Banking Transformation is not an IT Project

Most banks equate a core banking system replacement with transformation. These banks tend to think of the replacement of the core systems as the silver bullet that will solve all issues, stop the bleeding of market share, stabilize the existing customer base, and help the bank start to grow again. So what I’m about to share my shock some of you – 80% of what impedes a bank from achieving great results has absolutely nothing to do with the Core Banking System.

Now don’t get me wrong, core banking replacement is extremely important, and there is no doubt that the vast majority of banks need to address their current core system architecture, business functionality, and channels integration in order to satisfy current and future business needs. The problem is that most banks do not realize how hard it is to transform the business via a program focused only on their core banking system.

The issues that plague most banks, the issues that generated the current status quo are not core banking related. Rather the core banking system of most banks are a result of the status quo, organizational structure, and organizational behavior embedded in the culture of the bank. If a bank is not willing to address these areas first then no matter what systems are selected the bank will either spend significantly more money and time than they should to implement or worse they will spend time and money to implement a like-for-like system replacement with no transformed business process, no transformed culture and absolutely no differentiation in the market.

For example a common issue that tends to come to light during the transformation of any bank is that the business silos within the bank are not willing to give up their autonomy in favor of the greater good of the bank. For example silos run separate data stores, separate customer files, separate origination systems, have separate budgets, in some cases separate technology groups, and the list goes on and on. Flattening these offerings allows a bank to provide easier total view of clients, and ensure that enterprise data comes from only one source. It also allows the bank to reduce the total cost of operation through streamlining of systems and processes. These are all things that are obvious to any enterprise architect but in the context of the bank’s culture the business doesn’t see it the same way and if unaddressed the enterprise will start to make decisions that are for the good of a silo not the good of the customer or wider bank.

Correcting this type of behavior requires a well-communicated vision, incentives to promote the right kind of behavior, and drastic consequences for impeding the transformation.  So the success of the transformation, including a core banking replacement depends on the banks ability to address their organizational structure, behavior, and culture. Face the brutal truth of how the bank currently operates and set it self up for transformational success prior to even starting the transformation program.

4 Responses to Banking Transformation is not an IT Project

  1. This very well might be the best blog post I have EVER read on core banking systems replacement. I certainly admire the author for refraining from indignation, because I certainly felt indignant upon reading the post. That this intra-bank silliness remains today is nothing short of vulgar. Kudos for the post!

  2. George, excellent view points. “The problem is that most banks do not realize how hard it is to transform the business…” This statement is worth repeating, and without strong and broad executive support, attempts to successfully transform will fail.

    * The postings on this site are my own and don’t necessarily represent my employers positions, strategies or opinions.

  3. Very True – Even though the new systems may provide new and better business practices due to the human element involved and people are comfortable with what they have used so far – the new system are not being properly leveraged for the amount of time and money spent on the replacement. The ownership should be given to few and they should be impartial to the “change in mindset” required by the user and should focus only on the greater good.

  4. George, it is sad to see that the very same issues that were facing Core Banking Transformation programs in 2010 (date of your article) are the challenges still being faced today. It is unfortunate that the Banks’ Executives continue to make the same mistakes, continue to spend $100ms to achieve IT system replacements, rather than using the opportunity (and investment) to Transform the Bank. A brilliant article that summarises the core reason for the failure of these Transformation programs.

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