The Maven's circle.

Banking Consoldation

Banking consolidation

In a discussion with a President of a retail bank, territory focused, and with more than 4,000 branches came out that his bank is “condemned” to grow to reach the economy of scale needed to compete today.

The bank lacks scale and competition, and they have failed to invest enough in technology or to cut the costs for their clients.

Merger will have the scope:

• To cut costs at home
• Well placed to do deals abroad
• Could catalyze further mergers that would bring gains of their own

And, most of all, he claims that “instead to become a possible prey, he would like once in a while also to be the predator”

Then he questioned me whether it is better for his bank to grow internally or externally (through acquisitions).

To grow only internally it takes too long and I do not think there is the time, but to grow externally there is not only the “conqueror” solution (to become either predator or prey), instead exists even the “affiliate” way to become a commercial entity with solid relationships with peer or larger banks.

Reading the article on The Economist (The alliance against Google- August12th) there is a similar debate about the merge between Microsoft and AOL to face Google superpower. Some thinks that if Microsoft will acquire AOL this would help Microsoft strategically. Others are not so sure, in fact they do not see a terribly good merger. There would be big cultural differences between a “media” company and a “software” firm.

Paul Saffo, a Silicon Valley analyst and a fellow of the Institute of the Future, a research group, thinks that any merger between groups with “big cultural differences”  is a “grand dramatic gesture” that would only hasten their decline.

Big mergers also run counter to a number of other trends on the Internet today, which are collectively known as “Web 2.0”.

“This is the age of mash-ups not mergers, open over closed” says Mr Saffo referring to the open Internet standards that allow users to combine, or “mash” services.

Another argument against full-blown mergers is that the bigger and more self-absorbed the established powers become, the less likely they are to spot new insurgences and innovations.

Then I would like to remind, Web 2.0, the new Internet trend

The Web 2.0 lesson: leverage customer-self service and algorithmic data management to reach out to the entire web, to the edges and not just the center, to the long tail and not just the head.

This leads to the model of a "dumb, minimal, network" with smart terminals, a completely different model to the previous paradigm of the smart network with dumb terminals. This paradigm shif will help implement new mash-up organizations.

Conclusion

Here are the results of my thinking, based on following facts, to propose an answer to the retail bank’s President dilemma:

• Key issues
  • Consolidation does not automatically equal success, larger banks, more products, higher profit or efficiencies. It can also mean losses and redundancies and statistics show that more than half of Financial Services’ M&A do not succeed

• Key findings
  • According to M&A experts, about 60% of M&A deals are unsuccessful because they approached the deal with overconfidence and instead of taking into account all the facts, they choose to purse their goal of global expansion (conqueror approach).
  • Estimating the costs and benefits of merging with or acquiring a Financial Institution is a major problem particularly as combining different systems and corporate cultures can be difficult ad costly.
  • The key to a successful merger to take account of stakeholder interests: Employees need to know they will benefit as individuals, whilst shareholders need to understand the rationale of the deal.

• Web 2.0 and the New Collaborative technology
  • One of the most influential effects of collaborative technology is that they “push authority way out to the edge”.
  • Organizations must be willing to push power to the edge.
  • Leverage technology means that organizations must work from the “edges in” (not like the old approach from the “middle out”).
  • You push your sensing and your collaboration tools out to the edges of the organization.
  • Your organization almost becomes an organic form where everything that’s touching the outside world is collecting and sifting information.
  • After empowering the people at the edge, organizations must create safety net systems in case activity spins out of control.

Therefore to grow externally through Affiliations is another option to be considered and it is based on developing and managing good relationships with all the bank’s stakeholders either internally (employees) either externally (clients, shareholders, suppliers,…).

Moreover, the now available New Collaborative Technology could help implement the new mash-ups based organization.

Your comments and ideas are welcomed

Lucio Vollaro

ICT for Little Giants

ICT Technology for "Little Giants

Nowhere is the consolidation of the banking industry more evident than in the cash management sector – more corporates are operating globally so they need global cash management solutions – in terms of the global market, there are four dominant players (JP Morgan, HSBC, Citigroup, and Deutsche Bank). There are also a number of mainly European and US players that still harbour the ambitions of joining this "VIP magic circle" (Abn Amro, Bank of America, and BNP Paribas) – the banks that lie outside of the magic VIP circle:

• Some banks will maintain global ambitions
• The other banks, the Little Giants, will just concentrate on having a regional/niche focus. The sub-contracting play is an increasingly prevalent one that benefits the small regional players  that no longer have the shoulder the expense of either creating or maintaining  the technology to keep up with demand and regulatory compliance. They will also no longer have to battle against these behemoths when competing for business in their local market. These global banks are quite "superficial" thet think in term of "products", in many countries the regional banks think in term of "relationship with the Territory" and to become Little Giants they will probably have to learn to work with the big banks on a distributor basis.

Technology’s little giants

If economies of scale were always available, then IBM would have dominated over Microsoft. However, Bill Gates recognised that integrated circuits had, at any given technology level, some very real diseconomies of scale. Technologies have optimal operating ranges. Up to certain limits they work extremely well and cost effectively. Beyond those limits, it takes ever-increasing amounts of energy and cost to achieve a further unit of output. The success of the minicomputer and desktop PCs followed from this fact.

In reality we have many different technologies and when we combine them we have many different optimal operating ranges where we can achieve effective competitive advantage.

Smaller banks can compete effectively with giants by recognising that their problems being smaller can often be solved more cost effectively using smart technology. The Skipton Building Society moved its banking systems to Microsoft Wintel platforms and achieved technology unit costs much lower than its larger rivals still using IBM mainframes. Similarly some banks are moving onto Unix and Linux and achieving real advantages over traditional technologies. There are limits for effective Unix and Linux deployment. These limits are rising and may soon be able to address even the largest scale problems, but in recent years, smaller banks have been able to do some things at lower price points than their larger competitors because the large dwarves had a large scale, complex problem and extremely narrow margins, while the small giants had problems that were well within the optimal operating ranges of current technology. I believe that the Banca Popolare di Milano is a good example of this, which has innovated with Linux more rapidly than other larger banks, just as the Banca Populare di Bergamo (now part of BPU) did 10 years earlier with Unix and Oracle. It is a pity Rondelli did not mention them.

While I agree that technology will continue to drive economies of scale and outsourcing in general, smart sourcing with smart technology is the way forward: some in house, some outsourcing with different players, and always with the optimal technologies to achieve the best price performance.

Virtual Value Chains

Another important dynamic is the virtualization of the value chain. We are moving here way beyond the simple division of the world into suppliers and distributors into the multi-dimensional world of cyberspace, where commerce travels on the information highway. We can find opportunities for aggregation along the entire value chain. Technology means we can link up these suppliers into a distributed value chain of networked, white label suppliers and still give a coherent, unified brand image at the end of it. Like the Microsoft Windows interface, it is quite easy to understand and use, but quite complex to construct behind the scenes.

Portfolio management, custody, securitization and stock lending can all be split off from asset management and provided by separate entities. Trade routing and order management can be separated from brokerage, as can research and market data. Risk management, collections and even product processing itself can be split off from a mortgage business or credit cards. This has created enormous opportunities for local giants to gain niche market advantage in particular value chain steps.

Moreover the virtual value chain extends to the virtual customer. Instead of selling to private individuals, banks need to think about selling to friends and family or to role categories and affinity groups, with customer incentives to promote cross selling. Banks need to personalize products for children, single parents, pensioners/ grandparents, twinkies (two incomes, no kids), yuppies (young, upwardly mobile professionals), farmers, lawyers, doctors, even peripatetic politicians, etc. In the corporate world, the virtual customer is the whole supply chain or the vertical market sector, and both should be targeted, especially in the SME world.

By reconfiguring the value chain, aggregating key steps, exploiting smart technology sourcing, targeting virtual customer communities and leveraging their community assets, while exploiting their own market knowledge to the full, small, agile players can gain real competitive advantage[1] in the new economy.

Economics of Knowledge

In a world of rapid change, the real challenge is not technology but how to manage knowledge and digital assets, including intellectual property. Building on market insight into old risks and new opportunities, promoting rapid technology transfer and time to market, patenting and exploiting intellectual property, leveraging the knowledge of aggregation and customer access, these are all examples of knowledge management. While technology is often described as the driver, the underlying economics are often really driven by the cost of mobilizing and delivering knowledge. Since knowledge is usually represented as information, technology is the infrastructure for the associated processing and delivery. However, if we focus too much on technology and not enough on knowledge then we will miss a fascinating piece of the action. Building new value chains is really about knowledge engineering.

We can say that information is data structured to answer a question and that knowledge is information being applied to solve a human problem. Usually that knowledge is in people’s heads when they take decisions. However, it can also be seen to be present in computer systems. The systems know where to go and what to do next. Unfortunately, in the past most of this knowledge was “embedded in the code” and quite fixed. It was implicit in the software programs and not held as data, which is more accessible, and thus can be shared and processed. Now, modern business process management systems are starting to embody all of the process rules in data tables, where they can be used both to drive the software and to help solve other problems, including error diagnosis and recovery, operational risk management, optimal costing, best execution decisions, etc.

When Rondelli talks about the cultural revolution of the Hausbank, he is tackling one set of knowledge management problems. When some banks chose Microsoft for their core-banking platform, they did so because they realised that ease of programming and the wealth of low cost skills, read “knowledge”, in the market place would all impact on time to market, which had real value. When the EU issues directives like Basel II and MiFID, which require banks to know their customers and build risk or best execution models with market data to justify their actions, they are forcing banks to publish and record their corporate knowledge. These are all prime knowledge management issues.

Globalization and Multi-channel Mobility

Finally, while Rondelli mentions globalization in the context of bank consolidation, outsourcing and SME competition, he does not highlight one immediate and significant impact, the need for multi-channel mobility for companies and private clients. Multinational corporations have long had to deal with this, but relied often on fixed line telecommunications to established offices. For SMEs mobility is also becoming important, but the infrastructure is just not there. Portable mobility solutions are now becoming increasingly important in this sector as well.

The Italian SME market place used to depend on local knowledge for their supply chains and regional or global knowledge via marketing intermediaries for their distribution. Physical presence and personal contacts were critical. Now, small companies need a much broader range of knowledge in order to survive: technology knowledge, product knowledge, financial knowledge, supply-chain knowledge, distribution chain knowledge, risk management etc. Moreover, the SME entrepreneurs are having personally to travel more, doing deals and adapting to more complex virtual supply chains.

Banks can intermediate in these value chains in many new ways: electronic billing, micro payments, output factoring, treasury and payment management, financial value chain support etc. They can design once-off derivative or structured finance products to meet the specific risk hedging needs of particular projects. They can even manage the accounting and payments between clusters of SMEs working together in these value chains, reducing SME costs, speeding up the velocity of money and providing intermediation to the rich world of global finance.

However, most importantly banks need to provide their own sales staff and their SME clients with mobility solutions that allow them to build up e-trust and manage their affairs on the hoof.  SMEs have limited connectivity to the outside world because of their size. Nevertheless, they still need to be able to manage the business while travelling and optimize the use of every trip. They also need to leverage their distributed supply chains for the knowledge and global contacts they represent.

Therefore, multi-channel access to their banks and mobility support will be key success factors for the new Hausbanken. While the biggest players will probably want to build their own multi-channel solutions, smaller players with fewer challenges of scale, should be able to maintain cost performance parity through smart sourcing.

Extending the Rondelli Argument

In summary, we can extend the Rondelli thesis for smaller banks as follows:

Small Bank Strategic Focus	Key Driver	Key Differentiator
Production	Industrialization & Virtual Value Chains:  greater emphasis on third party products and outsourcing	Smart Sourcing & Technology
Distribution	Supermarket- One stop shop and Virtual Customers	Knowledge Management and Multi-channel Mobility
Value Proposition	Customer Intimacy and SME Hausbank Relationships with mainly a Retail Focus	Market insight and agility

For larger banks the thesis becomes:

Large Bank Strategic Focus	Key Driver	Key Differentiator
Production	Industrialization & Virtual Value Chains: greater emphasis on insourcing	Smart Sourcing & Technology, Knowledge Management
Distribution	Supermarket- One stop shop, Third party partnerships and Virtual Customers	Knowledge Management and Multi-channel Mobility
Value Proposition	Operational efficiency, Product Leadership/ Innovation with a mixed Retail/ Corporate/ Institutional focus	Market insight with global reach

This gives a much broader view of both the challenges and opportunities facing the various contenders. Naturally there are many more issues than these, but I think it gives a good framework for strategy development.

Conclusion

Rondelli addressed many interesting issues in his talk. However, he also raised a number of questions. Adaptation to one’s environment is key. Enormous change is taking place. Banks will need to have a rich and deep understanding of their place in the world in order to compete successfully. In this paper I have tried to illustrate a few more factors that they should take into account, in order to build a strategic framework that can meet the rapidly changing needs of banks large and small in the 21^st century.

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[1] The virtualization concept also plays an important role in the “on demand” computer utility, which is coming to dominate technology architectures, but this takes us too far away from our main business focus.

Large Dwarves and Small Giants

The Future of the Popular Banks in Italy:

A universal battle of large dwarves and small giants

In October 2004 Lucio Rondelli, the former head of Unicredit, gave a talk to a study group of Italian Popular Banks on the future of their industry given the momentous changes taking place. He spoke amusingly of the national banking leaders, whom he characterized as “large dwarves”, and the much smaller Popular Banks, whom he described as  “small giants”. His memorable characterization deserves a wider audience. It is equally applicable across Europe and opens up an interesting debate on how different types of banks should respond to their fast changing environment.

The explosion of merges and takeovers is relatively new to world banking, with a strong increase in the level of concentration. Various factors lie beneath the phenomenon: the process of updating the banking sector rulebook; the integration of markets; as well as a new range of services with advanced computerized technology. Even Italy is going the same way. However, major Italian banking groups remain too small in the European panorama: this “dwarfism” reflects the characteristics of the economic structure of the country, based upon relatively small enterprises. In order to command an adequate level of international competitiveness, we need a “cultural revolution”; to rethink the credit system which has until now financed family capitalism.

My commentary:

Introduction

The Rondelli thesis is first presented in summary and then further analysed and extended as a contribution to the debate.

The Rondelli Thesis

Rondelli’s thesis involves several interesting ideas; each is described and then followed by my own comment:

• The concentration process at European or global level still has a long way to run, both in terms of the concentration of assets and liabilities and the physical size of the players: this is a fairly obvious observation
• The large Italian banks are still dwarves at European level and need to look at cross border consolidation and place greater emphasis on investment banking and corporate finance in order to compete in this broader context: hence the Unicredit – HVB deal in 2005
• The Italian banking sector is the product of the Italian corporate institutional environment based on SME success: this is an important point
• However, the Italian SME world itself is having to adapt to globalization and so the banks too will have to adapt with them. The old arrangements will no longer work: this is Rondelli’s “challenge”
• The Popular Banks too have seen consolidation, and a few have become relatively “little giants” in their own territories by virtue of the granularity of their local distribution networks: the concept of the “little giant” as an ideal type is perhaps Rondelli’s key contribution
• Notwithstanding their absolute size, as a group, the Popular Banks have been quite successful in terms of market share. Rondelli attributes this mainly to their local roots and customer knowledge especially of their SME clients: of course, here he is just repeating the standard explanation; however understanding what “local roots” really means is the hard bit.

The historical trends underlying this process Rondelli sees as being:

• Deregulation and reregulation
• European integration and globalization
• Technology

He sees technology as being particularly important, and the economies of scale as being crucial to deploying technology successfully in the banking context. However, he warns that size alone does not determine success, and even suggests that size could undermine the traditional success factors of the Popular Banks by distancing them from their roots and bureaucratizing their flexible customer relationships.

Thus, for the future of the Popular Banks, Rondelli recommends 3 strategic initiatives:

• To achieve economies of scale against the large players: joint ventures and outsourcing of IT and services including product factories
• To give them strength in negotiation with commodity product and services suppliers, banks should focus on supermarket style distribution, leveraging their customer assets. In other words they should deliberately broaden the product base by buying in, and thereby broaden their customer relationships to achieve economies of scope and share of wallet
• To build barriers to entry in their market, the Popular Banks need to become a Hausbank to their SME clients, helping the latter to adapt strategically to the forces of globalization. He says that this will take a “cultural revolution” but will deepen their customer relationships

Comment

I would not disagree with any of this analysis. The need for economies of scale and scope that I describe as part of the “industrialization” of banking. They are the essence of the current transformation of the industry and many useful ideas can flow from this insight. It should be noted however that industrialization is much more than just selective sourcing. It includes for example the notions of end-to-end automation of processes (STP), the construction of regional or global, multi-entity, enterprise hubs, the close coupling of rules-based business process and content management, the development of database driven exception based banking, quantitative quality management and achieving a true “factory mentality”. These will all have a huge impact on small banks, and Rondelli could usefully have described the tensions between some of these concepts and the historically personalized approach of the Popular Banks.

Rondelli’s concept of the “Hausbank” is also an interesting application of another well known concept, namely, that of customer assets in the information economy. In a networked world the concept of community is important, and “stickiness”, the preference of community members to return to a web site or other cyberspace meeting place, helps us to understand community dynamics. In this characterization the physical branch should be seen as just one dimension of cyberspace, alongside the cyber cafes, call centres, and other virtual meeting places. In this multi-dimensional world, there is real value in building a coherent, i.e. sticky, community with some shared values and preferences, and then to become its customer advocate: you aggregate your customer knowledge and access in order to acquire tradable customer “assets” that can be exchanged in the global virtual markets. Of course, Rondelli does not resort to the cyberspace vocabulary, but the logic of what he says is very similar.

However, while there is nothing wrong with the analysis, there is also nothing really new in it either. All of these concepts were discussed and debated in the late 1990s, when we all started travelling down the “information highway”, a sadly forgotten piece of jargon, which got at the nub of many important issues. In the intervening years of course, banks have now started to put these concepts into practice and success stories are starting to circulate. That is real progress of course. Nevertheless, I felt that Rondelli should have gone further and offered some new insights.

For example, he might have pointed out that in the new economy there are 4 key value propositions for banks:

• Customer intimacy
• Product leadership
• Price leadership
• Market knowledge and insight

The first three propositions are also well known and have been much debated. I think, however, it is useful to distinguish between product leadership and market knowledge and insight. The asset manager with the best performing funds may have a standard “product”, but he gains excellence by knowing the market better in order to generate higher returns. Similarly the ace brokers and corporate finance teams often have a better product only insofar as they have a better reputation for market intelligence and contacts, that allow them to deliver the results that create real added value, rather than for offering a different “product” per se, which is more about delivery issues: i.e. packaging, pricing and servicing.

Now with this value framework Rondelli might have pointed out that for product leadership and operational efficiency you need technology and, other things being equal, economies of scale and scope. These value propositions in the end have become the natural preserve of the larger players. However, the Popular Banks can still flourish by focusing more on customer intimacy with their traditional SME and family relationships, and better local market knowledge and insight. They know their customer in order both to personalize their service to his needs as well as to sell that knowledge in the market. In this sense they become small, local giants.

Of course they can also compete on price and innovation by using smart sourcing or smart technology as we describe below. However, they differentiate themselves by their customer focus and relevant knowledge.

In any case, I repeat: Rondelli’s analysis is very robust and I would not disagree with any of it. However, he does not really go far enough and has missed out many key points, which are extremely important for practical decision-making.

• Technology too has its own “little giants”, local optima, which can be leveraged by the Popular Banks in their contest with the larger players.
• Virtualization of the value chain and the customer too will be key to success: this goes way beyond the split between production and distribution and gives many new opportunities for niche markets, which smaller, more agile banks can often capture
• The economics of knowledge management is the real driver of change
• Globalization and multi-channel mobility are now becoming crucially important in the multi-dimensional world of cyberspace.

Rondelli notes that size alone does not determine success, but he never really explains why not. He admits that his argument would tend to suggest that everyone should try to grow, but warns of diminishing returns and hidden barriers.

If the universe were a pure continuum, and if we had reached the eventual steady end state, then economies of scale might become the dominant driver. However, the universe is quite a chaotic, dynamic set of galaxies, in constant motion and evolution. Energy may never be created out of nothing, but power is certainly generated by a constant churning of the energy-matter balance. Old stars die and new worlds are created in this constant universe of change. This astrophysical metaphor also applies to economics and finance

Conclusion

Rondelli addressed many interesting issues in his talk. However, he also raised a number of questions. Adaptation to one’s environment is key. Enormous change is taking place. Banks will need to have a rich and deep understanding of their place in the world in order to compete successfully. In this post I have tried to illustrate a few more factors that they should take into account, in order to build a strategic framework that can meet the rapidly changing needs of banks large and small in the 21^st century.

Since the concept of Large Dwarfes and Small Giants is of European interest I would appreciate your ideas and comment on this important topic.

Lucio Vollaro

International Services

The services’ delocalization process is destined to grow.

I read this important statement both from Gartner (www.gartner.com) and from UNCTAD (www.unctad.org) the United Nations Organization Conference on Trade and Development.

Then talking with a DB’s Top Officer I understand that Deutsche Bank has moved in India ½ of its Back Offices workplaces.

I think that Global Operations have been a relevant theme for hundreds of years (e.g., Silk Route, Marco Polo,)

Today leading International Banks understand the need to address both Product Repositioning and Cost Alignment through Integrated Global Operations strategies

But globalization demands New Operational Models (Demand Management, Manufacturing Sourcing, New Products Introduction, Global Logistics,..) given the new scale of operations and the increasing number of stakeholders playing intervening in value chains

Globally Integrated Banks are companies that fashion their strategy, management, and operations to both integrate production and deliver value to Clients internationally..

At the Integrated Global Operations-base there are the dramatic progresses of IT and TLC that has been made it possible by shared technologies and shared business standards.

Globally Integrated Banks are actively managing different operations, expertises, and capabilities to open the Bank up in multiple ways, allowing it to connect more intimately with Partners, Suppliers, and Customers and, most importantly, enabling it to engage in multi-faceted, collaborative Innovation

Globalization trends are also changing the shape of Global R&D footprints.
The long term health of European Banks will depend on the ability to create Global R&D-networks combined with cost-efficient  operations from sourcing to distribution

As customers are demanding more innovative products, international Banks are already investing in Global R&D, and will accelerate the investment pace.

In the July 3^rd Business Week edition I read the 2006 IT investments of the leading US Banks that reminds that there is e relation between IT investment and Innovation:

• JP Morgan, IT investment 2006 is $2.9billion in 2007 (+12.4% - 2006/2005)
• Morgan Stanley, IT investment 2006 $2.4billion in 2007 (+14.4% - 2006/2005)
• Merrill Lynch, IT investment 2006 $2.2billion in 2007 (+20.0% - 2006/2005)
• Citigroup Global Market, IT investment 2006 $1.7billion in 2007 (+13.0% - 2006/2005)

Conclusion

•         Most leading Banks in Western Europe and the USA are developing Global Operations Strategies or are rethinking the current model.

•         Operations strategies will vary depending on business and each Bank’s managerial capability

•         Successful Globally Integrated Banks have solid Partners to help deliver the best ICT services at a competitive price

•         Operating in the global landscape demands new, specific Operating Models affecting end-to-end process, HR and ICT capability.

The Globally Integrated Bank also presents the following big challenges for Leaders

1.      Skills: securing a supply of high value skills (through off-shoring). The real competitive factor for a bank is directly related to the quality/quantity of skilled ICT people a bank can utilize

2.      Trust: a Bank’s standard of governance, transparency, privacy, security, and quality need to be increased

Comments are welcome

Lucio Vollaro

Human Networks

"The European Banking System has reached a crossroads in its strategic management of the multi-channel delivery systems" - Robert Giffords is saying, and - "the models have failed to manage the promised “cost reduction” because banks need to support more fixed costs for each channel and self-service interactions have shot-up. Moreover Clients like the flexibility of the “anytime, anywhere, anyhow” model, but are unwilling to pay for it."

In Robert Giffords' quote there is a recurring fact that “Clients do not want anymore pay for the transport”. Clients are ready to pay 7GBPounds to get into London city, but do not want to pay to travel in the M4 expressway.

On the other end I see new Banking models having success, like Bankinter www.ebankinter.com and Mediolanum www.bancamediolanum.it. They are penetrating the market, therefore getting new Clients, through a new model of doing Banking. “The Bank designed around the Client”. Clients can appreciate not only the flexibility of getting the money in the ATM or at the nearby Post Office, but even the seamless procedures and the fact that there are Consultants ready to talk with them about their business needs.

So this new way of doing Bank has put together, at the Client's service, both the “human touch” and the “technology touch”. They have put the Human Network at work around the Client.

My great friend Jim Masciarelli www.powerskills.com is saying

"At the end of the day, a company's only sustainable competitive advantage is its relationships with customers, business partners and employees. After all, we provide products and services to people, not to companies. A commitment to developing effective relationships strengthens the fabric of the organization in the long run."

Jim concludes

"More than any trendy management technique, human networks have always been the prime movers of business information. Ignore these networks or trivialize them on your priority chart, and you'll invite missed opportunities communication breakdowns and even business failure. The real waste products on the scrap heap of today's business world are broken promises and burned-out and failed relationships. While we often look back on such failures, as inevitable, it is more likely that proper relationship management was lacking."

One leading Italian Banker Carlo Salvatori was once saying to me "To be a successful banker it is easy if the Bank's shops are working". So he meant if the Branch Offices and their Human Network work.

Investing in the Bank distribution network's Human Resources is key for the Retail Bank's success.

Lucio Vollaro

Any comments are welcomed

Banking Business goes back to the Branch Offices

Reading an interesting interview to the Barclays Bank's CEO - John Varley - about "Banking Business goes back to the Branch Offices" I would like to draw some considerations.

Mr John Varley was saying:

Clients want services from the Branches AND the Internet AND the Telephone, non services from the Branches OR the Internet OR the Telephone. Clients should be free to choose to do banking operations at 2:00am in his home from his PC or at 10:00am in the Branch. It is not possible to think only to “cost cutting”, we have to go towards the Clients’ needs.

Therefore if the New Banking Business Model is “Client-centric”, as Mr John Varley was suggesting, with the main target to increase “market” penetration getting new Clients, there is the need for “a more effective retail model & transformation of branches” and the Banking Information Systems have to be re-designed.

In fact existing Banking Information Systems were “technology driven” and designed to support the Old Banking Business Model that was “Product-centric”, focused to  “cost cutting”,  non taking risks, and increasing revenue, via cross selling, on the existing Clients.

The new Banking Information Systems will be designed placing the Client’s needs at the centre instead of putting at the centre the Clients’ operations needs (technical forms).

Many information about the Client in the Old Banking Information System were hidden in the procedures and not in a unique Customer File.

So the in the New Banking Information System the Customer Information File will contain whatever it is conceivable about the Client:

• Client’s risk profile,
• Problems the Client had working with the Bank, and how and when the Bank has solved those issues
• Client’s claims
• Client’s profitability (gross and net)

Basel 2 it is not only a matter of reporting to ECB information about the Bank’s capital allocation, but a guide for the Bank to re-orient its activities toward a less risky category of Clientele.

Based on the New Banking Business Model, aimed at creating a competitive edge for a Retail Bank, the values disciplines are:

• Product leadership: offering superior innovation, image, and performance in their market
• Customer intimacy: offering expert advice and customization along with products and services to ensure the customer’s success
• Operational excellence: offering the best combination of low price, reliability, and ease of purchase in their markets.

And the New Banking Information Systems areas:

• Multi-channel: where “n” information could be delivered to Clients in “n” ways
• Business Intelligence: Intelligence of all information about:
  • Client both internal and external
  • a periodic Customers Survey
  • a periodic Employees Survey
• Risk Model: create information to manage the risks (market, credit, and operational) to all levels from when the Client opens his account, and through all his transactional life in the Bank

Hoping that these considerations are of any interest I am waiting to share ideas about the New way of doing Retail Banking facilitated by the new technologies and by the emerging solutions.

Lucio Vollaro

TLC technological changes will affect transversely all Industries

TLC technological changes will affect transversely all industries.

I read this is interesting comment in the interview to Francesco Caio (Il Sole 24 Ore June 21, 2006).

In the interview Francesco Caio was saying that:

Today is authorized an universal communication for all type of information thanks to broadband, easy to use terminals, and Internet Protocol. As a consequence the barriers between Media and TLC are breaking.

Working with Financial Services CEOs I’m observing also that the role of technological innovation in the market and particularly in the Financial Services sector is destined to dramatically grow either for the retail/private part, either for the corporate part. The growth will be particularly focused on the extended connectivity between Financial Institutions and the Stake holder’s world and towards the Corporations and the Local/Central Public Administration.

The reasons reside in the set of social and business trends that I am profiling from a:

• Social point of view the principal phenomena in act are: population aging, growth of the number of single, I-Generation (Internet usage is growing vertically), “global tribalism” (there is a growing interactive participation i.e.blogs…), social differences increase
• Business point of view will continue: growing the migration from “product” production to “service” furnishing, embracing of the dynamic pricing modality, the development of global micro-business, the company approach characterized from a pro-active transparency

So let’s examine how are then affected the different industries' profile:

• TLC operators: will enter TV distribution and even the TV contents. Consumer is the king in choosing the content of the services and he will be ready to pay the giver of contents (media) more than the “go-between” (carrier). So the good Media have something to say, and the TLC operators will concentrate in the network management, where there are improvement margins.
• Financial Services: to marshal a privileged access to the world of the technological evolution will become, during the next years, a relevant success factor to the same level of the capacity to recognize and develop, in a short time, new solutions to implement in the bank’s commercial network or to directly to offer to the bank’s customers.
• Media companies will embrace Internet. Myspace (Murdoch) million of users use the site to share their profiles, photos. The Guardian, National UK newspaper, has given priority to media information on-line. The construction of palimpsest starts to creak in fact, nowadays, Television News and Shows can be seen on-demand.
• Advertising is migrating towards Internet. They are experiencing a fragmentation of the audience. Individuals and families are spending more time on Internet. Media and Advertising Top Executive met last month in London to capitalize on the surging popularity of “social networking” web. The old saying: “Half the money I spend on advertising is wasted; the trouble is I don't know which half!” still applies to the advertising on paper since half of the advertisement is useless because does not reach the desired target. Different story is for the advertising on Internet, Google allows its client to understand if the message has been used!

Those trends, combined to the recent technological tendencies, will make fundamental the investment in the research and the technological innovation in all Industries as a mean to integrate the different expansion needs and to maximize the competitive advantage.

Please comments are welcomed

Lucio Vollaro

Media Companies are developing new Business Models to preserve profitability

Discussing about this interesting topic with International Media Top Managers it came clear that on-line advertising spending is increasing.

Every year people think the Internet must slow down because the growth rate looks high, but it keeps going overtaking National newspaper advertising spending is another milestone

Media Companies must be able to attract advertisers in the Web through:

• creating large "virtual" squares
• building alliances with search engines
• increasing the value of the information to deliver to the public

In fact on the Net the winner is who is able to create relationships between different contents

The Information is becoming a vehicle to bring the people on the services (newsletters, updated who's who,, alert,...)

The ultimate idea is to set out a progressive strategy as a corollary of the information.

If a media company is strong on the Clients (i.e. Lawyers) its objective is to increase the "catching" on the Clients. The key is to create for that Client a portal of services that goes well beyond the information.

Any ideas and comments

Lucio Vollaro

Large European Retail Banks are concentrating their TLC infrastructure

During the month of May I've visited many European Large Retail Banks and I've gathered that there is a common strategy of centralizing TLC shared services.

I've noticed that successful European Large Retail Banks are investing in:

1. Product leadership: creating many standard, high quality, global products, with a very short time-to-market to surprise and win competitors
2. Customer intimacy: customer insight, product knowledge, sales focus, facilities
3. Operational excellence: offering the best combination of low price, reliability, and ease of purchase in their market

Therefore the objectives of Shared Services centralizations are:

1. TLC cost reduction: global contract with a supplier to reduce costs
2. Productivity increase: build TLC infrastructures that allow Large Banks to operate better and cheaper
3. Business development: to create innovative products utilizing the new TLC technologies

Moreover the "sourcing" strategy becomes a "core competency" for the European Large Banks, in fact:

1. Sourcing is not just a function through moving from category purchases to managed services
2. Focused Supplier Model approach - work with world class providers of scale managed services
3. Significant investment in supplier relationship management as majority of spend and key services are in long term relationships

Partnerships with TLC suppliers is based on Governing shared services for Value that is:

1. Focus the Retail Bank's Business Units on: Customers and External Markets and Profit
2. Focus the Shared Services on: Optimizing supply to meet demand and "best in class" sourcing strategy

In summary my findings are:

1. CIOs are not a key factor for development anymore, Banking Business Leader are!
2. TLC should be run as a business
3. "Cross-pollination is the "key"- get Business people into Technology AND Technology people into the Business

Measurement for a successful Shared Services Organization is to be recognised as a "value added" partner - to the Business"

Any idea and comment is welcomed.

Lucio Vollaro

The IBM 3270 frozen paradigm syndrome.

    Another possible title for this thread could have been “The mystery of missing ergonomics specialist”.

   

    ergonomics
    Function: noun plural but singular or plural in construction
    Etymology: erg- + -nomics (as in economics)
    : an applied science concerned with designing and arranging things people use so that the people and things interact most efficiently and safely -- called also human engineering
    (Merriam-Webster Online Dictionary)

    The problem.

    Every time I pay a visit to a software house I have a simple question: “Who takes care of the ergonomics of your products?”.

    Unless I am are guest of a major producer of packages this, only apparently simple, question has no answer and in most of the situation for the person in front of me the idea of ergonomics is connected with tables and chairs design only.

    Human-machine interaction design is a complex and difficult science well known and widely applied in the production of different products. When you change your car to a newer model you feel a lot of work has been done in the direction of easy and safe use of al the controls and going back to an old car, even a beautiful one, gives you the tangible feeling of interfaces evolution.

   If we have a look to most of the software used in banks, insurances and telco companies the same evolution in interaction is not so evident. The software is more powerful, more integrated, more complete, but in the vast majority of cases the interface is poor and the paradigm applied is not much different from the old IBM 3270 terminal one.

    Is not unusual to see employees getting into a screen to take note of some data on a post-it, then go to another screen and retype the same data: a sign of very poor interaction design.

    The reasons for this poor design becomes very clear if you ask “Who has the responsibility of the design of program interfaces?”.

   

In most of the cases you find that the design of human-machine interaction is not at all a clearly defined responsibility. The functional analyst decides what to put on the screen and how to connect fields to databases and to computational modules and the programmer itself splits the fields in different screens.

    At the end the interfaces does not map the cognitive processes taking place in the brain of the users, but becomes a map of the internal design of the code and the various technical constrains.

    At the beginning of software history the technological constrains where extremely strong and was, in many cases, impossible to avoid the bad practice of mapping the interaction around them. That time putting two field in the same screen “because they are in the same file” was acceptable, today in not!

    Now all has changed and in most of the cases could be relatively easy work around technical constrains in order to get a better interface, but if you do not have a formally defined interaction responsibility nobody really knows the best interaction solution!

    Is a typical case where the problem solving phase comes after a very poor or inexistent problem setting phase…

 

  The solution.

    We need a paradigm shift!

    For years we have been calling center the computer and periphery the man. This use comes from the old days of huge computer in the “glass house”, but if you well think about is quite misleading.

    The center of the problems, or should say of the opportunities, is in the brains of the human beings interacting with the system.

    The starting point of the design process should be a good understanding of the cognitive processes. These processes are the result of a long evolution: they should be considered the unmovable constrains.

    Short term memory (the RAM we use to identify the environment we are into) , e.g.,  is a limited resource: the medium value for an average population, not under stress conditions, is 7 with a span of plus or minus 2.

    If you set up a menu list larger then the short term memory of your user the choice will be more difficult, will take more time and the probability of error will increase.

    Waiting some thousand years to see if the evolution improves human’s short term memory storage or hiring chess champions only could be e solution. Most probably consider this constrain not removable and design your menus in consequence is THE solution.

    In the software development process we should identify a unit of experts and give them the responsibility of human-machine interaction: this is the usability team. They must be expert in this specific field with a good knowledge of mental processes. Better if they are NOT expert in the specific field our software is applied to and in software development.

    After the definition of WHAT the system will do this group will work on HOW should be done. The result of this two phases is the starting point for architecture and software design and development in a cyclic trial and error process known as protocycling.

    No modification of the human-machine interface should take place for any reason without the formal agreement of the usability function.

Roberto Dadda