Adapt or Die- How to Transform IT from Impediment to Business Enabler

Transcription

1 Adapt or Die- How to Transform IT from Impediment to Business Enabler Diane Sias, Sydney, 15 October 2008

2 THREE TOPICS FOR DISCUSSION 1 The need for change 2 Leverage through business model 3 How to move to the next stage 1

3 BANKS IN 2020 WILL BE MUCH BIGGER, MORE INTERNATIONAL AND MORE COMPLEX Much bigger The $trillion bank will not be unique More international Cross-border consolidation will make banks more like industrial corporations More complex Banks will directly or indirectly employ hundreds of thousands of people and operate in multiple countries with global platforms Source: McKinsey & Company Global Forces

4 BANKING MERGERS HAVE INCREASED SIGNIFICANTLY OVER THE LAST YEARS Worldwide banking mergers* deal value USD billions And ten years worth of deals have been done in the last few months % 2008 will be an outlier in deal tables No. of mergers >USD 1B * Deals involving commercial and savings banks or investment banks included Source: Dealogic 3

5 SUPERIOR CROSS-BORDER OPERATORS ARE EMERGING Announced European cross-border banking synergies, Total synergies (costs and revenues) as percentage of smaller/target bank NB & NIB Year of transaction Source: Citigroup Investment research

6 BANK CEOs RECOGNIZE THE NEED FOR AND EXPECT CHANGE Extent t of change CEO comments we have to be adapting constantly A lot 65% Little or no Moderate change 27% Extensive 22% 50% Moderate Little change or no 23% 13% N=84 transformation is the theme new entrants have created new expectations and new innovation is coming in market.. new actors with discount products are arriving on the market, new product strategy required...technology can fundamentally change business models and entire industries Source: IBM Corporation Global CEO Survey

7 THREE TOPICS FOR DISCUSSION 1 The need for change 2 Leverage through business model 3 How to move to the next stage 6

8 BUSINESS MODEL INNOVATION LAYS CLAIM TO BEING THE BEST PLACE TO FOCUS Priorities by performance profile Operating margin CAGR Operating margin growth in excess of competitive peers CAGR over 5 years Source: IBM Corporation Innovation Study

9 BUSINESS MODELS ARE ADAPTING TO A NEW WORLD Old world Roles of companies and customers are distinct New world Customers are an integral part of company operations Companies size gives them an edge over individuals Access to better information and cheaper communications reduces advantage of size Competitive advantage derives from control over unique assets Orchestration trumps ownership (e.g., talent) Hierarchies are the best organizing framework Reduced costs of information and communication enable adaptive, loosely coupled organizations Business processes are batch- driven (e.g., budgeting, marketing, product launch, etc.) Continuous information flow drives operations to resemble continuous processes The best business people trust their gut Data ubiquity reduces subjectivity Source: McKinsey Technology Initiative 8

10 BUSINESS MODELS ENCOMPASS FIVE ELEMENTS Process Ownership Configuration People Technology Source: Bremner, K nipfer and Latreille, McKinsey on IT 2006 Source:McKinsey 9 analysis, I.T. independent baseline interviews

11 FOUR OPERATING MODEL ARCHETYPES ARE TYPICALLY ADOPTED BY EUROPEAN BANKS "Managed federation" "Selectively standard" "Copy and paste" "One bank" Share best practices across footprint Leverage centralized team and adjust organization Integrate selected product and/or capability domains Leverage centralized IT Fully standardize platforms and processes across footprint Create strong central standards and control diversity Run single platform and processes across entire footprint Centralized IT, product development and operations Loosely coupled Degree of consolidation Fully consolidated Source: McKinsey Technology Initiative 10

12 THREE TOPICS FOR DISCUSSION 1 The need for change 2 Leverage through business model 3 How to move to the next stage 11

13 BANKS PLANS INCLUDE CORE BANKING SYSTEMS LED TRANSFORMATION Percent Focus areas for enabling transformation Drivers Complexity related Significant ifi increase in IT costs Significantly reduced quality of service and productivity Global operating models and multi-branding are realities Agility related Limitations of architecture Cross BU functionality imperatives Slow response times Core systems renewal Multichannel Renewing architecture t Branch (sales) Internet Branch (tellers) Customer data mgmt. Self-service Analytics Mobile Enterprise management Source: Forrester 2007, McKinsey & Company survey 12

14 NUMBER OF CORE BANKING SYSTEM DEALS INDICATES SOME BREAKTHROUGH OF PACKAGED SOFTWARE Market dynamics Number of CBS* deals worldwide Other Lending Treasury/ CM CBS ~20% ** Number of deals ( ) High growth region Western Europe Central and Southeast Asia Asia Pacific Africa North America Middle East Central and Eastern Europe Central and South America Treasury/ CBS CM Growing number of core banking replacement deals worldwide Australasia 28 6 Strongest CBS deal growth in emerging markets * Retail banking and universal banking, p.a. ** Includes additional 19 estimated deals for I-flex which cannot be distributed over different regions Source: IBS League Tables 2007, McKinsey research 13

15 MERGERS ALSO SEEN AS A REALISTIC PATH TO TRANSFORMATION Old merger realities New merger realities Cross-border mergers increasing and some players aggressively developing mergerready platforms to extract more value Cross-border mergers are infrequent, difficult to integrate and deliver limited value Outsourced services facilitate synergies capture by leveraging existing relationships Outsourcing generates additional complexity, and maintaining/breaking deals needs careful consideration Offshoring introduces greater Ops and IT complexity and should only follow integration Offshoring can be beneficial for mergers: Realize synergies before full IT integration Provide additional resources for integration Integration of IT systems is first priority, picking one system and migrating to it fast, at the expense of freezing business growth Banks are adopting more balanced approach: Balancing IT integration and growth initiatives Creating a single face to the customer can be prioritized against full/forced integration 14