making the biggest bang for your it bucksconf.mbri.ac.ir/ebps3/userfiles/file/slides2/31.pdf ·...

Making The Biggest Bang

For Your IT Bucks

inventive

Tehran, 7 January 2014

2

© 2014 Inventive Limited

IT spend

Banking: an IT intensive industry

3% -

10%

Income

3


Compliance

Cost

reductions

Time

RO

C Automation

Front office

investments

Infrastructure

consolidation

System

simplification

Business

development

Business priorities driving IT spending

4


111 140

2011 2017

Business priorities driving IT spending

Retail banks IT spend

Global, USD, billion

Source: Ovum

5


0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012 2013 2014 2015 2016

Global

Source: Ovum

Global IT spend growth will increase to 4%

Retail bank IT spend yoy change

6


0%

2%

4%

6%

8%

10%

12%

14%

2010 2011 2012 2013 2014 2015 2016

MEA

Global

MEA banks have a different pattern

Retail bank IT spend yoy change

Source: Ovum

How can banks maximize the benefits of their

IT investments?

8


105 banks studied in three continents

9


− Deposits

− Cards

− Loans

− Payments

− Investments

− Bank assurance

Retail banking

− Lending

− Financing

− Cash management

− Payments

− Venture capital

− Custody

Corporate banking

− Equities

− Derivatives

− Fixed income

− M&A

− Treasury

Capital markets

700 KPIs collected across 3 years

10


• Governance and organization

• Outsourcing / offshoring

• Application architecture complexity

• Hardware utilization

Non-quantitative attributes

• IT budget allocation method

• …

11


IT spend

Income

Cost

Income

High Low

High

Low

Cross reference business and IT to find

effective banks

12


IT spend

Cross reference business and IT to find

effective banks

• Opex vs capex

• Infrastructure, application, admin

• Application development vs

maintenance

• Front office vs back office

• Hardware, software, personnel

• In-house vs outsource

• Running vs changing the business

13


6.4%

48.3%

IT spend

Income

Cost

Income

High Low

High

Low

Asian bank averages

14


IT spend

Income

Cost

Income

High Low

High

Low

C A

D B

“A” banks relatively spend less get more

6.4%

48.3%

15


More IT spend

=

Higher

profitability

Operating

country

=

Market advantage

New platform

=

Higher value

Scale

=

Cost

advantage

Common

misconceptions

16


More spend on IT does not lead to more

profitability

IT spend

Income

Cost

Income

High Low

High

Low

Too much on

running

operations

17


IT spend

Income

Cost

Income

High Low

High

Low

A

D

Application development spend ÷ application maintenance spend

A : D = 2x

“A” banks’ app dev vs maint. is 2x of “D’s”

18


Economies of

scale • Complex environments

• Integration challenges

Scale outweighed by complexity

19


Capacity

on-demand

Virtualization Help desk

outsourcing Flexible

servers

Small can get cost advantage too

Smart

sourcing

20


Labor costs and skill

advantages can be

leveraged across

countries and

continents

Home country and market advantage has

no correlation

21


Age of core banking system is not relevant

‘A’ bank

‘D’ bank

50%

50%

22


Scalability

New product time to

market Cost of legacy

Customer centricity

Revenue growth

Common benefits realized and not realized

in core system replacement

23


Translating IT investment to value

IT Investments

Business

engagement

Busines

s value

Innovation, differentiation

24


Breaking time and distance limit with video

25


Increase staff productivity and customer

satisfaction with hybrid self service stations

26


Enrich experience with media emersion

27


• Co-located bank-coffee shop

• Unviable economics

• Initiative was cancelled

Re-thinking of business economics

28


IT spend

Income

Cost

Income

High Low

High

Low

Operational and

IT management

practices Leading

bank

Linkage between IT practices and results

29


• Executive engagement

• Business engagement

• IT organization

• Project portfolio management

Strong

management

Good IT

governance

IT management and business integration

30


Forma governance

Business IT

Demand

Supply

Value creation levers

…

…

…

…

…

…

Better business-IT cooperation

31


• Span of control of IT across the banks

• Organization of the infrastructure

• Application development and application maintenance

resources

• Accountability of CIOs

• Financial ownership of IT budgets

• IT staff compensation elements

IT governance

32


IT spend

Income

Cost

Income

High Low

High

Low

13%

11.7%

“A” banks scored high on governance

Profit to income ratio, European banks studied

A

D

33


“A” banks drive IT agenda more directly

IT spend

Income

Cost

Income

High Low

High

Low

A

D

Outsourcing spend ÷ income

A : D = 0.25x

34


IT management

Infrastructure

Application

development &

maintenance

Desktop

computing

Wholesale outsourcing restricts flexibility

Wholesale

outsourcing

35


“A” banks emphasize more on innovation

IT spend

Income

Cost

Income

High Low

High

Low

A

D

% of IT budget on innovation (new services and capabilities)

A : D = 1.6x

36


“A” banks run with ¼ of apps of “D” banks

IT spend

Income

Cost

Income

High Low

High

Low

A

D

Average number of applications

A : D = 0.25x

37


• Less complex

application

connection

• Lower labor cost

• Flexible

architecture

• Standard

interface

• Middleware

Disciplined approach to architecture

38


“A” banks customize applications less

IT spend

Income

Cost

Income

High Low

High

Low

A

D

% of applications difficult to change due to customization

A : D = 0.5x

39


IT spend

Income

Cost

Income

High Low

High

Low

A

D

“A” banks utilize infrastructure more

A : D = 1.9x

Unix server utilization

40


Most top performers stay at the top

IT spend

Income

Cost

Income

High Low

High

Low

Trends over several years

41


IT spend

Income

Cost

Income

High Low

High

Low

Some banks can improve while some can’t

42


Reduce IT spending Selectively reinvest

2 - 4 year transformation

Sustained commitment from top makes the

difference

43


Principles

Transparency

Performance

management

A balance between short-term

performance gains and long-

term investments

2

1

3

Common principles of leading banks

44


Governance Model

• Prioritization

• Alignment Gloves

Business

executives

− IT savvy

− Direction

Hand

IT

executives

− Business

savvy

− IT experts

Engagement from the top ranks

45


• Vast physical branch network

• Decentralization of operation

• Less automation

• Less sources of revenue

Cost-income ratios in Iran: 25% to 85%

46


Performance

Risk control

Quality of

service

Operational

efficiency

Innovation

IRAN Opportunities of improvement

47


Other External services

External staff

Internal staff

Network equipment Hardware

Software

Europe Asia Iran

?

IRAN Need to establish Iran benchmarks

IT spend

Income

48


IRAN

• How effectively are you using IT resources?

• What IT capabilities do you have to create new business?

• How should you allocate IT resources?

• What governance is required to gain advantage?

• …

Benchmarking to answer key questions

49


Objective and

sound judgment

of data

• Right

participants

• Right questions

• Clear definition

• Consistent

interpretation

Benchmarking key success factors

50


Hartmut Schnabel

Previously EY, Roland Burger

Miles Au Yeung

Previously EY, McKinsey

10 consulting projects in Iran since

2009

inventive

Making The Biggest Bang

For Your IT Bucks

inventive

[email protected]

www.inventive-consult.com

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