it shouldn’t be. Grant Thornton Senior Associate, Transformation, Tori Sawhney emphasized that “It's no coincidence that reporting follows integration. Reports will be key to evaluating your data conversion and your integration strategy.”

The reports you want to generate will inform your design. The failure to think about them early on can lead to inaccuracies, lack of access to reports and delayed timelines.

Friction in a process becomes frustration in a person. Ask how users access reports on your legacy system. How can you design a system that allows them to interface quickly and easily with the data they need in the form they want — including visualization? Determine what reporting is optimal, what you can source out of the box, what needs to be customized and what needs to be developed.

Your application portfolio strategy provides an opportunity for quick wins and real-time savings. Identify essential systems while eliminating duplicative, nonessential and outdated application. For example, your standalone Human Resources and Expense Management applications could be replaced by the new ERP.

Involve an internal audit professional in this review. They can flag items that impact system controls, including those necessary for SOX compliance in public companies. Consider a move to the cloud, which could reduce the number of reports and vendors you need to monitor.

 

 

6. Slow down to go fast: planning, data prep, process documentation, resource allocation and governance.

 

Planning may be the most practical and powerful tool you have. Sittema explained why: “Anything that can eliminate the possibility for rework is valuable.”

Find a leader. Design is a strategy and strategies may be enabled by software, but they are articulated and powered by design leaders. The right leader — someone who can energize a team and get a project to completion — is an X-factor. These champions can give you a competitive advantage against larger banks. They will also be key to success in the adoption phase. Grant Thornton Managing Director, Transformation, Michael Wagoner, explained: “Getting the system ready for the business is one thing. Getting the business ready for the system may be your greatest challenge.”

Carve out a phase zero, where you document processes, prepare data, rehearse data migration and cleansing, define business cases, establish testing protocols, specify design criteria, and gain buy-in.

Make sure you have adequate resources. You can cut back easily but you can usually add resources only with difficulty. If people are going to spend significant amounts of time away from their day jobs, assign backups or source temps. Challenge any less than full-time commitments on the part of the partner.

Document delivery dates, roles and responsibilities, communications plans, escalation paths, thresholds for entering and exiting project phases, and test phases and schedules.

Finally, establish a governance model. This should include a steering committee with stakeholders from functional areas (including internal audit) and your implementation team (including your partner). Provide them with the business case and design criteria to use as lode stars. Meet regularly with the project manager and capture these meetings in project artifacts.

ERP transformation will require a solid team working together for an extended time. But there’s a great opportunity for financial institutions willing to undertake it. “If your bank is on the low end of the adoption curve, you may find adopting a modern ERP system accelerates you to the other end of the curve.” The keys are an emphasis on the customer experience, a technology partner that fits your culture and enables your strategy, and the willingness to “slow down to go fast.”
 

 

 
 
 

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