Background

Discuss about the CRM Solution for Bank of Central.

The bank of central Queensland, abbreviated as BCQ is financial institution based in Broome. It was established in 1958 a farmers’ cooperative. The bank has operated as second tier regional bank providing services to the local community. Contrary to what would have been expected to result from the impact and competition of the big four banks, the Central Bank of Queensland has emerged to be successful in its operations. Because of the lean and cost-effective model of business, the bank has been able to deliver remarkable profits to its shareholders, while at the same time protecting the welfare of the customers (BOCQ, 2016, p. 1).

This business case on the bank of central Queensland highlights three software vendors that have been identified and proposed three different solutions that will initiate the progress of the Bank of Queensland. BCQ is a financial institution that offers the major insurance, wealth management, equipment finance, and banking services. The bank employs a distinguished concept of owner Managed Branch (OMB) to carry out its activity. It means that it involves a partnership between experienced bank managers (franchisees) and the Bank of Central Queensland (franchisor). BCQ has a network of over 280 branches all over Australia. The increasing demand for efficiency and effectiveness necessitates that the upgrades its business and technology processes to compete sufficiently in the market. The bank hopes to provide better services, maintain its extensive customer base and lure new customers by CMR/data warehouse. This business case extensively describes the three CMR options offered by different vendors.

There is a dynamic trend in the way that companies utilize and pay for Customer Relation Management (CRM) application. The previous years have registered a notable change in the areas of focus and the way they are done (Lin et al., 2010, P. 113). Initially, companies used to operate on the primary continuous license-based systems to access web-bases CRM, a system where companies provided huge upfront amounts and maintenance fees every year. Currently, companies are shifting from the primary continuous license-based arrangement to a just monthly or annual fee to be offered with CMR services, a move initiated by both the client companies and the service providers. Under such condition, it comes as a foster towards realizing a cost effective and convenient plan for the company and the provider (Kumar, 2010, p. 50).

Statement of Problem

Therefore, it comes with the advantage of being able to save company finances. However, the difference in the arrangement of the pricing system is a point of misunderstanding among buyers and the vendors because they try to compare the total amount of money involved in the service provision. At times, the buyer fails to understand the specific terms of the statement of certain amounts. Therefore, it is important to scrutinize the available options to identify one that is most suitable for the particular company in a particular situation. It is worth noting that the efficiency of these plans is hugely dependent on the particular situation and not a total arrangement across all settings. It justifies the reason for having a variety to choose from (Linoff & Berry, 2011, p. 73).

Through venturing into alternative businesses, the company has gained a legacy system providing award-winning supply chain solution that the company would like to maintain. However, there is a significant threat of losing its customer base, especially with the Big 4’s implementation of new marketing initiatives that tend to attract its customers, which have to be tackled by a counter-plan at an early stage (Elsas et al., 2010, p. 1274).     

The first step of development of the systems was the consult external consultancies on Information Technology to investigate the available solutions in the market for improving the CMR systems. Three forms were approached, and all of them gave different solutions with different price quotations. The following are the options available and the type of solution that they proposed

Ozzie Solution: Build, own and operate

Customer Solutions Development Consulting: Build and install

Relationship Plus Solution: Build, install, and maintain

Not to do anything

In this business case, a fourth option is added, which is to do nothing. The status quo option maintains the present systems of CRM and is important as it is going to act at the reference point to evaluate the other options.

After conducting the relevant information, a comparative assessment was done to find the operating ratios, simple ROI, IRR, NPV, break-even points, and total operating cost. A comparative risk and benefit assessment were carried out to determine the risk and benefit of each option (Vu & Turnell, 2011, p. 530).

A comparative evaluation period of five years was set to match the time stated by the providers and the company vision. A most likely forecast of 100 percent growth every year will be considered in the business to attain ease of comparison.

Analysis

The Big 4 banks have launched new marketing plans that threaten to lure the clients of BCQ, competition more intense in the market. The elevating demand for effectiveness and efficiency has necessitated the BCQ to upgrade its technology support infrastructures and the business process to maintain its competitiveness in the market. Among these infrastructures and processes needed, a CRM solution was the most important or the bank, to make their services better, so that they can maintain the customers they have now as well as attract other customers. The recent initiatives by the government to rebuild commerce and industry in the region have initiated steady migration o workers and steady growth business enterprises (Davis, 2011, p. 13).

The ability of the Bank of Central Queensland has been able to maintain excellent service delivery to its customers, as well as ensuring reasonable returns for the stakeholders through a culture of optimistic risk taking and confidence. The financial institution believes strongly in their product range market and the need to maintain the lead by implementing expansion and innovation initiatives. The Bank of Central Queensland’s expansion vision is evident through the acquisition of complementary businesses, venturing into sectors that were not initially on the list of thought. Initially, the bank operated on banking services only but later developed to accommodate insurance and property management, among other ventures. On the other hand, innovation is portrayed through the approval of the company management to approve the investigation of new and improved CMR systems, which would function as growth drivers (Ernest et al., 2011, p. 291).

The objective of the business case is to select the best CRM solution for the Bank of Central Queensland.

The second option evaluated was Customer Development Solution contender. This option promised to design the data warehouse and CRM database setup, deliver the system, train the company personnel on using the system and finally host the system. Their payment terms include a mobilization fee, milestone delivery amount for the first half, milestone delivery for the amount of the final solution, a training cost, and an annual amount or hosting and controlling the CRM solution. They have experience in finance and banking but with at most two senior project managers, and one with experience may not be available.

The benefits of this option include a flexible payment plan; give that the amount will be paid in phases. Secondly, the group has been in operation for a long time and had experience in finance and banking industry. Thirdly, the transaction is secure as money is paid to the progress of the solution is monitored. The group also has positive legacy integration. Finally, the option has a lower cost of operating and total cost over the stated period. The benefits can be summarized as follows

• Flexible payment plan
• Good experience
• There is room for monitoring the process
• Positive legacy

Objective

Lower operating and total cost

This option requires a mobilization fee of $300,000, then a milestone fee of $600,000 delivery of the first half of the project. Another $350,000 is requested upon delivery of the second half, and a training cost of $200,000. The annual fee is $450,000 per annum. The prices are as presented below.

• Mobilization fee $300,000
• First half $600,000
• Final Solution $350,000
• Training cost  $200,000
• Hosting cost $2,250,000 ($450,000*5)

Total Cost $3,700,000

This option of CRM solution for the BCQ did not set a time estimation for the delivery of the first half, the final solution, and the training. However, it is expected to take more time, since the solution is developed in phases, plus a training period. The hosting period of the company will be five years. This is the time estimation

• First half : Not specified
• Final Solution : Not specified
• Training period : Not specified
• Hosting period : Five Years

The risks involved with the second option include lack of a timescale for the completion of the project, which may cause budget inconveniences. Secondly, the group has only one or two senior project managers, making it possible that the one with experience on banking may not be available. Finally, it may cause confusion in budgeting since the amounts are distributed over a period. The risk factors can be summarized as follows

Possibility of project manager with experience in banking and insurance not being available

Possibility of causing a budgeting confusion

Among all the options provides the second option the only one that provides training for the company personnel.  The fact that reference sites have been provided, BCQ can follow up to trace the suitability of the group for the solution.  The phase implementation of the project will ensure that the company benefits from the projects as it goes on.

Net Present Value (NPV)

Net Present value = Present value of all cash benefits – Present value of all the cash outlays

NPV = B – C

B = benefits

C = cost

b_{t =} benefits in the period

r = rate of discount

c_t =  costs in the period

NPV = ($56000000 + $31000000 + $18600000 + $18600000)* 1.05 – $3,700,000

= $130410000 – $ 3700000

NPV = $126710000

Internal Rate of Returns

Where CF_n = cash flow in the period

NPV = Net Present Value

0 = ($56000000 + $31000000 + $18600000 + $18600000) * 1.05/ (1 + IRR) = $126710000

IRR = 0.080660563

IRR= 8.07%

Return On Investment (ROI)

ROI = (Gain from investment – cost of investment)/ cost of investment

(($56000000 + $31000000 + $18600000 + $18600000) * 0.5 – $3,700,000)

($62100000 – $3,700,000)/ $3,700,000

$58400000/$3,700,000

ROI = 15.78378378

RO1= 15.78

BOCQ. (2016). Company overview. Available at www.boq.com.au. Accessed from https://www.boq.com.au/aboutus_company_overview.htm [accessed September 15, 2016].

Davis, K., 2011. The Australian financial system in the 2000s: dodging the bullet. The Australian Economy in the 2000s, pp.313-314.

Elsas, R., Hackethal, A. and Holzhäuser, M., 2010. The anatomy of bank diversification. Journal of Banking & Finance, 34(6), pp.1274-1287.

Ernst, H., Hoyer, W.D., Krafft, M. and Krieger, K., 2011. Customer relationship management and company performance—the mediating role of new product performance. Journal of the Academy of Marketing Science, 39(2), pp.290-306.

Kumar, V., 2010. Customer relationship management. John Wiley & Sons, Ltd.

Lin, R.J., Chen, R.H. and Kuan-Shun Chiu, K., 2010. Customer relationship management and innovation capability: an empirical study. Industrial Management & Data Systems, 110(1), pp.111-133.

Linoff, G.S. and Berry, M.J., 2011. Data mining techniques: for marketing, sales, and customer relationship management. John Wiley & Sons.

Vu, H. and Turnell, S., 2011. Cost and profit efficiencies of Australian banks and the impact of the global financial crisis. Economic Record, 87(279), pp.525-536.