Cognizant 20-20 Insights

Selecting a Systems Integrator to Implement a Core Banking System

Given the risk and multiple stakeholders involved, banks need SI partners that can collaborate and communicate with internal constituents and with other third parties, and have demonstrated domain and technical expertise aligning software solutions with business objectives.
Executive Summary
Historically, systems integration was largely a technical and an operational task. It was considered as part of the wider area of systems engineering. However, in the last decade or so systems integration is considered to be a strategic enabler across different levels of the business such as systems engineering and operations, and is seen as critical in assisting senior management decision making. Implementing a core banking system (CBS) is a prime example of this change in the thought process. It often leads to a large, complex project, with multiple stakeholders across multiple groups within the bank. The outcome of a core banking implementation can lead to a higher level of differentiation in the market or an enriched customer value proposition. Moreover, if the transition is not managed properly it can pose serious risks for the bank. Considering the high level of risk involved, coupled with the involvement of multiple stakeholders, the importance of the role of a systems integrator (SI) cannot be overstated. The cost, scope, quality and importance of strategic initiatives around CBS implementation requires the attention of many parties, each of whom brings in a different dimension on the decision-making process. The role of an SI in a CBS project can be categorized as follows:

Provide business and product expertise:

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Business expertise: An SI is expected to exhibit a sound understanding of the various lines of business (LOBs) of the bank and the business and technology impact of a CBS implementation on each LOB. Product expertise: An SI should provide an integrated solution across multiple products and services that are involved in a CBS implementation. Program management: Since the SI owns the program, it should have a consolidated view of all activities, interdependencies and impacts of changes across the entire program.

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Collaboration across vendor organizations:

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Vendor collaboration: An SI is the single

cognizant 20-20 insights | december 2012

point of contact for the bank. It is responsible for the integration of efforts across multiple vendors, all of whom may be contracted by the bank.

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Communication management: One of the key responsibilities of an SI is to manage communication across vendor organizations and different groups within the bank. The SI is expected to be aware of all changes that occur as a result of a CBS implementation and is in a position to understand the impact of these changes on the overall program. Business process management: An SI is responsible for the integration of interdependent functions and business processes of the bank and brings in substantial domain and process expertise that are essential to understanding the functioning of a bank.

Segregate criteria into mandatory and important: At this stage, the criteria are segregated into mandatory (i.e., those that are absolutely essential, and the failure to meet any of which will have an adverse impact on the project) and important criteria that, while important, are such that even if they are not met, risks arising from them can be mitigated adequately. This is discussed later in this white paper. Perform initial screening of SIs: As part of the initial screening, only those vendors that meet all mandatory criteria are considered. SI finalization: After the initial screening, the important criteria are assigned risk-based weights. The shortlisted SIs are evaluated using an analytical hierarchical process (AHP) or other combinatorial optimization algorithms such as UKP. Risk assessment and management: As part of this step, additional business risks are identified. These risks may be related to the SI selected (based on the important criteria that the selected SI doesnt meet) and risks within the computational framework. A mitigation plan is then created; these risks are then monitored throughout the CBS implementation.

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This white paper explores the process of SI selection for CBS implementations by explaining best practices and procedures as well as criteria required.

SI Selection Process
Banks find it increasingly difficult to differentiate among SI vendors. Hence, it is recommended that a bank use a structured decision model to decide on the most suitable SI. We recommend the following steps to choose the SI for a CBS implementation.

SI Selection Criteria
Every bank will have a predefined set of criteria for vendor selection based on its vendor management principles. The criteria for selecting an SI to implement a CBS will be based on the same principles. The following list can be used as a guide where vendor management processes have yet to mature. We have connected various criteria used by banks into four broad categories.

Business case creation: In this stage, the SI is expected to create a business case for implementing a CBS. This could be a new implementation or an upgrade. In either case, the business case is expected to cover the following areas:

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Business benefits: Such benefits could include reduced time to market for products, improved customer satisfaction, etc. Financial benefits: Financial benefits are typically associated with cost reductions. Key financial benefits anticipated through the implementation of a CBS are reduction in ongoing costs, reduction in hardware costs and an overall reduction in total cost of ownership (TCO).

Program management capabilities: Banks look at SI vendors as strategic partners that can assist them in transforming project/ program management practices. As part of the SI selection exercise, banks expect that the SI vendor can deliver most, if not all, of the following services:

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Develop criteria for evaluation of SIs: In this stage, the bank develops a list of criteria for evaluating SIs. These criteria are based on the banks financial stability, proven track record of executing similar engagements, global reach, product knowledge, etc. cognizant 20-20 insights

Leading-edge program management methodologies: Banks expect SI vendors to bring proven methodologies, processes and tools on large program governance, project planning and governance, change management and control, vendor/contract management, frameworks for quality management, etc.

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Program management office (PMO) support: Banks expect SI vendors to provide support for functions by defining new processes or refining existing processes as applicable. Work stream management: In addition to the above, banks may also expect the vendor to manage additional work streams. Examples of these include:

skilling of people. The TCO is quite significant in most cases. Hence, it is imperative that the SI exhibit long-term viability.

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Cost-effectiveness: Investment in technology and improved processes is seen by banks as a way to attain competitive advantage. Banks expect SI vendors to deliver streamlined processes reducing overheads and providing cost-effective services over a period of time.

Integration management: Drive overall solution integration ensuring integrity of the solution design, interdependencies and delivery of the end-to-end solution. Deployment management: Handle the overall deployment planning and execution including solution delivery for different phases of testing and rollout. An SI vendor is expected to work with the deployment managers and project managers from other work streams in the program to achieve the desired results.

Conclusion
The responsibilities of an SI are viewed differently across regions. In Asia, banks look at an SI as a partner that can bring in banking expertise. Banks are keen to understand industry-specific offerings and service/product innovations that can benefit the bank. They also look at an SI as an entity that can help them transform their program management Banks typically practices, bringing added effigauge the ciencies in scale and execution. In Europe, banks look at an SI to provide expertise in two main areas: product expertise, and as a change agent to help them improve internal program/ project management processes.

SI focus on the banks business segment: Another key parameter that banks must consider is the focus of the vendor on the banks business area. Banks typically gauge the vendors focus and commitment to continuously enrich and improvise on available solutions to meet evolving banking requirements. Banks typically assess this by various criteria such as contribution of their clients to overall revenue, investments in the core banking space, customer sites across the globe and the profile of its key clients. Financial stability: Financial strength and business continuity are important attributes for evaluating an SI. This is not surprising, considering that the payback for a core banking system is approximately four to five years. Transforming core banking systems brings about changes in operating processes, systems and interfaces, and tends to involve the re-

The dimensions used by bank IT organizations to evaluate core banking systems integrators are not always the same as the areas that core banking SIs focus on. A large number of SIs emphasize more horizontal skills across multiple core banking products. On the other hand, banks look for SIs that exhibit commitment to innovation and investment in solutions in the banks areas of business, and that have more focused models dealing with one or two CBS products usually supported by a strong alliance with the product vendor.

vendors focus and commitment to continuously enrich and improvise on available solutions to meet evolving banking requirements.

References

The Business of Systems Integration, Andrew Precipe et al., Oxford University Press. The Forrester Wave: Global Banking Platform, Q1 2009, Jost Hoppermann, Forrester. Trend 2005: European Banking Architecture, Jost Hoppermann, Forrester. Corebanking Platform Replacement, Adpar Solutions. Celents ABCD Analysis on Corebanking Products, Stephen Greer and Bart Narter, Celent.

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About the Authors

Srivatsa Subbanna is a Manager within Cognizant Business Consulting, based in the Netherlands. He has 10 years of experience with IT and business transformation projects in Europe, the U.S. and the AsiaPacific region. His expertise includes business analysis, process consulting and transformation using methodologies such as Lean/Six Sigma. He holds a post-graduate diploma in management studies from the Indian Institute of Management, Calcutta. He can be reached at Srivatsa.Subbanna@cognizant.com. Anirvan Saha leads the Core Banking Consulting Practice within Cognizant Business Consulting. He has 13 years of experience in consulting and software services in the retail and commercial banking spaces. He has expertise in business process management and complex software implementation programs in the domains of core banking, anti-money laundering, Basel II credit risk, commercial lending, retail banking and mortgage. Anirvan holds a bachelors degree from IIT Kharagpur and is a management graduate from the Indian Institute of Management, Calcutta. He can be reached at Anirvan.Saha@cognizant.com.

About Cognizant
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