Big fish

In the past decade, two words have characterised the financial services industry above all others – mergers and acquisitions. Driven by a dynamic and highly competitive industry, financial institutions have, and continue to, attain or merge with one another in order to either gain a stronger foothold in the market or a more substantial chunk of the pie. In that sense, the motives can be roughly classed as strategic or financial, with potential gains including a reduction in costs, extension in the range of services the organisation can offer, increased market share and diversification of risks and geography.

Of course, such activity is not without its risks. Newly established banks may come under attack as a result of falling employee numbers or be accused of restricting competition. The concentration of banking operations into just a small number of financial institutions can also increase the likelihood of a full blown banking crisis.

And then there are the logistical and organisational challenges involved with bringing together two businesses together – their processes, data, their IT. “The real challenges are associated with the merging of different business cultures and teams, and the impact that can have on business as usual,” says Nottage. “At Lloyds TSB, the merger resulted in big changes in terms of our overall business strategy, which consequently had an impact on what we were trying to achieve with the IT systems underlying that.”

So how do you go about minimising the costs and disruption of a merger? With mergers and acquisitions such a feature of this industry, perhaps the answer lies in preempting the problems by trying to invest in technology that will facilitate such activity in the future. Nottage believes it depends very much on the individual situation. “I think there are two things to consider here. First, you need to look at how effective the divisional businesses are themselves – how good is their IT infrastructure and strategies and how well do they have that organized?” He adds that it also depends on whether you have a merger or a takeover. “If you look at the activity of many other large banks, there has been a tendency to stick with the IT systems they have in place and to remove the software systems that exist in the smaller companies.” However, if the merger brings together two equal partners? “If there’s no clear ‘winner’ when it comes to the software, then there is likely to be more debate over which way to go. Do you use the IT systems from team A or B, or do you actually look for a new product altogether.”

And that, say Nottage is where the real expense can come in. “There have actually been cases where mergers have been called off because of the inter-IT costs. The fact that IT does represent such a major potential cost means that in any merger there will certainly be a degree of investigation into IT – what exists, what compatibility is possible, and how much it could cost.”

And, with technology now playing such an instrumental role in achieving the business strategy of financial institutions and central to the continuing evolution of banking services, it’s essential to get any IT choices right. Asked where he has seen the biggest impact of new technologies at Lloyds TSB, Nottage replies that the biggest change has been in enabling the move towards being increasingly internet-based and more self-service. Highlighting some of the drivers behind that, he says: “Today, there is much more of an ‘any time, any place’ approach to banking. It is also a broader market; no longer are you just providing services locally, but rather to people and companies all over the world. With much more leveling of the services being offered, it is essential that you are that much better when it comes to the quality and availability of the products and services you offer.”

Technology is certainly playing its role in enabling financial institutions to raise their game and to achieve all-important differentiation in the market, providing of course that they take full advantage of it. “There has to be availability of information there; you have to have a good view of the customer,” comments Nottage. “Many financial institutions still have a legacy of old software that isn’t always able to cope with the new banking strategies such as online services.’

Asked what direction he sees this going in the future and how financial institutions are likely to priories their technology investment, Nottage replies that it is more a case of the banks following the technology than vise versa. “For example, SOA is currently receiving a lot of discussion,” he points out. “At Lloyds TSB, we are looking to try to standardise our software across the group. Meanwhile, when it comes to our more strategic tools, we’re moving more into web- and process-driven software than we have in the past, examining how we can improve on the services we offer.”

This re-examination of the tools used within the organisation in order to better achieve their overall business strategy is something that has become central to the success of financial institutions today. It has seen IT take its rightful place in the boardroom as a key enabler of business strategy. Achieving an alignment of IT and business goals, however, is the challenge.

According to Nottage, communication between IT and business has been less than perfect in the past, with a divide existing between the two in most businesses. “We are trying to address that,” assures Nottage. “It takes time to put the changes in place, but there has certainly been an improvement and there is now much more common understanding between IT and business. This is essential; you just can’t get the ongoing strategic fit unless you have the right dialogue going on.”

Nottage believes there are a number of ways to achieve this. “Business projects are raised and prioritised and these go into the IT match. We also have close relationships between the various business areas and IT. Our director of IT, for example, sits on a group funding panel, which decides on strategic investments, as well as the management team for our wholesale division.” He continue, adding that as plans and strategies are developed, there is input from IT into how realistic, or not, that might be. “As you go further forward with planning it is important to ensure we deliver what is wanted, fit-for-purpose, in the timescales required. Business today must be able to react much more quickly, and is the challenge of IT to find ways to achieve that.”