4 Tips for Aligning Technology with Business Strategy

In considering how a technology strategy enhances strategic planning, PRI Director of System Evaluation Mike Neale says he tends to think of things slightly differently. A technology strategy is not just an enhancement to the strategic planning process, it is born from the business strategy and supports it wholly. Technology strategies should not be developed in a vacuum or independently of the business strategy but rather with a clear and focused understanding of how technology will support the strategic plan and its goals for the institution.  

None of this is to say that technology leadership shouldn’t be out there researching the possibilities of existing and emerging technologies and helping the rest of the executive team to understand the opportunities and landscape, Neale said. But he cautions to remember technology is just a tool to get you where you want to go. 

“Strategy first, technology second. Your biggest problem is probably not that there are so many vendors, and you don’t know who all is out there and who’s the best. For whatever it is you’re trying to accomplish, you could probably win with any of a dozen choices. And you could probably lose with any of them. Your biggest problem is much more likely that none of the things on your list will help you create and sustain competitive advantage in the market. Once you nail that, it becomes much easier to understand what technology will help you get there.”  Why Your Strategic Plan Sucks, Alloy Labs

True business strategy is not just long-term planning, but the way the organization differentiates itself from its competition and manages costs. Executive management needs to develop a unique value proposition for prospective and existing customers. It should be framed as a combination of the value delivered and the customer experience. Once that unique value proposition is created, the technology strategy can be delivered to support it. 

“A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost or do both.” What is Strategy? Harvard Business Review

When designing and selecting the pieces of a technology that will support business strategies for winning, keep in mind the following:

Strategy first, “cool” technology second.

While it can be tempting to get excited about the “bells and whistles” innovative technology can offer especially in this time of emerging AI, Neale said institutions must always ask what they are trying to accomplish and how they will do it more cost effectively than the competition. Focus on continuous improvement that helps you reach your goals, rather than having all the cool toys that are available.

“You can’t cross digital payments off your list because you implemented Zelle or think you’re on the other side of the digital banking divide because you finally have digital account opening. The world keeps moving and the bar keeps getting higher. That doesn’t mean you need to mindlessly try to keep up in the digital arms race, where 98% of banks are hopelessly outgunned. It means understanding where you choose not to play, where you need to play defense to stay in the game, and picking those few spots where you can win.” Why Your Strategic Plan Sucks, Alloy Labs

Balance cost and flexibility.

Neale said that in addition to the “what,” technology strategy must work hand in glove with vendor management to ensure that the organization is finding the best balance between cost and flexibility. Longer contract terms produce lower operating costs. The ideal contract length can vary greatly between technology solutions and between organizations. For very stable solutions like core processing, longer contracts present less risk when compared with more dynamic solutions such as mobile banking or payment platforms. Similarly, some organizations are very dynamic and drive change at a higher pace than others.  

“One pitfall that is commonly seen in the industry are organizations that believe they will change and therefore always use short contract terms, but if you look back over their history, they never make a change,” Neale said. “That creates higher operating expenses with no delivered value. It is important for leadership to be honest with themselves and to actively review and measure the ‘monetization of flexibility.’”

Pay attention to negotiation timing.

An additional component of vendor management is the timing of negotiations related to the expiration of current contracts. Regardless of whether a bank wants to simply renew an existing agreement or to evaluate an alternative, management will be in its best position when negotiations are initiated early enough that if renewal pricing is unattractive, the bank will still have time to initiate a competitive RFP. A thoughtful, active negotiation process with sufficient lead times gives the institution options and will help ensure a more favorable outcome.

Keep the channels of communication open.

Neale said it is important that technology leadership ensures that the rest of the executive team is well versed in and kept abreast of what technology is out there. This allows them to jump on opportunities that will help the institution successfully implement its business activities and strategies. Remember that technology is a tool, and it’s good to know what’s possible!

We are entering an exciting time featuring innovative technology like AI and its possibilities for automation at the same moment margins continue to be compressed and the war for talent heats up, Neale said. If institutions will look at technology through the lens of their long-term business strategies and goals, it becomes a tool for winning over the competition and establishing a successful future.

Resources

Top 5 Tips for Successful Strategic Planning– PRI

What is Strategy? – Harvard Business Review

Why Your Strategic Plan Sucks – Alloy Labs

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