Financial organisations need to refocus their efforts on improving data management to improve performance.
While the focus on transactional systems and process optimisation in the financial sector remains relevant, a general failure on the part of IT to deliver on new business optimisation and performance management requirements is cause for a rethink among business managers and IT executives/departments. Greater co-operation, better understanding of business drivers and more user friendly technologies all play a role in righting this imbalance.
Explains David McWilliam, MD of Cognos SA, an IBM company: “In the finance sector IT has, until now, met business requirements by gathering and storing data in huge repositories, then adding slice and dice software to deliver reports. Initially designed to enhance, automate and drive down costs associated with transactional systems, growing volumes of data and reports are leading to analysis paralysis. In a changing regulatory and increasingly competitive business environment, financial organisations quite literally need to refocus their efforts to improve data management in order to improve their performance.
David McWilliam, MD of Cognos SA, an IBM company
“This not only means creating overlay systems such as master data management systems and data quality management systems to get a single, centralised view of the business based on accurate information, but a review of business management approaches and practices to ensure that what is reported on delivers value to the business - ie, information that will drive performance management and business optimisation.
“As Jack Welch put it in Straight from the Gut, ‘What you measure is what you get’; and as Lou Gerstner said in Who Says Elephants Can’t Dance, ‘People do not do what you expect but what you inspect’. It is the same message - the identification of the right measurements (key performance indicators linked to strategic goals) and clear accountability and responsibility for the achievement of those measures, drive business performance.”
The recognition of the need for business optimisation (BO) and financial performance management (FPM) have necessitated a change in the way financial institutions are managed. Previously, the board would constitute a strategy and it would be hidden in the chief executive's desk drawer with only vague missives (eg, budget for 10% growth, employ more people in customer relations) making their way to line of business managers via, say, the financial executives. However, for FPM to succeed, strategy must be minutely linked to a planning process that is pushed right down into the organisation. This means old top-down management approaches need to be replaced by a dynamic driver-driven system where employees buy into and own the strategy.
For example, the manager who wants to employ seven more people needs to know what outputs can be attained from additional staff and what growth needs to be achieved to justify the cost of employment. Similarly, budgets can no longer be based on a hazy, imprecise annual forecast.
For FPM to take effect, internal and external business drivers need to be clearly defined in the strategic planning process, linked to execution and measured and monitored. This must be backed by business intelligence (BI), analytics and reporting to understand not only the ‘what’ of business performance but the ‘why’, and what to do about it. Business results can then be investigated and the resulting information fed back into planning.
“In essence, there is no longer a place for the discontinuity created by IT building a data repository and saying to business ‘there it [the data] is, come and get it’ and business saying to IT ‘we want better data’. The tools are now in the hands of business.”
IT can report on events and analyse events, it cannot identify exceptions. The banks have already spent millions of rands putting transactional data into repositories. FPM provides a way to intelligently leverage that data to optimise business. However, the FPM process needs to be driven by business - the planning process must be linked to strategy, monitoring must be linked to KPIs and drill down must be enabled by putting the right technology tools into the hands of business users.
Garner notes that organisations that have implemented FPM are two and a half times more effective than those that have not. The researcher also notes that by 2015 all successful businesses will have a FPM system.
“When it comes to banking,” McWilliam concludes, “a customer may well forgive the bank that sends him four different statements for each of his accounts. It costs the bank more than it should in terms of postage and administrative effort, but imagine what it is costing in terms of gaining an understanding of that client’s needs and his value to the bank. In fact, consider the impact of this data inefficiency in terms of understanding the bank’s client base mix and how to optimise it to minimise risk and enhance profitability.
“Forward thinking business leaders do understand the value of proper information management for business optimisation, an approach that is becoming ever more vital in the financial sector to meet the demands of Basel II, which requires the review and redesign of existing systems, processes and data stores, and the refinement of credit risk management and operational risk models. The evolution in business management practices has already begun. How successfully change is communicated and put into practice - by IT as well as the business - will determine the organisation’s ongoing success.”
For more information contact David McWilliam, managing director, Cognos South Africa, +27 (0)11 603 5700, email@example.com