Core Banking Transformation The Grange Tower Bridge, London, June 18-20, 2012 Jesper Behr, Kanika Bahadur - SAP
Nov 07, 2014
Core Banking Transformation
The Grange Tower Bridge, London, June 18-20, 2012Jesper Behr, Kanika Bahadur - SAP
© 2012 SAP AG. All rights reserved. 3
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 4
Reasons For Core Banking Transformation
Customer Centricity in a Multi-Channel Environment
Market Flexibility & Compliance Adaption
Cost & Complexity Take Out
Banking specific trends… …implemented in existing IT landscapes
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When Is “Doing nothing“ No Longer An Option?
The tipping point – when is it time to transform? Risk/cost of “Doing nothing” is higher than the transformation
risk/cost There is no real “me too” effect Changed business strategy with new business requirements
– Move towards a customer-centric approach– Transaction factory approach
© 2012 SAP AG. All rights reserved. 6
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 7
The Challenges of Core Banking Transformation
Understand the products and make a decision regarding migration
Ever changing legal & regulatory requirements
Understand the processes (in detail)…..
BusinessComplexity
… and how they connect to the systems (in detail)
Integration with channel systems
Changing the periodic processing (Batch)
Testing the new Bank End-to-End
ITComplexity
The last 25 years: Ongoing legacy improvements
The business organization: Benchmarked and optimized to Run the Bank
The IT: Skills to Run the bank, not Change the Bank
R(evolution)
One language for hundreds of experts
Communication overhead
Duration of 3-5 years
Scope
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Different Alternatives Getting There
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Enhance vintage system Fix and extend current vintage systems
Best-of-breed replacement Replace systems over time with best of breed components keeping main processes
Complete Transformation Replace key core systems and transform processes with a modern IT architecture
?
© 2012 SAP AG. All rights reserved. 9
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 10
Core Banking Transformation Best Practices
Value Based Transformation Roadmap
• Align roadmap with business strategy to gain quick benefits• Deliver functionality in a phased approach
Program Governance • Clear governance structure with executive mgmt. involvement• Involve key stake holders (vendor, system integrator, ..)
Solution Architecture Framework• Align solution architecture with transformation roadmap• Define strong governance processes
Core Banking Solution• Build or buy• Modular and flexible core banking solution• Vendor credibility with core banking transformation track record
Implementation Methodology• Use proven core banking transformation methodology• Adapt to agile methodologies
© 2012 SAP AG. All rights reserved. 11
Value-Based Transformation Roadmap
Key principles
Phased approach
Roadmap driven by business strategy
Prioritization based on value as well as feasibility
Quick wins to show progress and fund future phases
Value based on both tangible and strategic benefits,
derived from past case examples
TodayDuration Milestone
Customer Information
Saving Accounts
Personal Loans
Mortgages
Current Accounts
Year 1 Year 3Year 2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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The Transformation Should Be Based On The Business Strategy
Revenue Growth Focus Efficiency Focus Best-of-breed approach
Scope includes some change in all end to end systems - presentation, distribution & manufacturing layers
Scope primarily manufacturing layer focus. One integrated systems to serve all customers across multiple countries
• Centralised customer model to enable continued business value delivery
• Distribution layer changes required to reflect Manufacturing agility & new end-to-end processes
• Launch of growth products separated from “mop up” migration
• Migrate customers and products according to value
• Less channel, down-stream & orchestration required
• Focus on product & process number reductions (reducing product set processes) to reduce cost
• Centralised operations for all business lines to enhance synergies
• One clear goal: Achieve full consistency of processes, information and control across all seven operating countries
• Leverage best practise processes and standard functionality to reduce future TCO.
• Focus on critical requirements and avoid “nice-to-have” features
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Program Governance
Executive top management involvement Align with key stake holders such as solution vendors
and system integrators Define stake holder meetings, escalation paths and
executive sponsorships early in the process Define clear responsibilities of the involved parties All should act as one team
Lev
el 3
:P
roje
ct
Man
agem
en
t
Lev
el 4
Pro
cess
Te
ams
and
Wor
k S
tre
ams
Loans Managemen
t
…othersDepositManagemen
t
CollateralManagemen
t
Accounting for
Financial Instr.
Program & Project
Management, PMO
Design Review Board
Board of Architects
Risk & Finance
Quality Management
Executive Steering
Committee
ExecutiveProject Sponsor
Lev
el
2:
ES
C
Lev
el
1:
Spo
nso
r
Test Management
Integration Management
Technical Infrastructure, Basis, Performance Optimization
Data Migration
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Application Target Architecture Framework
Use industry accepted architecture frameworks such as BIAN, TOGAF
Define target architectures aligned with the transformation roadmap– Business Architectures– Information Systems Architecture– Technology Architecture
Establish architecture governance structures
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Core Banking Solution
Build or buy Selection process best practices
– Focus on future state than current– Avoid excess detailed analysiso Limit the number of vendors earlyo Proof-of-concept instead of RFI/RFP
Selection criteria beyond functionality– Functional process coverage– Solution design (modular, bank-in-box)– Flexibility– Vendor credibility– Support & maintenance offering
© 2012 SAP AG. All rights reserved. 16
Implementation Methodology
Follow a pre-define and proven methodology fit to purpose– Core banking transformations are differento Requirement analysis / re-engineeringo Integration effortso System architecture
The methodology should integrate all aspects of core banking transformation
Structured involvement of business from the very beginning Use agile methodology instead of waterfall method Organize the project in small interdisciplinary teams with full
responsibility of delivering work packages
Joint Analysis and Design Team Lead
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The Total Effort of Core Banking Transformations Consist of Discrete Layers
Program related effort
System integration
Requirements gathering (Blueprint) SAP to SAP Integration Product related
CDP (SAP Custom Development Project) Configuration (Build)
Unit Testing
Organizational change management Vintage system adaption costs System de-commissioning Training Roll out Infrastructure
Vintage System Integration Environment Integration Testing services Migration services CoE (Center of Excellence)/ Operations Process monitoring
SAP Implementation
© 2012 SAP AG. All rights reserved. 18
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 19
How Do Leading Companies Realize Value?
Improving Management
Practices*
Investing in IT Investing in IT while Improving Management
Practices
2%
* Key performance improvements i.e. Lean Manufacturing, Performance Mgmt., Six Sigma.Source: “When It Lifts Productivity”, The McKinsey Quarterly, 2004 Number 4
%Im
prov
ed P
rodu
ctiv
ity
20%
Incr
ease
d V
alue
Joint IT and Business Driven Initiatives
IT and Business Units Disconnected
2XMoreValue
Leading companies combine business process improvement and information technology initiatives to drive higher, more sustainable business value
8%
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Today’s Executive Agenda is About Value as much as Risk and Efficiency
How to rapidly align technology with business strategy?
How to best leverage scarce capital resources?
How to best mitigate business risk?
How to ensure realization of the expected value?
Today’s Business Transformation programs – on time, on budget and on value
© 2012 SAP AG. All rights reserved. 21
Are we investing in the right initiatives?
Are we realizing the full value potential of these
investments?
How do we enforce benefit commitments
with the same passion that we drive budget
commitments?
What governance, practices and
competencies are required to ensure
benefits are achieved?
True Value Management has not been widely adopted in organizations
Building a Business Case
Realizing Value
Measuring Value
0% 100%
0% 100%
0% 100%
17%
20%
5%
Source: SAP Value Engineering analysis of 1,609 completed business case engagements
Only 17% of organizations require formal business
cases
Only 20% of organizations measure value post go-
live
Only 5% of organizations had detailed plans to
realize value from their investments
When it comes to Business Transformations only 20% of organizations achieve expected value
Key questions
© 2012 SAP AG. All rights reserved. 22
Value Lifecycle
Effective Value Management Maintains Focus on Business Outcomes Through the “Value Lifecycle”
Extracting value from transformation initiatives requires a consistent and rigorous focus on business value across functional, divisional, and time dimensions. The business case is the driver of change and provides the baseline for measurement and realization.
Value Discovery “Build the Case”
How well are we performing today?
What will make us better?
Are we willing to do something about it?
Value Optimization “Drive more Value”
How do we scale the value based approach across our portfolio?
How do we make Value Management a part of our organization’s DNA?
Value Realization “Realize the Value”
How do we execute the recommended changes?
How do we measure progress?
How do we get the right visibility & accountability?
Diagnose business process performance
Build and validate the business case and roadmap
Align with CEO / Board agenda
Define KPI’s to track
Identify and manage risk
Design governance model
Measure performance
Identify improvement actions
Leverage best practices
© 2012 SAP AG. All rights reserved. 23
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations – SAP ASAP Methodology
Case Example – CBA, etc.
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 24
Typical Value-based Transformation Roadmap Approach
Understand the business and IT strategy and operational goals: Business objectives and priorities Strategic initiatives planned and in implementation Current pain points, risks and existing limitations Current application landscape and key implications for the SAP project
via external and internal data, interviews with key business, operations and IT Executives
Assess how the strategic goals and current pain points can be addressed by SAP Solutions
Build a Board level business case that supports the key strategic and operational priorities of the bank Evaluate baseline (costs, FTEs, operational KPIs) for all the functional blocks within scope Estimate high level benefits for each of the functional blocks Prioritize each functional block based on benefits and feasibility Build a value-based roadmap Estimate high level costs of the implementation Develop a consolidated business case
Conduct executive briefings to validate the business case and the roadmap
1
2
3
4
The value-based transformation roadmap, serving both current and future business requirements, should be based on business and IT benefits and feasibility
© 2012 SAP AG. All rights reserved. 25
Build a Value Roadmap in Partnership with SAP
Phase 3
Phase 2
Phase 1
Feasibility
Val
ue
High
High
Payments
Mortgages
Online Banking
Deposits
Business Analytics
Customer Billing (Out of scope area)
Mobile Banking
(£ X-Y M p.a.)
(£ X-Y M p.a.)
Mobility Platform for Sales Enablement
(£ X-Y M p.a.)
(£ X-Y M p.a.)
(£ X-Y M p.a.)
Loans
(£ X-Y M p.a.)
(£ X-Y M p.a.)
(£ X-Y M p.a.)
Successful implementation of an overall vision requires attention to the Value of each architectural component in cooperation with the Feasibility (dependencies, risk, skills and capacity constraints required for execution)
ILLU
STRATIV
E
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Characteristics of a Great Business Case
Why?
What?
How?
What are the strategic priorities?
What challenges prevent us from achieving them?
What is the scope of what we are trying to achieve?
What is the recommended solution & associated benefits and cost?
How should we estimate benefits and costs?
How do we prioritize initiatives to build a high-level roadmap?
What other similar case studies can we reference? Is our approach achievable?
Proof
Key Questions Addressed
© 2012 SAP AG. All rights reserved. 27
Gross cash flow
Business
IT
Ongoing Effects
The Business Case Has To Consider All IT and Business Benefits and Costs
+
+
+
+
Typical Quantitative Benefits
One-time Effects
One-time Effects
Improved business productivity from harmonization (via automation, process streamlining, shared services or reduced demand) and improved compliance
+Ongoing Effects
+
+Improved revenues from differentiated products (improved time to market, customer-centric innovative products and pricing, cross-sell, up-sell, new acquisition)
+ Net savings from avoided business projects no longer required
Improved IT staff productivity and reduced external spend from harmonization ( via competency centres and skill pooling, reduced need for operations, maintenance and integration)
Savings from consolidating the IT platform (ongoing license costs, associated infrastructure costs of retired applications)
Implementation costs of single platform (including system integration)
Internal and External resources - Project Management, Design, Build required functionality (customization, interfaces)
Additional license costs and infrastructure
Training and change management
Migration
Net savings from avoided IT projects no longer required
+
+
+
-
© 2012 SAP AG. All rights reserved. 28
Agenda
Why Core Banking Transformations
What makes Core Banking Transformations Different
Best Practices in Managing Core Banking Transformations – SAP ASAP Methodology
Case Example – CBA, etc.
Value Management in Core Banking
Value Management Approach
Example of Business Case Development: Differentiated Products
© 2012 SAP AG. All rights reserved. 29
SAP can help Banks Launch Differentiated Products with Customer centric product bundling, pricing and complex features
Wish List1. Product definition without
Programming2. Flexible definition of fees
and charges3. Customer oriented pricing4. Easy to define ‘Campaign
offers’5. Product packages
SAP Solution Enablers Advanced Product Configurators
New products and conditions without any programming effort
Flexible segmentation pricing through differentiation categories
Product bundling Customer-oriented pricing through Master Contract
Management Package combining different products such as deposits,
securities and cards
© 2012 SAP AG. All rights reserved. 30
Differentiated products (1/2)Key challenges and solution enablers
Pain Points Solution enablers
System Multiple product systems (deposit, loan, collateral etc.) with multiple terms and conditions, duplicated features, islands of functionality
Single product system
Wide range of banking products currently supported
Product definition
Inability to respond quickly to future, unforeseen changes in requirements and market conditions. Requires new transaction types, new features, new terms and conditions (own innovation as well as replicating market-leading products quickly)
Time to market is too long and cost of deploying new products too high
Flexible product configuration tools
Development, testing and deployment of complex products without programming effort
External rule definitions to define products, pricing and bundling, which can be restricted to certain customer segments or channels
Offer multi-branding and white-labelling
Respond to evolving banking regulations
Pricing and charging
Lack of flexibility to price products and define product arrangements based on individual, commercial or retail customer requirements
Takes too long to make pricing changes based on competitive and other external pressures
Ability to price products based on customer value
© 2012 SAP AG. All rights reserved. 31
Differentiated products (2/2)Key challenges and solution enablers
Pain Points Solutions enablers
Bundling Inability to re-use existing products Creation of new product required Inability to support complex products (ex: complex
loan) Inability to easily sell and service product
bundles and price based on total bundle
Ability to provide groupings based on customer requirements In future Customer-initiated product bundling – premier
customers given a menu of product and service options to mix-and-match to create own bundles
Offering Inability to provide products by customer groups Inability to acquire new customers, retain existing
customers and look for ways to increase product penetration rates all at the same time
Ability to define product arrangements by customer type e.g., flexibility to comply with complex rules for sweeping of funds externally and internally to meet the needs of large corporates, ability to define flexible terms and conditions of loans
Reporting Inability to provide a 360 degree view of customer by product holdings, inability to provide accurate reporting on profitability of products and product bundles
Advanced analytics and reporting Reporting by product bundle as well as a drill-down into
individual components
© 2012 SAP AG. All rights reserved. 32
Differentiated Products: Examples of Tangible Value
SAP Deposits Management SAP Loans Management SAP Financial Database SAP Bank Analyzer
SAP FootprintCompany Benefits achieved
Reduced time to market of new products from several months to a couple of weeks
End to end product creation
Fewer products, more features = more choice (from 16 to 9 retail products)
Staff saving product linked to customer satisfaction score
Rapid product introduction through test launches in controlled release areas
SAP Deposits Management SAP Loans Management SAP Collateral Management
SAP Deposits Management SAP Loans Management SAP Collateral Management SAP ERP
Reduced time to launch new products, from 6 months to 2 months
Cash pooling services implemented in 1,5 months
© 2012 SAP AG. All rights reserved. 33
Differentiated Products : Tangible Benefits
•Assumptions:
Value Source Baseline Improvement % Benefit
Increased revenues through improved time to market €M1 40-50% € M
Incremental revenues from products not currently available (e.g., offset mortgages, multi-currency loans, 3rd party products bundled with own, etc)
€ M2 100% € M
Increase in new customer acquisition due to improved pricing, customer-initiated product bundling
€ M3 2-3% € M
Reduced customer churn due to improved pricing € M4 10-15% € M
Increased cross selling due to improved pricing and product flexibility
€ M5 10-25% € M
Improved productivity of new product development staff € M6 60-80% € M
Improved productivity of product maintenance staff (IT plus business)
€ M7 60-80% € M
Reduced cost of training new sales and service staff due to streamlined product catalogues ( no duplication) and simplified user interfaces
€ M8 30-40% € M
Reduced cost of monitoring product features and conditions e.g., low activity on mandatory current account associated with a low-cost credit card
€ M9 20-30% € M
Retrieve lost revenue on products with violated conditions due to better monitoring
€ M10 5-10% € M
Total One-Time Impact € X- Y M
Total Annual Impact € X- Y M
Thank youContact information:
Jesper BehrSolution Management – Transactional BankingSAP [email protected]+49 171 308 52 08
Kanika BahadurBusiness Development Banking EMEASAP [email protected]+44 780 857 57 39
Questions & Feedback Tweet #SAPBanking
www.blogs.sap/banking @SAPforBanking