Banking on better integration

FST talks to Michael Kuhbock, Founder and Chairman of the Integration Consortium, about why the financial services industry has to consider better integration strategies.

Michael Kuhbock founded the Integration Consortium (formerly the Enterprise Application Integration Industry Consortium) in July 2001, having identified as a business priority the requirement to ensure industry trends were communicated with reliability and dependability. Since that time in his position as Chairman, Michael has led the organization to expand internationally and has established the IC as a key industry influencer. The Integration Consortium now has over 200 members, partners and alliances including the most influential technology industry leaders, academics and end users. Through his efforts, the Consortium has grown from a vision into a leading global integration community.

With more than 21 years of experience providing strategic planning and consulting for clients ranging from high-tech startups to global organizations, Michael combines substantial expertise in business development with in-depth knowledge of the high-tech industry. In addition, Michael has authored for major computing and business publications, and keynotes at many leading technology conferences around the world.

FST. Financial institutions have something of a reputation for their aging legacy core systems. What problems do these systems pose as organizations look to integrate new technology?
MK. The primary focus for all organizations, including financial institutions, should be how they service their customers. One of the major IT mantras out right now focuses on building a complete and robust customer-centric view. To achieve the environment of universal customer visibility, all of the disparate applications, silo systems and data silos have to be accessible in real time.

When you define integration as the successful communication between data, applications, processes, people and companies, then you can start to imagine how an impenetrable legacy system can create major issues for companies. Legacy core systems are the heart of most financial institutions, thus they are something that is impossible to rip and replace out of existing organizations. All organizations are driving growth and profitability; as such, there is a continuous requirement for new technology to support corporate development, and the integration of new technologies can often be a stumbling block.

Fortunately, the integration industry has reached a level of maturity to a point where a number of the major issues have been addressed and overcome. Some of these issues specific to the financial services industry include:

• Data quality issues due to a lack of enterprise-wide meta-data management, resulting in inconsistent use of data across products silos.
• Ineffective business processes needed to manage customer data.
• A lack of real-time information, which prevents the introduction of new capabilities and services.
• A lack of common business rules across an enterprise is preventing standardization of information integration technologies.
• Delivery systems implemented in different eras using different, incompatible technologies and standards.
• Operational and timing gaps between new web-based services and the legacy backend systems with batch processing constraints.
• Redundant interfaces that need to be maintained and supported.

Banks often lack efficient processes for handling new business, customer service and financial transactions. As it relates to customers, the legacy issues boil down to problems encountered in communication with and within a financial institution

Have you ever tried to apply for a mortgage online? Open an account? Wire money? Withdraw money internationally? Transfer a loan or account? Apply for a credit card or loan? These customer activities are never smooth and seamless, and the core institution services are the root of the problem

FST. In light of this, how would the industry benefit from strong integration strategies?
MK. Business integration does not come in a shrink-wrapped box. Despite the promises and predications of the late 1990s, it is not a single product or technology. Nor is it a final endpoint accomplished with a single project.

Integration focuses on improving the efficiency and effectiveness of the processes that run the business and service the clients and customers. Integration is about communication, inside and outside of the enterprise domain. It includes improving the quality and timeliness of information, and providing information on demand and where it is needed, regardless of the source system. Integration in essence facilitates business agility.

Business agility cannot be achieved simply by implementing integration technologies or methodologies on a project-by-project basis without an overall strategy of how it all fits together. Rapid implementation of the business strategy requires an enterprise-level integration strategy to make the implementation a reality. The business integration strategy ultimately reduces the time and cost of managing information and IT resources while preparing the enterprise to leverage dynamic market opportunities, business assets and effectively servicing the customer.

For the financial services industry, the realized value of integration and a coherent strategy is quantified in the reuse of existing systems, and immediate access to business critical internal and external information – which, of course, reduces costs and increases profitability. For the customer it means that everything is transparent; historic and current client information is secure and available to everyone. Thus the customer is recognized by their institution, regardless of business unit, and this recognition extends out to institutional partners and industry bodies.

FST. What would you say are the core aspects of a successful integration strategy?
MK. Failing to plan is planning to fail. With this in mind, no business is successful without building a vision, mission and plan for the next one through five years. Analyzing where you are, where you want to go and finally how to get there is how great organizations operate and succeed. All of the business divisions of a company must go through these steps so that the enterprise as a whole can build a unified business strategy and plan. This being said, why should integration be left out? Enterprise integration is an underlying business component of any organization; like manufacturing or marketing, integration needs to one of the primary cogs in every organization’s wheel. Integration must now step up and be recognized as a discipline unto itself and follow sound and fundamental business practices that every other division within the organization follows.

In the past, enterprise integration projects often seem equally interminable and produce questionable outcomes, excessive expenses and unacceptable failure rates as companies in the past have purchased an integration tool or solution without an enterprise-wide integration plan or strategy in place. Quantifiable returns, sustainability, and management acceptance are only achievable if there is an enterprise integration strategy and business plan in place prior to the initial pilot or acquisition of a solution tool or product (see sidebar: ‘Integration checklist’).

One main factor for integration success is to have all the stakeholders from the business and technology domains contribute to and take a vested ownership of their integration destiny.

FST. Legislation is putting a lot of pressure on financial institutions. How could better integration help meet compliance demands?
MK. Getting the right data, at the right time, to the right people, is ultimately the key to satisfying compliance demands. Integration is the safeguard for both ensuring the financial security of customers and shareholders, and ensuring that honest executives stay out of jail.

Compliance initiatives are obviously taking priority right now and are expensive. While budgets for compliance activities are growing, organizations are funding compliance over other marketing and operational activities and key initiatives are being delayed. Organizations will be looking for ways to better manage cost in the future, but the difficulty lies in future ‘unknowns’ like Basel II and SOX, hence why having a stable integration strategy and infrastructure in place is a priority for financial institutions.

FST. To what extent can better integration mitigate business risk?
MK. First we need to define business risk, as it means something different for every enterprise. Risk is associated with the unique circumstances of a particular company, as it might affect the price of that company’s securities.

Having solid IT governance in place – policies that should cover everything from security to operations with associated IT controls – is the best way to mitigate business risk. This is also a fundamental component of an integration strategy.

When we look at specific integration activities that address business risk, we see new risk-management solutions that have slowly started to appear over the past two years, under the banner of continuous monitoring. These solutions integrate with existing systems and provide ongoing assurance through detection of events of risk-management interest and notification of stakeholders.

The key focus for continuous-monitoring solutions is to reduce recurring manual compliance efforts, chiefly through replacing manual controls with automated ones. Compliance and cost reduction aside, these solutions can increase assurance of financial integrity for an enterprise.

FST. Once an integration strategy is underway, how can it aid the institution in more effectively identifying any illegal activities such as money laundering or identity fraud?
MK. Access to real-time data and automated triggers that spot any unusual activity that occurs is the most effective way of identifying illegal activities.

If an institution has an enterprise-wide, customer-centric view, not only can it notify any disparities that may affect a customer negatively, but it can also identify actions that put the organization in a compromising position. By having real-time information and robust communication across an enterprise via a holistic integration platform, this will ensure that questionable activities are identified and dealt with in a timely fashion.

FST. What are some of the challenges that institutions can expect to face as they rollout an integration strategy?
MK. Rolling out a coherent integration strategy can be akin to herding cats with a broom. The greatest challenge is on the human side of the equation, as this is where the link of the strategy chain is the weakest and one of the points where you get continuous push back. People can be very close-minded with strong philosophical anchors in place. The rejection of an enterprise integration strategy and the rollout of such by both business and technology professionals can be addressed by employing an effective change leadership program. This differs from a change management program as management is reactive where leadership is proactive. By addressing the human challenge prior to the rollout of an integration strategy, you can increase the chances for acceptance and success significantly.

A ‘siloed’ strategy without business buy-in and full proactive hands-on participation can be the death of an enterprise integration rollout, or even a single project for that matter.

Assuming that all of the proper groundwork has been done and the integration plan is properly in place, accountability (or lack thereof) can be another giant killer. This is why establishing proper governance and something as simple as an integration competency center within your organization can add to the probability of success. It is all about managing your own destiny throughout the process from conception to activity.

‘Life is a journey, not a destination’ and this applies to enterprise integration also. Business runs with a ‘constant change’ philosophy, and organizations have to be nimble and robust to quickly address what might happen tomorrow. Technology (and specifically integration) products and solutions face the same demands in terms of being able to match the change that happens in business daily.

A strong business process, robust architecture and solid stakeholder buy-in are key factors in any successful integration deployment. In addition to the obvious key components outlined are the requirements for an integration strategy and an enterprise integration business plan.

FST. Are there any warning signs that institutions should be wary of that demonstrate that an integration strategy isn’t working?
MK. There are some very simple signs that indicate things are off track. When issues that were faced prior to the integration strategy rollout begin surfacing again, this is one of the best indications that something is not working properly. These signs can be as simple as missed budgets, missed project deadlines, disenfranchised clients from the business side and distressed IT staff; all are key indicators that something isn’t working.

FST. Ultimately, how could the end-user – the banks’ customers – benefit from their financial institution implementing an effective integration strategy?
MK. The primary benefit to customers would be that they no longer fear or hate going to banks to obtain the services that they require – and which the banks are in business to provide.

Integration strategies and enterprise-wide deployments of that strategy facilitate cost reductions that can then be transferred to the customer – along with improved customer service, which is what everyone today is looking for. When a bank is fully integrated, customers have the assurance that security is in place, the bank is compliant, that it will stay in business, and that their livelihoods are safe.

Finally, customers will feel that they are somebody, fully recognized by all of the different business divisions of the bank and that they (as represented by their data) can be securely recognized and accessed in all methods on a real time basis – the banking nirvana we all are looking for.