Millennials have now overtaken the baby boomers as the largest generation in America. As millennials mature and become the next generation of banking customers, it’s inevitable that banks adapt to their technology needs. Social media engagement and mobile banking are already quickly becoming the standard and not the exception.
Knowing your customer is one of the key components of profitability. Understanding their behavioral tendencies allows you to better service their needs. Equally important is having insight into who your most valuable and least valuable customers are. Differentiating your services and offerings in relation to a customer’s value is key to maximizing profitability. Without this insight you may be mis-allocating resources and under-serving valuable customers while over-serving non-valuable ones.
Today, social media provides banks with a direct line to customers. You can gauge their interest in new services, receive feedback on customer service, and educate them on industry changes. The challenge, of course, is identifying your most valuable customers. Only then can you leverage social media to identify new potentially profitable customers like them.
While it’s easy to tout the numerous benefits of integrating social media into CRM, it’s important to carefully consider costs and risks associated with doing so. Obviously, additional resources will be required to manage content creation, customer engagement and social event coordination. These instantly become additional expenses associated with servicing customers. In addition, we’ve all seen the social backlash a poorly implemented social media plan can have. Just as effective messaging can improve customer retention and acquisition, poorly presented messages can be misinterpreted and enrage the social community resulting in a loss of valuable customers.
The ultimate goal, of course, is to gain valuable insight which maximizes resource allocations, attracts new high value customers and lowers the costs of other customer service activities.
This is why it’s so important to have a cost management system in place that allows a bank to effectively analyze the impact of social media on their cost structure. Customer profitability analytics must exist to properly assess budget allocations, resource allocations, and develop a strategic approach to social customer engagement. Remember, a social media profitability initiative should be based on facts, not instinct.
Tulsa, Okla. – Armada, a national provider of cost analytics software and consulting, announced today it has made a change in leadership. Former President and CEO Scott Wise will transition to founder and CEO of Armada while Frank McKeon, former World Wide Banking and Financial Markets Industry Executive at IBM, will become President.
McKeon brings more than 30 years of financial services industry experience to Armada, having held executive positions at two major U.S. financial institutions as well as being a consultant to the industry globally.
“Our recent inclusion in the IBM Partnership has positioned Armada as a clear leader in the financial services industry, and Frank’s experience is exactly what we need to take things to the next level” said Wise. “Personally, I’d like to spend less time on the road and more time with my family, so the timing couldn’t be more perfect.”
Prior to working for IBM, McKeon served as Managing Director for PMG Systems, a recognized best practice solutions provider of performance measurement software and professional services to the banking industry. He has been a featured speaker at several industry conferences including BAI and AMIFS and is contributing author for the Performance Manager for a banking book highlighting Proven Strategies for turning Information into higher business performance for Banking.
Armada was established in 2002 with one focused mission: to improve the performance and profitability of every organization we are privileged to call client. We bring together talented professionals, proven solutions and advanced technologies into a results-oriented practice that achieves measurable profitability improvements. Our vision is to be the most sought after firm in the world recognized as an innovator in cost and profitability analyticsby developing the tools, talent and technology that continuously improves corporate financial performance.
Analysis conducted on the Top 100 US Credit Unions revealed an $820 Million cost improvement opportunity for more than 40 institutions. The study was based on 2014 annual credit union call reporting data across the Top 100 Credit Unions based on asset size. Total Non-Interest Expenses for these institutions were over $11 billion dollars and represent the normal operating costs to serve Credit Union members excluding interest expense and provisions for loan losses.
The average Non Interest Expense incurred per member for these institutions was $375 per member, with over 40% of the Credit Unions exceeding that average. If each of these institutions reduced their respective cost per member to the average it would save over $820 million in Non-Interest Expenses. Scott Wise, CEO of Armada Consulting commented, “What the analysis demonstrates is the fact that Credit Unions can yield a significant return on investment on cost management programs”.
The disparity of cost per member data across diverse organization sizes in terms of Assets and Employee base indicates a need for improved cost analytics in the industry. Commercial banks have invested heavily in cost and profitability analytics programs to uncover improvement opportunities for several years, while Credit Unions have lagged other Financials Service institutions in deployment. But, as this segment of Financial Services grows, so does the demand for deeper analytics to identify cost takeout opportunities. These savings are much needed to meet growing competitive and regulatory threats facing Credit Unions today.
3 ways improved Cost Analytics can accelerate cost reductions
Channel Cost Rationalization
Branch costs represent a significant portion of Non-Interest Expenses incurred to service members, with declining volumes due to expanding delivery channels. Understanding specific unit costs for transactions conducted in the branch compared to alternative channel offerings enables management to make strategic decisions regarding channel rationalization and accelerate customer migration to more cost efficient delivery channels.
Cost of Excess Capacity
Few can argue that despite continued draconian reductions in staff there is still a substantial savings to be gained from identifying and eliminating costs of excess labor capacity. However, a more creative solution would be to identify the costs of excess labor capacity in a very targeted manner, and then redeploying those resources for more strategic member acquisition functions thus reducing an organizations Cost Per Member rate from both sides of the equation.
Back Office Efficiency
Non-customer value added activities in the back office related to regulatory requirements, fraud, and exception processing, continue to stress back office expense budgets. Improved cost analytics can provide deeper insights into activity and process costs to serve members and help eliminate unnecessary costs relation to exception processing. Integrating a Strategic Cost Management program can provide the necessary cost analytics to improve even the best continuous process improvement initiatives.
Armada releases their newest version of Acumen Cost Analytics for 2015. The latest version includes the following enhancements:
New features for consolidated reporting across multiple periods and scenarios
Enhanced documentation management features to handle Regulatory Cost Transfer audits
Improved handling of period specific attributes and dimensions
Better user interface for model creation and maintenance
Micah Campbell, Acumen Product Manager says “The improvements made in our latest release make Acumen Cost Analytics one of the most powerful, user friendly activity based cost modeling applications on the market “.