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Author: Yeshwant Bhargav & Prasanna V

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

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.

Multimodal IT – Doing the right things at right pace

Part 1 of this article covered the System Classifications within the Multi-modal IT framework. This part (Part II) will focus on the enablers required to synchronize projects running at multiple speeds.

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Multi-modal IT Framework

Enablers to synchronize Multimodal IT

There are six broad aspects (or enablers) that BFS firms need to focus at the enterprise level to ensure the other two modes are able to run synchronously – Business Process, Program Management, Technology architecture, Enterprise Data, People and Digital Toolset.

Enterprise Business Process

Business processes are the blueprint of an organization. Managing changes to business processes has become a major challenge due unclear implementation requirements of regulations, strict deadlines and potential penalties for non-compliance . Another challenge is compliance-related processes such as KYC, AML and tax compliance procedures (including FATCA and TRACE) which require detailed due diligence procedures across multiple global jurisdictions. These regulation and compliance procedures have forced firms to re-visit multiple business processes across their front, middle and back offices.
Process efficiency initiatives (such as Lean and Value-stream mapping) and process repositories can help in maintaining process discipline as a culture.

Program Management

In order to ensure the various multi-speed initiatives are all running in sync, immense amount of upfront and continuous planning is inevitable. Program managers need to have a clear view of the in-flight & upcoming projects, the associated risks and benefits to manage time and cost effectively. With Fintechs and digital technologies in the mix, program managers need to account for experimental failures and carefully tread the optimal path in a program’s journey. Program management practices such as Agile and DevOps have become a commonplace in many BFS firms. These practices help ensure that there is a firm handshake between IT development and IT operations teams. This in turn increases the agility of enterprise enabling continuous delivery, automation and innovation.

Enterprise Data Management

BFS firms deal with large volume of data which grows with time. In order to tap into the intelligence hidden within the data, a robust data management plan is required at the enterprise level using Data marts or Data Lakes. This will ensure seamless integration and transfer of data for both internal and external system communication. It also helps creation of business content that is accurate, consistent and transparent. Big data technologies such as Hadoop, analytics and reporting software packages play a major role in managing and mining data to drive actionable insights.

Changes to Technology Landscape

  1. Legacy modernization: New challenges have emerged for investment managers which legacy systems are seldom equipped to meet – increase in the number and complexity of products, multiple distribution channels, diversified client needs, etc. Having said this not all firms can take a total transformation approach to modernize legacy systems. Firms have to find an optimal path to ensure gradual replacement of legacy systems. 
  2. Enterprise App Catalog: Enterprise app catalog helps firms in consolidating common business services using micro-services architecture. The applications in the catalog are modular and lightweight, independently deployable and re-usable across the enterprise. The app catalog also provides the app developers, access to an enterprise standard toolset that can be used across platforms. The benefits of an app catalog can be realized when BFS firms aim to be build an integrated omni-channel for their clients. Adoption of enterprise app catalog amongst large-sized BFS players is on the rise.
  3. Open APIs: Open Application Programming Interfaces (APIs) have been a game-changer in the BFS firm’s IT division. APIs have grown in importance from a design methodology to a business driver featuring in boardroom considerations. In the context of APIs, another key BFS industry trend is around Openbanking architecture. Openbanking is a collaborative model of securely sharing customer-authorized financial data through API’s with other parties. This helps banks to deliver enhanced customer experience through easy transfer of payments, comparing product offerings across banks, etc.
  4. Digital Security: Digital or cybersecurity is more of a risk management discipline that BFS firms need to consider while going through the various stages of digital adoption and transformation. It refers to aspect of securing digital applications, infrastructure and data from unforeseen vulnerabilities or attacks by cyber criminals.
  5. Platforms for IT and Operations: Software Platforms is another area which is witnessing adoption across the BFS industry. These platforms (such as SimCorp Dimension, Blackrock Aladdin, FIS PaymentsOne to name a few) help BFS firms in providing solutions for specific business functions thereby helping them scale their business in a short span of time. Business process-as-a-Service (BPaaS) is also being offered as a package along with these platform solutions.

Digital Toolset

As depicted in the multi-modal framework, Digital technologies act as a fulcrum for BFS firms in achieving differentiation in the Front Office and cost optimization in the Back Office. Digital technologies such as mobile, social, cloud, big data and analytics have already witnessed widespread acceptance and usage across BFS firms. Advanced technologies such as Artificial Intelligence (AI), IoT and Blockchain are highly promising in terms of disrupting the existing landscape. Though, these technologies are in an experimental phase, it may not take too long for them to be adopted mainstream. In their multi-modal journey to re-imagine their firm, BFS firms need to continuously assess their maturity against their peers and competitors.

People – Sourcing and Talent Management

Sourcing of talent by BFS firms has been altered by the changing industry landscape. Regulations and demand for mobile and digital services have had an impact on the new skills that firms have to look out for. With the emergence of Gen X and Gen Y clients, their demand for younger BFS counterparts has also increased. BFS firms need to on-board talent with the right mix of business skills and tech-savviness.
The outsourcing of some business processes by BFS firms has increased the dependency on third-party providers which in-turn has gained attention from regulators. BFS firms also need to have strong vendor management and transition management teams to ensure proper due diligence in selection of vendors and transition to new vendors when required.


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Target State of the Transformation journey

The illustration below depicts a re-imagined state of a BFS firm where business strategy drives the business architecture and business processes. The multi-modal IT framework seamlessly synchronizes the business, IT and operational priorities of the firm. These decisions in turn will drive the resourcing and operating models. From the front office standpoint, client experience and relationships will continue to be the focus. This will be achieved through omni-channel integration, self-service capabilities, collaborative platforms, simple and fast client on-boarding, data transparency and real-time data availability. In the case where a firm decides to insource the middle and/or back office functions, efficiency in terms of cost and time will garner attention. This will be achieved through the adoption of the following – Artificial Intelligence, predictive analytics, natural language processing, robotic automation, Shared service operating models, cloud-based infrastructure and operating models (e.g. SaaS, BPaaS, etc.) will gain wide acceptance.

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Re-imagined Target state

Driving Multi-modal Transformation in your enterprise

The implementation of the multi-modal framework fueled by digital capabilities starts with the assessment and definition of target operating model and development of foundational capabilities as the first and foremost step by focusing on current state of business processes, enterprise data, talent (people) and platforms followed by a charter of cost optimization and enterprise enablement initiatives ably propelled by digital innovation and technology.

BFS firms which are currently using a traditional/bi-modal business and IT transformation approaches are burdened with challenges such as – lack of collaboration, existence of legacy systems and processes which create a bottleneck to scale their business, slow response to change. We have recommended a five-step high-level implementation approach that will help BFS firms navigate their transformation journey to multi-modal.

a) Define your Transformation Vision

  • Map client touch-points in your value chain
  • Plan the transformation of people, processes and technology to be Client-centric thereby ensuring consistent client experience across products and service portfolio

b) Align with key stakeholders

  • Enable your sponsors with the right data points to commit to multi-modal transformation

c) Institutionalize multi-modal framework

  • Enterprise architecture should govern and anchor multi-modal adoption
  • Identify key capabilities across the enterprise and benchmark against industry peers
  • Define cross-functional capabilities to arrive at common business interests and bucket a better mix of capabilities for business outcomes
  • Evangelize Data Stewardship as an enterprise capability

d) Be Digital and Do Digital

  • Rationalize processes & systems
  • Adopt a micro-services and open APIs based architecture
  • Embrace responsive and open-source technologies
  • Invest in advanced cloud, CRM, mobile and analytics capabilities
  • Prioritize digital security
  • Explore Blockchain, AI and Reg-tech

e) Take constant efforts to Future-proof

  • Proactive readiness to regulatory changes
  • Re-skill and nurture a culture of design thinking, Agile, DevOps and Product orientation
  • Modify metrics to align with multi-modal
  • Break organizational silos
  • Setup a Program Transformation Office (not a traditional PMO)
  • Sustain and control the multi-modal setup

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High-level Implementation Approach for Multi-modal transformation

Beyond just delivering good returns, BFS firms need a step change; essentially technology led innovation to differentiate themselves in terms of client facing solutions, enterprise applications and making the most out of data. To define paths for success, BFS firms must place conscientious focus, pace and time to tap in to the right synergies and achieve best return on their investments.

 

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.
https://www.confluence.com/uploads/regtech-whitepaper-formatted-final.pdf.

3. “Global Asset Management 2016: Doubling Down on Data.” 2016.
https://www.bcgperspectives.com/content/articles/financial-institutions-global-asset-management-2016-doubling-down-on-data/

4. “Seeing Beyond – Unlocking the long-term opportunities in wealth and asset management.” 2015.
https://www.projecttimes.com/wp-content/uploads/attachments/ey-forbes-insight-seeing-beyond.pdf

5. “The Asset Management Industry and Financial Stability.” International Monetary Fund, 2015.
https://www.projecttimes.com/wp-content/uploads/attachments/c3.pdf

6. “Operational challenges facing investment managers in 2015.” SWIFT, 2015.
https://www.swift.com/node/6771

7. Prof. Dr. Teodoro D. Cocca. “neXtGEN Wealth Management 2030.” 2014
https://www.projecttimes.com/wp-content/uploads/attachments/neXtGENWealthManagementEnglish.pdf

8. “Speed and Innovation Drive CIO Success” Forrester, 2017.
https://www.apptio.com/resources/analyst-reports/speed-and-innovation-drive-cio-success

 

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.

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

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.
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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.
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Fitment of Multi-modal IT framework


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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.
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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
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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. 
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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.