Tales from the C-suite

By Huw Thomas, Editor

FST editor Huw Thomas talks to Dresdner CIO Dr. Friedrich Woebking and Pascal Emile, CIO of the bank’s investment arm Dresdner Kleinwort, to find out what’s going on behind the scenes at one of Europe’s biggest financial institutions.

Times may change and climates may get harsher but for Friedrich Woebking, the key focus is constant: “First of all, the priority has been the same for 30 years. Keep the lights on. Keep the machines running.” Naturally, just maintaining the myriad systems required to keep the modern financial institution ticking over will always be central to IT leadership. But as the complexity of systems and the way they interact with business have evolved over the years, so the CIO’s role has moved with them. Aside from his standard caretaker duties, Woebking outlines a number of other areas that require his attention. “Number one on my priority list is to make sure we align IT with the business objectives,” he says. “Next is to function as a change agent in order to facilitate all the structural changes due to the latest developments in the banking arena in Germany, and also inside of Dresdner Bank. Then, I have to continue to enable the business, ensuring that IT is not only reactive but also proactive wherever that's possible. Recent famous examples for that would be things like Internet CRM, but it really goes beyond that. The final part is orchestrating large group-wide projects which usually involves a variety of processes, especially if it involves a variety of functions that all have to work properly together. That's quite an interesting challenge too.”

It’s a fairly bewildering array of responsibilities and constitutes a delicate balancing act for the man in charge. Woebking cites this need for balance and flexibility as absolutely central. “Orchestrating big projects is usually done in steering groups together with the other board members,” he explains. “Doing that is a really very interesting to balance between the different interests, between the limitations, of the budget here and resources there, and the necessity to keep on track with the priorities.” While to many, satisfying so many disparate requirements might seem like a nightmare, it’s a task that Woebking clearly relishes. “I like to do that very much,” he says. “Of course, it shows when the CIO sees the picture of the whole bank. That also requires that he has a certain proximity to the business, a deep knowledge of the technology and of what's possible inside of that.”

But the CIO can only do so much. Without the support of a board that truly understands the value of technology, driving investment in the area can be a headache, especially at a time when budgets are under such extreme pressure. From Woebking’s perspective Dresdner Bank’s management has a healthy awareness of what IT can bring to the organisation. “You never have an easy time when you want to invest into technology,” he continues. “However, I would say our board is pretty much alive to it. I think that has come along with the rise of the Internet. We now run some very big Internet platforms, and everybody is used to that. Then remember there's the big Basel II project, which cost about €100 million in a bank like ours.” Woebking explains that projects like Basel, despite the immense challenges they present, also help to build up the relationship between IT and management. “You get the attention of the full board, you get to talk to your colleague who is in charge of risk and finance, and the board really starts to discuss IT issues and big projects.” This discussion has significant knock on effects further down the road, be it related to processing, document management systems, CRM or employing Six Sigma initiatives.

Other responsibilities also weigh heavy on the shoulders of CIOs like Woebking. In the wake of financial scandals like the SocGen rogue trader and the ongoing credit crisis, there is increased pressure on the industry to tighten up and avoid similar problems in the future. While Woebking is happy to step up to some of the responsibility, he is clear that technology is only one part pf the puzzle. “It is fair to say that technology-based controls alone could not have prevented or served the market situation that we are currently experiencing,” he says. “The correct alignment of partnership between technology, strategy and the enterprise strategy are obviously the right solution here.”

Dresdner’s response to the situation outline’s this need for both human and technology control. “We need to ensure that our active controls are sufficient to mitigate any weaknesses that are not the consequence of deliberate intent,” says Woebking. “We should not forget that SocGen was a combination of poor management control and deliberate circumvention of process controls. At Dresdner we have been generally comforted with the level of control in organisation. We have undertaken a specific study of key aspects identified in the Soc Gen report, and we have accelerated our plans around access management. So that applies to both in general, and specifically for staff transfers, parts with management and exits during mandatory time away.”

But the crunch has also had an impact on the CIO’s ability to do his job. “Financial losses have placed significant pressure on investment capital and required a sharper focus on prioritization,” Woebking explains. “Mandatory, regulatory multi-year projects need to continue, and that means then that less funds are available for the discretionary revenue generation projects, which can be hard to overcome.” Of course, with so much of the crunch’s genesis resulting from perceived poor management and the over-enthusiastic selling of unsustainable products, the need to maintain regulatory compliance is more vital than ever. “We are keen to ensure that we can satisfy the regulators at all levels on a global basis,” continues Woebking. “In this context we believe it's essential to offer our competence in dealing with regulators across the globe to design and implement a fit-for-purpose control environment that reflect best practice across the technology sector.”

This work on the regulatory side has benefits that extend beyond simple compliance. As systems are modified to be more secure and transparent, there are some definite plus points for the business. “Technology is an essential and integrated part of the overall business process,” says Woebking. “As such, the technology strategy and the enterprise strategy can be seen as two sides of the same coin. They should not and cannot be considered separately.”

He explains that technology can provide and facilitate increased levels of appropriate business control in addition to easing the overall staff workload in these highly pressurized and competitive markets. “At the business process level, it is imperative that we use technology to speed process and effectively devote all the mechanistic and time consuming activities to applications, leaving our staff free to utilize their knowledge to solve problems and maintain control.” Taking the ‘box-ticking’ out of human hands and automating it, will not only remove the opportunity for mistakes and wilful transgression, it will also streamline an organisation’s day to day activities.

When it comes to the technology that Dresdner employs to achieve its business goals, Woebking describes what he calls a ‘selective outsourcing strategy.’ “Let's start from the very back office process-wise,” he says. For processing related transactions, such as payments processing or securities processing in the back office, we think of it is a question of economies scale.” As a result Dresdner has outsourced payment transactions to Postbank and securities processing to DWP Bank. Both are specialists in these fields and their involvement allows Dresdner to expend more of its energy in areas of core importance.

Even within single technology areas, Dresdner’s outsourcing shows impressive nuance. A good example is in the CRM space where a deal with Archos sees the bank handing over certain sections, while keeping others in house. Woebking explains: “We decided to outsource only those components to Archos which are either standard software, or which are pretty much at the end of the process chain. But we refrained from outsourcing other software which is relevant for direct client interaction because we think that's a very good differentiator of the bank.”

In times like these many banks are looking to outsourcing as a way to limit financial exposure and improve reaction times. Woebking confirms that Dresdner’s reasons roughly tally with these objectives. “That's pretty much behind it,” he says. “First, we want to create more agility, more flexibility; we want to take advantage and also keep costs down. Those are the driving forces behind our outsourcing.”

Dresdner’s pragmatic approach is something that, Woebking sees as absolutely key for long term success. Times are tough, and the temptation to simply cut back on spending while conditions are bad can be strong. However, Woebking argues that such a response is short sighted and risks storing up even bigger problems for the future. “I'm very much in favour of saving and creating agility by sourcing instead of just cutting down the budget,” he says. “If we were to close down multi-year initiatives under the present pressure, it would be very hard to ramp up again. I try to run things as continuously as possible. However, we like each bank here have to face some constraints and work to create some savings.”

An area where Dresdner is clearly supporting its long-term goals is in the Middle East. Keen to access this growing market, the bank has recently set up in the Dubai International Finance Centre. “The personal wealth management business is growing in almost all markets, and traditionally we are very strong in this line of business,” he explains. Therefore, of course we want to grow at least along with the markets.” You might think that the technological challenges of expanding into unfamiliar territory would be considerable. Not so, says Woebking. “Technology wise, it's not that big a thing. It goes back to our overall policy. We have decided that we will use standard banking software in our foreign subsidiaries to minimize this kind of setup cost, and that goes across all lines of business. Once we have established a platform, it's not a big thing to open up a new branch, because we do not need to deploy new hardware or big packages of software. Basically, we just have the desktop there and the line, and so we can service the PWM business for UK or Switzerland for example. We don't need a data centre down there.”

Anyone has been following the financial pages of late will be aware of rumours surrounding a possible sale of Dresdner and its investment banking arm Dresdner Klenwort by their parent company Allianz. Having CIOs for both companies speaking in this issue, it’s impossible not to ask some questions about the impact of any sale or merger. Unsurprisingly, Woebking refuses to be drawn on the subject, instead steering the conversation towards the work currently being done to split Dresdner Bank and Dresdner Kleinwort into two legal entities. “One is the retail and commercial bank, and the other one will be the investment banking arm. So far, those are not two complete legal entities, and that's what we are up to until end of August as it happens in the German legal framework. We started the process earlier this year, and we are in the integration testing right now. We're making pretty good progress.”

We try again with a question about sales and mergers firmly couched in the hypothetical. This time around we manage to elicit a response that demonstrates Woebking is refreshingly calm about any big changes at the bank that may or may not be coming down the road. “I don't think very much about that,” he says with a laugh. “I mean first of all, I do the projects, I do the jobs, and believe it or not, I enjoy doing big projects and working hard. This is just fine with me, and you may or may not know, I'm old enough to be relaxed on that. I was born in 1950, so I can afford to be relaxed. I’m at the best age for that kind of transaction.”

Any uncertainty over what the future might bring is not distracting Woebking from his work. Alongside the aforementioned split into two legal entities and the importance of keeping the lights on, he outlines an extensive collection of initiatives. “We’re going to move forward to realise our architectural targets,” he says. “We’re going to make the IT more agile and more efficient, consolidate the internal platforms, industrialize and standardize the development processes.” The aim is to achieve Level 3 CMMI appraisal for the bank’s European operations and Level 5 for operations in India. “It will make our people proud then once they have achieved that,” Woebking says.

And once that milestone is reached, Woebking already knows where he’s going next. For someone who has spent such a long time in technology, his enthusiasm for the work remains impressive. “I'm thinking of how to even better steer the IT business finance-wise,” he continues. “I'm always looking to further IT metrics to steer and measure the efficiency of both the development and maintenance.”

IT and business: the relationship

I would say it has changed quite a lot. I mean one thing is that IT project and operations today often require significant investments. As we have just seen as the example of Basel II, and they also impact the company at a deep level, and of course there's always some risk attached to the project. So then I have to make sure that the board is continuously and fully aware of what's going on and that I get the necessary buy-in from my colleagues. Then you have to step back from that and ask, "How do you define an IT function financial-wise these days?" I think it's much more mature. There are more KPIs around; we do a lot of benchmarking against other banks. So that has really evolved I would say as a whole industry. There are very good databases around, and it makes it much easier to have a clear financial steering on the IT side.

Dresdner Bank: 1872 - 2008

1872 – Dresdner Bank founded in Dresden
1884 – Registered office is relocated to Berlin
1904 – Acquisition of Erlanger & Sons and Parrisius & Co. Office established in Frankfurt
1931 – On 13 July, all banks restrict payments to 20 percent of the requested amounts as a result of banking crisis
1945 – Post-war closures result in loss of 162 offices in 56 locations
1958 – Dresdner is the first German financial institution to introduce electronic data processing on a large scale
1971 – Comprehensive reform of the Bank’s organisational structure
1977 – Chairman of the Board of Managing Directors, Jürgen Ponto, is assassinated by terrorists
1984 – All German offices are fully IT-equipped, making Dresdner Bank the first private big bank to have a comprehensive online terminal system
1990 – The first western financial institution to open office in former eastern Germany – in its city of origin, Dresden
2001 – Takeover of bank by Allianz AG
2007 ­– Partners with the World Bank to offer the first World Bank bond exclusively for private investors

Paying for tomorrow

Pascal Emile tells FST about how Dresdner Kleinwort is keeping its eyes firmly fixed on the future.

FST. You have recently instigated a large-scale move of your data centre, relocating out of central London. Can you give us a little background on your reasons behind this action?
PE. I think we first moved into our central London-based data centre at the beginning of 2000, so we have been there for quite some time. At that date, I think the data centre in London was well fit for purpose and well located, but over the last few years we have seen a significant change in the data centre market primarily driven by the ‘tiering’ system. We've decided to move to a high-quality Tier 4 generation data centre. All of this has to be effectively within an acceptable distance from the exchanges for latency reasons.

In fact, we didn't necessarily decide to move away from London. That decision was effectively made by the data centre providers for us. We kind of followed the way the market was evolving in that specific part of our IT activity. For us, it's really about making sure we have the appropriate service from a data centre point of view to be able to deliver daily services to our clients. The changes in the data centre activity are driven primarily by the requirement to have more resilient power supplies, to reduce the carbon emissions of those data centres and an increasing demand for calculation capacity. I think we were lucky to be in a favourable situation where we could take advantage of our lease situation with those contracts expiring to move to a more appropriate facility for us.

FST. So you outsource your data storage provisions rather than running them in house?
PE. We have managed services contracts with external providers, so they usually are shared agreements with those providers to maintain the data centres for us.

FST. What kind of savings and benefits are you actually going get from this move? Are there going to be any immediate financial benefits or are you working more towards long-term goals?
PE. It's more a long-term goal, actually. It’s all about being ‘fit for purpose’. The previous data centres we had were just coming to the end of their lives, so for us it was a question of maintaining the level of service and also preparing ourselves for future requirements. There's always more demand every year for more calculation power and more resilient operations. Although the latest improvements in the infrastructure landscape such as virtualization for example, have definitely helped us, there's also always a need to increase the capacity year after year. That's driven very much by increasing requirements coming from our business users and from the regulators who need to have more accurate risk calculations.

FST. Are there any other benefits in moving your data centres to new locations, for example in areas of disaster recovery or backup?
PE. There are. We always try to have what I call a live-live setup for our data centre operations. We have redundant setups around London to cater for worst case scenarios, and that's a constant requirement for all our data centres throughout the world.

FST. You mentioned obviously a long-term goal that you're working towards with this particular move. Do you think that with the difficulties the financial services industry is currently experiencing that it is important to keep looking forward and avoid getting bogged down in day-to-day problems?
PE. I guess we have to achieve a balance between the long-term objectives and the day-to-day operations. It would be foolish to say that the current difficulties have had no impact, but we always tend to try to make sure we achieve the right balance between long-term and short-term objectives by making sure we spend money wisely. It's down to effectively sticking to the strategic decisions that were made some time ago, even if you might have to slow down the progress on those. You have to make sure that the prioritization of making the investment available is done by looking at the business objectives. So you always need to have a business vision underpinning technology decisions.

FST. And at the moment, it's still a long-term vision? You're continuing to look past the credit crunch in your investment?
PE. I think it's almost a must-have. It’s a bit like a shark. If it stops swimming and moving forward, it sinks to the bottom and dies. That’s pretty much how it is for us. So in general, we make sure that all the decisions we are making are properly understood to cater with potential changes around the organisation, but otherwise, no. We have to continue trying to achieve our objectives.

FST. Dresdner Kleinwort has recently been named by Euromoney as one of the most improved banks in the EFX space. How has IT contributed to this recognition?
PE. Our focus was really to continue to improve the efficiency of our EFX platform by making it effectively very stable for us and for our clients and to try to capture all available sources of liquidity that we could find on the market. On the back of this, we spent quite a significant amount of time to improve our internal risk management systems to cater for the increased trade flow that we achieved by implementing more complex FX hedging and execution strategies. So I guess to make this maybe more palatable, I think we've used specific tools to understand and analyze the trade flows by including what I call back testing by leveraging our grid computing setup. We have also added the possibility to provide feedback mechanisms into the client pricing channels as well. So that was pretty much what I call the data flow type improvements we implemented.

We've also been a provider of significant liquidity to the various multiple ECN's. In order to be able to do that, we had to provision what I call high-frequency and low-latency prices to the multiple locations that we are trading with, and we had to develop these as well. Performance and resilience is critical as the business is a 24 hours 5 days a week operation, and any delays can mean loses for the desk and the bank.

FST. The IT and the technology you use to do this, is this something you developed in house, or did you buy in from elsewhere?
PE. That was pretty much developed in-house, but we used what I call a core infrastructure in IT, comprising a grid computing setup called DataSynapse and a time series database product called KX. We’ve worked with the vendors who provide this technology before, which was a significant help in terms of time to market and being able to cover the ambitious requirements we had for that business.

FST. So obviously this new technology allows you to be more flexible, agile and able to respond to the emerging features in the market?
PE. That's you know entirely true, yes. The trend we have noticed is that the liquidity in the spot FX market has moved away from the traditional sources, and as a result, we’ve had to connect to new sources of liquidity. That involves more connectivity with third parties, whilst you know in the past this was restricted to primarily the traditional exchanges. I think the opportunity is really to have access to wider liquidity sources and provide the ability to monetize what I call client flows because you have a great opportunity to manage and mitigate risk as a result, because there is more transparency.

FST. Is IT something seen at Dresdner Kleinwort as an important business driver? Is it hard to sometimes convey how important this kind of investment is to the board members, or do you have a good relationship there?
PE. I think I'm probably lucky enough to have a good relationship with the board of the investment bank and the whole investment bank itself. I think IT is well supported by the bank’s senior management and represented in all the various committees. It's seen as an important driver of the investment bank. I think we look at IT as a key complement of the know-how that is carried over by our people. So I think any investment bank is largely driven by people and technology and that’s the case here as well.

FST. You mentioned the people side of things. Is that something that you work on hard yourself as well, or are you more focused on the technology side? Is people management a big part of being CIO at Dresdner Kleinwort?
PE. I would say that it's becoming more managerial. I think you really have to understand technology, of course, but it's all about using technology to support a business vision and create specific opportunities to develop the business in the direction that is set. So technology plays a very important role in setting up new businesses, in reducing the costs of your daily operations. It involves automating processes as much as possible, and more importantly for some business activities trying to leverage the latest technology, you know, innovation that allows you to win the few whatever tenths of milliseconds that will make a difference when you diversify your trading operations or enter a new market segment, for example. So it is quite an important part of the investment banking senior management focus.

FST. So what do you think are going to be the big issues for you over the coming months and years? What are the major areas you're going to be working on?
PE. I think the main focus will be to continue the transformation of the investment banking model in reaction to the credit and liquidity crisis. That I think will take us probably a year or two, you know to fully understand the full impact and make the necessary changes.

The second point is really to continue pushing forward as much as possible, and as aggressively as possible. What I call the front-to-back alignment and simplification within the investment bank by making sure we improve our processes and systems to become more global. We have to provide the flexibility only where it is needed and not throughout the whole front-to-back processing chain. So that's a very, very specific focus for us because we see this as main differentiating factor to some of our competitors, and that will take quite a lot of my time.