A core processing conversion is much like replacing a leaky foundation. You can put it off for years with temporary fixes, but the day of the “big fix” is unavoidable.
But the effort, cost, and pain involved “is short term when considering your long-term strategic objectives,” says Scott Sylvester, chief financial and technology officer at $350 million asset Consumers Credit Union, Kalamazoo, Mich.—a survivor of two core conversions during his 17-year credit union career.
• One-fifth of U.S. financial institutions have reached a “high level of urgency” regarding core system replacement.
• Employee involvement is an essential part of a successful core conversion.
• Board focus: A core conversion is costly, but older systems are more expensive to maintain.
Many credit unions will undergo core conversions in the near future—or at least they should, according to a May 2010 survey by the Aite Group, which estimates that roughly 20% of U.S. financial institutions have reached a “high level of urgency” regarding core system replacement.
“If you don’t have integrated solutions, you’re finding it increasingly difficult to access information, and you can’t quickly launch new products to remain competitive,” explains Christine Barry, Aite Group’s research director.
The report also found that an additional 56% of U.S. banks and credit unions would benefit from a core system replacement or transformation.
A core conversion is costly, to be sure, but credit unions must weigh the costs of staying on an outdated system, Barry advises. “An older solution is more expensive to maintain. You also could be losing members as a result of not being able to meet their needs. So while a core replacement requires you to lay out a lot of money, you’ll see an immediate return.”
Next: Eliminating old obstacles
Eliminating old obstacles
At Consumers, one payoff of its August 2009 core conversion is “a more feature-rich system,” Sylvester says. “It offers a lot more conveniences and efficiencies to our employees and to our members on the online banking side.”
The conversion also solved a major frustration: lack of a common servicing system for loans. “We have a diversified portfolio of mortgages, consumer loans, and business loans,” Sylvester explains. “With our old system, we had to service those different types of loans on different platforms. That led to integration issues in reporting, accounting, and member service.”
Consumers has had 20% growth per year for the last two decades, Sylvester reports. When growth is fast and strong, credit unions often outgrow their core system partner.
While Consumers had outgrown its system, “we were able to maintain the relationship we had with Harland Financial Solutions,” Sylvester says. “We just moved to a different product—from UltraData® Enterprise to PhoenixEFE®.”
A relationship with a vendor has much to do with how smoothly a conversion goes. The parties should be able to treat each other almost like family, Sylvester suggests.
“You can get frustrated and yell, but then you put your arm around the other person, say you’re sorry, and move forward,” he says. “It has to be that kind of relationship because a conversion is stressful. It will try anybody’s patience.”
Having a progressive partner is also critical to the long-term success of a conversion, Sylvester adds. Since its 2009 conversion, “We’ve already seen some exciting enhancements,” he says.
For example, the credit union upgraded from cash-dispensing machines at teller stations to cash recyclers. Now, tellers not only can withdraw money to issue to members, they also can put cash into the machine, which automatically verifies the deposit and updates the machine’s cash inventory. “That’s a feature we’ve wanted for years,” Sylvester says, “and we got it within just eight months of converting.”
Employee involvement is another key ingredient in a successful core conversion. Consumers set up a conversion team consisting of one person from each credit union department and one from each of its 13 branch offices.
“We called them department or office champions,” Sylvester says. “They had ownership of the conversion and acted as liaisons to their departments and retail offices. We were constantly bringing them in to involve them in testing, training, research—all the things we did throughout the conversion process.”
A side benefit of involving employees was that some revealed previously hidden talents. For instance, after displaying their adeptness at understanding the new system and showing others how to use it, one teller became the trainer for all new hires and another was promoted to a help-desk position.
“By involving our employees during the conversion,” Sylvester says, “they got a chance to shine in front of our leaders and managers. They might not have had that opportunity otherwise.”
Next: A ‘What!?’ moment
A ‘What!?’ moment
In 2007, Texans Credit Union won a GonzoBanker Award from Cornerstone Advisors for having the best core conversion of the year. That’s no small feat, but it’s all the more remarkable given a surprise development nine months into the project, just three months before going live: The core system vendor switched to a new project manager who had no involvement in the project up to that point.
Upon hearing the news, “My response was, ‘That won’t work. You can’t do that to us,’” recalls Greg Gallant, chief operations officer for the $1.6 billion asset credit union based in Richardson, Texas. “But it happened anyway.”
Fortunately, the new person was up to the task, and Texans didn’t suffer any setbacks. “For us, it was more of an emotionally unsettling issue than a technical one,” Gallant says. “It comes down to how you react. Our staff stepped up to the plate.”
Diverse staff involvement in the conversion was crucial. Texans created a 16-person core team, representing its various business units. In turn, those people worked with employees in their units.
“We wanted to make sure this wasn’t viewed only as a technology project,” Gallant emphasizes.
As the go-live date approached, all employees had to give extra beyond their regular jobs. The credit union bought everybody breakfast, lunch, and dinner, plus extra treats throughout the conversion day, going out of its way to show appreciation for the staff’s involvement.
Keeping members well-informed about what to expect was another important step, Gallant says. After that, “Test, test, test,” he advises. In fact, that’s exactly how many mock conversions Texans went through. Two is standard, but Texans paid extra for a third.
“It was worth it,” Gallant says. “In the second one, we still found little things that were inconsistent or that we thought needed to be handled differently.”
Still, the conversion isn’t complete when you flip the switch on the live date. Gallant says conversions have three major milestones after they’re live:
“Then there are year-end processes,” he adds, “such as individual retirement account notices and 1099s. So even in a post-converted credit union, you have to be extra diligent about checking how the system is performing for up to 12 months after the conversion.”
Still, all of the preparation in the world won’t guarantee a problem-free conversion.
“Be realistic,” Gallant advises. “There will be issues and stress points. People will be uncomfortable. But so long as you’re aware of that when you go into the process, it’s easier to get through it.”
Next: Don’t trip over these stumbling blocks
Don’t Trip over These Stumbling Blocks
Time is the natural enemy of a core processing conversion.
That’s because missing key milestones during the nine-month process can wreak havoc on the effort, says Charlotte Casagrand, Symitar’s director of implementations. “It’s a domino effect: If you miss one or two key events, you have a heck of a time catching up.”
That can lead to the core processing equivalent of a “Hail Mary” pass shortly before the go-live date, adds Symitar President Ted Bilke. “Resist the temptation to delay or defer activities or decisions because what typically doesn’t move is that conversion date. If you let things slide to the back, you risk having a wave come over your head.”
In addition to time constraints, other common conversion stumbling blocks include:
• Undergoing simultaneous major projects. Don’t, for example, renovate your main office during the conversion, advises Daryl Tanner, CEO of Share One. He recalls an installation during which the credit union’s training room wasn’t accessible due to an extensive remodeling.
“When they finally put the stairs back in, we installed the computer equipment,” Tanner says. “They had to do some more drywall work—and enough drywall powder got into the computer room that it destroyed a server. You have to coordinate major credit union projects. At the very least, such projects are a distraction during a conversion. At worst, you can lose some equipment.”
Both parties should convene to review credit union projects that might affect the conversion, says Maura McKay, Harland Financial Solutions’ vice president, core system implementations. “You can’t expect everything else to sit and wait, but it’s good to know how some projects might affect the conversion schedule.”
• Lack of top-down communication. The CEO must strongly and visibly communicate the conversion’s importance to staff. “The worst thing is to have someone in the back of the room whining about having to change and dragging others down,” Tanner says. “Staff must understand that once the decision has been made, everyone must pull together.”
• Lack of understanding. Explain to staff the new system’s features and how they’ll benefit the credit union and members, says Patricia Valentino, senior vice president, real time solutions, for FIS. “What often happens after the sales process is that the conversion team is not up to speed on the new product features. So you end up converting existing issues, such as bad product definitions, into the new application.
“You’re just taking your old problems and putting them in new drawers, so to speak,” she adds. “Knowledge transfer between the sales and conversion teams is key.”
• Limit vacations during the conversion “so all hands are on deck and ready to help,” says Sharon Alexander, Harland Financial Solutions’ senior manager, implementation services.
• Keep staff focused on the end goal. “Our mantra is, after training, ‘practice, practice, practice,’ ” Alexander adds.
• Don’t assign one person to be responsible for all decisions or tasks. Doing so will overwhelm this person and create a bottleneck.
• Prepare members for the conversion with marketing campaigns, branch displays, and online notices.
• Build enthusiasm among staff with conversion slogans and themes. “The most common theme, which matches up with the conversion timeline at nine months,” Bilke notes, “is having a baby."
Next: Seven tips for a smooth core conversion
Seven Tips for a Smooth Core Conversion
Bill McFarland, managing director, Cornerstone Advisors, offers advice for orchestrating a successful conversion:
1. Get organized up front. A conversion’s fate is largely determined in the first 60 to 90 days. “Get the right people on the right teams with the right plan,” McFarland advises.
2. Write up a plan. Put in writing who’ll do what and when. Later, you might need to add tasks or shift dates. But try to stick to the plan.
3. Involve multiple departments. In Cornerstone’s experience, about 80% of what must get done in a core conversion isn’t technology-specific. Technology expertise is critical, but conversions must tap into diverse skills and experiences among your credit union’s staff.
4. Communicate to members. McFarland has seen what happens when credit unions don’t give members enough information about the changes they’ll see after a conversion. “The call center gets clobbered with questions,” he says.
5. Test rigorously. Texans Credit Union, for example, held three mock core conversions.
6. Allow enough time. A core conversion should take about nine months, plus or minus three months.
7. Maintain focus after the conversion. Conversions are hectic, and sometimes credit unions put off certain tasks, figuring they’ll attend to them later.
“We noticed a pattern,” McFarland says. “We go back 90 days later and find out certain things didn’t get done. So we think a post-conversion review at 90 to 180 days is a good idea.”
• Aite Group, Boston: 617-338-6050
• Cornerstone Advisors, Scottsdale, Ariz.: 480-423-2030
• Credit Union National Association:
1. Celent Research Reports
2. Credit Union Magazine’s 2011 Information Systems Guide
3. Technology & Spending Survey Report
• FIS, Jacksonville, Fla.: 888-323-0310
• Harland Financial Solutions, Lake Mary, Fla.: 800-989-9009
• Share One, Memphis: 800-888-0766
• Symitar, San Diego: 888-796-4827