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IT Simplification
in Banking
Untying the legacy knot
Table of contents
Introduction 3
The Need for Simplification 4
The Approach Needs to be Holistic 6
Enabling Factors are Now Plentiful 8
A Road Map for Simplification 9
Conclusion 11
2
Introduction
During the economic downturn, the mantra Today, though, the tide may be turning. With
for banks—and pretty much all companies— economic conditions improving and banks
was reduce costs. The IT organization did its once again thinking about growth and
part, implementing a variety of measures profitability, there is a pressing case for
designed to cut expenses in the short- simplifying the entire business—which
term to help the bank survive. However, a necessarily includes IT. Plus, more than
bigger problem with banks—one that has a ever there is a wider set of factors that can
disproportionately large effect on a bank’s help a CIO build a rationale and roadmap for
overall cost structure—has yet to be addressed: simplification. In short, the time may be right
the increasing complexity of IT. CIOs for years for banks to finally address one of their biggest
have been faced with the need to radically obstacles to high performance: IT simplification.
simplify both their organisations and the
applications they manage, but, to date, there In this article, we explore how CIOs can take
has been little appetite within the business advantage of the current environment and
for the long and expensive effort such develop a pragmatic, measured approach to
simplification would entail. IT simplification that can help their companies
achieve their business goals.
3
The Need for Simplification
In the throes of the recession, with cash preservation During the past two decades, growth and
of utmost importance, CIOs were forced to make incremental changes within financial institutions’
a number of changes to achieve immediate have spawned extensive diversity and complexity
cost reductions in IT—including better demand in systems, technologies and IT organizations
management, infrastructure virtualization, smarter themselves. Because of mergers, IT decentralization
sourcing and process efficiencies. However, these initiatives, the lack of a global view of IT needs and
changes—while critical to the banks’ ability to opportunistic moves to capitalize on new business,
survive the financial crisis—typically only targeted most banks find themselves struggling with a
the “low-hanging fruit”. All of these initiatives multiplicity of systems supporting the same functions
have been limited in terms of long-lasting impact or businesses—not to mention a proliferation of
because banks so far have been unable to address infrastructure, development and IT management
the underlying issue driving their high total cost tools, as well as infrastructure standards and
of ownership: their technology is too vast and hardware providers.
complex to manage and maintain. In addition,
banks’ legacy systems are often seen as a major Moreover, the IT organization itself has been
constraint to business flexibility and growth— shaped by corporate evolution in the previous
simplification can help remove these obstacles. decades. Striving to keep pace with a dynamic
business environment, most IT organizations
have added new capabilities largely in an ad-hoc
manner to support various country or technology
initiatives over the years. The unfortunate results
are multiple modes of governance, culture,
methodologies and processes—along with a
variety of data centers—that cost far too much
time and money to maintain, reduce IT organization
agility and effectiveness, and inhibit the business
from responding to marketplace developments.
4
Unfortunately, CIOs have had a difficult time
getting senior-executive support for efforts to
address their legacy system problems. Such efforts
typically require a lot of time and money, neither
of which have been in ample supply in banking
organizations over the past few years.
5
The Approach Needs to be Holistic
As they pursue IT simplification initiatives, CIOs as much as half of the application estate to be
should consider that true simplification can only replaced, and generally the infrastructure and
be achieved if it is addressed holistically and organizational complexity is addressed only as
architecturally. In other words, a CIO must address an afterthought (which itself is often hindered by
applications, infrastructure and the IT organization existing sourcing arrangements and/or by the fact
simultaneously if the bank is to achieve a real step- that the business agenda has moved on because of
change in flexibility and total cost of ownership. the considerable length of the replacement program).
Addressing each of these areas individually tends
to lead to simply optimizing the current state. Furthermore, a number of banks have been enticed
in the past with what they saw as “silver bullets”
Application replacement is often seen as the (core systems replacement, SOA, etc.). But, in
answer (or at least part of the answer). But this many cases, such efforts by themselves didn’t go
approach can also be limited in its impact. In far enough to deliver the promised benefit and, in
the cases where a radical approach to application some instances, even added to the complexity.
replacement has been taken, it is rare even for
6
Enabling Factors are Now Plentiful
But there is hope. A wider set of factors than ever solutions can take that a step further and drive
before exists that can help CIOs build an affordable radical simplification by helping banks shed areas
rationale and roadmap for simplification. of the business that no longer need to be owned
and operated by the institution.
Technologically speaking, there’s now a wider
range of standard software components available From a people and organization standpoint, more
that can help with a replacement strategy options than ever before are available for sourcing
(core systems, finance, CRM, etc.). What’s more, talent flexibly across geographies and organizations,
significant investment in offshore delivery capability while a heightened focus on risk and cost has led
from suppliers of these components has reduced to a general centralization of decision-making that
implementation costs. Maturing SOA thinking makes it far easier to get the business behind a
and delivery capabilities can provide more support simplification journey.
for the re-architecting of a bank’s legacy system,
while new standardized process models can jump- At a high level, there’s a substantial movement
start the simplification effort, and a new spate of underway among banks to invest in initiatives that
tools can quickly and reliably convert data from will enable them to comply with new regulations.
the legacy system to the new application. Why not leverage these investments to renew your
bank’s architecture instead of making the existing
Cloud computing and virtualization is also providing one compliant?
a significant boost to banks in their pursuit of
simplification by enabling them to decouple In short, there’s never been a stronger case or better
infrastructure provisioning from the underlying time for a simplification effort.
architecture to increase flexibility. Software-as-a-
service together with business process outsourcing
7
A Road Map for Simplification
Brand Management
Production Products
Deposits/cash Loans Investments Insurance
Cross Products
Payments Product Product DMS Knowledge
development accounting management
8
Figure 2. Simplification is the theme that connects the IT architecture via the business
architecture to the business strategy
Simplification
9
10
Conclusion
The financial crisis and subsequent economic • Have a road map and revisit it frequently
downturn has created a new enthusiasm among • Prioritize initiatives of greater business value
banks for transforming their businesses through
simplification. Most banks have already actively • Ensure and maintain strategic and business
pursued cost-saving programs and taken out the needs alignment along the way
low-hanging fruit. The challenge is to go further • Make decisions based on a solid business case
and address cost in a structural way. Now is the
• Define objectives and metrics to control
right time to start the journey.
transformational initiatives
In pursuing a simplification journey, a bank could • Use a separate and experienced team to execute
take two approaches. One is an IT-led approach (from governance functions
technology to business processes), in which core
applications are renewed as an extension of the Done right, IT simplification will generate substantial
architecture to improve them technically and rewards for a bank at the end of the journey. It
functionally. The other is a business transformation will drive the following: revenue enhancement
led (from business needs and processes to technology) via customer retention and service excellence,
approach, in which vertical applications complexity a greater share of customer wallet, enhanced
is reduced by taking functionality common to all customer acquisition, and stronger brand image
processes out of applications and embedding it in and differentiation. It will reduce costs through
architecture services. operational efficiency driven by standardization
and consistent process execution, as well as the
Regardless of which route they take, when elimination of duplicate functions. And it will reduce
embarking on a simplification journey, bank risk by creating more stable and maintainable
CIOs should keep in mind the following governing systems and making it easier for banks to comply
principles: with emerging regulations.
11
About Accenture
Accenture is a global management consulting,
technology services and outsourcing
company, with more than 190,000 people
serving clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions, and
extensive research on the world’s most
successful companies, Accenture collaborates
with clients to help them become high-
performance businesses and governments.
The company generated net revenues
of US$21.58 billion for the fiscal year
ended Aug. 31, 2009. Its home page is
www.accenture.com.