The challenges of E2E process optimization (and automation) in banking industries
….and how IT-Servicemanagement, based on ITIL, can make a change
Financial industries, especially the banking industry has to face many challenges- for example when it comes to meeting timelines of reporting e.g. relevant key figures based on CRR (Capital Requirements Regulation) / Basel III to prove that the LCR (Liquidity Coverage Ratio) is sufficient. Besides all the regulatory and legal requirements- fast evolving technologies, market requirements, changing customer demands and high pressure competition, force banks- as well as insurances- to react quickly. Eventually more data needs to be processed faster. Results of market analysis needs to be available quicker. New products and offers needs to be put into place within a short period of time. One might think that by implementing performance measures, these issues can be easily solved. Unfortunately it is not that easy.
A historically grown heterogeneous system landscape, with a conglomerate of various small and large applications- not seldom- with rudimentary left knowledge (internally and externally) about data processes and technology of elderly applications. Especially core banking systems where extensively developed in the 1970s and `80s- followed by outsourcing starting in the mid-90s up to now. The knowledge banks primarily had about their own IT system landscape is in most cases no longer sufficiently available, mainly due to a large extend of IT-outsourcing in the past years- but also because it was missed out to train and pass on knowledge to younger employees. The awareness of banks concerning such grieves is rising- in a recent interview Kim Hammonds, Deutsche Bank AG, said to FAZ, that outsourcing went too far in the past. She also mentioned that the several business areas invested into their own IT-Systems which, at the end, led to the fact that the system landscape turned out to be too complex. She points out that an efficient IT today is a key enabler for generating competitive advantages to meet customer expectations e.g. by being able to automate internal processes (Meck, 2016).
A survey of Fraunhofer-Institut in 2015 found out, that 50% of financial institutions rate the importance of a change of processes and regulations as very high and 43% as high (Praeg & Schmidt, 2015). Even though banks are conscious of the importance of a need of process optimization and automation- it however takes time. It at the end requires an overall change of thinking and standardization on how e.g. implementations should be done. In spite of risen awareness of a needed optimization of IT landscapes, the reduction of complexity and the increase of effective (digitalized and automated) processes- daily grind in banking projects shows that there are often obstacles that cannot be overtaken easily. Some reasons and examples for that fact might be:
1. Time – Money – Budget – Organizational Structure: When setting up a project e.g. with the intend to optimize data delivery times- due to internal silos or organizational structure, time- and budget restrictions or “quick improvement only” – the scope is often restricted to improve processes or the extend of automation at e.g. the very backend- which are usually the finance- and controlling systems (e.g. SAP Bank Analyzer and NewGL). This usually leads to an optimization- but more often the results lack behind expectations. Besides that, the extent of being able to deliver key figures faster, is very limited. The hard dependency to the point of time to the delivery of data from source systems.
2. Personal – Human: Fear- when setting up projects with the intention to optimize processes one result might be that core systems should be updated to a large extend or should be substituted with standard software. The fear however is not only based on the costs such transformation projects cause- but also the fear of change. Business will be affected due to new or different e.g. frontends and processes, IT fears the new technology and due to no experience doubts improvement and stability of changed core applications, Business & IT resources might even fear job loss or loss of power.
3. Lack of IT-framework – IT Organization : No standard regulations and specification concerning the documentation of requirements- no single source of requirements- design and implementation documentary (incl. dependencies), insufficient (or no) change- and release management, no (adequate) supervision of providers, etc.
Naturally it takes time especially to overcome personal related obstacles. By setting up an IT-framework- however the trust into the IT landscape as well as operations can be supported by such. ITIL (IT Infrastructure Library) is a collection of best practices and most of the time used as standard reference when it comes to IT Service Management (ITSM). ITIL itself consist of 5 parts (Buchsein, Victor, Günther, & Machmeier, 2008):
1. Service Strategy (describes e.g. the strategy of IT services, objectives of an IT service lifecycle, financials etc.)
2. Service Design (describes e.g. the architectural framework, definitions, security aspects etc.)
3. Service Transition (describes e.g. how business requirements are transformed into IT services)
4. Service Operation (describes what needs to be done in order to run and ensure IT services)
5. Continuous Improvement (deals with service and quality improvements as well as e.g. methods and KPIs)
The objective of ITSM is to provide IT Services that support business processes (Buchsein, Victor, Günther, & Machmeier, 2008). How could it actually help having a strong ITSM and supportive tools within a banking organization? A simplified case to help understanding how ITSM based on ITIL could help in the future:
Bank XY is a midsized retail bank. So far the bank did count on their good reputation. Due to (capital-) market changes though and the immense growth of demand on digitalized services, the bank sees the need of change within its organization, in order to stay competitive and grow market shares. Furthermore the bank sees the need to move closer to IT services to participate, control and monitor IT projects closer. Bank XY is thinking about implementing a new core banking system in order to stay competitive and introduce new services to the customer fast in the future. Since the bank has a very old core banking system that was outsourced 10 years ago there is not much knowledge about processes left- and there is no or only little documentation, on how processes run today, available. The bank is not necessarily interested in running their own system in total since they feel that it is not their core business. However the banks wish is to not run into the same situation again to have too little knowledge about own processes.
The following figure shows in a simplified way how the different stages within ITSM based on ITIL can be used, to help solving the Bank XYs current pain points (based on Kempter & Kempter, 2016):
Figure I: Example ITSM based on ITIL
Example ITSM based on ITIL Effective documentation is one key success factor within ITSM. Especially within the service design and transition phase it is necessary to create a clear picture. The documentation of the new architecture, processes etc. will help Bank XY to re-gain knowledge about the processes within their IT architecture and organization. Furthermore e.g. by using certain tools where processes are visualized and described, the bank will be able to release new customer services, digitalize more and faster processes and achieve a higher degree on automated processes.
Having a strong ITSM within an organization has many benefits. Based on what has been mentioned before the table below gives four examples of challenges and how an organization could benefit of ITSM in the future:
|Benefit ot ITSM
|Brain-drain e.g. due to outsourcing
|Processes are documented within dirfferent stages; less dependencies and more knowledge of processes and tools
|Little agility – long release times of new functionalitites
|Due to (documented) knowledge about IT Architecture and processes it is easier to respond fast to market needs and release functionalities and services in reduced times (faster time to market)
|Lack of trust into IT systems
|Due to services like Problem- and Incidentmanagement- Incidents for example are being solved in a sorted way. Due to services like Problem- and Incidentmanagement, Incidents are solved in an ordered way. In case of e.g. an incident that affects a certain amount of customers (internally/externally) the issue can be communicated. Customers trust may rise if it is transparent that problems are taken care of
|No control of IT operations
|Within Service Design e.g. SLAs are defined. These SLAs specify the responsibilities of providers and the Bank itself. These SLAs are revised and re-negotiated over time
Table I Examples of how ITSM responds to today`s challenges
Most challenges that banking industries face today within their IT organization are fundamental. Like roots they reach into all business areas within a bank. However it is not impossible to make a change- it takes time though. ITSM and the use of supporting tools can bring the change that banking industries need in order to not run into the same situation as today.
Buchsein, R., Victor, F., Günther, H., & Machmeier, V. (2008). IT Management mit ITIL V3 Strategien, Kennzahlen, Umsetzung. Wiesbaden: Vieweg + Teubner GWV Fachverlage GmbH.
Kempter, S., & Kempter, A. (16. May 2016). Von it-processmaps: https://wiki.en.it-processmaps.com/index.php/ITIL_Processes abgerufen
Meck, G. (07. May 2016). Hat die Deutsche Bank die IT vernachlässigt? Frankfurter Allgemeine Zeitung.
Praeg, C.-P., & Schmidt, C. (2015). Trendstudie Bank & Zukunft 2015. Fraunhofer-Institut IAO, Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO. Stuttgart: Prof. Dr. Wilhelm Bauer. Retrieved May 20, 2016