Management Strategies

05:32 PM
Edward R. Merchant, Cognizant
Edward R. Merchant, Cognizant
Commentary
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Using Social Media to Drive Operational Change

The first piece in this two-part series explores how social media can help drive operational changes that are needed in financial institutions.

The banking and financial services industry has a long history of leveraging technology to generate new products, services, and business models -- including innovations that would have not have otherwise been practical or profitable. It is therefore not surprising that there is a lot of curiosity in the industry about social media and collaboration technologies. However, many applications are struggling to pass the industry's primary filter: near-term revenue and profitability.

Let's face it -- most financial innovations start with a product or service that is expected to yield immediate revenue. Technology is then applied to manage the issues of scale, complexity, and accessibility as the product takes off. Contrary to what is heard publicly, most COOs and CIOs would quietly admit that operational efficiencies only have to be good enough to support the revenue model. If one were limited to viewing the world through this lens only, one would agree that it is too soon to tell where and how social media will make a difference.

The reason we don't just end the discussion here for now is that institutions are facing challenges that they're not going to be able to sell their way out of. Specifically, the compound effect of decades' worth of revenue-driven decision-making, accompanied by "expedient" operations, IT point decisions and implementation tradeoffs, is that industry professionals have painted themselves into a corner where their ability to implement new products and services and generate new market-facing innovations is severely constrained.

To understand how this has happened, just look at the annual reports of several major financial institutions. Once you get through the footnotes, it becomes obvious that operating expenses as a percentage of revenue have more or less remained flat over the past several years. Incremental cost savings that were realized through more effective IT use were often offset by operations and IT expenditures required to satisfy new demands for scale, functionality, connectivity, and analytics. In many cases, profitability was further eroded by the write-offs and provisioning resulting from unfortunate business decisions. Ironically, some of these decisions were made because the environment was too complex to really understand -- or control -- what was going on.

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