Preparing for the Challenges of a Core Banking Conversion

Boarding the proverbial locomotive of a core banking system conversion is not intended for the ill-prepared organization. It is intended for the organization equipped to renovate its core operating mechanics in order to achieve true and measurable improvements for its customers, employees, and profitability. That it is considered to be one the ‘mother-of-all’ types of computer / business re-engineering changes in which a bank can encounter should indicate that it won’t be easy and will likely have unfortunate causalities and unforeseen setbacks despite of the best-intended plans and team cooperation.
For that, I am compelled to contribute to this evolving body of knowledge to help organizations understand the intensity, duration, and path-building activities required to get from the ideation and vision stages through to operational management of the new banking system. As there are multiple ways to execute core banking conversions and in the absence of a de facto standard, perhaps some of these ideas can contribute to a wider movement to create such a programme.
To start this off, I will articulate what I believe to be the 10-fundamental components of a banking system conversion and scratch the surface of one of them in this first post. Designed to be delivered as a series of posts, this framework will go much deeper than the standard people, process, technology domains commonly associated and discussed with technology transformation programmes. It is my ambition to provide specific realities that play major roles in the surgery to change core banking technologies and how banks can use this knowledge to improve the chances of a successful operation. Future posts will expand and elaborate on each piece of the framework. These ten components are as follows:


Table 1. Banking System Conversion Strategic Framework: The Ten Components of a Banking System Conversion Programme

Component Number One: Getting started.
The first wave of strong head-winds will hit at the onset of the business case to change core systems. People will begin to wake up that a major shift is being planned and it could impact an abundance of existing processes, people, and priorities. At this stage, things are likely quite fuzzy so opinions as opposed to facts may be the dominant source of conversational inputs. This is okay and encouraged as it begins to build a culture of participation and transparency. Also, as the finale seems so far away, getting people really focused and paying close attention to the complexity of this undertaking will take positive persistence and very proactive collaboration and inclusion. Listen intently to what is being said as the intuition of the staff and executive is remarkably accurate when the scrutiny is less intense. Strong, motivational, honest, collaborative leadership is required to get the programme moving and establish positive momentum and enthusiasm.

This is a very, very long programme and should not be treated like a sprint. The first reality to recognize (the sooner, the better) is that a core banking conversion programme is not a technology project. Of course it involves a major replacement of fundamental architectures (data, infrastructure, application, and business), but the underpinning premise to change must have its origins aligned to corporate and competitive strategies. Without strong, real, and believable business benefits to switch, banks must recognize the stakes and costs are too high to change for the sake of change. This would be comparable to asking your doctor to conduct a heart and brain transplant simultaneously because you felt it was time to change your personality. As absurd as this may sound, core banking system transformation fundamentally alters the heart (culture) and brains (information) of an organization to the point only felt by those who have the courage and belief to undergo the knife.

With that said, building the case requires the programme and executive team to share the vision, goals, objectives, and desired outcome from the conversion. To be sure, establishing expectations is critical to keep the project scope realistic and doable. If goals are set too high, the programme duration and budget could be too great for the bank to even begin the process.
To guide this initial decision, the executive team should spend quality, concentrated time researching and defining the following major pieces for this decision:

  1. Framing the decision – what is it you are deciding? (it can be illuminating to learn the different viewpoints at this early juncture)
  2. The Want – can you articulate the clear outcomes for the transformation? Each executive should be able to list the major points of interest that will drive the direction of the detailed conversion.
  3. The Alternatives – Have the options been exhausted and quantitatively / qualitatively compared and assessed against the Wants?
  4. The Facts and Information – How much homework have you done? Do you know the market; do you know the current state of your operations and the real pain points and opportunities to exploit?
  5. The Logic – Can the decision process recognize any biases and define a structured approach to make the decision? Scenarios should be established to outline that the project will unlikely flow based on the baseline plan. Situations should be explored that will likely cause delays and setbacks to determine the best approach to make the decision.
  6. The Decision Makers – who makes the final call? Due to the customer and staff impact, as well as the substantial capital requirements to conduct a core banking conversion, the Board of Directors is likely the governing body to approve or reject the case to change.
  7. The Assumptions – One of the most contentious, overlooked and misunderstood aspects of the early stages are the assumptions. Yes they are needed, but they must be realistic and not put in place as an easy-exit to ask for more time and money.

Framing the decision. The process of proper framing provides management with an accurate understanding of the degree of risk and change as it relates pace, technology, complexity and novelty to the business. This understanding is required to make decisions about how specific projects should be managed to achieve strategic objectives. A useful tool is the NTPC (novelty, technology, pace, and complexity) framework which provides a well-structured and proven way to do this (Shenhar and Dvir, 2007). I have provided an opinion of what a banking conversion program might look like, but these will certainly differ in relation to the bank’s maturity.

To conclude this introduction, the business case should also include a clear set of metrics – both tangible and intangible that describe the outcomes the bank seeks to achieve. Although these may be difficult to lock in at the early stages, starting with business, system, and programme objectives that are well articulated and as specific as possible can get the conversations moving in a productive way. In conjunction with this, a thorough risk analysis coupled with some strong scenario planning can paint multiple pictures of the journey ahead. These should be developed and facilitated by an experienced leader that has been through the trenches of multiple conversions.
Once the programme has a reasonable accurate frame around it, the details of the business case should follow. In my next post, I will expand into the components found in this outline.

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