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Top Ten Challenges for Investment Banks 2015: Restructuring: Challenge 6

Read a report from Accenture Capital Markets on centralized or federated and balancing shared IT & operations with business ownership.

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Top Ten Challenges for Investment Banks 2015: Restructuring: Challenge 6

  1. 1. Centralised or Federated: Balancing shared IT & Operations with business ownership Top Ten Challenges for Investment Banks 2015 06 CentralisedorFederated: BalancingsharedIT&Operations withbusinessownership
  2. 2. 06 Centralised or Federated: Balancing shared IT & Operations with business ownership All major investment banks have experienced cost pressures in recent years, leading many of them to embark on significant simplification programmes. Attempting to centralise Operations and IT has been a crucial part of many such programmes. However, there continues to be considerable debate on whether this centralised model actually delivers for the business or whether a more federated model offers greater flexibility and responsiveness. There are clearly benefits to both approaches, and finding the appropriate balance requires consideration. The main driver in striking this balance is where the organisation is on its simplification journey. Those just beginning are likely to need the synergies that can be achieved through greater co-ordination, whereas those who have spent several years cutting costs are likely to have reached a natural limit for how much centralisation can be achieved. A further consideration is the influence of the functions that Operations and IT are designed to serve in the first instance – whether that is specific to product divisions, risk and finance, or even HR and procurement functions. If these functions are driven as group-wide shared services then it makes sense for operations and IT to be set up in the same way. If they are divisionally separated, a more tailored approach is likely to be needed. Finally, an additional challenge is evaluating the position of the investment bank’s shared services in the context of the wider banking group. Different investment banks have different needs, but the challenge for all is finding the balance between driving efficiencies without adding further complexity to already inherently complex organisations. 2
  3. 3. Centralised vs. Federated A centralised model is designed to give more transparency, provide opportunities to reduce costs, simplify reporting structures and instil consistent governance and control on architectures. Leading global investment banks have typically been moving towards this type of powerful shared service model, increasingly reliant on third-party providers, as they progress their simplification journeys. At its most extreme this can be a form of integrated business service that spans all elements of the organisation and delivers consistent services across the globe in a fully integrated fashion (see Fig 1). In direct contrast a federated model allows for different geographies and / or lines of business to focus their IT and operations functions on their own specific needs. These models are not always the product of conscious decisions but can often result from rapid organic (or inorganic) expansion. This model can offer significantly more autonomy to specific business lines by offering a bespoke service, but comes at greater expense and complexity. 3 This model can offer significantly more autonomy to specific business lines by offering a bespoke service, but comes at greater expense and complexity. Figure 1: Shared services maturity model Source: Accenture Research Performance Maturity 1. Discrete Shared Services 2. Multi Function Shared Service (MFSS) 3. Global Business Services (GBS) 4. Integrated Business Services (IBS) Service Innovation Global Service Owners Integrated Delivery Network Integrated Service Management Americas EMEA APAC IBS Lead Commercial Services Supplier Services Employee Services Financial Services Analytic Services Other Global Process Owners Global Delivery Network Global Service Management Americas EMEA APAC GBS Lead Finance HR IT Other Common Service Management Americas EMEA APAC MFSS Lead Finance HR IT Other Finance HR IT Other
  4. 4. 4 3yrs BTG Pactual transitioned from a Brazilian bank into a true continental bank in less than Striking a balance Using some of the more successful emerging market investment banks as case studies offers interesting insight on the centralised vs. federated debate. They have been grappling with the same pressures faced by mature markets competitors but are often less hampered by legacy systems. This offers the opportunity to be more innovative as they expand. As well as cutting costs and allowing economies of scale, centralising also makes it easier to enact enterprise-wide decisions and define strategies quickly. Latin American investment banks tend to be centralised in hub countries with federated IT and Operations organisations only where a country or business unit has a unique requirement (see Fig 2). BTG Pactual is an example of an organisation that has adopted an approach that creates synergies in its back-office, but allows branches and front-office to choose the best-of-breed system or structure that will bring most benefit. This move has facilitated a very fast time-to-market, allowing the bank to open offices and new business units, and has resulted in BTG Pactual transitioning from a Brazilian bank into a true continental bank in less than 3 years. Their success is derived from a strong enterprise architecture strategy which balances the costs and opportunities of each country model and the overall Group position. Figure 2: Centralised vs. Federated IT Operating Model Source: Accenure Research Global Excellence Business Innovation Process Maturity Optimization Independent IT Services per single countryA Central IT Governance with country specific IT ServicesB Centralized common IT infrastructure with country specific applicationsC Full Centralized IT ServicesD Centralised Federated InfraAppsITArchITGovCountryA InfraAppsITArchITGovCountryB InfraAppsITArchITGovCountryZ ... Headquarters InfraAppsCountryA InfraAppsCountryB InfraAppsCountryZ ... Headquarters IT Gov IT Arch AppsCountryA AppsCountryB AppsCountryZ ... IT Infra Headquarters IT Gov IT Arch CountryA CountryB CountryZ ... IT Gov - Apps IT Arch - IT Infra Headquarters ExampleStrategicdrivers
  5. 5. 5 The limitations of centralisation Whilst centralisation can be successful in many instances there are limitations. Centralisation often meets resistance when business leads feel they have lost control to central functions and decision makers have become too removed from the revenue generating front line. This requirement to strike a balance and ensure buy-in from the business means any investment bank with ambitions to be multi-jurisdictional and multi-disciplinary needs to run a mixture between centralised and federated models. The inflection point comes when centralisation leads not to greater simplicity but to greater complexity. In recent years many investment banks have tried to push the centralisation agenda too far and consequentially tipped the balance. To return to Brazil, one leading investment bank tried to centralise their entire product catalogue but reverted after realising the inflexibility it would have created. Their subsequent business-led approach was more successful, as they centralised the intelligence and taxonomies of their products using market standards creating a common language, but gave autonomy across all markets to allow customisation. Finally, local regulation and guidelines can also drive bespoke solutions. When a large European bank, who successfully runs a very powerful and heavily centralised model, entered the Brazilian market they found it necessary to adopt a more federated approach and develop local systems and operations in order to cope with local market regulations and product peculiarities. Whilst there has been a lot of momentum behind the centralisation agenda in recent years, it is not a panacea and many have retreated from this absolutist approach. Having said this, there are some common parallels and best practices that can be adopted. A hybrid approach between a centralised model where industrialisation is needed and there is limited market differentiation, and a federated model where respect for idiosyncrasies and time-to-market is required, is key to reach this goal. This means finding the right balance, ruled by a well understood enterprise architecture strategy, targeted to bring value to the business. In recent years many investment banks have tried to push the centralisation agenda too far and consequentially tipped the balance. Whilst there has been a lot of momentum behind the centralisation agenda in recent years, it is not a panacea and many have retreated from this absolutist approach.
  6. 6. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 305,000 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$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com. Accenture Experts To discuss any of the ideas presented in this paper please contact: Fabio Rodacki Managing Director Capital Markets, San Paulo fabio.rodacki@accenture.com +55 11 5188 4317 Wagner Simao Managing Director Capital Markets, Mexico City wagner.o.simao@accenture.com +55 11 5188 3710 Disclaimer This report has been prepared by and is distributed by Accenture. This document is for information purposes. No part of this document may be reproduced in any manner without the written permission of Accenture. While we take precautions to ensure that the source and the information we base our judgments on is reliable, we do not represent that this information is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Accenture is not acting in a fiduciary capacity. Opinions expressed herein are subject to change without notice. Copyright © 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

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  • lazyted

    May. 28, 2015

Read a report from Accenture Capital Markets on centralized or federated and balancing shared IT & operations with business ownership.

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