Part 1: Core Banking Transformation – From Coal to Diamonds

Part 2: Core Banking Transformation – From Coal to Diamonds
July 8, 2018

Part 1: Core Banking Transformation – From Coal to Diamonds

“A diamond is a chunk of coal that did well under pressure.” ~Henry Kissinger.

In organizations, there normally isn’t a single “Rubicon moment” that inspires the need to change (perhaps putting the ’08 financial crises aside). The process of making the decision to engage in transformation normally develops slowly – like a piece of charcoal under pressure – until it comes to diamond-like clarity.

Further, for the organization that has decided to pursue a Core Banking Transformation, the questions branch out significantly.

  • Why are we doing this (Business Objectives)?
  • How do we do it (Strategy)?
  • When (Timing)?
  • What do we use/change (Technology/Operations/Other)?
  • Who do we use (External and Internal Resources, Vendors, etc.)?

The purpose of this white paper is to provide some keys regarding mitigating risk, stabilizing costs, and improving the likelihood of success on a Core Transformation effort. The intent is not to outline how an organization goes about selecting the correct approach, nor does it intend to jump into a debate about whether an organization performs a gradual replacement, a targeted, surgical repair, a full transformation, or any other variation. There are pros and cons for each approach; it ultimately comes down to what the bank wants done, how quickly it needs to be done, and the appetite for change and risk in the face of market, regulatory, and other pressures.

It is important to note this will not attempt to differentiate the types of Core Transformations, whether full, surgical or some combination, and to make a case for one over the other. While it may be necessary to mention these different approaches in context of this whitepaper, it will only be for the sake of reference, and not argument.

The reality is that Core Banking Transformation Programs of any shape and size are inherently fraught with high risk, potential for delays, and missed expectations.

While they can be tackled on many levels of intensity and duration, those that involve replacing a full Core System (not just pieces of functionality) can be likened to performing a heart transplant while the ambulance is moving.

For banks in the U.S. regional, mid-size domain, such a failed project could deal a major blow to investor and market confidence, internal appetite for future efforts, and invite increased regulatory scrutiny.

The landscape is littered with failed Core Banking Transformation Projects – not to mention failed large projects in general. Such an outcome occurring at one of the flagship U.S. banks – i.e. Wells Fargo, Citi, JP Morgan Chase, B of A – is not fatal to the existence of those institutions, mainly due to their sheer economies of scale, breadth and capital. It is chalked up as a bad investment and attempted in another way or at another time.

However, for banks in the U.S. regional, mid-size domain, such a failed project could deal a major blow to investor and market confidence, internal appetite for future efforts, and invite increased regulatory scrutiny. Painfully, this backdrop is contrasted against the need to update antiquated systems to better serve customers (thereby increasing market share and revenue), the cost of compliance, and the need to improve efficiency ratios. Add in the sedimentary pressure from the FinTech market and the larger financial institution layers, and it becomes clear that the proverbial “rock and a hard place” analogy doesn’t even quite describe the current situation. It’s more like trying to fight ourselves out of a corner while in a round room.

Yet, the time to tackle this type of endeavor – and cash-in on the opportunities that await in the future market – may be here and now due to the digital revolution. Much of the approach of U.S. banks to date has been to surround antiquated core systems with a digital look and feel; this amounts mainly to “Digital Window Dressing.” The true benefit of digital is better services and improved customer experience through direct access that allows for self-service and speedy processing; the ability to allow the customer to initiate their own loan request through an automated loan request process with real-time underwriting decisioning, followed by loan documentation that is automatically produced and signed electronically, leading to a loan booking that can occur without back office intervention. This type of straight-through, seamless customer experience is not possible without digital systems that are integrated with a modern, real-time Core.

The question is, “What can be done?”

While there are many opinions on how to address this – ranging from diving into full Core Transformations, to performing Surgical Transformations through use of Micro-Services, to putting services wrappers or API’s around the Core to minimize its Jurassic-like impact – noting that a dinosaur in a skirt is still a dinosaur – there is no silver bullet.

For those banks that want and need to take action, the best tool at their disposal is knowledge (information) and wisdom (information rightly applied), keeping in mind that the ultimate goal is to:

  • Mitigate Risk,
  • Stabilize Project Cost, and
  • Increase the Likelihood of Success.

Ultimately, your solution should be tailored to the range of circumstances that may exist in your banking environment.

Part 1 of this series will briefly cover a few fundamental aspects that need to be examined before pursuing a Core Effort; the information gathered should paint a picture that helps identify pitfalls and inform risk mitigation.


Painting the Picture

Understanding the goals and objectives is critical to ensuring long term support for the effort at both the senior executive and board levels. These could be direct goals/ benefits, such as integrating onto a single core platform (thereby reducing support cost), or indirect, such as paving the way to streamline operations.

Understanding the goals and objectives is critical to ensuring long term support for the effort at both the senior executive and board levels. These could be direct goals/ benefits, such as integrating onto a single core platform (thereby reducing support cost), or indirect, such as paving the way to streamline operations.

It’s critical to take the time to understand your vision, your end-game. Not having clarity on what you hope to accomplish will cost you in time, resources, and quality of the solution.

It’s critical to understand the current and future operating model for the organization in order to know where you are, and where you want to go. Our clients have found it most useful to have objective leadership facilitating these activities.

Understanding the capability level of the organization will help identify gaps and areas for improvement, as well as recognizing and celebrating strengths that will help the effort. For example, is data standardized, with known systems of record, or are there many definitions of the “truth” floating around – which Jack Nicholson knows we can’t handle?

Understanding the organization’s key strengths and opportunities will inform strategies, plans and priorities, and how they will need to be addressed. This is particularly crucial in avoiding multi-million-dollar delays down the road in terms of both project and organizational dependency collisions.

In this process, the culture of the organization will also become clear; how to proceed into the next phases depends on what type of organization the bank is (e.g. relationship based or process-based) and other key factors. Having a partner who can identify the culture and navigate it effectively, while understanding the aspects to be considered, the questions to be asked, how to ask them, and when to ask them, is tantamount for success; this partner needs to tell things as they are. 

This is by no means an exhaustive list of the aspects to be examined in preparation for a core transformation. These tasks don’t need to be overly lengthy or drawn-out, nor do any challenges identified necessarily give a final answer as to whether an organization is ready to take on a transformational-type effort.

Ultimately, the goal is to set the organization up for success, and go into the effort with “eyes wide open.”

Doing the work to perform a thorough assessment upfront will allow you to arm yourself with the most relevant information possible. This relevant information – understood correctly – can be used to help achieve one or more of those objectives and your overall vision.

No situation is perfect, nor can anyone wait to act until they believe they have perfect information, but any data points gathered in this process should inform and facilitate the goals of

1) Risk Mitigation,
2) Cost Stabilization, and
3) Increased Likelihood of Success.

Doing the work to perform a thorough assessment upfront will allow you to arm yourself with the most relevant information possible. This relevant information – understood correctly – can be used to help achieve one or more of those objectives and your overall vision.

In the next installment, part 2, we will dive into key principles that underlie the effort, informing the mindset needed to execute.

CLICK HERE to receive a complimentary PDF of the complete Core Banking Transformation – From Coal To Diamonds whitepaper.

 

AARON SCHLENZ, Managing Director, Core 20/20 LLC

Aaron Schlenz is a creative and dynamic financial services executive who has made a career of delivering groundbreaking and transformational efforts in support of business strategy across a wide spectrum of domains, including application, governance and operations. Complimenting his expertise as a highly effective cross-functional collaborator bridging operations, business and technology, Aaron possesses a natural ability to identify customer needs and partner for results, tackle ambiguous, complex problems, and develop workable solutions. Utilizing his skills in program and project management, execution strategy, and transformation, Aaron managed the successful Zions Core Banking Transformation program, with responsibility for planning, delivery and governance. In addition to Zions, Aaron has deep financial-services transformational experience with Fannie Mae and Freddie Mac. Aaron took his skill set and leadership experience and partnered with John Kershner to create Core 20/20 LLC. Aaron received his MBA from Mount Saint Mary’s University in Maryland, and his B.S. in Accounting from Illinois State University.

JOHN KERSHNER, Managing Director, Core 20/20 LLC

John Kershner is an executive leader with proven experience developing and executing strategies that deliver bottom line results utilizing creative abilities, knowledge and skills gained as a management advisor and coach. Key areas of interest include strategic technology management, business process improvement, change management, and organizational design and development. John successfully led three large core banking transformations and many other core and non-core technology improvement and replacement initiatives. Most recently, John organized and led the program for the first U.S. implementation of the TCS BaNCS global core banking platform at Zions Bancorporation. In 2018, John partnered with Aaron Schlenz to create Core 20/20 LLC. John received his MBA from The University of Texas at Austin, and his BBA in Finance from the University of Houston.

 

With proven leadership, real experience, and demonstrable results, we exist for no other reason than to ensure your success! To learn more about how we can partner to help you realize your vision, please contact us.

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