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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
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Compliance
Cost
reductions
Time
RO
C Automation
Front office
investments
Infrastructure
consolidation
System
simplification
Business
development
Business priorities driving IT spending
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111 140
2011 2017
Business priorities driving IT spending
Retail banks IT spend
Global, USD, billion
Source: Ovum
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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
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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?
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105 banks studied in three continents
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− 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
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• Governance and organization
• Outsourcing / offshoring
• Application architecture complexity
• Hardware utilization
Non-quantitative attributes
• IT budget allocation method
• …
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IT spend
Income
Cost
Income
High Low
High
Low
Cross reference business and IT to find
effective banks
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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
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6.4%
48.3%
IT spend
Income
Cost
Income
High Low
High
Low
Asian bank averages
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IT spend
Income
Cost
Income
High Low
High
Low
C A
D B
“A” banks relatively spend less get more
6.4%
48.3%
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More IT spend
=
Higher
profitability
Operating
country
=
Market advantage
New platform
=
Higher value
Scale
=
Cost
advantage
Common
misconceptions
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More spend on IT does not lead to more
profitability
IT spend
Income
Cost
Income
High Low
High
Low
Too much on
running
operations
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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”
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Economies of
scale • Complex environments
• Integration challenges
Scale outweighed by complexity
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Capacity
on-demand
Virtualization Help desk
outsourcing Flexible
servers
Small can get cost advantage too
Smart
sourcing
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Labor costs and skill
advantages can be
leveraged across
countries and
continents
Home country and market advantage has
no correlation
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Age of core banking system is not relevant
‘A’ bank
‘D’ bank
50%
50%
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Scalability
New product time to
market Cost of legacy
Customer centricity
Revenue growth
Common benefits realized and not realized
in core system replacement
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Translating IT investment to value
IT Investments
Business
engagement
Busines
s value
Innovation, differentiation
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Breaking time and distance limit with video
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Increase staff productivity and customer
satisfaction with hybrid self service stations
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Enrich experience with media emersion
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• Co-located bank-coffee shop
• Unviable economics
• Initiative was cancelled
Re-thinking of business economics
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IT spend
Income
Cost
Income
High Low
High
Low
Operational and
IT management
practices Leading
bank
Linkage between IT practices and results
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• Executive engagement
• Business engagement
• IT organization
• Project portfolio management
Strong
management
Good IT
governance
IT management and business integration
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Forma governance
Business IT
Demand
Supply
Value creation levers
…
…
…
…
…
…
Better business-IT cooperation
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• 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
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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
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“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
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IT management
Infrastructure
Application
development &
maintenance
Desktop
computing
Wholesale outsourcing restricts flexibility
Wholesale
outsourcing
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“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
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“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
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• Less complex
application
connection
• Lower labor cost
• Flexible
architecture
• Standard
interface
• Middleware
Disciplined approach to architecture
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“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
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IT spend
Income
Cost
Income
High Low
High
Low
A
D
“A” banks utilize infrastructure more
A : D = 1.9x
Unix server utilization
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Most top performers stay at the top
IT spend
Income
Cost
Income
High Low
High
Low
Trends over several years
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IT spend
Income
Cost
Income
High Low
High
Low
Some banks can improve while some can’t
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Reduce IT spending Selectively reinvest
2 - 4 year transformation
Sustained commitment from top makes the
difference
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Principles
Transparency
Performance
management
A balance between short-term
performance gains and long-
term investments
2
1
3
Common principles of leading banks
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Governance Model
• Prioritization
• Alignment Gloves
Business
executives
− IT savvy
− Direction
Hand
IT
executives
− Business
savvy
− IT experts
Engagement from the top ranks
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• Vast physical branch network
• Decentralization of operation
• Less automation
• Less sources of revenue
Cost-income ratios in Iran: 25% to 85%
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Performance
Risk control
Quality of
service
Operational
efficiency
Innovation
IRAN Opportunities of improvement
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Other External services
External staff
Internal staff
Network equipment Hardware
Software
Europe Asia Iran
?
IRAN Need to establish Iran benchmarks
IT spend
Income
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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
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Objective and
sound judgment
of data
• Right
participants
• Right questions
• Clear definition
• Consistent
interpretation
Benchmarking key success factors
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© 2014 Inventive Limited
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
info@inventive-consult.com
www.inventive-consult.com
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