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Case StudySchroders
Schroders Private Banking – Three Perspectives On IT Centralisation
Business Benefits Of Centralisation Project
• Operatingcostsreducedsignificantly-byaroundathird.• ITarchitecturegreatlysimplified–numberofapplicationsusedcutby63%.• Managementinformationimprovedconsiderably–90costdriversarenowusedtoallocatecentralcosts.
• Markedimprovementincustomerservice–customerstatementsaresentoutaweekearlierthanbefore.
• Superiorriskandcompliance–ittookjust30minutestoestablishthebankhadnoexposuretoLehmanBrothers.
Name SchrodersPrivateBanking
AUM At 31/12/08 GBP11.7bn
2008 Revenue GBP111.3m
In2006,SchrodersPrivateBankingundertookaprojecttocentraliseitsITandsupportinfrastructureintoonecentralhubusingTemenos’T24corebankingsystem.Inthiscasestudy,we
measurethesuccessoftheproject,whichwentliveearlyin2007,inquantitativetermsagainstfourmaincriteria–riskandcompliance,customerservice,productinnovationandoperationalefficiency-andfromthreeperspectives:thoseoftheCOO,CFOandCIO.
Executive Summary
01 Introduction02 WhyDidSchrodersPrivateBankingChooseToCentraliseIts
ITSystems?04 TheProject05 TheOutcomes05 • COOPerspective07 • CFOPerspective08 • CIOPerspective09 Conclusion
Contents
TemenosCaseStudy01
About Schroders
EstablishedinLondonin1804,Schrodersisoneoftheworld’soldestandmostvenerablefinancialinstitutions.Runforover150yearsasaprivatefamilybusiness,andforevenlongerwith
activeinvolvementfromthefoundingfamily,Schrodershasenjoyedstableownershipthat,inturn,hastranslatedintoconsistentreturnsandsustainedgrowth.AsattheendofDecember2008Schrodersoperatedfrom34officesin26countries,employingmorethan2,800peopleandmanagingmorethanGBP110bninassets.
Introduction
15ThecurrentnumberofinternalITstaff,lessthan5%ofthetotalworkforce
About Schroders Private Banking
SchrodersPrivateBankingaspartoftheSchrodergroupoperateschieflyoutofthreelocations–London,ZurichandtheChannelIslands–althoughithasofficesinotherEuropeancitiesandagrowingpresenceinSingapore.
Accordingtopublicfilings,SchrodersPrivateBankinghasexperiencedstronggrowthinmarginsandprofitabilityinrecentyears.Between2006and2007,thebank’scost/incomeratioimprovedby15%anditsoperatingmarginincreasedby38%(from27.3%to37.7%),helpingittoachievea54%riseinoperatingprofitoverthesameperiod.
Asat31December2008,SchrodersPrivateBankingmanagedGBP11.7bnofclients’fundsandemployedmorethan300people.
Assets Under Management - GBP 110.2bn
Institutional54%
Retail35%
PrivateBanking11%
Source:SchrodersAnnualReport
Revenue And Operating Profit Growth 2007 vs. 2006 (GBPm)
Revenue
OperatingProfit
20
40
30
2006 2007
70
60
50
80
90
100
110
120
Source:SchrodersAnnualReport
Overview Of Schroders (As At 31/12/2008)
Employees
Offices
Funds under management (GBPbn)
Revenue (GBPm)
Profit before tax (GBPm)
Market cap (GBPbn)* * as at 17 March 2009
2,834
34
110.2
935.8
123.1
2.2
TemenosCaseStudy02
Thedecisiontocentralisethegroup’sITinfrastructurewastakenasaresultofastudycarriedouttodeterminehowtoincreasetheoperationalefficiencyandtomaximisesynergieswithinthegroup.
Thefindingshighlightedthefollowing:
• Thebusinessmodelsvariedconsiderablybetweenthedifferentbanks–theLondonbank,forexample,hadahighershareofdiscretionaryservicesthaneithertheSwissorChannelIslandsbankswithmoreadvisoryandcustodydrivenactivities.
• ThedifferentmodelshadresultedinsubstantiallydifferentITinfrastructuresandcostbases.
• TherewassignificantscopetoreducethecomplexityoftheITinfrastructureandimprove(andautomate)businessprocessesbycentralisingandharmonisingsystems.TheexistingSwissplatformwascharacterisedbyahighlevelofautomation,thanksinlargeparttohavingadapteditsprocessestothefunctionalityinT24withoutsignificantlocaldevelopments.
• ASharedServiceCentre(SSC)wouldbethebestwaytoachievethiscentralisationandwouldresultinbetterprofitability,improvedcustomerservice,fasterproductinnovationandsuperiorriskmanagementandcompliance.
Why Did Schroders Private Banking Choose To Centralise Its IT Systems?
Old System Architecture (London And Guernsey) Before Centralisation
Onyx Reuters RPMS
OMS
E-Banking
FTID
Warehouse
CGIX
Globus
Frank Russel Rebates
Columbus R StreamServe
BACS IBIS
CARS
Middleware
SWIFT Alliance
Tranmt
rFrame
SUN GL
Charles River Salerio
WM/CAPS
Kondor Devon
TRAM/BART
PM & RM Dealing
T P
FSA
Source:SchrodersPrivateBanking
32ThenumberofdisparateITsystemsusedacrossSchrodersPrivateBankingbeforecentralisation
TemenosCaseStudy03
ItwasdecidedthattheITinfrastructureandoperationsofthethreebankswouldbemergedintoasharedservicecentreinZurich,withT24actingasthecoreprocessingapplication(andsupportedbyonlyafewancillaryapplications).ZurichwaschosenbecauseitalreadymanagedtheoperationsforprivatebankinginbothZurichandGenevaandpartoftheinstitutionalbusinessbasedinZurich–atacompetitivecostlevel.
Target Business Model
Relationship Management
HR
FX / MM Dealing Desk
Accounting / Controlling / MIS
AssetAllocation
Internal Services
Risk Management / Risk Reporting
Valuation / Performance
Reporting
Order Entry
Cashier Operations
Securities Dealing Desk
Corporate Action QI Reporting
Portfolio Management
Compliance
Regulatory Reporting
Securities Operations
Product Management
Opening Client Documents /
Compliance Check
Correspondent Banking
FX / MM Operations
Source:SchrodersPrivateBanking
Areas Of Schroders Private Banking To Be Supported By The SSC
Schroders Private Bank London
Schroders & Co BanqueSA Geneva
Schroders & Co Bank AG Zurich
Service Centre, Zurich
Schroders Private Bank Guernsey
SIM Zurich Institution, Retail and Fund Management
Source:SchrodersPrivateBanking
Itwasenvisagedthatallaccounting,securityandpaymentsservicesforclients–includingcustodyoperations,maintenanceofclientdataandIT(infrastructure,developmentandmaintenance)–wouldbehandledfromZurich,whileallfrontofficeservicesandclientactivitiesaswellascompliance/legalservicesandtreasurywouldremainunderthecontrolofthelocalentities.Theanticipatedsplitofthedifferentbusinessservicesaccordingtolocationofprovisionisgivenbelow.
Theinitialmanagementprojectionwasthat,byusingtheSSCinZurich,totaloperatingcostscouldbecutbyonethirdversusthecostofmaintainingthethreestandaloneITandsupportcentres.
TemenosCaseStudy04
Theprojecttook18monthsandtheSSCinZurichwentliveinApril2007.Fromtheoutset,itwasagreedthata“bigbang”approachwouldbepreferable,sincethecomplexityand
interdependencyoftheexistingprocessesandplatformswouldhavemadeaphased(butlessrisky)approachalmostimpossible.Effectively,aphasedapproachwouldhavemeantthat,aftergo-live,certainfunctionalitywouldnothavebeenavailableandworkaroundswouldhavehadtobedeveloped.
Theprojectwassplitintofivephases,asshowninthediagrambelow,andaddingtothecomplexityoftheproject,anupgradefromT24R4toR6wasruninparallel.Theupgradewasdeemednecessaryinordertotakeadvantageofthefunctionalenhancements–particularlyinregardtothedifferentmarketpractices–andthefullmulti-threadcapabilityoftheCloseofBusinessprocessinginR6providinghighscalability.
Intermsofthetechnicalimplementation,themajortaskswerethebuildingofT24forLondonandtheChannelIslands,thedatamigrationfromseveralsourcesandtheredesignanddevelopmentofbusinessprocesses.Thedatamigration,inparticular,provedtobeverychallengingsincethelackofintegrationinthepasthadresultedinsilosofredundantandinconsistentdataandoftennouniquerelationshipacrosstheapplications.Toautomatethedatamigration,Schrodersdevelopedamigrationhubthatused200mappingroutines
The Project
totransformthedata.Manualdatatake-onwasonlynecessaryinahandfulofcasesandacompleteintegritycheckwasrunonthehubbeforeloadinganydataintoT24.
However,likeinmostprojects,therewerealsohumanchallenges.ThetwoissuesthatSchrodersfacedandsuccessfullyovercamebothrelatedtostaffbeingmaderedundantasaresultofthecentralisation:specifically,howtoensuretheircontinuedcooperationwiththeprojectandhowtoensureasmoothandcompleteknowledgetransfer.Variousinitiativeswereusedtoaddresstheissueofmotivationand,toassisttheknowledgetransfer(especiallyregardingthelocallydifferentlegal,taxandclientreportingrequirements),Schrodersusedamixofcomputer-basedtraining,leaflets,intranetinformationandclassroomteaching.TherewasexcellentcooperationthroughouttheprojectbetweentheLondon-andChannelIslands-basedstaffandthestaffintheservicecentreinZurich.
Theprojectwentlivewithintheplannedtimelineandthecostsoftheimplementationwereinlinewiththeplan.Thebenefits,however,whicharediscussedbelow,havecomfortablyexceededexpectations.
Project Phases
Serv
ice
Cen
tre
Fron
t Offi
ces Detailed Planning Of IT
and Operations
End Of Business Specifications Final Concept Confirmation Go-Decision End of First Build Begin User Acceptence Test
Revise Static Data
Training
Testing
T24 Implementation Project
3rd / 4th Quarter ‘05 1st / 2nd Quarter ‘06 3rd / 4th Quarter ‘06 1st / 2nd Quarter ‘07
Business Specifications
Detailed Planning Swiss Service Centre
Detail Concept / Process Design
Decision Projects 05 / 06
Go 1 2 3 4 5
1 2 3 4 5
Cut Over
Source:Temenos
Project Phases
TemenosCaseStudy05
Below,wesummarisethediscussionsheldinJanuary2009withtheCOO,CFOandCIOtoreviewtheprojectanditsoutcomes.
The Outcomes
90Thenumberofdifferentcostdriversnowusedtoallocatecentralcosts
Operational EfficiencyThemovetothesharedservicecentrehasallowedSchroderstorunthebank’soperationsmuchmoretightly.Muchofthisoperationalimprovementisclearlyreflectedinthelowercostbasepertransaction.However,movingtotheSSChasalsoenabledmanagementtoobtainbetterqualityinformationthat,inturn,allowsittomakebetter-informeddecisionsaboutthebusinessandhowtoallocateresourcesbetweencompetingpriorities.
AsHeinzScheiwillerpointsout,informationhasimprovedinthreekeyways:
1. Profitability measurement:usingconsolidateddatafromallthreebanksandapplyingthesamelevelofanalysistoallthreeentitieshasenabledSchroderstocomparefinancialdatamoreeasilyandmoreaccuratelyacrossthedifferentbanks,butalsoattheindividualcustomerlevel.
2. Cost allocation:moregranularandconsolidateddatahasaffordedamoveawayfromarbitrarycostallocationbetweenthedifferentbanksandprofitcentres.Instead,costsarenowallocatedonthebasisof90differentcostdrivers,whichreinforcetheaccuracyofprofitmeasurement.
3. Timeliness:asaresultofmovingtotheSSC,thequalityofinformationhasimproved,butsohasitstimeliness.HigherlevelsofautomationcoupledwiththeabsenceofreconciliationbetweendifferentdatasourcesmeansthatSchroderscannowperformthemonthlyconsolidationfortheentirebankwithinafewdaysaftermonthend.
Customer ServiceIngeneralterms,themovetotheSSChasimprovedcustomerserviceinanumberofways.Ithaspermittedcustomerrelationshipmanagerstospendmoretimewithcustomers(sinceithasfreed-uptimebyreducingtheIT-relatedtimeburden);ithasallowedSchroderstoincreasetheproportionofrelationshipmanagerstocustomers;ithasgivenrelationshipmanagersreal-timedesktopclientinformation;and,ithasempoweredcustomersbygivingthemreportswithmoredetailedandmoretimelyperformanceinformation.
IntermsofmorespecificKeyPerformanceIndicators(KPIs),thesevaryaccordingtothekindofservice,butSchrodershasachievedmarkedimprovementsinmost.Forexample,themostimportantKPIiscostoftransactionandsincegoingliveattheSSC,Schrodershassubstantiallyreducedthis.
Product InnovationCustomersofallofthebankshavebenefitedasthemovetotheSSChasresultedinSchroderstakingthebestproductsandpracticesfromthethreeconstituentbanksandrollingthemintoonestandard,butmoreextensive,offering.And,becausetherangeofproductsisnowstandardised,therearegreaterefficienciesattheoperationallevel.
ClientreportingisanotherareathathasimprovedsignificantlysinceoperationswerecentralisedandanareawherehefeelsSchrodershasbeenabletodifferentiateitselffromcompetitors.
“For me, the transition to the shared service centre has brought a more focused approach to private banking, reflected in improved efficiency and the realised cost synergies, but also in much better levels of service for our clients.” HeinzScheiwiller-COO-SchrodersPrivateBanking
COO Perspective
TemenosCaseStudy06
SincemovingtotheSSC,Schrodersisabletosendoutclientstatementsaboutaweekearlierthanbefore.Furthermore,whileallstatementshaveasimilarformat(thatallowsthebanktoleverageitsbrandingmorestronglythanbefore),theflexibilityoftheintegratedsystemallowsthecontentoftheclientreportstobetailoredtoindividualclientspecifications.
Asgeneraloptionsforallreports,clientscanchoose:
• Frequencyofreports.• Basecurrency.• Whetherperiodsareshownwithrollinghorizonor year-to-dateperformance.• Whetherperformanceiscalculatedusingtime-weighted ormoney-weightedmethod.• Whetherbenchmarksareshown.
A WeekThereductionintimeittakesforSchroderstosendoutcustomerstatementseachquarter
Asset By Class And By Currency (Extract From Customer Report)
Assets By Class
23.1% Equities27.8% Bonds18.9% Alternatives30.3% Cash
Assets By Currency
68.5% GBP18.8% EUR5.7% USD7.0% Other
Source:SchrodersPrivateBanking
Reporting Overview (General Options For Customer Reports)
Year-to-Date Rolling Overview Short Standard Extended 1 Extended 2 FullPage 8 Asset Breakdown Page 9 Assets by Class and by Currency Page 10 Asset Allocation Changes Page 11 Equities by Region Page 12 Equities by Sector Page 13 Cash and Bond Maturities Page 14 Position Statement
Performance Page 15 15 Overall Performance Page 16 Monthly Performance Page 17 Yearly Performance Page 18 Performance by Asset Class Page 19 Performance by Segment Page 20 21 Performance against Benchmark Page 22 Performance by Position
Movements and Liabilities Page 23 Statement of Account Page 24 Securities Transactions and Corporate Actions Page 25 Cash and Securities Inflows – Outflows Page 26 Loans, Guarantees and Letters of Credit
Page 27 Additional Information to Client
Reporting Overview
Standard Option
General Options for all Reports FrequencyPeriods Shown with Rolling Horizon OR Year-to-Date Quarterly (Standard) Performance Calculation Method Applied Time-Weighted OR Money-Weighted MonthlyCost Value or Accrued Interest Shown Cost Value OR Accrued Interest Half YearlyBenchmark Shown Yes OR No Yearly
Year-To-Date Rolling Overview Simple Short Standard Extended FullPage 8 Asset Breakdown Page 9 Assets By Class And By Currency Page 10 Asset Allocation Changes Page 11 Equities By Region Page 12 Equities By Sector Page 13 Cash And Bond Maturities Page 14 Position Statement
Performance Page 15 15 Overall Performance Page 16 Monthly Performance Page 17 Yearly Performance Page 18 Performance By Asset Class Page 19 Performance By Segment Page 20 21 Performance Against Benchmark Page 22 Performance By Position
Movements And Liabilities Page 23 Statement Of Account Page 24 Securities Transactions And Corporate Actions Page 25 Cash And Securities Inflows – Outflows Page 26 Loans, Guarantees And Letters of Credit
Page 27 Additional Information To Client
Reporting Overview
Standard Option
General Options for all Reports FrequencyPeriods Shown With Rolling Horizon OR Year-to-Date Quarterly (Standard) Performance Calculation Method Applied Time-Weighted OR Money-Weighted MonthlyCost Value or Accrued Interest Shown Cost Value OR Accrued Interest Half YearlyBenchmark Shown Yes OR No Yearly
Source:SchrodersPrivateBanking
TemenosCaseStudy07
Two-ThirdsReductioninthenumberofdatacentres(from6to2)followingthemovetotheSSC
Operational EfficiencyEfficiencygainsweremainlydrivenbyareductioninstaffnumbers.Ofthetotalcostreduction,approximately60%camefromreducedstaffnumbers.Theremaining40%ofcostsavingsstemmedfromnon-staffrelatedcosts,principallylowersoftwaremaintenancecostsandreducedhardwarespending.ITnowaccountsforlessthan10%oftotalcostsand5%ofthetotalworkforce.
SchrodersPrivateBankingnowoperateswithoneback-office,onesecuritiesmaster,oneclientstaticdataadministrationteamandonedealingdesk(asopposedtothreeormoreineachcasebeforetheITcentralisationproject).
“Our view is that IT and support costs, as percentage of total costs, should decrease over time. Our competitive advantage comes from excellent customer service and innovative products. We aim to direct as many resources as possible to the customer-facing parts of the business.”
Intermsoftherevenuesynergiesthathavearisenfromcentralisation(indirectlyfrombetterclientinformation,betterpricing,etc),thesearehardertoquantify,althoughSchrodersreportsasignificantimprovementinthelevelofassetsundermanagementperemployee,akeymeasureofproductivity.
Risk And Compliance
“The improvement in aggregated management information [since moving to the service centre] has been a huge advantage during the subprime crisis. For example, when we wanted to understand our exposure on the client and nostro side to Lehman Brothers, it took us half an hour to understand that we had no exposure. In contrast, at the time of the Barings collapse, we spent significantly more time retrieving this information.”
AftermovingtotheSSC,thecostofmonitoringactivitieslikecomplianceisdecreasing.OnlyhavingoneprocessinglocationmeansthatSchrodersisinapositiontodeliveranyrequestedinformationintheseareasinashorttimeframeasmanyoftheunderlyingdatadeliveryprocesseshavebeensimplified.
Conversely,havingoneconsolidatedbackofficecentrereducesoperationalrisks(andtherisksofnon-compliance)inthatthereismoremanagementoversight,butmoreimportantly,becausemanagementhasaccesstomuchbetterinformation(moreaggregated,fewererrors),receivedmuchmorequicklythanbefore.Itcanthereforemakebetterinformeddecisionsaboutthebusiness,helpingtomitigaterisks.
“Undoubtedly, the best aspect of centralisation has been the elimination of the big discrepancy that existed in the operating costs of the different platforms. We now run an extremely lean infrastructure with infrastructure costs lower by approximately one third, and with IT support in the service centre representing about 5% of the total workforce.”Pierre-LouisFavre-CFO-Schroder&CoBankAG
CFO Perspective
Sources Of Cost Reduction (%)
LowerITSpending40%
FewerStaff60%
Source:SchrodersPrivateBanking
Reduction In Number Of Data Centres
0
21
BeforeCentralisation AfterCentralisation
543
67
Source:SchrodersPrivateBanking
TemenosCaseStudy08
Operational EfficiencyMovingtoasingleplatformtosupportoperationsacrossthreelocationsresultedinasignificantreductioninthecomplexityoftheoverallarchitecture,makingitpossibletomanagetheenvironmentwithasmallerteam(nowjust15people)andtokeepthatteamfocusedonactivitiesthathelpdifferentiatethebusiness.Further,thereductionintheamountoftimespentreconcilinginformationhasalsofreeduptimeforthecustomer-facingstaff.
Moreover,simplificationoftheITinfrastructurehasalsoreducedtheneedforcomplexinterfacesandcutsignificantlythenumberofdifferenttechnicalandplatformskillstheteamhastoaccommodate.SincethemovetotheSSC,thenumberofdifferentsystemshasbeenreducedbymorethan60%andthenumberofdifferentprogramminglanguagesusedhasbeencuttojustthree.
End-to-endprocessinghasbeenachievedacrossmanyprocesses,suchassecuritiesdealing,FXandfundstransfercuttingtheamountoferrors,improvingcomplianceandthecostofcompliance,andreducingthecostoftransactions.Informationerrorsandlateprocessinghavebeenreducedsignificantlyandthecostspertransactionshavedecreasedsharply.
Customer ServiceTheavailabilityofaprocessingplatformthathascapabilitiesbeyondprivatebankinghasenabledSchroderstobeverysensitivetotherequirementsofthevariouscustomersegments.
Forexample,ithasbeenpossibletoextendtheofferingtobusinessownerstoincludeallservicesofferedbySchroderstoalllocationsandtodosowithoutincurringsignificantadditionalITdevelopmentoroperationalcosts.
Toensureagoodlevelofcustomerserviceandtoremainclosetothelocalmarkets,itwasdecidedthat,contrarytothecentralisedsecuritiesdealing,thetreasurydesksshouldremaindistributed.Aflexibleorderroutingmechanismwasputinplacetomakethisconfigurationpossible.Theimplementationofthisspecificrequirementwaseasilyachieved,thankstotheopenarchitectureofT24.
New System Architecture (Following Centralisation)
20Thereductioninthenumberofthird-partysoftwaresolutionsusedbySchrodersfollowingthecentralisationofitsITinfrastructure
The move to T24 as one core platform with only a few ancillary systems has brought large advantages regarding the daily delivery of IT-services. The reduced complexity has generally increased the availability of our systems, has strongly decreased the reconciliations issues and has allowed our resources to focus on fewer technologies. These advantages gain importance with the servicing of additional locations in various time zones.RolfFischer-CIO-Schroder&CoBankAG
CIO Perspective
T24VDF
DWH
Printing
eCRM SIX
CGIX
Kondor
CORONA
eBanking
SWIFT
Archiving
Source:SchrodersPrivateBanking
TemenosCaseStudy09
SchrodersPrivateBankingembarkedonatransformationalITprojectattheendof2005tocentraliseintooneplatformallofitsITandoperationalinfrastructureusingT24asthecore
bankingsoftware.Themotivationforundertakingthiscomplexprojectwasmultifold:toreduceoperationalcosts,enhancecustomerservice,increaseproductinnovationandimproveriskmanagementandcompliance.
Theprojectwasdeliveredontimeandonbudget,buttheprojectoutcomeshaveexceededexpectations.Thecomplexityofthesystemhasbeenreducedsubstantially(thenumberofdisparatesystemshasbeencutfrom32to12)andthelevelofprocessautomationhasbeenincreasedsignificantly,withstraightthroughprocessingachievedinanumberofareaslikeFXandfundstransfer.
AsaresultofthemovetotheSSC,theinfrastructurecostspertransactionhavebeencutsubstantially,which,inturn,hashadahighlypositiveimpactonthebank’sfinancialmetrics.
Furthermore,themovetotheSSChasenabledthebanktoredirectmorestaffandresourcestothecustomer-facingpartsofthebusiness.Thisredeploymentofresources,coupledwiththemoreflexiblesystemarchitecture,hasaffordedanimprovementincustomerservice,asreflectedinlowercosts,greaterproductchoiceandbettercustomerreporting.Moreover,thisimprovementincustomerservicehasbeguntobetranslatedintobetterproductivity,withSchrodersexperiencingamarkedincreaseinassetsundermanagementperemployee.
Lastly,themovetotheSSChasgreatlyenhancedthequalityandtimelinessofmanagementinformation,allowingmanagementtotakebetter-informeddecisionsaboutthebusinessandimprovetheeffectivenessofriskandcomplianceprocedures.
Conclusion
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TBC
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