Here at SAP we did well in Gartner’s ranking of retail core banking system (CBS) providers according to ability to execute and completeness of vision.
I want to add to Gartner’s analysis with some thoughts on the pitfalls of choosing a vendor and installing the system from the perspective of someone who helped select a CBS before joining SAP.
When it comes to choosing a vendor, the biggest headache is too much information. Buyers create work for themselves by asking lots of suppliers loads of questions.
Let’s start with the request for information (RFI).
In general these documents are extensive, with predictable questions and answers. At worst, we’ve seen banks ask 400 or 500 questions with yes/no answers and invitations to write more.
The results are predictably horrific and obscure more than they reveal.
Be brutal
To make life easier and more efficient:
• Limit the RFI’s function-requirement list to basic requirements which are relevant to your decision. If you ask whether a system can do an interest-rate calculation for a specific product you will get lots of meaningless yeses
• Do your homework and cut the selection down to a couple of international suppliers based on analysts’ reports like the Gartner Quadrant and maybe one or two local vendors if there are any.
By restricting functional questions to a high-level description you save time. Functional discussions can be done later through a series of proof-of-concept workshops.
Next, ask how the system is designed and look at how to integrate it into your existing IT landscape. Is the solution designed to be integrated or is it a big black box?
Think long-term
Don’t forget that core banking systems are long-term investments, so take a look at the future prospects of the vendor. Will they still be in business in twenty years? Will the system platform still be there?
It’s not unheard of for a vendor to discontinue support for systems, causing lots of trouble for customers. If the hardware platform disappears, which also happens, you need to have a system with hardware and system independence.
By now you should have a gut feeling on the different vendors, so sift out the hopeless cases and concentrate your time on two or maybe three vendors for the shortlist and further discussions.
I’ll be blogging soon on getting the project going once you have selected your winner. What do you think so far – any pitfalls or points I haven’t covered?
Jesper Behr is working as a banking expert in the IBU Banking division of SAP focusing on core banking. He has more than 20 years’ experience of the banking industry
Jesper agree with most of your comments on how to approach an Request for Information or for that matter a proposal. Also agree on the aspects of selecting the right set of vendors as well based on scale, capability to deliver etc etc.,
In some shape or form all vendors have the functionality needed what sets them apart for the client is how well can they execute for me with me and to me.
An additional aspect to consider would also be the organisation DNA and its inherent culture. As you mentioned an investment in a core banking system is a long term investment and an important one at that. So I believe the FIs should also consider if the partner I am selecting has the right cultural fit for our teams working together for a long drawn period. I believe this would also be a critical factor in the selection process, besides the partner bringing in best practices from its learning a from all across the world, across sectors and industries. I am sure the industries and sectors have a lot to learn from each other.
Look forward to your next blog Jesper.
Hi Maudgal
Thank you for reading my blog.
I agree that there must be cultural fit between customer and vendor like in all relationships, after all, we must like the people with which we work. The challenge as I see it is how you would quantify and motivate this as a selection criteria. It’s really subjective since it’s not only to judge the vendor, but also to judge ones own organisation. Do you have some ideas on how to go about here?
/Jesper
Hi Jesper, since you have narrowed down to a few international vendors, I would make a few ref visits and try to get lessons learned, especially on the delivery capabilities. Good luck, nice discussion
Hi Georg
Thanks for reading.
In my next blog, I will briefly touch the topic on reference visits. Reference visits are a very important part of the selection process, mainly to get experiences on how it is to work with a vendor and to gain experiences from other customers.
/Jesper
Jesper,
I agree that reference visits are very critical in the selection of vendors. Maybe in your next article, you may want to cover how a reference visit should be conducted. There is a tendency for reference visits to be “dog and pony shows”.
Failures, delays and difficulties abound in core banking projects and many are even reported in different publications, yet I sometimes get a feeling that on a reference visit, the bank has already pre-selected the vendor and is only justifying their choice and therefore looking for the bright and shiny parts. For example, the selecting bank seem to only speak with one of the “promoters” of the system.
How can a selecting bank find ways to discern through the “gloss”.
Should the vendor be present in the meetings?
Should the bank arrange the meetings directly with vendors intervention?
Should the vendor even accompany the bank? (accompanying vendors can exert “pressure” through their presence and “presents”)
What which stage of the RFI/P process should the reference site be conducted?
I am eager to hear how what advice you could give to evaluation committees on the objectives of reference visits, achieving the objectives and ability to cut thru’ the fluff and arrived at useful decision making information.
Anselm
Jesper a great summary and all too true in all but one aspect. It is not just for banking. Any large system whether bespoke or developed will require vendors and selecting them means understanding how they work. More importantly understanding how the client company works and if you are the consulting vendor how you work. It’s not enough to complete a check list and dangerous to rely only on that especially if you have narrowed your vendor list based on that alone. In the end the client has to know what they want and what they want it to do, and I have yet to come across anyone where that is completely thought it through. If you are a sucessful business then something you are doing is right, making sure you don’t loose that in the change is critical. Knowing what it is helps you to choose the better vendor.
Hi Jon
Agree, to add, the challenge is to know what you want to become. If you don’t know that, you don’t need to change.
/Jesper
Hi Jesper,
Excellent.
I would add a few lines based on my experience at Misys & Sanchez (now fnf)
1. Just as taking a view on sustainability of vendor, it is equally important that the banks take a view on where they want to be in say 10 years from now which will give them an idea of what they require as a functionality.
2. 10 year is a long period so the “top decision makers” are unlikely to remain in the saddle. So brainstorming internally (in the bank) to decide on high level ROI considerations for the project & functionality must be drawn.
Looking eagerly for your next blog.
Sada
Hi Sada
Thanks for your comment.
Ask a banker on how their bank will look in ten years and he will probably reply that he doesn’t even know how it will look next year.
In a way, you need to assume how the future will look and opt for an alternative leaving as many doors open as possible. Take the current business strategy into account. In what type of market do you act? Is it mature or immature? Is consolidation taking place?
Based on these assumption, you can develop a target IT architecture prioritizing the key business drivers in the bank.
ROI calculations are a part of the decision, however, one needs to take the non-monetary values into account, e.g. reduced risk with a new system in comparison to a legacy system etc.
/Jesper
Most Corebanking RFP processes are flawed.
I have been through multiple corebanking RFP’s over an extended period in Asia and Europe. In a majority of these engagements the winning solution vendor is hardly chosen on their functional or technical merits but on politics and relationships and back room deals !
Why? because as we all know corebanking deals always involves huge monetary contracts that almost always require decisions at the board level. Consequently vendors throw perks and incentives (ref site visits always a good pork barrel) and a whole lot of effort is invested in building relationships with decision makers.
It is not uncommon for a vendor to invest millions just at this stage.
By the end of the average 18th month evaluation period the thousands of people hours spent on both sides to evaluate the solution objectively pales in relevance in comparision to the actual decisions to be made at the highest level based on politics, relationships, back room deals and dare I say ‘other incentives’ !!
Examples: In one RFP, 4 vendors started the race. After 2 months, the one in pole position got kicked out after they were sued for corruption by another Bank in the same country. They were politically too hot to handle after that. The vendor in ‘last’ position in terms of the RFP’s objective evaluation, eventually won the contract 2 years later.
In another case again 4 vendors started the race but in the midst of it there was a strong rumour that vendor X was always going to be the winner because of the vendor’s very close relationship to the Bank at the board level. The vendor never scored as well as others in the RFP evaluation but eventually won as predicted. Millions were spent by the other vendors on the 2 – 3 months of running around doing POC demonstrations in multiple countries. I got a few extra hotel and airline miles for myself too. It was a sad loss for one of the vendors who scored very well in the objective evaluation. The corebanking project actually failed to deliver on the Bank’s original objective after hundreds of millions were spent.
In a third case, the Bank had conversations with a few vendors and selected a well known vendor. The selected vendor actually had a solution that had much less functional capability than the others but they had a strong brand and solid support from their own corporate. I know because I worked on this project and having also worked with the other vendors. That project became one of the recent rare success in the corebanking industry. Some who read this will know who I am alluding to.
Some of the better deals I have seen do not involve extensive RFIs and RFPs. The Bank makes in internal assessment based on one to one contacts with a few selected vendors (based on some of the broad criterias you mentioned) and invites a candidate to work through the evaluation process. There is enough intelligence around the place to tell you which vendor has done what successfully and unsuccesfully if you start asking around. Every major vendor and integrator has their share of success and spectacular failures.
And a final word about RFPs and their extensive functional questionnaire. Most vendors take it on as a pre-sales activity and will strive to answer YES to almost everything under the sun. They know they can get away with it because it can be very difficult to actually demonstrate some of the more complex corebanking requirements. The vendor will explain away their capabilities under intensive questioning but the Bank will never really be able to observe the true capability until a fully functional application is installed and running. After the contract is awarded, it is like getting into a marriage then finding out that the partner is not quite what he/she claims to have. Its too late then, too much time and money has been spent on the ‘search’ and it would have been too embarrassing to have a divorce too.
So what is the use of doing an RFP ?
Hi Hean
I think that the RFI/RFP process do fill an important part of the core banking transformation, but maybe not as an objective way to select the vendor. It is a tool to align the bank around the project with a concrete deliverable and milestones. Most organisations do have internal compliance processes which needs to be done. It’s also good for vendors to get an official message from the bank that they are “starting the race”.
It need, as you say, not to be so detailed since most vendors can show similar capabilities and answer with a predictible “yes”, and if you are going into the details in the RFIx, in order of consistency, you need to keep a detailed level throughout the document, not seeing the forest for all the tree. Details you can do later in proof-of-concept workshops going beyond simple functional demos.
/Jesper
Just for positioning in this crossfire I recall the wise quotation from Steve Jobs, which applies also to bankers:
Steve jobs in his office in 1982.
He was asked if he wanted to do market research, said:
“I do not want because consumers do not know what they want until you show them.”