Part 2: Core Banking Transformation – From Coal to Diamonds

Part 1: Core Banking Transformation – From Coal to Diamonds
July 6, 2018
Part 3: Core Banking Transformation – From Coal to Diamonds
July 9, 2018

Part 2: Core Banking Transformation – From Coal to Diamonds

As noted in the previous installment, there are many ways to improve or upgrade Core capabilities. The intent of this series 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.

The intent of this series is to give an organization a view into a methodology that, regardless of the path chosen:

  • Mitigates Risk,
  • Stabilizes Project Cost, and
  • Increases the Likelihood of Success.

After examining what needs to be done in preparation, let’s turn to hearts and minds within the organization, which always starts at the top.

The executive strategic mindset must be clearly communicated, pervasive, and carried through consistently.  

The following “Executive Mindset” must be in place:

1) Assume Change is Coming (And Plan for It)

2) Assume (and be open to) new discoveries and learnings about the organization that may necessitate significant change

3) Assume the effort will have far more variability than originally anticipated

1) Assume Change is Coming (And Plan for It)

While this sounds overly simple, the truth is that the organization believes this, but doesn’t really understand it. Meaning, the adage “To change is great, as long as it’s you and not me” applies.

Change begins with mindset shifts first. Then, modifications to process, technology and (potentially) organizational structure follow.

Building and maintaining strong relationships with key impacted stakeholders is at the heart of the change effort: they need to understand the value proposition, as well as become champions. Without those relationships – and the authority of Program Leadership to act in ways that will spur change – the necessary paradigm shifts will not be possible. In turn, the full benefits available from the Transformation will be realized.

In light of change, there are at least two more strategic keys/assumptions that can help drive the effort:

  • Assume (and be open to) new discoveries and learnings about the organization that may necessitate significant change
  • Assume the effort will have far more variability than originally anticipated

Before diving into these two strategic assumptions, an analogy may help set the stage.

ANALOGY — The House That Murphy Built

If we are remodeling a home, we never know what could spring up. We may start to repaint, realize we have mold, and have to replace framing and drywall. We may look to put in new flooring in the basement and find there are cracks and leaks in the foundation and it needs to be jack hammered. (Of note is that in the Commercial Real Estate Lending world, cost uncertainty is always highest in a remodel or redo situation due to variability.) To walk through a scenario, let’s suppose we have painters lined up.

As they start, they see mold in the corner of the ceiling. We ask them to stop. Then we contact a drywall expert to examine the mold, he recommends tearing the board out and redo it; in doing so, he notices the framing is rotted. He stops work, and we call the carpenter. The carpenter comes, starts attacking the framing; he then notices there are some bare electrical wires; now we must call an electrician. The electrician arrives and inspects, indicates that things aren’t up to code, and further tells us an inspector probably won’t permit the job until he rewires the entire floor.

Obviously, this scenario is a bit of Murphy’s Law on steroids, but the point is that we 1) have found things we didn’t expect, and 2) we need to decide when and how to tackle these items.

Having the right structures and people in place can mitigate the effect of this variability. It can help us determine how to tackle these items as they arise: for example, do we fully address it, partially address it, or ignore it? Time and cost implications arise from each of those decisions.

To tie it back to a decision that may come up in a Core effort, if we find our returned item processing system needs replacing, do we look to the vendor providing the Core solution? Do we upgrade the existing system and integrate it? Or do we buy something else off the market and integrate it?

Even Socrates didn’t pretend to know everything – particularly the Unknown-Unknowns.

2) Assume (and be open to) new discoveries and learnings about the organization that may necessitate significant change

As far as we have record in human history, Socrates was the originator of quotes related to the unknown when he said, “…whatever I do not know, I do not even suppose I know.” The greatest thinker of the ages acknowledged the unicorn that lurks in change efforts – the Unknown-Unknowns.

As a leading executive in a bank or organization, it is natural to feel that one has a handle on the capabilities of the organization, on what needs to happen to accommodate change, and what the future will look like if the organization adheres to the principles that have made it successful. Successful organizations have strong leadership, strong leadership breeds successful organizations. And it is a safe assumption that the leading executives possess accurate estimates, conceptions and understandings of their organization’s capabilities, and how to deploy them.

Nevertheless, there is a wildcard at play that changes the hand. A bank or organization looking to undergo transformation of any sort is looking to do things differently.

Something – an event, a series of events, a competitive landscape change – has triggered a decision to change.

In any change effort, there must be some type of shift ultimately manifested in the physical world. While it may first appear to be simply a “system replacement”, changes to the technology that supports a business unit’s process should result in transformation to those impacted units if the real cost, efficiency, and productivity benefits are to be realized.

However, for these changes to be manifest, it must begin with hearts and minds. The people and the organization will need to adapt to new ways of thinking, acting, and doing as it relates specifically to the Core effort itself.

A bank may do what it knows very well, yet how often does a Core Effort come along?

For example:

  • An organization’s culture may be well heeled at being efficient and effective with the dollars at its disposal, which aligns precisely with the business goals of the organization.
  • These goals and practices may be inculcated into the fabric of the operation.
  • The organization may pride itself on being able to “do more with less“, and
  • This strategy may have worked well for a number of years.

But is this the right stance to apply to a core transformation?

While this approach serves the organization well from an operational perspective, it may breed a scarcity mentality that is at odds with a core transformation. Such a mindset may paralyze the type of creative thinking needed to tackle the near infinite variety of circumstances that may arise; it may feed a myopic approach that doesn’t grasp the long-term implications of short-term decisions made in the name of efficiency. Efficiency (doing things quickly) should not trump Effectiveness (producing the desired effect).

The above illustrates just one challenge among a universe of potentials. And, in the midst of a Core effort, there will be questions, circumstances, and other situations that arise where even the fog line between ‘what needs to change and how’ may be blurred without proper perspective. In short, a change in mindset is needed; the core effort may need a different mindset than the current one that applies broadly across the organization.

Business, Operational and Technology Changes

As the mindset shifts for the effort, how to “physicalize” the changes is the next item to tackle. Business, Operational and Technology modifications will likely be needed; these could range from simplifying the business through product rationalization, to making changes to process and organizational structures of impacted functions, to evaluating and improving the technological capabilities of the organization.

From a technology perspective, does the organization anticipate modifications in terms of infrastructure, components, and organizational support structures to handle the transformation? Has it determined yet what those could be, what they cost, what the timing is?

From an operational perspective, if the system being changed/replaced is used by disparate locations performing similar or like functions, is the organization open to consolidating functions? To examining and changing process?

This part of the effort (examining the operational changes needed) requires an empowered project owner who sees the vision and is willing and able to execute on it. A system implementation alone won’t solve operational challenges and inefficiencies. It will exacerbate/highlight them. Solving those before the new system is implemented will allow the organization to take full advantage of the new and improved system capabilities.

A Core Transformation takes variability into a whole new stratosphere.

3) Assume the effort will have far more variability than originally anticipated

The “Cone of Uncertainty” refers to the fact that cost and timing of a project become clearer as time passes and certain milestones are met. While this principle typically applies to any body of work that can be considered a project, a core transformation takes this variability into a whole new stratosphere; this is due to the fact the organization is trying something that is different (and likely larger) than anything it has tackled previously.

For example, the following scenarios may arise:

  • At the time the business case was conceived, it was proposed that processes be standardized across disparate units. However, as work commences, and a new target operating model is developed based on new capabilities, it is discovered that consolidation of those units is now possible and preferable.
  • The current tools used by the organization for management of specifications (from business requirements through test cases) are adequate for other projects. But the team realizes unless an enterprise tool is brought in house, cost, work effort, and risk to the project will skyrocket.
  • The initial assessment of the test infrastructure deemed it adequate for execution. But as the work unfolds, it is discovered that the old way of planning environments isn’t sufficient, and additional hardware and manpower needs to be brought to bear, potentially at premium prices depending on timeframe.

Taking the Edge Off

While there is no mythical sword that can cut through all of this cleanly, there are some hedging strategies we can undertake to mitigate the impact of this variability:

  • Be clear with your vision and flexible with your implementation.
  • Partner with resources (individuals and companies) who have done this before successfully.
  • Prepare for not only the technology impact of the change but also for the organizational impact – to staff and customers.

It’s Not So Much the Heat, It’s the Variability

Taking the heat off the project team is critical in a core transformation effort; the executive team can accomplish this through helping the organization understand the significance of the change, and the variability associated with it.

There will be plenty of significant temperature and pressure inherent in the effort itself, particularly on the tough days when the charcoal is being squeezed out of the effort to produce the gem. To the extent the project team can be shielded from mindset and cultural battles it will keep them focused on the goals at hand. This can be accomplished through communicating the end game, educating the organization on key principles noted above, and absorbing these principles into the culture surrounding the project.

In the next installment we will briefly examine the proceeding step in the journey – an assessment process that can inform the effort.

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.


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