8 Strategies for IT Transformation

Leaner, Smarter, More Competitive:
How Standardization Fuels Growth
An Oracle White Paper
March 2010

Leaner, Smarter, More Competitive:
How Standardization Fuels Growth

EXECUTIVE OVERVIEW
Today’s economic climate is forcing business leaders in the financial services
industry to assess the competitiveness and profitability of their operations in a risky
global business environment:
 Internal and external stakeholders are demanding greater transparency into
financial performance and aggregated views of market, credit, liquidity and
operational risk.
 Institutions are redefining business models seeking improved profitability
and lower risk.
 Customer-centric cross-channel delivery are critical to attracting large
deposit accounts and growing fee revenue.
 Leaner operations are critical to restoring profitability.
 The next wave of competitive differentiation in financial services will come
from the ability to adjust to changing business conditions quickly.
Standardization is a proven approach for reducing IT costs and, more importantly,
achieving better information, improved productivity, and lower risk while
establishing a foundation for future growth. At Oracle, significant cost savings
achieved through standardization are funding our growth. Today, our operating
cash flow is 3 times greater than 5 years ago due to internal savings achieved
through standardized global processes, consolidation and simplification.
Oracle and many of our largest customers—including GE, Cisco, Credit Suisse,
Fidelity and Alcoa—have successfully executed a standardization strategy. Based
on that experience, we have developed an eight-point strategy to help customers
standardize business processes, consolidate applications and information and
simplify infrastructure. The strategy results in better information, more flexibility,
and less risk at a lower cost.
Our Transformation Program is a business-driven planning process designed to
help customers identify opportunities to rationalize their IT investments and define
a strategic roadmap for achieving the benefits.

Leaner, Smarter, More Competitive: How Standardization Fuels Growth Page 2

INTRODUCTION
Today’s economic climate is forcing business leaders in the financial services
industry to assess the competitiveness and profitability of their operations in a risky
global business environment. Increasingly, leaders are working to capitalize on their
information assets to become more competitive while rationalizing IT investments.
As demand for information grows, IT organizations are struggling with how to
deliver more information and more applications to more users more reliably and
more securely than ever before…on a global scale…and cut costs while they are at
it. One IT executive from the financial services industry summarized the challenge
to the MIT Sloan Center for Information System Research:
“In the late 90’s, accounts were growing exponentially…we had no time to look internally at
rationalization or architecture. We grew our customer base through acquisition. We’d do the
barebones, integrate the GL, make sure the networks could talk to each other and move on. Now,
market growth has slowed down. All of the sudden, we’re not acquiring, we’re protecting current
accounts. That’s when we saw all these legacy problems, the problems of yesterday that we’re dealing
with today.”1
Reinventing IT economics is a business imperative. Standardization is a proven
approach for reducing IT costs and, more importantly, achieving better
information, improved productivity, and lower risk while establishing a foundation
for future growth.

FREE CAPITAL TO INVEST IN STRATEGIC INITIATIVES
Standardization frees capital from costly, inflexible infrastructure so that it can be
invested in strategic applications that make your business more competitive and
profitable.
IT spending is split between infrastructure and strategic investment. Infrastructure
includes hardware, networks, operating systems, databases, e-mail, back-office
applications, system maintenance, and so on. Numerous analyst studies have
estimated that infrastructure consumes 70 to 80 percent of annual IT spend.

1 George Westerman and Robert Walpole, “PFPC: Building an IT Risk Management Competency,” working paper 352, MIT Sloan Center for Information Systems
Research, Cambridge, MA, April 2005.


Today, innovative business leaders are working to break from their historical IT
spending pattern in two important ways.
1. Reduce spending in real terms and as a percentage of revenue. IT must
become more efficient. According to The Hackett Group, world-class
performers allocate only 43 percent of their annual IT spend to
infrastructure.2
2. Change the mix so that more investment is channeled to strategic
initiatives and less to infrastructure. In fact, companies like GE measure
the percentage of IT spend on infrastructure versus strategic initiatives
and reward IT for decreasing infrastructure spend.
CIOs are being asked to deliver significant savings…all while delivering more
information and more applications to more users more reliably and more securely
than ever before. This shift requires more than normal budget trimming….it’s a
transformation in the way capital is allocated to IT.

WHERE DOES ALL THE MONEY GO?
Line-of-business executives are justifiably frustrated that, despite growing IT
budgets, they lack the timely information they need to run their business. If so
much money is spent on infrastructure, where does that money go?

2 Wayne Mincey, “World-Class G&A Performance”, The Hacket Group, Executive Briefing, September 2008.


The primary cost drivers are labor and hardware infrastructure according to studies
conducted by IDC. Analysis of IT budgets from numerous industries reveals that:
• Labor consumes nearly half the cost of running a data center, primarily
systems management and technical support.
• Hardware such as servers, storage, and networks consume another 28
percent.
• Custom application development costs are 15 percent, while software
maintenance brings up the rear at less than 10 percent.
• And then there are hidden costs associated with the inability to respond
quickly to business opportunities, security breaches, compliance, and
system downtime.
To have a transformational impact on IT costs, we need to focus on the primary
cost drivers and the reasons those costs consume so much.
Fragmentation is the primary culprit. Over the years, decentralized decision
making, acquisitions, different product line organizations, and different sales
organizations can result in fragmented information, fragmented business processes,
redundant applications, and the infrastructure supporting it all. Integration costs
grow exponentially. Gartner and Meta Group studies have shown the average large
organization spends between 35 and 65 percent of their annual IT spend on
integration…moving fragmented data around.
It’s expensive to have bad information. You invest in IT because of the
potential value of information, but that value is lost when information is
fragmented.
Ellison’s Law: The value of
information increases exponentially • Management is unable to get a global view of operations, customers and
as fragmentation is reduced.
risk.
• Information sharing among employees and with customers and partners is
unreliable.
• Security and regulatory compliance risk is high.


• It’s expensive.

STANDARDIZATION IMPROVES COMPETITIVENESS
Bottom line, standardization results in better information, more flexibility, and less
risk at a lower cost.
Standardization is not a new concept. Toyota revolutionized manufacturing with its
Lean concepts built on the premise that improved quality and lower costs result
from eliminating redundant activities and waste. For IT organizations,
standardization is about streamlining business processes, eliminating information
silos, and simplifying shared infrastructure to reduce costs and establish a unifying
platform for future growth.
IT standardization drives significant business value. In a survey of 103 U.S. and
European companies, those with standardized core business processes had higher
profitability, faster time-to-market, and greater return from their IT investments
relative to their competitors. They have better access to shared customer data,
fewer system failures, and 25 percent lower IT costs.3 These findings are
substantiated by The Hackett Group, which found that standardization is a
common theme in world-class IT organizations.4
• They spend 18 percent less on IT.
• They require 36 percent fewer IT workers.
• They need 29 percent fewer applications.
• They have 65 percent fewer software vendors.
• They finish 91 percent of their projects on time and on budget.
At Oracle, significant cost savings achieved through standardization are funding
our acquisition strategy and product innovation. Today, our operating cash flow is
3 times greater than 5 years ago5…largely due to our internal savings achieved by
simplifying, consolidating and automating global processes. While the cost savings
have been dramatic, standardization at Oracle is really about globalizing our
business and using the internet to pursue new opportunities.6

8 STRATEGIES FOR TRANSFORMATION
All organizations have opportunities for standardizing IT, but each organization is
unique in the degree of standardization that is appropriate. For example,
organizations where business units share common administrative processes, serve
the same customers, and collaborate extensively with the same business partners
will benefit from greater levels of standardization than a firm with business units
that operate independently and share little information. In today’s financial services
3 Jeanne W. Ross, Peter Weill, David C. Robertson, Enterprise Architecture as a Strategy, Harvard Business School Press, pg. 2.

4 David Ackerman, “Attributes of World Class Companies”, The Hackett Group, Oracle Financial Services Partner Summit, October 2008.

5 Oracle Q3 Earnings Report, March 2008.

6 Larry Ellison, “How We Saved a Billion Dollars”, Oracle Corporation whitepaper, 2000.


industry, trends toward integrated financial services, integrated global operations,
mergers and acquisitions, business process outsourcing, single face to the customer,
and increased transparency are increasing the demand for shared information.
Based on our experience standardizing our own operations and those of many of
our largest customers, we have developed an eight-point strategy to help customers
standardize IT.

• Standardize Business Processes – Standardizing business processes and
related systems means defining exactly how a process will be executed,
regardless of who is performing the process or where it is completed.
Process standardization delivers efficiency and predictability across the
company.7 Costs are reduced through organizational and infrastructure
consolidation.
• Consolidate Applications and Data – Fewer applications reduces the
number of application environments, database instances, and labor that
must be managed and certified.
• Standardize Service Platform – Reduce infrastructure complexity by
standardizing common application services for process management, user
interaction, integration, security, compliance, records management, and
business intelligence.
• Optimize Infrastructure – Establish a modern computing infrastructure
that can be shared across business units globally.
• Optimize Workforce – Optimize global application management to
improve support and leverage global labor cost structures.
• Management Excellence – Optimize business performance to deliver
predictable and sustainable execution of strategy through risk-adjusted
performance management.

7 Jeanne W. Ross, Peter Weill, David C. Robertson, Enterprise Architecture as a Strategy, Harvard Business School Press, pg. 27.


Strategy 1: Consolidate Information
Managers and frontline employees need timely, accurate, and actionable
information so they can respond to changing conditions, seize business
opportunities, and make smarter decisions. Business performance suffers when
they struggle to get the information they need because it is fragmented across
disparate systems.
Several years ago, fragmented information limited Oracle’s ability to operate
globally. Information was fragmented across disparate systems within line-of-
business and geographic silos. When our CEO wanted to know how many people
worked for Oracle, we would dispatch a project team to figure it out. We did not
have a single source of truth. Data was fragmented across redundant HR, Financial
and other systems around the world. Multiple sales systems with conflicting views
of customers made sales forecasting a time consuming, labor-intensive effort and
created service disconnects. Redundant systems meant bad information and high
costs.8
To complicate matters, business users created data marts in an attempt to obtain
the reliable information they needed. They spent a great deal of time and money
cleansing, transforming, and synchronizing data from redundant data sources,
resulting in thousands of data marts that further fragment data and added labor
and infrastructure costs. Still, managers were working with conflicting, unreliable
data.
The fragmentation problem is not isolated to transactional information.
Documents, e-mail, Web content, and other digital assets are spread across
redundant servers, adding more costs.
Fragmentation drives up the cost of protecting sensitive information and
complying with regulatory requirements. Security policies must be enforced across
multiple data sources and auditing data governance is expensive. Regulatory
compliance requires that information be reconciled across disparate, potentially
conflicting data sources.

Our Strategy – A Single Source of Truth
”Businesses that use a formal, enterprise-
wide strategy for Global Data
In our experience at Oracle, we were able to achieve significant productivity
Synchronization will realize 30% lower IT improvements and costs savings when we consolidated information into a single
costs in integration and data reconciliation
at the department level through the source of truth. We believe that all information that enables a global view of
rationalization of traditionally separate and
distinct IT projects.”
operations, supports collaboration among employees and with business partners,
and is critical to regulatory compliance should be consolidated. This includes
customers, employees, products, financials, projects, payments, and any other
digital asset that needs to be protected and shared across the enterprise.
There are circumstances when information cannot be physically consolidated. In
these situations, a Data Services Architecture can be implemented to standardize

8 Larry Ellison, “How We Saved a Billion Dollars”, Oracle Corporation whitepaper, 2000.


information in a central data store, synchronize it with source systems, and publish
data services to applications that need to consume information from a single source
of truth. These services can be application services, analytics services, web services,
etc… For example, when Cisco executed their successful acquisition strategy, they
created a single source of truth for operational information by consolidating ERP
systems. Customer data, however, remained fragmented across front-office
systems. Recognizing that front-office standardization is a long-term goal, they
implemented a Customer Data Hub to standardize and synchronize front-office
information. In this way, they had a 360-degree view of customers they could rely
on for reporting purposes and, over time, standardize front-office applications to
use the data hub as the single source of truth.
Consolidating information results in better information, better collaboration,
reduced risk and lower costs.

Strategy 2: Standardize Corporate Services
Standardizing business processes drives efficiency, improves visibility, and
eliminates redundant systems and infrastructure. When business processes are
fragmented by operational silos, stakeholders lack end-to-end visibility into
enterprise performance and collaboration between business units and partners is
difficult.
In our experience at Oracle, we operated as independent lines-of-business run by
general managers who were empowered to implement the corporate systems that
best met their needs. Process differences led to different systems, conflicting
information, and redundant costs. Different processes, inconsistent controls and
records retention, and independent reporting environments made compliance a
nightmare.

Our Strategy – Lean Business Operations

While the degree of standardization varies between firms, most in financial services
can benefit from standardizing processes and systems for corporate administration.
This includes financial management, human capital management, procurement,
project management, and planning and budgeting. According to The Hackett
Group, standardized processes and systems are critical to world-class efficiency and
effectiveness.9 They have:
• 50 to 60 percent lower financial management costs due to better
automation with fewer errors and they allocate a greater share of their
spend to planning and analysis.
• 16 to 49 percent lower HR costs with fewer managers and greater spend on
talent management.
• 30 to 49 percent lower procurement costs with a greater share of spend
allocated to planning, analysis, and supplier management.


Standardization of corporate administration at Oracle resulted in global shared
services supported by common global systems that saved an estimated $2 billion
annually. Service levels improved with fewer exceptions, fewer errors, and faster
processing time. For example, standardizing our global Procure-to -Pay process
reduced our transaction costs from $150 per transaction to approximately $30
during a period when our employee count grew significantly.
While the cost savings have been significant at Oracle, they do not tell the whole
story.
• The biggest payoff has been the speed with which acquisitions can be
quickly assimilated into the global picture. When we acquire a company,
they are immediately migrated to our global shared services to eliminate
redundancy and allow their employees to quickly assimilate into the larger
Oracle organization. In 2008, BEA operations were integrated into Oracle
global processes in just two months.
• Standardization reduced compliance risk. Oracle was one of the first
companies to comply with Sarbanes-Oxley Act 2002 because of the
confidence we had in our global operational systems.
• Standard processes enable us to quickly adjust to change and disseminate
best practices worldwide.
• Service levels have improved with fewer back-office staff. This enables us
to focus more of our talent on our core business of building software and
servicing our customers.

Strategy 3: Standardize Front Office
Customer relationships are your most important asset and delivering a
differentiated experience is the key to competitiveness. Fragmented processes and
information in the front office are not only costly, but create service disconnects
“Through an increasing analytical
that directly impact sales and customer retention.
capability, banks must change their focus
away from customer volume to customer Today’s financial services customer is demanding and willing to move their assets
value. This will only be possible when to firms that provide a consistently superior experience; they have greater
banks understand the actual value of each
knowledge of the marketplace, they expect better information about products and
relationship as well as have the means to
services, they expect more visibility into your operations, and they expect to interact
act on this information and design
with your firm at anytime, anyplace through any channel. Front-office
personalized relationships to maximize
benefit to customer and bank.”
standardization produces a consistent customer experience across channels and
Datamonitor turns information into an asset that differentiates the customer experience.
Customers who have standardized the front office report impressive results.
• 8 percent increase in revenue
• 18 percent improvement in customer retention
• 25 percent gain in front-office employee productivity
• 18 percent improvement in customer satisfaction


Our Strategy – Customer Insight

A consistent customer experience begins with a 360-degree view of customers that
enables front-line employees to share information across line-of-business, product,
and channel silos. But sharing information is not enough to create differentiation.
Differentiation is created when front-line employees have insight that enables them
to:
• Understand customer and product profitability
• Recognize customer buying patterns and preferences
• Personalize the customer experience
• Recommend the right products to the right customers at the right time
Target Profitable Customers - Not all customers are equal. Profitable growth
“In today's rapidly changing and competitive requires firms to have a laser focus on selling profitable products to profitable
business environment, it's essential that we have customers in the most cost effective way. Bank of the West, a leading retail banker,
our resources allocated to the best market manages profitability by analyzing the cost of service by product and customer and
opportunities." modeling the impact of different product mixes according to customer
Vice Chairman – Finance
Bank of the West
demographics. The analysis produces profitable growth by enabling front-line
employees to recommend the right product mix to the right customers and
provides a benchmark for developing and marketing new products.
Personalize the Customer Experience - Customer insight enables firms to
present relevant offers based on their knowledge of customer characteristics
and behavior. A prominent insurance provider leverages their customer
insight to differentiate customer service on the Internet. Advanced analytics
are used to present customers with more relevant policy alternatives, up sell
options and pricing. More personalized service increased revenue by
converting more browsers to buyers, and increasing the number and value of
policies sold.

“Looking in the rearview mirror gives us a Earn Customer Loyalty through Proactive Service – Customer loyalty is the
good view of what’s happened, but key to profitable growth. There is a direct correlation between customer loyalty and
increasingly we’re interested in predicting wallet share. The more products a customer buys, the more loyal they are to the
what’s ahead so we can anticipate events brand. Studies have shown the cost of replacing a customer is significantly more
and take action. When you can connect than the cost of selling to an existing one. Losing profitable customers with wallet
marketing, service and sales you start to share hurts profitability. Building loyal customers is a combination of
see relationships that weren’t obvious
understanding customer buying patterns and preferences, proactively managing the
before.”
customer relationship, and presenting relevant offers at the right time across all
Vice President
TIA-CREF channels. TIAA-CREF leverages their customer insight to:
• Improve productivity by analyzing key contact center metrics such as first-
call resolution rates, average call handle times, transfer rates, revenue per
agent, and cost per contact.


• Personalize customer interaction by understanding individual investor
needs so that agents can recommend services that help them achieve their
individual retirement goals.
• Identify potential problems proactively, spot opportunities, and resolve
anomalies before they become problems.

Our Strategy – Optimize Marketing ROI

Brand value is destroyed and money wasted by ineffective marketing. Today’s
financial services customer demands a richer, more relevant dialogue about the
products and services they buy. Studies show that traditional direct marketing is
ineffective with response rates that average less than 3 percent. Customer retention
is directly impacted by irrelevant marketing messages. Consumers see over 3,000
(direct and indirect) marketing messages each day, and over 60 percent cite “over-
solicitation” as a key reason for defecting to another firm.
Closed-loop marketing formalizes marketing processes so that campaigns are more
targeted and results are measurable.
• Corporate and branch marketing are better aligned and optimized.
• Communications are coordinated across channels with collaborative
execution between branches and relationship managers.
• Campaign results are measured against investment to provide an ROI on
marketing spend.
Nykredit, one of Denmark’s leading financial institutions, instituted closed-loop
marketing, resulting in faster campaign execution, better response rates, and better
coordination of marketing efforts across all customer touch points.
Oracle marketing has become more targeted and saved money by moving to an
internet-driven model. All lead generation efforts are consolidated and focused on
digital delivery through email, internet seminars, online customer references, and
online collateral. iSeminars saved $25 million annually and the cost per sales lead
has decreased from $350 to $2.

Our Strategy – Aggressively Build Direct Channels

Market leaders are increasingly turning to internet and mobile channels to attract
and service customers. For example, Jibun Bank, a joint venture between leading
Japanese information and communications company KDDI and Bank of Tokyo-
Mitsubishi UFJ, is the world’s first bank to use the mobile phone as the primary
access channel. Its customers use mobile phones to open new accounts and use a
variety of services including Japanese currency deposits, cashless payments, loans,
and credit card and fund transfers.
Similarly, Australian bank NAB launched Ubank, a branchless direct bank to attract
new retail customers while operating independently from its other retail brands.
UBank has been cited as an example of effective use of nontraditional marketing


and has earned customer satisfaction levels that are amongst the highest of any
institution in Australia.

Our Strategy – Integrate and Optimize Channels

Customers interact through a variety of channels today—branch offices, call
centers, Web sites, mobile devices, and business partners. Channels are often
information silos and service disconnects result when information obtained
through one channel is not readily available to other channels. Shared information
across channels enables customers to be guided to the most optimal channel for
their request. Transactional requests can be directed to lower-cost channels and
higher-value interactions to more personal channels.
Integrated customer channels have made PNC Financial Services Group a model
for customer service in retail banking. With a fully integrated view of customers
across 1,100 branches, the Web site, and banking contact centers, PNC has
demonstrated impressive results:10
• 19% increase in new deposit customers,
• 21% increase in customer retention,
• 9% increase in customer satisfaction, and
• 17% improvement in problem resolution time.
Optimized channels mean better service, fewer people, and lower costs. At Oracle,
standardizing the front office produced significant cost savings because the bulk of
our operating costs are directly related to sales and service. Over a three year
period, customer self-service increased the number of support interactions by 200
percent, but call center volumes decreased dramatically as almost 80 percent of that
activity moved to self-service. We reduced our cost per request by 60 percent and,
most importantly, cut the time to resolve a customer problem by 41 percent.

Strategy 4: Modernize Core Processes
Legacy applications and infrastructure is a significant barrier for any large financial
services firm. These systems are critical to business operations, but tied to
expensive, inflexible infrastructure and an aging employee population that supports
them.

Our Strategy – Modernize Applications

To address this growing problem, Oracle has teamed with our business partners to
provide a program for transitioning legacy applications from costly infrastructure to
lower-cost standards-based platforms. Through our Application Modernization
initiative, customers work with specialists to identify modernization candidates and
identify a migration strategy that best meets the business need.

10
“How PNC Bank Put ‘Personal’ Back in Banking”, Steve Pizzo, 2003


• SOA Enablement – Service-enable legacy applications to interoperate with
modern SOA applications.
• Rehosting – Migrate the legacy application to a lower-cost infrastructure.
• Application Replacement – Replace legacy custom systems with
commercial applications.
• Automated Migration – Migrate unique applications that cannot be
replaced by a commercial application using automated tools.
• Rearchitect – Rebuild unique applications on the new platform.
Oracle’s application and solution portfolio for Banking, Insurance and Healthcare
Payers provide a variety of options that help reduce the cost, time and risk of
modernizing core applications.
Samsung Life Insurance used a combination of these strategies to eliminate $20.8
million annually while establishing a standards-based platform for their next
generation systems.

Strategy 5: Standardize Service Delivery Platform
Every application requires a common set of capabilities: process management, user
interaction, integration, security, controls enforcement and auditing, records
retention, and analytics. Traditionally, these capabilities have been part of each
application, resulting in organizations supporting a myriad of tools to manage and
certify. Each time a component changes (software change or upgrade), the
infrastructure must be recertified as well. Each point of integration is a potential
security breach. The more complex the infrastructure, the more costly and resource
consuming the problem becomes.

Our Strategy – Reduce the Number of Moving Parts

In a modern, services-oriented architecture, the capabilities that are common across
applications are exposed as services that can be shared by applications. These
services are engineered to work together so that they can reduce the number of
components that have to be continually integrated, managed, and tested. Fewer
parts mean lower management costs, lower training and support costs, and a more
reliable and secure infrastructure.

“Our route to standardization was not just Credit Suisse found that their complex software infrastructure was costly to
a technological challenge. Even after we maintain and prohibited them from responding quickly to business requirements.
had started introducing J2EE some years Java Application Platform is the backbone for integrating several hundred
ago, we had to re-invent the wheel each applications across their global banking business, including DirectNet online
time we embarked on a new project.”
banking which handles over 20 million transactions each year. By standardizing
Head of WebTtechnologies
Credit Suisse their application platform, Credit Suisse cut costs, improved flexibility and delivers
applications to the business faster:
• They reduced developers by one-third because applications use standard
components.


• They deliver applications to the business two times faster with fewer
resources.
• They deploy system changes globally (e.g. security updates) in days instead of
months.

Strategy 6: Deploy Cloud Infrastructure
Server hardware may be the most underutilized asset an organization owns.
Hardware costs are approximately 30 percent of the average IT budget and support
costs, downtime, and underutilization are significant hidden costs. Studies show
that the average server is 30 percent utilized at best. And IT is buying more.

Our Strategy – Deploy Highly Scalable Cloud Infrastructure

The benefits of Cloud Computing receive much media attention today. Cloud
Computing is defined as on-demand access to a shared pool of computing
resources over the Internet.
We have been helping customers deploy reliable, low-cost computing grids for
many years. Today, Oracle customers can provision a public cloud using Amazon’s
Elastic Cloud Computing environment or host a secure private cloud to share
infrastructure within their own organization. In either case, share resources
provide high service levels at a much lower cost.
• Lower Acquisition and Support Costs – HP and Dell have shown that the
acquisition and support costs of Intel servers running Linux are
approximately 40 percent lower than comparable Unix servers.
• Better Asset Utilization – Servers are utilized much better because
applications are virtualized from underlying infrastructure and workload is
spread across resources.
• More Reliable – Downtime costs are lower because the cloud does not
have a single point of failure.
• Lower Fixed Costs – Capacity can be added or removed quickly without
affecting the availability of the applications running in the cloud. As a result,
the fixed cost of a large server can become more variable by enabling
capacity to be added or removed in smaller increments.
• Reduce Storage Costs – Leveraging lower-cost tiered storage and
compression can reduce storage costs.
• Lower Management Costs – Automated management tools enable the
cloud to be managed centrally as a single computer and reduce labor costs.
• Green – An important byproduct of a grid is the reduction of space and
energy usage. At Oracle, cloud technology has been important in helping us
double data center performance, while consuming a third of the power.11

11 Oracle OpenWorld, 2006.


Mainstay Partners, an independent firm that specializes in quantifying ROI for IT
investments, found the average ROI on these investments at companies like
Chicago Board of Trade and Fidelity to be 150 percent.12

Strategy 7: Leverage Cloud Services
Cloud Services are an opportunity to reduce costs and redeploy IT personnel to
more strategic projects. Within the next five years, Gartner predicts that early
technology adopters will forgo capital expenditures and instead purchase 40 percent
of their IT infrastructures as a service.
Increasingly, “the cloud” is viewed as a change agent for driving the transformation
to standard processes and common systems. According to an IDC survey of senior
executives, 36 percent said reducing costs was a primary driver behind the decision
to outsource. However, when evaluating an outsourcing provider, only 13.9
percent said that their goal was to find the lowest cost solution on the market. Of
much higher importance was finding a provider that offered “transformational
services” that will help drive growth and innovation.13

Our Strategy – Cloud Services

Cloud Services make economic sense. According to an independent study
conducted by IDC, customers of Oracle Cloud Services average 404% ROI over 5
years and 60% realize payback within 12 months.14 There are multiple alternatives
that enable customers to structure a cloud services agreement that best meets their
business situation.
• Shared Cloud – A multi-tenant service in which several companies
subscribe to a common infrastructure. Shared Cloud is best for situations
that require a no-nonsense application that is fast to deploy, inexpensive to
run, and requires no internal IT resources to support it.
• Private Cloud – A hosted application and infrastructure that is not shared
with other companies. The business operates within its own environment
where application and infrastructure upkeep is outsourced so that IT
resources are freed up to work on other projects.
• On Premise Private Cloud – A hybrid approach that accommodates large
organizations with many business units, diverse user base, and multiple
geographies. A firm may outsource IT operations for satellite locations, but
house its core applications and infrastructure internally in a corporate data
center. The outsourcing provider manages the applications and
infrastructure with a combination of onsite and remote personnel. Using an
On Premise strategy, Oracle helped Alcoa reduce the cost of managing
12 Timothy Guyre and Amir Hartman, “Aggregate ROI Study Results - Making Enterprise Grid Computing a Reality with Oracle 10g Software”, Mainstay Partners ROI
Realization Series, December 2004.
13 Peppers & Rogers Group, “No More Limits”, 2007.

14
IDC, “B u i ld i ng a Super i o r S o f twar e Ownersh ip Exper ience
Throug h S o f twar e as a Ser vi c e”, Amy Konary, 2005


applications and infrastructure 44 percent and freed their employees to focus
on more strategic projects.

Strategy 8: Management Excellence
Management Excellence is the ability to deliver predictable and sustainable
execution of strategy through risk-adjusted performance management. According
to The Hackett Group, financial performance at firms with world-class
performance management is 240 percent greater than the industry average.15 As
organizations improve operating performance through standardized processes and
systems, management can focus on optimizing business performance rather than
just transactional processes.
A recent Economist Intelligence Unit (EIU) study found that disparate information
presents one of the primary hurdles to effective performance management.
• Management lacks visibility into all stakeholder expectations.
• Planning and budgeting is lengthy and labor intensive.
• Analysis of business scenarios and the impact of planning variables across
the enterprise is difficult.
• Monitoring and analysis requires extensive, error-prone data manipulation.
• Comparison of strategic plans to operational results in order to identify
causal relationships in a timely manner is difficult. Problems may not be
detected until it is too late.
• Too often, performance management is a financial exercise that ignores
other operational information that is increasingly an important part of
stakeholder reporting.
The flexibility to respond quickly to business change has become a strategic
imperative. According to research at the Anderson School of Management at the
University of California, Los Angeles,16 performance gains often begin with
exploiting a change in the environment and riding that change with quickness and
skill.

Our Strategy – Standardize Business Planning and Performance Management

In most organizations today, business planning and performance processes are
siloed by line-of-business. Processes and information for strategy formulation,
budgeting and reporting are disconnected. It’s difficult to get an enterprise view of
risk. Performance metrics are not predictive of business performance and not
actionable.
Management Excellence requires a performance management platform that
integrates enterprise information:


16 “Strategy's Strategist: An Interview with Richard Rumel,” Dan P. Lovallo and Lenny T. Mendonca, McKinsey Quarterly, 2007.


• Connect Business Planning Processes – align strategic plans to
operational plans across financial, operational, customer and risk dimensions.
• Model Business Performance - analyze business scenarios to identify the
most attractive market opportunities and to quickly assess the impact of
business change on profitability, liquidity and capital.
• Risk-Adjusted Performance - embed risk into performance management
processes to proactively manage the impact of uncertainty on the
achievement of organizational objectives.
• Early Warning System – enable users to collaboratively monitor leading
indicators, understand causal relationships and take corrective action.

Fifth Third Bancorp standardized financial planning and forecasting
processes across lines of business to better understand revenue and margin
drivers. A time-consuming, error-prone planning process consisting of 1,200
different spreadsheet templates was replaced with a single integrated planning
system that enables them to forecast down to the line-of-business level and
modify it quickly as business conditions change.
At Marsh McClennon, standardized financial planning across corporate
parent and operating companies integrates corporate income statement,
balance sheet and cash flows with operating companies. The consolidated
hierarchy allows them to perform scenario analysis to model sensitivities
based on planning assumptions.


Our Strategy – Predict Business Performance

As financial services firms redefine their business models and capital investment
strategies, they have many different strategic options. Should they innovate and
grow organically or grow through acquisition? Which activities should they
outsource and which are best kept in-house? And when it comes time to downsize,
should they divest a business unit or reduce capacity throughout the business?
These questions cannot be answered by calculating the return on an investment;
they must be aligned to the market.
Performance leaders are using predictive modeling to select investment alternatives
that produce the highest RAROC (risk-adjusted return on capital). Through
scenario analysis, management can reduce the risk inherent in decisions about their
product portfolio, outsourcing strategy, partners and channels, mergers and
acquisitions and financing strategy.
Old Mutual, a leading international financial services group based in South Africa,
uses predictive modeling to understand the projected impact of investment and
divestiture scenarios on their 3-year business plan. When analyzing strategic
expansion into new markets (i.e. market entry plans into Asia Pacific) they needed a
consistent method to quickly analyze investment scenarios that produced auditable
results in IFRS and EEV (European Embedded Value) formats.
Credit Suisse standardized M&A models to simulate full income statement,
balance sheet and cash flow for the combined companies before and after a
deal structure has been created.

Our Strategy – Plan for Reality with Rolling Forecasts

Businesses that unify their enterprise performance management can better assess
the impact of change and take corrective action faster. Traditionally, planning and
budgeting has been an annual financial exercise. Today, it’s critical that financial
planning be integrated with operational planning so that stakeholder resources are
balanced to market needs on an ongoing basis.
Responding quickly to business change requires that performance be measured
against reality. The 2009 financial crisis was a hard lesson in how quickly planning
assumptions can change. Performance leaders are adopting rolling forecasts to
gauge their performance. Every change in the market or internal resource leads to
a new operational forecast and financial prognosis. Variance analysis is no longer
based on the budget but becomes a relative comparison between the organization
and the rest of the market.17
ING Direct standardized global planning systems to give them better
visibility into worldwide business plans. They reduced the time to create the
worldwide plan by 50% and can quickly model the impact of business
scenario changes.

17
“Mangement Excellence: How Tomorrow’s Leaders Will Get Ahead”, An Oracle Thought
Leadership White Paper, September 2008


Our Strategy – Risk-Adjusted Performance Management

Proper identification and management of risk and capital will determine not only a
“Risk reporting gets overwhelming for the
financial institution’s survival, but its long term success. A comprehensive risk
Board. By focusing on the wrong problem, management approach embeds risk into performance management processes to
hundreds of millions of dollars can be lost proactively manage the impact of uncertainty on the achievement of organizational
elsewhere” objectives.
Risk Management Association
Financial services firms manage a variety of risks; strategic, market, credit, liquidity,
underwriting, operational and regulatory. Over the past decade, the cost of risk
management and compliance activities has grown rapidly. Like traditional
performance management, risk and compliance functions have evolved
independently, leading to multiple organizations, risk universes, testing
methodologies and technologies. According to a PricewaterhouseCoopers study,
the cost of compliance is escalating by 16% annually.18
Increasing compliance requirements and costs are forcing firms to re-think their
approach. The Institute of International Finance recommended in a July 2008
report, “A comprehensive, firm-wide approach to risk management should be
implemented by all firms. Such an approach should allow the firm to identify and
manage all risks across business lines and provide communication mechanisms so
that the Board, senior management, business lines and control functions can
effectively exchange information about risk.”19

Risk-adjusted performance management requires a standard disciplined risk
management process that proactively identifies risk exposure and monitors risk
mitigation activities for all categories of risk:
• Align risks with corporate objectives and set tolerance levels.
• Model risk exposure to understand risk drivers and associated probabilities.

18
Financial Services Finance Executives Forum Survey, PricewaterhouseCoopers, 2007
19
“Managing Risk in Perilous Times: Practical Steps to Accelerate Recovery”, Economist
Intelligence Unit, 2009


• Determine mitigation strategy using cost/impact analysis.
• Manage the risk lifecycle of audits and remediation plans.
• Automate internal control enforcement.
• Respond to risk events.
• Aggregate and report enterprise risk portfolio to internal and external
stakeholders.
The ability to proactively model risk exposure and conduct stress testing is
fundamental to risk-adjusted performance management.
• Risk-Adjusted Return on Capital - Measure the risks of interest rates
changes, unemployment rate changes, currency changes or loss ratio changes
on total Economic Capital.
• Market Risk – Simulate interest rate swaps, hedges and other derivatives
that mitigate interest and currency risks.
• Liquidity Risk - Model hedging and funding strategies based on daily
liquidity gap reporting.
• Credit Risk - Model credit scenarios for underwriting and portfolio
management and create debt covenants based on internal economic capital
metrics.
• Capital Adequacy - Stress test capital reserve requirements to assess the
impact of historical and hypothetical market conditions.
• Target Capital Structure - Maintain debt/total capital ratios during
forecasted time periods.

Our Strategy – Early Warning System

Speed is of the essence. Information needs to be immediate and accurate so that
front-line employees and management can deal with changing circumstances that
pose risks. Operations need to be monitored closely, starting with cash flow, but
including any operation that is linked to a cost or revenue driver. Performance
indicators should be linked through end-to-end business processes so that the value
chain is managed. Each department reporting upwards is inadequate; horizontal
process reporting provides cost control and operational grip.
An Early Warning System enables stakeholders in a business process to
collaboratively monitor leading indicators, understand causal relationships
and take corrective action. Corrective action can range from immediate
tactical responses, such as changing a customers’ credit status, to adjusting
the business plan or even reevaluating the strategy, depending on the
magnitude of the impact.
Charles Schwab deployed an early warning system to over 1,700 customer
facing financial consultants. Through better visibility into sales processes,


5%-9% of analytic alerts result in new opportunities and better collaboration
saves approximately 2,400 hours/week.
TIAA-CREF deployed an early warning system for over 1,600 agents in their
national call center. They improved productivity within the call center by analyzing
key contact center metrics such as first-call resolution rates, average call handle
times, transfer rates, revenue per agent, and cost per contact. More importantly,
the system is improving customer satisfaction by enabling them to see potential
problems proactively.

DEFINE YOUR STRATEGIC ROADMAP
The 8 Strategies for Transformation presented in this paper are a framework
designed to help our customers identify opportunities to become leaner, smarter
and more competitive. We work with many of the world’s largest corporations to
define a Strategic Roadmap that helps them to better leverage their Oracle
investments and achieve Operational and Management Excellence.

A Strategic Roadmap is a business-driven planning process designed to identify
business improvement opportunities and define a practical plan for achieving the
benefits. Working collaboratively with Oracle specialists, stakeholders develop a
roadmap that:
 Maximizes the value of Oracle and other investments,
 Leverages Oracle experience and best practices,
 Identifies short-term and long-term projects, and
 Estimates the business benefits.

CONCLUSION
To learn more about the benefits of a Strategic Roadmap, contact your Oracle
representative to schedule an exploratory meeting.


More Competitive, Lower Cost: How Standardization Fuels Growth
November 2008
Author: Kirk Lowery

Oracle Corporation
World Headquarters
500 Oracle Parkway
Redwood Shores, CA 94065
U.S.A.

Worldwide Inquiries:
Phone: +1.650.506.7000
Fax: +1.650.506.7200
oracle.com

Copyright © 2008, Oracle and/or its affiliates. All rights reserved.
This document is provided for information purposes only and the
contents hereof are subject to change without notice.
This document is not warranted to be error-free, nor subject to any
other warranties or conditions, whether expressed orally or implied
in law, including implied warranties and conditions of merchantability
or fitness for a particular purpose. We specifically disclaim any
liability with respect to this document and no contractual obligations
are formed either directly or indirectly by this document. This document
may not be reproduced or transmitted in any form or by any means,
electronic or mechanical, for any purpose, without our prior written permission.
Oracle is a registered trademark of Oracle Corporation and/or its affiliates.
Other names may be trademarks of their respective owners. 0408

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