Accenture Banking IT Simplification

8/8/2019 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 gradually in a series of

smaller initiatives that provide short-term returns

but are focused on a view of the end result.

Developing a clear view of what simpler, lower

total cost of ownership IT might look likeideally

aligned to a clear view of a simplified business

architectureenables CIOs to make investment

decisions that support the overall simplification

journey. In Accentures view, this end state should

feature a logical operating model in which

manufacturing and distribution are effectively

decoupled into two separate layers, but linkedby a hub layer that includes such functions as

customer and partner management, pricing, and

offers and packaging (Figure 1). This model will

enable a bank to do three things:

Figure 1. A vision for a simplified banking operating model

1. Standardize the channel experience

across all products

In the past, most banks have been many different

businesses to their customerssavings, credit card,

mortgage, etc. Now, many banks are pursuing one

bank initiatives to transform themselves into a

single business in the customers eyes. A standardized

channel experience can be a major contributor to

such an effort.

2. Perform common actions in common

ways across all products

Many banks have different ways to set pricing,

managing customers, and conducting credit

checks, depending on the product involved. By

decoupling manufacturing and distribution, a bank

can apply a consistent process for executing such

activities, regardless of product or channel.

3. Bundle products flexibly and more effec-tively to create compelling customer offers

With their current product-centric view of the

world, many banks are unable to easily create tailored

combinations of products for specific customers.

The hub addresses that issue as well, by removing

the technical, organizational and process hurdles

to quickly and cost-effectively match product

mixes to customers needs.

A Road Map for Simplification

Segment Management

Products

Cross Products

Marketing, Sales and Services

Brand Management

Distribution

Hub

Production

CorporateCore

Channel Integration and Management

Deposits/cash Loans Investments Insurance

Payments Product

development

Product

accounting

DMS Knowledge

management

Finance HR IT Purchase Legal & Ethics

Customer

management

Customer

pricing

Offers and

packages

Product

pricing

Partners

management

Service

integration


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Accenture believes an architectural approach is

key to an effective IT simplification initiative, and

that such an initiative delivers the best results andbest chance of success when linked to a similar

architectural approach to business process

simplification. Architecture traditionally has

been seen as a technology problem, focused on

the technical layers that underpin the applications

that support the business processes. However, in

the context of the new operating model illustrated

in Figure 1, architecture becomes a business problem

as well. In other words, a bank needs to effectivelylink what its trying to do overall as a business

to the business architecture and technology

architectures required to enable the bank to

achieve its goals (Figure 2). If a bank is going

to pursue a multi-year investment plan to simplify

IT, it can never be just an IT problem. Rather, it

needs to be explicitly linked back to the kind of

business IT is being designed to support and how

that business looks different from the one of today.

With the destination defined, a CIO can then plan

a journey comprising a series of smaller, more

manageable initiatives that, together, will enable

the bank to reach its goal. This selective and

pragmatic approach requires a bank to rigorously

evaluate every application in its portfolio and

develop a business case for keeping or eliminatingeach. With this determination made, a bank can

then prioritize its initiatives and develop a road

map that will enable the bank to capture the

benefits in each business case.

Such a gradual approach to IT simplification has

many benefits. Firstly, by taking a quick hit approach

early on, it frees up funding for the rest of the

journey and reduces risk by avoiding a big bangscenario. Furthermore, by achieving early and

gradual wins, the approach proves to both business

and IT that the problem is tractable, thus generating

the trust needed within the organization to

support further steps. Finally, it allows the bank

to remain flexible and able to change direction

quickly to adapt to new conditions (market,

business, technology, etc.).

In short, by having the map before they set off on

a journey, CIOs can ensure that investments in IT

are moving their organizations toward the simpli-

fication goal, rather than adding to complexity.

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Figure 2. Simplification is the theme that connects the IT architecture via the businessarchitecture to the business strategy

Business strategy

Business

architecture

IT architecture

Simplification


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The financial crisis and subsequent economic

downturn has created a new enthusiasm among

banks for transforming their businesses throughsimplification. Most banks have already actively

pursued cost-saving programs and taken out the

low-hanging fruit. The challenge is to go further

and address cost in a structural way. Now is the

right time to start the journey.

In pursuing a simplification journey, a bank could

take two approaches. One is an IT-led approach (from

technology to business processes), in which coreapplications are renewed as an extension of the

architecture to improve them technically and

functionally. The other is a business transformation

led (from business needs and processes to technology)

approach, in which vertical applications complexity

is reduced by taking functionality common to all

processes out of applications and embedding it in

architecture services.

Regardless of which route they take, when

embarking on a simplification journey, bank

CIOs should keep in mind the following governing

principles:

Focus not only on the result, but on the journey:

identify changes and adjust direction when

necessary

Have a road map and revisit it frequently

Prioritize initiatives of greater business value

Ensure and maintain strategic and business

needs alignment along the way

Make decisions based on a solid business case

Define objectives and metrics to control

transformational initiatives

Use a separate and experienced team to execute

governance functions

Done right, IT simplification will generate substantial

rewards for a bank at the end of the journey. It

will drive the following: revenue enhancement

via customer retention and service excellence,

a greater share of customer wallet, enhanced

customer acquisition, and stronger brand image

and differentiation. It will reduce costs through

operational efficiency driven by standardization

and consistent process execution, as well as theelimination of duplicate functions. And it will reduce

risk by creating more stable and maintainable

systems and making it easier for banks to comply

with emerging regulations.

CIOs need to start simplification now. The need is

there, and CIOs have more tools at their disposal

than ever before.

Conclusion

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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 worlds 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 yearended Aug. 31, 2009. Its home page is

www.accenture.com.

Accenture Banking IT Simplification

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