Past, present, future

Peter Ligezinski, Head of IT for Allianz Investment Bank, on the organisations beginnings and what need to be done to move it, and the industry, forward.

I was in the team that started Allianz Investment Bank in 1989, when a group of three people starting doing it but building it from scratch. In the beginning, we were a pure asset manager for the Allianz Insurance companies in Austria. But we started at that time already to discuss how it was going to be in 10 or 15 years. We were going to be a full investment bank. We wanted to see our bank as a leading bank or as a very modern and very efficient bank. I was one of the people who tried to achieve this and we succeeded.

To achieve this it was vital to build the link between IT and the organisation. That’s always hard. You must communicate. You must talk to people. You must be able to tell them what are they going to get from you. And if you promise something, you have to keep those promises.

Recently, I was at a presentation where someone mentioned that his board introduced a chair of unfulfilled promises. People who didn’t meet the promises sit in the chair and had to explain what did they wrong. I think that would be a very, very useful thing for IT heads at the moment. The main thing in our activities or in my activities in the bank was always to keep the promises. It doesn’t have to be exactly on date, but keep the promise and meet the expectation. You have to know what you promise. You have to understand what you promise and how you promise it.

Compliance is a major issue right now, with AMR Research estimating that financial organisations spent $30 million on it alone in 2007. In my opinion it all about transparency. You need to prove and show everybody what you did, how you did it and who did what. In other words big brother is watching you. If you can prove, “I know how the bank did certain business,” you are compliant with most of the requirements.

Being able to have enough information, you are also able to do some calculations where you verify your data with the requirements of legislators and of your clients. Again, it’s about transparency and showing it. That’s my result, that’s how I calculated it, and that’s our data. Of course, if you don’t have this kind of stuff in place you must spend money for it. You will have to use some manual operations. You will have to use some spreadsheets, and that means you spend money.

There are a few major drivers for this. You have the government regulators who require something from us. Also the business wants also to be compliant, the people who drive the business in the bank want to be compliant and want to prove their work. And IT itself, on one side we have the IT compliance to some software process, such as with Sarbanes-Oxley, but we also have to take care about proving how we did things. Basically, having your systems and your data structures in a proper structure, you can be complaint with anything. If you don’t automate it, you have to use manual work.

There is also a move these days towards consolidated and simplified business architecture. This has been seen as a problem for financial institutions which have traditionally been split into autonomous divisions. The challenge of bringing these silos together seems huge, but there is only really one way to approach it. T ake a small group of people, let them work somewhere in the backroom, prepare the completely new organization and then just do it. Convert your data and change it over the weekend. I don’t see any other way of building connection between silos. It’s complex. It costs money and human energy which could be channelled somewhere else, but there’s no way round it.

When we started our operation, we didn’t have our own system and we had to run our banking operation. So, we took a machine from Philips. We were using IBM for our balance sheet. We used another vendor for some premium reserve computation. In short, we had silos. There were three insurance companies of which we managed the assets, and we had people for Company 1, Company 2 and Company 3. Parallel with this, we worked really hard on the new system. Then we put things together and suddenly people had different sense and content of their work.

A long time ago at Citibank, we in fact also replaced silo-oriented system. It was very simple retail banking with savings products and loans. There were different systems used there and we put it all together. It was exactly the same. The bank worked as it was used to working. And then we changed it. Over a weekend, they started to use the new system.

In the large organisation, it takes time to prepare such activities but you can do it. The most important thing is that IT cannot trigger such change. That can only come from the board, from managing director, from people who provide money to run the bank. And those people have to understand it. If they are afraid of changes, you will not succeed as CIO. But if they want it, and if they support it, then you can do it.

With so much pressure on costs, IT outsourcing is an increasingly big business and predicted to grow. But I don’t believe outsourcing is the answer. If we want to be competitive, we must be different. Our competitiveness is our difference to others. We do something better. We do something more efficiently. We deliver things more reliably. And therefore, the IT component of this is crucial. It’s ours and I have to manage it myself. I cannot tell some external company, “Do it for me.” They do not understand my business. They do not understand my goals. They do not know what we are really doing. A general statement, “It’s banking,” is not enough. So you cannot outsource. You have to manage everything, not only business but also systems or infrastructure that supports the business.

It’s all together. To be competitive you cannot cost too much. The word “cheap” is wrong; you must be price-worthy. So, you must be efficient and you must also make people trust you. I will never trust a bank where I know my data can be accessed by some outsourcing company.

Those that do outsource, say their differentiation is in their know-how, but what does that really mean? That you do saving accounts or you can do certain products. But your differentiation will be, security and automated lending. I cannot outsource these operations because I have to be able to react. When the computer system says, “I cannot resolve the lending execution,” someone has to react immediately and someone has to telephone the trading desk and do whatever has to be done.

But you cannot outsource this thing. In fact, there’s nothing to outsource here because everything is automated. And if this is automated and is done somewhere else by someone else and someone else wrote software for that, you cannot control what was written in there. It’s fair to say there are some different opinions. So some people say that outsourcing is good, some say it is wrong. Let’s agree to disagree and let the results show who is right.

But while everyone talks about innovation in banking IT, all we are really trying to do is computerise systems that have been in use for hundreds of years. Futures were being done in Japan in the17 th-18 th century. The Medicis ran double-entry bookkeeping 500 years ago. We are computerizing the old wooden boxes with ledgers, and we make the picture of the wooden box with a paper ledger on a disc in a database.

Nothing changes. We introduce automation to things that are here, and we do not try to make some conceptually new things. The technology we have is beautiful: immediate access to any data, reliable instant communication. So all those things are here, and we know it, we use it, our children use it even more efficiently, but we don’t think about changing the way we work.

EBay, Amazon, FedEx and UPS. Those are companies driven by IT. They changed their internal systems, so they changed the way they worked. They didn’t change the philosophy of their business, they changed how they work. We could do the same in banking. But it cannot happen overnight. It’s not as simple as clicking a couple of times and suddenly having a new programme. It’s hard, creative work.

First, there needs to be a mind change. Banks have to decide that they want to do it differently. We need to take the ideas of financial industry architecture that are currently just fantasy and define them. That’s the way you can do it, and that’s the way you mirror this idea in IT structures, and then do it. That takes time.

Most CEOs have got contracts for three to five years. The timeframe necessary to do such a thing will be five to ten years, so they are not interested. The short-term spectacular result is more important. So, you get the artists who do short-term spectacular results, printing beautiful vouchers and so on, and nothing changes behind it. No one thinks about things like, “I have operations with 2000 people and I could do the same operations with 200 people.” In the future that will be the change. It’s going to take time, but I don’t see any other way to move forward.

Master mechanic

Some people describe working in IT to being an equivalent to changing the engine while the car is running. But working in banking doesn’t allow that. Instead, I see it more like building a new car in a workshop. You can always compare the new car with the old car, but the old car is the main one. Once you are ready with the next car, you stop for a couple of hours and you change the cars. Then you continue driving with the newer, better, more comfortable vehicle. I would never go for changing the engine. In my opinion, it’s the wrong approach. Just build a new car.

Global compliance

One of the big problems is that banking is now a global business and yet there are no global compliance rules. One of the things is you have to be compliant with certain defined processes, so you have to keep track of the processes. The other issue is you have to be compliant with certain values, and those values can be given by the government or by your corporation. Therefore, you must build the systems that calculate your data and present them according to the compliance requirements. But you always need two sets: local and global. I don’t think there’s a solution for that.

Building a very generalised compliance engine is an interesting and challenging IT requirement and something that we have discussed here at Allianz. The concept is a general-purpose compliance language, where you can define compliance rules depending on the markets, on local compliance rules in different countries and on financial instruments. You define them, and then you have one program that works in multiple environments and uses those local definitions to check if everything is compliant. Making such a solution would be of course very useful for the banks, but I haven’t seen it yet.

This leads on to the question of ‘build or buy’ when looking for technology solutions to the problems we face in banking. My general approach is build and don’t buy, so therefore it’s a philosophical discussion. I haven’t seen vendors who offer properly flexible systems, and therefore I am for build. But if I were to see one proper flexible solution, I would have to verify or modify my approach.