Will Bachman 00:01
Hello, and welcome to Unleashed the show that explores how to thrive as an independent professional. I’m your host Will Bachman and I’m here today with Neil Gardner, who is we’re going to talk about regional banks. And it, Neil, welcome to the show.

Neil Gardner 00:16
Thanks. Will, thanks for having me.

Will Bachman 00:18
So Neil, you serve as an advisor to CIOs at regional banks. Let’s start just with what does a CIO at a regional bank do? what’s that person’s remit mandate? area of responsibility?

Neil Gardner 00:35
So typically, just to get the definition, right, CIO, I’m talking about Chief Information Officer, you know, some financial services, talk about CIO is Chief Investment Officer, but I’m really talking about the information technology side. So Chief Information Officer, the CIO is typically responsible for all of the functions of it in a bank, and that typically is responsible for probably 10% of revenue that a typical bank spends on it.

Will Bachman 01:03
Wait, so a bank spends 10% of its revenue on it?

Neil Gardner 01:07
Very typically, yeah, most financial services companies spend anywhere between seven and 10% of their revenue on on it. So it’s a very big expense much bigger than a lot of other industries?

Will Bachman 01:18
Well, I guess that makes sense. I mean, most of what they’re doing is moving information around. So talk to me a little bit about kind of the areas under the CIA, under the Chief Information Officer, what are the major different kind of categories of spend? Or maybe one way to do that is walk me through a typical organization, at a regional bank, and just maybe give us sort of us a size of account many employees, or how much deposits? And kind of then walk us through what does the CIOs organization look like?

Neil Gardner 01:53
Sure. So a real bank would typically be defined by assets under management. So not revenue, but assets under management. And there is obviously a tie between those two, but assets under management, regional banks will typically be from 5 billion all the way up to 200 billion in assets under management. So there’s a pretty wide variety of sizes. And you can very roughly, essentially, say for every billion in in assets under management, a bank will have roughly 100 employees. So if you look at your local bank with, you know, they’ll have a billion dollars in assets, they probably have a total of 100 employees, that’s not just it, that’s completely, you know, total employees. So if you take a regional bank that has, you know, 5 billion in assets, then that’s going to be roughly 500 people total, and they’re probably going to have an IT organization, you know, roughly in the range of, you know, let’s say 30 to 60 people. So that’s a fairly small organization. On the other hand, if you go all the way up to some of the larger regional banks, you know, so I don’t know bank, let me just pick an example a bank, like Key Bank, which is, you know, right at the top of the range, I think their assets under management is in between 170 and 200 billion, they have a total of 18,000 employees, and they’re probably their IT staff is probably pushing 1000 people or more. So within those organizations within so it’s obviously a very wide range of the size of the of the IT organization within a bank, but the structures are going to be very, very traditional. So they’re gonna have an operations function, which is obviously going to include things like infrastructure and daily operations, then they’ll have some part of the organization that’s dedicated to development and testing, they’ll have a part of the organization’s that’s worried about data, and then they’ll have probably a small piece of the organization that’s focused on software architecture.

Will Bachman 03:57
Okay. I would like you to walk me through some of these terms. So within operations, and I know if some of this might be totally obvious to a listener who is knows all about it, but for me, walk me through what does infrastructure mean, for under operations? What what’s that include?

Neil Gardner 04:17
Sure. So infrastructure is literally it used to be traditionally it was the data center. So you know, a bank is gonna have they have to run all of their all of their it on some sort of on some sort of, you know, server infrastructure, so some sort of hardware. And traditionally, and in some cases, still the case, they infrastructure means, you know, all of the data center footprint that they that they use to run their, their their infrastructure. What’s happening today in the modern world is the more and more companies are getting out of the data center business and employing things like AWS, Amazon Web Services, or the public cloud to run their infrastructure, which means they are hosting their actual servers at another company, but those still have to be managed and maintained. And so the infrastructure organization is literally the organization that’s responsible for maintaining the software that runs on those servers, the operating systems, making sure that the data is secure, that security policies are in place, things like that.

Will Bachman 05:19
Okay, and what’s the, what’s the title of the person who runs the operations organization and the infrastructure organization?

Neil Gardner 05:25
A would typically be VP of operations, okay? Or, you know, if it’s large enough to have a VP of operations and a VP of infrastructure, but that’s, that’s a very traditional title.

Will Bachman 05:36
Okay. And then the next group was development and testing. Talk to me about that a bit like, what sorts of applications would they bank be developing? Or just maybe give me almost an overview of what are the different categories of applications that original bank needs?

Neil Gardner 05:53
Sure. So the the types of applications are, the best way to think about it is as if you’re thinking about banking, from a consumers perspective, think about how we use a bank. So we have, you know, we’ll typically log on to a bank through either a mobile application or through the web. And then we’re going to be managing our deposits, we’re going to be transferring money around we might be doing, we might be paying bills. So each of that is part of the software infrastructure, the way that banks typically look at things is they have something called a core banking application, which is really the the application that is responsible for managing deposits, keeping accounts separate understanding, kind of like who has what in terms of assets, and then they’ll have systems to manage lending, they’ll have systems to manage customers, almost like a CRM system in some cases. And then they’ll have then they’ll be responsible for specific applications. So the mobile application that you use to access your bank is software that is the responsibility of the IT department of a public banking organization.

Will Bachman 06:58
And then I imagine that they have specialized applications for mortgages or for other types of loans or for you tell me,

Neil Gardner 07:10
absolutely, yes. So a lot of the times today, you’ll have specialized applications only at the very largest banks. So the largest banks have outside regional bank side. So if you go to something like Bank of America, they’re actually doing all of their development themselves or a lot of development themselves, where a regional bank is much more purchasing and integrating software from other companies. So you know, so in other words, their core banking system that they’re that they’re using to manage their, their their basic functions, almost no regional banks are actually writing that from scratch themselves. They’re typically buying it from a third party, customizing it and then maintaining it and integrating it to other parts of the of the infrastructure.

Will Bachman 07:56
Or they’re, like two or three or four big software companies that kind of dominate that market. Which ones are they? Yes,

Neil Gardner 08:04
so you’ll have companies like Pfizer or FiOS, which is a very, very common system for running core banking, you have up and coming players like finextra, I want to be careful not to you know, endorse any one product. But there are clearly for the the basic, important banking functions. There are a few companies that dominate the market. What we’re seeing today is that the you’ve I don’t know if you’ve heard we’ll have the term FinTech. But, you know, obviously, these financial technology firms are developing software that are providing a whole lot of capabilities to regional banks. And so there’s a proliferation of fintechs providing these kinds of capabilities. And, you know, we probably are familiar with a lot of the the larger fintechs you know, a company like PayPal was a is a FinTech. Venmo is a FinTech. So a lot of companies that are in that space have grown up to be, you know, common household products.

Will Bachman 09:12
Okay. So, after the category of development and testing, what was the next big category

Neil Gardner 09:19
of probably the next, the next largest category is data. And that’s really the idea that, you know, banks maintain a tremendous amount of data about their customers. There’s tremendous value in that data. And so, both having good quality data, so you know, knowing when you’re a bank and customer having an accurate view in terms of what’s your address, you know, what’s your proper name, all of the key information that that identifies you as the customer, and then all sorts of other information that actually, you know, be forms part Have the record of view as a customer, that data both needs to be maintained. And then it has a tremendous amount of value in terms of insight that banks can apply to actually better serve their customers. So if they, you know, if a bank, you know, if you’re using a credit card through your bank, and they see you buying, you know, a whole lot of baby products on the on the credit card, then there’s information there that they can actually use to actually better serve you.

Will Bachman 10:30
Got it? And is there was there another fourth group after data?

Neil Gardner 10:34
The the last group is architecture, and that is really, typically a very small group that is responsible for kind of like thinking about how all this ties together, what are the standards for software development? What are the typical products that at a larger bank everybody has to use? So architecture is typically focused on kind of like standards and how things all hold together?

Will Bachman 11:00
And what about security is that like a separate role from the CIO or

Neil Gardner 11:04
security, so it depends on the on the on the bank, they’re very, both security and regulatory are very, very big parts of, of, you know, banking responsibilities. In some cases, you will have a chief information security officer that is separate from the CIO. And this is because of, you know, separation of responsibilities. So you want to make sure that there is one person that’s responsible and worried only about security. So at any larger bank, you will have a separate chief information security officer and Chief Information Officer at a smaller regional bank, you know, the CIO will wear both hats. Okay.

Will Bachman 11:47
So that’s a great overview for me. Tell me a little bit about your practice, I think you work on helping kind of drive transformations, or more digitization, but tell me a little bit about the work that you do as a CIO advisor to regional banks.

Neil Gardner 12:02
Sure. So what I typically see or what I very frequently see as I work with my clients is that there is a basic disconnect between the businesses running the bank and the IT departments that are run by by the CIO. And that the IT department is typically viewed just as a cost center. It’s something that banks spend a lot of money on, as we as we talked about earlier, but there’s this concern by the business, that they’re not getting a lot of value for the money that they spend. And so what I am really focused on is turning this view of the IT department from that of a cost center to an organization that is actually creating business value.

Will Bachman 12:46
Okay, so can you give me an example of that to help illustrate it, maybe a case example.

Neil Gardner 12:53
So the, the typical way that you’ll see organizations interact is you will have the business makes a whole bunch of requests of the IT department, the ID, key department is typically feeling like they don’t have enough resources to fulfill all those requests, they implement some sort of process to actually prioritize the requests, they put them into a big queue, they work as quickly as they can. And they deliver and they deliver these projects. This is the traditional way. But this is actually not actually driving business value. And so the transformation that we’re looking to, that, you know, that we’re looking to affect, or that I’m looking to effect is actually breaking down the walls between business and it and have it directly involved in business priorities in the business actually being very, very tightly involved in terms of setting up exactly what it is gonna be doing almost on a week to week basis, and having it directly involved in product development, so that it is tied to the revenue of the bank that it is actually tightly integrated into the product development capability of a bank. So when it works, well, if you want me to give you kind of like a case study or an example,

Will Bachman 14:16
yeah, let’s definitely do that.

Neil Gardner 14:17
Sure. So an example of I actually can give you an example of where it worked well on an example of where it didn’t work well. So you know, one example of where it worked well, I had a client that had an idea for a new advice product, and they, you know, they they had this idea of almost initially sketched out on the back of a napkin, and they wanted to get to a product out in the market as quickly as possible, and that involve completely changing the way they work with their IT department. So we worked with them in terms of completely breaking down the structures between business and it took little To the point of getting them colocating sitting in the same, you know, sitting in the same office space, this was this was pre pandemic, when people were still in offices. So having people colocated sitting in the same offices, and they completely changed the way they work together where there was no business organization and IT organization that was just one organization working towards the goal of rolling this product out. And they went from design, to prototyping, to product development to actually rolling it out to the market in something under a year, which is for product development companies for software, product development companies, pretty spectacular. And they did that by completely changing the way that they work together. So the the way that they set priorities, the way that they manage their week to week work, the way that they made kind of like decisions on what went into the, into the product, the way that they actually developed software, all of that was changed. In the end, we actually I think, changed the complete culture of the organization so that they stopped thinking of business and it as competing organizations that were fighting for resources, and they move to an organization that is, you know, working together to actually move product to the to the market.

Will Bachman 16:18
That sounds like a great outcome, can you walk me through a little bit of what the journey was like to get from the original state to that more integrated, co located, you know, Kumbaya state where they were all working together. And it was what it

Neil Gardner 16:35
was a Kumbaya, it was a Kumbaya result. Who was actually it was it was, it was wonderful to see what can be accomplished, because, you know, morale went went sky high in, in the organization, and they really felt like, you know, that the results were were pretty dramatic. So the way that, you know, the specific steps that we worked on are actually, you know, what, let me let me take a step back, well, let me let me talk about kind of like, fundamentally how you do this type of thing. The, the, you know, if you think about organizational capabilities, you have work that is actually specifically going into, let’s say, business value creation. So work, you know, in this case, it was actually developing this product that was going to be rolled out to the market. And then there’s, there are capabilities that I would call foundational capabilities. So that is kind of like, all of the organizational capabilities that have to be in place for you to actually do this type of work, you know, in 11 months, what we did with this client is we actually worked on these simultaneously. So some specifics are we actually move their development process from kind of like a combination of, you know, requirements based and an agile development techniques to a full agile development capability. I don’t want to get too much in the weeds of of agile, but agile when done right is much more modern way of developing software. And so we actually change the way that they develop software, while they were working on this product, we completely changed the way that the business and IT were making decisions together. So we went to, you know, very regular sessions where they were actually looking at the product as it was being developed. They were doing demos that were in some cases very, very, let’s say rough, because you had a very, very early product, but you had both the business and the IT organizations, looking at things at the same time demoing things. The the the IT organization was getting feedback on a real time basis, you know, basically, every two weeks as the product was being developed, so that they could actually react very quickly to the feedback they were getting from the business people who really knew what they wanted in the product. That’s a very different way of the typical software and product development methodology that a lot of companies use, the typical way is, you know, the business writes down a whole lot of requirements, it goes away for six months, they they do a lot of work. And then they show what they hope is a finished product to the to the business side, six months later, and they usually quite frankly, missed the mark. And so getting this kind of like this bi weekly cadence where you’re actually seeing things as they develop is a very, very effective way of actually moving a lot faster. And getting getting the product right right off the right off the bat. So we changed the way the business and IT were looking at the product, we changed the way they were making product decisions. We change the way that the organization was, was, you know, actually developing and testing software and we actually work very closely With the leadership of the company, to change the culture so that people were open to the idea of, you know, you know, speaking up about problems as they happened, as opposed to, you know, always just trying to, you know, report good news up to the up to the leadership,

Will Bachman 20:17
know, can you make it tactical for me and give me any examples that come to mind of something that, you know, they show at one of these bi weekly demos? And that the business said, No, no, that’s not what we need. We want this other thing instead, where in a traditional way, they would have waited six months to find that out. But can you give an example of one of those sort of feedback? And like, what’s your list early on?

Neil Gardner 20:46
Sure. So let me let me let me actually answer that from a little bit of a different from a different perspective, what we saw when they started this process. So, you know, a few months into this, you know, into this effort, and product was starting to be developed. And we scheduled these product demos, which were, you know, essentially the people both from the business and IT were showing the current state of the product to the leadership to get feedback. And the the first few times that this happened, the demos were, let’s say, very near perfect. They were, they were, you know, they were slick, everybody was prepared, everything looked very nice. Leadership looked at it and said, Oh, yeah, that looks really nice. And what we found out as we as we kept working with this, because in fact, this is actually demos that work perfectly are a warning sign to me, because it means that people are doing too much preparation for for a demonstration. And so we worked very, you know, we coached the team, and we saw that they were actually trying too hard to make things be perfect when they show their leadership as opposed to showing them as they were. And, and so as we actually changed the way people worked, what used to happen is they would show the product. So for example, just to give you a specific example, they would show a product where you know, a customer was coming in, and the customer would sign up. And they would have, you know, literally you think about it on your on your computer, you have a webform where the customer is signing up for for a specific product. And they were developing that that signup form. And as they would show that to the business, the business would say, you know what, this is really hard to understand, I don’t understand what this what this particular field means you’re asking for information that the customer isn’t going to have. And so this type of feedback that an IT organization would have no way of knowing, since they don’t actually work directly with the with the customers on a day to day basis. So that’s literally the type of things that would come out in a demonstration, you know, tiny things like the information that was being asked or the way it was being asked for the way it was being explained. The validation that was done on a particular field, that type of feedback, which is very, you know, it, it sounds very minor, but if you’ve ever used a product that was, you know, asking you for information that you didn’t have, can be very, very frustrating from a customer’s perspective. So that kind of feedback is incredibly valuable as you’re developing a product.

Will Bachman 23:24
Got it. Um, let’s go back to this broader issue of how the IT organization can be thought of as a profit center and not a value creation center, not just a cost center, what are some other ways that that IT organization can actually you can generate generate value for the for the, for the organization?

Neil Gardner 23:49
So, you know, I think that there is a couple things that that that I look for or that I try to push organizations towards the first is that the IT organizations metrics, the way they measure themselves, their KPIs have to be tied to the business strategy. And that’s actually amazingly quite rare that most IT organizations have a bunch of KPIs that, when you look at them are fairly disconnected. You know, they’re, they’re around things like efficiency and availability, and, you know, things that are important, but are not actually directly tied to what’s driving the business. So driving revenue, driving customer engagement, driving customer satisfaction. And so, you know, IT organizations that actually start to measure themselves, in terms of what’s driving the business is one thing that’s really important. The other thing that I look for or that I try to push organizations towards is things around innovation. So the IT organization has to move from being an order taker. Taking, you know, asking the asking, you know, their business partners, what do you want to actually engaging directly in terms of what is the right thing to do for our product? How do we innovate, we have knowledge about, you know, data and systems that the business doesn’t have. And there are innovative opportunities that could be there for product development, that it should be able to be developing, not, you know, not just relying on the business to come up with all the new product ideas.

Will Bachman 25:32
Can you give me some examples of the metrics of a IT organization that are well aligned with the business strategy, what would examples of symmetrix be.

Neil Gardner 25:44
So they’re going to be looking for things like, probably the best way to describe it is time to value. So measuring from the time that the business has an idea to change something that’s going to impact the customer, to when that actually is rolled out. And actually, as is productized in the field. So that’s an example. So time to value is a is a great example of measuring how quickly you actually go from idea to product. Other examples are things like customer attention, as I mentioned, customer satisfaction. So measuring those types of things, and making the IT organization responsible for them is an example of metrics that are actually tied, not just to the functioning of it, but actually the functioning of business.

Will Bachman 26:42
What are some of the cool it related innovations that you see regional banks doing? Like what what are some of the develop applications they have under development that have recently been launched that are, you know, getting that customers

Neil Gardner 26:58
seem to like? It’s, it’s an interesting challenge for the for the for the regional banks, because they’re actually under a tremendous amount of pressure, both from the development the investment that the very large banks are making into their products, and the the attempt to disaggregate them from some of the fintechs. So the A great example of this is, yeah, I use, I’m a Venmo customer. And, you know, literally before we were, we were about to talk well, I got an email from Venmo offering me a credit card. Typically, you know, it used to be you know, that credit cards always came from banks. And, and Venmo is not a bank Venmo is, you know, there are you know, they they do payments, but they’re not a you know, they’re really not a deposit regulated bank. On the other hand, Venmo offers me a credit card. So regional banks are under a lot of pressure, both from below and from and from on top. And so the innovations that I’m seeing at the at the regional banks that are really meeting this challenge, are really around expanding the products that banks are offering to their customers. So if you think about the traditional bank was all organized around the deposit account, whether it’s a business, whether it’s a commercial relationship, or a or a b2c relationship, the traditional bank, they all they worried about, you know, how much money you have in the bank, and then they make their revenue from lending that money out. That’s the traditional business model. The newer business models are all around adding services that are not really tied to, you know, deposits. So for example, you know, it’s something that most banks now have our bill pay, but you know, if you think about it, even 10 or 15 years ago, you didn’t use to pay bills through your bank, you know, used to write checks, so not that not quite the same thing. Then there’s innovation around credit score management, offering advice, aggregating more of a customer’s finance financial picture into into one screen. So if you think about very few people have all of their money in one bank or one asset manager, they typically have it distributed around, you know, multiple institutions, being able to get one view of that is that is a classic service that client that customers are asking for. And then I’m also starting to see banks even go farther than that and start to look at things like budgets, like as in household budgets, and goal setting, so helping their customers with things that are outside of the traditional, kind of like deposit management, and really starting to get more deeply involved with helping their customers, I guess, manage their finances and their financial world. So the innovations I’m seeing are developing products or integrating products that actually developed more develop a more complete suite of, I guess, financial services to their customers.

Will Bachman 30:11
And, and they’re competing to this to some degree with you said, the different FinTech type companies.

Neil Gardner 30:16
Yeah, they’re competing with fintechs. And they’re competing with large banks. So regional banks. One, one trend that you’re seeing in the industry that has actually opened up again, after tailing off during the pandemic is there’s a fair amount of consolidation in the industry, as regional banks try to get more scale so that they have more resources to do this kind of development. But they’re absolutely competing. They’re both You know, there’s, it’s, it’s almost like a co op petition type thing, where they’re competing directly with FinTech products, and also integrating FinTech products, into their core products that they’re offering to their customers so that they actually offer more of those capabilities.

Will Bachman 31:01
What type of customer chooses to go to a regional bank versus going to a national bank, like a bank of america? What, like, what are the advantages that a customer gets from going to regional bank?

Neil Gardner 31:17
So honestly, while I haven’t done a ton of research on that space, you know, my perspective is that most customers choose their bank based on their perceived, you know, both product capabilities and customer service. And so it used to be that, you know, people chose their bank based on where the branch network was close, because they always wanted to be able to go into a branch, that’s still a factor, although branches are, there is a lot of consolidation of branches and branches are not going away. But branches, there are banks, a lot of banks are closing branches. But so clients do still it’s still a factor in their decision in terms of Is there a branch close by, but more and more customers are choosing banks based on the capabilities and their perceived customer relationship? So you have completely, you know, you have these, these, you know, what are called in the industry neobanks, or new banks that are in most cases have no branches are just, you know, are all on the web, and, and are actually being quite successful in acquiring customers just because of the customer experience.

Will Bachman 32:33
What do you call banks that are smaller than a regional bank? So I think you had the

Neil Gardner 32:39
local bank, I guess, yeah, yeah. So there’s, and there are there, I think the latest count, or there are something like 4500 banks in the in the United States. So our, our, our regulatory environment, is such that it encourages quite a large number of smaller banks. So if you think about, you know, when I’m looking at regional banks, there’s probably if I go from 5 billion and up, that’s probably a few 100 banks. So the vast majority of banks and credit unions are much smaller than that.

Will Bachman 33:18
And then the national banks, like how many national banks, would you say that there are,

Neil Gardner 33:23
you know, there’s probably about, you know, anywhere from seven to 10. And they’re the banks that everybody knows about, you know, so JP Morgan and Bank of America and Citigroup and Wells Fargo. Those are the really, you know, those are the behemoths. And I would say that, you know, if you’re looking at above 200 billion in assets under management, that is somewhere around 15 to 20. Banks. So the, you know, the largest national banks, there is, you know, a handful of those.

Will Bachman 33:56
How do you get discussions with CIOs at regional banks? So, you’ve been, you’ve been, you know, at a large firm, you’ve been in financial services yourself, but how are you doing client development now?

Neil Gardner 34:15
almost exclusively through networking. So I have some inbound marketing. So I publish. You know, I have a website, I have a blog. Eventually, when there are, when there are conferences that are started up again, I will be one of those conferences, but by far my method of business development is through is you know, basically relationship based. So I am I’m very focused on my network and one to one conversations, my my attitude towards business development is if I have a large number of positive conversations, that’s going to drive business.

Will Bachman 34:55
And one nice thing for you is that your universes fairly defined so if there’s Something like 200 of these regional banks. Each one has one CIO. So there’s sort of 200 possible clients for you to, you know, you could probably identify all the names of all the potential clients in your universe. And

Neil Gardner 35:15
Absolutely, I mean, this was one, this was a very conscious decision I made when I, when I, when I started my own practice, which is, you know, as a, you know, prior to running my own practice, I worked in big company consulting, and, of course, worked for, you know, a large number of financial services firms, most of them quite large, but also had experience in other industries. And, you know, one of the key decisions I made going out on my own was I needed to really target a niche that is going to help me, you know, that is going to help me become an authority within that niche. And so I picked regional banks primarily because A, they’re there. They’re big enough. A lot of times when I talk to people on I talk about regional banks, it kind of like it triggers, you know, a Rolodex moment or people say, yeah, you know, what you should talk to so and so. And it also is an is a segment that, that is actually underserved in that they don’t spend enough money to be of tremendous interest to the you know, let’s say the big four or you know, you know, Bain BCG, McKinsey. So they are, you know, they’re a little underserved. And so, but at the same time, they have a lot of the same problems that the very large banks have. And so that’s how I that’s how I picked that niche.

Will Bachman 36:41
Fantastic. Well, Neil, if someone listened to the show wants to find out more about your practice or get in touch with you. Where would you point them online? And we will include your links in the show notes. Sure. So

Neil Gardner 36:53
my website is n m. g advisory as in Neil, Michael gardener gardener advisory, so nmg advisory.com. And maybe I can give you my LinkedIn profile, and you can put that in the show notes as well. Sure include that link in the show notes. Well, Neil,

Will Bachman 37:10
thank you so much for joining. This was a really fantastic tour of the world of Information Technology at regional banks. And I learned a ton. Thanks so much for joining today.

Neil Gardner 37:20
Well, it was a pleasure. Thank you so much.