Turkeys would not vote for
Christmas. It is often cited as a reason why IT departments within
established banks continue to resist the powerful business benefits
of outsourcing. Richard Fraser, general manager at Systematics
EMEA, FIS, argues that this fear is often unfounded and can pose a
real competitive danger.
Go deeper with GlobalData
There is a
very English idiomatic phrase which urges us to ‘make hay while the
sun shines’. In the commercial world, if an organisation is blessed
with times of prosperity, then there is very little incentive to
concentrate on anything other than reaping the profits that are so
bountiful. If the commercial sun is shining, then the thoughts of
all will be on enjoying the harvest.
This may be a simple analogy and
yet it is a remarkably accurate portrayal of the global banking
environment in the recent boom years. During this time, with all
eyes firmly on the headline profits being made, very little thought
was given to the rising costs associated with the IT
infrastructures that made all of this possible.
Even if there were cracks in the
system – even if the IT infrastructure was inherently unreliable –
this did not seem to matter so long as such failings could be
patched up with a small army of IT professionals.
But when the boom years came to a
very abrupt end in 2008, the metaphorical ‘commercial sun’ stopped
shining. For banks that had been enjoying relatively easy profits,
life had suddenly become a lot more challenging.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData
Cost and
agility
When banks now look for ways of
making the same profits without the associated revenue increase,
the focus is forced to move towards two things. Most obviously they
look at ways to reduce the cost base, and that often means
outsourcing, with Accenture recently estimating that a typical bank
could save as much as 20% through this method. But projected
savings do not tell the whole story, since banks also need to look
at their ability to rapidly deliver new products to market in order
to compete more aggressively.
Interestingly, when looking at both
of these seemingly separate aspects of their business, banks soon
discover that they are, in fact, looking at the same entity: their
core production IT infrastructure.
In an ideal world, the card and
core banking system will always be 100% compliant with the
regulations and legislature of whichever country it is operating
in. Moreover, still in our ideal world, because it will
continuously benefit from global enhancements, it will be kept
permanently up to date, fresh, and above all, competitive. In an
ideal world, banking software should just simply work and be a
business enabler.
But in most large banks, the IT
truth is very far from this ideal. And the stark reality is very
much more expensive.
In these banks, the systems have
been created or licensed and, over the years, maintained and
enhanced in-house. When new developments were added, good internal
personal relations often produced quicker results than relying on
more formal processes.
Over time (because of the culture
of internal IT departments rather than through the fault of any
particular individuals), the code would start to show signs of wear
and tear. In fact in many large banks, whole teams are tasked with
continuously patching the system just to keep it working. Other
teams spend all their working hours simply ensuring software is
compliant.
None of these individuals add any
intrinsic value to the business whatsoever. If cost savings need to
be made then here, quite rightly, is an area quickly identified as
offering opportunity to rectify significant corporate
inefficiency.
The fact that these job roles exist
at all is symptomatic of the fact that the core IT system needs a
great deal of maintenance simply to ‘tread water’. Such activities
are a huge drain on corporate resources. What is more, while
production IT staff spend all of their time maintaining the system,
other people in the bank will be noticing that this inherently
unreliable and high-maintenance system is too inflexible to meet
the growing demands of the business.
A time for strategic
IT
During these challenging times for
the bank, the role of IT has not diminished – if anything it has
become more demanding. Customer service, marketing and fraud
departments are ramping up their demands for enhanced functionality
so that the bank can regain its competitive edge.
Any frustration they feel about the
bank’s inability to respond to their demands in a timely manner is
not only understandable – it is also entirely justifiable. But life
does not have to be like this.
Banking platforms with the
flexibility and reliability to work for the business and deliver
full compliance should be the base-line expectation of all banks.
But this is almost impossible to achieve without outsourcing the
entire problem to a company that does this – and nothing but this –
on an industrial scale. Is it any wonder that most new entrants to
the world of banking opt to outsource their IT platforms from day
one?
But there are some contradictory
pieces of information available. For example, one indicator from
TPS suggests that outsourcing still has a way to go before everyone
is convinced. According to the study, there was a 21% decline in
large outsourcing deals in Q1 compared to the same period last
year. The uncertain economic climate could make companies less
willing to sign off on large contracts. But there is also a chance
that this figure could reflect a lingering unease over
outsourcing.
By way of contrast, another TPI
statistic reports that large outsourcing deals were up 30% in the
first half of 2010, suggesting larger banks are not looking at
outsourcing as a threat to be feared. Our experience is that some
senior executives worry about a perceived loss of power and control
which they believe is inevitably associated with outsourcing
mission-critical capabilities to a third party. In fact, the
opposite is true. Modern outsourcing relationships adopt a model
where named employees are solely dedicated to the client, sometimes
working physically alongside them at their place of work. Control –
and power – stays firmly in-house. Only the problems are
outsourced.
Backed up with outsourced banking systems that simply work all
of the time, the IT department can shift its attention away from
fire-fighting – and start adding the true value that the rest of
the business deserves, and in turn earn themselves a positive
reputation. Sensible turkeys will vote for Christmas, because
outsourcing doesn’t have to give IT staff a stuffing. In fact, it
might just be the gift they need.
