January 07, 2009

Well before the world witnessed the unimaginable effects of September 2008, financial services providers had seen the writing on the wall. Never before had so many disruptive forces converged as one to pose a mounting challenge to the industry, including increased competition accentuated by globalization and the emergence of new service delivery models like “online only” banks; talent shortages; an aging and expensive workforce, and unfamiliarity with what it takes to retain and groom productive employees from the “Millennial” generation; regulatory pressures that expect inordinate levels of ownership and personal responsibility from the already beleaguered CFO; efficiency improvements which compel procedures (that took days) to be completed within minutes or lose business to the competition that’s using next-gen technologies. All these and more total up to one overriding sentiment for the future: Uncertainty.

We have seen the emergence of three global megatrends in IT strategies among banks:

  • Winning Over the Capital and Budget Squeeze: To simply keep banks running normally, programmed IT spends will continue and are unlikely to shrink drastically. In an October 2008 survey of financial services enterprise IT decision makers carried out by Forrester Research, more than 50 percent of respondents said they have decided not to reduce IT budgets, and 17 percent are increasing the scope of outsourced and offshore services. However, the need to generate radically higher returns is most acute. Banks should therefore consider IT investments that actually generate savings on overall operational costs – thereby freeing funds that can be plowed back, without pushing the IT investment ceiling, but generating new business and IT capabilities nevertheless.
  • Leveraging Integrated Services Delivery: Large stand-alone application development and maintenance (ADM) and information technology outsourcing (ITO) deals are on the ebb. According to a October 2008 Everest Research Institute report on trends in integrated offshore services, combined infrastructure outsourcing and ADM contracts (among those studied) have increased from 21 percent in 2006 to 28 percent in 2007, while the value of the deals has nearly doubled in the same period. Many are adding business process outsourcing (BPO) to this mix.
  • Know Your Enterprise IT Landscape: This arose from years of experience learning the ropes of modernizing several generations of enterprise IT landscape. Creating a business aligned IT (BAIT) framework founded on deep understanding of the complex interplays among the underlying hardware, operating systems, database layers, applications, business procedures, rules and workflows, for example, is critical for successfully defining the oft-recommended “services” architecture. In short, enterprise IT discovery holds the key for the next-generation enterprise IT landscape.

For the CIO, these represent vast grounds to cover. Approaching them strategically on a measured and patient roadmap would be advised to ensure continuity, results orientation and minimal disruption. But what about the business impact demanded in the “here and now”?

Many banks have realized that connecting IT investments to financial procedures and outcomes is a certain way of perceiving results – functions like anti-money laundering, accounting standards and integration, fraud management, employee performance management (EPM) and credit/capital management are perfect candidates for near-term IT enablement to achieve such objectives.

From the point of view of maximizing operational efficiency, the same principles apply: Explore your IT systems from the ground up rather than top-down and connect the proposed improvements in performance directly to business outcomes. IT services providers that put more skin in the game through such outcome-led models and cannibalize their business-as-usual models will lead the services industry of tomorrow. Those providers that fear and resist this change must learn the expensive (and maybe fatal) lesson of that old Air Force cautionary: “If you don’t know what your bird can do, sooner or later someone who does will come around and knock you out of the sky.”

New generations (such as Gens X and Y) demand and expect new products and technology interfaces to suit their lifestyles. While protecting the bottom line, banks need to counter competitive threats and aggressively strike out for new hunting grounds. Several technology backbones can help in this transformation. From managing unstructured content to profiling new customers and behavioral patterns through social networking sites, investments in technology in these challenging times will determine who comes out as winners when the current turmoil subsides. New customer acquisition is an area that demands the deployment of SOA, a nimble enterprise information management strategy and BPM to make the customer onboarding experience as satisfying as possible. For customer retention, comprehensive multichannel banking coupled with predictive real-time CRM and relationship-based risk and pricing analytics in the front office is a potent combination if implemented judiciously and with realistic expectations.

Another area that is increasingly becoming an IT investment compulsion is the bank’s payments infrastructure. Increasing cross-border trade and investment, maturing small business banking, steady global growth of private wealth management, robust commercial banking, and heightened complexity of the payment mix are among key drivers in a challenging money-movement scenario. Security, scalability, agility for responding to changes, efficiency and performance are key drivers for envisioning and deploying an enterprise payment architecture. Emerging, as it seems, to be a complex function of the future, creating a shared service for multiple banking demands will prove to be of benefit in the long run.

Banks can and should use technology to adapt and respond to the global sentiment of uncertainty. Even though this may not be universally applicable, ratifying all IT investments on the touchstone of aiding business sustenance before granting acceptance could well be the single most recurring theme of enterprise IT strategies among banks in 2009.