Companies Lag On Net Financial Services.

Although it seems that financial services companies--banks, securities firms and insurance companies-are up-to-the-minute in their sophistication and ability to utilize the Internet, a group of recent studies have shown that they are moving more slowly than expected and are falling short in what they need to do.

A study by Andersen Consulting and the Economist Intelligence Unit, Financial Services in the Virtual World, has found that financial services companies are moving more slowly than advisable in their search to create organizations capable of meeting customers needs "anytime, anyplace, anyhow."

Because technology is moving so fast, and customer expectations of what technology can offer are keeping pace, financial services firms are being forced to rethink what and how they offer in the way of services and information, and how their fundamental business processes function, the report said. This rethinking is going to demand not just new ways to structure organizations, both internally and for service and information delivery, but also new ways to measure results of the new processes and structures.

The report also said financial services firms are going to have to decide, and fairly soon, whether to make a major commitment of financial resources to the information technology that will enable virtualization and electronic commerce.

Thus far, studies have found that firms have not been able to manage themselves through the upgrading process with great effectiveness.

A recent report by Mainspring, an Internet advisory firm in Cambridge, Mass., on the state of Internet value in financial services, has found that although thousands of initiatives are currently under way at financial services companies, the companies are falling short on the delivery side.

There are a number of reasons for this, according to Patricia McGinnis, managing director, financial services, for Mainspring.

Not surprisingly, the major problems with the financial services companies are in cost and product leadership. Most competitors within a given market segment, according to the Mainspring report, will have similar features to any newly-introduced Web site within 12 months. In addition, project managers consistently overestimate short-term cost savings or underestimate the potential impact of initiatives by competing firms.

The report also said that the hulk of financial Internet offerings are getting to the market ahead of customer demand. Usage rates, the report said, are well below capacity for services such as online brokerages, and the number of overall Internet users is growing far more quickly than the number of customers using internet-based financial products.

Most of the value being created by financial services companies on the Internet is in intranet and extranet projects, to shift internal processes and make them more efficient, according to the report.

With technology now playing a primary role in the evolution of corporate structures, the Andersen Consulting/EIU report found that a new type of management role is emerging--that of a "process owner."

The "process owner" has full responsibility, from the start to the finish of the project, for achieving its outcome. The influence of that person cuts across the traditional divisions of power in a financial institution, which the studies concur is the only way the evolution of the corporation is going to occur smoothly.

The Mainspring study also found that 44 percent of insurance search engine links on the Internet go to so-called insurance intermediaries such as Netquote and InsWeb. Independent agents account for 37 percent of tile links, and national firms only 19 percent.

The goal for insurance companies, as well as other financial services providers, needs to be what Booz Allen & Hamilton's Paul T. Idzik, vice president of the health and insurance group, calls "distribution clarity."

According to Booz Allen's recent Internet Insurance survey, over 70 percent of life and property-casualty insurance is still sold through an agency channel. What companies are overwhelmingly seeking to provide is more agent information, but what consumers want, according to the study, is information on quotes, the ability to make changes in personal information, and the ability to make policy changes.

With changes happening so quickly, the writers of the studies agree that financial institutions must reshape themselves around processes. They must figure out which processes arc roost important, focus on redesigning those processes to support virtualization and reach customers, and consider outsourcing the processes that are less critical.