global platform replacement: practice, issues and recommendations an ibm white paper by simon...

Thought Leadership White PaperIBM Transaction Banking June 2013

Global platform replacement: practice, issues and recommendations

2 Global platform replacement: practice, issues and recommendations

Executive summaryGlobalised organisations, both financial and industrial, are facing the problem of modernising ageing and fragmented IT platforms at a time when globalisation has a direct influence on customer and regulatory demands, making this an even tougher challenge to overcome.

This paper, based on fresh IBM research, examines how such organisations are tackling the problem when the only viable way forward is replacement. It covers both the architectural choices they make and the long-term implications that result.

We found the following from our research:

• The investment and time required to make a successful programme is substantial and often underestimated.

• The costs outweigh the business case, bringing a challenge to any organisation that wants to undertake them.

• There is no dominant pattern of design thinking, organisational engagement or programme execution.

• Some organisations have found it too difficult to deliver a replacement programme in full.

However, from the research we are able to do the following:

• Propose a set of prerequisites that significantly increase the chances of delivering a successful project.

• Identify a set of challenges for the industry to overcome in order to realise the benefits from the investment.

IntroductionRetail and corporate banks were some of the first and most enthusiastic adopters of computing systems in the latter half of the twentieth century. The architecture and implementation of systems running the core operations of most major banks can be traced back to then. Since these initial implementations, their maintenance and enhancement represent huge investments and the embodiment of vast amounts of organisational knowledge.

These banks are now facing unprecedented pressure to change, from organisational costs, constantly growing regulatory demands, rapid evolution of technology within host system environments, ‘24/7 anywhere’ access to services and customers demanding improved service and information.

Many organisations are considering how to respond to this pressure, and for some, renovation and componentisation of the current systems are judged to be the best ways forward. For others, the radical step of core system replacement appears to be the only way forward.

Given the size and complexity of the challenge, IBM has conducted research to establish how best to set up such core system replacement projects successfully.

This paper is particularly directed towards IT and business executives whose organisations have chosen replacement. In the context of the financial services industry, this chiefly means Tier 1 banks with a global presence.

It examines how they, as well as global players in other industries, are responding to the challenge of replacing their existing global platforms. For the majority of such organisations, this represents the first attempt to replace legacy platforms that have evolved over the last 30 years. It addresses the following questions:

• What are banks and other major global organisations doing, and why?

• Are the large budgets and long timescales really necessary? • Which approaches are most successful and where are

organisations struggling? • What can be done to increase the chances of success?

Contents

2 Executive summary

2 Introduction

3 Research approach

4 Discussion

9 Understanding the challenge

10 Recommendations

11 Authors

Transaction Banking 3

Research approach The sample was drawn from ten different organisations, eight of which are financial institutions. In all, 14 different replacement programmes were considered.

The information used to prepare this paper was gathered from qualitative interviews with key IBM experts engaged with our clients on core systems replacement programmes, in order to understand what the current best practice is for global platform replacement.

While the majority of the programmes researched are global core banking solutions, we also interviewed IBM people who were engaged on platform replacement programmes with telecoms and industrial companies, to provide comparative perspectives.

Summary of key findings The delivery of a global service is not a big driver for core system replacement.

Cost and risk management far outweigh revenue growth ambitions in the objectives for a global platform replacement programme.

Providing a single global solution to meet the needs of an organisation’s global clients was a consideration only for one organisation we talked to that had attempted a global platform replacement programme.

Replacement of global core systems takes a long time and is very expensive.

In spite of our aim to uncover and share best practice on delivering these programmes more quickly and at lower cost, we found that significant underestimation is endemic, with programmes typically taking twice as long and costing twice as much as originally expected.

Our research suggests that organisations intending to replace their global core platforms should expect a programme that will require the following:

• Very large investment, measured in hundreds of millions of dollars.

• A significant amount of time, usually at least a decade. • Very considerable management effort with sustained

board sponsorship.

Full organisational alignment with a programme is critical to its chances of delivering successfully.

The investment required for a global core platform replacement means that it needs to be considered as a business problem, not an IT problem.

The single most common characteristic across all successful programmes is very strong business sponsorship and a willingness to be patient and keep paying the bills.

There is no dominant architecture, but a strong architectural approach is a prominent and enduring feature of successful programmes.

We identified no single architecture for a global system replacement that appears to offer a higher assurance of success, as well as no obvious vendor solution and no dominant implementation style.

However, successful programmes implemented solutions that are closely aligned with the business case and made them work through strong architectural governance.

Outstanding challenges: our viewIn developing this paper, we have identified a set of outstanding challenges that the industry still needs to address in order to fully benefit from the investment that has to be made.

There is a mismatch between time being taken and business needs.

Programmes that take at least a decade to complete do not appear to be a viable strategy for global core platform replacement. This is because the organisation commissions the programme to address some fundamental issues which can’t wait that long.

Architectures are replicating current design limitations.

The solutions global organisations are building share some of the same characteristics as current solutions and could take a decade or more to replace in the future.


The needs of globalised customers are not being addressed.

Constraints in the approaches taken and the solutions available mean that global organisations are not tackling the needs of their customers who have commercial interests in the world’s key trading geographies.

Difference, rather than synergy, is driving solution design.

More focus is being put on managing functional differences between geographies rather than exploiting synergies from their similarities.

We have concluded that without a major rethink of prevailing practice and approach, there is a very real risk that some major financial institutions and global organisations from other sectors will find global platform replacement to be insurmountable and find themselves unable to accomplish something centrally important to their future success.

Discussion How did organisations get here?

The number of different ways organisations have arrived at their current global platforms is as varied as the number of organisations we have looked at.

However, three patterns dominate the list, and every organisation in our sample fits into at least a combination of the three:

• Acquisition-led consolidation: Organisations that have addressed global expansion through acquisition have gained a new set of systems with each acquisition; in many cases they have gained multiple new systems. Those that have been aggressive about consolidation now have multiple instances of a core solution, and those that have been less aggressive have the added challenge of consolidation into their global replacement programme.

• Platform extension: Many organisations have entered new geographies through the customisation and implementation of existing solutions. This may have been accomplished by the enhancement of a single code base or by introducing new branches of code.

• New solution: New solutions are implemented to support a new geography. This approach is adopted for one of two reasons: either because the cost and time required to amend existing solutions is seen as prohibitive, or because a new geography is seen as a potential pilot for a new solution.

Irrespective of the ways organisations arrived at the system landscape they have today, each global core replacement programme will require a combination of migration and consolidation.

Drivers and inhibitorsThe delivery of a global service is not the key driver for core system replacement.

When asked why their organisation was embarking on a global core platform replacement programme, delivering a platform that could provide global clients with a global service was identified as a driver for only one organisation.


However, these three answers were given significantly more often than others:

• Reduction in the cost and risk associated with running legacy platforms. With many of the platforms in question being over 30 years old, organisations are seeing accessing relevant skills as a significant concern.

• Supporting the standardisation of business operations. Organisations see standardising operational platforms as an opportunity to decrease costs by reducing duplication within operations and ‘smartsourcing’ common activities.

• The provision of a platform that will support growth. Organisations embark on platform replacement to remove constraints in current systems which inhibit the introduction of new products and entry into new markets.

A smaller number also cited compliance, governance, consolidation and the ability to implement a step change in capability as reasons to replace their core systems.

We suggest that the organisations may be resisting developing platforms for global customers for these reasons:

• A judgement that the commercial benefits of providing a common service to global customers will be outweighed by additional costs incurred in complying with regional and country-specific laws and regulations.

• A belief that information consolidation to provide global views can be achieved without the implementation of a common global platform.

• A perception that global customers are not demanding a global service and so they are not prepared to develop one, supported by a belief that continuing to use the current business model is a viable option.

We think that these judgements may prove to be misplaced due to the following reasons:

• As customers become more globally integrated, their needs will also globalise.

• Technology-enabled relationships between organisations and their clients are already transforming what each expects of the other.

• Innovation is now expected as the price of market participation.

Cost and timescalesReplacement of global core platforms takes a long time and is very expensive.

A driver for this research was a concern at ever-increasing estimates for the time these programmes will take. While we anticipated that it would be possible to identify best practices that could help organisations to deliver in a shorter timescale, the findings run counter to this, with successful programmes taking at least a decade.

We suggest that this is down to a mismatch in expectations between how complex a global platform replacement is when compared with platform extension or consolidation programmes with which an organisation may be more familiar.

Extending the Platform Footprint

Extending the use of an existing system to a greenfield client base in a new geography can be accomplished relatively quickly, particularly when the products to be sold already exist within the platform.

By contrast, replacement programmes are more difficult. Solutions need to be configured to meet the needs of an existing client base and product set. For an organisation that has already rolled out to multiple countries, the cost of meeting this need can be substantial.

Consolidating onto a single platform

Where expansion has been accomplished through takeover the migration from numerous different solutions to a single, existing platform is a common strategy. In this scenario each additional country is regarded as a separate project and organisations accept that a number of different countries will take a number of years.

By contrast organisations expect replacement programmes to be more straightforward as the consolidation has already taken place. This expectation can ignore the diversity of business rules can exist within a solution.


Replacement programmes require a blend of the two approaches. The replacement of incumbent systems requires global consolidation techniques to manage the business rules, supported by roll out activity that is consistent with programmes to extend the platform footprint.

Organisation Full organisational alignment with a programme is critical to its chances of delivering successfully.

We found that the single most common factor across all successful programmes is strong business sponsorship. IT-initiated programmes, even with the best intentions, do not succeed in programmes of this scale. We observed that it is the drive for a consistent business model that results in the ongoing support for a common IT system.

Successful programmes, we found, align their rollout plans with the organisation to which the solution will be rolled out. If the organisation responsible for the transformation did not have some authority over the countries where the solution was to be delivered, the programme was significantly more difficult to deliver.

• Countries or branches may believe that their needs won’t be met by a global platform and push for their own unique solution.

• Poorly-thought out chargeback mechanisms, where internal cross-charging for systems is not aligned with the system benefits, can discourage adoption.

• Poorly-aligned executive objectives. For example, a business unit accountable for its P&L may object to meeting costs of a new platform that it does not believe it needs.

Getting a new platform accepted requires a significant amount of work from the delivery organisation and this can be made impossible if the whole organisation is not behind the change.

Architecture and solution approach

There is no dominant architecture, but a strong architectural approach is a prominent feature of successful programmes.

Solution approach We found no solution that is more likely to result in a successful programme than any other.

• While package solutions are more common than bespoke developments, they do not appear to offer a greater chance of success than a bespoke development.

• Of the package solutions available, no single vendor solution appears to be dominant.

• No single implementation style appears to increase the likelihood of delivery.

Package Packages reduce the development required, which is attractive to many organisations. However, they also come with the following additional problems:

• Packages focus on the whole problem and require a considerable number of capabilities to be implemented in order to deliver a coherent solution.

• Packages introduce duplication with existing capability that needs to be managed; for example, in relation to customer files.

• Integration can be significantly more complex than for a bespoke development.

• The change lifecycle can be considerably longer for requirements which the package does not meet. Alternatively, the business might have to compromise on functionality.

Despite these disadvantages, organisations continue to view a bespoke approach as carrying significant risk.

VendorNo current vendor seems to have solved the issue of a global solution, either from a functional or non-functional perspective.

While progress is being made, it is difficult to identify a vendor package solution with the scalability required to support the largest organisations.


Implementation styleThe choices of architecture for the solutions we researched are shown in Figure 1 and Table 1 as four simple patterns.

We found that the solution choice in banks was driven by the way the organisation is structured and the will to pursue a specific course, rather than an analysis and understanding of the cost and benefits of a specific solution.

For example, it was apparent that forcing a single implementation upon a firm organised on geographic pillars was not likely to work.

Outside financial services, we found a trend where organisations attempt to implement a single global instance. While this is perhaps more difficult for a bank to achieve than firms in other industries, we expect that it is only a matter

of time before a bank develops and adheres to the architectural patterns required.

Two other interesting factors were also observed:

• Successful programmes focused on developing the architecture for the solution before the programme started and backed this up with strong architectural governance throughout.

• These programmes tended to replace old monolithic systems with new, slightly less monolithic systems.

While the newer systems were more modular and better at providing services, in most cases their eventual replacement will, in our view, require a programme of similar scale sooner than a highly modular solution architecture.

Easiest to implement

Highest TCO

Hardest to implement

Lowest TCO

Consolidation of regions onto a single instance

Single code base rolled out across regions

Base solution customised

by region

Unique solution in each

region

Most Solutions use a common code base

Least preferred Most preferred

Figure 1: Solution options


Pattern Characteristics Implications

Unique solution for each region A common pattern within the platforms which are being replaced. Often driven by an acquisition expansion strategy so each country or region implements its own specific solution. Regions and countries have significant autonomy over change.

No organisation has selected this as an implementation pattern.

Global services become difficult to deliver.

Commonality driven by ease of implementation.

Single source customised by region Another common pattern for platforms that are being replaced. Origins in expansion of an existing organisation. Same underlying application deployed but region-specific customisations mean that separate code bases are maintained.

Preferred by organisations that want to leave some regional autonomy.

Allows changes for one country to be decoupled, but drives up maintenance costs through duplicated effort.

Multiple implementations of a single code base

Rare in current solutions, but does exist where an organisation has had a single-minded focus on maintaining one solution.

Single code base is implemented in multiple regions/countries with code branched to support differences.

Change process constrained by the need to keep all in sync.

Integration becomes more straightforward, with a single source.

Testing becomes increasingly complex.

Single implementation We found no organisation starting from this position.

A single instance of a code base supporting regions and countries around the globe.

No financial services organisation is planning on a single instance implementation, though we are seeing examples in other industries.

Availability requirements of a global 24/7 solution are difficult to meet and the ability to manage the different business cycles, e.g. end-of-day processing makes it complicated.

Table 1: Solution options


Understanding the challenge We have concluded that without a major rethink of prevailing practice and approach, there is a very real risk that some major financial institutions will find global platform replacement to be an insurmoutable problem and may find themselves unable to accomplish something centrally important to their future success.

We found many factors preventing organisations from moving ahead with global core replacement programmes:

Cost and timescale The cost and timescale required to address global replacements is a significant concern. While some banks are succeeding, there are more examples of failure which leads us to question whether replacement is a viable approach across the financial services industry.

For banks that don’t believe an incremental approach will address their needs, the challenges of a replacement may mean they reach a stalemate. They have a set of things they believe they must do, but aren’t able to achieve.

Ten years is a long time to wait to deliver business benefits. While benefits can be delivered incrementally, these programmes are often set up to address fundamental issues that will not be fully solved until the programme is complete.

Inability to handle scale of change Current techniques for managing this level of change are pushing banks to implement solutions that have the same change-inhibiting characteristics as their existing solutions.

Instead, banks are implementing packages or core systems that provide a set of integrated capabilities that have to be delivered as a set. The capability spike that this requires stifles any ability to accelerate change.

Local market complexity The following other concerns are also deterring organisations from replacement:

• Different accounting practices • Consumer law and regulation • Different regulatory frameworks • Differences in market-side solutions, e.g., payment schemes

We believe that the tools to address these concerns exist and are already understood across the industry, but we have found no evidence that they are being properly used on replacement programmes.

While many existing packages support service-orientated architectures, these are not underpinned by the granularity of components that allows a truly component-based approach to the problem.


RecommendationsFrom the research undertaken, we are able to make a set of recommendations which should improve the likelihood of success with a global core platform replacement programme.

1. Modernise rather than replace

IBM recommends a modernisation approach to core platform migration, and our position is no different if the solution needs to be implemented globally. A modernisation approach that exploits the best of what exists and prioritises change on the weakest components should do the following:

• Allow benefits to be delivered earlier. • Mitigate the risk associated with waiting a long time for

the first implementation. • Facilitate future change by increasing the modularity

of the solution. • Allow a bank to be more responsive to changes in the

market and adjust the course of the programme.

2. If it is not possible to modernise and replacement is necessary, we recommend that organisations focus on getting these aspects right:

Business case

Establish a business case for the replacement programme that will stand the test of time. If the business case won’t survive delays or significant budget increases, it won’t be strong enough to outlive the project.

Make sure that the business case is incremental and realistic. Confidence in delivering against initial promises will make subsequent releases more viable.

Build and sustain business support across the globe

Business buy-in to the delivery plan and associated disruption is required across all countries. When you have defined a plan, you need to be able to stick to it without the fear of being derailed.

Sustain consistent board sponsorship

Board-level commitment is necessary for the investment and the timescales.

Architect for the future, not the past

Architect the solution for the future: don’t rebuild the bank or firm of 1980. New solutions need to be significantly easier to adapt and expand than the solutions they are replacing.

Identify which aspects of the solution must be global and challenge what needs to be local. Drive out the benefits to the solution and the delivery process that can be delivered through synergy.

Design for globalised customers

Make sure that the programme considers the impact on global clients and doesn’t leave the solution at risk of a gap in capability against the competition. It could be a long time before you get the opportunity to fill it.

Build a global platform

Consolidation programmes and rollout programmes tend to be more successful than replacement programmes. So, we suggest that you build a new platform and roll it out to bring other countries on board. The new platform should be architected as a global solution from the start and implemented and operational in at least one country before consolidation or rollout can start.


Authors

Simon Gregson Executive IT Architect IBM Global Business Services, UK and Ireland [email protected] +44 (0)7739 876210

Michael Davison Industry Solutions IBM Financial Services Sector, UK and Ireland [email protected] +44 (0)7715 161155

Simon Gregson is Executive IT Architect in the Banking practice of IBM Global Business Services, UK and Ireland. He has held the role of Chief Architect for two UK financial institutions and oversaw the technical transformation for Europe’s largest banking migration. He teaches Programme Architecture on the University of London’s Advanced Analysis and Design masters degree course. Within IBM, he specialises in the technical leadership and management of IBM’s largest financial services engagements and leads the development of payments architecture and financial markets solutions for clients.

Michael Davison leads the development of transaction banking solutions for IBM’s financial services sector, focused on core systems replacement and complex programme management, on which he tutors for IBM in the UK and Europe. He has worked on major change programmes in the UK’s leading banking groups over a 24-year period. He also leads IBM’s business model innovation research programme with the Cambridge Service Alliance, working in collaboration with Cambridge University, BAE Systems, Pearson and Caterpillar.

© Copyright IBM Corporation 2013

IBM United Kingdom Limited 76 Upper Ground South Bank London SE1 9PZ

Produced in the United Kingdom June 2013 All Rights Reserved

IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml

Other company, product and service names may be trademarks or service marks of others.

References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

Please Recycle

BKW03018-GBEN-00

http://http://www.ibm.com/legal/us/en/copytrade.shtml