Friday, May 24, 2019

Memorial Day: Black Hawk Down

On October 3, 1993, the U.S. launched a raid to find forces of Somali warlord General Mohammed Farah Aideed, who had been ordering attacks on U.N. forces assigned there for humanitarian missions. Things went badly.

Black Hawk Down

That raid, initially the kind soldiers train for routinely, erupted into a crisis when militiamen downed two Black Hawk helicopters using rocket propelled grenades. The 15-hour battle that ensued, after raids were turned into a rescue mission, left 18 Americans dead and 73 injured. 

It also left shocking images of American soldiers dragged through the streets of Mogadishu so seared into our memories.

The 15-hour rescue operation was chronicled in the book Black Hawk Down by Mark Bowden and the subsequent movie of the same name. 

MSG Gary Gordon and SFC Randy Shughart

Dispatched via another Black Hawk to provide reconnaissance and cover fire until ground forces could extract troops, they found a downed Black Hawk and its crew in peril, with militia closing in rapidly, and no ground troops in site.

Despite this, Gordon and Shughart demanded to be inserted on the ground. Their commanders only permitted the insertion if they did so voluntarily. They did.

They were inserted a football field south of the crash equipped with only their sniper rifles and pistols. While under intense small arms fire, they fought their way through a dense maze of shanties and shacks to reach the critically injured downed aircraft crew. 

They pulled the pilot and other crew members from the wreckage, and established a perimeter which placed them in a highly tenuous position. They fought until their ammunition was depleted. At that time, they surrendered one of their remaining loaded weapons to the pilot, and continued the fight.

Until they were out of ammunition. And were fatally wounded by the enemy. Their selfless actions saved the pilot's life. And earned them a posthumous Medal of Honor.

Memorial Day

I ask that you reflect on MSG Gordon and SFC Shughart, and all of your fellow Americans that gave their last full measure so you can enjoy the freedoms our country so often takes for granted.

Happy Memorial Day!

~ Jeff

Thursday, May 09, 2019

The Real Benefit of Intelligent Automation

Fifty percent. That was the odds I gave myself when calling my health insurance firm regarding changing my date of birth. Fifty percent chance I could get this done in one phone call and a reasonable period of time.

Isn't that sad?

It did take 15 minutes to get the relatively simple task done. Making me wonder: shouldn't this be easier?

And easier is what me and my colleagues hunt for when we do process improvement projects at community financial institutions. Because there are a lot of complex, manual, outdated things happening in the bowels of your institution. Believe me.

In comes artificial intelligence, robotic process automation, chatbots. Mostly buzzwords to bankers. But it's growing on them. I recently attended a state bankers' convention where Fabio Sant'Anna of SRM delivered an interesting presentation on Intelligent Automation (see slides). 

One important slide was to distinguish some buzzwords and acronyms. RPA, or Robotic Process Automation, is a script or "bot" that executes repetitive tasks that are currently done by humans. Artificial Intelligence is the ability of a program to analyze data. To actually solve business problems. 

I'm sure readers can think of several use cases for their institutions. Balancing your card providers daily report to your core system? If it requires a checklist, you can automate it. Performing CIP diligence? Online banks already use automated processes. 

Think of the saved hours!

But let me tell you the real benefit of Intelligent Automation. The ability to deliver community banking services in the manner desired by your customers.

It's no secret that customers want more from their bankers. Efficient and accurate transaction processing is passé. Customers already voted with their smart phones and laptops on where they like to execute transactions.

But bankers have changed at a slower pace than customer demands. Much slower.

Take branch staffing for example. Survey after survey indicates that customers want branch bankers to help them solve more complicated problems, apply for loans, and assist them with financial tools that are available. Can your branch bankers do it? 

I'm skeptical, based on my experience. We still have efficient and accurate transaction processors. We skinnied branch staffing to achieve cost savings and improve profits. But we haven't translated less staff into more capable staff. Same skill set. Less people.

If you look at the support center expenses branches must absorb for operations, technology, compliance, etc. you would think that support functions also skinnied their ranks. Oh contraire. 

In 2013, when the median branch deposit size in our profitability outsourcing service peer group was $47.9 million, support center expenses were 1.12% of branch deposit balances. In 2018, when the median branch deposit size was $62.2 million, support center expenses were 1.02%. 

So you may think, "See! It went down! Economies of Scale!" 

But wait! In 2013, each branch had to absorb $536,000 of support center expenses per year. In 2018, each branch absorbed $632,000, an annual increase of 3.3%. Support functions got bigger!

And that, my readers, is why branches (and in most cases, lending functions) have been so slow to transform their capabilities to meet the modern customers' needs. We reduced branch staff to offset declining net interest margins and boost profitability. And we never reduced back office staff to invest in the collective abilities of branch staff.

Automating back office processes to reduce the resources needed to execute them can transform our workplace into what customers demand.

How long can we wait?

~ Jeff

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This article relates to my firm's Profit and Process Improvement and Strategic Management services. Click on the links to learn more.