IT Strategies for the New EconomyIT Strategies for the New Economy(with Banking as a case study)(with Banking as a case study)

Business models have already been changing in the new, globalised flat world.

New economic models are pointing the way for developing effective business strategies in this environment.

What are the IT strategies that your business should be travelling with on this journey?

____________________________September 2008

Presented at:13th Annual Banking and Finance ConferenceFINSIA and the Melbourne Centre for Financial Studies29-30 September 2008http://www.melbournecentre.com.au/Finsia_MCFS_Conference.htm

RAJEEV ARORAPrincipal

Rajeev_Arora@infosys.com

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A door like this has cracked open five or six times since we got up on our hind legs. It’s the best possible time to be alive, when almost everything you thought you knew is wrong.

Tom Stoppard, Arcadia (1993)

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About me – Rajeev Arora

• Principal, Infosys Australia – IT Strategy and Architecture• 25+ Years in IT industry, with last 10 years consulting to CxOs, CIOs

and CTOs in – IT Strategy and Architecture, IT Governance and Audit, IT Investment

Management, Organisational Change• Multiple verticals:

– Financial services, Telecommunications, Government, Utilities and Manufacturing

• Multiple business and technology horizontals segments– Front office solutions and channels; Back office solutions; Integration

architectures; Security and Risk solutions; …• Author of one of the earliest books on “Enterprise Java” in 1997• Education:

– Organisational Change (AGSM – current), IT Audit (CISA), Masters in Technology (RMIT), Engineering (BITS-Pilani, India)

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Agenda

1. Case Study – Trends in the Banking Industry

2. Shifting World Today – Emergence of Complexity Economics

3. Connecting business strategy and IT Strategy processes

4. The Agility Challenge

5. Implications for developing Banking IT Strategies

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Trends in the Banking Industry – Markets Maturity and Saturation1. The markets are saturated / mature2. Products from various providers are interchangeable3. The distinguishing power of the distribution function is deciding

– Rapid, Cheap, Reliable processes are needed– Channel, context and the chosen quality of service

4. Emergence of niche parties – Unique combinations (Derivatives!)5. Customer wants more control -> More control needed in providers6. Customers – Shopping around, seeking best price / quality

combination7. Focus on segmentation8. Shifts in points of sale (Channels) – e.g. supermarkets9. Large global banks entering new markets, challenging incumbents 10. Less use of physical outlets

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Trends in the Banking Industry – Business or the Value Chain1. “Best” sourcing of non-distinguishing business processes2. With BPOs, knowledge of processes is shifting to low-wage countries3. Limitations are shifting from IT to business:

– The emphasis is shifting from realisation (IT) to specification (business).4. IT as Enabler – alternative distribution channels, innovative offerings and

consolidation of value chain

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Trends in the Banking Industry – Technology

1. Continuous growth of electronic channels – Internet, VoiP, Interactive and IPTV, Mobile Internet

2. Industrialisation and standardisation of IT, making sourcing possible

3. Consolidation of processing centres4. IT Enables alternative distribution channels, innovative

offerings and consolidation of value chain5. Network is the basic infrastructure6. From custom to packaged solutions7. Managing complexity, investment streams, delivery and vendor

risks

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Trends in the Banking Industry – Social

1. Increasing effects of market deregulation and market participant regulation

2. Increased protection of customers3. Decreased manageability of society - Citizens are responsible for own

pension, career planning, safety and basic utilities are privatised4. Blurring geographical boundaries5. Increasing competition and market fragmentation6. Independent is beautiful, the combination of consultancy and sales is

suspect7. Permanently increasing migration8. Do it yourself first - Look up instead of know, consultants increasingly are

sources of second opinions instead of primary sources of information9. Information overload – information is commodity, no longer a competitive

advantage10. Increased electronic crime

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Shifting World Today – Emergence of Complexity Economics – Key Characteristics1. Dispersed Interaction2. No Global Controller (Increasingly!!!)3. Cross-cutting Hierarchical Organization4. Continual Adaptation5. Perpetual Novelty Niches6. Out-of-Equilibrium Dynamics

Source: Brian Arthur, Steven N. Durlauf, and David A. Lane, of the Santa Fe Institute(As quoted on Wikipedia)

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Contrasting Complexity Economics to Traditional Economics – 5 Dimensions

“Complexity Economics”1. DYNAMIC - Open, dynamic,

non-linear systems, far from equilibrium

2. AGENTS – Modelled individually, adaptive

3. NETWORKS – Participants (agents) work bilaterally

4. EMERGENCE – Macro economics evolves from micro behaviours

5. EVOLUTION – Differentiation, selection and amplification

“Traditional Economics”1. DYNAMIC - Closed, static,

linear systems in equilibrium2. AGENTS – Modelled

collectively, predictive3. NETWORKS - Participants

(Agents) work through markets4. EMERGENCE – Macro and

micro economics are separate5. EVOLUTION – No mechanism

for creating novelty

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How Evolution Creates Wealth

1. Design Spaces– Evolutions searches for “fit designs”

2. Physical Technologies– Methods and designs for transforming matter, energy or

information from one form to another in pursuit of a goal / goals3. Social Technologies

– Methods and designs for organising people in pursuit of a goal /goals

4. Economic evolution– From big men, to markets

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What it means for Business and Society

• Strategy– Competitive advantage is rare, temporary and appears to be

lasting shorter periods of time– Strategy as a portfolio of experiments– An adaptive mind set

• Organisation – A Society of minds – Creating an adaptive social architecture

– Social architecture1. Behaviour of individuals2. Structures and processes that align people in pursuit of organisation’s goals3. Culture that emerges from people’s interaction with each other and their

environment

• Finance• Politics and Policy

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A Society of Minds

• Constraints on the growth of a firm (Edith Penrose)1. Ability to manage complexity2. Knowledge

• PTs and STs enabled organisations to develop co-ordinating, controlling and executing abilities that are far ahead of their knowledge creating abilities

• Magic of intelligence – A Society of Minds (Marvin Minsky)– “Intelligence” is not a singular thing, but a collective interaction

of individual parts– Greater than the sum of “individual intelligence”, if organised in

a particular way• This is the THIRD stage of technologies of production

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What is fixed

What is flexible

Connecting Business Strategy and IT Strategy Processes

Globalisation Connectivity(Internet / Travel) Commoditisation Regulation

Customers, Products, Channels, …

Business Strategy

Business Operating Model

Enterprise Architecture

IT StrategyIT Strategy

IT Operating ModelIT Operating Model

IT Portfolio

Applications InfrastructureInformation

Complexity Economics Strategies

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Implications for IT Strategy Planning

•Strategy –Collaboration up and down the hierarchy on business strategy, business operating model and enterprise architecture•Sourcing – Developing an operating model as per business plans and market conditions •Investment management – Distinguish business drivers as arising from business strategy or from the operating model•Organisational change – Gathering pace of deep changes requires organisational capability to execute frequent end-to-end change

CEOs, CxOs

CIOs, Enterprise Architects

Governance andManagement

CFOs, Business Performance Management

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Implications for developing Banking IT Strategies

• Business strategy issues– Global, national, regional or local– Pace of change, investment

• Configurable value chains– Ability to switch location of back office business operations

• Challenge – Knowledge management imperative– Retaining knowledge when outsourcing business and IT

processes• Challenge – Degrees of commoditisation: Sharing and sourcing

of services• Challenges – People and Organisations

– Ability and effort required to change

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Resources

1. Enterprise Architecture as Strategy, Jeanne W. Ross, Peter Weill, David Robertson, Harvard Business School Press, August 2006.

2. Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, Eric D. Beinhocker, Random House Business Books, 2007.

3. Complexity Economics, Wikipedia(http://en.wikipedia.org/wiki/Complexity_economics)

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Infosys Today

Infosys Subsidiaries

Bank

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Enterprise Solutions (ES)

Product Engineering and Validation Services (PEVS) - PED, PLES, IVS

Infrastructure Management Service (IMS)

System Integration Services (SI)

Corporate Sales and Marketing (CSM)

Tech Services Quality

InformationSystems (IS)

Infosys Leadership Institute(ILI)

Human Resources(HR)

Security Audit & Architecture

(SA&A)

Education& Research(E&R)

Consulting Solutions (CS)

Software Engineering and Technology Labs (SETLabs)

Infosys BPO

Infosys China

Infosys Australia

Infosys Mexico

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Finacle – Globally Leading Banking Solution

Gartner Magic Quadrant - Finacle has emerged as a global leader in the Gartner Magic Quadrant for International Retail Core banking 2008. Gartner has ranked Finacle right on top for the Ability to execute and amongst the leaders in Completeness of vision.

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Thank you!

FOR FUTHER DISCUSSION, CONTACT:

Rajeev Arora

Technology Focus GroupNew Markets and ServicesInfosys Australia

Rajeev_Arora@infosys.com