Gamma-Ray Bursts: The Biggest Explosions Since the Big Bang Edo Berger.
Making The Biggest Bang For Your IT Bucksconf.mbri.ac.ir/ebps3/userfiles/file/slides2/31.pdf ·...
Transcript of Making The Biggest Bang For Your IT Bucksconf.mbri.ac.ir/ebps3/userfiles/file/slides2/31.pdf ·...
Making The Biggest Bang
For Your IT Bucks
inventive
Tehran, 7 January 2014
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IT spend
Banking: an IT intensive industry
3% -
10%
Income
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Compliance
Cost
reductions
Time
RO
C Automation
Front office
investments
Infrastructure
consolidation
System
simplification
Business
development
Business priorities driving IT spending
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111 140
2011 2017
Business priorities driving IT spending
Retail banks IT spend
Global, USD, billion
Source: Ovum
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0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015 2016
Global
Source: Ovum
Global IT spend growth will increase to 4%
Retail bank IT spend yoy change
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0%
2%
4%
6%
8%
10%
12%
14%
2010 2011 2012 2013 2014 2015 2016
MEA
Global
MEA banks have a different pattern
Retail bank IT spend yoy change
Source: Ovum
How can banks maximize the benefits of their
IT investments?
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105 banks studied in three continents
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− Deposits
− Cards
− Loans
− Payments
− Investments
− Bank assurance
Retail banking
− Lending
− Financing
− Cash management
− Payments
− Venture capital
− Custody
Corporate banking
− Equities
− Derivatives
− Fixed income
− M&A
− Treasury
Capital markets
700 KPIs collected across 3 years
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• Governance and organization
• Outsourcing / offshoring
• Application architecture complexity
• Hardware utilization
Non-quantitative attributes
• IT budget allocation method
• …
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IT spend
Income
Cost
Income
High Low
High
Low
Cross reference business and IT to find
effective banks
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IT spend
Cross reference business and IT to find
effective banks
• Opex vs capex
• Infrastructure, application, admin
• Application development vs
maintenance
• Front office vs back office
• Hardware, software, personnel
• In-house vs outsource
• Running vs changing the business
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6.4%
48.3%
IT spend
Income
Cost
Income
High Low
High
Low
Asian bank averages
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IT spend
Income
Cost
Income
High Low
High
Low
C A
D B
“A” banks relatively spend less get more
6.4%
48.3%
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More IT spend
=
Higher
profitability
Operating
country
=
Market advantage
New platform
=
Higher value
Scale
=
Cost
advantage
Common
misconceptions
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More spend on IT does not lead to more
profitability
IT spend
Income
Cost
Income
High Low
High
Low
Too much on
running
operations
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IT spend
Income
Cost
Income
High Low
High
Low
A
D
Application development spend ÷ application maintenance spend
A : D = 2x
“A” banks’ app dev vs maint. is 2x of “D’s”
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Economies of
scale • Complex environments
• Integration challenges
Scale outweighed by complexity
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Capacity
on-demand
Virtualization Help desk
outsourcing Flexible
servers
Small can get cost advantage too
Smart
sourcing
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Labor costs and skill
advantages can be
leveraged across
countries and
continents
Home country and market advantage has
no correlation
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Age of core banking system is not relevant
‘A’ bank
‘D’ bank
50%
50%
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Scalability
New product time to
market Cost of legacy
Customer centricity
Revenue growth
Common benefits realized and not realized
in core system replacement
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Translating IT investment to value
IT Investments
Business
engagement
Busines
s value
Innovation, differentiation
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Breaking time and distance limit with video
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Increase staff productivity and customer
satisfaction with hybrid self service stations
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Enrich experience with media emersion
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• Co-located bank-coffee shop
• Unviable economics
• Initiative was cancelled
Re-thinking of business economics
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IT spend
Income
Cost
Income
High Low
High
Low
Operational and
IT management
practices Leading
bank
Linkage between IT practices and results
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• Executive engagement
• Business engagement
• IT organization
• Project portfolio management
Strong
management
Good IT
governance
IT management and business integration
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Forma governance
Business IT
Demand
Supply
Value creation levers
…
…
…
…
…
…
Better business-IT cooperation
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• Span of control of IT across the banks
• Organization of the infrastructure
• Application development and application maintenance
resources
• Accountability of CIOs
• Financial ownership of IT budgets
• IT staff compensation elements
IT governance
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IT spend
Income
Cost
Income
High Low
High
Low
13%
11.7%
“A” banks scored high on governance
Profit to income ratio, European banks studied
A
D
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“A” banks drive IT agenda more directly
IT spend
Income
Cost
Income
High Low
High
Low
A
D
Outsourcing spend ÷ income
A : D = 0.25x
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IT management
Infrastructure
Application
development &
maintenance
Desktop
computing
Wholesale outsourcing restricts flexibility
Wholesale
outsourcing
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“A” banks emphasize more on innovation
IT spend
Income
Cost
Income
High Low
High
Low
A
D
% of IT budget on innovation (new services and capabilities)
A : D = 1.6x
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“A” banks run with ¼ of apps of “D” banks
IT spend
Income
Cost
Income
High Low
High
Low
A
D
Average number of applications
A : D = 0.25x
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• Less complex
application
connection
• Lower labor cost
• Flexible
architecture
• Standard
interface
• Middleware
Disciplined approach to architecture
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“A” banks customize applications less
IT spend
Income
Cost
Income
High Low
High
Low
A
D
% of applications difficult to change due to customization
A : D = 0.5x
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IT spend
Income
Cost
Income
High Low
High
Low
A
D
“A” banks utilize infrastructure more
A : D = 1.9x
Unix server utilization
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Most top performers stay at the top
IT spend
Income
Cost
Income
High Low
High
Low
Trends over several years
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IT spend
Income
Cost
Income
High Low
High
Low
Some banks can improve while some can’t
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Reduce IT spending Selectively reinvest
2 - 4 year transformation
Sustained commitment from top makes the
difference
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Principles
Transparency
Performance
management
A balance between short-term
performance gains and long-
term investments
2
1
3
Common principles of leading banks
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Governance Model
• Prioritization
• Alignment Gloves
Business
executives
− IT savvy
− Direction
Hand
IT
executives
− Business
savvy
− IT experts
Engagement from the top ranks
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• Vast physical branch network
• Decentralization of operation
• Less automation
• Less sources of revenue
Cost-income ratios in Iran: 25% to 85%
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Performance
Risk control
Quality of
service
Operational
efficiency
Innovation
IRAN Opportunities of improvement
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Other External services
External staff
Internal staff
Network equipment Hardware
Software
Europe Asia Iran
?
IRAN Need to establish Iran benchmarks
IT spend
Income
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IRAN
• How effectively are you using IT resources?
• What IT capabilities do you have to create new business?
• How should you allocate IT resources?
• What governance is required to gain advantage?
• …
Benchmarking to answer key questions
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Objective and
sound judgment
of data
• Right
participants
• Right questions
• Clear definition
• Consistent
interpretation
Benchmarking key success factors
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Hartmut Schnabel
Previously EY, Roland Burger
Miles Au Yeung
Previously EY, McKinsey
10 consulting projects in Iran since
2009
inventive