SCFB Transformation Story…
from IMF to recent financial crisis
for SNU students
May 15, 2009
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1
“Banks are Dinosaurs.”
- Attributed to Bill Gates, c. 1995
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2
Outline
 Introduction
 New Bridge Era
 Challenges after IMF
 New Business environment
 Systems Architecture
 Other external factors
 Acquisition in 2005
 What’s after this now?
 Summary
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3
IMF crisis – story of transformation
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4
The IMF crisis has Created a Trigger Point in the Demands Placed Upon IT

The focus of the IT has been on supporting the
Business needs as best as it can with resources
available at the time – No Bank executives
position in IT function

The focus of the Business Leaders has varied
from frustration with ‘IT responsiveness’ to
demands for restructuring of the bank
World Class Banking
Practice
IMF Crisis
Expected
Performance
Some PCs
Departmental Applications
Computers
Mainframes
1980 s & 90s
1998
Was IT caused crisis?
2000 -->
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5
Korean Bank Example
New Playing Fields: Very competitive market space in Korean Banking industry was
pressing all banks to DO something immediately! - Survival mode!!!
Old Systems
Changing
Architectures
Korean Banks
Regulation
Competition
Share Holders
Expectation
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6
After IMF crisis hit the Korea, all the Korean banks shifted its focus from Corporate
Banking to Retail Banking and others to minimize the risks – why?
Retail
Banking
Corporate
Banking
Corporate
Banking
Others
Mortgage?

Major management strategy changes

Everyone in the banking industry were impacted by the
changes

Time to market is the most critical success factor

Risk management capability became the topic of the bankers

IT became major impedance to the changes required
Credit Card?
Fee Income?
Layoff?
NGBS?
In order to survive from the fierce competition, we had to react quickly to turn
around an aircraft carrier with the antiquated IT infrastructure
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7
New Trends in Banking industry after IMF: Banks/IT Reflect Specialized
Business Based Herds of Dinosaurs
2004
2005
M&A
Phase 2
2003
Bankasurance
M&A
Phase 1
2002
Retail
Banking
2000
IMF
???
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8
In general, Korean Banking Industry was Doing Just Fine, thanks to
Korean consumers
 Dino made lots of money in 2001, 2002 and 2004 but not in 2003 due to credit card crisis
 Spread remains relatively stable but it’s shrinking out of competition
 Retail banking was a battle field for all the dino
 Household loan including mortgage loan business is growing
 Credit cards business was becoming a nightmare in 2003
 Also, Corporate business was shrinking but will be growing...
 Business Volume (market share) over Profitability until 2005…
 Fee business will be the target for every banks
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9
Soul Searching…What’s wrong with us( I mean, IT professional in banks)?
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10
As a part of soul searching process, both the business and technical infrastructures
should be assessed
Strategy
Customer
Satisfaction
Cost
Organization
IT Business
Structure
Assessment
KFB IT
IT
Management
Practices
Technical
Infrastructure
Assessment
Application
and Data
Anybody heard Client/Server?
Data
Center &
System
Software
Network
End User
Computing &
Office Auto.
Client
Server
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11
Current Business Functions and Departments Automation
Business process Issue – Too many Manual Process
Deposit
35% of Functions Automated
Strategic Marketing
50% of Functions Automated
Security
25% of Functions Automated
Loans
Remittance (Incoming)/Demand Draft
100% of Functions Automated
20% of Functions Automated
Branches
15% of Functions Automated
Credit Card
25% of Functions Automated
Head-Office
Mortgages
Overseas Branches
0% of Functions Automated
General Affairs
15% of Functions Automated
Financial Accounting
40% of Functions Automated
Inspection
15% of Functions Automated
Human Resources
35% of Functions Automated
Risk Mgmt.
30% of Functions Automated
Branch Profit Mgmt
25% of Functions Automated
Foreign Exchanges
50% of Functions Automated
Won Currency Capital Mgmt
50% of Functions Automated
Foreign Funding Capital Mgmt
60% of Functions Automated
Dealing Room
40% of Functions Automated
Trust
30% of Functions Automated
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12
Working environment: Traditionally, Business and IT are spending more time fighting
over priorities than solving the business issues of the bank.
Business and IT must complement each other to support common goals; management
business strategy
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13
Conflicts between IT and business – first on the Clash Over Product Delivery
Business
Development efforts are far too slow,
too costly, unresponsive, fail to keep
pace with ‘user-friendly’ third party
packages
We don’t look at our competitors!!!
IT Focus : Support with Legacy
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Large, mainframe applications has been
changed over the years so it is so difficult
to support new initiatives and IT staffs are
not trained in new technologies
14
Legacy systems issue - Old Korean Bank’s Systems diagram
E x te rna l
A f f a irs
TA N D E M
N o ns to p
K e rn e l
TC
.25
P C (V B )
X.25
O RA CLE
T CP
/IP
SN
IMS
DB2
IMS
DB2
TT
P
, DR
DA
/I P
T CP
P C ( V B ,A S P )
NT
A
V B , IIS
SN
TCP/IP
P o rt a l
W e bs p he re
A p a c he
A IX
C-I S AM
S C O U N IX
JD
BC
MS G HUB
Te le p h o n e
X .25
H
A
P
TT
X .2 5 C O M M
S E RV
S U N S O la ris
A
D
R
,D
S
C NA
H TTP
A
A,
D
A IX
R
D
A
P C (W E B )
H TTP
UDB
S U N S o la ris
RD
UDB
P C B a n k in g
P C (V B )
D
O
/IP ,
SN
A
A,
Inf orm a l B u s in e s s
P L /I, S Q L
SN
A
IP
SN
DB2
TCP/IP
ARS S V R
Credit
I nf o
P rovider
DB2
D BC
A
P/
IMS
NT
P /I
SN
LO G
A IX
TC
DB2
Cust om er M gm t
S Q L S E RV ER
SN
DB2
IMS
NT
D e lin qu e n c y
C-I S AM
IMS
IB M O S 3 9 0
S NA
W e bs
Apa c h
c li
DB2
Cust om er Cont ribution
SQ L
S ERVE
R
TCP/IP
P C (W e b )
P L /I, S Q L
Te le B a nk ing
/I P ,J
P rof it M gm t
Loans
S e c u rit ie s
TIS W e b S
DB2
Nat T reasury, G iro
DB2
SN
P
TC
B eneficiary Cert.
P
IB M O S 3 9 0
TC
P / IP
H
TC
IMS
S NA
S NA
S NA
DB2
IMS
S
P C (S A S )
DB2
M ort gage Loans
o p e r a to r P C
IC
/I P
P C (V B )
IMS
S e c u rit ie s
W e b s e rv e r
W e bS p he re
S N A , M TS
TCP/IP
NT
BC
T rusts
CD, T m p Dep, e-m oney
DB2
DB2
Cost M gm t
P ,C
B eneficiary Certif icat e
DB2
IMS
PC (
JD
Cust . I nfo. Service
IMS
P C (V B )
DB2
P erf orm ance M gm t
T SO
/IP
TC
B /C Card
BTRS
P
P C (O
DB2
IMS
Credit S coring
FT
T CP
DB2
A udit
SAS
A IX
FTP
IMS
Nat T reasury, G iro
Hum an Resource
T C P /IP
DB2
ALM
(N F S )
BC
D
,O
IP
IMS
P/
DB2
M IS
TC P
FX
IMS
TC
Deposit s
IMS
X - W in d o w s
FTP
G NT
A IX
DB2
DB
SN
SNA,DRDA
DB2/ 6000
A
DA
Loans
IMS
DR
A
IP
A,
SNA
X.25
P C (C + +)
SN
E SS BA SE
A IX
A
TCP/IP
A c c o u n t in g
G eneral Ledger
A IX
S C O U N IX
S U N S o la ris
Int . F in a n c e
S hort T erm F unds
UDB
SN
P/
DE C O S F
DB2/ 6000
IP
S W IF T
O RA CLE
TC
I SA M
C O LD
DB2
S W IF T
CO BO L
A n a ly s is
B u s ine s s
H u m a n R e s ou rc e
K F TC
EDI
IP
P/
DA
TC
V A X /V M S
P/
P,X
P ,D R
A
IP
P/
D u m b te r m in a l
TC
P /I
TC
Int e rm e dia ry
B u s ine s s
SN
C U R R E N T K FB 'S S Y S TE M IN TE G R A TIO N
Dom est ic
com panies
T C P /I
5
X.2
Credit
I nf o B anker's
P rovider associat i A ppraisal
on
B oard S uprem e
Court
X.25,SNA
Fo rm a l B us ine s s
UDB
H
TT
P
Int e rne t
B a nk in g
A IX
C IC S
6000
UDB
TCP/IP
UDB
IG E X , E S C O N
A IX
JDBC,RMI
W e bs p he re
A p a c he
IG E X W e b
A IX
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15
Why do we have this problem? Evolutionary process of Bank’s IT systems
Branch
Teller
DepartMIS
mental
Systems
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CAP
Legacy Core Banking Systems
16
To add new channels - legacy systems has become very complicated to support fast-tomarket requirements - ex. complicated interfaces
Customer:
Access to products,
services and integrated
retail delivery
Technology:
Expensive,
Channel specific
Duplicated efforts
Long time to market
Branch
Tellor
Telephone
Sales
Kiosk
Call Ctr.
Agent
Server
Server
Call
Mgm’t
Internet
365Corner
ATM
Device
Server
IVR
Remote
Banking
ATM
Processor
Complex
Interfacing
DepartMIS
mental
Systems
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CAP
Legacy Core Banking Systems
17
New channel strategy including internet banking is a new trend in Korea -more complexity is added to its already complicated interfaces
Mobile Banking?
TV Banking?
Branch
Telephone
Internet
365 corner
ATM
Device
Sales
Kiosk
Branch
Call Ctr.
Agent
Remote
Banking
Server
Server
Server
Server
Call
Mgm’t
DepartMIS
mental
Systems
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IVR
Remote
Banking
ATM
Processor
CAP
Legacy Core Banking Systems
18
New IT Strategy - Switching from the current point to point connection to the connection
through EAI will simplify the application integration job, in return we will have a fast to
market capability
Old Integration Method
EAI Integration Method
“With EAI strategy in place, what applications do we need to replace/develop?”
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19
EAI integrates its diverse delivery channels with back-office systems and data center function.
Therefore Korean Bank can provide better customer service and leverage customers relationships
across all service offerings which is crucial for the retail banking operation
Replace Core
Banking
MIS Revamp
OLTP Cleanup
Backend Server
Phase 3
Phase 1
Middleware
Data
Warehouse
EAI
SellStation
Unified Delivery
Channel
Infrastructure
Delivery Channel
ＣＲＭ
Phase 2
The next question is “How does it look?”
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20
EAI Architecture
Internal systems
Legacy
system
Security
Data
Warehouse
Alarm event
External systems
CRM
ERP
Logging
Auditing
Enterprise services
Govt body
HTTP
Server
Other
banks
CALL
Centre
Suppliers
Wireless
server
Delivery channel
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21
Legacy Architecture Transformation – More Flexibility
Before
After
SellStation workstaion
Customer Facing Channels
Host Applications
Middle Tier EAI
Other Applications
Host Applications
Branch Terminal
Backend Servers
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22
Branch System Architecture – Before and After
F
B
T
F
B
T
Accounting
MIS
DW/CRM
CRMS
BP(NTC)
e*Gate
Transaction oriented
Branch System
SS Server(WEB)
Internet
Banking
Call Center
LPC
Before
MTS/MSS PC
Sales oriented
Branch System
After
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23
Systems architecture
• BC CARD
• 은행연합회 (Korean Bank)
External
Links
TANDEM
• NICE
• 한국감정원(KAB)
• 중앙감정원
• NARA
OLTP
MIS
SNA
SNA
TCP/IP
LU0
TCP/IP
LU0, ITOC
MUX
EXPERIAN
RPC
CRMS
IB
(KAB)
HTTP
ODBC
HTTP
DW
ODBC
ODBC
ODBC
ALLTEL
(Holiday)
ALLTEL
SNA
SNA
LU6..2
e*Gate (LPC, CallCenter, DW/CRM)
LU6.2
MUX
MUX
MUX
MUX
TCP/IP R/R
TCP/IP R/R
TCP/IP R/R
TCP/IP R/R
TCP/IP R/R
SellStation
Web Server
CRM
Web Server
LPC
Web Server
CallCenter
Web Server
SMS
Server
(2002.12)
Branch
Client
CSC
Client
Client
Client
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24
Korean Bank Example
You must know how to build new Architecture Vision - Newly developed Korean Bank’s IT
architecture will allow more consistent and leveraged approach for new technology adoption
resulting in cost saving from the leverage
Customer Centric Bank Operation
“Most Profitable Bank in Korea”
Core
Banking
Credit
Cards
Internet
Banking
Credit
Scoring
System
Call
Center
CRM
New
Delivery
Channel
Financial
Reporting
System
HR
System
Business Architecture
New
Call
CRM
Delivery
Center
Channel
Information
Architecture
Application Architecture
Infrastructure Architecture
Legacy Transformation
Middleware - EAI
Newly structured OLTP/MIS
Infrastructure Refresh
Consistent Office Environment
Existing Brick & Mortar Operation
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25
Human Resource Issue
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26
Korean Bank Example
In 2000, about 60% of staffs were assigned to application development team, but more
than 60% of application development resources were working on maintenance and fixing
bugs from previous works
Focus of IT Resources
Administration
7%
Focus of IT Resources(2)
Application Development &
Maintenance
Systems
Management
Development
Application Maintenance
28%
40%
60%
60%
5%
New Systems
Reasons for excessive maintenance work
• IT projects are not managed properly. Specially no
QA(Quality Assurance) process are being used.
Total of 251 staff(First Data 80 included)
• Usually an IT project is driven by dates
• New business directions to pursue retail banking required
many changes in the existing products and new products
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Note:
(1) IT organization as of 30 June 2000
• Project plan does not cover every deliverables which must be
27
a part of the rollout(People’s mindset)
Korean Bank Example
Then, more than 59% of IT are classified as a manager(above Guajang) and only 41% of
IT are working level staffs. Therefore, another 31% of resources to fill the gap is provided
by First Data Systems
IT Staffs
100
Number
80
60
40
20
0
G.M.
D.G.M. S.A.G.M. A.G.M.
S.Clerk
Clerk
First
D.S.
Title
“Too many chiefs, Not
enough Indians”
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Too much dependency on
First Data Systems
resources - Major threat
to Korean Bank
employees
28
What about the skill set? The study shows the Korean Bank needs skill sets mixed of new
technologies and current technologies(interestingly 60%) to support its transformation
strategy
Required skills(KFB/ISD)
PL/I 16%
Windows NT or
2000
3%
IMS DB
15%
Unix MP-RAS Basic
3%
Teradata Basic &
SQL
3%
JAVA CAP
8%
4%
MVS
10%
DB2
15%
Legacy System
Technology(67%)
New Technology
(33%)
With all these issues, what are
the solutions to the problems?
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29
We must transform IT resources from maintenance to more strategic
development - Korean Bank must utilize its resources more efficiently
old’s Allocation
Vision for Future Allocation
Recruiting
Development
Development
Training
Maintenance
Maintenance
Outsourcing
New
Legacy
Technology
New
Legacy Technology
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30
With all these impedance IT department has, Korean Bank’s business transformation is
outpacing IT’s ability to provide timely support
Overall Business Performance
Desired
Position
Bank’s Vision
Execution Gap
Value creating IT
organization
Systems Plan
Fragmented Legacy
Financial Systems
Current
Capabilities
Information Systems Capabilities
Newly
developed
Application
Portfolio
“How are we currently planning to do to fill the execution gap?”
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31
In summary, the KFB needs to resolve its HR issues immediately
Recommended solutions to KFB/IT
• Prioritize IT projects rigorously to utilize KFB/IT resources the
most efficient way – based on the business values
Problems in utilizing ISD resources
 Too many chiefs, not enough
indians
 Over 40 years old staffs with
legacy skills only – 50% of
total staffs
 Mentality of “Everything must
be done in-house”
 No incentive for the good
performance
 Shortage of skills needed in the
strategic areas – “Loan”
• Rotate middle level staffs or transfer them to different to
business units
• Consolidate similar functional teams – e.g. server management
• Packaged applications need to be considered over in-house
development
• Conduct 3-5 years of resources planning
• Separate production support from development group
• Separate business skills (BA, PM) from IT skills (TA, TEG,etc)
• Create pool of resources for the applications development
• Adopt IT career development program for IT staffs and
continue IT training to support individuals career goals
• Aggressively outsource non-value IT services areas
• Utilize First Data Systems resources as an interim solution
• Provide training to IT staffs and adopt performance based
compensation systems
KFB will be able to shift its resources to the more
value-added services from legacy systems works
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32
KFB Story
KFB IT Transformation
IT Supports Business Strategy
IT Creates New Capabilities and Roles
Value
Creating
Business Value
Proactive
• IT Strategy Planning Roadmap
(“ISP Roadmap”)
• Project Portfolio Creation(SS,
CMM, PMO, Middleware, Call
Centre/CRM, ATMs, Loan
Servicing and Document
Imaging)
KFB’s IT inability to absorb change quickly • Infrastructure Containment
IT skill set remains legacy focused
Fragmented disparate systems increase cost of operations
KFB business units bridge gap w/ additional staff
Additional capital will be necessary to refresh IT
•
•
•
•
Execution of Project Portfolio
Effective IT resource leverage
Future Products
New Customer Interfaces
• Rapid development of new initiatives
• Best-in-class products and services
• Synchronized IT and Business
strategy
Reactive
•
•
•
•
•
Aligning Business Strategy with Technology
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33
Korean Bank Example
2000 Korean Bank Applications Portfolio - Most of the Korean Bank
applications were low in quality of business functionality and technical
functionality
100
Functional Quality
A
A Meeting functional requirements
- costly to maintain technically
- can be improved
D
75
50
B Poor technical and functional quality
- candidates for replacement
C Meeting technical quality
- functional quality improvements
needed
Internet
B
Banking
C
25
D Excellent functional and technical
quality
- efficient
- easy to maintain
- target for high importance systems
Core Banking
MIS
TeleBanking
ATM
25
50
75
100
Technical Quality
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34
Korean Bank Example
New Korean Bank Applications Portfolio - Most of the newly developed
applications have high quality in business and technical functionality
CRMS.
SellStation
CRM
Internet Banking.
100
D
A
Functional Quality
A Meeting functional requirements
- costly to maintain technically
- can be improved
75
B Poor technical and functional quality
- candidates for replacement
C Meeting technical quality
- functional quality improvements
needed
50
25
B
C
D Excellent functional and technical
quality
- efficient
- easy to maintain
- target for high importance systems
Data Mining
25
50
75
100
Legacy Systems
Technical Quality
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35
A Solution that Korea First bank chose:
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36
Korean Bank Example
Korean First Bank realized the importance of the relationship between business and IT
• Better manage the relationship between IT and business
• Bank wide PMO (Project Management Office) to manage all the IT related projects in the
bank.
• Every executives including CEO’s participation in monthly major IT projects status update
meeting
• BA and PM teams are created to be professional BA and PMs.
• CMM level 3 was achieved in October 2004.
Korean First Bank IT established processes to discuss all the IT
projects related issue with every pertinent parties including CEO
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37
KFB Story
KFB IT Transformation Journey started in 2000 – first things first
 Delivery Channels Enhancement - Internet Banking, ATMs, Call Center, Tele Marketing, etc
 Products Diversification – Mortgage, Credit Cards, Templeton Product, Revolving Loan, etc
 Process Improvement – Centralized Loan Processing Center, Collection, Customer Service Center,
HRMS, Branch Reconfiguration Project, New Audit Policy
 US Standard Accounting Practice – MRS, ABS, ALM
 Risk Management Introduction – CRMS, Models Based Consumers Risk Management
All of these must be done quickly while the operation of the bank continues
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38
Korean Bank Example
Recommended Road Map for IT Organization Transformation
Phase 3: World Class IT
Phase 2: Develop Capability
Phase 1: Stop the bleeding
Korean Bank
2000

Process Oriented Organization

Adopt SEI/CMM as a model

Develop/Hire/Alliance newly
required skills

Current IT Inventory Analysis

Establish PMO Office


Assign Business Relationship
Manager(COO/CFO/CCO/CBO)
Enterprise wide Technological
Directions

Performance based Organization

Organizational Change

Agree on the priority of Business
Initiatives

Reduce Non Value added work

Focus on Strategic Value added
activities

Industry Agenda setting IT
operations

Achieve CMM Level 5
Strategic IT capabilities
Second to None
Build new capabilities portfolio
Implement the fundamentals
required to run IT organization
Korean Bank/IT needs to transform itself to be more flexible and nimble
organization to support its aggressive business strategy. The next question is “How
fast can we do it?”
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39
Acquisition in 2005 – story of integration
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40
Why acquisition? Mergers Free Up IT Spending. Is it real?
$ millions
130
20
Reinvest
in new IT
500
Conversion costs
Oversea branches
Buyer pressure on suppliers
Best of breed common apps.
Group data centers/networks solutions
SCB
KFB
Yes, Expected cost saving of banks merger is happening at SCFB
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41
You must know how to create a common vision acceptable by SCB & KFB
The Vision (Blueprint)
Infrastructure
Core Business
Applications
Foundation
Construction Projects
GROW
Platinum
Wholesale - DLP
?
Planning
Under
Construction
I
CBE
DLPAS/400 (Cobol,
GROW
Microfocus, Synon)
Platinum UNIX/Databus
Wholesale II Datapoint
AS/400 (Cobol Microfocus,
Synon)
Whole
FoxPro - UNIX/Databus
Sale
Datapoint
AS/400 (Cobol Microfocus, Cobol II,
Synon)
FoxPro - Clipper - UNIX/Databus Datapoint
Wholesale II
DLP
Grow Expansion
Sequel Platinum
GROW
DLP, Wholesale II
Wholesale
Rewrite
Today
GMAC-I
Systems
Strategic IT
Plans
1994EDS
1997
World
Class
Strategic
Consistent
Core Business
Applications
The Future
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42
Point of Departure – Quick turnaround of KFB to support SCB’s business goals
 KFB has completed most of business process restructuring initiatives such as, centralization of underwriting /collection
process, adoption of new CRM process, establishment of Decision Science capability
 KFB staffs has been through a largest transformation in its history from the old way of doing banking to new way of
banking business. This includes centralization of underwriting processes, separation of sales roles from the teller functions
and centralization of all the required document storage functions, etc
 KFB staffs also felt that tight risk management and some bank policies was leading them to lose many business
opportunities and their outcry for changes was ignored by management team
 Merger with SCB is a big challenge to KFB mentally since it has been a predominantly domestic bank for 75 years of
history. Now it continues to do business in Korea and also to be a part of SCB member bank
 SCB management team is expecting to grow KFB business in Wholesale banking, Consumer Banking and Global market
area where fiercest competition between korean banks exist today
 SCB wants to offer products linking to its global network
 SCB wants to distribute all advanced solutions KFB currently using to other SCB operating countries where it makes
sense
 In the mean time, KFB has to adopt SCB’s global policy and practices
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43
Point of Departure – Quick turnaround of KFB/IT to support SCB’s business goals
 KFB/IT has completed the largest transformation initiatives in its history. During last 5 years, it revamped its
infrastructure completely to support newly defined business strategy
 For that, KFB/IT has been utilizing EAI (Enterprise Application Integrator) technology to develop new products and
services fast to the market and this will shorten SCB’s products introduction time significantly.
 KFB/IT strategy has been a bench mark target amongst Korean banks since it brought very cost efficient IT solutions to
KFB
 There seems some expectation gap exist between SCB and KFB on BCP. KFB’s BCP was firstly built amongst korean
banks and it satisfied every requirements of korean regulators but it fell short to meet SCB’s BCP requirements.
 SCB wants to transfer KFB’s advanced technology solutions like mobile banking, internet banking, TV banking, IC Chip
operation, etc to other countries where it makes sense.
 SCB currently operates several core banking systems, running on a variety of technology platforms and it has a road map
to rollout a common core banking architecture. But is it right timing for KFB?
 SCB’s 4 tier architecture model: Channel Delivery for Multi channel distribution, Sales and Services for Market place
differentiation, Transaction Processing for Operational quality and Enterprise Processing for Management excellence
Prioritization of requested projects and PM capability will be critical success factors!!!
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44
Why is it so difficult? – Understanding the unique history of korean banking industry will
be helpful before we jump to a conclusion.
Korean banking industry is at least 10 years behind western banks in terms of IT management. Examples:
Outsourcing, enterprise architecture planning, and adoption of new technologies were not actively pursued
in Korea. Why?
Korean banking industry adopted the Japanese IT management style where core banking systems must
provide all services to run a bank, whereas, Western banks choose the best package solution to support the
bank strategy that brings the highest revenue for the bank. Centralized systems services vs. distributed
systems services
As a result of this Japanese management style, the IT department assumes that everything must be done
and managed in-house, cutting themselves off in a closed environment to the outside world. The labor
union often resorts to using IT as a deal breaker whenever there is a big dispute with management
Therefore, IT became a black box and headache to the CEOs of Korean banks, frustrated with the lack of
results from huge investment on new systems development each year
SCFB led the industry with the first transformation (IT infrastructure refresh) of IT and it is ready to
tackle the second transformation of IT with HR issues, cost containment, etc.
SCFB must know the cost structure of running IT operation better and create a plan to
improve its high cost and low efficiency cost structure
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45
Point of Departure – SCB should know about KFB’s culture
 IMF syndrome – Video Tape of Tear
 KFB pride – 75 years of history
 NB mistakes
 ignore local culture - account maintenance fee, lack of understanding on korean customers banking need
 lack of trust issue: advertisement (foreign company), no advertisement link to PR
 lack of KFB’s staffs participation in the planning stage (Pro-Branch project)
 promote people who speak English, no simultaneous English translator was provided at first
 poor government relationship, no executives’ direct contact to korean news media, no HR changes
 Unique korean characters: They want to know everything in detail. Thirst for vision and goals
 Strong Execution Capability – ex. Mortgage Loan Growth- shinbaram fever like world cup fever
 Hiddink Leadership – vision, tough training, selection of talented players, ignore local influence, 100% ready preparation,
shinbaram
If you convince your vision, the team will make it happen!
 Skin ship works: Critical component to lead korean company – Pocktanjoo is a must!
 Union strategy: skinship works
 Hindrance (or opportunities) – HR, union, generalist, Local vs foreigner mentality
 Unfamiliar with Matrix organization structure
 Very strict hierarchy and many layers – more managers than workers
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46
First question - After KFB shifted its focus from Corporate Banking to Retail Banking and others to
minimize the risks, SCB wants to grow its business by adding product capability and distribution
models
Personal Loans
Cross Selling
Retail
Banking
Corporate
Banking
Credit Cards
Retail
Banking
Others
Corporate
Banking

New management strategy – grow business and profit

SCB’s global network will be a huge selling point

“Can-Do” attitude is a must for everyone.

Time to market is the most critical success factor

Integration will be a challenge for SCB due to size

Stable operation is critical

IT will become an enabler to the changes required
Global Markets
Trade, Cash and
Global market products
In order to differentiate from the our competition, we have to shift gear fast
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47
Second question - Industry deconstruction is creating an environment in which
banks have specialized in roles across the value chain
Paths of Progression
Enterprise
Optimized
Adaptive
Business Model
Enterprisewide
Reconstruction
Enterprise reconstruction is breaking
down siloed processes into core
components that can be more easily
shared across the bank
Process
Optimized
Preliminary
Deconstruction
Industry
Networks
Industry deconstruction is the specialization
Industry
of enterprises in assuming particular roles of
Deconstruction the value chain
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48
Recap of what’s happening in industry - Deconstruction of Industries and the Enterprise
What are the Attributes of The New Environment?
 Partial deconstruction  Seamless and dynamic
with hardwired links
links between
between firms
enterprises
Process
Optimized
 Best of breed
components used
across enterprises
 Components shared
extensively across
business lines within
enterprise
Business
Unit
Optimized
Enterprise
Deconstruction
Enterprise
Optimized
 Widespread vertical
integration
 Each business line
owns and operates
specialized processes
using proprietary
technology
Vertically
Integrated
Preliminary
Deconstruction
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Industry
Networks
Industry Deconstruction
49
Third question - Industry trends – gradual channel transformation to e-channels
- Internet banking shares keep growing.
•Internet Banking portion is keeping higher than ATM’s after 4Q ’03.
- 2004 automation rate plan (80%) was accomplished on June ’04.
(Unit: Transaction, %)
40%
37.6%
34.3%
37.9%
30%
20%
29.7%
27.4%
25.4%
18.4%
27.6%
16.8%
30.6%
28.9%
24.5%
24.4%
20.0%
17.0%
16.2%
33.4%
33.4% 31.6%
23.4%
15.7%
31.7%
22.9%
16.4%
16.7%
29.8%
20.2%
CD/ATM
Teller
6-02
9-02
12-02
Tele
3-03
19.3%
20.0%
16.6%
16.6%
15.7%
10%
0%
34.4%
29.8% 29.6%
29.6%
22.1%
23.1%
34.7%
16.6%
Internet
6-03
9-03
12-03
3-04
6-04
9-04
Channel migration is for cost saving
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50
Relationship
Manager
Phone
Reps
Branch
Call
Center
PaperBased
High Touch
Kiosk
Internet
High Touch
Cost per Transaction (US $)
$5.00
$4.00
$4.05
$3.35
$3.00
$2.30
$2.00
$1.40
$1.00
$0.40
$0.25
$0.20
$0.00
Branch Platform
Call Center Agent
ATM
Internet Banking
Back Office
Branch Teller
IVR
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51
Fourth question - Industry trends - Dealing with Risk after 911 accident
• Security Risk
– High-level threat on the Internet
– Terrorists don’t want to hurt the Internet
– they want to use it!
• Basel II
– A risky strategy?
• Credit Risk
– “Bankruptcy” hits hard in Korea
– Credit Cards crisis
– SME loans delinquency
–
Personal debt increase
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52
Fifth question – Recent financial crisis – A bnak’s recent share price
June 07
ABN Bid sweetened
with £2.4bn equity
raised (330m shares
at 720p each) to CDB
& Temasek
£p
800
700
600
Mar 07
ABN Bid
announced
500
July 08
£3.7bn equity issued
(1.3bn shares at c.
282p to Qatar /
institutional investors)
Oct 07
RBS wins
ABN bid
400
Oct 08
£7.3bn to be
raised from Qatar
and Sheikh
Mansour (4.3bn
shares at c. 170p)
July 08
Announces sale of
Barclays Life to Swiss Re
100
May 08
Mar 08
Jan 08
Nov 07
Sep 07
Jul 07
May 07
Mar 07
Jan 07
0
Sept 08
Lehman US acquired for £1.5bn
(funded partly by £0.7bn of equity
(226m shares at 320p)
Nov 08
July 08
Completes
acquisition of
Expobank, Russia
Sep 08
200
Jul 08
300
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53
Prioritization Criteria – Development/implementation projects to be done in 2005
 Priority 1: IT’s Integration Tasks – must be done to meet SCB requirements or as a part of basic infrastructure
Email system Integration, Network Integration, DR2&3
 Priority 2: Revenue Generating Initiatives by Cross Selling – Should be done in 3-6 months
Unsecured Loan, Mortgage Loan, T/F
Delivery Channel Expansion
 Priority 3: Revenue Impacting Initiatives – Should be done by the end of 2005
Credit Cards, CMA, Trade Finance, Global Market Products, CRM
 Priority 4: Operation Efficiency Improvement Initiatives – Should be done within 2006
Tandem De-mission Project, Server Consolidation
Finance and HR systems Integration
 Priority 5: IT’s Integration Tasks – nice to have for 2007
Core Banking strategy, Other applications
Note: Within Priorities, fill up blanks in the application portfolio with what’s available first. Then if KFB and SCB both have
same application, conduct best of breed selection process. If both do not have it, develop/purchase based on SCB’s
business priorities
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54
Given all that, the following questions will help us create a strategy for the next 5 years of
KFB/IT
Should we expand (invest) or maintain?
Is the current infrastructure prepared to support future challenges? Yes, but…
Basel II, Bancasurance, Innovative Financial Products, etc.
Should we finish the Legacy Restructuring Project? Yes
18B and 20% of IT resources (including KFDS) will be used for next 2 years
If, SCFB decide not to do it, what cost of not doing it?
More production errors from legacy code, slow to market, etc
What are the future roles for the SCFB/IT?
Is IT transformation necessary to upgrade to the next level? Yes
What role must KFDS play in doing so?
What benefits SCFB/KFDS employees would have from this transformation?
How to control IT expenses for the next 5 years?
Is there any possibility of getting back returns from last 4 years of investment?
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55
KFB Story
Since 2000, with a strong focus on cost/performance and time to market, KFB/IT came a
long way to improve its performance
2000's KFB IT
Curve
High

Mid-long Term
improvements
IT Cost
Index
Short Term
improvements

C0
C1
Low

2002’s KFB IT
Curve
Cost
Performance
2000's IT
Performance
Threshold
Today’s IT
Performance
Threshold
2004’s KFB IT
Curve
2004’s IT
Performance
Threshold
IT Performance
High
Index
Improve2000's IT performance through better use of existing resources, Reduce legacy systems developments and increase new systems
development, Better communication w/ business - about 20% productivity increase during 2000 - 2002
Low



Employ better project management methodologies, Select package solutions for higher ROI, Utilize third party skilled resources,
Adopt EAI strategy to simplify interfaces, Centralization of branch back office functions
Achieve higher theoretical IT performance threshold (branch efficiency ratio, fast to market thru EAI), Consolidation of servers,
Restructuring of IT organization, Adopt CMM methodologies, IT staffs training
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56
Point of Departure – IT Cost structure what’s after 4 years of huge investment on IT
 The IT transformation between 2000 and 2004 was costly for KFB, although it still spent the least when compared to
other Korean banks. The capital budget (FCST) of 2004 is 67.4B, previously 26B in 2000, and 2004 operating expenses
has grown to 39B from 8B in 2000. It was mainly to support many new development projects and the maintenance fee
for the newly implemented HW/SW.
 Projects like BCP, which improve serviceability during a disaster strike, will cost an additional 5B in 2005 (and 7B,
thereafter) and the Sysplex project, which provides error-free mainframe transaction processing power, will cost 0.8B
annually. It’s never done in Korea but it must be done as a regulatory requirements
 The current IT staffing scheme is a high cost, low efficiency structure. 43% of IT resources are consumed in maintenance
work rather than more strategic development work. Why focus so much on upkeep? 20-year-old code with lots of patches
calls for extensive attention in coding and testing.
 SCFB can’t afford another major IT investment like 4 years ago due to its business size. Scale of economy must be
pursued to justify further investment in IT.
 Fortunately, other Korean banks’ IT cost efficiency are not that great for now. But once they overcome the cost
inefficiency problem, SCFB may drop out of the IT investment race due to its scale of economy.
Therefore, the SCFB must resolve the High cost/Low efficiency IT structure by being an
adaptive organization. How are we solving this structural problem?
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57
Korean Bank Example
Recommended Road Map for IT Organization Transformation
Phase 3: World Class IT
Phase 2: Develop Capability
Phase 1: Jump Start

Best of breed –Applications

PMO process Integration

Align Organizational to SCB’s

Agree on the priority of Business
Initiatives
Korean Bank
2005

Continue CMMI journey

Adopt SCB’s Enterprise wide
Technological Directions

Reduce Non Value added work

Focus on Strategic Value added
activities

Industry Agenda setting IT
operations
Strategic IT capabilities
Second to None
Build new capabilities portfolio
Implement the fundamentals
required to run IT organization
SCFB/T&O needs to transform itself to be more flexible and nimble organization to
support its aggressive business strategy. The next question is “How fast can we do
it?”
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58
Solution criteria
Best way of utilizing IT resources must be found – whether in SCFB or in KFDS
Turning competition into win-win atmosphere
KFDS must be explored to achieve maximum benefits for SCFB
Last 4 years of investment can be capitalized thru KFDS
KFDS itself can be a very interesting M&A target thru the effort
IT cost must be controlled, cutting 10% every year from the basis of 2004 budget
Typical outsourcing arrangement can save 10-15% of cost saving which can be our benchmark target
SCFB’s next 5 years business strategy must be supported
ROI (Returns on investment) must be justifiable
New IT plan should be executable upon approval from shareholders
Let’s see how we want to solve the problems……
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59
Initiatives…
Adaptive organization – how we want to be flexible and capable organization
IT cost structure study – provide basis for the cost comparison with our competitors
KFDS restructuring project – Capitalize KFB’s projects experience
SCFB/IT restructuring project – Voluntary employees rotation program
This initiative requires strict control on the strategy since it is a very sensitive…
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60
Executive Summary – T&O will contribute almost $63M from cost savings by year 2010
which will be 12% of the total cost for three years
Plan
180
160
140
120
100
80
60
40
20
0
2005
Forecast
2006
(Unit:Million)
2007
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61
Technology Cost Savings Projection – SCFB’s Technology will save almost $50M by the
end of 2007 which is 14% of total technology cost for three years
Plan
Forecast
Unit : Million
140
120
More than a half of
technology cost is
a depreciation which
was from the last
three years of major
investment. How to
reduce depreciation
is a key driver
100
80
60
40
20
0
2005
2006
2007
Note: Plan is an estimated budget with normal growth ratio
FCST is an estimated budget with no major investment in 2006 and 2007
•Other departmental technology cost projection was not included in this chart due to no plan for 2006 given to T&O
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62
Operation Cost Savings Projection – SCFB’s Operation will save almost $13M by the end
of 2007 which will be 9.2% of total operation cost for three years
Plan
Forecast
Unit : Million
60
50
40
30
20
10
0
2005
2006
2007
Note: Plan is an estimated budget without CSC relocation
FCST is an estimated budget with CSC relocation and in-sourcing of maintenance contract
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63
Operation Cost Savings Details – CSC relocation, in-sourcing of CSC maintenance
contract and VoIP will be the main drivers of $13M cost saving by 2007
(Unit:Million)
60
Depreciation
50
Others
40
Other Fee for SV C
30
Tele-communication
Computer SV C
20
Premis es
10
0
Staff Cos t
2005
2006
2007
Note: More than a half of operation cost is staff cost which means we have to replace high paying job
with contractors to reduce the operation cost
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64
What’s more to
prepare for the
future...
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65
Congratulations!
CMM - Continuing Improvement
Korea
First Bank
Level 5
Level 4
Level 3
Level 1
20 January 2003
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66
Long-term KFB/CMM Roadmap
within 2 years after CMM Level 3 achievement
Future Goal
Goal in 2003
5.Optimizing
Focus on process
improvement
4. Managed
Process measured and
controlled
3. Defined
Process characterized, fairly
well understood
Managing
Change
Product and
Process Quality
2. Repeatable
Integrated
Can repeat previously mastered
Engineering
tasks
Process
1. Initial
Unpredictable and
poorly controlled
Project
Management
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67
Disaster Recovery Capability Issue
What will happen if there is a disaster in Seoul?
First question SCB asked!!!
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68
Disaster Recovery Plan (same as BCP Plan)
HIT
Backup
IT
HQ
KFB-Net
CSC
CCD
(Seoul/Busan)
(Jeil Br.)
VPN (INTERNET)
Branches
ECC
MRT
MRT
(Jeil Br.)
(Boarding House)
(Training Center)
HQ-Backup
▣ VPN network will be used in case KFB-NET stop functioning as well as IT center & H.Q. disasters
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69
BCP Architecture – Disaster free IT services
RMDS
Triach
International
Networks
• Dedicated
International
Alternate Site
Network Terminals
• Accounting
• MIS
• FX Dealing
• e-Banking (#1)
• SIMS
• CRMS
• DW/CRM/TIS
• EDI
• EAI
• First Office
• Human
Resources(DR)
• Experian
Bloomberg
• International
Network Terminals
• FX Dealing (DR)
• SIMS(DR)
Head Quarters • First Office (DR)
• Human Resources
IT Center
DRC
IDC
IDC
• e-Banking
(#3)
• e-Banking (#2)
Internet Networks
Customer
Customer
Seoul CSC
• Accounting (DR)
• MIS (DR)
• CRMS (DR)
• DW/CRM/TIS (DR)
• EDI (DR)
• EAI (DR)
• NAMS(DR)
• Recording Systems
(DR)
• Experian(DR)
Pusan CSC
• CSC
• CSC
Card Business
※ DRS : Disaster Recovery Systems
IDC : Internet Data Center
DRC : Disaster Recovery Center
• NAMS
• Recording
Systems
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70
Not only we can have a disaster, but also we can have a major system breakdown…
Sysplex solution – Error free IT operation Customer
Ledger(CL)1
(DB)
CL2
(DB)
CL
(DB)
Share Data
Single system provide
Image
Error
Branch
Terminal
(NETWORK)
System2
Branch
Terminal
(NETWORK)
<Current System>
Operation Stop in case of
System1
Error - Do not copy or distribute
Confidential
Information
Error
System2
System3
Diversify
Process
Branch
Terminal
(NETWORK)
<Parallel Sysplex>
Automatically Diversify to System 2
and 3 when Error in System 1
71
SCFB BCP System Diagram
Business
IT
CSC
IT
Center
Seoul
CSC
Branch
Disaster
Main
H. O
③
①
Alternate
BCP
Center
②
④
②④
②④
IT DR
Center
②④
Branch
Bus an
CSC
Confidential Information - Do not copy or distribute
72
BCP Center Tour
Confidential Information - Do not copy or distribute
73
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74
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75
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76
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77
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78
BCP IT DR Center



SCFB as the First ever BCP-Enabled bank in Korea !
Model for other financial institutions in Korea to follow
Not only improve the confidence of vested interest groups,
but also upgrade the corporate image of SCFB as a Forwardthinking bank !
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79
Summary
Summary
 The financial services industry is transforming at a rate and scale that crosses
traditional industry lines
 Where and how one institution competes will be very much different in the next five
to 10 years.
 Institutions of all sizes must re-evaluate their strategic alternatives to find new
sources of differentiation.
 Value is what is important: Process, quality, and work ethic are must…
 At SCFB, IT Transformation is the launching pad to reach to the next level
 Tactical and modular approach is a winning strategy that should be used by financial
institutions both big and small
 Banker’s hours are gone… the continuous days of the financial services merchant
has come
 Then, fasten your seat belt and enjoy the ride.
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80
Thanks
and Have a Great Day!
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81
“I Never Said That. I Said
Banks’ Systems are Dinosaurs.”
- Bill Gates, c. 1997, after a discussion with his marketing department.
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82
Question?
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83