Accenture Banking IT Simplification

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Transcript of Accenture Banking IT Simplification

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    The Case for

    IT Simplificationin BankingUntying the legacy knot

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    Table of contents

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    Introduction

    The Need for Simplification

    The Approach Needs to be Holistic

    Enabling Factors are Now Plentiful

    A Road Map for Simplification

    Conclusion

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    During the economic downturn, the mantra

    for banksand pretty much all companies

    was reduce costs. The IT organization did its

    part, implementing a variety of measures

    designed to cut expenses in the short-

    term to help the bank survive. However, a

    bigger problem with banksone that has a

    disproportionately large effect on a banks

    overall cost structurehas yet to be addressed:

    the increasing complexity of IT. CIOs for years

    have been faced with the need to radicallysimplify both their organisations and the

    applications they manage, but, to date, there

    has been little appetite within the business

    for the long and expensive effort such

    simplification would entail.

    Today, though, the tide may be turning. With

    economic conditions improving and banks

    once again thinking about growth and

    profitability, there is a pressing case for

    simplifying the entire businesswhich

    necessarily includes IT. Plus, more than

    ever there is a wider set of factors that can

    help a CIO build a rationale and roadmap for

    simplification. In short, the time may be right

    for banks to finally address one of their biggest

    obstacles to high performance: IT simplification.

    In this article, we explore how CIOs can take

    advantage of the current environment and

    develop a pragmatic, measured approach to

    IT simplification that can help their companies

    achieve their business goals.

    Introduction

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    In the throes of the recession, with cash preservation

    of utmost importance, CIOs were forced to make

    a number of changes to achieve immediatecost reductions in ITincluding better demand

    management, infrastructure virtualization, smarter

    sourcing and process efficiencies. However, these

    changeswhile critical to the banks ability to

    survive the financial crisistypically only targeted

    the low-hanging fruit. All of these initiatives

    have been limited in terms of long-lasting impact

    because banks so far have been unable to address

    the underlying issue driving their high total costof ownership: their technology is too vast and

    complex to manage and maintain. In addition,

    banks legacy systems are often seen as a major

    constraint to business flexibility and growth

    simplification can help remove these obstacles.

    During the past two decades, growth and

    incremental changes within financial institutions

    have spawned extensive diversity and complexityin systems, technologies and IT organizations

    themselves. Because of mergers, IT decentralization

    initiatives, the lack of a global view of IT needs and

    opportunistic moves to capitalize on new business,

    most banks find themselves struggling with a

    multiplicity of systems supporting the same functions

    or businessesnot to mention a proliferation of

    infrastructure, development and IT management

    tools, as well as infrastructure standards andhardware providers.

    Moreover, the IT organization itself has been

    shaped by corporate evolution in the previous

    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 resultsare multiple modes of governance, culture,

    methodologies and processesalong with a

    variety of data centersthat cost far too much

    time and money to maintain, reduce IT organization

    agility and effectiveness, and inhibit the business

    from responding to marketplace developments.

    The Need for Simplification

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    Unfortunately, CIOs have had a difficult time

    getting senior-executive support for efforts to

    address their legacy system problems. Such effortstypically require a lot of time and money, neither

    of which have been in ample supply in banking

    organizations over the past few years.

    However, all that may be about to change.

    Since the financial crisis and economic downturn

    began, banking leaders have begun focusing on

    simplifying their overall businesses as a way toincrease their organizational flexibility, improve

    growth and rebuild profitability. One of the

    obstacles to that pursuit is, of course, the tangled

    mess of legacy systems that CIOs have long hoped

    to address. Thus, it seems the time may be right

    for banks once and for all to dramatically simplify

    their IT organization along with the technologies

    they manage (including core banking applications)

    as part of the drive to simplify the business overall.

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    As they pursue IT simplification initiatives, CIOs

    should consider that true simplification can only

    be achieved if it is addressed holistically andarchitecturally. In other words, a CIO must address

    applications, infrastructure and the IT organization

    simultaneously if the bank is to achieve a real step-

    change in flexibility and total cost of ownership.

    Addressing each of these areas individually tends

    to lead to simply optimizing the current state.

    Application replacement is often seen as the

    answer (or at least part of the answer). But thisapproach can also be limited in its impact. In

    the cases where a radical approach to application

    replacement has been taken, it is rare even for

    as much as half of the application estate to be

    replaced, and generally the infrastructure and

    organizational complexity is addressed only asan afterthought (which itself is often hindered by

    existing sourcing arrangements and/or by the fact

    that the business agenda has moved on because of

    the considerable length of the replacement program).

    Furthermore, a number of banks have been enticed

    in the past with what they saw as silver bullets

    (core systems replacement, SOA, etc.). But, in

    many cases, such efforts by themselves didnt gofar enough to deliver the promised benefit and, in

    some instances, even added to the complexity.

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    The Approach Needs to be Holistic

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    But there is hope. A wider set of factors than ever

    before exists that can help CIOs build an affordable

    rationale and roadmap for simplification.

    Technologically speaking, theres now a wider

    range of standard software components available

    that can help with a replacement strategy

    (core systems, finance, CRM, etc.). Whats more,

    significant investment in offshore delivery capability

    from suppliers of these components has reduced

    implementation costs. Maturing SOA thinking

    and delivery capabilities can provide more supportfor the re-architecting of a banks legacy system,

    while new standardized process models can jump-

    start the simplification effort, and a new spate of

    tools can quickly and reliably convert data from

    the legacy system to the new application.

    Cloud computing and virtualization is also providing

    a significant boost to banks in their pursuit of

    simplification by enabling them to decoupleinfrastructure provisioning from the underlying

    architecture to increase flexibility. Software-as-a-

    service together with business process outsourcing

    solutions can take that a step further and drive

    radical simplification by helping banks shed areas

    of the business that no longer need to be ownedand operated by the institution.

    From a people and organization standpoint, more

    options than ever before are available for sourcing

    talent flexibly across geographies and organizations,

    while a heightened focus on risk and cost has led

    to a general centralization of decision-making that

    makes it far easier to get the business behind a

    simplification journey.

    At a high level, theres a substantial movement

    underway among banks to invest in initiatives that

    will enable them to comply with new regulations.

    Why not leverage these investments to renew your

    banks architecture instead of making the existing

    one compliant?

    In short, theres never been a stronger case or bettertime for a simplification effort.

    Enabling Factors are Now Plentiful

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    A major challenge in any broadly-scoped effortas

    IT simplification certainly can beis the potential

    investment cost. At a time when money is stillscarce, a major simplification initiative would

    compete for resources against other efforts that

    deliver more immediate business returns. Thus, we

    recommend a transformational process that can be

    characterized as Big vision, small steps. In other

    words, the approach unfolds graduall