Technology is becoming increasingly important to businesses. Businesses depend on technology not just for process automation or ERP (Enterprise Resource Planning). Increasingly, technology is providing new operational capabilities, opening up new markets, and providing opportunities to gain better customer insights. It is fair to say that technology is now integrated in the way businesses work. Understanding the implications of technology trends has become critical for the future success and survival of businesses. Continue reading “Enhancing Board’s Technology Agenda”
Internet access, mobile phones, and social media have fundamentally changed the way people interact with businesses. Banking is no exception. How people conduct banking has changed fundamentally in the last decade.
Unprecedented connectivity and access to information has put the consumer in the control and not the bank. Consumers are able to seek a better deal and service providers have to work hard to get their business. If a bank does not offer ‘right’ mortgage, with a mouse click consumers can go to another bank. Consumers routinely expect control, efficiency, and choice.
Brett King, bestselling author and banking futurist of Bank 2.0, has recently published Bank 3.0. Here are some themes explored in Bank 3.0.
Four waves of digital disruption
In June 2011, the UN declared Internet access to be a basic human right. Today there are more people with mobile phones than bank accounts. It is expected that by 2016 more than half the planet will own a Smartphone with Internet access. More people are accessing Internet via mobile phones than on PCs. Pervasive Internet access (via mobiles) is becoming an everyday experience for millions of people.
Major waves of digital disruption are hitting the banking business since the arrival of the Internet. Each wave is potentially a game-changer:
The advent of the Internet has fundamentally changed many businesses. Stockbroking, music, and book selling are obvious examples. Similarly, the Internet has changed banking. Consumers have now begun to choose where, when, and how they access their money. The need to visit a branch has diminished. Within 10 years, we have gone from over 50% transactions being performed at the branch to over 95% of the transactions being performed online.
Smartphones (and tablets)
Smartphones are driving a revolution in portable banking. Many countries like the US and Australia have near 100% penetration of mobile phones. China has more than 950 million mobile phones and this number has been growing by 20% annually. An increasingly large proportion of these mobile phones are smart devices with Internet access. Consumers are regularly using mobile phones for day to day transactions such as balance checking, transfers, and bill payments. Consumers can do almost everything (except cash withdrawals) on a mobile that they could do at an ATM.
Mobile wallets and NFC (Near Field Communication) capabilities are already here. Many banks have recently launched mobile (person-to-person) payments. This sets the stage for the third wave of disruption.
Convergence of credit/debit cards and phones
In the UK, two thirds of payments are done on credit / debit cards. With wider acceptance of NFC and mobile wallets, it is conceivable that within a few years these payments would be done by a mobile with a built in card. With this wave the phone will become the everyday bank account.
Prepaid debit cards were the fastest growing form of payments in the US in 2012. The prepaid debit card business has grown from $2.7bn in 2005 to $202bn in 2012. This includes general purpose reloadable cards, payroll cards, and Internet based payday lending cards. In 2011, the prepaid card business was worth $250bn in China.
With pre-paid and stored value cards, many non-banking institutions (e.g. telecom or transport providers) are providing accounts. Technology is making it possible to de-link everyday transaction accounts from the banks.
Story of M-Pesa
Kenya has millions of people without access to banking services. M-Pesa is a low-cost mobile payments system launched by a local mobile phone company. It started off to support repayment of microfinance loans using air-time credit as a payment. With its popularity it was relaunched as a way to send remittances across Kenya, and to make payments. Today, millions of Kenyans use M-Pesa, including many without bank accounts. It is simple, low cost and has a vast distribution network. Mobile money transfers exceeded $1 trillion shillings in 2011. For many Kenyans, the mobile has become their everyday bank account.
In the near future, any major provider will be able to provide everyday banking with mobile phone/ wallet and mobile payments. This has a potential to create a major disruption to the financial services industry.
Banking as a utility
Soon banking will become something we do, rather than somewhere we go.
Banking products will be available whenever and wherever a consumer needs the utility of a bank. Banking will become embedded into financial products. For example, home buying would include a mortgage, and car purchases would have a car lease bundled in, eliminating the need to see a banker or make a separate application. This wave threatens to split banking distribution apart from product manufacturing in a fundamental way.
“Banking is necessary but banks are not”. Bill Gates, 1994.
While we all need the services provided by the banks (e.g. payment systems, access to money/ credit) increasing number of people are obtaining these services from non-bank service providers such as PayPal or mobile telephony companies.
Challenges for the banks
In order to survive these waves of disruption, banks will need to change their technology strategies. There are several challenges they would need to address. These are:
- Customer service via technology;
- Usability and ease of on-boarding;
- Mobile Presence; and
- Power of Crowds
Customer Service depends on Technology
Increasingly, most of our interactions with a bank take place via the Internet, mobiles, or the ATM. A customer may do several hundred online interactions, but visit a branch or use a call-centre only a handful of times. Hence, customer experience is defined by Internet banking support, ease of use, the ease of signing up for new products and services, and day-to-day problem resolution. The branch is no longer central to this experience, but technology investment is.
Customers interact with the bank in multiple ways (online, mobile, ATM, and Twitter). However, the information regarding these interactions is often stored in multiple places and departments. As a result, customer service suffers. Providing a seamless customer experience across channels remains a challenge.
Usability and Ease of On-boarding
Poor usability remains a primary reason why customers leave a website and go to a competitor’s website. Very few banks have a dedicated usability or customer experience team to design critical customer interactions and online processes. Brett King believes that the overall utilisation of the web-channel in retail banks is appalling. The problem is further compounded by cumbersome customer identification and on-boarding processes. Consumers research, make transactions and buy non-banking goods and services on the web, but they generally don’t purchase new banking products on the internet. This remains a huge opportunity and challenge for the banks.
The potential for the mobile network in the sphere of banking is huge. It provides convenient access to money anytime and anywhere. With smartphone adoption rates exceeding 50%, mobile banking has become a must for the banks. As seen from the M-Pesa case, non-bank mobile payments are quickly gaining traction in many developing countries.
Power of Crowds
With the advent of social media, consumers are expecting to be engaged in a dialogue with other consumers and brands. Consumers are increasingly relying on the voice of crowds for advice and recommendations. This means that the power of the brands to influence customers via traditional advertising is diminishing. For strong brand advocacy, the whole organisation needs to be in tune with what consumers are saying, and engage in a dialogue. Most banks don’t even have a social media executive and appear to be underprepared for this challenge. Talking to their customers and solving their problems in an open and transparent way without making the customers jump through the hoops, will remain a challenge for the banks.
The growth in technology and the digital economy will disrupt the way banking will be done from now on. The banks will need to leverage technology more effectively to improve service, the usability and product purchase experience, and accessibility via mobile devices.
What is the problem?
Many companies are finding that 60-80% of their IT budget is required just to ‘run’ the business. As a result, growth and innovation initiatives struggle to get the required funding. Most CIOs know this high costs is a result of complexity in the IT environment. Because of this complexity, it costs a lot to support current IT, and costs of implementing new projects increase.
Simplifying technology environment is necessary to create the financial capacity to support growth initiatives.
Why is IT so complex?
Most CIOs struggle to answer a simple question like ‘how many applications do you have? A typical IT shop can have hundreds of applications. Large application portfolios result from legacy systems, mergers and acquisitions, organisational silos, urgency leading to tactical solutions, and vendor over promising.
The issue is then further complicated by multiple technology platforms, some new and others legacy. There is usually a proliferation of servers with unique configurations to run these applications.
Strategies such as ‘best of breed’ can also increase complexity. As different solutions from different vendors (using different technologies) are acquired and integrated over time, the overall complexity keeps growing.
Duplicate or multiple systems
Companies go through mergers and acquisitions. Each acquired company brings some unique business processes, and rules and systems, which support these. This invariably creates an increase in applications that do similar functions, but are different or need a different technology platform. New interfaces are needed to bring the information together from these systems. In these cases getting accurate stock information is very difficult. Complexity thus leads to reduced accuracy.
At other times, different departments have their own sales tracking or customer management systems, which largely do the same function. In large organisations, due to silo decision-making processes there can be multiple such duplications. A company I worked in had 26 different payroll systems.
In some companies there are many applications, but only a limited funding for maintenance. As a result of budget and inertia, most applications are not upgraded for years. They become unsupported, and the company must rely on old technologies. By avoiding or deferring the upgrades, we create a ‘technology debt’, which increases over time like a snowball. This means that when upgrades are required (e.g. year 2000) these become expensive. Application functionality also gets out of date and new functionality cannot be quickly leveraged. Newer applications and more interfaces are then created, thus compounding the problem.
Abundance of Interfaces
No CIO intentionally wants to increase the complexity of IT. New applications are acquired for new initiatives and business expansion. Many start as stand-alone applications, however, over time interfaces are built between new and existing applications.
As the increase in interfaces is proportional to the square of the number of applications, the total number of interfaces quickly multiples. Many of these interfaces are inefficient, as they are trying to connect two systems with different processing rules, data structures. and data meaning. As the number of interfaces increases, their quality decreases further. Daniel Lebeau – Group CIO of GlaxoSmithKline has called interfaces the ‘cancer’ of IT.
High cost of complexity
Other than the high IT cost to run a company’s business, complexity brings about other costs. When business processes are fragmented across multiple applications, it becomes difficult to get right data. Unsupported technologies increase the risks of failure.
Perhaps the biggest cost of complexity is the reduction in a company’s ability to take advantage of new opportunities presented by the new digital economy. Taking advantage of these opportunities needs streamlined business processes, accurate master data, and a robust foundation of systems. An IT environment that is complex and fragmented with a mix of technologies, and applications is vulnerable to hackers.
Complexity can be justified in some cases. It is usually justified when complexity allows the business to differentiate its offerings to create value.
Three benefits of simplicity include reductions in operating costs, increases in agility, and the lowering of risk. As Tim Schaefer, CIO at Northwest Mutual, explains:
“There are actually three types of value that we are generating out of the simplification effort. First and foremost, we want to create dollars that can be invested in growth opportunities. Second is the value we get around risk reduction, and in particular, how we can increase the agility of the company. Finally, by simplifying our technology environment, we are actually opening up room and capacity for newer technologies.”
Strategies for the Simplification of IT
It is not easy to cut IT complexity, a sustained and multi-pronged approach is needed. We recommend three key strategies. These are
1) Rationalisation of applications;
2) Standardisation of infrastructure; and
3) Effective governance.
1. Rationalisation of Applications
For many companies scope for application rationalisation is large. Boston Consulting Group (BCG) estimate that reductions of up to 40% in the number of applications, and 15-20% of IT costs is often possible.
Application rationalisation involves consolidating duplicate/redundant applications and the progressive decommissioning of replaced applications. Without decommissioning, the cost reductions will only be minor.
Successful rationalisation has three prerequisites:
- Top team agreement – As the rationalisation is a longer term initiative and not a quick fix, strong commitment from the top team for the simplification agenda is necessary.
- Proper funding for the job – Often the business case for the rationalisation does not seem attractive in the short-term. Ensuring proper and sustained funding is necessary.
- Tracking progress – Disciplined measurement of progress is necessary to make sure that goals of rationalisation are being achieved. Aligning IT Executive incentives to the reduction in applications is also recommended (e.g. 5% reduction each year).
2. Standardisation of Infrastructure
BCG suggest that reducing “infrastructure patterns” (configurations of software, hardware, and middle-ware) should be reduced to a smaller number of standard configurations. Typically the patterns can be cut down by more than half. The recent growth in the adoption of virtualization technologies has broken the ‘one application, one server’ rule, which makes the rationalisation process somewhat simpler. Reductions in these patterns cut maintenance costs, enable better deals from the vendors, and cut provisioning time.
BCG reports that one company had 9,000+ applications and over 1,700 technology patterns. All of these required maintenance. This company eventually determined that just 7 patterns would support 80% of the application needs. This level of standardisation enabled cost savings of 40% over three years.
3. Effective Governance
Effective IT governance is needed to make sustained reductions in complexity. If business units continue to make decisions in a silo way, and little thought is given to impact on other systems or other business units, complexity will start to grow again.
A clear governance framework and agreed blueprint describing target architecture are essential. Simplification principles should become part of this governance framework to prevent building new complexity. Strict governance enables effective portfolio planning and the optimisation of IT architecture. This is a key to reducing complexity in the longer term.
In most companies IT complexity grows with time. Tactical systems, mergers and acquisitions, and new technologies all lead to a more complex IT environment. The result is fragmented business processes, lack of correct business data, higher costs and risks, and lower agility. The bulk of the IT budget then gets consumed in keeping the business running.
IT simplification is not easy, but the benefits are large. It frees financial resources, reduces risk, and improves agility. Reducing the number of applications in the portfolio and reducing infrastructure patterns will simplify the IT environment. Success depends on a strong commitment from the top team and effective governance.
Written by: Hemant Kogekar
Most CIOs would claim to have an IT strategy, but what makes some IT strategies ‘good’ and others ‘bad’? Recently there was a discussion on LinkedIn on this topic. Here are some noteworthy comments from that discussion about what makes a good IT strategy.
‘A great IT strategy that sits on the shelf is useless, and a bad IT strategy that gets executed can be even more harmful.’ Continue reading “What Makes an IT Strategy Good or Bad?”
For any company executive, fronting up to a board meeting and presenting is a daunting challenge. You work hard all year but the board sees you only a couple of times during that time. You have to package everything you do in a brief presentation. CIOs have an additional challenge. Boards are rarely interested in technology. They don’t understand the jargon.
If you don’t present well or fail to engage the board, it does not matter how efficient you are or how good your proposal is. Worse, a poor impression may even derail a career. In such an environment engaging effectively with boards, making good impressions and getting that funding request approved can be a major challenge.
Over my career, I had to present to the boards several times in different companies. This article, based on my experience and that of colleagues, aims to offer guidance to CIOs and other IT executives who want to win the board game.
Role of the board of directors
Before starting to put together a board presentation, it is important to understand the role of company board of directors. The board chooses the chief executive and approves the appointment of senior executives. The board’s role is to direct and control the company. The board must understand how proposed actions will impact the company’s performance. Direction setting includes overseeing strategic planning and major decisions. The control function requires that the board watch the company activities, systematically managing risks and compliance.
In short, the board is focused strategic planning, major decisions, performance monitoring, risk management and senior management capability. Typically, the boards don’t get involved in the details of execution, which is the responsibility of the CEO. Hence the board has to be satisfied with the ability of the CEO and his leadership team.
Every interaction with the board is an opportunity to show that you are a capable business leader; they can trust your judgement and have confidence in your ability to lead and execute. If the board trusts your business judgement, you will have greater influence and your recommendations will be viewed favorably It’s an opportunity to shine but there is also the real risk of revealing your weaknesses. This just emphasises the importance of the interaction. The challenge becomes even more acute as a typical IT executive may only get one or two opportunities to get in front of the board. Typically board presentations are only 15 to 30 minutes or less. As a result, it is vitally important to get it right.
Board presentations fall into three categories.
- First is the ‘state-of-the-union’. Here an executive is giving an annual update for the business unit.
- Second is a ‘request for approval’ for a new project or initiative.
- Third is the ‘please explain’. The board wants more information on an issue / risk or event that could impact on business performance.
Board members are generally not technology literate. For technology investments, the CIO needs to show how the technology would improve business performance e.g. customer service, profits, revenues, compliance etc. They want to know if the benefits from the new initiative exceed the technology and implementation risks. The CIO has to satisfy the board that the risks are understood and effectively controlled.
Now that we understand the board’s role and focus, it is time to begin the preparation. It is a mistake to underestimate the preparation time. I remember planning a preparation 3 – 4 months before the scheduled board meeting and this is not unusual. Status updates and proposals are scheduled to give presenters ample time to prepare, while the ‘please explain’ request can arise with a short notice.
- Understand the board submission process – Companies have well-defined processes and protocols to be followed for board submissions. Take time to understand the process, what is the accepted format (text document or PowerPoint, cover sheet), what are the pre-submission approval processes (e.g. CEO sign-off, leadership team run-through), what are the deadlines for submission. Getting these wrong can derail your presentations before the starting gate. Talk to others, get copies of the previous submissions. The company secretary is an authentic source and is also responsible for the board agenda.
- Understand what is on the board agenda – Make sure you understand what is on the full agenda. Research the current business priorities and challenges and talk to the other presenters to understand their proposals. If proper, coordinate your message with that of the others. This will avoid repetition (or worse contradictions) and help the team express a consistent message.
- Research board members – Try and understand more about the board members, their background, special interest or expertise and technology knowledge. Find out who are more active or influential around the board table and their focus areas. Try to understand their capacity to understand technical information.
Whether you are an IT leader or Marketing leader the board looks upon you as a member of the senior leadership team. Always keep this in mind for the board interactions.
- Align the message to the board’s interest and needs – Align your message to themes like company strategic goals, effective governance and risk control, business growth and efficiency, customer service etc. These will resonate better than release upgrades, infrastructure investments, virtualization and service-oriented architecture, etc.
- Eliminate jargon and use business language – Use of jargon is the quickest way to lose the board’s interest. What is obvious to the technology literate younger generation may be incomprehensible to many board members. Talk about how IT (or the current proposal) is supporting or enabling business, helping improve customer experience, reducing time to market. Better still get the business sponsor to co-present business proposals. Talk about how you are addressing risks via compliance, disaster planning and governance.
- Sell opportunities at the executive table first – If you have new ideas or approaches discuss these with the CEO and business executives first. You may have to do significant groundwork to get them on board with new opportunities. If they agree, it is quite likely the CEO will discuss it informally with the Chairman or other board members. One has to defend ideas at the board table, not raise new ones.
- Keep at high level but prepare for a deep-dive – The board presentations are brief. 15 -30 minutes is what is on the agenda. In reality, it could be shorter. Keep the message at the strategic level but be ready with facts and figures to back it up. Board members tend to ask lot of questions, so prepare for these. Get help from CEO and CFO to find out what questions to expect.
- Research the company history– Board members can have long memories. Check if this idea/ proposal has been tried before, and, if so, was it successful? Did the projects deliver? Why not? How will it be different this time? Failure to research and address these questions may mean a lack of approval or a delay.
Get ready to deliver
- Rehearse and rehearse again – With time short and pressure high don’t leave anything to chance. Make sure you are on top of all the presentation material and the facts. Try a dry run with your team and the executive team if necessary. Get their opinion and revise.
- Write down questions and answers – It is easy to forget answers when under pressure. Write down the questions and answers and keep them at hand. Practice Q & A with your team.
- Prepare a two-minute version – Board meetings can be unpredictable. Presentation time can be cut drastically. State your purpose clearly and be ready to succinctly summarise your report / proposal. Seek to gain support for one key point that moves the board in the desired direction.
- Get ready for interruptions – Questions can start as soon as you stand up. They have read your submission. Don’t let these questions derail your presentation. Pause, breathe and smile before answering each question. Turn negative questions into positive answers. At all costs avoid blaming anyone. Stick to the facts.
Follow these tips and you are on your way to winning the board game. All the best for your next presentation! For a further discussion on how you can effectively engage with the board, please contact author.
Most companies and many IT organisations have a head of strategy development or they hire consultants to help develop the strategy. However, once a strategy is developed many leaders are not clear of their own role in executing the strategy. Often, the execution of the strategy is delegated to the head of strategy. At other times, the leader expects that once the strategy has been agreed upon the direct reports would pick it up and run with it or integrate it into their operation. Continue reading “How to Turn Your Strategy into Execution?”