Posts Tagged ‘financial firms’

CRM System: Buy or Build

LobbyEvery client-centric organization needs to adopt a CRM system of some kind. Many managers realize the clear value of a CRM system will have increasing productivity, institutionalizing client relationships, and providing better management intelligence about their customers and sales teams. The challenge then becomes deciding what kind of system they want to to have, leading then to an overwhelming series of options that are available to them.

Technology groups embedded within organizations large enough to have them, will be inclined to want to build their own system rather than rely on an off-the-shelf solution. They are ‘developers’ by trade. Most organizations though will opt to adopt a vendor product. The minute that managers begin the investigation process on vendors, they get quickly overwhelmed with options, benefits, and features. Often they feel that to get what they really need, they should just hire an unassociated group of developers to build them their optimal system.[more…]

Managers end up unsure as to what the ultimate solution should be. A CRM system decision is one that managers must live with for a long time. They want to make sure they are making the right call. I’ll outline some key considerations when making the decision of buy or build their system

1) How unique and complex is the organization’s business model, and ultimately their information model?

2) What is the organization’s capacity to support and enhance an internally grown system?

3) Of the available vendors, are their any that specialize in workflows and requirements of an organization’s specific industry or sub-industry?

4) How financially stable are the vendors that provide solutions to the organization’s industry?

5) Are there consultants or subject matter experts available internally or externally that can function as trustworthy and unbiased advisors who can help navigate the options?

Pros and Cons

Custom built solutions allow for the greatest flexibility for specific requirements, especially if there are particular nuances related to an organization’s unique business model or market differentiation. Custom solutions also have more agility to integrate with already existing systems and data. They provide the potential for the biggest competitive advantage. None of your competitors will have this tool. The biggest downside, of course, is cost. Firms will need to commit capital for the build-out, plus a ongoing costs for enhancements and support.

Vendor solutions will in most cases provide the majority of requirements if industry-specific solutions providers exist, and for most financial sub-sectors they certainly do. Most are out-of-the-box so require very little configuration. The challenges come when a firm has specific things they want to do, but are constrained by the technical limitations or development schedule of the vendors. It’s hard to get a clear understanding what the true advantages and disadvantages are with just direct engagement with the vendors. Their demos give very little insight on what their deficiencies are, or which vendors are better than others.

There is no one simple answer to whether it’s better to build or to buy. Each organization is going to have their own unique CRM and information requirements. If there isn’t in-house expertise, we highly recommend finding someone who can help navigate the waters.

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Measuring Profitability: Initial Questions

Over the past 10 years, the trend of measuring profitability of clients and products within financial companies has gained momentum, with a steep up-tick since the 2008 financial crisis. Managers have become interested, in some cases obsessively so, in understanding what nuclear parts (clients, products, initiatives) of their businesses are contributing to the bottom line and which are taking away from it. It’s become apparent that managing by looking only at business unit or desk level does not provide the right strategic insight necessary to compete effectively. Profitability analysis, when executed correctly, can significantly impact product pricing, resource optimization, process streamlining, and client relationship management.  We’ll talk further about uses and specific methodologies in later posts, but I want to address three main questions that I get asked when clients start looking at implementing a profitability discipline within their firm.[more…]

How complicate and detailed should the analysis be?

It goes without saying that the complexity of the analysis is largely driven by the complexity of the firm or business unit being analyzed. The key thing is to make sure that the analysis drives toward some kind of action, so it’s important to define the key questions you are trying to answer with the results. For example, the level of detail to determine whether a client is getting over-serviced is different from the detail necessary to perform a process reengineering project.

A lot of people, when in the throes of analysis, get bogged down on precision and complexity, which in many cases adds no additional directional insights.  In many cases many interesting insights can be gained from very simple analysis.  I recommend taking a look at a book by Douglas Hubbard called ‘How to Measure Anything’ which gives some useful cases studies.

Should I hire an expert or consulting firm?

I’ve often said that profitability/costing analysis is a specific skillset that is different from other finance or accounting functions. Absolutely it requires a command of the financial accounts, but it also requires a clear understanding of the underlying drivers that impact how the expenses are “consumed” by clients, products, or projects. This requires an understanding (and an ability to model) business process flows. Probably most importantly, it requires an ability to create useful insights from the model results once it has been complete. A consultant or expert in this area are usually very good at ferreting out and mapping underlying business processes and have experience turning the large mound of results data into actionable strategies. They don’t have to completely own the entire profitability initiative, but they can provide invaluable perspective on methodology at the beginning of the project and have an arsenal of profit-enhancing solutions once the profitability results have been created.

Should I bring in an ABC/ABM tool, or can I build it on Excel?

This is a tough question because most managers are extremely hesitant to invest too much at the beginning of a profitability initiative, which is completely understandable.  They want a cheap proof-of-concept first with one or two people, and Excel, which is a fine place to start. I would argue, though, that you should incorporate an ABM tool (such as Acorn ABM or SAS ABM) as soon as humanly possible, for three main reasons:

1)       As the model becomes more and more complicated, with incorporation of more clients, client segment, products, expense groups, and driver data, the harder it is to maintain and manipulate.  In the end, it’s usually one person who understands the model and if they happen to leave, it’s a massive setback.  ABM tools standardize the logic and methodology which make them much easier to endure a transfer of ownership.

2)      Allocation methodologies often lead to multiple allocations across the model, so transparency is lost almost immediately. In the end, you may be able to determine what is profitable or unprofitable, but not why. ABM tools maintain the integrity of multiple allocations, so you can always easily trace the assigned cost (to a client for instance), back to the financial account detail. Reconciliation then becomes a cinch rather than a painful two week exercise.

3)      Version control becomes a big issue as the model gets updated over time with new financial or driver data, or allocation methodologies change. ABM tools allow you to not only better organize and track version of the model, they also allow you to make changes that retroactively impact past models. This is absolutely required if you want to do period-on-period or trend analysis of results.

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