Showing posts with label CIO. Show all posts
Showing posts with label CIO. Show all posts

Thursday, 24 April 2014

The challenges facing the next RBS CIO

With the news that Mike Errington, CIO of RBSG, is retiring the bank will be looking for a replacement. The new CIO will have an overflowing inbox, so for those considering taking on the role what are some of the challenges that he or she will have to face?

The immediate on-going work is to ensure the stability of the existing systems. Having had a number of serious, customer-impacting outages over the last few years (including a problem with Ulster Bank ATMs on the day this was written), the work of applying patches to and building resilience into both hardware and software needs to continue. RBS is not the only bank that in earlier times avoided doing maintenance as a way of saving costs and subsequently is feeling the impact of doing that in terms of reliability of systems.

The second tactical exercise is the simplification of the IT infrastructure. However this is far easier said than done as the IT systems have evolved over many decades, creating great complexity and the number of people who understand the older systems and how they interrelate is rapidly declining both as the result of retirement and cost cutting within the bank. Simplification is about retiring and rationalising systems and infrastructure. Given the complexity that exists this is alike disarming a booby-trapped Second World War bomb requiring both high levels of skills and nerves of steel.

Both of these steps are akin to re-arranging the deckchairs on the Titanic, given the ages of the systems. There is no doubt that there has been significant underinvestment in IT since way before the RBS/Natwest integration. Whoever is the new CIO they should use the opportunity of as part of their taking the role to negotiate a commitment to a wholesale replacement of the core retail banking system as the likes of CBA (Commonwealth Bank of Australia), Nationwide Building Society and Deutsche Bank have carried out. However this would involve spending measured in the low to mid billions of pounds and a programme taking 3-5 years to execute. This is where making such an essential change becomes particularly difficult specifically for RBS as RBS is not just any bank, it is a state-owned bank. Such is the political pressure to see the bank returned profitably to the private sector and within the first couple of years of the next government i.e. almost certainly by the end of 2018, that it is highly unlikely that the funding for such a major investment programme will get approval from the key shareholder. However that is what both the CIO and the CEO should be looking for if RBS is to once again become a truly competitive UK bank.

There are however other major transformation programmes that the new CIO will have to pick up, drive and deliver.

Having negotiated an extension of the deadline to the end of 2016 for the disposal of the 308 branches that RBS was forced by the EU to sell as a result of receiving state aid, creating a separate clone of the RBS systems for the new Williams & Glyn’s bank to run on is another top priority for the new CIO. This is not dissimilar to the exercise that Lloyds Banking Group had to perform to create the platform for TSB to run on. However the Lloyds Banking Group platforms were in a far better state than the RBS systems benefitting from coming on the back of creating a single set of systems for the Lloyds TSB/HBoS merger. Even having that advantage for Lloyds Banking Group creating the separate TSB platform was not simple or easy with the eventual cost being in the order of £2bn. Delivering the William and Glyn’s separation to the 2016 deadline will be a major achievement.

This is not the only separation programme that the CIO will have to oversee. The IPO of the Citizens business in the US in Q4 2014 and the complete disposal by the end of 2016 will also need to be executed. This will entail the disengaging of Citizens from the Group systems.

In addition there is the question of what to do with Ulster Bank. The preferred option is to dispose of it by selling it to one of the challenger Irish banks e.g. Permanent TSB, Danske Bank. If that is to go ahead then the new CIO will have to look at the separation of Ulster Bank from the Group systems and supporting the clone until it is integrated into the buyers' systems.

One of the core strategies of RBSG is to scale back the investment bank, reducing costs to be aligned with the smaller bank and to return the bank to be more focused on the UK and supporting UK businesses. This will inevitably require changes to the investment banking platforms as businesses are closed or sold off. To achieve the reduction in costs and the required flexibility as volume drops will almost inevitably mean looking at further outsourcing of platforms and operations to third parties.

On top of the RBSG specific initiatives the new CIO will also face the plethora of transformation programmes and projects that will need to be implemented as a result of regulatory changes. One of the core ones will be the implementation of ring-fencing once that is fully defined. This will mean a significant change in the governance of RBSG and there is a question as to whether the role of Group CIO can persist under the new rules, requiring in a significant restructuring of Group Operations.

All of this will need to be delivered whilst digital, mobile and the use of data analytics for both competitive advantage and risk management continue to move at pace in an increasingly competitive banking market.

The new RBS CIO will need to face up to this hugely challenging environment all within the constraints of  a bank operating very much in the public spotlight, with the need to rebuild trust and the financial constraints imposed by  having the government as the largest shareholder. Only the bravest should apply.

 

 

 

Tuesday, 25 March 2014

Should the CIO be on the Executive Board?


The news that the CIO of Co-operative Group (which has a minority holding in Co-operative Bank), Andy Haywood, is to move off the Executive Board but to remain Group CIO brings a further spotlight onto what is the role of the CIO going forward and, whilst not directly related to the demotion of Mr Haywood, specifically what is the future role of CIOs in banks.

The reporting lines of CIOs have evolved with the increasing use of technology in organisations. Even the title of the person responsible for IT has evolved alongside the technology.

When computers were first introduced into banks their sole purpose was to act as a giant calculator and move what was held in physical ledgers onto computers so that the bank’s financial position could be calculated. The person responsible for making that happen would have had one of a few titles including EDP (Electronic Data Processing), MIS (Management Information Systems) or simply Computer Manager. The role would have reported to the Finance Director or Chief Accountant as that was the department that was primarily serviced by computers. Indeed today in many organisations today IT continues to report to the CFO.

As automation started impacting the back office operations of the banks and IT started being used outside of Finance, the Head of IT or CIO may have found the reporting line moving to the Chief Operating Officer. For many banks today that continues to be the case.

However with the rise of digital, IT has increasingly permeated beyond the back office and accounts departments and an increasingly large proportion of IT expenditure is being consumed by Marketing.

Banks in particular, where fundamentally the vast majority of their commercial, money-making operations are conducted electronically and not in the physical world, IT is increasingly seen as the lifeblood of a successful business. You only have to observe how little a bank can actually do when its IT systems crash and customers cannot access their bank accounts or their card transactions are not processed to see how important IT is to the operation of a bank.

There have been some interesting experiments in terms of what the right organisation structure for IT should be.

For instance at Barclays when Shayghan Kheradipir was Chief Operating and Technology Officer, he had a model where the COO and CIO of each business unit jointly reported to the CEO of that unit. (See CIO/COO joined at the hip). This meant that IT had a voice at the table for the key strategic decisions for that business unit rather than merely being represented by the COO.  With Mr Kheradipir leaving Barclays to be the CEO of Juniper Networks, it will be tempting for Barclays to revert to the more traditional model.

Commonwealth Bank of Australia has gone further than Barclays did by having the CIO reporting directly to the CEO. It is interesting to note that subsequent to that organisational change Commonwealth Bank has spent significantly more as a proportion of overall costs than other banks on refreshing its IT but as a consequence has one of the most advanced IT architectures and platforms of any retail bank of size globally. It is now being able to exploit that new platform to launch new products and services far faster than its competitors.

However with IT increasingly being outsourced, (whether it by the traditional route of selling IT assets to an outsourcer and buying back services or through the use of the cloud), the demands of digital and increasingly Business Intelligence and data analytics, there is a bigger question as to whether there is a role for the traditional CIO at the Executive table? If it isn’t the traditional CIO then who should be providing the strategic input of the role that IT can do to both lead and serve the bank? The skills are far more aligned with a business savvy enterprise architect who has no vested interest in building an internal organisation but is more interested in providing a pragmatic solution, wherever it is sourced from, who knows how to form strategic alliances, both within the bank and outside and who is driven by the desire to use technology to deliver the best value to both internal and external customers.

That doesn’t appear to be what the latest announcement from the Co-op regarding the role of the CIO is saying, indeed the organisational change sounds like a regressive step. But then the Co-op has far bigger problems to address than how to more effectively exploit IT.

Friday, 15 November 2013

The end of the COO/CIO experiment at Barclays?

The news that Shaygan Kheradpir, Chief Operations and Technology Officer, has resigned from Barclays to join Juniper Networks as CEO appears to mark the end of what was a brave experiment by the British bank. Back in January 2011 bringing in the former CTO from Verizon as COO of Barclays Retail and Business Bank was a surprising move given that Kheradpir had no apparent background in either banking or operations, let alone in the UK. HoweverKheradpir shook Barclays up from the start. Changing the historical relationship of CIOs reporting into COOs not only in Barclays but in banks and most other organisations across the world by making both equally accountable he made a bold statement. It’s a financial world wrote about this at the time http://www.itsafinancialworld.net/2011/05/barclays-cooscios-joined-at-hip.html . Whilst it was clear that not many banksagreed with this move (ANZ and WestPac being examplesthat went the opposite way), there was a lot of interest in seeing whether this radical change was going to make the difference to Barclays Retail and Business bank. This came at a time when Barclays’ investment bank, Barclays Capital, led by Bob Diamond and his close knit team were seen as aggressive, agile and highly successful; something that could not be said about the staid Barclays Retail and Business bank.  Kheradpir challenged the way that Barclays brought new ideas to market introducing agile and the first fruit of this approach was the launch of Pingit, the P2P payments solution.  He also brought in other like minded individuals from Verizon and those with a software background to reinforce the cultural change that he wanted to make. Following his early success, Kheradpir was promoted to Chief Operations and Technology Officer at the Group level and was responsible for driving the cost reduction elements of Antony Jenkins, the CEO of Barclays, ‘Transform’ programme. Much of which has yet to bear fruit.
Kheradpir leaving to go back to the Telco industry less than three years after he joined Barclays cannot be seen as a ringing endorsement for the effectiveness of bringing into a bank at such a senior level someone with no experience of the industry. Certainly there is an argument that bringing someone in from outside the industry brings a fresh perspective and enables them to ask the questions, just like the small boy in the story of the Emperor with no clothes that no one else dares to ask for fear of looking stupid. There is also the perspective, often argued by the consultants McKinsey that bringing someone in from another industry opens up the opportunity to leverage what worked well in that other industry. No one could honestly argue that banking doesn’t need to change. However banking and specifically retail banking in the UK has experimented with this before. The major banks hired retailers to teach them how to put the retail into retail banking. The ramifications of that are still being felt today. Yes bank branches may look smarter, may look more like GAP stores from the beginning of this century, but would there have been the PPI (Payments Protection Insurancemisselling scandal without those retailers for whom selling extended warranty policies which customers didn’t want or need was secondnature?
There is fundamentally nothing wrong with bringing in a senior executive from a different industry to challenge the way that things are done and have been done for many years, to argue for treating customers differently, to change the way that IT systems and change programmes are delivered but for this to succeed there are two critical requirements.
Firstly the new executive must not be so prejudiced or arrogant that they don’t listen and try to understand why the banking industry operates in the way that it does. That doesn’t mean that once they have taken the time to listen and to understand the industry that they apply their experience from outside the industry and fundamentally change the way that banking is delivered.
Secondly the new executive needs to surround him- or herself with open-minded experienced banking executives who he or she can rely upon for their integrity and to provide advice and a safe environment to allow the executive ask the dumb questions. The executive also needs to be confident that the executives working for him/her will tell them when they are talking rubbish. This sadly appears not to have happened in the run up to the financial crisis.
Kheradpir by making the COO and the CIO jointly responsible for the performance of the business units working for him was acknowledging that IT is not simply a supplier to the business of banking but that it is absolutely fundamental to being successful in banking. He was also recognising that today there are not that many banking executives out there that have the skills, experience and competencies to master both the COO and the CIO roles and therefore the next best step was to make them jointly accountable. Antony Jenkins, CEO of Barclays saw Kheradpir as one of the new generation of Renaissance COOs who are young enough to have been brought up with technology that it is so deeply ingrained in their DNA that the barriers between operations and IT can be effectively broken down by being encapsulated in one person.
With Shaygan Kheradpir moving to the CEO role at Juniper Networks the result of the experiment that Barclays undertook can only be inconclusive. Kheradpir simply will have not stayed long enough at Barclays to prove that the new model worked, whether it would have fundamentally changed the way that Barclays delivers banking which is a loss not only to Barclays but also to the banking industry that was watching with interest.

Thursday, 24 November 2011

Barclays COOs/CIOs joined at the hip? ANZ doesn't agree

In an interesting move Barclays Global Retail Banking COO, Shaygan Kheradpir, has announced that the COO and CIO of each of the business units within the Global Retail Bank ( Barclaycard, UK Retail Banking, Barclays Africa and Western Europe) will jointly run their businesses and report to their CEO as well as to the GRB COO. This is sending a very clear message that, for retail banking, IT is as important as operations and that only by jointly working together can they succeed.

One can only assume that this is a move to change the behaviour often seen in banks where IT is seen as the whipping boy of Operations, the department that holds back the business from evolving and competing and the recipient of a lot of finger pointing.

In many banks and other financial services organisations IT reports into Operations and is not represented on the Executive Committees of their business units. This move by Barclays firmly places IT at the top table. It represents just how much more banks are dependent upon IT to be competitive.

Commonwealth Bank has gone one step further and has their CIOs reporting directly to the CEO, such do they see the significance of technology to the success of their banks.

Too often recently there have been tales of how IT has stopped the business working. You only have to look at the woes that National Australia has been enduring and the impact on the business of systems not working.
See http://www.itsafinancialworld.net/2011/04/deja-vu-as-nab-systems-down-once-again.html Interestingly NAB has a structure whereby they have split responsibility for IT between effectively BAU (Business As Usual) and New Technology with Adam Bennett as CIO and Christine Bartlett, the executive programme director of the NextGen technology upgrade programme.

However Barclays is clearly demonstrating how technology can help lead a business. First out with the tap and wave debit card in the UK and first out in the UK with the mobile wallet on a phone with their joint venture with Orange (see http://www.uswitch.com/news/communications/orange-and-barclaycard-launch-mobile-phone-payment-scheme-800550966/ )

For this joint responsibility to work effectively requires a special type of COO and a special type of CIO. The head of Operations will need to have far more than just an appreciation of IT than has traditionally been the case. Equally the CIO will need to have a deep understanding of how the business works and how IT can enable the bank to compete. Traditional CIOs who have come from an IT Service Delivery, focussed on keeping the lights on, may struggle to perform this role. The type of CIO required for banks is clearly evolving. This is discussed further at http://www.itsafinancialworld.net/2011/10/new-type-of-cio-is-required-for-todays.html
This dual leadership can only be seen as a temporary measure until enough executives emerge who can really master both banking and technology - people like Shaygan Kheradpir, whose last role was CTO at Verizon, and is an example of the Renaissance Man which is needed to manage banks in the 21st century.

In a move against the trend ANZ has announced that Anne Weatherston the CIO will no longer report directly to the CEO, Mike Smith, but will now report to Alistair Currie, the new COO, whilst still retaining her position on the management committee.

Shortly after the ANZ announcement Westpac has followed suit in going against the trend and has announced that they will not only introduce one COO but two and have a CIO reporting into each one, removing the CIO responsibilities even further from the CEO and the board.

Only time will tell whether either ANZ's and Westpac's or Barclays' and CBA's models are right. It will be interesting to see and costly for the banks that have got it wrong.

Thursday, 7 April 2011

Time for bank CIOs to become CEOs

Whilst banks overall are not great at PR, Bank CIOs make the Bank's PR look good. IT departments are forever the whipping boy for the business, the quoted reason why banks lack agility and respond to changes in the market, forever failing to deliver projects to time and budget and costs continually increasing, when Moore's Law says that they should be rapidly decreasing. It's no wonder there is so much outsourcing to third parties when there is such discontent with the internal IT function.

However it doesn't need to be this way. CIOs need to be getting onto the front foot and taking a business-friendly approach to the way that IT is run and services supplied to the business than the outsourcers who offer to take on the business of IT cheaper, better and with greater resilience.

Without getting to IT cost tranpsarency, how can the business units be expected to have trust in the recommendations and decisions that the CIO makes?

Many other business units of  banks operate P&Ls, but often IT doesn't, rather it is seen simply as a cost centre and there is no granularity about the cost and how that relates to the business units. Having said that, it doesn't mean that it makes sense or is useful to share the detailed costs of IT with the business.

One of the big difficulties for many CIOs when challenged about the cost of the services that they deliver is that they don't have the numbers available in a business-friendly way to enable the business to understand the true cost of providing services to the bank's customers and therefore being able to make intelligent choices about how they want to consume IT services.

Whereas every IT department will have a General Ledger where entries are made, the structure of these accounts is often designed from IT's perspective with categories such as hardware, software, network and people. Increasingly with the changes in the IT industry and alternative ways of delivering, such as cloud computing (Infrastructure as a service, software as a service, private v public clouds), off-shoring, outsourcing and the green agenda, it is becoming essential to be able to compare the costs of delivering these services.

Fundamentally there needs to be a transformation in the way that IT looks at its finances to being more commercial, and in the culture of IT departments to being far more outward looking and customer-centric. This shift needs to be underpinned by taking far more of a management accounting approach to the finances of IT. Bank CIOs  need to become the CEOs of the IT services businesses that they run - an equal with their fellow business unit MDs.

The end game is to have a set of costs that provide the fully loaded cost of  delivering a business process e.g. what is the IT cost for completing a customer's application for a mortgage from initial enquiry to release of funds. This cost would include an appropriate share of the cost of the use of applications, infrastructure (storage, processor, network, power consumption, data centre and office space, etc.), IT staff and overheads.

An example of an organisation that is taking this approach is Bank of America, who with the rolling out of videoconferencing into their branches (see http://www.itsafinancialworld.net/2011/03/is-videoconferencing-answer-to-rdr.html )  is including the cost of not only the hardware but also the Telepresence licencing, the power consumption and the communications cost to work out the cost of sale using this channel.

Many IT organisations have made or begun to make the transition from a service delivery to a service management approach to IT. ITIL encourages this and, for many organisations, the first step along this path is to create a Service Catalogue. However the Service Catalogue really only becomes useful when there are fully loaded costs associated with each service.

However to get to a full financial model involves a significant amount of work and time, so the pragmatic approach is to take small steps towards this. The easiest way to break this work down would be to pick off a product or service such as network or mainframe, however doing that does not bring about the fundamental shift from internal IT focus to business focus, so a better alternative would be to take a single business process. For instance rather than going for something as complex as an application for a mortgage, a balance enquiry could make a simpler way to demonstrate transparency and build trust with the business, particularly if what is modelled is the IT cost of a balance enquiry over different channels e.g. branch, telephone banking, internet banking or mobile.

By changing the dialogue with business, by being able to explain costs in the terms they understand, CIOs operating as CEO of IT Service Businesses will move from supplier to true business partner.