Mitchel Lenson, CIO for technology and operations at Deutsche Bank, tells Parveen Bansal that he sees his role as the “conscience” of the organisation when it comes to technology spending – forcing people to think more about the decisions they make.

What does it take to be an outstanding chief information officer (CIO)? Having recently received accolades for his efforts at Deutsche Bank, Mitchel Lenson wants to dispel some common misconceptions about the role of CIO, straight-through processing (STP), core-banking and outsourcing.

With about 20 years’ experience in the financial services industry, Mr Lenson has spent the past 10 years focusing mainly on technology and operations. He joined Deutsche Bank in September 2000 in the post of managing director and global head of technology in the investment banking division. Within a few months, he was promoted to his present job. Here his ambition is to build an information technology infrastructure that supports that bank’s aim to become number one in equities, bonds, German retail banking, private banking, wealth management, asset management and all other business units.

The real role of the CIO

The first myth that Mr Lenson wishes to dispel is that the role of the CIO concerns making technology decisions. “You are there to drive change, not to run technology. You are basically there to try to help transform the organisation,” he says. Whereas the role used to be to spend the IT budget on maintenance and technology – often on solutions for which there were no business problems – now the role is to say: ‘Tell me what our business problem is, and technology might be the solution’.”

One of the key focuses of the role is figuring out how best to use scarce resources, such as capital and human resources, he says. “The job of the CIO marshalling E2bn to E3bn is to make decisions that ensure that every euro hits the target.” He suggests that the CIO should have an asset allocation methodology, “just as you would for any of the other asset classes”. Another part of the role is getting the business people to think about what they want to get out of any technology solution before an investment is made.

Mr Lenson offers his experience at Deutsche Bank as an example of the rationalisation and optimisation of IT expenditure that is necessary: “Since I joined Deutsche Bank three years ago, the overall budget has been reducedby 30%.

“What that says is that we were spending too much before and were not hitting the mark.” The lower budget and staff does not mean they are delivering any less today, though, he says. “If anything, we are settling far more transactions.”

According to Mr Lenson, the job of CIO is tougher today than it used to be. He blames this on segmented investment in IT in the past. This siloed investment has resulted in several systems, sometimes duplicated. The task now is stitching them together, while at the same time considering whether the systems need to be renewed, he says.

He suggests that the need to build a resilient backbone with cost-effective scalability is intrinsic to the role of the CIO in a global bank. “We are constantly striving to ensure we can deliver increased scale at marginal cost.”

In his current role, he considers himself to be the “conscience” of the organisation when it comes to technology spend. “My job is to force people to think an awful lot more about what they are doing and why they are doing it.”

Core competencies

He disagrees with the view that technology is a core competency of banks and is “constantly surprised by people who believe this”. Banking may be the ultimate digitised business but it is the business processes and decisions that technology enables that are core.

Operations is the means of production and technology is the enabler to make them more effective and more efficient. Mr Lenson suggests that by combining technology and operations to work seamlessly from front-office to back-office, there is the opportunity to drive toward more STP. “By combining a view of technology and operations, you can drive out costs quite significantly from the underlying business processes.”

The STP myth

Following from this, the second myth that Mr Lenson wants to sweep away is that surrounding STP. Although industry-wide STP has been elusive so far, he says: “STP is here and very much happening at Deutsche Bank – but STP at the market level is very hard to achieve.”

One of the problems, he says, is that everyone wants their own brand of STP and there is no interoperability between the different standards. “Everyone seems to have a commercial interest to make sure that it is their standard that is adopted rather than anyone else’s,” he says.

Everyone already has standards and market-level STP initiatives require that new standards are adopted, he argues. “Banks are currently focused on internal STP processes so, for us, investment is spent in making sure that we run things from front to back in a very efficient and effective way that still creates opportunities.”

He believes that, while firms can continue to knock 15% to 20% off their operating costs by focusing internally, there is little incentive for them to adopt new market standards.

Deutsche Bank has invested a fair amount of money in STP of securities. Its investment in e-Spear, a state-of-the-art technology platform for clearing and settlement, has enabled it to achieve 99.8% STP internally. The volumes of transactions it handles have increased from around 60,000a day three years ago to about 700,000 a day, and operational costs have gone down in the same period by 30% to 40%.

“It is probably more efficient than the market,” says Mr Lenson, attributing the outstanding success to the support of Kevin Parker, CEO of the equities business. “Coming from a CIO background at Morgan Stanley, he understood that scale, resilience and cost were the most important metrics in this business. He was aware that technology would make the difference in efficiency and resilience and was ready to invest in the back-end processes for long-term returns.”

Mr Lenson says of STP: “While the industry tried, the economy did not help, but it was the interoperability issue in the end that killed it.”

In support of legacy

He also dismisses claims from core banking systems vendors about the urgent need for core systems replacement. “Core systems replacement is a lifetime event; you don’t want to change those too often. Replacing legacy is damn risky and complicated,” Mr Lenson says.

He points out that technology allows for legacy systems to be wrapped with integration layers, such as web services, so there is no need to undertake risky replacement projects.

Smart-sourcing

Commenting on the wave of outsourcing that is gripping the financial services industry, Mr Lenson says that he does not believe in outsourcing. Instead, he believes in “smart-sourcing” – sourcing decisions based on individual business process decisions.

Deutsche Bank has made big strides in outsourcing large parts of application development to its centres in India. It is also moving part of its core operational processes that underpin derivatives,reconciliation processes and foreign exchange to offshore locations.

“Smart-sourcing is very important because it does not make sense for the bank to collect and own all the pieces of operations.

“The bank’s core competency is not operations and technology but all about products and clients, the way we service and advise our clients, the way we execute transactions, the products we sell to our clients, the funds we manage, etc,” he says.

“If the technology and operations, enabling improved product and service delivery, can be sourced elsewhere, cheaply, of a relatively high quality and scalably, then all the better,” he says. However, he warns: “If you are only doing it for labour costs, a few years from now you will be looking for new places to move to.”

He suggests a long-term view is needed to ensure that processes that are outsourced are sustainable, cost-effective and resilient.

Massive change is taking place and technology has an important role to play in this, he says. “Because we are transforming and changing processes, and jobs are diminishing at a fairly fast rate, we need to ensure that the people in the organisation are tooled and well equipped for the future.”

Mr Lenson likes to think of this change as a move away from being craftsmen toward being architects and merchants. “Technology just gives you the platform for change,” he says.

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