Trading places

With Alain Benoist of Société Générale

The last 12 months saw a torrent of bad press for the financial services industry, with a great deal of unwelcome attention falling on Société Générale. Now though, things could be looking up, as CTO Alain Benoist explains.

After a €4.9 rogue trader scandal and the rather achieving the unenviable position of being one of the credit crunch’s biggest players, it would be easy to get caught up in the recent run of bad times at Société Générale. Given the rough ride over the last twelve months, it is understandable that the firm is taking stock of its processes, and as with many financial institutes at the moment, prevalence is falling on the bank’s technology ever more than it has before.

At the heart of this business division is SocGen’s CTO Alain Benoist, who is only too aware of the important role technology must currently play. “ Actually, we will end up spending more on IT in 2008 than in 2007, and the events that we experienced have meant there is no choice but to become best in class in terms of operational risk management,” Benoist explains. “So obviously we are continuing with, and will probably put more emphasis on, if it is needed, security, quality of processes, controls, and ensuring that we deliver.

“Besides security, of course, there are the traditional business needs, but we’re focusing a lot in terms of risk management,” he continues. “It’s the bulk of the investment in terms of IT, as well as the process automation and the integration between front office, back office and risk application.” In fact risk management is in all the areas where the firm are investing the most: “It’s efficiency to be able to cope with increased volumes, increased demands, and also with our ability to develop in various countries in the world,” notes Benoist. “You have to put in place all the processes, tool systems and infrastructure to support that.”

Of course it has to be noted that what happened at Société Générale was a quite extraordinary event. It throws open new challenges, begging the question, what happens when you have to address your systems and start again, almost at the beginning? “The challenges we face are determining what our priorities are,” explains Benoist. “Obviously we need to invest, and we want to invest in improved security, improved processes. So the real challenge is to get a balance and make sure that the additional investments we’re making in terms of personal risk management are really addressing our true challenges. It’s very easy to spend money. It’s much more difficult to make sure you spend it on the right things or the right subjects.”

Benoist goes on to explain that while the incident that took place at SocGen back in January may well have been something with a high impact and a low probability, financial institutes should not overlook the things which are the reverse: more likely to happen, but with a lower impact. Instead, he believes the key is to find the right balance in investments to make sure that they are addressing all the issues, not just those that are perceived as the most difficult.

Big questions

“We are in a world where we deliver services, but the services industry is a bit behind the manufacturing industry in many areas, particularly in terms of processes and quality,” says Benoist. Perhaps there is something to be learnt from this industry. As Benoist notes, the emergence of some standards, like Information Technology Infrastructure Library (ITIL) or quality methodologies like Six Sigma, may all be coming from the industry, but he believes that there is a lesson for all of financial services institutes in terms of maturing their processes and the quality of services to their clients.

Speaking of maturing services, Benoist is also noted as being a fan of grid computing for derivatives as well. “ I think it’s very hard to have IT as a sustainable competitive differentiator,” notes Benoist. I think it’s so much easier to be at a competitive disadvantage because of IT, rather than being at a competitive advantage, and whatever advantage you build it is usually only for a few months or for a few years; it doesn’t last that long. The name of the game is to stay at the forefront, but don’t expect too much.” But Benoist does admit to being a big believer in grid computing, in particular noting how SocGen were key early adopters in European markets of grid computing back in 2002.

This early adoption happened because of the challenges facing the banking sector. “On one side you have the rise of electronic markets, which leads to an increase in terms of volume, and decrease in terms of margins,” Benoist explains. As a result, the banks find that they also have to come up with new solutions and new products, and there is a real importance in being able to engineer these products in the most flexible fashion possible. “All of that leads to increased needs in terms of risk management because with margins being thin, products being more complex and the need for sophisticated risk management products, you need an infrastructure which is able to support these exploding needs of computing power.”

Because of these issues, Benoist believes that grid computing still remains an enabling factor for Société Générale. However, even in his role as CTO, Benoist is aware that technology by itself is not enough. “It’s the brains that you have,” he comments, “It’s the human capital that brings all this expertise in terms of risk management, pricing models, and how you correlate the risk.” It’s that, he goes on to explain, which makes a difference. While the technology may well be an enabler, Benoist knows that it is the bank’s people that are really the main competitive advantage.

And while Benoist is aware that competitive advantage is important, he is also keen to point out that not everything the bank does creates this advantage. When asked about the predicted increase in IT outsourcing, for example, Benoist notes several key points: “ Really what matters is the way you use your technology and apply it to your business needs. You need to be familiar with what you’re trying to do in terms of business, where you can make a competitive advantage to use your technology to the best effect, and I always believe that it’s a unique combination of technology and business understanding, which really makes a differentiator.” Benoist believes that those are areas in which you don’t build a competitive advantage, are the sort of areas that can be outsourced offshore. “It’s very important for a bank to define what its core competencies are and what is not, and as far as we are concerned, a lot of things are getting more and more commoditized. As soon as it is getting commoditized, it becomes more of a standard offer, and these are things we think about when outsourcing.

“There is no issue in this, but it is business expertise that makes a difference. In traditionally low cost centres, like in India, it is coming, but we still need to invest to reach a level of maturity where offshore locations can really generate that competitive advantage.”

As Benoist points out there is a certain degree of ambiguity in the financial services industry. “On one side the banks would like to be as lean as possible, at the same time you need to keep your record for a long, long period of time. So it’s an industry, which is very difficult. It’s a difficult challenge to face.” And as financial institutions are now run largely as divisions, and these divisions have a degree of autonomy, this has led to the now out of favoured silo. Of course modern technology wants to improve and simplify the business architecture and if an organization runs its day-to-day business in a siloed fashion, this raises a further question for technology analysts and executives.

“ I would say the answer is full of anticipation. The important aspect to it is to understand the needs of these businesses and cultivate a proximity within these businesses. If you want to offer long-term solutions to short-term needs, you have to be slightly ahead of the game and anticipate this. This is why your architectures should do sufficient market intelligence, and once that is agreed, you could probably prepare ahead of time some architecture and serve that idea,” notes Benoist. He goes on to explain an example in regard to security needs, highlighting how there is always the short-term pressure from the business that can challenge existing long-term objectives. He does however comment that if you come up with some sensible, cost effective solutions, which are sound from an architectural standpoint, then you can really sell. “I think it’s about anticipating the need as much as you can. Of course, in real life it’s not always the case,” he says. “Your businesses don’t have always a long-term view, but it’s part of our job to try to anticipate what the business of tomorrow could become, and that is the key.”

Interesting challenges

The role of CTO throws up some specifically unique challenges. Particularly in today’s financial climate where there is plenty of focus of short-terms results and the conflicting interests of both project managers and enterprise architects who want both short-term success and long-term continuity for the bank. “ On one hand you have the needs of a business, which are usually short-term goals, and you have the long-term objectives of the bank. You need to identify the areas where you need to invest for the long-term; internal probability, the ease of integration between applications, what is required to offer value added services for the client, the issue of managing correctly your referentials. So there are a few sub-topics, which are long-term topics on which you should never compromise.

“I would say the best thing is to identify these and be sure that whatever projects you have to do in these areas is properly financed, which should be set up as a separate project. And so budget governance is extremely important to be sure you balance the short-term, as well as the long-term, objectives for the bank.” Of course, Benoist notes that security and the quality of the bank’s processes is also one area where compromise should never be allowed. The responsibility as CTO is to find the areas that are of common interest, that are long-term, and make sure there is proper financing.

So while we are becoming accustomed to bank’s concentrating on the short-term, there is also a responsibility to look to the future. In fact, the need to keep an eye on upcoming trends in technology is probably even more fruitful considering the troubled year the industry has experienced. “I think there is a collective responsibility to stay focused on the future. I think it should be part of the DNA of the organization per se, but that doesn’t prevent you from having specific people that are focused,” says Benoist. “The most important people to do this are usually some of the business analysts or strategic business analysts that are working for the bank, usually working on the processes or future products and the services to the client.” Further to this, Benoist points out a specific duty to watch the trends on the market. “Really it should be everyone’s responsibility if you want to remain a competitive, innovative institution.”