Bank Technology News – September 2009
Mike Scheuerman, CCG Catalyst

Small financial institutions typically struggle with their IT infrastructure. It does not do what they want it to do, but they cannot justify hiring more people to improve the situation. Although they could not survive without it, it is not their core area of expertise. The answer: outsource it.

I have been working with the executive team at a $150-million asset bank that has one computer that houses their host system and more than 20 servers running all of the ancillary service offerings. There are several strategic initiatives that are languishing because the small IT staff does nothing but keep the servers running. The staff is frustrated because they cannot do what needs to be done to implement such initiatives. They built their technology infrastructure over several years without any regard to the maintenance load that it entailed.

The rest of the financial institution is focused on building product and value whereas IT is focused on keeping the lights on. The IT staff realizes it has a problem when one of the servers crashes and it takes a week to get back online. What’s needed is a solid, stable, secure foundation on which to grow the financial institution to the next level, but the IT staff is too busy getting things back to “normal.” It does not have the time or expertise to architect a new foundation.

The bank should outsource pieces of the business process, like IT support, to experts. There are several service providers that have the experienced staff to solve problems quickly and provide that solid, stable, secure foundation. These firms can help protect your valuable information assets from theft and hackers, and can help you build and test a disaster recovery plan. A single IT person cannot do that, no matter how smart or hard working he or she is.

The IT person will welcome the help and work on getting the right partner in place. He or she can turn over all of those daily crisis projects on somebody else and focus on getting the truly business-value enhancing projects done. Once you are convinced to consider outsourcing, there are some essential elements of an outsourcing process that you should look at.

Choosing an Outsourcing Partner

Choosing a partner – and not just a vendor – is key to successful outsourcing. View potential partners with how well they mesh with the organization, and consider the following questions:

* Does this vendor work with you to develop a strategy for the success of your organization?

* Does the vendor have established processes for reviewing and upgrading the services provided?

* Is the service process flexible enough to provide for the special needs of your organization, or does it just offer a menu of services with no provision for unique requirements?

* Does the vendor provide a service level that matches your organization’s internal service level commitments?

* Is there a written service level agreement (SLA)? The SLA should address regular communications on a proactive basis, not reactive.

* Is the vendor committed to maintaining certifications that ensure that your organization complies with the various regulatory bodies’ requirements and that your data is held securely? Make sure it meets at least a couple of the industry standards for security, performance and safety, such as the SAS70 audit, PCI DSS and ITIL.

When you have settled on a third-party service partner, you lose some control over the operational aspects. You are relying on the partner to meet your expectations for quality of service to your customers and/or your staff. In order to protect yourself from that risk, there are two service level metrics that you should address in the contract: uptime and response time.

On the enforcement side of the Service Level Agreement, you have options. Make sure that your SLA contains some teeth so if the provider fails to perform at the desired level, you can ask for a refund of monthly fees or you can terminate the contract. Also make sure that you have well-defined problem resolution procedures to ensure you know how to escalate a problem that is not being resolved in a timely way.


Implementation of an outsourcing arrangement takes time and good management skills. There are five steps in implementation: First, establish and implement standards. Next, consult on technology usage within the institution. Third, and crucial, design a system that truly supports business initiatives. Fourth, procure equipment to support the design at the best price possible And, finally, implement a new infrastructure.

In all this, patience is important. In most cases, it will take six months to a year before you will begin to see real improvements in productivity.

When you begin outsourcing, you will worry about technology on a different level. You worry more about how you can use the application of the technology to provide your business with a competitive advantage, about whether your business processes are efficient, how they can take on more growth and how technology can help with that process. Leaving the technology infrastructure worries to those who are experts in that technology frees you to concentrate on building and growing your business.

Mike Scheuerman is partner and senior consultant with Phoenix-based CCG Catalyst, a provider of strategic guidance for financial institutions.

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