CIO 1-on-1 Barely three months into his new role and Ching Wei Hong is looking to change the way IT is viewed at OCBC Bank, one of Singapore's leading financial institutions.
The new head of group operations and technology wants to run IT with a business angle. It is time, he says, for IT to come out of the backroom and play a more strategic role within the bank.
He believes this is a better way to realize unit cost reductions and business improvements.
Previously head of group transaction banking, Ching's new role takes him into new territory. Having to run both the company's IT and operations makes this transition "a pretty dramatically different one", says the banking industry veteran.
In an exclusive interview with ZDNet Asia, Ching reveals how OCBC's employees are responding to this "major cultural shift". He also laments the bank's huge IT bill and the difficulties in finding good technology vendors that are also business-problem solvers.
Q. Since taking on this new role, what have you been busy with?
A. The intention now within the bank is to give IT a different focus--managing IT with a business angle. In the traditional world, organizations would look at IT as a backend or backroom function. However, in today's world of business, you can't treat IT that way, not when you think in terms of people, cost and importance. Is IT a core engine of the bank? Of course, but we've always called it backend processing. In the last 60 days, what I've done is clearly define 'processing factories' within the operations group. For example, payments fall within a 'payments factory'. Trade finance is a 'trade finance factory'. And we've organized it so that you have the head of payments running the payments factory, and who is held accountable for delivery, for capacity, as well as for the total costs, which includes the supporting IT services as well.
Does this mean that IT and operations are folded into one organization?
No. What we're doing is have them work closer together as a team. Let me explain. The payments factory has customers who are from business or consumer banking. So, the payments owner will now provide payment services to the end-customers of consumer banking or business banking, at a price, and all the costs (including IT) should be in that one price. In the old world, the way one would approach it is, I've got 100 staff, this is my rent and after dividing by the volume, this is my unit cost. Then we give the consolidated IT bill to the head of consumer banking and the head of corporate banking, and leave it to them to figure out the components. So now, I've reorganized it such that if you're head of the payments factory, you're responsible for the end-to-end costs. In terms of IT investments, it won't be the IT manager who writes the investment proposal for the payments processing engine. He's going to work with the payments factory owner, where the payments factory owner will develop the investment proposal and business plan.
All this has happened in the last 60 days?
We're in the midst of reworking the organization along these lines.
What's been the staff's response?
It's a major cultural shift. In the old days, IT somewhat dictated the systems. But you can't dictate the system without accountability for unit cost. So, if we're going to invest, say, $10 million and end up saving $1 million a year, that's wrong. The payments factory owner needs to be accountable. If he wants to make a $10 million investment, he needs to know what's he going to save, what's his payback, what increases in capacity will he create, and what's his new unit cost for the product and services that will be provided to this customers. We have to run IT like a business; IT is not a backend or backroom function, it's not a cost center. That said, we're not curtailing our investments, innovation and capability building. But we mustn't allow this to be turned into a cost-cutting exercise. What's important is that the people must be accountable, and there must be a focus on building capacity, process improvements, reducing unit costs, investing correctly.
How well do these 'factory owners' understand IT? Are OCBC's heads of business ready to take on this role that you've talked about?
They are going through a learning curve. They need not be technology-savvy because our IT managers are part of the team. The engagement of the factory owners (with IT) is stepped up. They no longer take whatever IT gives them. It's no longer that way now. They've got to look at benchmarking. They need to know what the competitors are doing, because at the end of the day in banking, it's a volume game. Every day, our customers demand discounts, better pricing, and we've got (to cope with) increased competition from the foreign banks. So the importance of unit cost management is extremely important for us. We want to invest, but we should be investing only where it gives us the ability to build capacity so as to better handle greater volumes, as well as improve our processes and service levels. The cost savings there will then help us drive down unit costs.
So, how capable are these managers today?
They all have the potential, and most of them are already there. But what's important now is when they want to make an IT investment, he or she will have to know what the competitors are doing. They should go on-site to see what other institutions are doing, to see how well they're using such an application, and then look at how to deploy it at OCBC. I don't think there's a need to reinvent the wheel because payments, trade finance, treasury operations are not new businesses, but they are getting complex in some way or another. At the end of the day, it's important we adopt industry best practices within the bank.
Let's talk a bit about Internet banking. You've been particularly involved in OCBC's Velocity application for corporate banking. How has it changed the way banking is done and are you looking to improve it?
I think Internet banking to date has been what I call a 'pull' (factor) where clients come to the Web site for information. They interact with us when they log on to OCBC.com. Velocity for the corporate side has built tremendous volume and activity. We currently process billions of dollars of transactions per month. The plan now is to make it even more interactive, so we're looking at creating a 'push' (factor).
Today we're balancing two channels. The call center channel is important, and we're not going to give that up. As our business grows in Singapore, Malaysia and eventually Indonesia, the call center will continue to grow, but we've got to limit or control that growth because it's expensive.
On the other hand, while the Internet is an expensive channel, it's less costly than a call center. So we've got to try and migrate activities from the call center into the Internet channel, leaving the call center to handle richer activities, such as selling or complex problem-solving.
If you leave the Internet as the way it is, is it enough? The answer is no, because you're still relying on the customer to come in and pull information. The question is how do we 'push' information to clients on the corporate banking side. Do we wait for the customer to dial in and check if the funds are in or their cheques are cleared, or wait for him to come to the Internet to see if there is an action that he needs to approve? Or do we use existing technology like e-mail or SMS to push alerts out to the clients? Is there a good, cheap, efficient way to push that kind of information to the customer? This, we think, is the next wave, and that's what we're working on.
What about the consumer banking side?
Same thing, but we're working on the corporate banking side first.
Why corporate banking, and not consumer banking, first?
We are staging this, and there are also other development work going on with the consumer Internet channel. For the corporate cash management system, the business revenue potential is high.
Is what OCBC doing in line with the industry, or are you setting the pace ahead of everyone else?
A lot of people are looking at this, too. But it's a matter of who executes better and faster. The idea is not revolutionary, but the execution will be the real challenge.
What else are you working on?
By the third quarter, I'll have IT working with the business units to establish the technology roadmaps. For example, in consumer banking, what is their technology roadmap for the medium-term? Even if the board or the CEO gives us, say, $100 million to spend, do we have enough people in IT to deploy everything? Do we have the bandwidth? Does the business have the bandwidth to change the processes that might? It's all about prioritization, but we need a clear roadmap on how we stage business deployment, systems replacement. And we want it to be well defined--the estimated costs--so that when we go into the four-quarter budget cycle, the businesses will already know what we need, what we can afford based on the 2006 revenue plan. So I'm also trying to ensure there's a structured approach to technology.
This again forces the technology people and the operations people to be linked up closely with the business. So they are not 'backroom'. They are the core engine. If the lights (our technology systems) go out at 9am, and 10am we're opening the branches, can the bank do without the sales people? I believe we can go through the day, if a few members of our sales force are down with the flu bug and don't show up for work. But if the lights go out with the teller systems and ATM systems, we would be severely impacted as an organization. So, for operations and technology, it's very much a core engine. We want to tie them more closely with the business.
What keeps you awake at night?
Two things: One is making sure the 'business as usual' is preserved--ensuring that when we open for business, we can throw the lights on. The other is to ensure we make the correct strategic IT investments, because technology is still very expensive.
What aspects are expensive? Haven't hardware prices come down, and software is supposed to be easier to implement?
Our technology bill is still very high. We're doing more: innovating, providing more services, we're improving our services, and investing in more systems than before. Some of these are strategic--and big investments. Today, we're at the crossroads on what is the next stage for our global data warehouse which will be a significant capital investment. So the technology partner we choose must be the right one because that's going to be a long term relationship.
To what extent has the consolidation of the IT industry made it more difficult for you to find the right technology partner?
There are fewer players now. But I still think that at the end of the day, even if we pick the right partner, do we have the right team? The sad part is that in the last 60 days, I've found the industry to be one that is geared towards product selling, rather than solutions providing.
But aren't the vendors all preaching solutions now?
Within OCBC, we have a technology strategy and architecture laid out. Have we shared this with the leading technology partners? I'm open into making sure that we do, maybe not for all our IT vendors but certainly with our three or four key partners who should know our IT strategy intimately. But I don't think we've done that. On the flip side, has anyone asked us? No, so it's ironic. The vendors say they are selling solutions, and yet there's no strong overwhelming curiosity on their end to understand and dissect the bank, to understand where we're at. What are our IT systems constraints? How are we migrating? How are we evolving? They've not asked us these questions. At the moment, we still deal with each other tactically, and they're flogging products, not solutions. So that's a challenge, but we've started with one technology partner, and that's working out quite well. We've shared our overseas expansion and business plans, and with proper follow up, we should have a pretty good roadmap developed together with our key technology partners.