Title

Author(s)

How the strategic use of information technology can help

position a firm in the international securities business: a case
study of the Nomura group
Ho, Chi-keung.;

Citation

Issued Date

URL

Rights

1998

http://hdl.handle.net/10722/37500

The author retains all proprietary rights, (such as patent rights)

and the right to use in future works.

University of Hong Kong School of Business

MBA Dissertation

How the strategic use of information technology can help

position a firm in the international securities business
(A case study of the Nomura group)

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j & Ht-

Supervisor : Dr. Dennis KIRA

Student
: HO Chi Keung Alan
(HKU ID: 9593206)
Date
: August 1998

Declaration
I declare that this dissertation represents my own work, except where due
aclcnowledgment is made, and that it has not been previously included in a thesis,
dissertation or report submitted to this University or to any other institution for a degree,
diploma or other qualification.

Signed,,
HO Chi Keung, Alan

Acknowledgement
This paper is a product of collective efforts that were pulled together from various
sources. Although there are too many to enumerate, the following deserve special
recognition for their contributions.
My special thanks go to Dr. Dennis Kira, who has provided tremendous help in
guiding me through the production phases and providing detailed comments on this
and previous drafts.
I extend special thanks to my supervisors and associates at Nomura International
Hong Kong and Nomura Research Institute (Hong Kong). Of particular, Debbie
Leung, Addison Yau, Anita Ho, Kai-Ming Chan, Eric Kot, Albert Lai, Noriaki
Toichi, Shoichi Taniguchi and Che-Cheong Chau, whom I discussed and debated
over with during the past few months. It was through these discussions and
dialogues that my initial ideas were formed. They have provided a steady supply of
patience, sound judgement and an indefatigable supply of good nature for which I
will continue to owe them considerably.
These are just some of the key people behind the product but the total cost is much
more extensive. I owe much to the pioneers and numerous authors of many
publications and they include Bernard H. Boar, Gordon B. Davis, Scott Hamilton,
Ewan Sutherland, Yves Morieux and Peter Dicken, whose theories and publications
inspire most of my insights that were reflected in the latter part of my paper.
My grateful thanks also go to all other people whom I have not mentioned - staff of
the HKU School of Business and the university libraries.
Thanks also to the information technology that has made my tasks of selecting
information easier through the CD ROM facilities and the Intranet/Internet.
Finally, I owe many thanks to my family - my wife, Jemmy, for her constant
understanding, support and encouragement; and my 11-month-old son, Terence, for
being here to enlighten my life.

Alan Ho
August 1998
Page 1

Table of Contents
ACKNOWLEDGEMENT

PREFACE

INTRODUCTION

LITERATURE REVIEW ON INFORMATION TECHNOLOGY AND

BUSINESS STRATEGIES

2.1

PERFECT STRATEGIC ALIGNMENT BETWEEN I.T. AND THE BUSINESS

2.1.1
2.1.2
2.1.3
2.2

I. T. as a Means to Create Market Dislocations and Exploit the

Dislocations
Reach, Range and Manoeuvrability Architecture
A State of Perfect A lignment

2.2.1
2.2.2
2.2.3

4
6
9

INTERACTION OF BUSINESS STRATEGY, INFORMATION TECHNOLOGY, AND

BUSINESS PROCESSES

Information Technology in Support of Basic Strategies

Information Technology and Changes in Strategy
Information Technology Innovations and Sustainable Competitive
Advantage

2.3

LINKING INFORMATION SYSTEM PLANNING TO BUSINESS STRATEGY

2.4

INFORMATION TECHNOLOGY AS A DRIVING FORCE TO THE GLOBAL SHIFT OF

2.5

11

13
14
15
15

FINANCIAL SERVICES

19

SUMMARY OF KEY THEORIES/CONCEPTS

22

BACKGROUND AND HISTORY OF NOMURA

24

3.1

NOMURA SECURITIES

24

3.2

NOMURA RESEARCH INSTITUTE

27

3.2.1
3.2.2
3.2.3
3.2.4

Corporate Philosophy
Best Navigation
Best Solutions
Organisation Chart

27
29
30
31

BUSINESS FOCUS AND NEEDS OF NOMURA

32

I.T. ENVIRONMENT IN NOMURA

35

SOME STRATEGIC APPLICATIONS OF I.T. IN NOMURA

37

6.1

COST REDUCTION BY USING CENTRALISED CUSTODIAN

6.1.1

A Typical Example of Using a Custodian

37

37

6.1.2
6.1.3
6.2

Changing Roles of Custodians

The Use of Centralised Custodian in Nomura

COST REDUCTION AND BETTER RESOURCE UTILISATION THROUGH

CONSOLIDATION OF SETTLEMENT FUNCTION

6.3

I.T. ORIENTED BUSINESS CHANGES

6.7.1
6.7.2
6.7.3
7

CAPTURING INTERNET OPPORTUNITIES

7.1.1
7.1.2

52
53

Change of I. T. Configuration for New Capabilities and Cost-Effective

Investment.
53
Specialisation in Java Development Enables First-Mover Advantage in
Capturing New Business Opportunities
53
To be Year-2000-Compliant as a Survival Need.
54

LOOKING INTO THE EXPERIENCE OF OTHER COMPANIES

7.1

51

COMMON I.T. INFRASTRUCTURE ENABLES EFFICIENT COMMUNICATION AND

SHARING OF CORPORATE INFORMATION

6.7

49

COMMON I . T . SYSTEM SIMPLIFIES GLOBAL/REGIONAL RISK AND

CORPORATE CREDIT MANAGEMENT

6.6

45

COMMON I.T. SYSTEM ENHANCES GLOBAL AND INTER-OFFICE BUSINESS

STRATEGIES

6.5

42

ECONOMIES OF SCALE AND BETTER CUSTOMER SERVICE BY USING GLOBAL

ORDERING SYSTEM

6.4

38
39

Internet Research/Analytical Materials Enhance Global Reach, Cost

Saving and Timely Delivery
New Business Opportunities through Internet Trading

55
55

55
56

7.2

CLOSER MANAGEMENT CONTROL THROUGH RISK MANAGEMENT

57

7.3

I.T. HELPS RESHAPE BUSINESS STRATEGIES AND MODE OF COMPETITION

58

7.4

I.T. FOSTERS GLOBALISATION

59

7.5

PROVISION OF NEW PRODUCTS FOR NEW BUSINESS OPPORTUNITIES

60

7.6

BETTER SERVICES MEANS BETTER CUSTOMER SATISFACTION

61

CONCLUSION

REFERENCE

63
66

Preface
The information technology (I.T.) field has seen a major revolution in computing
architectures (from mainframe-centred to workstation-based) and the use of I.T.
(from inward-looking reengineering of business processes to outward-looking
strategic uses).
When designing I.T. systems, it is important to focus on productivity and the
commercial strategy of the company. To implement I.T. effectively, management
must begin by taking into account the capabilities of I.T. for re-designing the
business process. Merely automating manual procedures does not achieve the full
benefits of I.T.. Companies must integrate business and I.T. procedures. In many
instances, effective use of I.T. can help capture new business opportunities.
With the growth in intensity of competitions on a global scale, companies are facing
great pressure in improving internal efficiency and changing business strategies.
Especially in the financial industry like the securities sector, I.T. is commonly
deployed strategically to capture new business opportunities and sustain one's core
competencies in order to stay in the competition.
What are the situations in
Nomura, which was once the biggest securities firm in the world? What challenges
are Nomura currently facing? How are its competitors reacting to the changing
market conditions and what axe their business strategies?
With my working
experience in Nomura as well as the information collected from different sources, I
hope this paper can give you some insights regarding these questions.

Page 2

Introduction

This paper is divided into two portions. The first part covers extracts from various
authors' thinking and/or findings on the strategic use of I.T. in the business context.
Focuses have been made on its application in the securities industry, to which
Nomura belongs.
Chapter 3 to 6 of this paper brought us to the context of Nomura where the I.T.
environment, strategies and applications have been analysed in depth. This
provided a pragmatic approach in assessing whether insights obtained in earlier
chapters can be applied in real life. This was later referenced with external
competitive practices in Chapter 7.
For the purposes of this study, various methodologies have been used. Literature
reviews provide a theoretical ground for later analysis and reflection. Insights were
gained from the review of latest business magazines, articles, debates and
discussions of I.T. practitioners, as well as the reading of the web-sites of Nomura
and its key competitors. All the above provide the opportunity to better understand
how I.T. was integrated into their respective business strategies, structures and
contexts in order to help these companies gain competitive advantage, sustain their
core competencies and position themselves. An attempt was made to review
Nomura's current position, its competition as well as its issues and challenges, both
at present and in the future. Finally, a reflection was made throughout this study on
the learning gained from both the literature reviews and the examples thus shown.
Given the restraints I have geographically and the limitation of time and resources,
most of the insights thus obtained were based on examples or experience in Hong
Kong or other Asian countries. A wider scope was only seen when broader views
were quoted as reference to provide a wider or different perspective.

Page 3

Literature Review on Information Technology and Business

Strategies

There have been numerous thoughts and discussions that relate to the integration of
information technology and business strategies. For the purpose of this paper,
extracts from various authors will be cited as examples to support the idea that
information technology is now considered to be a strategic asset that is being used to
mould competitive strategies and change organisational environments.

2.1

Perfect Strategic Alignment between I.T. and the Business

The following are the extracts of ideas from the book "Practical Steps for Aligning
Information Technology with Business Strategies - How to Achieve a Competitive
Advantage" written by Bernard H. Boar.

2.1.1 I.T. as a Means to Create Market Dislocations and Exploit the

Dislocations
Perfect strategic alignment between I.T. and the business occurs when I.T. can be
used not merely to transform business processes, but also to create dislocation and at
the same time exploit these dislocations in the marketplace. The dislocation upsets
the balance of power in the marketplace and then creates a new and more favourable
marketplace for the designer of the dislocation. Dislocations can be classified into
three dimensions as below:
1) Point of Dislocation: the point in the client value chain or in competitor's
advantage where dislocation is targeted.
2) Power of Dislocation: the strength of the dislocation shock created.
3) Proximity of Dislocation: the proximity of the competitor's base to the
dislocation.
A perfect dislocation will attack a competitor's sustainable competitive advantage,
destroy it completely, and be executed physically close to the competitor's base
location.
In this way, the thing that is of primary marketplace value to the
competitor is nullified in the most economical way. The threatening and attack of
competitor's position causes harmful psychological demoralisation.

Page 4

The hub of a competitor's competitive advantage whose disruption will yield

massive marketplace paralysis is referred to as the centre of gravity.
Your
opponent's centre of gravity could be a vulnerable point where a disruption of it will
cause cascading failure. Invalidating your opponent's centre of gravity through
indirection is the climax of manoeuvre, and should be the long-term objective of
your indirect manoeuvre actions. Developing a way to accomplish the above will
test your strategic ingenuity to its limits.
The apogee of alignment occurs when I.T. is sufficiently powerful and fused with
the business, so that:
1) I.T. is a primary participant in creating an advantage for clients.
2) The advantage enables the client to create a dislocation in the marketplace.
Competitors are surprised, being pushed off balance and confused as to how to
respond; to the extreme, they enter a state of paralysis.
3) I.T. provides the means of exploiting the dislocating situation.
Perfect strategic alignment occurs when I.T. is used to dynamically create and
exploit business opportunities.
The five-stage model for the purposeful use of I.T. to achieve perfect alignment is as
below:
1) Stage 1 - Functional Systems: I.T. is used to automate individual business
functions.
2) Stage 2 - Cross-Functional Systems: I.T. is used to build systems that cross
functional boundaries and permit the sharing of data.
3) Stage 3 - fRe)Engineering the Business: I.T. is used to create processes
(involving clients, suppliers, regulators and any other trading partners) in
synchronisation with business strategy.
4) Stage 4 - Imagineering the Business: I.T. is used to facilitate radical
restructuring of the business. Business advantage plays a deterministic role to
the selection and use of the most opportunistic technologies so as to implant
advantage into the business processes.
5) Stage 5 - Create and Exploit Business Opportunities: I.T. has achieved a state
of such power and manoeuvrability that it can be used by the business to create
dislocations and corresponding exploitation of those dislocations in the
marketplace. I.T. can be used to force the competition to something wrong; by
exploitation of that mistake, the scales of the marketplace can be turned. The
change in competition of the marketplace impacts on the internal processes and
Page 5

plans of the competitors, causing the competitors to become inwardly focused

while at the same time, you accelerate your process of satisfying client needs.
It is interesting to find that business opportunity creation is a higher for market
dislocation than business reengineering. This is not a mistake. Dislocation design
is like reengineering, in that the business design of the action is the intelligence of
the act with I.T. serving as the means of execution. It is different, however, in that
business reengineering seeks to help you overcome your opponents through
superiority of your business processes in delivering superior value to clients.
Reengineering is about improving operations by the dimensions of speed, cost, or
client service. Dislocations seek to create a surprise imbalance in the marketplace
so that your opponents, in their shock, confusion, and panic, overcome themselves.
Dislocation is about upsetting the balance of power in the marketplace and creating
opportunities and growth.
Manoeuvre also provides a way to attack process advantaged-based competitors.
Through manoeuvre initiatives and actions, you deliberately strain and stress your
competitors' processes to the point of collapse. When they reengineered them, they
undoubtedly improved the processes' efficiency and effectiveness. However, they
may not react quickly enough to the rapid change of market conditions. Hence,
market opportunities would be available for you to capture and grow.
Perfect alignment is achieved when I.T. is used to throw competitors off balance,
create the ability to take advantage of the resulting weakness, and exploit the
situation. At this state of alignment, I.T. is just for keeping records or controlling
processes, it is the means of extended business success.

2.1.2

Reach, Range and Manoeuvrability Architecture

Information technology is the asset on which the enterprise constructs its business
information systems. According to Boar, it may be rigorously defined as below:
"Information technology is the preparation, collection, transport,
retrieval, storage, access, presentation, and transformation of
information in all its forms (voice, graphics, text, video, and image).
Information movement may take place between humans, humans and
machines, and/or between machines. Information management assures
the proper selection, deployment, administration, operation, and
maintenance of the I. T. assets consistent with organisational objectives. "
Page 6

Boar mentioned that I.T. can reach a state of perfect strategic alignment when it
achieves a reach / range / manoeuvrability architecture (see figure 2.1) that has the
following three attributes:
1) Maximum Reach: anyone or any processor, any time and anywhere, can access
authorised I.T. resources.
2) Maximum Range: all information objects (information, process, or services) can
be shared.
3) Maximum Manoeuvrability: on top of the reach / range platform, applications
are built with the attributes of modularity, scalability, adaptability, portability,
openness, autonomy, flexibility, data accessibility, interoperability, information
appliance connectivity, and maintainability.

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Figure 2.1: Architecture of Reach/Range/Manoeuvrability
(Source: Practical Steps for Aligning Information Technology with Business
Strategies)

Page 7

Business should not stay unchanged for any fixed strategic configuration. Hence, a
reach, range and manoeuvrable architecture is required to allow business processes
to achieve a state of "formlessness" (that provides flexibility to change in order to
meet the changing requirements of the market and clients). I.T. can dynamically
alter its configuration in response to business requirements and can be used to attack
everywhere and defend anywhere.
Through the "formlessness" of your I.T., your business infrastructure can be set up
responsively and your business can enjoy first-mover advantages over other
competitors.
Reach, range and manoeuvrability are equivalent to "the strategic
configuration of I.T. power". Architecture, as the strategic configuration of I.T.
power, is the path to perfect business alignment and the ideal use of I.T. to build
sustainable competitive advantage.
People have been debating continuously whether mainframes are dead and whether
the future is client/server computing with respect to distributed processing, peer-topeer, network computing, etc. In the reach, range and manoeuvrability framework
(see figure 2.1), it conveys to us that "architecture" is not important. What is really
important is the "ability" to port applications effortlessly across architectures, as
dictated by the continually changing intersection of business needs and
technological possibilities. The end of the I.T. architecture is not an architecture,
but an elastic continuum of architectures that bend and bow to business needs. The
question of interest is therefore not whether client/server computing is replacing
mainframes in the future, but whether you are developing an architectural
framework that is "fluid" enough to permit configuration and reconfiguration of
application architectures in perfect synchronisation with business needs. The use of
any single architecture is tactical; what is strategic is the ability to move across
architectures as dictated by ever-changing times and circumstances.

Page 8

PURPOSEFUL
USE OF inr
CREATE &
EXPLOIT
OPPORTUNITIES
THROUGH
DISLOCATIONS

irr INADEQUATE
TO S U P P O R T
BUSINESS
INITIATIVES

STRATEGIC
ALIGNMENT

IMAGINE6R
THE
BUSINESS
(RE)ENGtNEER
THE
BUSINESS
CROSSFUNCTIONAL
SYSTEMS

USING
in - TO AVAILABLE
POTENTIAL

FUNCTIONAL
SYSTEMS

REALIZATION OF REACH/RANGE/MANEUVERABILITY ARCHITECTURE

Figure 2.2: Realisation of Reach/Range/Manoeuvrability Architecture

(Source: Practical Steps for Aligning Information Technology with Business
Strategies)

Figure 2.2 shows the relationship between reach / range and manoeuvrability and
the purposeful use of I.T. Perfect strategic alignment occurs when a reach / range /
manoeuvrable architecture is achieved so that I.T. can be used to create business
opportunities. In the area below the arrow, I.T. is being under-utilised with respect
to its maximum potential. In the area above the arrow, the designated use of I.T. is
not yet achievable. Perfect strategic alignment between the business and I.T., thus
involves the intersection of two notions: the business wish to use I.T. to create and
exploit business opportunities and the maturation of I.T. to a state of maximum
reach, range and manoeuvrability.

2.1.3

A State of Perfect Alignment

A business survives by generating favourable situations, rather than waiting for

them. A l i g n m e n t is a state where I.T. can be used to create marketplace disruptions
on demand. Under a state of perfect strategic alignment (see figure 2.2), the
following occurs:
Page 9

1) First and foremost, you satisfy your clients.

2) You place your competitors off balance; you do not wait, hoping that they
stumble, you cause them to stumble.
This creates a situation ripe for
exploitation.
3) You exploit the resulting state of imbalance, meeting or exceeding all client
expectations.
4) Your competitors, in a panic, react to your initiative. Rushed and annoyed, they
create responses of poor quality and incompleteness that further compound your
advantage.
Your competitors, thoughtlessly, become your allies against
themselves and push more clients to you through inappropriate and defective
responses.
5) The above dislocating actions are repeated. Optimally, your competitors are
pushed into a state of confusion and frustration as they struggle to respond to
your carefully plans of dislocations and exploitations. The competitors are
trapped in an endless and exhausting game of catch-up.
This is the dormant potential of information technology for the business. In fact,
the relationship of I.T. and the business organisation is somewhat similar to the one
between a chisel and a sculptor. A chisel is a tool of a sculptor. A business should
understand how dislocations can be created and exploited, and then direct the use of
I.T. as the chisel to enact its marketplace insights. The logic of commanding the
marketplace initiative rests with the business. I.T.'s value is an opportunitycreation tool of the business.
Hence, the purpose of I.T. strategy is to eliminate the questions of time and ability
to attack or defend. I.T. stands always ready, as the sword and the shield, to be
used swiftly according to the will of the business. This is strategic alignment, and
this is I.T. for competitive advantage.

Page 10

2.2

Interaction of Business Strategy, Information Technology,

and Business Processes

The following are the extracts of ideas from the book "Managing Information How Information Systems Impact Organisational Strategy" written by Gordon B.
Davis and Scott Hamilton.
Organisational strategy defines the general directions and approaches an
organisation is taking or will take in carrying out its mission.
Information
technology is important to the formulation of strategy because it can affect what an
organisation does, how it operates, how it interacts with its clients and its
competitive position.
Implementation of strategy often involves design of new business processes or
redesign of old ones. Information technology is important to this design and
redesign work as it is an indispensable component of different business and
organisational processes.

Business Architecture

1
1
r

Business Strategy

Information
Technology

Business Processes
and Infrastructure

Figure 2.3: Business Strategy, Business Process and Information Technology

(Source: Managing Information - How Information Systems
Impact Organisational Strategy)

In order to achieve the full range of potential from information technology, strategic
planning should follow an approach that emphasises the interaction of strategy with

Page 11

information technology and the interaction of business process with information

technology (see figure 2.3).
Information technology, business strategy and business process are interacting to
each other in the different ways. Hence, the formulation and planning of business
strategy and business process require iterative refinement, reviews and rework in
order to get a well balance of the three aspects. The idea of the iterative approach
is as below:
1) Develop a business strategy using information technology as an important
element in the conditions on which strategy is decided and as a significant way
to achieve competitive advantage. Consider also, with the use of information
technology, how business process can become part of the competitive strategy.
All these considerations are iterative given that strategy considerations may
suggest information technology uses and information technology uses may
suggest changes in strategy.
Strategy decisions lead to requirements for
business process, but innovative processes may suggest changes in strategy.
2) Develop (or redesign) business processes using information technology and
information systems. The business process needs suggest the applications of
the technology, but technology innovations may suggest new or redesigned
business processes.
The following examples illustrate how information technology can influence
strategy and business processes:
1) An organisation is discussing downsizing as a part of the business strategy.
This may introduce changes in the business structure and business processes.
The technology options suggest that downsizing will be facilitated by the ability
to downsize the information systems that support business units. In fact, the
technology options suggest further changes in the downsized organisation
structure.
2) In planning the business processes to support the business strategy, the company
has the option of building them from their specifications or using a
commercially available software package. The use of the application package
will structure the business processes.
In other words, the information
technology as contained in the package establishes the framework for the rest of
the business processes.
3) New production strategies such as the quick response just-in-time (JIT) strategy
require a new view of business processes and business infrastructure. They
directly affect the use of information technology in business processes. They
Page 12

simplify business processes and eliminate the need for many traditional
applications.
4) A client-oriented strategy is enabled by information technology. Without the
technology, many ideas for improved client service would not be possible.
Also, the technology suggests possibilities for service that might not have been
considered.
5) Applications of information technology have been developed in manufacturing
that do not communicate with each other. They refer to specific applications
like a computer-aided design system that coordinates design engineering efforts
to create product specifications and drawings.
Many firms are making
significant efforts to link these isolated applications via Computer Integrated
Manufacturing (CIM).
Implementing CIM requires changes in both
manufacturing strategies and in the design and integration of business processes.

2.2.1

Information Technology in Support of Basic Strategies

Information technology can be used to support and enhance the strategy of an

organisation.
For each of the following basic strategies, there are related
information technology applications.
1) Being a low cost producer: Information technology applications can help
analyse costs of products/services, reduce production or delivery costs of
products/services, improve utilisation of plant and equipment, improve
efficiency in the use of labour and materials, and reduce current assets such as
receivables and inventory.
2) Differentiating products/services from competition: Information technology
applications can be used to reduce delivery lead time, improve ability to make
delivery promises (and then deliver as promised), deliver more customised
products/services, or produce higher quality products/services. Information
technology itself may be incorporated into the products/services as unique
features.
3) Focusing on a market niche: Information technology applications can be used
to identify and track the niche market (e.g. through market analysis and lead
tracking) and deliver products/services to the market.
4) Growth in terms of product offerings or business units: Information technology
applications increase the ability of an organisation to plan and control larger
numbers of end-items and options/features in product families and to coordinate
multiple business functions and autonomous business units.

Page 13

5) Innovation in products and processes: Information technology applications can

help reduce development/production cycle time for new products (e.g. using
CAD/CAM systems) and support new business processes such as JIT and TQM
(Total Quality Management).
6) Alliances with clients and suppliers: Information technology applications are
vital in the communication and coordination for effective alliances.
For
example, by combining communication and computer technologies, time delays
between client ordering and supplier deliveries can be reduced through better
coordination and communication.

2.2.2

Information Technology and Changes in Strategy

In the above discussions and illustrations, the emphasis was on information

technology and information systems as support for organisational strategies. This
may be an aggressive use of information technology capabilities, but it is passive
with respect to changes in strategy. A more active use of information technology is
to use it to change strategies. In other words, the existence of powerful information
technology possibilities could cause changes in strategic thinking about how to do
business, how to deal with clients, how to achieve sustainable competitive
advantage, and so forth. The following examples can help illustrate this idea.
1) Build in switching costs: Information technology applications may be used in
ways to make it costly and unattractive for clients to switch to a competitor.
For example, transaction costs may be reduced or services provided by systems
that are not available if the client switches to competitors.
2) Change the basis of competition: Information technology may be used to
provide new features or services not previously offered.
3) Build barriers to new entrants: Information technology applications may be
used to increase the cost and difficulty for new competitors to enter the market.
4) Enhance supplier relationships:
Information technology applications may
strengthen supplier relationships and reduce transaction costs.
These ideas suggest how the strategic applications of information technology can
change the fundamental nature of an industry by changing the nature of the
products/services, the markets served, and the economics of production.
The discussion also suggests the first-mover strategy.
For example, your
competitors may innovate with information technology and have developed new
products and services. Under such situation, you may have no choice but to adopt
Page 14

similar technology changes in order to stay competitive. The provision of 24-hour

automatic teller machines (ATMs) by banks is a good illustration in this respect.
Since the ATM service has been well accepted by clients, this service became a
required business process for all banks nowadays. Since the first-mover strategy
requires a lot of insights and investment, many organisations may turn to develop
strategy of following competitor innovations. The organisations may wait until
competitors introduce new information technology and then move aggressively to
improve upon what the competitors have done. It could be successful in using
lesser resources to develop similar services, however, it could also be dangerous of
being fell in a process of ongoing catch-up of what competitors have offered.

2.2.3

Information Technology Innovations and Sustainable Competitive

Advantage

With any innovative applications of information technology, an issue is the

sustainability of competitive advantages that are obtained. Computer hardware is
not unique; software functionality can be duplicated and competitors can respond
with similar systems.
Any application, viewed simply as technology, is probably easy to copy. The key
to sustainable competitive advantage with information technology applications is
integration with the competitive strategy and business processes of the organisation.
When applications are embedded in a company's strategy and business process, the
advantages of the information technology are very difficult to duplicate.

2.3

Linking Information System Planning to Business Strategy

The following are the extracts of ideas from the book "Business Strategy and
Information Technology" written by Ewan Sutherland and Yves Morieux.
Information system planning has been used to develop competitive strategy rather
than just in the arena of planning and control of an organisation. Five levels of
integration between strategic business planning and strategic information planning
can be summarised as below:
1) No plan: no formal planning takes place

Page 15

2) Stand alone planning: the company may have a strategic business plan and a
strategic information plan without any connection to each other
3) Reactive planning: the information system plan refers only to the strategic
business plan
4) Linked planning:
strategic business planning is linked with strategic
information planning, systems resources are matched against business needs
5) Integrated planning: strategic business and strategic information planning occur
simultaneously and interactively.
Information technology, especially the integration of computing and
telecommunications, acts as a mediating technology that links different social
entities through common standards. By lowering transaction costs, a company can
improve the information handling and have better control of both internal and
external transactions. The effect is not contained within the existing organisational
boundaries. On the contrary, shifts in transaction costs by using new information
technology are affecting the existing organisation boundaries. Therefore, it is
necessary to rethink the concept of the organisation and the role information
technology in organisations.
Information system planning plays an important role in the adoption of information
technology.
It has two key functions, systematically influencing the future
information processing systems by specifying goals, constraints, applications and
needed resources; increasing the consistency between decisions in this area in order
to realise the specified future information processing system.
Information system planning is fundamentally a decision-making process resulting
in agreements about the direction and structure of the future information processing
system.
There are different forms of information system strategy planning for linking
business strategy and information technology. In general, information system
planning behaviour can be driven by business issues and plans or information
technology issues.
For example, information strategy planning of some projects was driven by business
strategy issues. However, in some other projects, the primary motive could be the
awareness or excitement about new technology.
For certain projects, neither
business strategy issues nor technology were the obvious driving forces. These
alternative scenarios can be depicted in a matrix below:

Page 16

High

Business
plan
issue
driven

Top down
Analytical

Inside out
Interactive

Middle out
Ad hoc
Informal

Bottom up
Adoptive

Low
Low

High
Information technology
resource driven

Figure 2.4: Alternative Scenarios for Information Systems Planning

(Source: Business Strategy and Information Technology)
A technology driven information strategy planning behaviour is more likely to be
bottom-up, and less comprehensive with respect to organisation issues. However,
the technology driven approach is quite thorough with respect to the awareness of
potential technological opportunities and options. Here, I.T. staff plays a key role
in scanning information sources.
To be successful, this approach requires a
relatively large amount of organisational flexibility within the information systems
department and the ability of the managers to secure high-level sponsorship for the
new technology.
An information strategy planning process is more likely to be facility led, scanning
the environment for new tools and software packages. The key success factor of
this approach is probably the ability of information system managers to secure highlevel sponsorship for new information technology applications.
An interactive information strategy planning behaviour model is more inside-out
orientated and comprehensive, in assessing the existing and future business issues,
by conducting an internal and external analysis, in assessing existing availability of
technology, and forecasting future developments in this field.
The major strength of this approach is that it is comprehensive with respect to both
information technology and organisational issues; both problems and opportunities.
However, the weakness is that the approach is very costly and requires the
Page 17

availability and participation of specialist information system staff and senior

managers.
The key success factor in this approach is the ability to identify
application opportunities and to identify appropriate information technology to
support the potential application areas. In general, it is a two-way interaction
between, on the one hand business strategy, and on the other, information
technology and information resource management.
Many organisations are intentionally not comprehensive with respect to both their
identification and search procedures of business issues and their information
technology scanning processes. Planning is often opportunistic, and driven by
personal visions. Occasionally, a match occurs between issue and information
technology.
The opportunistic model is not necessarily worse than either issue or technology
driven planning. The opportunistic, personal driven approach is the lowest of all
three models in terms of costs and need for organisational slack. There is also a
lower need for specialist skills, such as planners, or technical or applications
gatekeepers. The key skills appear to be generalist.
In practice, there are different forms of behaviour in planning strategic information
systems. Effectiveness seems to depend on the characteristics of the planning
environment.
The critical success factors that link business strategy with
information technology through strategy information system planning are:
1) Management awareness at different organisational levels concerning the role
with I.T. can lay in business processes. External influences such as external
consultants and the behaviour of competitors play an important role in
promoting awareness.
2) Organisational experience of managing information system is needed for
strategy information system planning.
3) In projects for strategic information system planning there is a need for an
intensive interaction between I.T. specialists and managers, or people who know
the business and have authority in carrying out plans.
The mix between
managers and specialists in a project team is important. Interpersonal roles by
people respected by both managers and specialists are important.
4) The introduction of a new generation of methods with more business-oriented
will have an important effect on management involvement in the planning of
strategic information systems. In the process of strategic information system
planning, the upgraded information system development methods do now work.
These old methods focus too much on describing existing situations in detail and
Page 18

do not support the understanding of the relationship between I.T. opportunities

and business strategy.
These methods require too much time for real
management involvement.
5) Fast feedback between planning and execution has to be organised especially in
turbulent business environments. The danger of getting into a "planning loop"
has to be avoided.
6) In large companies a decomposition of the company into planning domains is
essential to reduce planning complexity.

2.4

Information Technology as a Driving Force to the Global

Shift of Financial Services

The following are the extracts of ideas from the book "Global Shift - The
Internationalisation of Economic Activity" by Peter Dicken.
Any change in the level or location of international portfolio investment (e.g. in the
investment of stocks and bonds) can greatly affect the financial well-being of the
entire national economy.
Hence, financial services are considered totally
fundamental to the operation of every aspect of the economic system. From the late
1970s, it became apparent that traditional financial services markets were reaching
saturation. With the growth in securities markets, corporate borrowers could raise
fund through securities globally rather than just raise them through banks.
Together with the deregulation and internationalisation of financial market, a new
competitive environment has been created for financial service companies to
operate.
Information in the financial services can be referred to as both the process and the
product. Information about markets, risks, exchange rates, credit-rating and returns
on investment etc. form part of the raw materials for input. For output products,
they are value-added information that allows financial firms to perform transactions
speedily and globally.
In fact, the world of finance has been fundamentally changed by technology. More
than in any other areas of activities, the growth of international communications, the
development of the data-processing capability of the computers have revolutionised
the way in which finance is transacted. As a result, the real cost of recording,
transmitting and processing information (including financial information) has fallen
more than 95% since 1964. This tremendous cost reduction makes it cheaper to
Page 19

assess risks and rewards of the financial assets, cheaper to record and process trades,
cheaper to manage portfolios and cheaper in capital raising.
Development of satellite communication systems has been especially important to
the development of the international financial markets. Financial services firms are
probably the heaviest users of the telecommunication systems. The major effects of
information technologies on financial services can be summarised below:
1) A significant increase in the productivity in financial services
2) The change in the patterns of relationships or linkages both within financial
firms and also between financialfirmsand their clients
3) A great increase in the velocity, or turnover, of investment capital
4) At the international scale, the capability of financial institutions both to increase
their loan activities and also to respond immediately to fluctuations in exchange
rates in international currency markets.
From a technological viewpoint, it is now possible for financial services firms to
engage in global 24-hour trading in securities, foreign exchange, financial and
commodities futures or any other financial services. The ability to transmit data
electronically over vast geographical distances creates the potential for continuous
financial transactions worldwide, regardless of time. The diagram below shows the
way in which the trading hours of the world's major financial centres overlap.
Despite the availability of technology, true 24-hour trading is currently limited to
certain kinds of transactions because of the obstacles of organisational structure or
national regulatory environment. However, there is no doubt that global 24-hour
trading will become standard in virtually all kinds of financial services.

Page 20

London
Safl Franeis-co

Bahrain

Hons Kong

Singapore *

-rr"! r
11*.* i o 9 a

"i itt "'-5r

i
:
i
i"
4 5 # t $ 10 11 t?
di*frenGe From Greenwich Me^n Tlm$

Figure 2.5: The Trading Hours of Major World Financial Centres

(Source: Global Shift The Internationalisation of Economic Activity)

The global integration of financial markets brings many benefits to its participants:
despite the separation by geographical distances and different time zones,
participants can enjoy faster and more accurate information flows as well as more
direct and rapid transactions. However, such global integration and instantaneous
financial trading also have their costs. "Shocks" which occur in one geographical
market now spread instantaneously around the globe. For instance, the collapse of
prices on the notorious Black Monday of 19th October 1987 surged immediately
round all the world's stock markets. It demonstrated how sensitive and volatile the
global financial system can be as a consequence of the information technology
revolution.
Without question, technological developments has transformed the financial service
industry. The global integration of financial markets has become possible through
collapsing time and space. However, completely borderless financial trading does
not actually exist simply because most financial services remain very heavily
supervised and regulated by individual national governments.

Page 21

2.5

Summary of Key Theories/Concepts

Boar suggested that the apogee of alignment happens when I.T. is sufficiently
powerful and fused with the business.
Perfect strategic alignment occurs when I.T. is used to dynamically create market
dislocations through upsetting the balance of power in the market, and then grow
and exploit business opportunities out of the market dislocations. Under this
scenario, I.T. is used to throw competitors off balance, create the ability to take
advantage of the resulting weakness, and exploit the situation. At this stage, I.T. is
no longer a record keeper or process controller, it becomes the means of extended
business success.
In a perfect strategic alignment state, I.T. stands always ready to be used swiftly as
according to the will of the business. It becomes a competitive advantage. The I.T.
strategy is then to eliminate the questions of time and ability to attack or defend.
In fact, what is really important is not the architecture, but the ability to port
applications effortlessly across architectures, as dictated by the ever-changing
business needs and its intersection with technological possibilities. We should be
looking at an elastic continuum of architectures that bends and bows to business
needs. The key message here is that we should be developing an architectural
framework that permits configuring and reconfiguring application architectures in
perfect synchronisation with business needs. The use of any single architecture is
tactical; what is strategic is the ability to move across architectures as dictated by
ever-changing times and circumstances.
Davis and Hamilton suggested that I.T. is important to the design (re-design) and
implementation of both business strategy and business processes. As I.T., business
strategy and business processes are interacting with each other, the planning process
requires iterative refinement and reviews in order to achieve full potential out of the
three interacting constraints.
It would be passive to I.T. to support the strategy of an organisation. A more active
approach would be the use of I.T. to change strategies that include changes in
strategic thinking about how to do business, how to deal with clients, how to
achieve sustainable competitive advantage, how to be first-movers, etc.
Any application, viewed simply as technology, is easy to copy. The key to
sustainable competitive advantage with I.T. applications is integration with the
Page 22

competitive strategy and business processes of the organisation. When applications

are embedded in a company's strategy and business process, the applications
become very difficult to duplicate.
Sutherland and Morieux even suggested that information system planning has been
used to develop competitive strategy rather than just in planning and control of the
organisation. Subject to the characteristics of the planning environment, there are
different forms of strategic information system planning. Information system
planning can be driven by business strategy and issues. Alternatively, it can be
purely based on the awareness or excitement about new technology.
An example that was best illustrated by Dicken, was the globalisation of the
financial service industry. Through collapsing time and space, technological
developments have fundamentally transformed the financial service industry,
making it possible to reach the state of global integration that it is today. Although
complete borderless financial trading does not exist yet at the moment due to heavy
supervision and regulation by individual national government, it is no doubt that 24hour trading will become standard in virtually all kinds of financial services in the
coming future.

Page 23

Background and History of Nomura

3.1

Nomura Securities

Nomura is the undisputed leader in the

Japanese securities market and a
prominent international bank.
Its
shareholders' equity was US$14.3 billion and total assets were US$125.9 billion as
at 31 March, 1997. Nomura is now the number one brokerage house among the
Big 3 (namely, Nomura, Daiwa and Nikko; previously Big 4 before the collapse of
Yamaichi Securities in 1997) in Japan, despite a sharp decline over the past few
years in its core business. It was also the biggest securities firm in the world during
the 1980's.
Nomura Securities plays a significant role in all the key markets of the world. In
conjunction with other Nomura firms and affiliates, the company offers a range of
financial services that include investment research, investment management, venture
capital, leasingfinancingand computer system services.
According to the Annual Report 1997 of Nomura Securities (Europe), Nomura's
strength in world markets is demonstrated by its:
1) Number one position as underwriter of foreign equities in Japan (handling
around one-half of all foreign issues)
2) Leading position on all major business segments in the domestic market
including stocks, bonds, investment trusts, futures and options.
3) Ranking as one of the top lead manager in Eurobond market worldwide,
managing US$34.6 billion in 1996.
Nomura's profits have fallen sharply with the descent of the Japanese stock market
and the resultant decline in commission and underwriting income. Nomura's
diversification into other financial instruments paid off in 1993 with strong returns
from bond trading and mortgage-securities trading by its U.S. subsidiary. The
company is emphasising local autonomy, with regional managers overseeing the
sales of equity. It is also cutting unproductive offices and personnel.
To provide "one-stop" shopping for its clients, Nomura has restructured its equity
sales division to include warrants, convertible bonds, and stocks.
Nomura
executives have also indicated an interest in new overseas investments, especially in
China and other Asian countries.

Page 24

Nomura alone has over five million clients, with most of them are individuals.
When in the early 1980s it found that it had problems attaining daily market share
over 15 percent, it simply created a new brokerage firm. It was called Kokusai,
meaning international, and it grew in a few short years into Japan's fifth largest
firm, ranking larger than most American brokerage houses.
Most people who have heard of Nomura think of it as a brokerage house, but
Nomura has applied its sales tactics to other fields. Nomura's has been ranking in
the top-tier in the arena of real estate and software business. Its research operation
was known by Japanese as "the brain of Nakasone", who was the Prime Minister
until 1987.
How did a small Osaka money changing firm founded in 1872 come to be such a
dominant force in world finance over a hundred years after its birth?
Tokushichi Nomura started a currency exchange
business in Osaka under the name of Nomura Shoten in
1872. As money changing subsided with Japanese
monetary reform, Nomura entered stock dealing. His
business prospered and was taken over by his son
Tokushichi II (see his picture on the left) prior to the
senior Nomura's death in 1907. In 1910 Tokushichi II
formed Nomura's first syndicate to underwrite a portion
of a government bond issue. As business grew, Nomura
established the Osaka Nomura Bank in 1918. The bond department became
independent in 1925 and was named Nomura Securities.
The company opened a New York office (1927), entered stock brokerage (1938),
and introduced its enormously successful stock investment trusts (1941).
Nomura rebuilt and aggressively expanded retail operations after World War II.
The company encouraged stock market investing by promoting "million ryo ("ryo"
was an old form of currency) savings chests," small boxes in which people were
encouraged to save cash. When savings reached 5,000 yen, savers, usually women,
would bring their boxes to Nomura and buy into investment trusts. Nomura
distributed over one million chests in 10 years.
Nomura looked overseas for investment capital, helping to underwrite a U.S. issue
of Sony stock (1961) and opening a London office (1962). The company emerged
as Japan's leading securities firm after a 1965 stock market crash left rival Yamaichi
Page 25

Securities near bankruptcy. When trade surpluses encouraged the Ministry of

Finance to allow public ownership of foreign securities in 1971, Nomura began
offering samurai (yen-denominated foreign) bonds. The company grew rapidly in
the 1970s, ushering investment capital in and out of Japan and competing with bank
lending by issuing corporate debt securities.
Nomura expanded worldwide in the 1970s and 1980s, attained NYSE membership
(1981), secured a seat on the London Stock Exchange (1986), opened Nomura Bank
International in London (1986), became the world leader in Eurobonds (1987), and
bought 20% of U.S. merger and acquisition advisor Wasserstein Perella (1988).
Nomura pursued retail business aggressively, hosting Tupperware-style investment
parties in Japan.
With a sudden drop in the Tokyo stock market in 1990, Nomura stock toppled 70%
from its 1987 peak. As the Tokyo stock market continued to fall in 1991 and 1992,
Japan's securities firms were rocked by public disclosure of "tobashi", an illegal but
common Japanese practice of adjusting client accounts so that some clients would
avoid stock market losses. The chairman and president of Nomura resigned as the
government investigated claims that Nomura had manipulated stock prices and
improperly covered $114 million in losses suffered by wealthy clients. No charges
were pressed.
In 1993 Nomura's U.S. operations, led by Nomura Securities International, had
pretax income of US$120 million, the highest ever for a Japanese brokerage firm in
the U.S.. In 1994 Nomura stocks began trading on the Singapore Stock Exchange.
After losses in 1993 and 1995, Nomura recovered in 1996 due to the rebound of
Japanese financial markets and Nomura's restructuring.
In 1997, it cut
management layers to prepare for the deregulation of Japanese financial markets.
In a novel development in Japanese business, Nomura and Industrial Bank of Japan
agreed in 1998 to form a pair of joint ventures, one for asset management and the
other to sell derivatives.

Page 26

3.2

Nomura Research Institute

Nomura Research Institute (NRI) was

^
founded in April, 1965. It capitalised
K6SC3fCn I n s t i t u t e a t 500 million yen and becomes Japan's
first think tank. In January 1966, Nomura Computer Centre Co. (NCC) was found
with capitalisation of 300 million yen. In January 1967, NRI's New York office
was opened, which marked the first overseas presence of a Japanese research
organisation.

NRI

Nomura

In 1968, Nomura Operation Services Co. was established and later changed the
name to NRI Data Services Ltd. Later in 1972, Nomura Computer Centre Co.
changed the name to Nomura Computer Systems. In 1983, Nomura Systems
Service Co. was founded that was later changed its name to NRI Information
System Ltd.
Other overseas offices were opened from time to time: London office in 1972,
Hong Kong office in 1977, San Francisco office in 1983 and Singapore office in
1984. In January 1988, Nomura Research Institute and Nomura Computer Systems
merged with capitalisation of 2 billions yen and 1762 employees.
NRI continued to expand with establishment of Tokyo Club Foundation for Global
Studies (1987), Sydney office (1989), Nomura Systems Kansai Co. (1991), NRI
Pacific (1994), Taipei office (1994), Seoul office (1995) and NRI Learning Network
Ltd (1997).
As at April 1998, its capitalisation reached 10.1 billion yen and there are 2622
employees (NRI Group: 3733 employees). Its sales volume was 134.2 billion yen
as at the year ended in March 1997.

3.2.1 Corporate Philosophy

NRI believes that the company is today poised to deal with the economic, industrial,
and social changes of the "information revolution" as well as with clients' newly
emerging needs. NRI's mission is to provide clients with two intellectual functions
(namely, "Best Navigation" and "Best Solutions") required for widening their
horizons.

Page 27

According to Mr. Shozo Hashimoto, the President of NRI, the world is changing at
an ever faster rate as we approach the 21st century. The rapid development of
information technology has led to major structural changes in almost every sphere
of economics and politics, affecting society and the way individuals choose their
style. In this era of extraordinary change, the ability to implement a concrete
project requires quick and accurate analysis of information, along with a profound
insight into the possibilities of the future. To do this, the most critical task they are
confronted with is the structuring of a new information system and utilisation of
advanced technologies. NRI believes that the potential of this Information Age lies
in the creation of intellectual asset. Their approach is both comprehensive and
creative as they strive to provide their clients with solutions for current and future
problems. NRI's target is to meet clients' information-related needs and
expectations, including providing research based on detailed studies and analysis,
optimal counting based on many years of experience, and building information
infrastructure.
NRI's strength lies in its teamwork based on its extensive human resources and
intellectual assets that can solve the clients' problems.
NRI Information Systems Co. Ltd., NRI Data Services Ltd., Nomura Systems
Kansai Co. Ltd, NRI Learning Network Ltd. - maximising the individual strength of
these specialised companies and providing clients with thoroughly considered
solutions. This is the NRI Group mission.

Page 28

3.2.2 Best Navigation

Firstly, NRI offers what it calls "Best Navigation". The more rapidly changes
occur, the more people tend to lose their long-term perspective. NRI serves its
clients as its "Best global navigator". It provides them with worldwide information
networking, analysis and solutions best suited to each client, creative approaches to
systems development, and overall judgement to observe economic, industrial, and
social change from a long-term, neutral viewpoint.
NRI is acting as the clients' guide/business partner to business management strategy
and the creation of new social systems for the information revolution, as well as a
facilitator of the global-scale intellectual-asset creation. As proper handling of
information is so important today, NRI guides the clients through every area, and
find the newest and most appropriate information in pursuing an optimal business
direction.
We anticipate our events ^ eeas for
aA-anced intermater. n e a r e r ana
isemrficaton of problenrs
W t study and propose the appuosoon
off next-generation techno c^es

M3croeconam+c anal;ysj forecasting consulting

Aggregate and assemmat;D<i of knowledge through
research vw.th specrcterte outSMfe of the NRI organization
iastc think lank research activities

Center for knowledge

Exchange & Creation

Tokyo Club Foundation

Advanced Information
Technology Division

Think Tank

-cmt research from a global for G l o b a l S t u d i e s

pere^ectve with overseas- thin k
ranxs and experts

T5

vVs =rL*dy, collect and

disseminate inrornvaijon on
leading-edge tecmoJogpes and
products as wall as appi-ed
N R I Pacific Inc. examples d their use

CCCI

Nomura School o( v
Advanced Management

New tyces ot managerial training

through cooperation with
lead-r.g oveiseas bu&fness schools

^Toward the creation or present and

r^ture socai systems we prov de
support tc social e x p e r i m e n t a l
activities. as svrt; as research and
development proects

Racf Nauinatinn

For society:
Estakushing a firm soc+at infrastrjctjrc fc* tn
21st century, making proposals required for
creating future social systems from vancus
perspectives sucn as societa* structure, people's
vfestf-es regional & urban development and
heaitrvmeacal care & *vettane

Future outlook and

guidelines expected by our clients

For the world:

We apply oui accumulated knowledge on
governmental anc economic devefopmem
in contributing to Asta and the world

For businesses, governments,

government & municipal agencies,
and public organizations:

Consultation on le aomg-eage management techniques

Poi*cy consur.aton from a gleoa perspective in an era or deregulation and cartel-opening ^natives
Poiicv adyice *o public agencies on how oest to develop city d'saster-pre.'enton a^d nsk- naragemem strar.eg.es

Figure 3.1: NRI's "Best Navigation "

(Source: Web-Site of Nomura Research Institute)
Page 29

3.2.3 Best Solutions

Secondly, NRI offers its clients the "Best Solutions". The information revolution
and concurrent economic, industrial, and social changes have extensively
undermined long-held value systems.
Nowadays, clients need more than
progressive trend charts; what they need are practical, solution-oriented
methodologies for creating values that stay abreast of societal change.
As
specialists in both M.T. (Management Technology) and I.T. (Information
Technology), NRI provides its clients with (1) proposals and consulting for assisting
them in management and operation reforms, and in developing new business in line
with the formation of new values; and (2) design and structure support capabilities
revolving around the most modern and appropriate information systems. In other
words, NRI offers its clients total satisfaction.
As the information revolution gains momentum in society and business changes
greatly, it is essential not only to provide I.T. assistance, but supplementary strategic
planning in the area of M.T.. The combination of M.T. and I.T. is unique to NRI.
Providing integrates problenvsolvng
fio?P management strategies to information systems
Pinpointing Ihe> social. eccfUMWt,
i anciai industrial
- ate. and
' trends ot t-e irit: -

*9*

ana

a
Consulting

P " * *

Prov>::^s diverse service?*.

,,

Center lot Kroivwdge

ar <3

L-I-ZUVMZ

usin9

Advanced mformalic^

lasr-y
. 11
MoTnira
on-

j""

m
1

-.he not* m u k m

n'ormanon tec.- n-a iqy

-i C-*c2'.oi TccKic txqy Divisor

CCC1 ^

Advarcsd

V
Best Solutions

For Society:

Our clients'needs

Socii e*i..r lentation

bu&nesa promotion
for the creation ol raw social systems

For the world:

We provide a worictoide network ct
mTormation and ^uman resources
a v^dual supply c^am s p a r i n g rr.e globe

For corporations and public institutions:

Otfenng servcss trat meet diverse v>teds s~:h a i c ^ n e s * r r^-a^o"

r*e*v mar<et development policy piar-'vnQ ar>d building information systems

Figure 3.2: NRI's "Best Solutions "

(Source: Web-Site of Nomura Research Institute)
Page 30

3.2.4 Organisation Chart

The following shows the NRI's organisation chart obtained from its web-site.
(Business Flanging Department
- ( B u s i n e s s banning Department

( Advices Distribution Systems Department

^Management CoasuftgQ Department

{ I ttdastrial Constiif ag Department

"-{Distribution S'jsterre Deperfnait

p

Systems PgparfroeBt I

(Wcmnatkr & SensesfcdasDyCtmiaig fepajSnai)

-("Distribution Systems tepartneEt Hi
-(Distribution Sffierre OepartmeEt IV
-{Systems Consulting Department

- ( RusiaesB Plan a tug Department

(I ad astral Systems Department

-{Socat Atariustiat S^teme Research D ^ r i r i )

CScxriai Research Departrreat

(flegionalDewelcpm&tt Dfepatrtmeat '

H^faOTn^^BwS^^te^DepMaTiEnt)

Regwmaf Pofec^f DspartiTBRt

-(Business Dgaetopyraft & O&nsusing Departure?

( Administraiaa Department
- { Strat&gis Business. Unit S roup

_i5 -

(Business Piannicg Dspinmes:

(Adwncsd Systems Techftologj,' DepanrneiT
-{Boai^esB Pianitiag Department
(Inforrmiion Technology Resasfdi Depcnrrei
{ S y t e r Cornmeics Department
--(IS^ittimedia Technology Department"

{Oyter Platform Department

1
- { Center for Knoarfedgg B t c t o g e & Qeatioa

r-^&usiness Wanning Department

Qtfli Maiding America

-{Nomura Research instituteAmerica. Inc.

f -{AssetfefaiagementWtomacft S e a t s Dgsnrnsrrt)

^ S t Francisco Office

")

- Q l S I Pacific lac.

-{ Stnmgie Product Making Departmentf 3 R )Investment America""

(Nomura feeareft (nsiitutg Europe Limited
- { f t t a n m B g f i B r e f t Institute Hong Kong Lid.

("Buaness fitanniag Department

(Monrare Ftesesirti InstitiiEiangspag) Privatettd.

{Securities Systems Department

{ Seouf Branch

L-( Financtl Systems Department

(Taipsi Brand?

{Marai Branch
5

-{Corporate Pfenning Department

r-{Business Piafircisg Department

(Corpoae CcmnunEatisns Departmeat

^ S a c a r i f e S^stere Department t

- { Sacuritfes S^&tems Department 5

)
)

{Trust & Gttstody Systems. Department H

{ EE STV* AY Department
CRaaccial SolatiQg Sendees Department

(fnf or matron Resourcea Department

- { P e r s o n net Department

( t r u s t s Custody Systems Departmttt 1

( H t n w Resources Pgj'elopneTt Department

)
3

(Administrative Department
-{Legai Separtment
- ( F r a n c e Department

r - f B a s j n e s s Pknging Department
( I n s u r a n c e Systems Department
( PubBc Sector Systems Department

Page 31

[I Washington Srancti

(Systerc yanagement Ptan H tag Department

Business Focus and Needs of Nomura

Tokyo-based Nomura Securities has currently 134 branch offices and two
subsidiaries in Japan and 66 subsidiaries and 13 affiliates in 28 other countries.
In the fast moving international world, Nomura has been striving to be one of the
major global players and to maintain its leading position in the securities arena. By
means of global organisational restructuring, formulation of global business
strategies and integration of information technology, the resulting synergy enables
Nomura as a whole to benefit from shared goals and incentives.
According to Mr. Takashi Tsutsui, the Chairman of Nomura Europe, "The
consolidation and investment in 1997 has seen the development of a strong model
for the globalisation of Nomura's services, reinforced by robust new information
technology, risk management and compliance systems."
To progress with Nomura's globalisation, Nomura combined its equity- and debtrelated flow business as well as arbitrage business lines to form the International
Markets Division. The overall operations of this new division were integrated with
the Equity and Debt Markets Divisions in Tokyo to ensure effective global use of
Japanese franchises.
The flexibility of Nomura organisational structure has been further demonstrated by
the creation of new South Asian Markets and Technology and Healthcare Groups,
which successfully integrate equity, debt, sales and trading, research and analysis
with a specific geographic and product focus.
Other examples of Nomura's globalisation were integration of Swaps business in
New York and also the Capital Markets operations in the Americas with those of the
International Markets Division.
Nomura was very active in the emerging markets of Central and Eastern Europe,
North Africa, the Middle East and Asian region.
These included the first
international equity issues from Lithuania and Slovenia, debut bond issues for
Lithuania and an Estonian entity, the first IPO (Initial Public Offering) from the
Middle East, and the largest ever bond issue for a private corporate from Central
and Eastern Europe. Also, Nomura was a bookrunner for the sovereign-backed
convertible bond issue for Pakistan Telecom, and for a convertible bond issue for a
leading Taiwanese high-tech group.

Page 32

For Nomura s headquarters in Japan, scandals and a number of irregularities have

been revealed that led to investigations by the Japanese authorities.
Implementation of changes in Tokyo was resulted that help Nomura prepare for the
deregulation and globalisation of its business. Furthermore, with the growth of a
capital-intensive business like securities, risk monitoring and control are becoming
more and more important.
After the restructuring the global business strategies and organisational structure,
four closely interacting headquarters have been formed as depicted below:

World HQ
Tokyo

European HQ
London

International
Markets Division

R
R

American HQ
New York

Investment
Banking Division

b
|

Asian HQ
Hong Kong

'

Figure 4.1: Nomura's International Structure

(Source: 1997 Annual Report of Nomura Securities (Europe))

Nomura's European Headquarters becomes the centre for Nomura's global

operations. The network of European, Asian and American Headquarters operates
under Tokyo's strategic guidance and each HQ cooperates actively with each other.
The International Markets Division (IMD) was formed by merging the London Debt
and Equity Divisions in November 1996. IMD encompasses the Debt and Equity
flow businesses together with a unified arbitrage group. Its formation involved the
total integration of the London and Tokyo operations. In Nomura Hong Kong,
there is a London trading desk which deals Asian and European securities.
Research services provided by IMD include Macro Economic, Debt , Equity and
Credit research.
Page 33

The Investment Banking Division offers capital raising services to clients of the
Nomura Group around the world and provides the full range of investment banking
services to a variety of governmental, supranational and corporate clients on a
public and private basis. On behalf of the Nomura Group and its clients, the
Division is also involved in the sales and distribution of securities; brokerage of
securities; agency and proprietary trading of different types of securities.
The system of the International Structure enables Divisions and Headquarters to
work with each other with closer working relationship and sharing of corporate
mind-sets.
This would be very important for Nomura to achieve worldwide
business synergy and stay in the global competition of the securities business.

Page 34

I.T. Environment in Nomura

Nomura Research Institute currently has overseas bases in New York, Washington,
the Silicon Valley, London, Hong Kong, Taipei, Seoul, Singapore, and Manila.
NRI uses a network of the world's leading think tanks and specialists to realise
global teamwork and the creation of intellectual assets worldwide. It has long
recognised the potential of fast-growing Asia. NRI promotes new business through
analysis of economic, industrial and business trends, by leveraging its technology
and management expertise, and by helping businesses to forge strategic partnerships
with local companies.

Asian Think Tank

Network (AT9+1)

M:iriii;i

Tokyo
Jakarta

Taipxs

Smqiporo
Kuala Lucnpui -

Scoui
Hong Kong
Bangkok
fteijinn .

| I C pJapan-U.S.-Europe

Nomura Reoeaich InsijMe

Wo mui
a Research Inslrtule; Europe Limited
America, Inc.

TKINL
TC NHI Pacific Inc.
ThinkTank IJ5J
,

Washington D.C
-I
London
Paris
Munich

IT

NFSSogui 8r.an.th .
HKI Taipei Branch
NRt^Hong Kong
NRI Manila Branch
NRI Singapore

Tokyo

Figure 5.1: Nomura's Global Network

(Source: Web-Site of Nomura Research Institute)

You can notice that the think tanks are structured geographically in a way similar to
the business Headquarters in Nomura Securities. Because the structure and size in
Japan, U.S. and Europe are so big, NRI sets up individual think tanks for these
regions so as to better support Nomura's business in these regions. In the Asian
Think Tanks, Hong Kong is the head-office of the region.
Page 35

Asian
Think Tank

Japan
Think Tank

Global Computer Network

Europe
Think Tank

U.S
Think Tank

Figure 5.2: Nomura's Global Computer Network

(Source: Corporate Profile of Nomura Research Institute)
To support the globalisation strategies of Nomura Securities, Headquarters of the
Nomura Group have decided in 1997 to adopt a common securities back-office
system for offices of Nomura Securities. This decision demonstrated an strategic
integration of information technology and business strategies.
This strategic
integration enables information technology to be used in its full potential to support
Nomura's globalisation business. This common I.T. platform allows better support
of the current as well as future business requirements. It eases the overall I.T.
implementation work and shortens the overall development cycle for all related
offices, thus allowing Nomura to response quickly to the change of market
conditions or business strategies.
Because the business size and operation of the Japan, U.S. and London offices are
very big and they have their own I.T. systems, the strategy of using a common
securities back-office system is currently not covered to these locations.
The securities back-office system is an integrated system and covers full-range
service. The functions include trade-capture (of securities, banking and non-trade
related transactions), pre-settlement, settlement, funding management, corporate
action, position and balance management, risk management, corporate credit and
margin management, portfolio management as well as accounting (financial,
management and regulatory accounting). At the moment, the system has been used
as a c o m m o n platform in many Asia-Pacific offices as well as some European ones.
It is on the way to spread it out to other Nomura offices.
Nomura is now Internet and Intranet "enable". Also, a global telephone and e-mail
infrastructure has been established.
All these enable efficient exchange of
information as well as business opportunities between Nomura offices and also the
outside world.

Page 36

Some Strategic Applications of I.T. in Nomura

Strategic applications of I.T. have been seen in the different business areas. These
enhance Nomura s competitiveness as well as achieve regional and worldwide
synergy.

6.1

Cost Reduction by Using Centralised Custodian

6.1.1

A Typical Example of Using a Custodian

A custodian is a place where securities are held. In the life cycle of a securities
transaction, an investor may first buy some stocks through a broker. After he has
settled the transaction by paying the required net consideration (typically, that
includes principal amount (i.e. trade price x total number of shares), commission,
tax, levy fee, other charges, etc.) to the broker, he will then get his stocks.
Depending on the stock being traded, the shares received could be in scripless /
paperless form (i.e. share information are just registered in the issuing company or
central depository) or in scrip form (i.e. the actual share certificates). For example,
the investor received the share certificatesfromhis broker.
With the share certificates, the investor can just keep them in his safety-box or keep
them in a custodian (say, open a securities account in a bank, e.g. Hongkong Bank).
Of course, if he keeps the shares in a custodian, he has to pay custody fee.
However, the benefits of using a custodian include basically the following:
1) safer as there is no need to bring the share certificates to and from the safety-box
for trade settlement;
2) more convenient since your custodian will deliver the share certificates for you;
3) save time since you just need to instruct your custodian for settlement regarding
the following information:
when (on which value date the settlement should be effected)
how (i.e. the way of payment e.g. free of payment (settle cash or securities
independently) or against payment (i.e. settle securities and money at the

same time))
how much money (the settlement currency and amount)
how many securities (the name of the securities and the number of shares /
bond nominal)

Page 37

the bank and bank account of your settlement counterpart, where the money
or securities should be delivered to
4) in case of corporate action events (say, receiving dividends, bonus shares, etc.),
your custodian will:

handle the name-transfer (i.e. change of ownership to your custodian's name

(as a nominee of you) so as to entitle for the receipt of dividend, etc.)
receive the dividend or shares for you
distribute the received amount or shares to your account
5) maintain a full record of your shares regarding what are the current balance of
your securities holding and the record of securities receipt and delivery
In a wider context, you may regard your broker as your custodian (though the shares
are physically placed somewhere else, which may or may not known to you) if your
broker, who directly deals with you, holds your securities in its side.

6.1.2

Changing Roles of Custodians

Traditionally, a custodian provides standard services of just keeping securities or

handling corporate action related matters (e.g. receiving cash dividend, bonus
shares, rights subscription, redemption of debts, etc.).
Increasingly, leading
securities have expanded their range of services far beyond the standard task of
keeping securities in safety, generating new revenues by increasing, speeding up
and tailoring the information they can provide to investors. Big global custodians
like Citibank, Chase Manhatten, etc. have develop the sort of securities processing
powerhouses that have enabled them to keep driving costs down as fast as fees.
With the globalisation and closer relationship of the financial markets, funds
managers or investors are increasingly investing outside their home territories, thus
enhancing the need for global custodians. With a global custodian, a lot of
administrative tasks regarding settlement or managing the securities can be eased
and the costs involved can be lowered.
Normally, the custodian charge of moving (i.e. delivery or receipt) of securities is
depending on the transaction volume. In many cases, the charging scheme adopts
in a sliding scale on the number of transactions. In other words, the more securities
you moved in a month, the average cost per each movement of securities would be
less. A global custodian will attract international investors/financial institutions to
attain economies of custodian costs. To become a global custodian, it should be
invested and operated in new or emerging markets in order to expand its global
Page 38

network. However, the risks and costs involved in operating in new and emerging
markets are higher and not every custodian could compensate for them.
According to the Survey Global Custody: Fractional fees bring cheer" of
Financial Times, institutions are increasingly asking their custodians also to perform
a compliance role, monitoring derivatives investments, for example, to ensure that
they are not unwittingly gearing their funds, or checking that sub-managers stay
within their investment guidelines.
Another source of revenue for many global custodians is the stock lending business,
which has been growing in importance.
The custodian advances a client's
securities to a trader and invests the collateral received in exchange, hoping to create
a spread over the yield of the original securities. If this increases the yield by 50 to
75 basis points, it could mean millions of dollars of additional income. The spread
is split between the custodian and the institution, usually 60:40 or 70:30 in the
client's favour. However, stock lending is not a risk-free business that may involve
loss.

6.1.3

The Use of Centralised Custodian in Nomura

Nomura is a global company with overseas offices all over the world. Each office
engages in trading securities all over the world for own and client investment
portfolios.
In Nomura, we have safekeeping and non-safekeeping clients. Safekeeping clients
refer to the clients who keep their cash and securities in Nomura after buying or
selling securities. Non-safekeeping clients, on the other hand, do not keep their
cash and securities in Nomura and hence, they have to bring in and out the required
cash and securities for trade settlement.
From Nomura's point of view, it manages differently for these two types of clients:
1) For safekeeping clients, Nomura settles with the clients through internal account
transfer of the back-office system (i.e. no need to settle actually through banks /
custodians). However, Nomura should have good records of how much cash
balance and how many securities holding are currently kept in Nomura and
under which bank / custodian. In case of corporate action events, Nomura has
to change the ownership of the safekeeping securities for the receipt of dividend
and rights.
Page 39

2) For non-safekeeping clients, Nomura has to ensure trade settlement is properly

done and monitor any failed settlement of trades. Since the cash and securities
are not kept in Nomura, Nomura does not need to worry about their corporate
action related matters.
In any case, Nomura has to reconcile the day-to-day custodian balances (including
own holding, safekeeping client holding and failed settlement holding) for each
securities.
Traditionally, each office manages its custodians on its own. That is, each office
finds different custodians for holding securities of different markets / countries.
Even a Nomura office has opened an account in a global custodian (say, Citibank),
other Nomura offices may open separate accounts in that global custodian.
Since there is no standard strategy in using custodian, the securities may be
diversely held in different custodians. Even some of the offices use the same
custodian, opening separate securities accounts cannot attain economies of
custodian costs.
As custodian costs are charged on a sliding scale basis (i.e. the more, the cheaper),
centralising different offices into the same securities account can enjoy better
economies of custodian costs. Currently, Nomura Singapore is acting as the
centralised custodian of most of the Asian stocks and Euroclear is acting as the
centralised custodian for European securities.
In fact, Nomura Singapore does not hold the securities by itself, it just centralises
the securities from different Nomura offices and then puts them to Citibank under
Nomura Singapore's name. Specifically, Singapore securities are kept in SES
(Stock Exchange of Singapore), Malaysian securities are kept in Citibank (Kuala
Lumpur), Thailand securities are kept in Citibank (Bangkok) and Indonesian
securities are kept in Citibank (Jakarta).
Since the securities are kept under Nomura Singapore's name, it requires Nomura
Singapore's authorisation in moving the securities. Hence, other Nomura offices
that keep securities under Nomura Singapore have to send settlement instructions to
Nomura Singapore in order to move their securities. In term of custodian costs,
they will be calculated based on the accounts of Nomura Singapore. With this
arrangement, overall custody costs can be lowered drastically.

Page 40

From I.T. point of view, the securities back-office system should be able to keep
clear records of all the securities movements under each custodian for day-to-day
reconciliation with external custodians. In case of any discrepancies, details of
securities movements will be retrieved from the back-office system for checking.
Each office should maintain accurate custodian records for inter-office as well as
external reconciliation.
Since Nomura Singapore is acting as a centralised
custodian, it has to maintain vast number of securities movements due to other
Nomura offices. Without a good and reliable securities back-office computer
system, it would be nearly impossible to make this strategy of centralised custodian
come true.
According to Davis and Hamilton, I.T. is important to the design (or re-design) of
business strategy and business process, which is an iterative process. Furthermore,
I.T. can support and enhance organisational strategies. For Nomura's experience,
I.T. has been an important part in formulating the strategy and processes of
centralised custodian. By iterative revisiting the areas of I.T, business strategy and
processes, it took a few months for related Nomura offices to work out a proposal
that optimises the overall effectiveness. In addition, I.T. here has played a role of
supporting and enhancing Nomura's strategy of cutting running costs and building
barriers to new entrants.
Referring also to Boar, the alignment of I.T. and business strategy can throw
competitors off balance and exploit the marketplace. In the state of alignment, I.T.
is no longer a record keeper but a means of extended business success. Nowadays,
keen competitions on a global scale enhance consolidation (or mergers &
acquisitions) activities on a regional or global scale in order to exploit the
marketplace through economies of scale.
The integrated use of I.T. in the
implementation of centralised custodians helps attain economies of scale and create
a competitive advantage to Nomura to those competitors without this strategy.

Page 41

6.2

Cost Reduction and Better Resource Utilisation through

Consolidation of Settlement Function

After a trade order with a non-safekeeping client is executed, Nomura has to arrange
the required amount of cash and securities for the trade settlement. The settlement
tasks normally involve the following:
1) Sending trade confirmation
Right after a trade is concluded and entered into the back-office system, a
settlement staff will send out a trade confirmation to the client via fax, telex,
SWIFT, OASYS, etc. according to the preference of the client. The trade
confirmation will contain detailed trade information, the method of payment
(e.g. free of payment or against payment), the names and account numbers of
"our" (i.e. Nomura's) and "your" (i.e. client's) banks / custodians. With the
information, the client can confirm the trade details and then arrange for
settlement.
2) Changing settlement information
In case a client wants to change any of the settlement information (e.g. the way
of payment, bank name or account number, etc), the staff will update the record
in the back-office system. After that, Nomura will send an amended trade
confirmation to the client.
3) Follow-up of missing settlement information
For some clients who still not yet confirm how to settle the trade, the settlement
staff will then call the client for further information before the value date of the
trade.
4) Preparation of funding schedule
Based on the unsettled trade information, a funding schedule will be prepared.
In other words, enough funds have to be arranged to meet settlement
requirement between Nomura and its counterparties on certain value date. The
Treasury Department will consolidate all the funding schedules (due to
securities trades, money market trades, account payments, etc.) and then arrange
funds at the lowest cost as much as possible.
5) Sending settlement instruction
Depending on the settlement bank or custodian, the settlement staff will send
settlement instructions to the bank and custodian on the same day or a few days
before the value date of the settlement. For example, our settlement staff has to
Page 42

send settlement instructions one day before the value date for settlement in the
Euroclear, however, they can do it same day for Hong Kong market. In the
settlement instruction, it contains the trade details, the method of payment, the
names and account numbers of our and counterparty's banks/custodians, and a
test key (i.e. a sort of authentication code) that is dependant on the payment
system/media (e.g. via telex, SWIFT, Euroclear, etc.)
6) Confirming settlement status
After sending the settlement instructions, the settlement staff can confirm the
settlement status from the bank/custodian statements or the user terminal of the
settlement systems (e.g. Euroclear, CCASS, SWIFT, etc.). The settlement staff
will then know if there is any failed settlement.
7) Posting of successful settlement
After the settlement has been effected, the staff will then post the amount of
cash and securities received or delivered into the back-office system and mark
the trade settlement status as "complete".
8) Follow-up of failed settlement
In case of failed settlement, the settlement staff will call the corresponding client
to find out the reasons of the failed settlement and then perform corrective
actions. Sometimes if the failed settlement is totally due to the fault of the
counterparty, Nomura may keep the right of getting compensation from the
counterparty or even suing the counterparty of failing to fulfill the settlement
obligation.
9) Reconciliation between Nomura offices and custodians
The settlement staff has to reconcile the securities holding information between
Nomura offices and other custodians on a regular basis. Since this process has
been automated by the back-office system, a lot of time is saved as well as many
human errors can be avoided.
In dealing with above tasks, a settlement staff have to acquire proper training
regarding the market practice and detailed operations of the settlement or payment
systems (e.g. OASYS, SWIFT, Euroclear, CCASS, etc.).
Traditionally, each Nomura office maintains its own settlement staff to settle local
and overseas securities. For some offices, the transaction volume for certain
overseas markets may be not so high and hence some of the settlement staff may be
under-utilised. As you know, detailed training is required so to enable a settlement
Page 43

staff to carry out his/her work properly and efficiently. If an office maintains
settlement staff of different overseas markets, staff training costs as well as
equipment setup costs (e.g. user terminals of SWIFT, Euroclear, CCASS, etc.)
would be a lot. Furthermore, if the utilisation rate is not high, the transaction
volume handled may not justify the costs involved.
In the view of effective and efficient use of manpower, Nomura has consolidated
some of the settlement functions of different Nomura offices in Asia region to
Nomura Singapore, known as the "Asian Operation Centre". For example, in
settling securities in Singapore, Malaysia, Thailand and Indonesia, the Hong Kong
office will settle them through the Singapore office. Here, of course, Nomura Hong
Kong has to place enough funds in the corresponding accounts before the settlement
by Nomura Singapore. And when the securities are settled, the settlement staff in
the Singapore office will input settlement posting into the Hong Kong's back-office
system.
The idea would be each Nomura office (currently restricted to the offices in the
Asian region) focuses mainly on the settlement of the local securities, while its
overseas securities settlement would be handled by the corresponding overseas
offices.
From I.T. point of view, good monitoring tools and settlement functions are in place
in the back-office system to support the day-to-day user operations. In addition,
since many Nomura offices are using the same back-office system that are on the
same I.T. platform, it simplifies user operations as well as enhances efficiency of
user communication among Nomura offices.
According to Davis and Hamilton, the use of I.T. can support and enhance
organisational strategies. Aligned with the use of I.T., Nomura's move requires
office to focus on its core competencies of settling local securities and reduce
duplication of resource for better utilisation. It is an added edge to Nomura.
Referring also to Boar, the purpose use of I.T. allows "imagineering" the business.
That is to use I.T. as a cornerstone of radical restructuring the business. In Nomura,
the current I.T. platform enables a radical change of settlement function to shift to a
more locally focused business operation.

Pa e 44

6.3

Economies of Scale and Better Customer Service by Using

Global Ordering System

When a client wants to buy or sell some securities, the trade order process normally
involves the following:
1) Client contacts salesperson to place order
The client will contact his/her salesperson for placing trade order. In the trade
order, the client will specify the name of the securities, the quantity he/she wants
to acquire, the type of order (e.g. Good-Till-Cancel (the order is good until it is
cancelled or fully executed), Good-Day (the order is good until end of the day or
it is fully executed), etc.), the price limit over which the client will not accept,
etc. All these information will be written to an order ticket by the salesperson.
2) Salesperson contacts dealer for order execution
The order ticket is then passed to a dealer for execution. The dealer will
normally perform the following functions:
The dealer attempts to group the trade orders from different salespersons
into bigger orders (according to the type of trade order and securities) so as
to enjoy better commission rates due to bigger order amount.
After
execution, the dealer will allocate and write down the executed quantity to
order tickets.
The dealer will look for suitable brokers for order execution. For example,
the dealer will contact Nomura Singapore for purchasing or selling securities
of Singapore, Malaysia, Indonesia and Thailand. For European securities,
the dealer will contact Nomura London for placing order.
Sometimes, when there are trade orders that match each other (say, there is a
buy order and a sell order with same quantity and similar price limit), the
dealer may decide to match these orders (so called "cross-trades") without
actually done through the market.
The dealer may use different order placing strategies so as to obtain best
execution prices or best commission rates.
3) Data entry to the back-office system
After order execution, the order ticket will be passed to front operation staff for
data input into the back-office system. After that, the staff will generate a trade
confirmation via telex, fax or other media (depending on client's preference) to
the client for confirmation of trade details and arrangement of settlement.

Page 45

4) Salesperson reports the execution status to client

After the execution, salesperson will contact the corresponding client and report
the execution price and quantity to the client.
5) Sendins contract note to client
On the following day, a contract note will be generated and sent to the client as a
legal document of the trade. On the contract note, it records down the trade
details (e.g. the name of securities, the executed price and quantity, the trade
date and value date, the payment currency, the contract company and some legal
notes).
In the above trade order process, it mainly involves writing order tickets by
salesperson, grouping/matching of trade orders by dealer, order execution by broker,
data entry to back-office system by front-operation staff and reporting of execution
status to client by salesperson.
This ordering process involves a lot of manual communications that can hinder the
performance and affect the level of client satisfaction due to delays. Examples
include: the handwriting of the salesperson may be difficult to read and causes
misunderstanding; inefficient communication due to the contact person is engaged
in another phone-call or waiting for fax;
inefficiency in order ticket
grouping/matching since the number of tickets may be many and the tickets are
coming in a random order; mistakes in re-inputting the execution details to the
back-office system;
client complaints due to excessive delays in reporting
execution status, etc.
In the view of these potential problem areas, the management has considered and
reviewed the proposal of building a global ordering system. Nomura intends to
build a common system to achieve the following points:
1) Minimise the unnecessary delays
Since all the staff involved in the ordering process are communicated using a
common system, user communication will become easier and more efficient.
Also, order information input to the system can be used to generate order tickets,
which can reduce time in handling the tickets and possible manual errors.
2) Timely information of outstanding order position and execution status
As different Nomura offices are using the same system for trade ordering, timely
information of order position and execution status can be provided. It enhances
more responsive actions in placing order to market to capture market
Page 46

opportunities. Also, salesperson can know the latest execution status that
allows timely update of the execution status to clients.
3) Efficient order sroupimz/matchine to capture market opportunities
With manual grouping and matching of order tickets, it would be rather timeconsuming. With the help of computer, order information can be sorted in
specify sequence easily that greatly enhances the efficiency of the order
grouping/matching process. More importantly, the dealer can focus more in
placing order to market using different strategies so as to capture market
opportunities (due to price fluctuation) and to enjoy better commission rates
(due to larger order amount).
4) Avoid data re-input mistakes
With a data interface in place, the order information can be transferred easily to
the back-office system without the need of re-input, which can be error-prone.
It also shortens the time required as data are updated electronically.
5) Improve client satisfaction through better services
By shortening the turnaround time of the trade order process, better services can
be provided to clients and thus improving the level of client satisfaction.
The ideas of implementation involve setting a common client and securities
database (with unified naming standards), and also a common computer platform for
order entries and status monitoring. Since the implement of the global ordering
system involves a lot of I.T. investment costs as well as compromises in user
operations (including technical issues like how to split commissions, how open a
global client account, what are legal concerns, etc.), the project is currently under
the review stage. However, I believe that the launch of the system can greatly
enhance Nomura's market positioning and improve the level of client satisfaction
through the provision of better services.
Currently, apart from the above multi-market global ordering system (that can
handle worldwide orders in the ideal case), there are some single-market global
ordering system for inter-office trading of Hong Kong and Japanese securities. For
example, a client of Nomura Japan would like to purchase some Hong Kong stocks.
The order input in the Tokyo office will be routed to Nomura Hong Kong for
execution. And when the order is executed, trade execution information can be fed
to the corresponding back-office system for trade booking.

Page 47

Referring to Boar, the alignment of I.T. and business strategy can throw competitors
off balance and exploit the marketplace. The integrated use of I.T. in the planning
of a global ordering system helps attain economies of scale, achieve better client
satisfaction and allow better exploitation of market opportunities.
The
implementation of global ordering system could help Nomura create dislocations to
those competitors without this strategy.
According to Davis and Hamilton, I.T. is important to the design (or re-design) of
business strategy and business process, which is an iterative process. For Nomura's
experience, I.T. has been an important part in formulating the strategy and processes
of global ordering. By iterative revisiting the areas of I.T, business strategy and
processes, it took a few months for related Nomura offices to work out a
preliminary proposal.
From the ideas of Sutherland and Morieux, the Nomura's plan of "global ordering"
is a good illustration of an "interactive information planning" process. This type of
planning is more inside-out oriented and comprehensive in assessing the existing
and future business needs together with the existing availability and future
requirement of technology. In the planning process, Nomura has considered the
general requirement of both current and future business and I.T. needs. However,
due to the complexity of the business and I.T. requirements in implementing a
common global ordering system, the project is currently under review.
According also to Dicken, the integration of trade ordering can bring many benefits
in terms of speed and accuracy of information flows, and rapidity and directness of
transactions among Nomura offices. Though the plan is currently under review
stage, the Nomura's idea of implementing a common global ordering system could
be extended from the Asian offices to other overseas offices in the world. It could
even be in one day a common platform for 24-hour ordering!

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6.4

Common I.T. System Enhances Global and Inter-Office

Business Strategies

Nomura is an internationalised group with branches located all over the world. The
global network of branches establishes a good base for inter-office cooperation and
resource leveraging.
With a global strategy of standardising the Nomura's securities back-office, all
Nomura offices can have similar back-office functions to support their daily user
operations. At the moment, five Nomura offices have installed the same securities
back-office system, three are on the way to install and some more offices will be
installed in the future. Under the same back-office platform, it enhances the degree
of data sharing (e.g. sharing of securities registration information, corporate action
event information, market price, etc.) and data consolidation (e.g. consolidation of
holding position information of several offices for management reporting or risk
exposure management).
From business point of view, though different Nomura offices are of the same
Nomura group, each office has its own business focus and strategy that are
dependant on the market, economic and political conditions, the size of the office,
composition of clients and expertise. For example, Nomura Hong Kong focuses
more on big financial institution clients, Nomura Singapore focuses on both retail
and financial institution clients, Nomura Swiss focuses more on private bank clients,
etc.
In the past, there were many retail and financial institution clients with accounts in
Nomura Hong Kong. With the change of market conditions and increasing high
costs, Nomura Hong Kong has changed its strategy to shift the focus on big clients
so as to improve the cost-effectiveness. Last year, it has picked up a list of clients
sorted by the size of the investment portfolio.
The management wanted to
terminate the accounts of those clients whose portfolio sizes were lower than a
certain amount. This change of business focus might affect many clients and could
be harmful to the relationship between Nomura and the clients. To minimise the
negative impact, the management proposed to transfer the affected clients to
Nomura Singapore. Since Nomura Singapore is using the same securities backoffice system, similar services and support can be provided to these clients. In
addition, the transfer of existing client holdings and balances between offices can be
easily done with the same back-office system. For client's viewpoint, the only
difference is that trading records will then be booked in Nomura Singapore instead
of Nomura Hong Kong.
This is an example of leveraging the strength and
Page 49

business focuses of different Nomura offices. With a global I.T. strategy, it helps
realise this kind of leveraging responsively.
Sometimes, market opportunities may happen due to differences in the financial
legal framework of different countries. The following is an example to lower
transaction costs by means of inter-office transactions. At the moment, there is a
bilateral trading agreement between Thailand and Singapore that tax is not required
for a Singapore firm to trade and settle Thailand securities, and vice versa. Hence,
under this agreement, if Nomura Hong Kong buys Thailand securities directly, it has
to pay the tax while the tax is not necessary if the trade is traded and settled by a
Singapore firm like Nomura Singapore. To take advantage of it, Nomura Hong
Kong uses Nomura Singapore as its broker in dealing with Thailand securities.
Furthermore, in lowering trade execution costs of Asian stocks and achieving more
timely and better quality customer services for institutional clients, Nomura
Singapore has been designated to be the "Asian Central Booking Centre" for
institutional clients.
With centralised operation by a single office, Nomura
Singapore can better manage and monitor the trade status and report to clients on a
more timely basis.
Using the same back-office system by different offices can help simplify user
operations especially handling inter-office transactions. This kind of inter-office
trading strategy thus helps improve the competitiveness of the firm and gives
Nomura an edge over its competitors.
According to Boar, Nomura's common securities back-office system is an example
of the "strategic configuration of I.T. power" that could be "bent and bow"
dynamically in response to business requirements to attack everywhere and defend
anywhere.
This configuration helps build sustainable competitive advantage to
Nomura.
Davis and Hamilton mentioned that the existence of powerful I.T. possibilities could
cause changes in strategic thinking. In Nomura, the different business applications
under the common securities back-office platform demonstrate that the active use of
I.T. could influence the strategic thinking of doing business.

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6.5

Common I.T. System Simplifies Global/Regional Risk and

Corporate Credit Management

The recent events of the Barings Securities by Mr. Nicholas Leeson in Singapore
and the Daiwa Securities in New York revealed the loose control of risks over a
large variety of investment instruments and derivatives.
In Nomura, new plans regarding risk control are being formulated and proposed.
Information technology can help improve the situations by providing consolidated
balance and position information (of both Nomura and its clients, with figures
classified into individual and group company level) on a timely, regional and
worldwide basis.
The consolidated information allows users to monitor the
company's risk exposure and client's credit limits, thus allowing the company to
formulate the best investment and hedging strategies for maximisation of profits.
In the Asian region, trade positions are exchanged and consolidated everyday
between Nomura Hong Kong and Nomura Singapore for risk management
purposes. In the Europe region, Nomura London will be key controller of risks and
exposures.
At the moment, the road to achieve a timely control of worldwide risk exposures of
Nomura as well as worldwide credit limit controls of clients is still quite far away.
This would be depending on how far and how fast the integration of risk exposure
and corporate credit I.T. systems of different Nomura offices. However, these
kinds of risk and corporate credit control on a regional and global scale are
becoming more and more pressing with the grow in Nomura's global business in
terms of size and complexity, and the internationalisation of client composition and
trading strategies, etc.
According to Sutherland and Morieux, Nomura's plan in reaction to the growing
trend of regional/worldwide risk control is an example of "analytical" information
system planning, where the planning is mainly driven by business issues.

i * U S *%

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6.6

Common
I.T.
Infrastructure
Enables
Efficient
Communication and Sharing of Corporate Information

To facilitate efficient communication, a common infirastructure would be very

important. Worldwide leased telephone / data lines, common electronic mail and
telephone networks are in place to allow easy and efficient communication among
Nomura offices.
Currently, Nomura is Internet and Intranet "enable". For Intranet, there is a
Japanese-based Intranet in the Tokyo office and an English-based Intranet in the
London office.
These Intranets enhance efficient exchange and sharing of
corporate information and research materials. In addition, there is an Intranet
project for inter-office securities ordering between the London, New York and Hong
Kong offices.
Regarding the Internet, corporate information, product information and recruitment
information has been put to the worldwide web. This allows sharing of corporate
information with outsiders, promotes new products, attracts new clients to open
accounts in Nomura, forms partner with Nomura in providing I.T. solutions, attracts
candidates to apply for Nomura jobs, etc.
Referring to Sutherland and Moreiux, Nomura's I.T. infrastructure is an example of
"adoptive" information system planning, where the planning is mainly I.T. driven.
Under this infrastructure, internal as well as external operation efficiency could be
improved.
According to Davis and Hamilton, the existence of powerful information technology
possibilities could cause changes in strategic thinking. The existence of Nomura's
I.T. infrastructure could affect strategic thinking in terms of internal information
flow as well as external business opportunities and connections.

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6.7

I.T. Oriented Business Changes

According to the ideas from Sutherland and Morieux, some projects are driven by
business strategy and issues, while in some projects, the prime mover seemed to be
awareness or excitement about new technology. A technology driven information
strategy planning behaviour is more likely to be bottom-up, and less comprehensive
with respect to organisation issues, but it is rather thorough in understanding the
potential technological opportunities and options. The following are some of the
applications.

6.7.1

Change of I.T. Configuration for New Capabilities and Cost-Effective

Investment

With the rapid advancement in hardware capability/technology and drastic drop of

the hardware costs, many companies are moving towards downsizing and
workstation technology in order to use new hardware/software technology in a more
cost-effective way.
Taking Nomura Hong Kong as an example. In the past, the Hong Kong office used
the IBM Mainframe 3090 as its back-end computer. Because of the big size of the
machine, one office floor had to be rented just to hold the mainframe machines (one
for production and one for development) and also the related peripherals (like, hard
disks, printers, "chillers" for lowering the heat generated from the Central
Processing Unit (CPU), etc.). In addition, the monthly operation and maintenance
costs were vast numbers. Together with the sharp rise of the property market in
1996/1997, the rental expenses were heavy burdens to the company. The use of the
new workstation technology and downsizing not only allowed the company to enjoy
the capabilities of the new technology, it also reduced the burden of high operation
and maintenance expenses of running the computer systems in long-term.

6.7.2 Specialisation in Java Development Enables First-Mover Advantage in

Capturing New Business Opportunities
According to the article "Survey - FT Information Technology: Training Boom:
Rush to climb on the Java bandwagon" of Financial Times, "The rise of the Internet
and the advent of the network computer (NC), a slimmed-down cheaper alternative
to the desktop PC, soon persuaded Sun that Java had a greater potential. Now its
name crops up at heavyweight business projects: Nomura, the world's biggest
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securities house, is buying more than 1000 Sun Java-Stations as just one part of a
huge I.T. project, christened 'Hoodini'. The overall cost of Hoodini is believed to
be in the region of 40 million pounds." Nomura London had in fact put up an
ambitious scheme to enable the development of systems of future generation, which
allow sudden changes or enhancement in a short period of time.
With the
capability of running across different hardware platform (i.e. hardware independent)
and relatively easy language structure, the Java language could minimise hardware
issues and excessive intervention of the technical staff.
Nomura London's vast investment in capturing the Java boom helps develop
expertise in the Java platform. It enables the company to develop future generation
business applications that can best suit to the changing business environment. This
strategic investment in the information technology enables Nomura to become firstmovers in capturing future business opportunities.

6.7.3

To be Year-2000-Compliant as a Survival Need

The "Year 2000 issue" is a worldwide headache. This is another good example of
I.T. driven changes. In the past, computer hardware was not so well developed and
rather costly. In order to maximise the utilisation of the computer system, most
software tools handle the date information in the format of "YYMMDD" (i.e. year,
month and day) without consideration of the century part information. Here, the
software assumes that the century part is always "19". There were basically no
problems in the past, however, when the world is approaching the year 2000, the
problems are becoming more and more threatening. As computer is so popular that
has integrated into our daily life, a lot of business and operations (e.g. credit cards,
banking, insurance, etc.) are now highly dependent on computers. If this year 2000
issue cannot be fixed before year 2000, computer applications may not be able to
function properly (because of the wrong assumption of the century information).
This will result in causing confusions, losing business opportunities, and involving
in legal claims from clients due to malfunctioning and miscalculation of the system.
In Nomura, this problem has been foreseen and many of the computer systems have
been fixed. With the policy of a common back-office system, the year-2000compliant version has been populating in progress to all the related Nomura offices.
This approach not only reduce overall implementation time and effort, it also better
prepares Nomura for the coming challenge beyond year 2000.

Pase 54

Looking into the Experience of Other Companies

7.1

Capturing Internet Opportunities

Rapid growth of the Internet, bringing online information services to millions of

businesses and individual computer users, is changing the way businesses
communicate with their clients, suppliers and within their own organisations. For
many industries and companies, the Internet spells opportunities.
Many companies have seen to use Internet actively, in Boar's term, for
"imagineering the business" and "creating and exploiting business opportunities".
Internet trading, publication, investment consultancy and analysis are examples that
drastically changed the way of doing business. These new business thought and
approach create dislocations in the existing business arena. The dislocations could
shake the ground of traditional way of doing business and help create and exploit
new business opportunities.
The new Internet services offered by different companies are good examples of
using I.T. to "change the basis of competition" (referring to the ideas of Davis and
Hamilton). The offering of timely and tailor-made client services can improve
global reach and client satisfaction. The new way of doing business shifts the
competition to the Internet arena and many big companies have been equipping
themselves to be "first-movers" in this arena. Companies being unattended for the
change may result in losing business opportunities.

7.1.1 Internet Research/Analytical Materials Enhance Global Reach, Cost

Saving and Timely Delivery
According to the article "Information Technology: Paperless way to share views:
Using the Internet" of the Financial Times, "Research - the proudest product of
most investment banks - has many of the qualities of junk mail. Fewer than a tenth
are ever properly read; and clients complain that, in the rare event that they seek
information, they cannot find it. But the tide of paper may at last be turning."
Leading international investment banks such as J.P. Morgan, Goldman Sachs and
Morgan Stanley have moved to provide their research through the Internet. Clients
are able - with the simple click of a mouse button - to act on the analyst's
recommendation and execute the trade.

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Morgan Stanley - its awareness of the Internet sharpened by its lead role in the 1995
flotation of Netscape was one of the firsts to put up real content on the web. In
September 1995, it began publishing online the Morgan Stanley Capital
International stock market indices and Global Economic Forum, a compilation of its
economics research.
Goldman Sachs launched a twice-daily electronic newspaper called Research
Xpress, with a database allowing searches by anything from stock ticker
abbreviations for a company or an analyst's name.
Another development is the sharing of trading models over the Internet. J.P.
Morgan, for instance, is working on the "Trade Analyser" - a tool designed to
capture the expertise of its best researchers. Trade Analyser, which accesses prices
of 4000 bonds and other fixed income instruments, can analyse approximately 10
billion possible trading permutations and rank them according to their suitability.
With the Internet's global reach capability, high quality research and analysis are
available to clients timely. Together with the growth of the web-technology, the
materials can be presented statically (just plain information for reading) or in
interactive fashion (that allows interact input and change of parameters to help
quickly drill down the information you need). On the other hand, a lot of postal
time and costs can be saved. It is also more environment-friendly with distribution
in electronic format, or else, piles of waste paper are generated due to fact that a lot
of publications are not properly read.

7.1.2 New Business Opportunities through Internet Trading

The growth of Internet also poses a challenge to traditional stock brokerages, with
the development of online securities trading services. E*Trade Securities, a pioneer
of securities trading via online services, launched an Internet service providing
almost instant confirmation of U.S. share and options trades. The Internet-based
brokers (e.g. Charles Schwab), market-makers (e.g. Fidelity) and underwriters (e.g.
Intuit) have also challenged the established leaders by creating new arena for
competitions.
As yet, the security of Internet transactions is sufficient for retail electronic broking
but not for the multi-million dollar transactions between investment banks and
institutions. But the leading investment banks are working on the "Fix Protocol" the basic set of rules essential for large-scale electronic trading.
Page 56

David Theobald, head of European fixed income research at J.P. Morgan, says:
Competitive pressures will force us to provide these sophisticated tools to clients".
As trading margins shrink, successful investment firms will have to become Internet
application developers, too.

7.2

Closer Management Control through Risk Management

Derivatives trading has received a bad press through the dramatic collapse of
Barings. But the market will continue to invest in complicated bets against future
movements, as financial institutions hut for a methodology that will reduce risk and
introduce some element of scientific certainty into a world of vertiginous gambles.
At Daiwa Securities in London, Mr. Nassos Pittaras confronted the element of risk
by applying an engineer's approach to problem-solving. "To minimise risk while
achieving maximum returns is a mathematical problem", he said.
"We use
computer software to solve mathematical problems, so I applied the approach to the
selection of companies for our equities portfolios". Mr. Pittaras used a third-party
software system "Matlab" to model the task of portfolio management.
He
developed his system over two years at a cost of around 5000 Pounds. The result is
superior risk management and quite predictable returns.
Though I.T. system helps in analytical works, it is not a panacea to all business
problems. The world of predictive modelling and neural networks - computers that
devise a means of analysing problems - is totally reliant on the know-how that is
fed into the system in the first place.
Internationale Nederlanden Group (ING), the Dutch bank which came to Barings'
rescue is also one of those that had undertaken measures to protect itself. ING has
installed Data Sciences' sophisticated Valuta-IDS front office integrated dealing
system, which provides a manager with consolidated view of credit and market risk
in real time across a range of financial instruments. "It automates the complete
process", said Albert Longvord of Data Sciences.
Although controls are mostly brought into effect by I.T. systems, the I.T. system is
the mechanism only - the pohcy for controls must still be set and monitored, and the
knowledge must be retained.
Furthermore, the issue of corporate-wide risk

Page 57

management is one that needs to be addressed at top management level and requires
support of organisation culture and technology.
The integrated use of risk management tools in dealing and monitoring activities is
an example of using I.T. to support" and "enhance" organisational strategies
(according to ideas of Davis and Hamilton).

7.3 I.T. Helps Reshape Business Strategies and Mode of

Competition
Technology, globalisation and the spread of market-based economies worldwide are
three powerful forces driving change in financial services, in every other industry
and in every aspect of our daily lives. In almost every industry, technology,
especial information technology, has overthrown the older order, the order structure
of work and power. And this process is still on the way.
Information technology helps reshape the mode of competition. In order to serve
clients better, companies have to narrow their client focus and broaden their product
lines. In the past, CitiCorp and J.P. Morgan served all types of clients and offered
banking type products. Today, J.P. Morgan has moved towards being a primarily a
wholesale bank and CitiCorp holds itself out as a consumer company, not even a
bank but a consumer product company.
Furthermore, business that were once different have converged around certain client
groups.
J.P. Morgan, UBS (United Bank of Switzerland), Morgan Stanley,
Deutsche Bank, Goldman Sachs and Merrill Lynch were once quite different; today
they compete for corporate and institutional client relationships and they offer very
similar products - global trading and investment banking. They also serve affluent
individuals.
In the course of globalisation, foreign companies with international experience and
wide usage of information technology will help broaden the range of services and
accelerate the introduction of information technology to emerging countries. This
also helps reshape of the mode of global competition.
In the above big companies, the change in client focus and business strategies in
global and specialised business (e.g. investment banking) is an example of using I.T.
in "imagineering the business" (referring to Boar's idea).
Under such keen
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competitions nowadays, I.T. could be used to "attack" and "defend" to the changing
market conditions.

7.4

I.T. Fosters Globalisation

I.T. fostered globalisation, which also broadened the field of competition and drove
prices down even further. Merrill Lynch used to compete only with U.S. firms like
Paine Webber, Smith Barney, Goldman Sachs, Morgan Stanley and Dean Witter. It
has "virtually" rejoined all the continents of the world, bringing on new competitors
like the United Bank of Switzerland, Deutsche Bank, the Hongkong Shanghai Bank
Corporation and many others.
The accelerated evolution of globalisation has speeded the reconfiguration and
consolidation of financial services providers on a global scale.
Distinctions
between traditional banking, securities and insurance activities have been steadily
disappearing (i.e. convergence of financial activities). In many countries, you have
banks offering a broad range of traditional investment banking and brokerage
services. Likewise, you have securities firms becoming involved in a growing
number of traditional bank-like activities.
Many insurance companies have
spanned all three sectors.
Increasingly, there are merger and acquisitions which are cross-functional. The
merger and acquisition of SBC (Swiss Bank Corporation) and Warburg, Morgan
Stanley and Dean Witter are good examples. Today the leading so-called universal
banks like Deutsche Bank, UBS and Swiss Bank, are making use of their strong
capital position to aggressively exploit the changing competitive structure of the
securities business.
They are expanding fast into the international securities
markets.
Paul Roy mentioned that "To be an important global participant, as a capital market
firm, you will need a large capital base, global reach, state-of-the-art technology,
sophisticated risk management and a governance structure which will permit you to
manage an organisation that is both multi-national and multi-cultural."
The M&A activities of the big financial firms consolidate and strengthen their
competitiveness in the international securities markets. All these can help create
and exploit the marketplace through internal efficiency and economies of scale
(referring to the ideas of Boar). In exploiting the "changing competitive structure
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of the securities business" as mentioned above, a good I.T. foundation would be

important for the exploitation.
The consolidation of financial services on a global scale of the big firms has been
recognised as a "global shift" in the financial activities (by Dicken). Here, I.T.
plays an important role in the configuration and re-configuration of the business
structure.

7.5

Provision of New Products for New Business Opportunities

Merrill Lynch offers centralised clearing services, enabling institutional accounts to

clear in multiple markets through a single clearing broker while using any number
of executing brokers. This service can be used on individual exchanges or on a
global basis. Trade from all executing brokers are reflected on the confirmation
statement the following day.
Centralised clearing provides numerous advantages including streamlined account
maintenance, enhanced cash management efficiency and simplified risk
management. Centralised clearing also enables the client to choose the broker with
the highest level of capitalisation to carry all listed positions while maintaining
maximum execution flexibility.
This centralised clearing service not only enables Merrill Lynch to capture new
business opportunities, it also gives Merrill Lynch an edge to capture new clients
and better position in the securities industry.
Another key competitor, Morgan Stanley Dean Witter & Co. is now exploring the
potential sale of its Global Custody and Corresponding Clearing business as part of
a strategic decision to focus on growing its core businesses - securities, asset
management and credit services. This move is contradictory with Merrill Lynch's
move to expand in the centralised clearing services. Anyway, these are business
decisions. The key is that the use of information technology is important to support
these kinds of changes in business focus. Without I.T., these kinds of services on a
global scale can hardly be possible.
The "centralised clearing services" and "custody services" on a global basis
demonstrates the use of I.T. to exploit business opportunities (according to the ideas
of Boar). The move could help improve company growth and extend company
success.

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7.6

Better Services Means Better Customer Satisfaction

As information becomes digital, as computer power explodes and as telecom

advances shrink the world, the traditional rules of competition are being turned on
their head. In a digital economy, innovation and ideas can quickly overcome
successful business models.
To succeed in the digital economy, Merrill Lynch's strategy to create "lasting
value" in two distinct ways: delivering wisdom and providing personal service.
Wisdom - One by-product of the digital economy is information overload. The
way for Merrill Lynch to create value will be by sorting through information,
synthesising ideas and providing the wisdom clients need to meet their goals.
Personal service - Information itself only has value when analysed in the
context of a human relationship. Merrill Lynch invests in personal relationships
between the company and the clients because the company believes that a
computer will simply never be a "trusted advisor".
This illustrates perfectly that despite the value of I.T., it will not create value unless
it is fully bend and integrated with other key functions or elements of business
processes.
With Merrill, the I.T. support was supplemented with human
relationship and judgement to creating lasting customer value. Many of these areas
have to work hand-in-hand. Again, as quoted in Chapter 2, single use of I.T.
system, architecture etc. will only be tactical. When different pieces are integrated
together, the use become more strategic.
Bear Stearns sees clearing is a major business. It offer the full range of clearing
services for broker dealers, hedge funds, money managers, market markers, short
sellers and other professional investors who trade at multiple securities firms. Bear
Stearns operates in a network of seven regional offices. With over 24 years in the
clearing business and innovative technology, Bear Stearns aims to develop longterm client relationship (not merely a transaction) by providing premier clearing
services.
According to Richard B. Fisher (previously, the chairman of the Morgan Stanley
Group), while market expertise and intellectual capital represent Morgan Stanley's
traditional strengths, technology currently plays a decisive role in its efforts to
maintain competitive advantage into the next century. Technology enables the
company to design and customise products, to refine risk management and to
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articulate industry-wide initiatives and trends to its offices around the world.
Morgan Stanley also capitalises on its global infrastructure. As a result of this
long-term view, the company has secured leading positions in the intermediation of
capital flows between the developed world and the emerging markets. Fisher said
that "Customers return to Morgan Stanley because they respect the firm's ability to
devise innovative solution and manage complex transactions". The company aims
to develop long-term relationship and provide high quality services in order to keep
its clients.
The active use of I.T. to design and customise products, refine risk management,
maintain competitive advantage is a good demonstration of using I.T. in the
formulation of business strategies and processes (referring to the ideas of Davis and
Hamilton).
It helps enhance organisation strategies and achieve sustainable
advantages.

Page 62

Conclusion

The world is changing at an ever-faster rate as we approach the 21st century.

Rapid, unprecedented change is occurring in all aspects of our economy throughout
industry, society, government and culture.
Transitions towards a borderless
economy, and towards a networked, advanced-technology information society, as
well as the emergence of intellect-driven industries, have all contributed to the highspeed "information revolution."
From Internet banking and multimedia kiosks to electronic trading rooms and risk
management systems, the future of the global financial services industry is
inextricably linked to information technology.
The financial services sector is already one of the biggest spenders on information
technology - spending made necessary not just to reduce costs, but also to maintain
an edge in an increasingly competitive market where new entrants and new channels
to market are eroding traditional boundaries.
The fate of many financial
institutions, as they gear up to face this new competition, will depend on the
successful deployment of data processing resources, telecommunications systems
and software.
Ultimately, as the worlds of information processing and financial services collide,
most financial institutions realise that they have little choice but to increase their
I.T. expenditure while ensuring that they use technology as efficiently as possible to
deliver their clients fast, flexible and competitively priced services.
When we look at the structure of Nomura, the formation of its I.T. Think Tanks
(namely NRI's Japan, Asian, Europe and U.S. Think Tanks) is in line with its
business headquarters (namely Nomura's Asian HQ, American HQ, European HQ
and World HQ). This organisation design demonstrates an integration of I.T. and
business strategies, and allows NRI to meet Nomura's business needs both on a
local and global basis (i.e. "thinking globally and acting locally").
Regarding local support, since the user operations and business size in Japan,
Europe and U.S. are so huge, dedicated Think Tanks are required so as to better
capture local user requirements and provide better support to local business
operations and strategies.
On the other hand, this local (or regional) support will not lose sight on the global
perspective. Given all local or regional Think Tanks are centrally coordinated by
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the Japan headquarters and the policy of deploying a global back-office platform
and global communication infrastructure, NRI is playing a strategic role in line with
Nomura s globalisation strategies both today and in the future. This flexibility of
providing local (or regional) and global support help sustain Nomura's position of
being one of the major global players in the securities industry.
In earlier chapters, we understand that perfect strategic alignment occurs when I.T.
is used to dynamically to create market dislocations, and then grow and exploit
business opportunities out of the dislocations.
Under the impacts of Asian currency crises and intense global competitions, better
utilisation of resources and exploitation of business opportunities in global scale
help push competitors off balance or under a state of tension.
Setting up Nomura Singapore as a centralised custodian, consolidation of settlement
functions in the Asian region and consolidation of global operations to Nomura's
European Headquarters are good examples of better utilisation of resources and cost
reduction on a regional and global scale.
This helps Nomura leverage
regional/global resources and strengths, and create market dislocations especially to
those less efficient competitors. In fact, a lot of competitors have been exploiting
the market through attaining global economies of scale, global restructuring and
M&A (mergers and acquisitions) activities.
The global presence of Nomura and its I.T. infrastructure enables Nomura to adopt
flexible inter-office trading strategies and sharing of corporate information.
Flexible trading strategies provides "one-stop" services of trading worldwide
securities so as to broaden its client base to different countries. Together with a
strong I.T. infrastructure, better investment advice can be provided to clients given
that better and more timely sharing of research and related corporate materials axe
available to the related staff. Key competitors like Merrill Lynch, Morgan Stanley
Dean Witter, Bear Stearns, Goldman Sachs, etc. are also providing different services
(namely Internet trading, global clearing services, worldwide risk management, etc.)
on a global basis so as to better capture business opportunities and/or provide better
client services. Actually, the major global players are reshaping the mode of
competitions in order to improve their global positioning.
In the real world, most of the I.T. changes are related to business issues. However,
many changes related to Java and Internet are good examples of I.T. driven business
changes. Various companies including Nomura and its competitors have been

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exploring opportunities actively out of these new technologies so as to enjoy firstmover advantages.
With the growth of I.T. investment and globalisation in the securities industry, it
creates a barrier for competitors to compete with leading ones. It also builds in
switching costs for clients to change companies with similar level of services.
Even within the leading competitors, the continuous I.T. investment is somewhat
turning to a survival need in the view that one will be lagging behind if everyone in
the world is moving.
In reviewing Nomura's position in the global marketplace, I think Nomura is now so
far so good. With formulation of "think global, act local" strategies, it enables
Nomura to grow with a long-term direction. Currently, Nomura is lagging behind
its competitors in certain business functions (e.g. worldwide risk exposure
management and credit control, Internet trading, etc.). With its long-term view of
strategic alignment of I.T. and business in terms of structure and strategies, it
prepares Nomura ready to face challenges from its competitors and the changing
market conditions. Although Merrill Lynch is currently performing the best in the
securities industry, through continuous improvement and restructuring, Nomura
might one day recapture the number one position again in the industry.

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Reference
The House of Nomura The rise to supremacy of the world's most powerful
company: the inside story of the legendary Japanese dynasty", by A1 Alletzhauser,
published by Bloomsbury Publishing Limited
"Practical Steps for Aligning Information Technology with Business Strategies How to Achieve a Competitive Advantage", by Bernard H. Boar, published by John
Wiley & sons, Inc.
"Managing Information - How Information Systems Impact Organisational
Strategy", by Gordon B. Davis & Scott Hamilton, published by Irwin Professional
Publishing
"Information Technology and Innovation: Strategies for Success", by V.
Sambamurthy (Forida State University) & Robert W. Zmud (Florida State
University), published by Financial Executives Research Foundation, Inc.
"Business Strategy and Information Technology", by Ewan Sutherland & Yves
Morieux, published by Routledge London and New York
"Information Technology - The Management Challenge", by N. Caroline Daniels,
published by Addison-Wesley Publishing Company
"Global Shift - The Internationalisation of Economic Activity", 2nd Edition, by
Peter Dicken, published by Paul Chapman Publishing Ltd (PCP)
"After the Trade is Made - Processing Securities Transactions", by David M.
Weiss, published by the New York Institute of Finance (NYIF)
"Perspectives for a Changing World - a Return Visit with Alvin Toffler", by Mary
Eisenhart, MicroTimes in 1995
"The Internationalisation of Japanese Business - European and Japanese
Perspectives", by Malcolm Trevor, published by Westview Press
"Japan's Response to Crisis and Change in the World Economy", by Michele
Schmiegelow, published by the Institute of Asian Affairs, Hamburg
1997 Annual Report of Nomura Securities (Europe)
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Corporate Profile of Nomura Securities Co., Ltd, published by Nomura Securities

Corporate Profile of Nomura Research Institute, published by Nomura Research
Institute
"Guide to Nomura Research Institute, Ltd (NRI) - Japan's largest all-around
information services company, think tank, consulting firm and SI vendor",
published by Nomura Research Institute, Ltd.
"New regional operation concept & centralisation and concentration of booking and
settlement, establishing Asia operation centre for back-office jobs in Nomura Asia
Oceania region (Nomura International (Hong Kong) Limited & Nomura Singapore
Limited) Aiming to total cost reduction and contribution towards customer
satisfaction", by Yasuhiro Bansho, Nomura International (Hong Kong) Limited,
December 1,1995.
1998 Fortune 500 Industry List - Securities Industry
The Financial Times (FT) publications:
"Lex Comment: Nomura", FT 97 Apr 25
"Survey - FT Information Technology: Training Boom: Rush to climb on
the Java bandwagon", by Michael Dempsey, FT 97 Oct 1
"Survey - Global Custody: Fractional fees bring cheer", by George
Gramham, FT 96 Nov 26
"Survey - Global Custody: Delays reinforce doubts", by William Lewis, FT
96 Nov 26
"Information Technology: Paperless way to share views: Using the Internet.
Nicholas Denton: The first in a monthly series on how different
industries are exploiting the online world", by Nick Denton, FT 96
Nov 20
"Information Technology: Transaction made safer: Offerings on the Net", by
Nicholas - Compiler Denton, FT 96 Oct 30
"Survey - FT IT: Global finance sector maintains its IT edge", by Paul
Taylor, FT 96 Sep 4
"FT IT Review of Information Technology - Software: Nomura's leap to
freedom - Securities application. Three years ago, a variety of
accounting systems on disparate hardware platforms made life
difficult for accountants at Nomura International", by Claire
Gooding, FT 95 Dec 6
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"Mastering Management - Part 5: The changing world of finance - Finance

is as subject to as any other industry, perhaps more so. Harold Rose
looks at the main changes that have happened, are happening and will
happen, and at the factors driving them", by Harold Rose, FT 95 Nov
24
"FT IT Review of Information Technology: Home-based brokers stay
online via the Internet - The number of personal online brokerage
accounts, now standing at more than 600,000, could reach the million
mark over the next three years. / Electronic investors", by Stephen
Mcgookin, FT 95 Nov 1
"FT IT Review of Information Technology: CS First Boston launches
global online system - FT IT Update", by Michael Wiltshire, FT 95
Jul 5
"FT IT Review of Information Technology: New ways to reduce financial
risk - But computers and clever software cannot yet provide a crystal
ball for all financial forecasting / Predictive modelling - software
helps to analyse raw data", by Michael Dempsey, FT 95 Jul 5
"FT IT Review of Information Technology: Integration is the key Advanced software is helping to bring together complex data into
highly visual displays on single screens / Dealer rooms new trader
systems", by Graham Bowley, FT 95 Jul 5
"FT IT Review of Information Technology: Risk issues now a high priority
- After the Barings collapse, what are the lessons to be learned?
Paul Taylor finds worrying evidence of inadequate risk management
in the financial world. Operational risks have increased, too, with
the spread of new technology", by Paul Taylor, FT 95 Apr 5
"Survey - FT IT: Exotic technologies earn their keep", by Michael
Dempsey, FT 96 Sep 4
"Managing Wealth in the New Global Economy", by John L. Steffens (Vice
Chairman and Executive Vice President, U.S. Private Client Group), Merrill Lynch
Wealth Management Conference, St. Helena, California, June 29, 1997, published
by Merrill Lynch.
"The Future of Global Finance", by Herbert M. Allison, Jr. (President and Chief
Operating Officer), Wharton Euopean Forum, Paris, France, June, 1997, published
by Merrill Lynch.

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"Re-engineering Financial Services in the Information Age", by Herbert M. Allison,

Jr. (President and Chief Operating Officer), MIT Industry Leaders Lecture Series,
Cambridge, Massachusetts, March 10,1998, published by Merrill Lynch.
"The Emergence of Global Superbanks", by Paul Roy (Managing Director of
European Equity Sales and Trading), 1997 Conference on Globalisation, London,
U.K., April 24, 1997, published by Merrill Lynch.
"Morgan Stanley Dean Witter Confirms it is Exploring Sale of Global Custody and
Correspondent Clearing Businesses", New York, April 2, 1998, published by
Morgan Stanley Dean Witter.
Internet web-sites:

Nomura Research Institute (http://www.nri.co.jp)

Nomura Securities (Japan) (http://www.nomura.co.jp)
Nomura Securities (Europe) (http://www.nomura.com)
Hoovers Company Profiles (http://www.hoovers.com)
Merrill Lynch (http://www.ml.com)
Morgan Stanley Dean Witter
(http://www.deanwitterdiscover.com &
http ://www.ms .com)
Goldman Sachs (http://www.gs.com)
Lehman Brothers (http://www.lehman.com)
Charles Schwab (http://www.schwab.com)
Bear Steams (http://www.bearstearns.com)

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