Core transformation: Strategic or not?

There is a building blue down in Australia (where Blue means conflict or fight!) over whether it is strategic to replace an aging core banking platform or let it remain intact and push for expansion and development of channels and front line innovation.

CBA and NAB have decided that it is strategic to do an overhaul while ANZ has decided that it’s strategic to keep the existing system intact.

So is core systems replacement strategic?  It all depends on how it’s done and the operational characteristics that are achieved with the program.

  • Initiatives that are focused solely on replacing existing systems and retaining current functionality are not strategic in nature and are focused more on the resiliency of operations than new business capabilities.
  • Where new software is helping transform business silos and enable new operational models or concepts, these are strategic programs.
  • Just because systems are old doesn’t mean they are legacy — some of the most flexible and useful systems are over 30 years old, and recently implemented systems can be irrelevant.  Much depends on the business needs not the platform.  Pure technology risks can be mitigated.
  • Where hubris and complexity are replaced by simplicity and coherence, this is strategic.

Achieving a clean end to end core banking architecture is generally a good idea, but ensuring that it aligns with an effective operating model and organization structure is important.  Timing is also important, and planning the investment such that competing priorities aren’t detracting from the program is also critical.

So in summary, if your core banking architecture is a bodgy bitzer (a real mess) and it’s not aligned with your strategic direction then it is strategic to make it clean and supportive of the future needs.  If there are no legacy based constraints on the business and the architecture is flexible and clear then it’s not strategic to replace it.

5 Responses to Core transformation: Strategic or not?

  1. Agreed, well written Kris, and here’s a MBA flashback you and I share – “strategy is the overall plan for deploying resources to establish a favourable position” (2005, Grant, p14). If the IT effort does not “fit” either the external or internal environment and generate a favourable external position – it is not strategic.

  2. Thanks for that flashback Ray, and a very good point – for the three Australian banks I think that much depends on the internal environment and the desired external position.

    All the best,

    Kris

  3. A nice reminder to us all to have a clear, justifiable set of reasons for any system transformation, such as providing a better understanding of complex customer relationships or supporting new business . Each Bank has to answer their own “Why?” question but the analysis of the internal and external drivers might be somewhat trainted.
    “New is good” has always been the mantra of people who want to try out the latest ideas and leave their mark, but it is not always justified on the initial business case, even less so as the project proceeds. I have seen the “wonderful flexibility of an SOA based architecture” and the opening up for multiple channels get compromised by a de-scoping exercise that has possibly disrupted the balance of the benefits, and perhaps leaving no real case for change.

  4. Yes I completely agree, Denis – being able to understand, articulate and realize the business benefit is key. Also timing and prioritizing the investment is essential. Thanks for your comment.

  5. I don’t think ANZ is choosing to leave their current system intact–I believe they’re just watching from the sidelines to see which systems and competitors are successful so that they can follow while reducing the risk.

    – Ben Winegarden

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