INSY 5375 / Fall 2011

Dr. James Teng

 

Team Project

Xchanging Solutions

- Inspiring Innovation     

 Submitted By Team 5

Aneri Desai

Manisha Kundoor

Priyanka Bindumadhavan

Table of Contents

1. Company Overview...................................................................................................................................3

2. IT Management..........................................................................................................................................6

3. Strategic IT Overview..............................................................................................................................14

4. Suitability of IT........................................................................................................................................23

5. Presenting business case for the technology............................................................................................28

a. Benefits Framework.........................................................................................................................28

b. Benefits Dependency Network........................................................................................................29

References....................................................................................................................................................30

1. Company Overview

Xchanging PLC (LSE: XCH) is an outsourcing company for business processes, with a wide

range of multinational customers in 42 countries.

Xchanging Solutions is a company providing business processing, technology and procurement

services internationally for customers in almost every industry sector. Xchanging solutions has

marked its name in industrial sectors like Aerospace and defense, Automobile, Banks and

financial services, FMCG, HealthCare, Insurance, Manufacturing, Public sector, real-estate,

supply chain and logistics, telecommunication etc. The company helps its customers in three

sections – Business Processing, Technology and Procurement.

Xchanging offer a range of "partnering" and outsourcing contract arrangements. In "partnering",

Xchanging share any profit and capital benefits from productivity improvements, scale

advantages and entrepreneurship with the customer. These benefits are split 50:50 so that the

interests of Xchanging and the customer are aligned. In outsourcing, Xchanging will typically

take over a customer's business process, or back office function, and incorporate them into an

existing platform in an attempt to provide better and cheaper handling of administrative tasks.

Xchanging employs over 8,000 people worldwide. Xchanging was founded in 1999, by David

Andrews, a former partner in Andersen Consulting. Andrews came up with the idea at Andersen

Consulting, to create joint ventures with large multinationals to outsource the processing of back-

office transactions.[6]

Xchanging operates on an Enterprise Partnership model forming joint ventures with large

organizations in processing areas such as HR, accounting and procurement, as well as industry

specific processing such as securities processing and insurance claims processing. The list of

back-office processes which could be transformed is non-exhaustive.

Xchanging provides procurement, finance and accounting, human resources, technology and

customer administration services across industries.

● Procurement – Managing direct & indirect spend and sourcing strategies

● Finance and accounting - Processing of receipts and payments, net settlement and clearance

● Human resources - Providing employment services from recruitment through to payroll and

pensions payment, back-to-work and medical compensation schemes

● Technology – Design, build and run IT infrastructure and software

● Customer administration - B2B and B2C services to support customer’s customer

Xchanging provides industry specific processing for:-

● Banking and securities – Processing securities transactions and retail investment accounting

● Insurance – Processing of insurance policies, premiums & claims, and broker annuity

● Other financial services - IT systems & hosting for exchanges, processing services for fund

managers, investors, as well as SWIFT managed infrastructure services to banks

● Industrial, commercial and public – Including retail, real estate, manufacturing and logistics

as well as services for the public sector in the USA and Asia-Pacific

With customers in a wide range of industries and across many countries, Xchanging

Solutions are a truly international outsourcing specialist. Their mission is to remove

complexity from customers’ organizations and their vision is help customers win by giving

them the freedom to focus on their core business.

Xchanging has established a strong reputation in the fast growing global business processing

market. With a strong position in Europe, Xchanging is now on its journey to establish a firm

base in the US and Asia Pacific. With global presence and local expertise, the Company aims

to drive forward its ambition to be the global business processor.

The organization structure of Xchanging solutions is based on six pillars listed as Customer

focus, Innovation, Speed & Efficiency, People, Excellence, Integrity. Corporate Social

Responsibility (CSR) is embedded into our planning, processes and values and always aim to:

● Respond to our customers’ priorities

● Think clearly and act decisively

● Deliver what we promise 

● Build long term relationships

● Encourage innovation

Go-to-market strategy

The go-to-market strategy for the Company is to provide a range of offerings to meet the

varying needs of customers for outsourced services. Xchanging's unique offering for dealing

with complexity and scale is Partnering. On top of this, Xchanging provides four offerings -

outsourcing, products, Straight through Processing and Business Support, for customer flexibility

and repeatability. In short, a distinctive '1+4 Go to Market Strategy' consists of:

Partnering maximizing value together:

Xchanging addresses complex industry-specific business processing and cross-industry

processing in human resources, finance and accounting, technology infrastructure and large-

scale procurement. Our Partnering offering is open book with profit sharing so that our interests

are aligned with our partners

Outsourcing guaranteeing sustainable savings:

Xchanging takes on business processes or categories of spend where we already have platforms

proving our capability and credibility. Through Outsourcing we scale up our platforms and

deliver services to an agreed specification and usage charge or cost baseline

Products delivering the best solution:

Xchanging supports essential parts of the business processing value chain with application

software, such as Genius for international insurance carriers. Our Products are long-term

strategic assets that can be tailored for customers' specific needs. Products enable us to extend

our reach both geographically and across the value chain

Straight through processing optimizing the value chain:

Xchanging extends the scope of the services delivered to customers, reducing the number of

interfaces and where possible automating them. These additional services extend the process

flow that Xchanging is already operating and enable us to maximize the efficiency of the whole

process as a result

Business support applying know-how for results

Xchanging offers experts to support specific business activities and customer improvement

projects. Through Business Support, customers have access to Xchanging's expertise and re-

usable assets. Business Support includes services such as corporate immigration support,

resourcing, programme management, process improvement and Six Sigma training and support.

With global presence and local expertise, the Company aims to drive forward its ambition to be

the global business processor. We have basically gathered this information from Company

website and have interviewed Mr. Sunil Bharadwaj, Assistant Vice President of Xchanging

Solutions, India. (email : "Sunil Bhardwaj" Sunil . bhardwaj @ asia . xchanging . com )

2. IT Management

a) Short case description:

A leading European bank took 3,000 of its employees and created a new, standalone,

subsidiary transactional bank to perform processing, printing and mailroom functions. The

concept was new and the there were fair chances for the bank to gain profit and market share. If

everything worked well then the bank could be a price taker in the industry and enjoy the success

along with the high marginal profit. The vision was to introduce a new concept and make profit.

For two years, no bank had joined the platform and after five years it had only two small

customers .The initiative was not a profit making deal. They had specific requirements from the

chosen partner.

The project should retain the positive benefit along with the Full time Equivalents (FTEs)

cost savings. The service delivery should be improved. They were also seeking for neutrality

from a partner to create an attractive proposition for other major banks and customers. They

wanted a partner who could cop up with low budgeting issue. They also expected from the

partner to provide a rapid solutions to address a failing business units.

The European bank had to look for a partner to market their brand new concept. The

partner should provide Enterprise Partnership. Though there was one more option for the bank to

deal –Out sourcing of the work to another company, the bank preferred to go with the

partnership with Xchanging solutions. Xchanging solutions are one of the largest and fastest

growing businesses with a wide range of multinational customers in 42 countries and employing

over 8,000 people, they are a truly global company. Their aim is simply to provide business

processing services better, cheaper and faster.

It was not advisable for the bank to go for an outsourcing of the work but they contained few

pain areas such as lacking of security, third party using unauthorized data, high budgeting and

depending on the third party. They chose Xchanging solutions because it had a reputation as well

as experience in relevant market, proven implementation approach and Lean Six Sigma and IT

excellence. In addition, Xchanging was able to provide a unique partnering proposition – the

Enterprise Partnership (EP). That would later on serve as a cherry on cake for the bank. The bank

could gradually use Xchanging’s market value and good will for the proposed project.

b) Analysis of the case:

In the late 1990s, a leading European bank took 3,000 of its employees and created a

new, standalone, subsidiary transactional bank, to perform processing, printing and mailroom

functions. By marketing the transactional bank to other European banks there was a vision to

make a profit from what was previously an overhead. After two years, no other banks had joined

the platform, and after five years it had only two small customers. Potential customers were wary

of the security and sensitivity of outsourcing processing work to a competitor. Meanwhile, the

transaction bank was still a large cost that was making no profit.

Requirement from a partner:

• Cost savings

• Improved service delivery

• Deconsolidation – in order to retain the positive benefits but also divest Full Time

• Neutrality – to create an attractive proposition for other major banks and customers

• Investment avoidance – though it was clear that there was a need for technology, the

European bank wished to avoid funding IT speculatively due to the already

high cost of running the transaction bank

• A rapid solution to address a failing business unit

• A processing platform that could cater for market demand and be flexible and cost

efficient to attract large customers with varying needs.

Why Xchanging has been selected?

The European bank had to look for a partner to market the platform. Xchanging was able

to provide a unique partnering proposition – the Enterprise Partnership (EP).

An Enterprise Partnership (EP) is a joint venture with our customer, through which they

provide them with processing services. These customers are typically large organizations with

significant processing needs. A typical EP contract is 10 to 12 years long.

The customer benefits from better processing and lower costs and also has the potential to earn

profit, as they use the EP’s processing platform to offer services to third parties.

Business support and products:

In addition to their processing services, they offer their customers a range of business support

services and products.

Business support:

They deliver professional advisory services in areas such as technology, insurance services,

recruitment and corporate immigration. These services are provided on either a cost-per-project

or a time and materials basis.

Products:

Xchanging has a number of business processing software products for the insurance, financial

services, manufacturing and logistics sectors. They charge for their software services on either a

subscription or cost-per-seat basis.

Quality:

Whatever service they are delivering and whichever way they are contracted to do it, they have a

relentless focus on providing the high-quality service expected by their customers. They have a

rigorous performance measurement methodology. They measure their performance regularly, in

great detail and in the same way across each of their processing centers around the world. For

example, our quarterly service reports measure thousands of data points across hundreds of

processes, measuring both quantitative and qualitative outputs, such as customer satisfaction.

They believe that their customers’ perceptions of their service are just as important as the actual

results.

The EP model would enable the European bank to retain a 50/50 share in the

transactional bank with the visibility, control and transparency not found in traditional

outsourcing contracts. The European bank also saw that they could utilize an independent

processing specialist to operate the business and take responsibility for bringing in new

customers.

National financial services regulators viewed Xchanging’s approach as a way to allow

third parties with specialist processing knowledge to work within the confines of the regulatory

regimes. Additionally, the unions saw Xchanging’s partnering approach as a socially responsible

means of ensuring continued employment on comparable terms. This was viewed as a major

difference from other outsourcing models.

The solution

The assets, employees and infrastructure of the transaction bank were transferred to a

50/50 co-owned partnership between the European bank and Xchanging. Xchanging assumed

day-to-day operational control with responsibility for delivery of service, the preparation of

three-year business plans and setting the annual budget. The EP aligned the interests of all

parties.

Five major changes were introduced in order to increase productivity and service, and

create spare capacity to absorb new business wins.

1. Service Review Board meetings – held each quarter to review performance and highlight areas

of opportunity

2. Champion team building programs – to channel employees’ talent and energy

3. 155 Six Sigma Lean Processing process improvement projects – resulted in productivity

improvement or an increase in service performance

4. Technology optimization through the existing architecture – refocusing the approach to

technology operations and utilizing a tactical implementation team

5. Environment consolidation – to create a central operating unit that could better serve the

needs of the customers

Benefits from this activity:

Through Xchanging’s partnership model, the bank switched from owning a cost centre to being a

partner in an entrepreneurial and commercially-orientated profit- making business. Within a year

of engagement, the EP was a dedicated securities processing hub in the heart of the European

financial market. As of 2010, the hub houses approximately 700 employees who process millions

of securities transactions a day according to the requirements of German withholding tax.

From the Strategic Alignment perspective, In outsourcing, Xchanging will typically take over a

customer's business process, or back office function, and incorporate them into an existing

platform in an attempt to provide better and cheaper handling of administrative tasks.

Since 1999, Xchanging has aimed at securing a competitive edge and distinctiveness, Mr. David

Andrews the CEO of Xchanging initiated a paradigm shift from a silo organization to IT driven

SOA (Service oriented Architecture) and Enterprise Partnership model at various investments.

Xchanging chose to be Customer Centric. It meant a quantum change that impacts everyone in

the company and every customer of the company in both enriched and enlarged ways.

The company since founded has customer centric. The decision of being customer centric was

just appropriate and well implemented.

The objectives of Xchanging are:

● Enhance the Financial services industry by providing specialized personalized business

solutions and financial solutions

● Control the cost and increase the sales

● Increase efficiency and customer satisfaction

● Maintain agility to serve

● Focus on integrity and team work.

For Xchanging, SOA combined all loosely linked and services. They can be reused in different

combinations to provide flexibility to users in a flexible manner. SOA is implemented using web

technology. SOA ensures businesses to respond quickly and cost effectively to dynamic market

conditions.

The process was implemented over following steps:

1. Initiation and Implementing a cultural change

2. Enterprise Partnership Program

3. Transforming IT to support Enterprise Partnership model

4. Implementation ; Proof on concept on Disaster recovery system

5. Moving transformation forward

6. Delivering Value benefits.

The features of the strategic IT-business Model:

● There is a need of alignment between business (both strategy and structure) with the IT

(both strategy and structure)

● Both business and IT have the interface with the external and internal domains; there

should be perfect fit and match between the domains. This fit should be between the

business block or IT block with other blocks as well

● The strategy and structure in each block can be broken down into Scope – Competencies

and Governance

The model highlights four strategic choices or perspectives for any business to choose

from the transformation steps of Xchanging can be plotted broadly in the 4 blocks of

Strategic Alignment Model as under

Business Strategy (Scope – Competencies – governance)

○ Initiate cultural change towards vision

Customer centric organization including training on accountability and cultural

practices for all

○ Enterprise Partnership Program

○ Moving the transformation forward

(Implement – co-ordinate-review-results)

IT Strategy (Scope – Competencies – governance)

○ Initiate cultural change towards vision

Customer centric organization including training on accountability and cultural

practices for all

○ Enterprise Partnership Program

○ Moving the transformation forward

(Implement – co-ordinate-review-results)

Organization Infrastructure and Processes (Infrastructure – processes – skills)

○ Transforming business organization to support Enterprise partnership

○ Integrate the business processes

○ Moving the transformation forward (Implement – co-ordinate-review-results)

IT Infrastructure and Processes (Infrastructure – processes – skills)

○ Transforming IT organization to support Enterprise partnership

○ Integrate the IT processes

○ Implementation startup: Proof of concept of Disaster recovery system

○ Moving the transformation forward (Implement – co-ordinate-review-results)

In plotting the steps, it was noted that IT and business belong to one unified entity of

organization and total linkage exists in an ideal setup, some steps may overlap and get plotted in

one block where emphasis is more distinctive comparatively.

The implementation methodology of Xchanging realizes above is by transforming to a customer-

centric organization with service oriented architecture, a sophisticated IT and business campaign.

The transformation is in total across the organization. All business process and IT process are

designed to fit the proposed architecture. The company has been investing in the multi-dollar

SOA, recruiting experts both in IT and business, motivating and training people to adapt the

system and ensuring their conviction, commitment and contribution; established total inter-

connectivity and interface including customers in BFSI sector.

3. Strategic IT Overview

Xchanging Solutions host the software and hardware to run systems and provide the

extensive data warehousing facilities needed by their customers. They are the largest processor

of ACORD messages with 3.5 million message interchanges a year for the insurance, payment

and securities industry.

Over the last 30 years, the world’s banks have developed an international payment

system that has been instrumental in fostering global economic prosperity, allowing financial

transactions to be processed with confidence, speed, and efficiency. The smooth functioning of

this system is vital to global financial stability. The system is large and complex.

1) Origin and development of the technology

“The payments infrastructure of the global financial system is a complex patchwork of

national and cross-border systems, not seamless, not uniform, but closely connected.” The global

payments system has evolved in a way that, first and foremost, promotes efficiency and

effectiveness, i.e., the system concentrates on information essential for processing a payment

transaction and on including all countries and financial institutions within the system to allow

payments to pass readily across international borders.

Payment system issues have become increasingly important during the last 10-15 years,

and central banks as well as private operators and payment system participants have put in a lot

of resources to analyze various payment system risks. A contributing factor to the increased

interest has been the growing internationalization of financial markets, partly as a result of the

abolishment of foreign exchange and capital controls in many countries, which have increased

the movements of funds cross border. Several incidents in the financial market have also shown

that there could be major financial risks embedded in payment systems. Risks that, if not

managed in a prudent way, could create a systemic risk situation in which the financial market

could stop functioning, leading to potential catastrophic development in a country's economy

affecting, if grave enough, even the world economy.

In banking and financial services specifically, Xchanging provides solutions include a

platform for processing equity exchanges in India together with a proprietary middleware

solution that links legacy systems and the SWIFT gateway for over ninety banks across the sub-

continent.

2) Major technical elements of the technology

Xchanging solutions has expertise itself in delivering successful integrations across

multiple applications like SAP, Oracle, Legacy systems in the BFSI Domain. Supporting this

expertise, the company has broad service offerings for internal integration (EAI), partner and

customer integration (B2B/EDI), and web services (B2C). They also provide strategy and

architectural services around service oriented architecture (SOA) and Business Process

Management (BPM) as well as payment solutions and SWIFT offerings.

In the BFSI Domain, the company is retaining its legacy system providing improvements

to it. Xchanging solutions have upgraded its legacy systems to an extent to incorporate SOA and

Network IP architecture in its organization. The company has developed itself to a customer

centric organization which represents an enormous change that affects every single employee in

the front office or back office.

The company has upgraded the legacy systems into Middleware systems. The

Middleware systems have been integrated to payment solutions and SWIFT. The architecture

between Middleware systems, SWIFT and clearing-settlement systems is called as the IP

Network Architecture.

3) IT Capabilities

The middleware developed by the company is in general termed as a Payment System or

Core Banking solution. With the advent of computers and electronic communications a large

number of alternative electronic payment systems have emerged. Payment systems may be

physical or electronic and each has their own procedures and protocols. Standardization has

allowed some of these systems and networks to grow to a global scale, but there are still many

country and product specific systems. Specific forms of payment systems are also used to settle

financial transactions for products in the equity markets, bond markets, currency markets, futures

markets, derivatives markets, options markets and for transfer funds between financial

institutions both domestically using clearing and Real Time Gross Settlement (RTGS) systems

and internationally using the SWIFT network. Due to the backing of modern fiat currencies with

government bonds, payment systems are a core part of modern monetary systems.

For international payments, The Company makes use of Network IP Architecture while

connecting to SWIFT systems as mentioned earlier. What is a network is something one should

basically understand. The term network refers to any interconnected group or system designed

specifically for sharing information among them. The basic goal of network infrastructure was to

provide connectivity and it acted as a bridge between a communications medium and the

applications that are built upon this medium. Most of the IT industry is based on network

infrastructure without which almost all communications in the world would come to an end.

The network infrastructure allowed the rapid development of many computer

technologies related to connectivity and created a marketplace for new concepts. It is based on

the standard reference model of the industry such as the four-layer Internet Protocol Suite model.

It is observed that, the payment system basically performs business processing within the

software. Xchanging’s software performs security processing involving elements like Order

management, Order routing, Transaction processing, Corporate actions, General meetings, Tax

services, Safekeeping of securities, Regulatory required reporting and Customer communications

(such as tax statements) as white label. The system is integrated to IBM Websphere MQ to send

and receive messages. Websphere MQ, which is often referred to simply as "MQ" by users, is

IBM's Message Oriented Middleware offering. It allows independent and potentially non-

concurrent applications on a distributed system to communicate with each other. MQ is available

on a large number of platforms (both IBM and non-IBM).

4) Major Vendors:

XMM – Xchanging Message Middleware: This is Xchanging solution’s own platform-

independent, SWIFT messaging middleware product providing Straight through Processing

between a customer's transaction systems and the SWIFT gateway.

Message Oriented Middleware:

For its Middleware development, along with its organization, Xchanging has oracle, IBM

and SWIFT as its vendors. IBM is providing its Websphere architecture to most customers in the

Banking & financial service sector. SWIFT provides its partners like Xchanging solutions with

the SWIFT Alliance gateway and SWIFTNet connectivity.

5) Development of industry standards

In the Websphere architecture there are two parts to message queue (hence "MQ"):

● Messages are collections of binary or character (for instance ASCII or EBCDIC) data that

have some meaning to a participating program. As in other communications protocols,

storage, routing, and delivery information is added to the message before transmission and

stripped from the message prior to delivery to the receiving application.

● Message queues are objects that store messages in an application.

Messages are sent from one application to another, regardless of whether the applications are

running at the same time. If a message receiver application is not running when a sender sends it

a message, the queue manager will hold the message until the receiver asks for it. Ordering of all

messages is preserved, by default this is in FIFO order of receipt at the local queue within

priority of the message.

With the middleware solutions interacting with Websphere MQ, MQ is configured to SWIFT

Alliance gateway. SWIFT gateway communicates with the SWIFT Network.

SWIFT moved to its current IP Network infrastructure, known as SWIFTNet, from 2001

to 2005. The process involved the development of new protocols that facilitate efficient

messaging, using existing and new message standards. The adopted technology chosen to

develop the protocols was XML, where it now provides a wrapper around all messages legacy or

contemporary.

SWIFT provides a centralized store-and-forward mechanism, with some transaction

management. For bank A to send a message to bank B with a copy or authorization with

institution C, it formats the message according to standard, and securely sends it to SWIFT.

SWIFT guarantees its secure and reliable delivery to B after the appropriate action by C. SWIFT

guarantees are based primarily on high redundancy of hardware, software, and people.

With the Middleware connecting to clearing systems, SWIFT and customers database, it

is necessary to maintain the infrastructure and information security. The middleware is capable

to receive messages from SWIFT and send messages to SWIFT which is either FIN CBT

messages or XML messages though MQ. The middle is capable to send and receive RTGS

messages specific other clearing systems like FEDWIRE, CHIPS for US Clearing, IFN for India,

XML defined by ISO 202022 for SEPA clearing. It is also observed that messages used for

domestic payment clearance is also different.

These messages contain financial information like BIC Codes, Sort Codes, Customer

account numbers, Bank address of the sender and receiving parties and transaction references.

For a Bank to process a payment, it requires certain identifier codes like BIC, NCH. The user

requests for a payment to be processed by the bank, the user provides all details necessary for the

bank to process the payment. These details are converted into identifier codes called straight

through processing. The Middleware performs straight-through-processing.

Straight-through processing (STP) enables the entire trade process for capital markets and

payment transactions to be conducted electronically without the need for re-keying or manual

intervention, subject to legal and regulatory restrictions. The concept has also been transferred

into other sectors including energy (oil, gas) trading and banking, and financial planning. STP

solutions were needed to help financial markets firms move to one-day trade settlement of equity

transactions, as well as to meet the global demand resulting from the explosive growth of online

trading. Now the concepts of STP are applied to reduce systemic and operational risk and to

improve certainty of settlement and minimize operational costs. When fully realized, STP

provides asset managers, broker/dealers, custodians, banks and other financial services players

with tremendous benefits, including greatly shortened processing cycles, reduced settlement risk

and lower operating costs.

Xchanging provides four distinctive offerings in addition to Partnering. These offerings

deliver economies of scale, processing breadth, product depth and know how to our customers.

Outsourcing delivers our customers better and cheaper processing and procurement spend.

Products supplies customers with improved solutions for business processes and information

requirements. STP extends the scope of existing services to customers and secures additional

processing and spends efficiencies for them. Business Support provides experts and re-useable

assets to support specific improvement activities in a customer’s processing operations.

Together, these offerings enable Xchanging to be flexible in meeting changing customer needs as

they seek to improve the performance of their back office functions.

Processing services are provided both directly to financial institutions and on their behalf

to the end customers. Xchanging’s major customers include Deutsche Bank, Sal. Oppenheim,

Citi, Sparda-Banken and netbank AG and Allianz Global Investors. They provide our services in

Germany from our processing centers in Frankfurt

Today, the goal of each bank and a financial service company is to achieve 100% STP, so

that banks need not pay high prices to process a foreign exchange transaction. To achieve STP,

Nowadays, Xchanging is looking at various as aspects like Artificial Intelligence and Natural

language parsing. Bank and the Financial Service sector are aiming to reduce the payment

processing time from T+2 to T transactional days. Achieving this has been challenging for banks

and companies providing software in this sector.

The long-term market opportunity for BPO companies is substantial. The BPO market is

still in its early stages of development with low penetration levels of the corporate cost base

available for outsourcing. Having grown steadily in favorable stock market and economic

conditions, the current corporate environment provides the basis for acceleration in BPO.

Large corporate, particularly in financial services, are under increasing pressure to deliver

long-term profit improvements. The economic environment is constraining growth and core

businesses are requiring more attention and investment than in recent years. At the same time,

medium-sized companies are seeking access to economies of scale and to reduce investment

requirements to remain competitive.

Despite the need to drive down costs, improve efficiency and reduce investment in back

office processing, increased regulation is having the opposite effect. In many cases companies

have already secured the more easily achievable cost savings (IT outsourcing, shared services,

basic offshoring) and economies of scale have peaked.

Business process outsourcing resolves these conflicting pressures as the outsourcer

provides guaranteed cost reductions, undertakes investment in a shared platform and enhances

the service quality. The ability to provide these benefits across boundaries be they geographic or

functional, will deliver the economies of scale that customers are seeking.

Every year, SWIFT release its changes in messaging standards. These changes are

applicable to the payments, securities, trade operations and other sectors in the financial sector.

The company incorporates these changes as a maintenance procedure. Any new amendments in

the sector are implemented as a new upgrade or an enhancement.

There have been many developments in the market practices set by US Department of

Financial crimes. In November 2011 the US high value payments systems Fedwire and CHIPS

will implement a new message format that caters for extended remittance information. Following

the Banking rules and regulation, the company looks forward in upgrading the information. This

change is currently under discussion with the management with an impact analysis being

performed to understand the impact of the new guideline.

6) Case Study:

In the year 2009, the payment market practice group had introduced a new payment

transaction called Cover payment. This was introduced in response to recommendations made by

the Wolfsburg Group and the Clearing House in 2007 to improve the transparency of Direct and

Cover Payments. The use of cover payments within the Bank processing made its

implementation not just a technical issue, but required detailed business analysis of internal

policies and procedures.

Specific requirements from their chosen partner:

• Deconsolidation – in order to retain the positive benefits but also divest Full Time Equivalents

(FTEs)

• Cost savings

• Improved service delivery

• Neutrality – to create an attractive proposition for other major banks and customers

• Avoiding a lapse – With the new cover payment being used by other banks, there was a need to

incorporate in the existing solutions

• A rapid solution to address a failing business unit

• A processing platform that could cater for market demand and be flexible and cost efficient to

attract large customers with varying needs.

Xchanging solutions were able to successfully complete this requirement and their

customer was capable to make cover payments using XMM.

The Business challenge faced by Xchanging solutions was to understand the impact of

cover payments on its customer who were banks and other financial corporations. Cover

payments being new to processing, Banks and other financial institutions were not aware of how

these payments would be used. Any incorrect information would prove costly for the bank and

its customer (account holders).

XMM product was changed to support the cover payment as an enhancement. Following changes

were made:

● Business Analysis: A detail analysis team being conducted to understand the

requirements and processing of cover payments at the bank’s end. The gap analysis was

conducted to identify where the changes were necessary.

● Assessing the current state of solutions: It was necessary create a copy of the existing

solution and asses the changes to be made

● Design the solution with the new requirements: The new solution on draft included

features for successful processing of cover payments and enhanced STP Rate.

● Prepare the change specification Document to understand the changes, its feasibility and

benefits

● Building the enhanced solution

The enhanced solution of XMM was deployed at customer sites and went live in

November, 2009.

With the development changes being incorporated at a short notice, the maturity level of

the application was such that the change incorporation was completed in a very short

time. The time was consumed more on the gap analysis being performed.

4. Suitability of IT

Porter’s five forces’ perspective:

If we see from Porter’s five forces’ perspective:

Porters five forces model is a competitive analysis model and it helps company to analyze and understand the industry trend. It also provides a simple yet powerful framework. Here with this company’s case Porters five forces helped to determine what is needed in the industry .The European bank could find out the market scenario and introduced a technological change in the banking industry. Thru the partnership with Xchanging solution ,the bank could gain a competitive advantage over other banks. Industry Analysis: Industry analysis process enabled the bank to identify the need of the proposed system.This was an origin of the proposed concept and on the base of factual analysis and Industry analysis the bank made up a decision of bringing a change.

Macro Analysis: Here Macro Analysis helped the bank to analyze the need of the proposed system as well as the possible advantages over the competitors in the market. The bank was also able to find out the internal flaws within the organizational boundaries and came up with the solution. (Partnering with the Xchanging solutions for service)Financial Markets or the BFSI Domain comprises of Banks, international organizations like

SWIFT and regulatory boards like CHIPS, FEDWIRE, ACH in USA, RBI in India, EPC

(European Payment Council), EBA (European Bank Association), EQUENS (regulatory body at

Netherlands) etc.

These organizations determine and release new payment methods like SEPA (currently being

adopted in Europe), procedures (how payments need to be made through SWIFT) and

regulations to maintain compliance against threats of anti-money laundering. The recent

challenges faced by Banks were incorporation of Cover payments for compliance which created

some panic among banks.

Threat of new Entrants:

The BFSI Domain being so large and transparent, it is very easy for a company to adapt to the

market and play a vital role in helping the banks achieve their goal. For a new company to enter

this market, the investment is high.

It is very important for a new entrant to seek collaboration with SWIFT and other regulatory

bodies or get into partnership with other companies who already in collaboration with SWIFT

and other regulatory bodies.

To sustain this threat, Xchanging has come up with the idea of Enterprise Partnership Model.

Bargaining Power of Suppliers:

Here, the Suppliers are IT companies like Xchanging, who develop software solutions and

provide services based on the requirements of the Bank or other financial organizations.

Xchanging does have the bargaining power to negotiate the enhancements made in the Software

product, based on the changes of the financial markets. Currently Xchanging is working on an

enhancement based on changes announced for CHIPS and FEDWIRE messaging structures by

US Regulatory bodies CHIPS and FEDWIRE to improvise their market practices and payment

processing with respect to strict compliance.

This feature can be opted by the Bank with the enhancement or can continue with the existing

solution. Therefore Xchanging is in a better position to sell the enhancement at a price depending

upon the Bank’s need and penalties if incurred.

Bargaining Power of Buyers:

The Buyers are banks and financial corporations who deal with consumer accounts and other

corporations accounts.

The bargaining power of the buyer seems to a weak in comparison with the suppliers when there

is an urgent requirement to incorporate the change impacting the business processing. E.g. Banks

to incorporate Cover payments was urgent requirement to comply with as stated by the payment

regulatory bodies to meet the international compliance standards.

Therefore Xchanging being the supplier had the utmost advantage to sustain the changes in the

market changes.

Enhancing XMM, to support the new concept of cover payments not only helped them sustain in

the market but also help them gain an upper hand towards their customers’ demands.

In cases where the banks have no regulations to comply to and the banks looks to enhance their

existing solutions, the banks look for low cost investment and higher return on investment. New

methods adopted by Financial software based companies help banks to decide and have a good

bargaining power in the market.

Threat for substitutes:

Substitutes are hard to find in this domain. The BFSI domain is transparent. Transparency allows

companies in this field to implement the business processing methods in a manner where the

goal is achieved. The goal for a financial institution is to decrease the transactional processing

time and increase the STP (Straight through Processing) rate.

The Data and information is easily available from the regulatory bodies. The techniques and

methods used by different companies are different. Therefore substitutions are not easy.

Currently Xchanging’s strategy may not have threat against substitutes. Xchanging’s Enterprise

partnership model and service efficiency have been the key to fight the threat against substitutes.

Value chain Model:

Here in this case Xchanging Solutions’ Value chain model shows a chain of activities done by

the company.

The primary activities can be categorized as under:

1. Inbound logistics: Inbound logistics means a raw data which is processed and generate a

finished good or output. In Xchanging Solutions, it gets a data from the bank and process

over it and generates a final output. The client requirement is one of the major part of the

inbound logistics.

2. Operations: The process where input is being processed and becomes a finish

product/service. Here Xchanging gets data from the bank and processes a transaction and

generates a service. The operations are related to the work and processes being utilized

during the development and working of software.

Firm InfrastructureHuman Resource

ManagementTechnology ManagementProcurement

Inbound

Logistics

Marketing and

Sales

Firm InfrastructureHuman Resource

ManagementTechnology ManagementProcurement

Inbound

Logistics

Operations

Outbound

Logistics

Marketing and

Sales

Service

3. Outbound logistics: The software or outsourcing facilities is developed by Xchanging

solutions. These solutions developed by Xchanging solution are delivered in phases or as

a whole based on client requirements.

4. Marketing and sales: The Xchanging then advertises about its service and raise a

possibility to get another customers.

5. Service: The support after selling products or services.

For serving Xchanging solutions’ customers the company makes changes in Human capital on

regular bases as per the market demand. The Employees are required to get training on the

emerging technologies.

This technology introduced by the European bank is highly suitable for Xchanging Solutions

because it is an emerging technology and there are very few substitutes and very low risk /threat

of new entrants.

5. Presenting business case for the technology

a. Benefits FrameworkBenefits Framework For Xchanging Solutions

Objective Doing New Things Doing things Better Stop doing thingsFinancial

Quantifiable

Measurable

observable

Benefit: Increased customer retention due to product Enhancement/services

Benefit: Stop keeping transactions on hold due to incomplete information

Measure: Reduction in Transaction Processing Time Measure: the number of transactions kept on hold

were 50% of the total transactions processed in a year

Benefit Owner: Customer Account Manager Benefit Owner: Transaction Process Manager

Benefit: Reduction in Product defect Management

Measure: Cost incurred by the company for defect resolution

Benefit Owner: Customer Service ManagerBenefit: Increase the STP Rate for the transactions processed

Measure: The number of transactions which are NON-STP are 70% of the overall transaction processed in a year

Benefit Owner: Customer Transaction Processing Staff

Benefit: Increase the Compliance hits for the Transactions processed

Measure: the number of transactions containing complainance information passed were 40% of the total transactions processed.

Benefit Owner: Customer Complaince Officer

Benefit: Bank introducing new features with the help of vendors and promotion

Benefit: Customer using the companies products and services extensively

Measure: Increase in sales due to the new features

Measure: number of defections to competitors. There are few customers switching from Xchanging.

Benefit Owner: Marketing ManagerBenefit Owner: Customer Account Manager

Benefit: Bank Employee motivation by training sessions on the use of new features of the software

Benefits: Ability of develop future services based on new Financial market data from SWIFT, Compliance Vendors and Customer Data

Benefits: Stop Customers becoming frustrated because too many bugs and product fixes

Measure: Increased number of processing of transactions

Measure: Quantity and Quality of Financial Market Data Measure: Business Staff Opinion

b. Benefits Dependency Network

Core banking

Solutions

IBM websphere

SWIFTNet

AMLCheck

Change in payment

flow

Messaging Solution Enabling

Cover Payments

Network IP Architectu

re

Introducing new black listed

entries

Improving Transactio

n time

Improving Customer Interaction

Improving Communi

cation within

banks & Supportin

g high end

protocolWorld organizati

on conferenc

ing in bringing

new policies

Reducing transactio

n time from t+2

to t

Reducing costs as penalties

Reducing of

Intermediate bank charge

Preventing anti

money laundering

Reduction of costs

Improvement of

operational

efficiencies

IT Enable

rs

Enabling

changes

Business changes

Benefits

Investment

Objectives

References

• SWIFT Website – Http://www.swift.com

• IBM Website : http://www.ibm.com

• Xchanging Solutions : http://www.xchanging.com

• Study Cases of the company : http:// www.xchanging.com/industries/banks-financial-

services

• MIS Course Articles

• Article #4 -- “ERP Definition and Solutions”, Compiled by Christopher Koch and

Thomas Wailgum, CIO.com, April 17, 2008. (available on Blackboard)

• Article #5 -- “Service-oriented Architecture: Myths, Realities, and a Maturity

Model,” by:. Hirschheim, Rudy, Welke, Richard, Schwarz, Andrew, MIS

Quarterly Executive; 2010, Vol. 9 Issue 1, pp. 37-48

• Article #19-- “Building Better Business Cases for IT Investments,” by: Ward,

John; Daniel, Elizabeth; Peppard, Joe. MIS Quarterly Executive, 2008, Vol. 7

Issue 1, p1-15.

• Article #20 -- “Managing the Realization of Business Benefits from IT

Investments,” by: Peppard, Joe; Ward, John; Daniel, Elizabeth. MIS Quarterly

Executive, 2007, Vol. 6 Issue 1, pp. 1-11.