The introduction of a voluntary standards and certification process to the financial services industry would ease post-merger integration hassles.That's one of the main premises of FS 9000, an industry organization modeled after the Geneva-based International Organization for Standardization (ISO), developer of the ISO 9000 benchmarking and quality assessment standard.
Based on a similar initiative in the telecommunications industry, FS 9000 will provide a framework to remove some of the cost and risk of mergers and entering strategic partnerships. "We talk long and hard about consolidation," said George Wagner, a partner at Productivity Resources, a Virginia City, Nev. consulting firm, and a driving force behind FS 9000. "Standardization only serves to help in that regard."
In addition to alleviating the burdens associated with consolidation, financial institutions can derive a host of ancillary benefits from adopting FS 9000 procedures, including improved operational efficiency and access to performance metrics (see sidebar page 32).
The advantages associated with standardized certification are not lost on the business world at large. ISO-mania has swept the manufacturing industry and is now making headway in other sectors. More than 344,000 companies are ISO-certified globally, about 10% of them U.S. organizations. For example, manufacturers of credit cards, phone cards and smart cards have adopted an ISO standard that sets out an optimal thickness for the cards, which allows them to be used worldwide.
"The model for FS 9000 comes from other industries that have adopted their own sector-specific standards based on ISO 9000," said Wagner.
Faced with economic, regulatory and competitive changes, financial services companies have expressed interest in obtaining the FS 9000 "seal of approval." FS 9000 proposes to integrate additional financial services requirements into ISO 9000, addressing areas like privacy, security, regulations and compliance. The group is seeking 10-15 medium- to large-sized banks to sign on and hopes to have 150 within a year, said Wagner, whose company came up with the idea of FS 9000. A Web site (www.fs9000.com) has been set up to disseminate information.
The first financial institutions to adopt FS9000 may be those pursuing growth through acquisition. Mergers between financial services firms often become mired in technological and business issues around call centers, transaction processing, transfer agent operations and the back office. By bringing standards to these processes, FS 9000 would make it easier to complete mergers and enter strategic partnerships.
"It's a great opportunity for the financial services industry," said Brian Hettrick, senior manager of the ISO management services practice at KPMG. "ISO 9000 helps organizations deal with all the regulations and standards that are out there."
With ISO initiatives already underway at a number of banks around the world, forming an association is the next logical step. "It's a logical way for the industry to standardize the standards," said Hettrick, adding that it will help reduce costs and make the industry more efficient.
In March, KPMG and Productivity Resources hosted the ISO/FS Quality Awareness Conference at Citibank headquarters in New York.
More than 80 people representing 30 institutions, including three of the largest banks, attended the half-day conference, intended to drum up interest in the FS 9000 initiative. Attendees, including vice presidents and senior vice presidents-mostly from the operations side-heard from banks that have ISO programs underway, such as the Federal Reserve Bank of New York, Standard Chartered Bank and Mellon Financial.
Ernie Emmerling, project manager at Mellon Global Cash Management, said he was surprised at the number of banks that showed up. Prior to the conference, Mellon had tried without success to find out what other banks were up to in the ISO space. "It was kind of an eye opener. We found many more names."
TO SHARE OR NOT TO SHARE?
ISO certification carries a certain cachet. "It shows you have a structure to promote continuous improvement and shows customers that you have a system in place that addresses their needs," said Sherry Brown, project manager at Mellon Global Cash Management, who spoke at the conference.
Companies deploying award-winning quality programs are rewarded, according to FS 9000 literature. A five-year academic study found that the stock prices of such companies ran 34% higher than the S&P Index, while operating income was double that of non-award winning companies.
Through the use of performance metrics and benchmarks, FS 9000 member firms can compare themselves to others within the industry. For example, armed with the average call center response time for organizations of comparable size, a firm can optimize its spending in that area. "If their performance metrics are among the best in class, they can choose to spend money in operations where they're not the best in class," Wagner explained.
Still, independent observers questioned whether banks would be willing to share sensitive information. Banks may balk at giving away "trade secrets," said Helen Donnelly Toth, vice president of marketing at Managed Objects, a manufacturer of software that allows disparate computer systems to talk to each other. Despite the benefits of the FS 9000 initiative, she said, any technology edge that speeds up a process can be a "competitive differentiator."
However, at a time when IT budgets are under attack, standardization enables applications to be built faster and at lower cost, said Toth. It also means companies can focus on their businesses instead of writing code.
It would also make life simpler for vendors, said Wagner. "The more I see standards, the more opportunity I can write code and software that conforms with it."
While acknowledging that banks "could do better at sharing information," Mellon's Emmerling noted that when the telecommunications industry set up a similar organization, participants were "surprised at how much all the competitors in that field came together." FS 9000 is not only doable, but vital in an era of globalization and consolidation, he said.
Although "doable," joining a certified standards group can be an arduous task. ISO standards cover everything from software development to management practices, customer relations, staff training and purchasing procedures. In order to achieve certification, a firm must review its processes and attempt to standardize them through written checklists and policy manuals. That entails an extensive review of company procedures on a department by department basis and examination of documents and workflow throughout the organization. The firm then formally applies for certification and agrees to periodic independent audits. Certification is a signal to the rest of the business world that the firm has a quality management system in place and follows it.
Benefits of FS 9000
- More efficient operations, performance metrics, measurable cost savings and reduced operational risk.
- Common standards for use among departments and with third parties.
- Improved service to clients and investors.
- Improved working environment for staff.
- Enhanced regulatory compliance.
- New clients and sales.
- Will make firms more efficient in acquiring companies and implementing mergers.
- Increased value of operational units.
- Access to financial service industry information.