The Case for

IT Simplification
in Banking
Untying the legacy knot
Table of contents
Introduction 3
The Need for Simplification 4
The Approach Needs to be Holistic 6
Enabling Factors are Now Plentiful 8
A Road Map for Simplification 9
Conclusion 11

2
Introduction
During the economic downturn, the mantra
for banks—and pretty much all companies—
was reduce costs. The IT organization did its
part, implementing a variety of measures
designed to cut expenses in the short-
term to help the bank survive. However, a
bigger problem with banks—one that has a
disproportionately large effect on a bank’s
overall cost structure—has yet to be addressed:
the increasing complexity of IT. CIOs for years
have been faced with the need to radically
simplify both their organisations and the
applications they manage, but, to date, there
has been little appetite within the business
for the long and expensive effort such
simplification would entail.
Today, though, the tide may be turning. With
economic conditions improving and banks
once again thinking about growth and
profitability, there is a pressing case for
simplifying the entire business—which
necessarily includes IT. Plus, more than
ever there is a wider set of factors that can
help a CIO build a rationale and roadmap for
simplification. In short, the time may be right
for banks to finally address one of their biggest
obstacles to high performance: IT simplification.
In this article, we explore how CIOs can take
advantage of the current environment and
develop a pragmatic, measured approach to
IT simplification that can help their companies
achieve their business goals.
3
The Need for Simplification
In the throes of the recession, with cash preservation
of utmost importance, CIOs were forced to make
a number of changes to achieve immediate
cost reductions in IT—including better demand
management, infrastructure virtualization, smarter
sourcing and process efficiencies. However, these
changes—while critical to the banks’ ability to
survive the financial crisis—typically only targeted
the “low-hanging fruit”. All of these initiatives
have been limited in terms of long-lasting impact
because banks so far have been unable to address
the underlying issue driving their high total cost
of ownership: their technology is too vast and
complex to manage and maintain. In addition,
banks’ legacy systems are often seen as a major
constraint to business flexibility and growth—
simplification can help remove these obstacles.
4
During the past two decades, growth and
incremental changes within financial institutions’
have spawned extensive diversity and complexity
in systems, technologies and IT organizations
themselves. Because of mergers, IT decentralization
initiatives, the lack of a global view of IT needs and
opportunistic moves to capitalize on new business,
most banks find themselves struggling with a
multiplicity of systems supporting the same functions
or businesses—not to mention a proliferation of
infrastructure, development and IT management
tools, as well as infrastructure standards and
hardware providers.
Moreover, the IT organization itself has been
shaped by corporate evolution in the previous
decades. Striving to keep pace with a dynamic
business environment, most IT organizations
have added new capabilities largely in an ad-hoc
manner to support various country or technology
initiatives over the years. The unfortunate results
are multiple modes of governance, culture,
methodologies and processes—along with a
variety of data centers—that cost far too much
time and money to maintain, reduce IT organization
agility and effectiveness, and inhibit the business
from responding to marketplace developments.
Unfortunately, CIOs have had a difficult time
getting senior-executive support for efforts to
address their legacy system problems. Such efforts
typically require a lot of time and money, neither
of which have been in ample supply in banking
organizations over the past few years.

However, all that may be about to change.

Since the financial crisis and economic downturn

began, banking leaders have begun focusing on
simplifying their overall businesses as a way to
increase their organizational flexibility, improve
growth and rebuild profitability. One of the
obstacles to that pursuit is, of course, the tangled
mess of legacy systems that CIOs have long hoped
to address. Thus, it seems the time may be right
for banks once and for all to dramatically simplify
their IT organization along with the technologies
they manage (including core banking applications)
as part of the drive to simplify the business overall.

5
The Approach Needs to be Holistic
As they pursue IT simplification initiatives, CIOs
should consider that true simplification can only
be achieved if it is addressed holistically and
architecturally. In other words, a CIO must address
applications, infrastructure and the IT organization
simultaneously if the bank is to achieve a real step-
change in flexibility and total cost of ownership.
Addressing each of these areas individually tends
to lead to simply optimizing the current state.
Application replacement is often seen as the
answer (or at least part of the answer). But this
approach can also be limited in its impact. In
the cases where a radical approach to application
replacement has been taken, it is rare even for
6
as much as half of the application estate to be
replaced, and generally the infrastructure and
organizational complexity is addressed only as
an afterthought (which itself is often hindered by
existing sourcing arrangements and/or by the fact
that the business agenda has moved on because of
the considerable length of the replacement program).
Furthermore, a number of banks have been enticed
in the past with what they saw as “silver bullets”
(core systems replacement, SOA, etc.). But, in
many cases, such efforts by themselves didn’t go
far enough to deliver the promised benefit and, in
some instances, even added to the complexity.
Enabling Factors are Now Plentiful
But there is hope. A wider set of factors than ever
before exists that can help CIOs build an affordable
rationale and roadmap for simplification.
Technologically speaking, there’s now a wider
range of standard software components available
that can help with a replacement strategy
(core systems, finance, CRM, etc.). What’s more,
significant investment in offshore delivery capability
from suppliers of these components has reduced
implementation costs. Maturing SOA thinking
and delivery capabilities can provide more support
for the re-architecting of a bank’s legacy system,
while new standardized process models can jump-
start the simplification effort, and a new spate of
tools can quickly and reliably convert data from
the legacy system to the new application.
Cloud computing and virtualization is also providing
a significant boost to banks in their pursuit of
simplification by enabling them to decouple
infrastructure provisioning from the underlying
architecture to increase flexibility. Software-as-a-
service together with business process outsourcing
solutions can take that a step further and drive
radical simplification by helping banks shed areas
of the business that no longer need to be owned
and operated by the institution.
From a people and organization standpoint, more
options than ever before are available for sourcing
talent flexibly across geographies and organizations,
while a heightened focus on risk and cost has led
to a general centralization of decision-making that
makes it far easier to get the business behind a
simplification journey.
At a high level, there’s a substantial movement
underway among banks to invest in initiatives that
will enable them to comply with new regulations.
Why not leverage these investments to renew your
bank’s architecture instead of making the existing
one compliant?
In short, there’s never been a stronger case or better
time for a simplification effort.
7
A Road Map for Simplification
Figure 1. A vision for a simplified banking operating model
Distribution Segment Management
Brand Management
Channel Integration and Management
Marketing, Sales and Services
Hub Customer Customer Offers and
management pricing packages
Production Products
Deposits/cash Loans
Cross Products
Payments Product
development
Corporate Finance HR
Core
A major challenge in any broadly-scoped effort—as
IT simplification certainly can be—is the potential
investment cost. At a time when money is still
scarce, a major simplification initiative would
compete for resources against other efforts that
deliver more immediate business returns. Thus, we
recommend a transformational process that can be
characterized as “Big vision, small steps”. In other
words, the approach unfolds gradually in a series of
smaller initiatives that provide short-term returns
but are focused on a view of the end result.
Developing a clear view of what simpler, lower
total cost of ownership IT might look like—ideally
aligned to a clear view of a simplified business
architecture—enables CIOs to make investment
decisions that support the overall simplification
journey. In Accenture’s view, this end state should
feature a logical operating model in which
manufacturing and distribution are effectively
decoupled into two separate layers, but linked
by a “hub” layer that includes such functions as
customer and partner management, pricing, and
offers and packaging (Figure 1). This model will
enable a bank to do three things:
8
Product Partners Service
pricing management integration
Investments Insurance
Product DMS Knowledge
accounting management
IT Purchase Legal & Ethics
1. Standardize the channel experience
across all products
In the past, most banks have been many different
businesses to their customers—savings, credit card,
mortgage, etc. Now, many banks are pursuing “one
bank” initiatives to transform themselves into a
single business in the customers’ eyes. A standardized
channel experience can be a major contributor to
such an effort.
2. Perform common actions in common
ways across all products
Many banks have different ways to set pricing,
managing customers, and conducting credit
checks, depending on the product involved. By
decoupling manufacturing and distribution, a bank
can apply a consistent process for executing such
activities, regardless of product or channel.
3. Bundle products flexibly and more effec-
tively to create compelling customer offers
With their current product-centric view of the
world, many banks are unable to easily create tailored
combinations of products for specific customers.
The “hub” addresses that issue as well, by removing
the technical, organizational and process hurdles
to quickly and cost-effectively match product
mixes to customers’ needs.
Figure 2. Simplification is the theme that connects the IT architecture via the business
architecture to the business strategy
Business strategy Business
architecture
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™EgdYjXibdYZa ™EgdXZhhbdYZa
Simplification
Accenture believes an architectural approach is
key to an effective IT simplification initiative, and
that such an initiative delivers the best results and
best chance of success when linked to a similar
architectural approach to business process
simplification. Architecture traditionally has
been seen as a technology problem, focused on
the technical layers that underpin the applications
that support the business processes. However, in
the context of the new operating model illustrated
in Figure 1, architecture becomes a business problem
as well. In other words, a bank needs to effectively
link what it’s trying to do overall as a business
to the business architecture and technology
architectures required to enable the bank to
achieve its goals (Figure 2). If a bank is going
to pursue a multi-year investment plan to simplify
IT, it can never be just an IT problem. Rather, it
needs to be explicitly linked back to the kind of
business IT is being designed to support and how
that business looks different from the one of today.
With the destination defined, a CIO can then plan
a journey comprising a series of smaller, more
manageable initiatives that, together, will enable
the bank to reach its goal. This selective and
IT architecture
™6eea^XVi^dch
™>c[gVhigjXijgZ
pragmatic approach requires a bank to rigorously
evaluate every application in its portfolio and
develop a business case for keeping or eliminating
each. With this determination made, a bank can
then prioritize its initiatives and develop a road
map that will enable the bank to capture the
benefits in each business case.
Such a gradual approach to IT simplification has
many benefits. Firstly, by taking a “quick hit” approach
early on, it frees up funding for the rest of the
journey and reduces risk by avoiding a “big bang”
scenario. Furthermore, by achieving early and
gradual wins, the approach proves to both business
and IT that the problem is tractable, thus generating
the trust needed within the organization to
support further steps. Finally, it allows the bank
to remain flexible and able to change direction
quickly to adapt to new conditions (market,
business, technology, etc.).
In short, by having the map before they set off on
a journey, CIOs can ensure that investments in IT
are moving their organizations toward the simpli-
fication goal, rather than adding to complexity.
9
10
Conclusion
The financial crisis and subsequent economic
downturn has created a new enthusiasm among
banks for transforming their businesses through
simplification. Most banks have already actively
pursued cost-saving programs and taken out the
low-hanging fruit. The challenge is to go further
and address cost in a structural way. Now is the
right time to start the journey.
In pursuing a simplification journey, a bank could
take two approaches. One is an IT-led approach (from
technology to business processes), in which core
applications are renewed as an extension of the
architecture to improve them technically and
functionally. The other is a business transformation
led (from business needs and processes to technology)
approach, in which vertical applications complexity
is reduced by taking functionality common to all
processes out of applications and embedding it in
architecture services.
Regardless of which route they take, when
embarking on a simplification journey, bank
CIOs should keep in mind the following governing
principles:
• Focus not only on the result, but on the journey:
identify changes and adjust direction when
necessary
• Have a road map and revisit it frequently
• Prioritize initiatives of greater business value
• Ensure and maintain strategic and business
needs alignment along the way
• Make decisions based on a solid business case
• Define objectives and metrics to control
transformational initiatives
• Use a separate and experienced team to execute
governance functions
Done right, IT simplification will generate substantial
rewards for a bank at the end of the journey. It
will drive the following: revenue enhancement
via customer retention and service excellence,
a greater share of customer wallet, enhanced
customer acquisition, and stronger brand image
and differentiation. It will reduce costs through
operational efficiency driven by standardization
and consistent process execution, as well as the
elimination of duplicate functions. And it will reduce
risk by creating more stable and maintainable
systems and making it easier for banks to comply
with emerging regulations.
CIOs need to start simplification now. The need is
there, and CIOs have more tools at their disposal
than ever before.
11
About Accenture
Accenture is a global management consulting,
technology services and outsourcing
company, with more than 190,000 people
serving clients in more than 120 countries.
Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions, and
extensive research on the world’s most
successful companies, Accenture collaborates
with clients to help them become high-
performance businesses and governments.
The company generated net revenues
of US$21.58 billion for the fiscal year
ended Aug. 31, 2009. Its home page is
www.accenture.com.

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