Lawrence Scott

Credit Hangover

Last time around I talked briefly about "toxic cocktails". This morning we are officially experiencing what can only be termed the "credit hangover". While the Federal Reserve attempted to apply the "aspirin" of cheap funds, everyone knows that there is no quick fix to a headache that rages from periods of excess. And that's exactly what we now face. A recovery period.

Two weeks ago in New York we were discussing how we should approach firms in this era of revalued assets, bruised balance sheets, and humbled egos. Is this a time to push virtualization? Only if it results in cost savings. Is this a time to emphasize innovation? Only if it results in cost savings. Is this a time to discuss our open source strategy? Only if it results in cost savings. Are you getting the message?

One message was clear to all of us: discussing change for its own sake is a sure recipe for being shown the door. So what are some of the practical implications of the sub prime crisis on our industry and how should we respond? The best answer came from global banking leader Carl Morath. As firms write down their assets, the income impacts are obvious. More importantly, it becomes crucial for banks to become highly efficient. Translation: make the myriad customer interactions you have every day as cost effective as possible. Where do banks experience cost? In the call center.

How many of us have "zeroed out" of a financial institution's touchtone IVR system? My hand is up, can you see it? Each time I do that, it costs that institution an average of $15 for me just to say "hello". And I hate paying service fees (again, don't we all), so it becomes even more critical for my interaction with the institution to be automated yet "personal". Enter the voice platform. We are seeing a number of firms convert their legacy call center touchtone systems to automated voice response systems. So better customer interaction technology actually yields a 30 percent reduction in the "zero out" phenomenon (statistics courtesy of our friends at Genesyslab.com). And that's cost savings.

Customers get a more effective interaction with their provider and the financial institution reduces its costs while preserving a customer relationship. Who'd have thought that superior customer interaction would be the antidote to the "toxic cocktail"? Well, perhaps not the antidote, but at least a painkiller.

Speaking of antidotes and cost pressures, do yourselves a favor and check out Sun's thin client technology. You know, the little machines with the Java card that identifies you to the machine? One of our West Coast clients has determined that our thin client technology will become the centerpiece of their data center consolidation strategy. Yes, you did not misread this last sentence. Virtualizing the desktop in a wide area network (WAN) environment all of a sudden frees up an organization from needing to decentralize application infrastructure on a regional basis. Combine that with the security benefits (military grade) and cost benefits (20 year MTBF) and all of a sudden you've got a winner. The real kicker though was the WAN performance. Many thin client solutions work well in traditional LAN environments. Ours delivers exceptional results in a low and high speed WAN environment. We use it every day at Sun; I have a Sun Ray at home and will pop out my Java card, head to New York or London, and pop in my Java card. No laptop to take through security. No file locations or names to remember. Stay tuned for some information on how and where you'll be able to see this in action. And finally, please remember two words: "The Incredibles".

Lastly, a few words on diversification. I've been pinged by the leadership at Sun to opine on the global market collapse. Here's a secret: when everyone runs in one direction, you should walk in the other. I sense that panic has set in and that anyone who reacts now is probably doing themselves a disservice. None of us have all of our eggs in one basket, neither personally nor professionally. We have a diversified customer portfolio which is served by a diversified product portfolio. Small customers and large ones alike do business with us every day in every part of the world. They did not take out a high risk mortgage. True, they might be affected by one (see Bank of China's planned write downs). But they have a diverse portfolio, no different than their peers in the rest of Asia, Europe, or the Americas. So yes, this is bad right now. But if you have a well-diversified asset (product or customer) base and you are prudent with regards to debt (manage your risk), you (and we) will come out of this "crisis" in reasonable shape.

Posted at 05:45PM Jan 24, 2008 by lscott97 in Sun  |  Comments[4]