Reconfiguring an IT Platform for Maximum Value
Aligning IT with business needs cut costs and gave a bank greater freedom to pursue differentiating strategies
The custody business of a global bank faced eroding margins, and costs remained high. In addition, there were multiple lines of business active in custody with different geographic foci (regional vs. global) and different business goals, ranging from a retail business with a low degree of sophistication to the global custody business for corporations with many specialized custody services. The client was considering outsourcing the custody platform to capture the benefits of scale. However, the business lines argued that the platform gave them a competitive advantage that would be lost if it outsourced.
Applying our proprietary Business Service Architecture (BSA) approach, we helped the bank align the business with operations and IT. In the BSA approach, we first define all required business capabilities. We then categorize these capabilities in two different dimensions: how specific they are to the business and how much business value they help to create.
For example, a custody transaction usually includes a payment of cash funds from one account to another. This is a commodity in the banking industry, any bank would do it the same way. It also does not generate high fees, meaning it has low business value. Commodity capabilities with low business value are candidates for shared services or outsourcing, while business-specific capabilities with high value added may justify higher IT investment (e.g., set up/manage tailored client standing instructions).
Discovery revealed just three unique and differentiating capabilities, while the other 50 were common in the industry. Mapping the actual IT platform against these capabilities, we found a way to isolate them and move them onto a separate platform. The core custody operation with the remaining commodity capabilities could then be outsourced.
The project resulted in a 25 percent reduction of the addressable cost base by maximizing the sharing of capabilities and outsourcing of the commodity platform. This allowed the bank to focus on developing more differentiating IT capabilities and also gave it more flexibility to pursue diverging business strategies. The approach proved so successful, that the client is now looking to use it to align business and IT in other parts of the bank.