Banks are under pressure to review the role that IT plays in their organisation, and make tough choices about service provision and structure, as Dan Barnes reports.
Information technology is changing and becoming increasingly commoditised. As this happens, the skills needed to build systems and utilise them are becoming more abundant. Commoditisation means that fewer systems are viewed as a commercial differentiator, and it has led senior management to address the structure of both the technology and the IT function in financial services.
As part of this process, the role that IT plays in the bank must be understood: its cost, its value and its potential. Only after this analysis has been completed can decisions be made about structure.
There are many interesting models to consider by way of example. Whereas ABN AMRO and Barclays have both outsourced significant areas of their IT divisions, leaving the banks managing agreements with suppliers, HSBC has internalised its IT provision. Earlier this year, Fergie Williams, then head of technology services, Europe, at HSBC, noted: “I used to be head of IT. I suppose I am now the CEO of an IT services company.”
The concept of service provision is a key issue, with the main concern about technologies currently focusing on their delivery and cost rather than the feasibility of building them successfully – that concern is more implicit.
This shift in priorities has arisen from the success of technology standards such as XML, delivery mechanisms such as web services/ASP and a general drop in cost of purchasing newer technology. It also stems from a frustration at the continuing failure of IT departments to deliver and the rising costs of supporting older systems.
Evaluating capabilities
To realise a solution to these issues, banks must first address whether their sourcing strategies match the available technologies. Daniel Benton, partner at Accenture, says: “Traditionally, if you own your own IT, you will make sure that they are busy and that they are doing something they are good at. Historically, when you want to use newer or bigger technology then you ask for some help.”
This is no longer so straightforward. Mr Benton stresses that the areas that are becoming commoditised are those involved in running the bank, rather than in changing it. “In the applications development and maintenance space at the moment there is considerable differentiation between banks and arguably, depending upon which bank you talk to, there is considerable competitive advantage in their IT assets.”
If new revenue paths or cost savings are foreseen, the bank may often require wholesale change in the IT area, whether reskilling, offshoring, outsourcing or creating a midway point.
Deciding how to tackle this leads to a cultural split, says Jean-Louis Bravard, managing director, global financial services industry, at EDS.
“About half the people say ‘I’ll never outsource’ and there is no point in trying to convince them, they just don’t want to think about it. It is a cultural issue. If you take those people out, you have 25% of people that are doing this today and a further 25% who say that they will be outsourcing in the next three years,” he says.
Specific choices
There are clearly unique choices to be made by each bank at a strategic level in tackling this. Some banks have proven themselves so adept at delivering systems that they are able to provide them to rivals in the industry (see this month’s Tech vision). In these organisations, the discussion is based on joining up business and IT, which is essentially a cultural shift.
Mr Benton believes that banks have to realise that the change must be in their attitude to IT, not just in the technology. “If IT is just being driven by numbers, it is very difficult to achieve anything other than take the workforce you’ve got and run it more cheaply,” he says.
Within the technology division itself, there are hard decisions to be made. By training staff continuously in the latest technologies, outsourcers are often able to provide skills that bank staff have not had a chance to develop as they have continued to run the bank, says Paul Hope, European director, at consulting and IT services provider Patni.
“[By outsourcing] there is the ability to hook into skill sets that are primed and ready to deliver, enabling an organisation to react more quickly to market change. By outsourcing project management to people that have been working with a technology in an R&D fashion, that have tried and tested it and know what the pitfalls are, you are reducing risks in using it,” says Mr Hope.
Third-party suppliers are also focusing on vertical sector skills in order to win business, as BG Srinivas, head of operations, Europe, at Infosys explains: “We have developed core business knowledge on all of the banks’ functions and have people formerly from the banking sector as part of the banking consultancy team.”
If outsourcing is the chosen route, there is a danger that staff retained within an organisation are not given well-defined roles replacing the generalist positions that they may have held previously. According to Mr Benton, for this reason, the real hurdle is a people issue.
“You need a clear process model so that you can define efficient functionality. Right now you have analyst programmers who both build systems and talk to the users. As a third party has taken part of that function, it raises the bar for roles that are internal,” he says.
“They may not be good enough to do the analysis that you have retained because it was ‘sexy’, but you’ve outsourced the bits that they previously could do well, so… do you need to reskill them or do you need different people?”
Resisting change
Mr Benton believes that often the change programmes initiated in banks are challenged by resistance to take the latter option. “Virtually every CIO I know at the moment is being forced by the business to have a Six Sigma programme [a measurement-based strategy that addresses process improvement and variation] under way or have a capability maturity model (CMM) programme under way. You can move from CMM level 1 to CMM integration level 3 by changing your processes and changing the tools that people use,” he says.
“Getting the same people to do the same thing in different ways helps for certification but it doesn’t deliver your business case. You need a different set of skills and a different culture.”
