Build a strategy to drive your technology budget

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Assessing how to pay for innovation can be tricky. There are numerous solutions out there, each with its own timeline for implementation, training and return on investment. Community bankers say this process must start with a strategy to drive tech and innovation investments.

By Kelly Pike

Community bankers know that strategy is an ongoing activity, not a project. It requires looking forward two to three years while making minor course corrections to a bank’s roadmap in the near term.

Budgeting for innovation and technology isn’t all that different. A good budget aligns with strategy, understanding where the bank wants to go in both the immediate and long term to build a budget that maximizes value while minimizing spend.

Yet the past year and a half has been anything but typical, causing many community banks to make significant revisions to strategy. Often, that means they have accelerated technology investments to adapt to a world of social distancing and remote work. As boards revisit their strategies and assess the efficacy of the tactics deployed to support them, those responsible for budgeting for innovation and technology are making adjustments of their own.

“The challenge for bankers this year, as they move into budgeting for the next calendar year, is do they have any leftover challenges from COVID-19 and PPP [Paycheck Protection Program] that still need to be addressed?” says Charles Potts, ICBA senior vice president and chief innovation officer.

For example, a community bank evaluating its PPP performance might identify opportunities within a customer segment. Taking advantage requires a careful analysis of the budget, deciding whether the best solution requires people, capital, technology or a combination of all those things, Potts says.

Others are looking at pandemic-era purchases, seeing success and finding ways to extract even more value from the spend. “Go through every line of business you have and create a matrix view of where you have holes to fill and assess it from that perspective,” Potts says.


Investing in communication

Community State Bank in Union Grove, Wis., quickly introduced Microsoft Teams when it needed video conferencing during the pandemic. The $550 million-asset community bank had been considering adopting Microsoft Teams after existing contracts expired as part of its roadmap, but the pandemic forced the bank to dramatically speed up its timeline. Now the bank is investing time in learning to fully utilize the integrated components of the platform, including instant messaging and calendar.

“If we wanted something that came out of the box, there were simpler solutions out there, but long term we’re going to have lots of additional benefits,” says Gregory Wall, the bank’s chief innovation officer.

While the technology tweaks at $610 million-asset FNBC Bank in Ash Flat, Ark., didn’t create a significant hit to the budget, they did cause FNBC to adjust its strategic plan.

For example, the community bank learned that its online account opening process was “clunky,” says Amber Sharp, senior vice president, chief information and innovation officer. When its budgeting cycle began in January, the bank decided to up its game in that area.

Budgeting tip 1: Find a vendor partner

Choosing a technology partner that continues to show the community bank how to get the most value from its products is key to maximizing your innovation budget, says Gregory Wall, chief innovation officer at Community State Bank in Union Grove, Wis.

“We’ve signed contracts, got onboarded and had the vendor walk away,” Wall says. “It needs to be a continual partnership where you can ask questions and they continue to help us best use the technology they’ve provided us. You have to be with us past implementation, and we’re going to grow this thing together.”

Budgeting tip 2: Lean on vetted resources

Investments in innovation and technology require tremendous research. That’s why ICBA and its ThinkTECH initiative aim to make the process easier.

When assessing and evaluating vendors, look to ICBA ThinkTECH to better understand the types of solutions and capabilities available and the partners that can make it possible. This resource includes everything from fintech-focused education to a vetted solutions directory.

The goal is to help remove barriers to fintech adoption and better manage the risks. “Lean on us. Call on us,” Potts says. “The less friction in the process, the fewer hurdles and barriers, the smoother the journey will be.”

Strategic plans are your North Star

Every budgeting discussion at FNBC Bank, including those about technology and innovation, is built around the bank’s three- to five-year strategic plan. It drives initiatives, priorities and the budget to stand up that strategy, Sharp says.

“Our biggest challenge is narrowing down our list of priorities,” she says. “There are lots of things we want to do, and with all the fintechs out there, they can greatly outnumber you quickly. You really have to have that process in place to go through and prioritize.”

“There are a lot of emerging technologies out there, and if there are three different ways to solve a problem, we’re looking for the one that helps solve the problem the best and makes the most sense financially.”
—Gregory Wall, Community State Bank

The good news for community banks that align innovation budgeting with the strategic plan is that it reduces budget battles. The board and leadership team know why the spend is important and how the project is likely to affect the bottom line.

Budgeting also requires significant due diligence, investigating a variety of vendors for a thorough understanding of all the options.

“The hard part is identifying what’s the right path to take,” Wall says. “There are a lot of emerging technologies out there, and if there are three different ways to solve a problem, we’re looking for the one that helps solve the problem the best and makes the most sense financially.”

One of those costs is the time needed to fully deploy a solution, something banks frequently underestimate, Potts says. Due diligence means working with a vendor to set realistic goals, objectives and timelines. “Truly vetting out the capability of a provider to meet those goals and timelines is something most community bankers know, but they need to keep it top of mind,” he adds.

End-user adoption is another area that often takes longer than expected and can delay return on investment (ROI). There needs to be time for lots of testing to assess how quickly and easily consumers or internal users can get up and running. There needs to be training and promotion, too.

“It’s not ‘build it and they will come,’” Potts says. “More often than not, it’s ‘crawl, walk, run.’”

Community State Bank looks at efficiency and offsets when estimating ROI. The bank carefully considers whether a new technology will overlap with old programs and replace them, freeing up resources to invest elsewhere, Wall says. It’s a rough calculation, he adds, but it helps the bank determine if it will go forward with an innovation.

“We can look at a program and say … we think it will make everyone, on average, 5% more efficient,” he says. “What does that look like in terms of dollars?”


More than technology

Budgeting for innovation doesn’t just mean budgeting for technology. Many critical innovations aren’t based in tech. It can be as simple as outsourcing an activity that’s time-consuming or requires a high level of expertise. For example, when budgeting for innovation at FNBC, Sharp focuses on three key factors: people, process and technology.

“A lot of those strategic goals run back to automation and making things more efficient for teams,” she says. “What’s it going to take to achieve this strategic goal? Do we need new technology, new staffing or to change or implement new processes?”

“If you’re focusing on your customer and your people inside your bank, and that is what is driving your innovation budgeting process, then that is the right focus. That will in turn serve your business well.”
—Amber Sharp, FNBC Bank

There’s also a cultural element to successful innovation: stakeholder buy-in. Even positive change can be difficult, Wall says. Seeking the input of end users and giving them ownership of the project, instead of just training them, encourages quicker and more enthusiastic adoption, which leads to a speedier ROI.

“Take a real close look at not necessarily just the ROI, but the other benefits to the organization,” Wall says. “Make sure you investigate all the different ways it can bring value.”

That means budgeting sometimes requires looking beyond simple dollars and cents.

“If you’re focusing on your customer and your people inside your bank, and that is what is driving your innovation budgeting process, then that is the right focus,” Sharp says. “That will in turn serve your business well.”

Kelly Pike is a writer in Virginia.