Business process management has come full circle. While business process reengineering was the mantra of the early 1990s, the economic boom later in that decade made it easy for financial services companies to ignore their costly, inefficient back-end processes in favor of sexier, revenue-generating e-business initiatives. The technology solutions that were focused on impacting business processes (such as integration servers, document-centric workflow, business analytics, and rules engines) received less attention, and were deployed in an inconsistent, fragmented manner.
That is no longer the case. Economic conditions and market dynamics have caused financial services organizations to look at business process management (BPM) as a cohesive enterprise strategy to enhance operational efficiencies by unifying back-office systems, orchestrating the interactions between man and machine, and providing visibility into metrics and key performance indicators.
Today's BPM solutions are frameworks that provide the ability to manage, coordinate and automate tasks and decision-making. This provides significant business benefits-especially for banks, which face strategic challenges due to the current interest rate environment, and diversified financial services companies, which must present a common face to their customers across multiple business lines.
As interest rates hover at 45-year lows (although rates are slowly creeping higher), home buying and refinancing are occurring at record rates. To keep up with the exponential rise in demand, mortgage originators have quickly responded by increasing capacity and dedicating every available resource, whether system or human, to the processing of mortgage applications. While lenders must clearly capitalize on current market demand, they also need to think ahead. The housing bubble will eventually burst, and when it does, lenders will experience rapidly declining volumes, increased loan defaults, and a unit cost structure so high that only the fittest will survive.
For commercial banks, which are already battling corporate bankruptcies and bad debts, the low interest-rate level is causing a substantial decline in contributions from lending income, from the previous 80 percent of revenue to the current average, which is closer to 50 percent. Banks are thus looking to fee-based income-which is unaffected by the volatility in the lending markets-to make up for the loss in interest based revenue. This means offering new, enhanced services, including business process outsourcing, and improving efficiencies in existing, commoditized services, like item processing and loan servicing. The stakes are raised because banks must compete with nimble non-bank service providers that have tapped with greater ease the opportunity to service the growing need for electronic payments, transaction processing, and outsourcing of non-core business processes for corporate customers.
Bank executives who are taking this situation seriously are desperately searching for technologies that can help them effectively streamline their processes, optimize utilization of personnel and systems, and increase efficiencies all around. That's the key to controlling operational costs and providing real-time visibility into operational and functional metrics.
Banks and financial institutions have hundreds of critical business processes. These consist of a set of actions that are vital to the operations of their business, including horizontal functions such as procurement and customer complaint resolution, and industry-specific applications like loan origination and servicing, trust administration, and remittance processing.
Business process management technology addresses the need to streamline these actions and gain efficiencies from routine processes. Typically, BPM solutions:
- Coordinate and automate routine functions involving interaction between multiple individuals and disparate systems, thus allowing employees to be more productive and focus on higher-value tasks.
- Address fully automated system-to-system interactions. For typical applications, such as electronic payment transactions or credit checks, straight-through processing capabilities streamline the exchange of data between systems while eliminating delays and errors caused by manual re-entry of information.
- Provide some level of business intelligence or business activity management (BAM) capabilities that enable organizations to establish and monitor business and financial metrics for measuring the health of the business in real-time.
Financial services firms stand to realize considerable benefits by embracing these technology platforms. Whether the need is streamlining in-house functions such as processing loan applications or providing customers with innovative cash management or investment services, BPM technologies can rise to the challenge by reducing processing times and increasing the reliability and volumes of transactions.
For example, mortgage application processing today is primarily paper-based, involving a great deal of manual effort that takes anywhere from 24 to 45 days to complete. When you factor in the lengthy cycle time, the effort required to orchestrate the execution of the process tasks, significant inefficiencies, and high error rates, it's no surprise that operational costs are so inflated.
With BPM, banks can automate a large percentage of processes and reduce the number of handoffs and human interventions, creating staggering efficiency gains. Because systems can ensure the proper execution of tasks without human involvement, automating the process utilizing business rules can reduce the cycle time to minutes or even seconds, and reserve valuable human resources and expertise for higher-value exception processing.
In order to garner customer loyalty, banks must consistently provide value to their customers. By introducing process improvements internally, they can in turn derive significant value by enhancing the business processes of their customers. This will involve increasing efficiencies and compressing cycle times by augmenting existing, commoditized products and services with new, more efficient ones. For example, commercial banks that help their customers fulfill their goals of minimizing manual and paper-intensive processes by offering services such as imaging and payment electronification will foster stronger customer relationships and capture additional revenue streams.
BPM Technology In Action
The emergence of BPM, with its features for mapping and automating processes, and enhanced capabilities for integration and process monitoring, provides banking institutions with opportunities for enhancing and executing on their strategies. As an integral component of the overall enterprise architecture, BPM helps financial institutions gain visibility across all lines of business and unify back-office systems using a process-centric approach, all while improving efficiency and reducing cycle times.
Banks and financial services organizations are most interested in unlocking standard business rules from disconnected systems, and providing a current, real-time, global view of the metrics and key performance indicators that allow managers to make better decisions. Business process management frameworks provide benefits throughout the customer lifecycle, including account opening and servicing. The systems manage handoffs, including super workflows that cross the boundaries between business units and departments that need to cooperate to better serve the customer, but are not accustomed to having true close relationships.
The convergence of the insurance and financial services industries is providing further impetus for the rise of BPM. Process management presents clear challenges for the changing business model of organizations in these industries. In the past, financial services and insurance companies had clearly separate lines of business that addressed the needs of their individual customer bases. Today, firms must market and sell multiple products (including various types of insurance and investment accounts) to the same customer base, but separate supporting processes are required for each product.
New account processing applications for multiple-line-of-business financial services companies illustrate this challenge.
As more financial institutions look to BPM technologies to automate processes, they will be inundated by very similar pitches from suppliers across the technology spectrum, including integration servers, workflow, content management, and business analytics. Many offer a number of pre-built solutions designed expressly for banking. These include solutions for loan origination, payment processing, credit issuance, and other processes. Many also provide application logic to ensure legal and regulatory compliance with legislation, including the Sarbanes-Oxley Act and USA PATRIOT Act.
What The Future Holds
Doculabs sees BPM technologies continuing to evolve with features that offer greater value to businesses. While many technology suppliers are touting business activity monitoring (BAM), most offer only rudimentary capabilities in process monitoring and analytics. Process-intensive environments such as banking organizations will find BAM very appealing if it includes the ability to monitor business events and transactions and provide access to real-time data that can be represented within the context of the business. This level of visibility, provided by the convergence of BPM with stronger business analytics, will provide business leaders with more accurate predictive analysis and forecasting, enabling them to make more informed decisions.
One note of caution is worth mentioning, however. While the BPM tools of today offer considerable breadth of capabilities, it's critical to keep in mind that they will not fix broken processes. Before implementing one of the new BPM frameworks, it's important to first examine your existing processes thoroughly, define your high-priority requirements for current and anticipated BPM applications, and optimize the technologies and relationships you already have in place.
Editor's Note: The authors are analysts with Chicago-based Doculabs, a research and consulting firm that helps organizations plan for, select, and optimize technology for their business strategies. 312-433-7793, [email protected], www.doculabs.com.