Tuesday, 04 June 2019 07:49

Re-imagining the Business and IT synergy of Banking and Financial services firms - Part I

Written by
The changes in customer, regulatory and Fintech landscape are pushing Banking and Financial services firms to re-think their business and IT strategy. A multi-modal IT organization can help achieve this transformation by doing the right things at right pace. 

Introduction

Over the last ten years since the global recession, the global banking system has not only become bigger and more profitable but also has become more resilient. BFS firms are actively partnering with Fintechs, digitizing their processes, making decisions based on analytics, and focusing on a unified and seamless Customer Experience beyond web and mobile devices. BFS firms have realized that they need to be competitive in an ever-increasing crowd of competitors, be strategically aware and technically advanced to swiftly respond to changing customer demands. Banks are strategically investing to digitally transform their current landscape with the help of digital technologies. The proportion of IT budget towards Digital initiatives is expected to grow over 40% by 2020 (from ~25% in 2017) . The popular spend areas are delivering Customer Insights using Analytics, User Experience, Mobile, Intelligent Automation and Cloud Computing. 
This paper attempts to define a multi-modal IT framework which can enable BFS firms to navigate through their transformation journey. The term BFS firms refers to Banks (Retail, Commercial, Investment, Private), Asset managers, Wealth managers, Asset and Securities servicing firms. 

Changing Industry Priorities and its imperatives to BFS Firms 

The BFS industry has been witnessing a significant change with respect to changing client demographics, need for customized and self-service tools, fee pressures and demand for greater transparency which are in turn driving firms to alter their priorities to cater to these changes. The graphic below summarizes the key changes that the BFS industry is witnessing.
 PT June4 1

Changing industry priorities

The changing industry priorities listed above are pushing BFS firms to transform themselves or run the risk of becoming irrelevant in a constantly changing environment. 
In order to cater to unique client demands, Fintechs started gaining prominence. BFS firms continue to explore some form of partnership with these firms. These macro changes have made the environment riskier thereby calling for stricter regulation to ensure that BFS firms are transparent and keep the best interests of their clients. 
The changes in client expectations and macro-factors have highlighted the need for business and IT teams to engage jointly in redefining the enterprise objectives at various points in their transformation journey. The Business-IT engagement calls for a robust engagement execution framework (which is multi-modal in nature) to ensure seamless transition to the redefined target state.
 PT June4 2

Fitment of Multi-modal IT framework


Advertisement

Suitability of multi-modal over bi-modal

BFS firms today are facing intense competition from delivering exceptional performance and service on the one end to reducing operating costs on the other. IT decisions have extended into the CEO’s office and are no longer restricted to the CIO. People, process and technology are the areas which can be altered to provide the necessary differentiation. With advancement of newer digital technologies, IT has become essential to deliver differentiated client experience, drive cost optimization and enable continuous innovation to stay ahead of the competition. 
The IT organization within financial services firms has a come a long way from ‘Traditional IT’ to ‘New IT’ spanning across App-driven economy, cloud-based services, client-focused operating models and an organization structure where IT is closely aligned with the business and operational teams.
 PT June4 3
Evolution of IT: Traditional to New IT
In this ‘New IT’ age, many CIOs have embraced the bi-modal approach to address their business strategy. However bi-modal creates two distinct fragments within the firm  – an agile group focusing on newer technologies and a slow-paced group working on improving legacy back-office systems. Bi-modal tends to create silos in the firm and reiterates the wrong notion that back-office systems are hard to change and can be improved only in a waterfall fashion. 
 
You often hear people talk about Bimodal IT, but I’m in favour of a “multimodal” approach that takes a more nuanced view of the world, which is exactly what we have adopted here at Lloyds. This has allowed us to move away from large, infrequent and therefore more risky releases to a place where we can release our applications very rapidly as we increase the pace of change in our back-end legacy systems.
Robert Eriksson, Head of Engineering, Digital & Transformation at Lloyds Banking Group
 
Multi-modal, instead, is a balanced, comprehensive and client-centric approach which focuses on eliminating organizational silos and creates an environment where business and IT teams work in synergy at multiple-speeds (based on the project complexity) towards common strategic objectives. The Multi-modal IT approach recognizes the fact that each business unit within an organization may vary in technical sophistication which can result in every IT project  moving at different and unpredictable speeds. Multi-modal IT ensures that the transformation of an organization from Traditional to New IT is gradual and seamless. Newer digital technologies such as cloud, analytics, mobile, and other collaboration tools act as fulcrum in redefining a firm using the multi-modal approach. 
In the subsequent section, we have attempted to define a multi-modal framework contextualized to the BFS IT value chain. The framework can serve as a guide to BFS IT managers to plan and prioritize their business and IT initiatives while retaining focus on client needs. We have also defined two futuristic maturity levels that BFS firms can reach by continuously adopting the multi-modal approach. 

MULTIMODAL IT – DOING THE RIGHT THINGS AT RIGHT PACE

The Multi-modal IT framework recommends varied pace levels based on the business scenario for every business unit within an organization. Multiple IT systems are used across the Front, Middle and Back office functions within a BFS firm. These systems can be broadly classified into three types (as suggested by Gartner ):
  • Systems of Innovation: New applications built to address a specific business requirement or opportunity. 
  • Systems of Differentiation: Applications that enable a BFS firm in building a unique business process or industry-specific capability.
  • Systems of Record: Legacy homegrown systems that support large volume of critical data processing and storing. The data can be both transactional and static Master data.  
The table below provides some additional details on the above system classification
PT June4 4

Systems of Innovation: 

In BFS firms, Systems of Innovation typically comprises the client-facing front office systems used by Business functions such as Sales, Marketing, Research and Distribution channels (such as Mobile apps, Web portals, etc.). The front-office has a mandate to increase the wallet share and mindshare of clients by consistently offering innovative and engaging products/ services and being highly responsive to client demands. This calls for an innovative mindset and flatter organization to promote independent decision making.  

Systems of Differentiation: 

Systems of Differentiation are usually the Front and Middle office systems used by the first-line BFS firm staff (such as Traders, Static Data Admins, etc.). The primary focus of the initiatives around these systems is to maintain client stickiness, enabling sales teams in offering a differentiated client experience. Most often clients do not engage directly with these systems. However, these systems have an impact on the overall client satisfaction.

Systems of Record:  

Systems of Record are mostly used by the Middle or Back office staff for Post-transaction processing. One of the key decisions to be made by BFS firms is to decide whether they want to perform their middle (MO) and back office (BO) processes in-house or outsource it to their partners. The primary objective in this mode is to drive operational and cost efficiencies. This calls for process optimization and automation in areas which have large amount of repeatable work done manually. 
Another critical aspect of the systems of record is its emphasis on Data quality, accuracy and security as financial data is highly sensitive. For this reason, systems of record are carefully managed during the course of technology upgrades or modernization initiatives. 
The illustration below provides a high-level classification of systems based on Business functions.  The Mutli-speed spectrum indicates the pace at which the IT initiatives around the respective systems are delivered. 
PT June4 5
Multi-modal IT Framework
Part II of this article will discuss the enablers for Multi-modal IT in further detail.  

References

1. “The Bimodal IT fallacy - Multimodal business demands multimodal IT.” CIO Magazine, 2016. http://www.cio.co.uk/opinion/disruptive-cio/bimodal-it-fallacy-multimodal-business-demands-multimodal-it-3641302/.
2. “RegTech: Bringing New Meaning to Compliance and Cloud Technology in Asset Management.” 2016.
3. “Global Asset Management 2016: Doubling Down on Data.” 2016.
4. “Seeing Beyond - Unlocking the long-term opportunities in wealth and asset management.” 2015.
5. “The Asset Management Industry and Financial Stability.” International Monetary Fund, 2015.
6. “Operational challenges facing investment managers in 2015.” SWIFT, 2015.
7. Prof. Dr. Teodoro D. Cocca. “neXtGEN Wealth Management 2030.” 2014
8. “Speed and Innovation Drive CIO Success” Forrester, 2017.
Disclaimer: The views and opinions expressed in this article are those of the authors and does not represent those of Cognizant or their previous employers.
Read 6286 times
Yeshwant Bhargav & Prasanna V

Yeshwant Bhargav is a Consulting Manager currently working with the Capital Markets Business Consulting team of Cognizant (www.cognizant.com). He has over eleven years of experience in the Information Technology industry serving clients in the Capital Markets industry. He has expertise in areas related to Business analysis, Product management and IT Project Management. He has hands-on experience in Asset servicing and Investment management industry with a deeper understanding of the Foreign Exchange trading landscape. He has experience working with clients across the globe, in particular, the US, Europe and Asia. He can be reached at Yashwant.Bhargav@gmail.com LinkedIn: www.linkedin.com/in/yeshwant-bhargav-496189a

 

Prasanna V is a Consulting Manager currently working with the Capital Markets Business Consulting team of Cognizant (www.cognizant.com). He has over 12 years of experience in Information Technology consulting for leading global organizations in the Banking and Financial Services arena. His expertise include Capital Markets, Banking, Wealth Mgmt. and Treasury domains with extensive experience in IT consulting & customer facing roles that involve IT Solution Delivery, Stake holder Management, Program Management, Team building, Leadership and Mentoring. He can be reached at prasannav@live.in

LinkedIn: https://www.linkedin.com/in/prasanna-venkatesan-chandramouli-cbap%C2%AE-a991446

© ProjectTimes.com 2019

macgregor logo white web