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Mastering multi-speed IT in bankingUnderstanding how to shift to the right gear at the right time to achieve the right outcomeBy Nicholas Bayley, Chris Hoover and Ashish Mehta
2 Mastering multi-speed IT in banking
Banking CIOs have a tough balancing act on their hands. They have to keep core systems up and running while being pulled by digital to establish new markets, capture new revenue streams and provide enhanced, customer-centric services.
In this complex, multi-dimensional world, how do they decide where to focus finite amounts of time, talent and investment to drive business innovation and growth?
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1 www.ft.com/cms/s/0/cf292744-be05-11e5-846f-79b0e3d20eaf.html#axzz3yFT3DE5w
It’s a tough time to be a bank…From harnessing innovation for differentiation to meeting customer expectations for seamless, connected services, banks are at the epicenter of a digital revolution. It’s a revolution that is fueling new opportunities, changing business needs and creating unprecedented challenges.
On top of this, they are confronted with ferocious, asymmetric competition from fintechs and subject to increasingly complex, wide-ranging regulations. These are imposing ever-greater scrutiny on new and existing revenue streams—and adding enormous costs to P&Ls. Putting that into perspective, it is estimated global banks will have to spend between $44 million (€40 million) and $131 million (€120 million) each just to implement the new Basel Committee rules on trading book capital.¹
…delivering change at high velocity is essentialIn such a dynamic and challenging marketplace, banking CIOs are under enormous pressure. Digital disruption means leaders across the business are clamoring for rapid, breakthrough innovation. Some are pursuing it themselves, rather than waiting for IT to deliver. At the same time, CIOs are also responsible for keeping complex legacy systems up and running, managing compliance and cyber risk, and increasing efficiencies—even while all aspects of the banking-operating model are in flux. Meanwhile, multitudes of other projects and priorities are jostling for attention.
…but how? Multi-speed IT provides the solutionHow can CIOs balance these conflicting demands? It is a crucial question. And it’s being asked by organizations across all industries. Eighty-one percent of executives believe that the IT organization has reached a fork in the road. The choice from now on is between accelerating the digital agenda, or stepping aside to allow others in the organization to take the lead.
The solution for banking CIOs lies in mastering multi-speed IT—understanding how to shift to the right gear at the right time to achieve the right outcome. The ones that master this approach will position IT (and themselves) as the engine for competitive advantage.
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Three key components of multi-speed ITMulti-speed IT enables banking business needs to be delivered at differing velocities, allowing banks to compete at pace across all their key markets. Far from a one-size-fits-all approach, it must be built upon a multi-faceted IT operating model incorporating three important and interconnected components (Figure 1).
Figure 1: Accelerating to multiple speeds
The journey to mastering multi-speed IT in banking is built on three interconnected components
1 Pace of change: focused on multi-speed change delivery
2 Architectural clarity: decoupling systems of engagement
3 Dynamic support: flexibility in operating model and infrastructure
The first is the pace of change. This enables various speeds of change delivery to co-exist and be governed through multiple delivery methodologies. The second is the decoupling of systems of engagement (channels) from systems of record (customer records) through rethinking and separating out the underlying technology architectures. This allows change to be delivered into the business in a coordinated but non-synchronous way. The third is flexibility of operations and cloud infrastructure. This enables more dynamic, automated support for change delivery and release.
Seeking to recalibrate the operating model, banking CIOs are juggling these three components—continuously trying to prioritize each one in light of fluctuating top-down investment and business pressures.
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Pace of change: focused on multi-speed change delivery
The starting point is to establish a closer connection between the trajectories of business and IT. At its heart, this will recognize the business need for IT consumption at different speeds, and balance provision of pace with large-scale traditional delivery.
Where faster pace of change is required, shifts in gear are achieved by adopting agile approaches for systems and application delivery. DevOps is another key change accelerator. This encompasses continuous integration, continuous delivery and automated testing of code, enabling daily change to production systems and driving end-to-end ownership of products during the project lifecycle by bringing together development and operations teams. Delivery is focused on small batch-sizing through developing, testing and releasing less code, but at greater speed.
Successful CIOs use governance models and processes that allow them to prioritize business demand and allocate the right mode of operations to deliver value at the right time.² It is important, however, that traditional and agile delivery approaches should coexist within an integrated governance framework. This will enable fast, conflicting strategic change decisions to be made at the speed the business demands. Agile governance is driven by having all the right people “in the room” making decisions at pace. Decision-makers are empowered to drive decisions and act on design issues as they arise. A future of more open architectures will also mean banks must be ready to collaborate with third-party change partners and integrate them into their delivery lifecycles. This will add yet more complexity which will, in turn, have to be factored into agile governance frameworks.
Architectural clarity: decoupling systems of engagement
Leading banking CIOs will focus on tackling legacy system complexity. They recognize that simpler enterprise architectures (EAs) will become core strategic assets, providing clarity for multi-speed transformation, alignment between ecosystem partners, and control, re-use and simplification across the enterprise.
Banking EAs need to be decoupled. To achieve this, banks will have to deepen their service-oriented architecture (SOA) and business process management (BPM) capabilities with clear, simple, self-service layers and re-usable, unified processes and development components.
2 Accenture Strategy research on the intersection of business and technology, 2015
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They will increasingly move to pre-built generic services that empower rapid business-led change. Further driving pace, these services will be catalogued, controlled and, most importantly, re-used across product sets and development lifecycles. This must be done in parallel with the ongoing modernization of current applications, using application programming interface (API) layers to expose core data sources for digital consumption.
Increased regulatory emphasis on facilitating personal current account (PCA) switching should see more banks making their product data available for comparison via APIs. At a European Union (EU) level, the Payment Services Directive (PSD2), scheduled for introduction in 2016, will force all EU banks to allow service providers access to customers’ payment accounts. Meanwhile, the UK government is currently working closely with banks and fintech firms to develop a detailed framework for an open API standard (covering data sharing and open data in banking). Highlighting the potential, German digital pure-play bank, Fidor, has developed an open architecture based on APIs, enabling social and real-time functionality using the RESTful API and open standards such as OAUTH.
The management of internal and external APIs built on SOA services is becoming increasingly important. For the moment, however, few banks have either robust API strategies or the operational frameworks needed to manage them. These must be implemented in parallel with the ongoing simplification and modernization of legacy applications and infrastructures.
Dynamic support: flexibility in operating model and infrastructure
Multi-speed will require a new IT operating model with business and IT interfaces driving closer alignment, new governance and change capabilities to allow full decoupling between change systems (channels) and more traditional release-based development.
Complex business and architectural changes are required, and new skills and talent will be needed to drive them. This will lead to huge cultural shifts in banks. The ability to deliver quickly and fail fast will have to exist alongside the skills required to deliver and maintain complex structural and risk-laden legacy systems. Banks will need people who can innovate across business and IT, while continuing to run the business (DevOps, SOA and APIs require deep IT and automation skills that few banks possess at scale today). The addition of ecosystem partnerships will add further complexity through new sourcing models, product, customer management challenges and risk.
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Management of risk and ecosystem security and compliance at each end of the speed spectrum will become more important for banks as they continue their multi-speed IT journeys. Although travelling at a “slower” pace with systems of record is not a problem, it’s no less risky (underlined by various high-profile UK retail banking systems failures in recent years).³
Transitioning to new models for banking will have to be balanced with driving growth and maintaining cost efficiencies. This will require more dynamic planning capabilities, with supply and demand management for business and IT under common governance. Investment in agile delivery will need to sit outside normal annual and quarterly budgeting cycles, however counter-intuitive that may feel.
Multi-speed also drives the need for more flexible infrastructure and data handling. Cloud infrastructure “as-a-service” will start to drive flexible, on-demand, instantly scalable computing power. Designing, building and modernizing applications in this context will become the norm as banks begin to reap the benefits of higher pace and lower cost of change.
Larger banks will have the scale to host their own internal clouds, maintaining control of their security perimeters and data. It’s a trend that is already underway. Others will move to hybrid models combining in-house and external cloud provision. The move toward consumption-based pricing of services will require careful design within IT and business operating models. The EA team will become increasingly essential in planning, onboarding, severing and maintaining this new mix of services in line with the bank’s risk profile.
3 http://www.theguardian.com/money/2014/jan/27/bank-it-systems-keep-failing-lloyds-rbs-natwest
Accelerating to multi-speed IT: what next for banks?
A nexus of market drivers, customer behaviors and digital demands is driving profound shifts in the banking business and IT environment. These require a revolution in how CIOs operate their IT organizations. By mastering the art of multi-speed IT, CIOs can become integral to their organization reaching its many destinations.
Contact the authors
Nicholas Bayley [email protected]
Chris Hoover [email protected]
Ashish Mehta [email protected]
Contributor
Steven Westland [email protected]
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