IT innovation is a must for any bank that wants to stay at the top of its game. The difficulty many face, however, is balancing the delivery of long-term change through an IT strategy with the short-term need to maintain operational efficiency. UniCredit’s Massimo Milanta speaks to Jim Banks about how the bank is innovating the architecture of its core systems.
Change is the only constant when it comes to banks' technology investments, as it is well understood within the industry that IT innovation is one of the tools a bank can use to maintain its competitive advantage. At the moment, much of the investment being made is focused on exploiting the expanding range of opportunities in the multi-channel environment, and making internet and mobile applications that deliver tangible benefits.
"IT is a major tool in attracting new clients and developing new channels," says Massimo Milanta, CIO of UniCredit Group and CEO of UniCredit Global Information Services. "The main focus is supporting the business in the development of a multi-channel architecture in the retail bank. We want to sell products as well as do transactions online and through the mobile channel, but we are also investing heavily in transactional services for corporate clients.
The multinational UniCredit Group is moving from an intense phase of post-merger integration into a new era in which its IT spend is aimed at supporting organic growth. In the past 15 years, the group has grown through mergers and is now vastly experienced in integration, having installed a common platform in many countries across Europe. Now, it is turning its attention to the development of online functionality and testing mobile banking applications.
Yet these activities do not tell the whole story of the bank's IT investment strategy. The most fundamental change it is making is at the deepest level, where many banks fear to tread. "On the architectural side there is a major renewal of our core banking systems, where new technology will help us to increase the balance between open systems and mainframe architecture," says Milanta. "That is part of a five-year plan, which is the result of the long-term strategic plan for the business. It is strongly aligned with clear business cases that have been made."
By updating the architecture of its core systems, UniCredit is undertaking a task that many banks will have to embrace sooner or later, especially if they want to improve their agility and adapt faster to the rapidly changing needs of customers as new channels evolve and mature. The challenge lies not only in the complexity of the transformation of the systems that form the foundation of the bank's service and product delivery, but also in the need to remain competitive and innovative in the short term while such a big change is taking place.
"In the short term, we have to keep moving from the integration phase, which was a major investment in the past, and keep moving towards innovation," says Milanta. "There could be a lot of disruption with the changes we are making, but we have evolved a lot in the past few years in terms of the industrialisation of the software process and the ability to test applications with the involvement of the business.
"So, we have extensive testing, end-to-end software development and innovation processes. We are not making these changes as a 'big bang', but in a phased way to minimise risk. We are working on one component at a time. We are working on better unbundling of technology and a more modular approach, so we have split the architecture into well-defined pieces, which is how we minimise disruption."
Previous IT projects
UniCredit's approach to reworking its core systems is proof that experience is crucial. A bank must take every opportunity to learn from previous IT transformation projects. Work on core systems in one country can hold many lessons for the roll-out of new systems in other markets.
"We have learnt over the years, for example, that in-country mergers are very different from international
mergers," says Milanta. "There is always one rule - decide on the target system fast. You also have to maintain an architecture that is as common as possible, taking on the good parts of the software from the banks you acquire and moving them onto your platform. Furthermore, you must concentrate on the integration of people as well as systems with any merger, and make sure that the people you bring in become part of the global organisation.
"In Germany we performed a big-bang operation and in a single weekend we changed more than 60% of the application landscape of the bank. We are now focusing our efforts on making our architectures more modular, opening the possibility to export some specific components of the systems without the effort of such a big migration."
Among the most important lessons is that many projects have to be managed simultaneously and in such a way as to balance the strategic with the tactical. Planning, preparation and flexibility must all go together."The biggest challenge is the complexity and the need to address the co-existence of long-term transformation programmes with the short-term demands of the business. For that, you need to focus not only on IT optimisation, but also on a programme of prioritisation."
Amid the complexity, the focus that keeps the various programmes on track is the clear understanding that any change is designed with one key purpose in mind - serving customers better. Maintaining and improving operational efficiency is, of course, of vital importance, but the ultimate prize is to deliver better services that will help a bank to retain existing customers and attract new ones.
"To achieve this we have two approaches," explains Milanta. The first is top down, and involves our business and technology people looking at ways in which technology can improve customer service. The second is bottom up, which involves employee feedback. No-one knows better what customers need than the employees who have just dealt with them face-to-face. We use our internal social network to combine our different sources of information and channel it to a dedicated business team that is focused on innovation.
"The internal social network was launched 18 months ago, and a major driver behind it was the international nature of the group. We want to improve interactions across the group and the system has generated some good ideas on how to optimise internal processes. It will certainly be very valuable to us in the future. We have so many physical sites across the world that we need good tools for collaboration."Although Milanta points out that UniCredit has a large presence on the ground, there is one part of the business in which it is reducing its infrastructure footprint. Since 2006, the bank has been cutting the number of data centres it operates, as well as improving their efficiency.
"Sustainability is very important for us as a group," says Milanta. "Investment in virtualisation to reduce the footprint of our infrastructure is very important. We are changing our platform so that it can be better organised as a cloud, although there are security issues that we must address. We are also good at innovation in our data centres on projects like cooling."
Milanta points out that UniCredit won an Uptime Institute Green Enterprise IT Award in 2009 for its free cooling solution in its Munich data centre.
"Clearly, sustainability is not the only reason to push centralisation of the IT infrastructure and move to fewer data centres, he adds. "Cost reduction and sustainability are compatible issues."
This push to increase sustainability in its IT operations shows that UniCredit is balancing the goals of its long-term
IT strategy with the short-term need to improve efficiency and reduce cost. Therein lies a lesson for any bank dealing with the complex problem of planning for tomorrow while delivering value today.
