Wednesday, November 25 2015
Thinking of your bank as a collection of orchestrated vendors offers a useful and powerful perspective. Most bankers engage an array of third-party providers to deliver products and services to their employees, and ultimately to their customers.
Vendors install computers, power networks and heat our buildings. Vendors maintain firewalls, settle cash letters and build out office space. Let’s face it: coordinating vendors is a primary business function. It’s something almost all owners and business managers have to do. A properly vetted and managed team of vendors provide resources that a bank needs to create economic value and profits. Vendor decisions are akin to partner decisions, and all banks need good partners in order to thrive.
Before choosing vendors, though, a bank must first be satisfied with its own core competencies. Every business has to offer an expertise. Core competencies distinguish a bank from its competitors and demonstrate value to a customer. They are the decisions of in-house expertise and how a bank chooses to compete. Deciding what you’re good at makes it easier to evaluate what might better be outsourced to others. Competencies that generate revenue, for example, are most often commanded in-house. After all, creating the magic that generates revenue is a primary driver of success. Businesses tend to internalize competencies that maximize revenue generation--and also those that minimize expense. Any competency that can be made stronger by outsourcing - either revenue generation or expense reduction, will ultimately increase the bottom line. As such, it is powerful to view a company through the lens of core competencies, because this perspective enables a manager to prioritize the allocation of resources.
What do you want your bank to be good at, and where could you be better served by having someone else shoulder the burden of a non-core function? Why should a bank overspend to command expertise for a function better managed by a third party? The answer, of course, is that it shouldn’t. Diligence reviews are important, for sure, and compliance guidelines come with the territory. But the business case for outsourcing should be evaluated first, and exceptions handled accordingly.
In Cold River’s view, property tax management is one example of a non-core function that should often be outsourced. Managing property taxes in-house is an expensive allocation of resources, because hiring and maintaining a high-quality staff across multiple taxing jurisdictions is both costly and time-¬consuming. Property tax appeal evaluation for branches and ORE requires the expertise of a business that already has these core competencies in place. Outsourcing a process like property tax management enables a business to focus on strategies that maximize revenue, while charging a vendor with the responsibility to minimize expense.
Knowing how to evaluate the merit of partnerships is key to good vendor management. And knowing how to prioritize core competencies is critical to maximizing profits. Decide what you’re going to be best at first, and then outsource secondary competencies to others.
Bob Koncerak is president of Cold River Land, LLC
For more information about Cold River Land's property tax management service, visit www.coldrivertax.com