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Developing a really compelling offering into a competitive market is a challenge. Today, the offering, as we term it, is a unique combination of services and products which form the overall proposition to an organisation’s customers. Within a competitive market the uniqueness, coolness, functionality, price and value adding services, in combination, will determine the success or otherwise of an offering in a given market.
The challenge however does not end with the design and development of the offering. If the market perceives that the proposition is not what it is made out to be, and the promise is not being fulfilled, the offering can quickly lose its appeal and destroy any reputation that was staked out in the market. In a partially dematerialised world, the providers of the various products and services will typically be global, brought together in an ecosystem providing the capabilities supporting the offering.
SystemicLogic’s innovation approach considers the offering as well as the capability in assessing and defining market offerings. We have found numerous examples where customers prefer standard offerings supported by excellent capability, rather than “innovative” offerings underpinned by capabilities that are less predictable. This is supported by the recent findings on customer perceptions of basics versus innovations in banking. The Bank Channel concludes that getting the execution right is the differentiator! The corollary is that few, or perhaps none, have got the basics really right yet.
Shepherding an ecosystem of service providers and products is not easy, and in today’s environment adds complexity which did not exist before, when organisations were the producers and all required capabilities were under their direct control. Automation, as in business process management and service oriented computing solves some, but not all issues. As a minimum organisations have to consider the ecosystem in terms of people, processes and technologies across different organisation boundaries and how these support “customer service”. Ultimate accountability for delivering service ought to be clear; guiding the customer to different providers of capability can cause confusion and dilute the brand, and must be handled with care.
The trickiness of getting this right was borne out recently yet again (through personal experience) when attempting to have an iPhone’s discharging battery problem addressed. The message from the network operator who sold the device, and Apple, the provider of the device, were not consistent. Accessing Apple’s services was a mission, and the customer experience left a lot to be desired! Excellent opportunities for improving capabilities still present every day!
The advent of Internet and communication technology has significantly transformed the business of banking. It has also stimulated the development of Core Banking (CB) solutions that drive key banking operations. CB systems provide transaction processing and account management functions underpinning traditional and contemporary banking products and services. These systems ideally allow all products, processes, channels and customer relationship management tools to be integrated and administered through a central database of a bank, with branches and channels as delivery points. Innovations in the core banking IT systems capacitates a banking institution to develop, process, and manage its basic financial products and services effectively.
Drivers of CB Systems Reform : Global
Banking organisations are driving towards core banking systems transformations to re-establish themselves. Banks and other financial institutions are currently experiencing a number of challenges and pressures that are prompting reviews of legacy core banking applications with a focus to either totally or partially replace, or incrementally modify them.
Market changes
As market pressures transform operational models in retail banking, IT transformation has become even more critical. Core systems renewal including architecture, systems, and functions will clearly be the main step towards operating model transformation for back-office-cross-country consolidation, global knowledge sharing, global marketing practices, and so on. The current economic downturn has pressured several organisations into freezing new developments in an attempt to save costs and optimise efficiencies. This will place a damper on initiatives relating to core banking transformation and risks the termination of projects that already boast of significant investment.
Technology changes
Internet and Web2.0 technologies have substantially elevated the impetus for core banking systems renewal. These technologies are essentially viewed as instrumental in the realisation of Bank 2.0 goals. The Internet has changed the way clients buy financial products since it has allowed them to compare offers and prices very easily, from anywhere at any time – a simple illustration of its potential. Web 2.0 technologies promise to enable banks to build faster, more flexible and less expensive IT systems and leverage Service Oriented Architecture (SOA) and Open Source solutions. Reality however highlights that many of the journeys are still in their infancy. SOA as a prime example has had significant hype associated with it and business stakeholders are not seeing the benefits of their initial investments. SAP and Microsoft based solutions (to name a few) represent capabilities that have only recently entered the banking space and aims to provide significant flexibility to customers. Findings do however suggest that technological change (as an influencer) is an important consideration, but that the problem in transforming core banking lies with existing complexity, skill and organisational maturity.
Profitability and competitive advantage
Banking organisations are also facing a critical challenge to future competitiveness and profitability. Their core banking IT systems were developed in-house over decades and built on proprietary technologies that are now becoming outdated, are performing poorly and are draining resources. In numerous cases, banks are trying to function with a patchwork of legacy systems that are not integrated into other key solutions and also require frequent and costly maintenance. For these reasons banks have started to consider transformation of their systems in total or partial. According to Forrester, sixty-nine percent of European banks have either started to renew their overall application landscape or have concrete plans to do so.
Key questions remain with regard to the impact of over focusing on cost saving initiatives in the short-medium term:
- Are IT projects not delivering value and therefore (as a cost centre) merely being put on hold or scaled down until the economic climate changes?
- What impact will sudden knee-jerk reactions have on medium term outcomes?
Agility in face of mergers and acquisitions
A wave of mergers and acquisitions, greater economic growth and political stability, and the aggressive expansionist efforts of their counterparts are driving banks, especially in Latin America and the Caribbean, to embrace a wide variety of new technologies. Many have legacy systems that are difficult to maintain and complex to change at a time when banking divisions are aggressively looking to launch new products and embrace different business models. Hitherto, Latin American banks have lagged behind other institutions in renewing their core banking systems partly because they have developed so much technology in-house, leaving them with a particularly “tangled web” of systems. Stock markets and GDP growth rates are booming in Latin America, increasing revenues and paving the way for major overhauls. Mergers and acquisitions have only accelerated the trend and the ability to integrate, interface and to quickly amalgamate has been made difficult by legacy systems in back offices.
Outsourcing and Offshoring – Finding the “Rightshore” and “Rightsource” balance
The World Retail Banking Report 2007 indicates that a large proportion of banks are outsourcing their IT functions and development, and that maintenance and operations are usually the primary concerns. Almost half the retail banks studied have offshoring practices, mostly in back-office and IT functions. External research findinds predict that these practices will largely expand in the next five years regardless of business function. In future, retail banks expect to see a substantial portion of their IT and support function staff offshored. Thus banks need to align their core banking systems to the future banking operational model in which outsourcing and offshoring will dominate.
How Much Systems Renewal is Feasible?
Although a majority of legacy systems in most banks are fast becoming obsolete, complete overhaul of the existing back office system that support core banking is a challenging exercise. While a number of banks are contemplating core banking systems reform, CEOs and CIOs are quite aware of the titanic financial and human resource commitment demanded by renewal projects. Core systems reform projects are suffering significant overruns and past failures of such initiatives in the industry compromise their confidence.
One of the primary influencers is skill. Many banks initially consider core banking renewal as a “new look” built on top of existing capabilities. Banks have however realised that process development on replacement systems cannot simply be based on legacy capability (i.e. legacy processes). It is this context that banks are now driving process re-engineering efforts to better serve customers and clients. The challenge lies in the skill sets of analysts and to produce these new processes. The bottom line – the way of doing banking resides in the systems affecting people's perception of how the world works, not how it should work.
Another dimension of renewal relates to the type of system asset. Third party packaged applications will most certainly be unfeasible to replace due to the investment and intellectual property poured into the solutions over many years. Rebuilding these applications will in most cases not be cost effective. Replacing internally owned self-built capabilities does however provide a more feasible option, but will need to be weighed against (among others) cost factors.
Large banks
The Boston Consulting Group carried out a survey on European banks in 2006 to glean on their preference regarding IT reform. Most participants favored a phased approach whereby legacy systems would be replaced module by module or in several waves instead of the “the big bang” migration. Off-the-shelf software solutions are preferable for small banks that often focus on certain customer segments or specialise in specific product portfolios. A majority of European banks also indicated preference to host/mainframe technical platform vis-a-vis reverting to a different platform during the course of renewal, and that ongoing application development would be better done in-house for the new system, with only desktop services and first level support being largely outsourced. development of new functionality and application maintenance could then also be offshored in selected areas (i.e. “rightshore”). Even Microsoft, a distinguished player in the software industry, has recommended a phased approach to renewing core systems. A significant emphasis does however need to be placed on the co-existence of new development methodologies with the old. Organisational planning maturity needs special attention.
Small to mid-sized banks
Small and mid-sized banks appear to be more inclined to undertake major core systems replacement projects. However, banks and vendors are mostly taking interim steps, wrapping existing legacy systems in 'SOA-Service consumer' front-ends, while handling the issues with middleware as opposed to totally migrating to a new core. The need to achieve greater economies of scale force most small and some mid-sized institutions to outsource IT to service providers that can offer them more centralised customer information files, which feed from the back-end and communicate with Web-based, intuitive interfaces powered by modem servers for a reasonable price. Nevertheless, improvements in integration, software features and functionalities, recent vendor consolidation and advancing technology are positioning smaller banks to demand more flexibility in core banking solutions from vendors.
Case Studies of Systems Renewal
(a)Nedbank required a smooth upgrade to mySAP ERP application to take advantage of new functionality and platform and ensure Web access for customers. It also required immediate attention to issues Error-free go-live, thanks to SAP Ramp-Up services and support and a direct link to SAP through SAP Ramp-Up coach. Benefits included implementation on time, 20% under budget, no interruption to business users whatsoever, enhanced employee productivity via simpler interfaces, faster processes, better management reporting, resulting in more effective decision making and enhanced customer service.
(b)Syndicate Bank, a large Indian public-sector bank chose i-flex's FLEXCUBE and IBM's infrastructure technologies and implementation services in order to upgrade its banking systems. As part of the transformation, i-flex and IBM provided a comprehensive IT plan, mission-critical applications and integration services. The solution has also flawlessly supported the bank's launch of new products.
(c)Santander migrated all of the group’s core systems onto a single platform and then plans to develop an entirely new Java-based application in-house and expects to reap savings of about € 250 million annually.
(d)Postbank, the largest retail bank in Germany, has been working with SAP to create a new core banking system. Postbank anticipates total investments of about € 300 million and is already achieving annual savings of about € 50 million.
(e)ABN Amro's Indian subsidiary selected Infosys as the vendor to phase out an older solution. Interestingly, ABN Amro has been able to achieve considerable cost savings in operations, and has also created some innovative additions.
(f)Jih Sun turned to Temenos T24, running on Windows Server 2003 which supports which supports some 2.4 million accounts and 1.4 million customers across 49 branches
(g)Banco Azteca, the fastest growing bank in Mexico, serving nearly a million customers through 850 branches across the country, had a critical component of its banking services migrated to a 64-bit Microsoft Windows Server 2003 platform.
CB Systems Reform: Future Expectations
Next generation core banking solutions face high expectations from user communities.
Realising one bank ,one architecture
In a few years ahead banks will most likely consist of a wide range of back-end applications supporting core banking. Thus internally the applications will deliver separate products and services but should converge so the customer can seamlessly hop from one application to another without feeling the difference. One bank one architecture concept is seen as a potential benefit of technology convergence and standardisation. Open standards and integration middleware will most likely dominate future core banking systems terrain giving way to the intelligent information networks that will transform banking business into a truly customer-centric operation. The overall solution could embrace IP Telephony, customer care, wireless, IP ATM's and kiosks, IP video surveillance and content delivery network.
Design and architecture of the systems should facilitate rapid response to change which is often going to be driven by frequent redesign of business processes. A focus will be placed on enabling data integration for various purposes such as cross selling, customer relationship management, regulatory reporting and internal management information system at lower cost.
The remaining challenge (through decades) resides with how an organisation can actually identify and separate the common aspects of banking capability from its variations. This is a particularly difficult mindset to adopt especially when businesses are focused on differentiation and often reject the idea of “commonality” in their own context.
Enabling multi-tasking
Next generation CB systems will also be expected to perform several functions which most current ones are falling short. These shortcomings include allowing product innovation, bundling, flexible pricing, integration of third party products and real time transaction processing. They should be able to provide a comprehensive database for all business segments that support customer centricity and a functionality that allows smooth IT integration of new product launches in order to accelerate the time to market new offerings.
Open Source-driven
After the legacy and the ERP era, the Open Source era appears to advance at a steady pace. Ideally banks want to develop software by leveraging commoditised capability i.e. find Open Source components easily at no or low prices, and once integrated these components can represent a majority of bank core system software. The effect will be low technology costs for banks that could be translated into low fees for high quality products and services. One of the challenges is in the evangelical view that Open Source can replace all software offerings. In niche vertical banking markets, Open Source has no representation or meaning, and will only play a more significant role in the foreseeable future in horizontals (i.e. CRM and Productivity).
Conclusion
In order to keep up with dynamics of global markets, technology and growing competitive forces, transforming core banking IT systems has become a pending reality for banking and financial institutions of all sizes. However, renewing banking platforms involves prudent requirements analysis, software selection, application development and integration, and technology decisions. Its success depends on top management involvement in the different transformation phases, the availability of operational managers with futuristic mindset and continuous communication inwards and outwards.
Check related articles on on our research portal...
- Technology in Banking: Breaking Down Technology Barriers
- Emerging Technologies and Innovation in Banking: Drivers for Growth
- The next generation: Progress in core banking technology
- Core Banking Infrastructure Renewal
...and on Slide Share
For a couple of years now the University of Pretoria's Gordon Institute of Business Science (GIBS) has worked with SystemicLogic executives in the area of Innovation. It is against this back ground that SystemicLogic is proud to be associated with the recent success at GIBS.
For the sixth consecutive year, GIBS has been ranked as one of the World's top business schools by the prestigious UK Financial Times. GIBS was placed 38th in the rankings and is the only African business school to achieve this accolade. The ranking, announced earlier last week by the Financial Times, is based on the performance of GIBS’s Executive Education and Company-Specific Programmes (CSP).
Professor Karl Hofmeyr, GIBS director of CSP, was delighted to see GIBS’s hard work pay off. “We are very pleased to share our success with the companies, government departments and state-owned enterprises with whom we work in partnership. Our standing among the best schools in the world is particularly important for us at this time in South Africa, as we continue to strive to provide world-class executive education with a strong practical orientation. We are particularly proud to be one of only four business schools to be ranked from emerging economies,” Hofmeyr said.
Innovations across GIBS have undoubtedly contributed to its burst into the global sphere of excellence in business education. Given the sustained synergy between GIBS and SystemicLogic, the future of innovation in business education remains orange. GIBS is poised to continue making inroads up the excellence ladder.
“We would like to thank you for your support, and assure you that we continually innovate to ensure that we bring you best practice and cutting edge business education,” GIBS acknowledged in a letter to SystemicLogic's CEO Jay van Zyl.
The major impetus behind collaboration (among other aspects) is the widespread use of Web-based applications and the rapid advances in the development of information and communication technologies. These changes have resulted in the emergence of highly networked global enterprises and an increased preference by the organisations to a project-based approach to work. The collaboration ecosystem generally consists of people, productivity software, collaborative software and collaboration methods.
How organisations are using Collaboration Tools
The demand for virtual interactions between individuals within the same premises and from different locations has been increased significantly over the past few years.
- Many organisations are now using Collaboration Tools chiefly to enable both the co-located and the geographically dispersed employees to get work done and achieve common goals.
- Collaborative technology is being used to build virtual communities, to improve business processes and enhance customer service.
- Enterprise portals are now being developed to improve content aggregation and the integration of business applications.
- Organisations are also looking for opportunities to strengthen security around their collaboration technologies and initiatives.
The value of the tools is more pronounced where they facilitate real-time on line collaboration between individuals or groups located in different places and in different time zones. A typical example includes Alfresco (an Open Source company) that is using Skype to maintain collaboration of its widely distributed staff. In addition, Collaboration Tools have created on line platforms with a high affinity to innovation. These platforms have the potential to nurture innovation at different levels of an enterprise and breakdown silos traditionally associated with legacy systems. The CSCW Matrix highlights a number of play fields for Collaboration Tools.
Collaboration Tools Features
Although commercial and open source solutions are found in various collaboration facets such as project management, file and document sharing, event scheduling etc, their collaborative features are more similar than different. Here are some basic capabilities of the tools:
- Mail Transfer Agent
- Mail Storage
- IMAP Server
- Shared IMAP
- Calendar & Formats
- Shared Contacts
- Shared Files
- Web Admin UI
- Anti-Virus
- Spam Filtering
- Shared Calendar
- IM Server
- WebDAV and Web UI
ASCTs
Apache, Mozilla, Wikipedia are cases in point of the most successful open source projects driven by collaborative environments. ASCTs have become more attractive to budget constrained businesses looking to maximize their cost effectiveness. Reduced time to market with lower total cost of ownership and greater transparency into the engineering process are balanced by governance challenges, and to a lesser extent issues with conflicting terms and conditions and/or licensing dichotomies. They offer a central hub to communicate a shared vision allowing information and knowledge to be captured and be made available to all members of a user community. The solutions offer real-time updates, real-time help requests and self-service archiving capabilities. In recent years, open-source productivity tools and collaboration suites have advanced in reliability, feature sets, and overall sophistication. Since open-source technologies are community-driven and not tied to commercial interests, they can often address community needs better, more quickly, and potentially at lower cost. In the corporate world collaboration projects mainly involve streamlining business processes, and the interfaces between legacy closed systems.
In the ASCTs category, SystemicLogic Research Institute recently conducted an assessment of Scalix, eGroupWare, OpenGroupware and Open-Xchange Server. The tools were compared based on how well they match a client's business requirements. A set of attributes were used to build focus areas for measuring the applications. Two major performance metrics most relevant to this category namely Collaboration Tools Support and Collaboration Tools Technical Quality were examined. A decision model was used to present the relative position of measured products and was normalized to show strengths and weaknesses compared to other products.
Overcoming Challenges in using ASCTs
In order to gain business advantage, organisations have to deal with a number of issues related to the use and implementation of ASCTs.
Strategic planning
Careful planing must involve acknowledgment of existing technologies and methodologies and connecting them with a layer of lighter weight, more agile applications which demonstrate alignment with company objectives. Strategic planning cost is trivial compared to cost of deploying non-compatible systems for different departments.
Defining collaboration requirements
Companies face a challenge in not only identifying the right tools but to use the solutions in the right way. It is important to make an effort to study and select a set of tools that meet current and future business requirements. An understanding of existing Collaboration Tools and an in depth introspection of the enterprise to match its collaboration needs should be made a prerequisite to adoption.
Justifying Return on Investment in Collaborative Environments
Part of SystemicLogic's consulting entails work to justify and validate the returns that will accrue from investing into collaboration environments. The business world is currently dominated by business individuals who are so particular about budgets and literal money savings. Against this background the rationale for collaboration, social computing, Enterprise 2.0 and many other technological business process enablers are scrutinised rigorously for value propositions that demonstrate the ability to generate profits. Fortunately forty-eight percent of end customers are looking to streamline business processes, rather than endure pure cost cuts. Thus one way to justify the value of ASCTs can be to communicate to business how the tools assist in spending money more efficiently, rather than simply cutting heads.
Threat to company security
Some critics regard Collaboration Tools such as SharePoint, wikis and even e-mail distribution systems as great in “theoretical” tools but that the majority pose siginificant security risks in practice. However, administrators need to actively monitor the distribution and usage of user names and passwords. Failure to take these measures compromises security and exposes the systems to people who should not have access.
Conclusion
The collaboration between different enterprises and employees within one company has exponentially grown. Tasks and responsibilities are shared within one project team by using interaction between all project or group members. During this unprecedented global economic downturn, ASCTs have become attractive options for international teams and consulting companies to get projects and business to not only to run efficiently but also to perform exceptionally. Given the increased demand for collaboration software against tight IT budgets the future of ASCTs looks 'orange'. However, companies need to be aware of the challenges associated with the software and how to deal with them.
Refer to additional content on Slideshare,
Open Source Collaboration Tools are Good For You!
Coming up next on Alternative Source are enterprise content management systems.
A fortnight ago, SystemicLogic South Africa conducted a very successful workshop around Innovation during the downturn. A group of IT executives, business leaders and other stakeholders from various backgrounds attended the workshop. Apart from the presentations from SystemicLogic's experts, the workshop ended with thought provoking discussions on topical innovation issues relevant to this contemporary business milieu. A consolidated view of the discourse is now available on the research portal. It consists of the initial questions or comments and is then followed by the key points made during the following discussion. The report has been consolidated into key themes that emerged and structured as a guideline for approaching these innovation hurdles and topics.
Here are some of the major questions that were tabled and examined.
- How do you drive innovation in a silo based organisation?
- The technology platforms for innovation are available but are not being taken up?
- If ideas are available and plentiful why are they not being implemented?
- How do we identify talent within an organisation?
- Does innovation not run a risk of becoming just another buzzword?
In these interesting times companies are seeking a competitive advantage that differentiates themselves from their opposition. There is no doubt that the future will not be business as usual and that the playing field has definitely changed. Innovation has a major role to play in this new landscape as organisations attempt to make sense of and thrive in the new world. Needless to say, there are challenges to innovation that stand in the way, but with the right approach they can be overcome. As the breadth and understanding of innovation has grown and as people and companies grapple with and learn from their experiences, the topic of innovation has moved to the forefront of organisational agendas. This has resulted in more focus on the process of innovation and greater expectations of the potential and results of innovation. As we learn from the successes and failures of innovation we gain a better understanding of how to encourage, promote and drive it within our organisations and how to improve the entire innovation ecosystem as we strive for sustainable innovation.
To continue with discussion of these questions join SystemicLogic Research Group on LinkedIn.
