As competition in the financial services market heats up, and maximising sales per customer becomes a growing priority,

organisations are progressively exploring how to revamp their backend infrastructures to support future growth.
Further reading

Case study: Voca IT budgets at financial firms on the rise Case study: Skandia UK

Although the sector is relatively buoyant, it is facing competition from several quarters. Especially important is the continued creation of ever larger and more powerful players, as small- and medium-sized investment banking and insurance firms are being swallowed up through merger and acquisition activity. Many companies are now looking outside of their domestic borders for potential growth opportunities. Interest is particularly high in creating pan-European entities that can not only respond to the challenges of globalisation, but also help organisations avoid local anti-trust scrutiny. At the same time, financial services firms are also looking at how they can insulate themselves from the effects of bad debt levels, while trying to respond to high-street retailers that are undercutting rates and continuing to extend their range of offerings. Jerry Norton, director of strategy for global financial services at consultantLogicaCMG, says there is a growing focus on bundling products and services and attempting to cross-sell them, particularly to high-value customers. Organisations are also trying to improve customer care and differentiate themselves, which they can do either through product or channel innovation, he says. This puts pressure on IT to demonstrate more agility and flexibility, which means that there has been a cranking up from the cost-cutting agenda of the last five years or so. One of the key areas where innovation is likely to take place is in online bank account delivery. Most banks, for example, still only provide a crude entrance to the web, but there is a move to try to learn from the experience of retailers as a means of selling new and existing products to a broader market. To improve customer service, financial firms are also starting to take stock of their current IT environments to understand how they can provide a simple, clear view of customer information despite having a wealth of overlapping systems in place. Although it is still early days, there is a widespread interest in standardising, rationalising and integrating core data and applications

in line with revised, or in some instances newly-created, data management strategies. Jason McLean, vice president of financial services for consultantCapgemini, says that one of the key trends centres on achieving a single view of the customer, with the aim of delivering the holy grail of customer intimacy. But this means starting again at the grass roots level to get the data right and understand what service it supports, he says. Trying to join up products and services is not new, but what we are seeing now is a lot more activity to try to get it right this time.'
Many organisations are, as a result, starting to look carefully at legacy systems such as mainframes, to see if they provide value for money and whether or not they are capable of responding to current and future commercial challenges.

Further reading

Case study: Voca IT budgets at financial firms on the rise Case study: Skandia UK

LogicaCMGs Norton says such analysis centres on efficiency. If you have an eight-lane highway at the front end and a two-lane one at the back, it does not allow you to move value around in line with real-world requirements, he says. The end result is often complexity, and it is beginning to hamstring some organisations in terms of performance. Thankfully, McLean says finding ways of addressing such a challenge is rising speedily up the agenda. A lot of companies are now at the stage where their business agility is being challenged by old technology and operating models, he says. If core systems are 30 years old, for example, it can dictate ways of working and the speed at which new products are brought to market. The modernisation agenda is being underpinned by the much-hyped concept of service-oriented architecture (SOA), an attempt to put the necessary architectural foundations in place to provide IT services that support key business processes from end to end. Norton says three key up-and-coming themes that stem from the modernisation agenda are streamlining, selective replacement and selective outsourcing, although each of these will manifest itself differently depending on the organisation. For example, some companies will choose to tie diverse systems together using middleware, so that individual business processes can be automated from start to finish. Others may wrapper their systems today to prolong their life and replace them over time gradually in a planned way. Such replacement will also take several forms. It could entail re-platforming, perhaps by moving applications from a mainframe to a Unix-based environment. Or it might involve replacing traditionally bespoke systems with s tandardised off-the-shelf packages. Replacement could even consist of rewriting monolithic Cobol applications by breaking them down into reusable components, using languages such as Java. Whatever the approach, Norton says that an increasing desire to deliver new products and services to market quickly will lead to adoption of progressively standardised software, processes and product assembly techniques. The techniques will be similar in nature to those traditionally used in the manufacturing industry. He cites the Royal Bank of Scotland (RBS) as an organisation that is already going down the assembly-type route, and which refers to the business unit set up to handle the shift as manufacturing. There is a strong view that banking operations can become like a factory, says Norton. RBS has introduced SixSigma processes and is trying to reduce cost and improve the quality of its banking operations and technology in the same way that you might do in a car plant. It has consolidated the back end and is architecting and assembling technology for business improvement. That is a new approach for financial services which typically builds all of its own solutions. Over time, such an approach, which relies on having strong architects and designers and involves buying in standard products and components, will greatly reduce the need for conventional programming skills, whether provided by internal staff, onshore or offshore outsourcing service providers.

In the short-term at least, demand for offshore expertise is still in the ascendancy, says Joe Edwards, vice president for financial services at consultant Atos Origin, although the days of huge universal outsourcing deals are over. A big focus is how to continue to drive operational efficiencies, but the days of the big mega -deal are gone, he says. We are definitely seeing a move to more selective outsourcing, and organisations are now taking a careful look at where they can drive out cost savings from their infrastructure. During the next five years or so, the IT directors role is likely to become one of service aggregator and relationship manager. Such services may be offered by internal systems and staff, by outsourcing suppliers or hosted application providers, but the aim will be to reduce infrastructure costs and ensure that resources work in the most effective way. Financial services has traditionally spent more on IT as a proportion of revenue than any other sector, but the paradox is that the business does not believe it has sufficient value out of it, says Norton. So the time has now come to look at that investment in a pragmatic, business-oriented way, although it will take a good 10 years for this change agenda to come to fruition. What the experts say about upgrading financial systems One of the less visible but very real benefits of replacing our mainframes relates to the human element. Undertaking the migration and proving that they can use the new technology has given people huge pride in their achievements and been quite motivational. Theres a lot of talk about service -oriented architecture (SOA) at the moment, but we now have an IT team that is saying: we have done it, and that is a nice place to be. Nick Masterson-Jones, IT director, Voca Over time, the role of the CIO will be to maximise all of the resources available to them. It is not just about internal resources, it is also about external ones. As selective outsourcing increases, however, the mix that they are playing with will become far more complicated and their role will become more one of a service aggregator. Joe Edwards, vice president for financial services, Atos Origin Standardisation is so important because it implies that when you buy something from someone, it will work with everything else. The vision is that eventually the IT department will become contract managers that buy things and assemble them into end-systems. The driver is reduced cost and improved time to market. We are not there yet, but we are getting there. Jerry Norton, director of strategy for global financial services, LogicaCMG SOA is a way of bringing order to a complex environment to help plan and deliver change against it. The principles of breaking applications down into services have been around for a while, but until recently the technology was not there to do it. But SOA now offers an industrial way of working and a means of understanding, articulating and planning how to achieve application rationalisation and modernisation. Jason McLean, vice president of financial services, Capgemini We have to ensure that the cost of maintaining and supporting key systems does not come to define us. So the answer is strong architectural governance and strategic thinking. The business case for migration usually fails, and recreating business logic from 20 years ago does not make sense, so it is necessary to keep going but connect systems in a way that does not require endless maintenance. SOA can help here. Tim Mann, customer services and technology director, Skandia UK 12

Technology--Can be an Asset or a Liability

Technological change has prompted the quick erosion of some companies and the overnight success of others. Whether a new technology becomes an asset or a liability is not necessarily embedded within the technology itself, nor what many technology consultants term the implementation process. The difference is more complex, involving the human desire to learn and interact with the new medium. In any system of human interaction, the why question needs to be addressed firstwhy should we use this, what will it do for us, how can it improve our current processes. Therefore, an effective way to introduce new technology to your company is to begin with the dynamic human systems thinking before advancing to the static computer systems implementation Unfortunately many technology system consultants implement under the assumption that the receivers of the technology possess the same level of fascination and desire as the creators of the technology. This results in the

new technology being transposed upon an old methodology, which produces partial usage at best. At worse the new technology reduces business efficiency and becomes a hindrance. Management can overcome this by including the users of the new technology is the meetings that answer the above questions. And by doing so management can gain valuable insight into how the technology will be embraced and the type of problems that may evolve during the implementation process. Small companies are often better at implementation, as it is common to have all employees involved in companywide decisions. Contrarily, in large corporations upper management may decide upon the new technology and then use a top-down strategy for implementation. The worse situations I have experienced have involved large corporations, sales departments and the implementation of a new CRM process. The new technology did not align with the salespersons existing behaviors, such as filling out forms or accessing client information from their desktop when an internet connection was not available. The opportunities technology brings are evident by the fact that those that embrace its capabilities can quickly gain a competitive advantage. However, if you view the other side of the equation, the threats are significant for those who do not consider the human side and therefore do not properly leverage its use.