Emerging Bank Strategy

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Emerging Markets BankingDecember 29, 2009 by emetrix

We provide a study of core banking systems and the business and technology challenges facingbanks in Europe and specifically the emerging markets.

These findings are based on a combination of client based consultancy engagements and a

review of core banking system vendors.Our in depth knowledge of technology best practise for System Integration and BusinessStrategy Innovation enables us to to offer an independent advisory service to CEOs and CIOsto implement a technology strategy that will position their organisation for the next wave ofgrowth.

We can assist you to efficiently and fundamentally narrow down the search for the righttechnology solutions and architectures to simplify your investment decision making based on awell-informed pool of knowledge and expertise.

We can provide your organisation with considerable benefits in the area of system selection andimplementation, including:

a broad spectrum of services and in depth experience of every phase of the system selectionprocess;

an exceptional track record based on the successful implementation of many different types ofpackage solutions;

different application maintenance options on vendor solutions;

leading-edge capabilities closely attuned to current and future industry changes;
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Should you require any further information or assistance in this area or any major technologychange programme, please contact us for an informal discussion.

Contents

1 Background. 4

1.1 Emerging Markets Strategy1.2 Core Banking Technology

1.3 Technology Trend

1.4 Retail Banking

1.5 Corporate Banking

1.6 Emerging Markets

2 Core Banking Domains

2.1 Payments

2.2 Savings

2.3 Loans

3 Core Banking Solutions

3.1 Package Vendors

3.2 Recent Developments

3.3 Commercial Factors

3.4 Outsourcing

3.5 Future Direction

4 Methodology

4.1 Business Case4.2 Benefits Tracking

4.3 Governance

4.4 Portfolio Management

4.5 Change Management

4.6 Work Plan

4.7 Resourcing

4.8 Architecture

4.9 Partnership

5 Summary

1 Background

Continued growth through product innovation and acquisition will beconstrained by a malaise of systems that are difficult to integrate and too
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costly to scale.

The top retail banks in the European emerging markets areexpanding into foreign markets and face challenges to integrate

their acquisitions

1.1 Emerging Markets Strategy

The dominant banks in the European emerging markets are enjoying significant success andgrowth. The market leaders are consolidating their dominant positions and seeking to increasetheir assets, revenues and net incomes by triple digit amounts.

In developed markets facing product saturation, banks are fighting a battle to retain clients. Inemerging markets where there are large segments of underbanked and unbanked customers,banks are competing to acquire customers through extensive reach, innovative products, andsuperior service.

The bank CEO is faced with offering a full range of retail banking products to match the

competition and differentiate through excellent service. Innovative products must cover thespectrum of savings and deposits to loans and credit cards.

Having enjoyed the knock on effects of the boom years and achieved stellar performancemilestones, many banks are pursuing acquisitions of new market segments in their existingterritories and a new business footprint in regional neighbouring territories.

The rapid expansion has focused on establishing a broader branch network for retail bankingproducts and the steady growth of the corporate banking sector.

Many CEOs now realise that expansion and growth highlights new challenges for theirmanagement as the existing operating model does not scale and weaknesses in infrastructure andprocesses start to hamper their limited resource pool.

Whilst many emerging markets acquire and increase their branch network, they will very quicklyrealise that the branch is the most expensive of all customer delivery channels. This cost is seenas a burden and many banks quickly focus on the integration of bank data and reconciliationamongst disparate and geographically distributed branches.

The management of credit and operational risk across the domestic and regional cross borderlocations is critical in maintaining transparency and visibility of the banks positions, volumes,trends and profitability.

Dominant country retail banks enjoy a near monopoly on the number of accounts held. Manyrecognise that they must continue to innovate and generate new and profitable business in orderto stay ahead of the new entrants.

The major players are shifting their focus from a large pool of unprofitable accounts to abusiness model that is driving to generate greater value and profits from their core customers.

The new entrants are entirely focused on selling an integrated mix of profitable products tomaximise their return on investment. The near monopolies are acutely aware that they will losebusiness through a process of attrition and be saddled with carrying a large population ofdormant or unprofitable accounts. The effect of this baggage will be increased overhead costsand / or a lathargic pace of change.


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New entrants are positioned to operate in a nimble and selective manner to attract profitable feeincome and new sources of client deposits.

The opportunities for expansion and growth in home and regional markets must be temperedwith the deepening credit crisis and the prospect of increased inflation which will have a knockon effect on regional economic growth and employment.

1.2 Core Banking Technology

The technology architecture of the bank will play a pivotal role in simplifying and standardisingthe way the bank competes for new business and revenue growth.

A capability of the bank is the core banking systems responsible for processing and postingtransactions in the domains of payments, current and saving accounts, loans and securities (suchas performing current and deposit accounting, maintaining loan accounts, holding securitiespositions, clearing payments).

Many emerging banks have a core banking systems that have evolved from a relatively smallclient base. As mergers and acquisitions of rivals have increased the asset base of the bank, thishas also introduced a mix of core banking solutions into the overall technology portfolio.

The integration and scalability of the end to end core banking systems will prove to beincreasingly complex and expensive to manage as the number of accounts and product typesincrease.

The competitive pressures will demand tighter integration across multiple delivery channels. Thecore banking applications are a mission critical component that impacts every aspect of thebusiness of banking.

Replacing a core banking system is often an unthinkable option for risk averse senior managerswho can only see the prospect of a time consuming, disruptive and expensive system integrationproject. The core banking system is the backbone infrastructure that handles all customertransactions and any glitch can grind the bank to a halt and tarnish its reputation in the process.

Technology innovation is an essential driver for business change as it offers to streamline thespeed and flexibility of banking services through automation and reliable real-time handling ofcore banking processes. The integration of technology components and an information securityarchitecture can be used to provide a single view of the customer and product catalogue to givethe business the flexibility to cross-sell and gather business performance enhancing intelligence.

As financial institutions quickly realise that their current core systems are an unacceptableinhibitor to expansion and growth, they will seek to for alternative solutions that will offer betterreturn on investment and invest in technologies that can be supported with from a greater pool ofpeople.

Decisions on this scale must be justified by supporting evidence of inefficiencies, escalating costof change and increasing cycle times to deliver new capabilities.

Strategic renewal initiatives will be expensive and complex. The bank will need to take a tenyear view on financing and reaping the rewards from such an initiative.

1.3 Technology Trend

Major tier 1-3 banks in Europe are racing to renew their core banking platforms and many havealready started to rationalise and renew their application portfolio.


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The driver for this transformational change is based on a strategy to globalise IT based on acommon architecture and modular application portfolio which is ready-to-go for new change thebank initiatives.

The major drivers in the sector for core banking replacements are:

the severity of regulatory requirements and penalties;

the appeal of a component approach (SaaS Service as a Service and BPM BusinessProcess Management);

a strong focus on architecture for the industrialisation of banking, infrastructure and multi-channel enablement;

availability of resources to tackle back-office systems;

industrialisation and the shift to transaction banking for core banking back-office systems;

new cross-border mergers and acquisitions wave in the emerging markets financial servicesindustry.

Beneath that there is also the prospect for efficiencies through business process outsourcing and

selective application outsourcing.The challenge for emerging markets is the rapid expansion of clients and branch networksthrough acquisition of regional rivals results in a complex mix of technologies that must berationalised and consolidated to a common standard.

1.4 Retail Banking

The complexity for many banks in the retail or consumer domain are volume handling and massproducts. As the number of clients increases and a diverse set of channels are offered with theinnovation of new products, the once stable core banking platforms start to buckle under thestrain and the cost of running the service starts to soar.

Being able to manage large volumes of data and the end of day processing loads is the main

challenge for core banking systems. Emerging markets banks that once had the luxury of runningmany diverse applications off of a single production core banking platform are now scamperingto offload non-core bank related applications off platform.

Retail banking represents the most significant source of income and the top performers mustembrace the fact that a cost-effective and scalable core banking platform will become a keydifferentiator between market leaders and poor performers.

Based on the tremendous consolidation that we have seen in the European banking market overthe past 15 years, we expect that the Emerging Markets will see a similar evolutionary pattern asregulatory and competitive pressures drive tremendous consolidation in the sector.

Those players that invest in the flexibility and capabilities of their core systems will be better

positioned to absorb the change and accelerate the pace of sustainable growth. Unfortunately,many emerging banks lack the maturity or vision to invest strategically to overcome:

the lack of flexibility which is a source of pain for many CEOs who are keen to drive growthand product innovation;

the technology influencers where the cost of supporting the banks growth strategy iscompromised by the ever increasing total cost of ownership of an ad-hoc technical architecture;

the lack of resources and increased complexity of project implementation is a severe challenge.


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1.5 Corporate Banking

The business processes for managing corporate banking clients is fundamentally different to thehigh volume processing of retail banking. However, there is some trend towards a single corebanking system for both retail and corporate operations. Many banks are seeking to simplify andstandardise the way they manage clients by removing duplicate applications and infrastructure

towards centralised systems with central data.Strategically, the corporate and retail banking operations want an integrated global view of thecustomer with the possibility for all departments to have transparent online and daily insight toall accounts globally. Specifically, in emerging markets, the small to medium size corporatesegment and the opportunity for micro-loans represents a growth area that must be managedefficiently and quickly by the branch network.

1.6 Emerging Markets

The emerging markets have some very unique opportunities that are dependent on the flexibilityand adaptability of the core banking solutions:

start-up banking activities in new regions will focus on buying small operators with an existing

license to get a rapid entry and exposure to a new market. The internet offers an excellent andlow risk delivery channel for banking services where a standardised and robust core bankingsystem service is already available in their dominant market;

secondary markets in insurance, wealth management, brokerage and car loans will also rely oncore banking solutions to support their finance activities;

partnerships with retailers to offer their consumers retail banking products to improvecustomer retention will increase demands on white label core banking services;

monopoly banks in their dominant countries are rapidly reaching saturation level in their homemarkets and must diversify to new geographies to sustain their growth and address the attritionof their customer base by new competition from neighbouring countries.

2 Core Banking Domains

There are business and technical drivers for renewing systems. The characteristics of legacysystems is that are complex to change and administer as they have evolved over time to meet thedemands of specific products, geographies and customers. Often the legacy technology portfoliowill require complex integration and batch interfacing to overcome the limitations of afragmented and distributed architecture.

The business drivers for change will primarily focus on the limitations to growth andcompetition. Inevitably, many banks will reach a point of diminishing returns where the cost ofchange to the legacy outstrips the business benefits.

The emerging markets have a business model that relies on very basic products to fulfil hugegrowth targets. As a result, these markets are dependent on basic improvements to deliverautomated processes with adequate reliability.

2.1 Payments

The efficient and cost-effective processing of payments is a major driver for renewal. Inparticular, end of day processing and book balancing is a major burden for emerging markets assuccessful growth is now exposing weaknesses in infrastructures and application architectures.


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Mergers and acquisitions are forcing banks to create a unified and integrated paymentsarchitecture that can handle cash, debit, credit, internet and mobile phone payments in a fast,transparent and secure manner to limit risk and the opportunity for fraud.

The most critical issues for banks is to deal with the complex compliance and regulatoryrequirements across their entire operations. The ability to inter-connect and collaborate with

wider range of business partners requires conformance to an ever-increasing set of standards andprotocols.

Investment in a flexible architecture that can accommodate emerging standards for transport,messaging and security is critical.

2.2 Savings

The savings market is highly competitive with the preference for internet savings accountssteadily increasing as clients are able to seek out the best products and easily move their fundsbetween accounts.

The pervasiveness of internet banking as broken down the barriers to entry and specialised nicheplayers, that are subsidiaries of foreign banks, are cherry picking the most lucrative savers to

attract low cost cash deposits.Banks are being forced to increase their range of savings products and place greater emphasis onproduct development in order to contend with the competition.

In an increasingly risk-averse market, the need for savings products is forcing banks to cope withhigher volumes over a wider product range and requires a greater focus on product, process andsystem development and adaptation.

2.3 Loans

As with the maturity and increased competition that is all too apparent with the purchase of caror house insurance, competitive pressures have forced many lenders have been forced to providea core product with a range of optional features for the customer to select. In return for fewer

features (and less flexibility), the customer can get a cheaper loan and the bank can differentiateits product pricing against the all-inclusive implicit product from the competition.

A further trend in the lending market is the role of intermediary broker channel and theadditional burden this presents to the banking systems.

With improved market intelligence and information modelling, the personal risk profile of acustomer becomes an important factor product pricing.

The implications on the banking systems of these competing demands are for:

more transparent and easy to manage product catalogue;

break-up of the lending product into optional elements and supporting business rules that canbe included or excluded;

straight-through processing to meet the demands of the concentrated buying power ofintermediary organisations;

the introduction of the personal loan as the availability of flexible credit lines are consideredtoo risky;

introduction of risk-based pricing in line with the personal risk profile of the customer;


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new products such as tax-friendly bank savings, which enable banks to compete with insurancecompanies in tax-friendly products.

3 Core Banking Solutions

The larger retail banks in developed countries are workflow and transaction-focused to deal withthe ability to handle large volumes. Many banks that were supported by in-house developedsystems, shifted away to package based commercial systems that were customised to their needs.

With the maturity of the IT market and the demand for scalable technology architectures in thedomains of customer relationship management, human resources, payroll and many other areasof the business supply chain, many vendors emerged to offer package solutions.

Software and hardware innovation has created major market opportunities for companies such asSap, Oracle and IBM. The core banking market has also benefited from this wave of investmentand the ensuing mergers and acquisitions between the various technology vendors.

3.1 Package Vendors

The dominant vendors from the 1970-80s and available products include: Fidelity: Corebank is a customer-centric, real time, relational database solution delivered as aset of integrated components that are then tailored to fit each bank. Corebank can be delivered inCOBOL on the mainframe zSeries platform as well as in a J2EE environment on either UNIXpSeries or mainframe zSeries;

Misys: Equation, Midas Plus and BankFusion. BankFusion is a pure Java SOA-enableduniversal banking which is an integration with SAP NetWeaver platform;

Fiserv: ICBS supports all retail financial products and processes including savings, currentaccounts, loans, mortgages, transfer orders, collections and document management. Available onIBM iSeries and pSeries server technologies;

TCS (TATA): BaNCS Core Banking is an integrated solution that automates all aspects ofcore banking operations across entities, languages and currencies. BaNCS solution is an openstandards based platform, using multi-tier architecture with international messaging standardswhich can be implemented on HP-UX and Oracle database.;

New vendors that appeared in the 1980-90s included:

Sunguard System: SunGards Ambit serves the retail banking, commercial banking, treasury,and trade requirements of banks worldwide. These banks rely on SunGard for straight-throughtransaction processing across front-to-back office operations, with online, real-time processingcapabilities.;

Accenture: Alnova is Accentures custom banking solution that covers all aspects of universalbanking; it handles traditional business products as well as products designed for wholesalebanking and wealth management, all in an integrated, browser-based environment that crossesmultiple delivery channels.

A three-tier technological banking platform, running on Mainframe, Unix and Microsoft .NETplatforms using the most widely known databases (DB2, Oracle, SQL Server);

TietoEnator: The Core Banking Suite manages deposit and loan products and credit and debitcards. The system is independent of target technology platform and can be run on IBM S370,


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UNIX, Microsoft NT and also different transaction and database systems. In addition, the systemdoes not depend on any system development tools;

More recently since 2000 includes:

Temenos: T24 and TCB. TCB is a core banking processing engine for large, complex retailbanking businesses and is well suited to a phased rollout of core banking lines of business. TCB

is based on the IBM Financial Services Data Model;

Delta Informatique: Delta Bank is a Unix-based core banking application with retail,corporate, trade finance and treasury modules integrated in a centrally deployed multi-tier, thin-client architecture with browser-based access. Delta Bank can utilise either an Oracle or InformixRDBMS;

Callatay & Wouters: Thaler has been designed as an integrated solution, but can beimplemented on a modular basis which can be run on SAPs business-process platform;

SAP: Transactional Banking is built upon its ERP foundation and NetWeaver integrationtechnology. SAP partner with many other core banking solution vendors;

Oracle i-flex: Flexcube core banking is an integrated modular solution backed by Oracle and

J2EE architectures.

Infosys: Finacle core banking solution has an integrated CRM module.

3.2 Recent Developments

Increased competition in the core banking systems packaged solution market has lead to theavailability of functionally rich turnkey solutions that was only available to banks with an in-house bespoke system development capability.

The maturity of packaged solutions has improved significantly as the products have been rolledout across a large customer base. The vendor technologies and organisation have matured tosatisfy business expectations in terms of agility, time to market and operational support.

The functional capabilities of package solutions have reached an equilibrium and are consistentlyavailable across the major system vendors. The non-functional capabilities of the packagevendors have improved considerably to handle larger volumes across all functional areas as aresult of the technology architecture improvements that have been made possible through theadvances in hardware and software infrastructure.

Many vendor solutions are based on multi-tier architectures and can be supported by aheterogeneous infrastructure that can be sourced from a range of hardware vendors, operatingsystems and database technologies. The banks have a choice of operational platforms andinfrastructure for deploying core banking systems to suit their budget and scalability needs.

The advances in middleware technologies presents a unique opportunity for a flexible integrationlayer to decouple application logic from mainstream shared services to introduce fine tuned

business rules and service oriented solution architectures. The role of middleware to offer greaterfreedom, flexibility and improved time to market will become an important differentiator forthose banks that are willing to embrace the benefits of these technologies.

3.3 Commercial Factors

For many banks in the emerging markets who lack the experience of managing package vendorsand the complexities of embedding and configuring a package solution, there are manycommercial challenges that must be understood.


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Whilst a package solution is feature rich and can be operated as a turnkey solution, the reality ofconfiguration versus customisation can turn a dream solution into a nightmare.

All package solutions have a fixed cost element which can be priced as a perpetual license fee ora variable license fee based on the number of accounts. License costs can be complex and can beimposed on specific functions, number of accounts, number of CPUs and based on geographic

factors. These costs can be significant and specific expertise should be sought to model the costimplications of the licensing based on a 10 year lifetime of projected business scenarios.

Software license costs will not take into account the cost of infrastructure in the development,support and production architectures that will need to be managed throughout the lifetime of thesystem. The non-functional capabilities of each vendor solution will play a pivotal role in thefinal total cost of ownership of any selected solution. These areas must be investigated rigorouslyduring the selection process to get an accurate understanding of the cost of change.

All package solutions will require an element of system integration, configuration, customisationand consultancy. These costs will generally be quoted as a variable time and materials cost whichcan run for a period of 3 months to 18 months. Once again, these costs can be significant andwill require strong technical and commercial leadership to get the best results from the chosen

package vendor and minimise the costs and disruption to the business.

The role of a banks IT department should focus on all areas of the project lifecycle to ensurethat the design integrity of the package solution is consistent with an established methodologyand supporting governance. Specific areas that will take on heightened imprtance will be vendormanagement, business analysis, architecture, design and testing. Weaknesses in any of theseareas will result in increased costs and project over-runs.

Some solutions can be described as open systems where the underlying data model and sourcecode is shared with the client. Other package vendors do not offer this flexibility and will requireall changes to be undertaken by their own staff according to their schedule.

3.4 Outsourcing

Some package vendor solutions offer outsourcing and hosting as an alternative to in-housemanagement of core banking systems. Many banks have decided to focus on their corecompetencies and outsource their non-core but nevertheless mission-critical operations tobest-in-class service providers. The joint offering of infrastructure and software, whether in abusiness process outsourcing (BPO) mode or a Software-as-a-Service (SaaS) approach, is apotential route to market for some organisations.

This may be an option for smaller banks who are willing to sacrifice flexibility in return for arapid start-up and reduced TCO.

3.5 Future Direction

We would expect that over time the market will consolidate and the dominant players will align

with the architectures and frame works of the big players such as SAP and Oracle. Indeed, manyproviders have dependencies and collaborations with SAP and Oracle.

There are many benefits for closer integration with these technology pioneers who own asignificant portion of the technical architecture of the package solutions. The long term benefitsof any alignment is a consistent product roadmap which will result in a positive evolution ofintegrated business intelligence, CRM, financial accounting, reporting, risk management and soforth.


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4 Methodology

The scope of this section is based on our experience of the most frequent pitfalls for clients whohave embarked upon a package system implementation.

The specific areas of focus include project portfolio management and governance, resourcing,supplier management, architecture and change governance, capability bundling and rollout,business benefits realisation and operational readiness.

At a very high level, the most immediate concerns facing Banks will be around the execution ofstrategy and the shortage of in-house resource to shape and deliver the business change.

These challenges will be magnified where a major technology investment and change is initiatedwith an external partner. The operational exposure and risk of disruption to the business will bethat much greater as staff must continue to perform Business As Usual and manage an externalpartner to deliver the new capabilities.

Historically, most organisations will struggle to deliver due to a lack of appropriate preparation,planning and resourcing.

Other areas for concern include:

Insufficient effort being made in prioritising, aligning and committing the Business and IT todeliver the desired transformation in capability.

The silo approach to projects will mean that too many activities are in the plan with keyresources being spread too thinly.

Lack of contingency planning around the phasing and rollout of business capability and theinterim architectures that must be supported during the implementation.

The timing of the change must be carefully managed to minimise the risk of delivering during abusy period and so placing the organisation in an unfavourable position. Late or weakened

delivery of benefits from an implementation would leave the organisation entirely unpreparedand unable to deliver a service during the busy period.

Any planning and phasing of requirements and capability must take these risks into considerationand prepare appropriate contingencies to manage the what-if worst-case scenarios.

4.1 Business Case

Many strategic projects are often founded on a must-do basis and lack a formal business case.This is very often the major cause for IT project failures, as it becomes impossible to prioritiseeffort and measure success.

Organisations that implement a major project based on gut feel rather than any underlying

business or IT related business case will face huge challenges.

The business case is a critical deliverable that underpins the strategic business and technicaldirection of the bank. The lack of a business case is a red flag item for the bank that must beaddressed immediately.

Entering into a package selection without a supporting business case is very high risk andinadvisable. The business case must justify all project costs on the basis of perceived businessbenefits and creating a clear plan to realise those benefits.


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The vision and desired business outcomes must be known up front, rather than defined piecemealduring project implementation.

A business case provides a solid foundation for success and delivering the best value possible forthe investment. Most organisations consider the business case to be obvious and anadministrative overhead. Our experience shows that a business case is one of the most important

deliverables of any major project and will significantly aid the downstream implementationphases to prioritise and deliver the project to maximise return on investment and minimise totalcost of ownership.

Recommendation

The business case must be treated as a critical document that provides the linkagebetween business strategy and delivery capability.

The business case should provide the basis for making sound investment decisions andprovide guidance on the relative merits and priorities of the proposed change.

The business case approval should be a pre-requisite step before committing to a finalsolution, technology or integration partner.

A good business case can only be created through strong internal sponsorship andparticipation from key business units.

EMETRIX has the insight to facilitate and accelerate the process of producing abusiness case by bringing in proven methodologies and experience to identify therelative priorities, costs and benefits.

4.2 Benefits Tracking

The difference between success and failure is often very difficult to measure in mostorganisations due to the complexity of requirements, business processes and lack of clarity onownership and strategy.

What is clear is that making best use of limited resources to focus on activities that producebenefits to (i) people or (ii) performance is a simple paradigm that will steer most towards near-optimal solutions.

The key to achieving this objective requires the capability to consistently MEASUREimprovements and use this as a driver for change.

The process of targeting, measuring and analysing performance improvements accelerates thepace of change by:

Increasing accountability and transparency

Creating a traceable basis for action

Improving the understanding of cause and effect relationships

Builds continuous improvement into change program

Without adequate regard to benefits and the associated benefits tracking process, the project will:

lack direction

be unable to assess the impact of changes


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create a sense of dissatisfaction or frustration

It is imperative that the team fully understands, supports and drives the release of benefits.Benefits tracking is a continuous process that will allow the implementation team to manageprogress in delivering benefits and intervene effectively where they are off track.

Recommendation

Establish a baseline for accurate benefits tracking to support and mitigate against therisks.

Any decision to invest in the replacement of a core banking system should provide earlyvisibility of the KPIs and gaps that will be the key driver for managing the budgets fortime, cost and resource.

4.3 Governance

Many organisations understand the importance of Programme Management and often have an

adapted methodology for tracking the completion of deliverables.Our experience shows that very frequently project deliverables lack in the required level ofquality and often become shelfware that serves no purpose in the downstream project lifecycle.

Often, the silo based organisational structures result in poorly defined roles, responsibilities andaccountabilities for the ownership and production of project deliverables.

The lack of formal governance and enforcement of standards regarding the detailed structure,content and peer review of project artifacts results in an inconsistent mish mash of projectdocumentation which is often seen as an unnecessary diversion by most project teams.

The introduction of a formal governance approach to managing projects is a critical part ofsuccessful delivery and this is especially so if external partners are contracted to deliver major

projects.Discipline and structure in the day-to-day management and accountabilities of the technicaldelivery teams and suppliers must be established and formalised at the outset.

This is a non-trivial activity and requires considerable detail around actual processes andapproach. Critical to this is to source experienced leaders to engage with the business and ITteams to measure progress, monitor risks and assess the impact of issues, operating at a levelabove that of the individual work streams.

Quality management is fundamental to achieving integration of the organisation and itsdeliverables, through adoption of consistent terminology, standards, procedures, techniques andmethods.

Recommendation

Establish a Programme Office and define a robust and pragmatic delivery frameworkthat is focused on adding value and one that sends a clear message to all partners that thisorganisation is mature and able.

Enforce a formal and disciplined structure to reduce the temptation to cut corners andensure that decisions are made pro-actively, with leadership team buy-in and authorisationand ensure that people are operating within the recognised framework.


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Formalise the role of the Programme Office as a hub for decision making, escalationmanagement, risk management and all matters relating to prioritisation, budgets andresourcing.

Establish the Programme Office as the natural owner and manager of the business caseby delivering to the principles of the business case with the available budgets and

resources.

4.4 Portfolio Management

The delivery of this change programme will result in several solution work streams to deliverand manage the release of benefits. An integrated delivery strategy is crucial to the success ofany programme where resource and budget are scarce. In addition, there is likely to be a highdegree of interdependency between work streams. This is ultimately a positive as the creation ofa new and standardised technical architecture will result in many shared components andcommon processes which when integrated and deployed into the organisation will be the major

source of benefits. However, during the design and implementation stages and also during theinterim stages of phased deployment, this will introduce significant tensions and challenges tothe smooth running of Business as Usual.

It should be accepted that during the implementation of a complex cross functional programmeof work the strategy may have to be adapted or changed. This is a key area that is often over-looked during an ITT process where the competitive responses are seeking to minimise scopeand inter-dependencies in order to deliver on-budget and on-time.

Managing the internal portfolio of projects against this backdrop and making investmentdecisions in new infrastructure, applications or partnerships requires a detailed risk assessmentand appropriate strategies defined to provide guidance to the governance body.

In addition, many projects will resist change and seek to work-around any inter-dependencieswith a strategic solution that does not fit within the current scope, timescales or budget. It isabsolutely critical to get a firm grip on these projects and there business sponsors to see thebigger picture and agree that in some cases sacrifices and compromises will be required for thegreater benefit of the vision, strategy and desired outcomes.

Recommendation

We would recommend a detailed review of your ongoing tactical and strategic projects toassess the likely impacts and inter-dependencies on the proposed programme that iscurrently out to tender.

When major programmes are seen on the horizon, most projects will make assumptionsand design decisions that certain key features of their project requirements will now be

provided by the new technology.

Project architects who are often silo resources will not have the necessary facts orleadership qualities to navigate the projects and business towards more informed solutionsduring this period of uncertainty on the final supplier or technology selection.

The outputs from this activity would identify opportunities for cost savings andefficiencies that may otherwise be missed. It would also serve as a valuable input into thebaselining process and identify strategies for dealing with any potential hotspots.


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4.5 Change Management

The scale and reach of this project is significant and will require a change management approach

to ensure there is alignment of people, culture and behaviours and to sustain the change. Achange management methodology will focus on:

Creating high performance teams who can measure and deliver success.

Instigate necessary culture change by aligning aspirations and values to that of the neworganisation.

Install a continuous improvement culture and mechanism using effective knowledge captureand ongoing learning.

Many organisations achieve some success at the communications aspect of the change but theyvery rarely follow through on the detail that is required to realise any sustainable benefits.Usually the risks and symptoms that surface at the programme level will include the following:

Any new business processes or amendments will not be sustainable and staff and businessunits will be tempted to return to the old ways of working thereby eroding the benefits of the newsolutions.

Teams and projects will resort to a silo and will struggle to deliver in a culture that aspires tobe joined-up.

Leadership is not properly aligned and there is no process in place for ongoing re-alignment onstrategy and behaviours.

Tracking of benefits is vague due to an ill defined baseline. The risk is that insufficientevidence of benefit release leads to continued inefficiencies going unaddressed.

Without empirical evidence, there is no belief and therefore buy into the perceived benefit.

Recommendation

We would recommend identifying a dedicated change management leader andappropriate support to perform the change managers tasks of process and culturalchange, leadership alignment, benefits management and the creation of high performanceteams.

Perform regular temperature checks to assess the organisations understanding andacceptance of the forthcoming changes.

4.6 Work PlanThis phase of the ITT process is not focused on reviewing or agreeing detailed work plans. As aresult, any vendor pricing at this stage will be unrealistic as it will not relate to the specificrequirements of Banks. A detailed project plan listing the major work streams, tasks, deliverablesand milestones will provide valuable insights into where the hot-spots are likely to occur, areasof overlap and contention for key resources.

Aligning the plan with internal Business As Usual activities and the availability of key businessand IT support staff must all be factored into the decision making process. The deployment and


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management of project resources requires careful planning to avoid delays and smooth progressto a detailed work plan.

Recommendation

Create a detailed project plan with clearly identified work streams and resources. At thisstage, the resources should simply define role and skills. The plan can be used as a sound

baseline for prioritising project activities and resources.

A detailed schedule should be refined as the ITT process matures and also used as basisfor comparing the various vendors and their specific resourcing profiles. This will alsoserve to identify any major gaps or omissions from each vendor.

4.7 Resourcing

The overall success or failure of any project will depend on the quality of the deployedresources. The importance of detailed planning was discussed above.

The next level of detail in the planning must focus on the mix of internal versus externalresources and specific skills that will be required throughout the key stages of the project.

Any gaps or lack of commitment in the area of resourcing will have an adverse effect on theproject and the overall morale of the delivery teams. From past experience the usual pitfalls are:

Poor team selections made on the basis of availability rather than any formal skills orcapability for the targeted roles.

Where external contract or consultancy resource is deployed, there is no formal successionplanning or knowledge transfer.

Key members of teams are already heavily involved in business as usual and are unable tocontribute fully to the programme.

Key resources are expected to contribute to the programme stream and in one case leading alarge part of a stream without due consideration of business as usual constraints.

Resource recommendations by the selected partner have not been addressed adequately.

Recommendation

Clearly define the project team structure, roles and responsibilities.

Select team members based on skills and capability.

Where resource gaps exist identify cost-effective alternatives and put in place acontingency plan to address the gap and plan for succession and knowledge transfer.

4.8 Architecture

A critical part of any IT organisation is its Architecture function. This role is traditionallymisunderstood and misrepresented. The role of a technical architect is to bridge the gap betweenbusiness strategy and IT strategy. The architecture function typically falls into one of three areas:


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a enterprise-wide role

a business or functional role

a project-based role

Most organisations are reactive to the business and generally find appropriate resources to

support the project architect function. The enterprise and business architect roles are often spreadout amongst key business or IT staff, but rarely the responsibility of an enterprise architecturefunction or a business architecture function. As a result, it is very difficult to enforce anygovernance or standardisation based on sound architecture principles such as a unified securityarchitecture, or a common portal or content management system. Often each and every projectwill have specific views on this and will follow the path of least resistance to satisfy therequirements of the project.

The role of architecture is very far-reaching and defines the fabric of the information andsecurity model of an organisation and the critical infrastructure components that support thebusiness. In addition, the role of architecture shapes the way in which solutions are prototyped,designed, developed, tested and deployed. Getting this right can pay huge dividends and be asignificant enabler of business benefits realisation.

Banks approach is radical and admirable in many respects as it aims to deliver a step change inIT architecture. Potentially this project could redefine the IT landscape in one swoop. As a result,I believe it also introduces some fairly significant challenges and due diligence activities tovalidate that the final solution will satisfy the current and future business needs.

Recommendation

Invest in an architectural framework to manage the transition from the as-is to the to-bearchitecture in a controlled and robust manner.

Select technology products based on capability and fitness for purpose to support yourbusiness requirements.

Select technologies and architectures that can be easily and cost-effectively resourced. Identify architectures that eliminate duplication and redundancy.

Select technologies based on a clear total cost of ownership model.

Ensure that technologies are validated and proven before final selection. Ideally createcompetitive tension to identify the strengths and weaknesses of key architecturecomponents.

Invest in an architecture function that can sustain and manage future changes andextensions to the chosen architecture.

4.9 Partnership

It is absolutely critical to select an overall Systems Integration partner who can then act as thesingle point of contact with overall responsibility and accountability for delivering the finalsolution. A partnership and collaborative approach where the roles and responsibilities of bothparties contribute equally to the end solution is essential to the success of this programme ofwork.


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It is also needed to ensure that the right balance of expertise and practical knowledge is used tobuild the solution. Too much external influence and the solution may not be the most appropriateto that environment, too much internal influence and there might not be enough innovation tomake widespread change.

Based on previous experience, it is normally far better to engage with a technology and product

agnostic Systems Integration partner to deliver the overall project rather than engage with theproduct vendor directly. This may seem bizarre, but the reality is that product vendors tend tounderstand their products better than they understand their customers. An integration partnertends to focus on the customer requirements and manage the delivery and client expectationsaccordingly.

From past experience, a product vendor lead implementation of a licensed turnkey solution thatrequires a complex and costly integration based on a time and material contract is a high riskstrategy. The Bank must be clear that the end to end accountability of a working and productionready solution must be the responsibility of the chosen technology partner. Wherever possiblethe commercial terms should seek a fixed price delivery model to minimise risk and assignaccountability.

Recommendation

Focus on an SI lead implementation partner as this should offer better value for moneyand lead to better knowledge transfer. Product vendors tend to focus on revenues throughtraining, education and support. As a result they have far greater flexibility to cross-subsidise pricing so that the up front cost during competitive tender appears cheap, butoften turns out to be far more expensive over the solution lifespan.

Adopt a partnership approach based on fixed price contract and some element ofrisk/reward for delivering key milestones and performance criteria. This is often anexcellent incentive to identify a partner that is willing to engage on the basis of benefits

realisation rather than delivering a solution that almost works! Where possible invite the partner to identify tasks or areas where a time and materialsbased consultancy may be more appropriate. This will identify weaknesses or uncertaintiesin requirements and capabilities early on rather than during the implementation phase.

5 Summary

We believe there is sufficient information in this report to highlight where we see the greatestrisks for Banks. These recommendations represent a best practice approach to containing theserisks.

Banks should undertake a detailed diagnostic to investigate the areas identified in this report.

This should provide a stronger foundation for success and state of readiness to:

Deliver and execute on the business case;

Provide project leadership and accountability;

Align culture and business processes;

Gain stakeholder commitment and participation;

Achieve clear and timely communications;


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