PostGrad Diploma in Org Leadership: Investment Strategy

Post Graduate Diploma in Organizational Leadership
Title of the project:
Investment Strategy of Investment Banking Trading
Information Technology Department
Submission date: 24-Nov-2009
Word total: 9500
Examination candidate number: DOL0918
Investment Strategy of Investment Banking Trading Information Technology Department.
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Diploma in Organizational Leadership: Own work
Declaration
Candidate Number: DOL0918
Title of Course: Post Graduate Diploma in Organizational Leadership
Submission Date: 24-Nov-2009
Title of Work: Investment Strategy of Investment Banking Trading Information
Technology Department.
I confirm that all this work is my own except where indicated, and that I have:
• Clearly referenced/listed all sources as appropriate
• Referenced and put in inverted commas all quoted text (from books, web, etc)
• Given the sources of all pictures, data etc that are not my own
• Not made any use of the essay(s) of any other student(s) either past or present
• Not sought or used the help of any external professional agencies for the work
• Acknowledged in appropriate places any help that I have received from others (e.g.
fellow students, statisticians, external sources)
• Complied with any other plagiarism criteria specified in the course handbook
I understand that any false claim for this work will be reported to the Proctors and will
be penalized in accordance with the University regulations.
SIGNED (insert candidate number) ______________________________________
Do not sign your name
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ACKNOWLEDGEMENTS
Bestowing adequate recognition to all those, who contributed to give shape to this
dissertation is a tough task. At the risk of inadvertently omitting some, I wish to single
out of few who have been directly associated with this work.
I record my deep gratitude to my guides Prof. Chris Sauer of Said Business School,
University of Oxford and the director of the investment bank for their valuable,
relentless guidance and candid suggestions at every stage of this project.
Last, but not the least, I am grateful to the other colleagues of the investment bank and
Said Business School, University of Oxford for their necessary support.
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ABSTRACT
This present work is based on critical strategic analysis of investment strategy of
Investment Banking (IB) Trading (trading of various financial instruments)
Information Technology (IT) department. The work has been carried-out at the
premises of “Trading IT” department of an investment bank.
IT management of the bank wishes to know the strategic options and direction
available to achieve effective alignment between IT and business organization, better
harmonization of similar functional systems across various business units regionally
and globally, improve the awareness of common strategic goals and objectives across
the overall organization so that, IT department can work with business about the
future investment strategies fulfilling the overall strategic goal of the business and
technology regionally and globally. To achieve these objectives more emphasis is
required on IT investment prioritisation.
A critical strategic analysis view has been taken by the author to analyse the current
situation. Current issues, over-all system dynamics, and current approach have been
considered along with various strategic models to identify the number of strategic gaps
and challenges faced by the "Trading IT" department of an investment bank (IB). The
project work has achieved to provide strategic solutions to mitigate those challenges
and explained the investment requirement to act on it. Finally benefit analysis on
proposed strategic IT investment direction has been carried-out over existing
operational IT investment strategy and rational conclusion has been made.
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TABLE OF CONTENT
1.INTRODUCTION:.............................................................................................................................6
1.1OUTLINE OF THE PROJECT THESIS:............................................................................................................8
1.2OVERVIEW OF AN INVESTMENT BANK:.....................................................................................................8
1.3OVERVIEW OF TRADING DEPARTMENT:..................................................................................................10
1.4PROBLEM DEFINITION:........................................................................................................................11
1.5OBJECTIVES:......................................................................................................................................12
1.6SCOPE:.............................................................................................................................................12
2.LITERATURE REVIEW & IT STRATEGY:............................................................................................12
2.1WHAT IS STRATEGY? :.........................................................................................................................12
2.2CHARACTERISTICS OF STRATEGY:...........................................................................................................13
2.3STRATEGY & COMPETITIVE ADVANTAGE:................................................................................................17
2.4SUSTAINING COMPETITIVE ADVANTAGE:.................................................................................................22
2.5CORE COMPETENCIES ANALYSIS:...........................................................................................................24
2.6CREATING VALUE TO CUSTOMER:..........................................................................................................27
2.7IT GOVERNANCE:...............................................................................................................................28
2.8IT INNOVATION :...............................................................................................................................31
2.9IT SAVVY:.........................................................................................................................................33
2.10IT GROWTH PYRAMID:......................................................................................................................34
2.11EMERGING VIEW OF IT MANAGEMENT :...............................................................................................35
..........................................................................................................................................................37
2.12SWOT ANALYSIS:............................................................................................................................37
2.13SCENARIO PLANNING:.......................................................................................................................38
3.CURRENT STRATEGIC METHODOLOGY & APPROACH:....................................................................39
3.1CURRENT METHODOLOGY & APPROACH:................................................................................................40
3.2CURRENT STRATEGIC CHALLENGES:........................................................................................................42
4.PROPOSED STRATEGIC DIRECTION:...............................................................................................45
4.1PROPOSED STRATEGY:.........................................................................................................................45
4.2BENEFITS OF THE PROPOSED STRATEGY:..................................................................................................51
4.3CONCLUSION: ...................................................................................................................................52
APPENDIX A:...................................................................................................................................54
APPENDIX B:...................................................................................................................................55
APPENDIX C:....................................................................................................................................56
APPENDIX D:...................................................................................................................................57
APPENDIX E:....................................................................................................................................58
APPENDIX F:....................................................................................................................................59
APPENDIX G:...................................................................................................................................60
APPENDIX H:...................................................................................................................................61
REFERENCES:...................................................................................................................................62
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LIST OF FIGURES
FIGURE PAGE NUMBER
1.0 10
1.1 14
1.2 19
1.3 23
1.4 25
1.5 27
1.6 29
1.7 32
1.8 35
1.9 39
2.0 42
2.1 47
2.2 48
2.3 50
LIST OF ABBREVIATIONS
SHORT NAME FULL NAME
IT Information Technology
IB Investment Banking
PB Private Banking
REPO Repurchase Order
OTC Over The Counter
VAR Value At Risk
P & L Profit and Loss
STP Straight Through Processing
FX Foreign Exchange
PV Present Value
R & D Research and Development
EMEA Europe Middle East Africa
APAC Asia Pacific Economic Cooperation
NA North America
1. Introduction:
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This project has been carried-out on the subject of “Investment Strategy of Investment
Banking IT Trading Department”. Detailed analysis has been carried out in business
as well as IT arena of the trading department of an investment bank.
Over the last two decades investment banking business has grown significantly all over
the world. The business has crossed the boundary of the national geographic region
and reached landscape of the international arena. From the end of 20th century the
exceptional growing trend of business has been noticed in international trade &
investment, international merger & acquisition, exploitation of the arbitrage conditions
of different international market, the emergence of various complex investment
instruments of investment. However, over last two years (2007 & 2008) all major
investment banks have faced a huge decline in revenue because of credit crunch,
triggered by sub-prime mortgage in America. It has eventually reduced the overall
growth rate of the industry.
Rapid development & innovation of Information Technology and strong emphasis of a
medium to large-scale organizations on investment in Information Technology infra-
structure from last two decades helped an organization to grow significantly beyond
the national boundaries. Without the presence of Information Technology, it could
have been the practically impossible task for an organization to reach the current level
of growth and business innovation.
Today we have noticed that Information Technology is a key factor for an
organization’s growth and sustainability. Strategic investment in IT can put an
organization on the edge of competitive advantage and can help an organization to
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evaluate more innovative ideas of business nationally and internationally. Today and
coming future IT can and must play an important role in the organization’s business
strategy.
1.1 Outline of the project thesis:
The present thesis work highlights suitability of the aspects of strategic
analysis, planning, modelling of strategic management. The first chapter of this thesis
covers the brief overview, problem definition, objectives, scope etc.
The second chapter deals with the literature survey on various strategic management
aspects including analysis & planning, modelling, and strategic leadership, which are
relevant to the IB IT trading department.
The third chapter will provide detailed strategic analysis of the IB IT trading
department using strategic models and identify current strategic challenges of the
existing system.
In the fourth and final chapter proposed strategic direction, benefit analysis and
conclusion have been made.
1.2 Overview of an Investment Bank:
An investment bank is a financial institution that raises capital from the market, trades
in securities (equities, bond, repo, fixed income instruments, commodity, foreign
exchange, money market instruments and many more), manages corporate mergers and
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acquisitions. Investment banks mainly transact with institutional clients, corporate
clients and government sectors.
An investment bank traditionally divided into three parts front, middle and back office.
Large full-service investment banks offer all the lines of businesses, both sell side and
buy side including sales, trading, market research, investment management etc. Front
office of an investment bank directly involves with trading with another financial
institutions, corporate clients, sales activities, market research, custody, private equity
and merger & acquisition activities. Middle office is responsible for proper trade
execution, financial control, reconciliation, risk analysis & control, controls &
compliance, and legal activities. Back office of an investment bank mainly carries out
trade settlement, claims, valuation, payment, and operational controls etc.
Information Technology is used in all three parts of the investment banking and the
key element for running successful investment banking business. Today, without IT,
very minimum operation can be done in an Investment Bank starting from front,
middle to back office. The project is concentrated on IT investment strategy of
trading & sales department of Front office business area.
HSBC, JP Morgan, Citigroup, Goldman Sachs, UBS, Deutsche Bank, Credit Suisse,
and Royal Bank of Canada are few big names in the field of investment banking.
Following figure shows the percentage of increase in share prices of major investment
banks over 12 months.
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Figure 1.0
Source: http://www.nyse.com/ , Period: 03- Nov-2008 to 02-Nov-2009
1.3 Overview of Trading Department:
Investment Banking trading department consists of institutional trading of various
asset classes (Foreign Exchange, Money Market, Equity, Equity Options, OTC
Derivatives, Exchange Traded Derivatives, Credit Default Swaps, Credit Default
Options, Bank Notes, Commercial Papers, Term, REPO, Govt. & Corporate Bonds,
Structured Products etc.).
In each of the asset classes, there are several functions like Trade capture, Pricing,
Market risk management (End of the day and Real time), VAR, P&L management,
Profit Attribution Analysis, Straight Through Processing, Trade aggregation, Exposure
/ Position management, Risk control, Trade life cycle management, Reconciliation,
Settlement etc.
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Robust and integrated IT architecture is required to support all the above functions and
to enable the business to carryout competitive trading.
1.4 Problem Definition:
Currently, the IB IT trading department is facing several challenges to enable them to
support business unit more effective way, so that the business unit can get the edge of
market competitiveness and state of the art IT infrastructure. Some of major challenges
in the IB IT trading department are listed below.
• Improvement of strategic analysis in the department for optimal IT investment
prioritisation and allocation of IT budget strategically.
• Better alignment of business strategy and IT strategy.
• Fewer consensus among IT people about business values and benefits.
• Harmonization of multiple systems with similar functionality within the
national and international region.
• Increase emphasis of strategic planning within IT line organization.
• More re-usability of software and components, duplicate development effort.
• Eliminate operational problems within current systems.
• Address end of the life cycle issues.
• More attention to secure people with the right skills.
This project takes a strategic management approach to address these challenges.
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1.5 Objectives:
Main objectives of this thesis work are given below.
• To create the road map of strategic management of the IB IT trading
department which will facilitate the better alignment of IT and the business,
optimum utilization resource, cost, and time over long run.
• To identify the missing basis for top-down IT investment prioritisation: risk
that values of IT spend is sub-optimal.
• To provide strategic solutions of challenges identified in previous section.
1.6 Scope:
The scope of this project work is only limited to the overall strategic analysis of
an Investment Banking IT department. It will not cover detailed strategic scrutiny of
each application and IT function in the department.
2. Literature review & IT strategy:
2.1 What is strategy? :
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A strategy is the pattern or plan of actions, which is designed to integrate an
organization’s various goals, objectives, major policies and plans to achieve a specific
goal or effect.
Strategy is different from tactics. Tactics are very much circumstance and situation
oriented plan to achieve one specific measurable objective. In over all strategy of an
organization, there could be many tactical plans as per situation, which will eventually
meet the overall strategic goal and objective of the organization.
Source: Contemporary Strategy Analysis, Sixth edition, by Robert M Grant, pp: 17
http://en.wikipedia.org/wiki/Strategy,
2.2 Characteristics of strategy:
Source: Contemporary Strategy Analysis, Sixth edition, by Robert M Grant, pp: 7-12
Some common characteristics of a successful strategy of an organization are given
below.
Vision, Goals & Objectives: A strong strategy should have a clear vision which is an
ideal picture of what the company could be in future associated with simple,
consistent, and long term goals and objectives combining major organizational
policies. In an investment banking IT organization, the strategy should have set of
goals and objectives, which can be directly integrated with Investment Banking
business goals and objectives.
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Source: Contemporary Strategy Analysis, Sixth edition, by Robert M Grant, pp: 7
Profound understanding of the competitive environment : Deep vein understanding
of the surrounding competitive environment is the key fundamental to a successful
strategy. The insightful appreciation of the arena can be used for strategic analysis and
development of a strategic plan. In an investment banking IT organization,
understanding of importance of IT for investment banking business and knowledge of
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available IT platform in the market which are used by competitors can be used for
strategic analysis and planning.
From last 7-8 years, focus on IT from business has been changed quite significantly.
Business is not directly involved in tactical aspects of IT like (IT infrastructure scale,
data security and back-up, disaster recovery etc.). For business, it is more important to
grasp the new market, new business opportunity and IT should help business to gain
those opportunities. Business expects that as IT industry is now matured, tactical
aspects of IT will be taken care automatically, just as we expect the lights to go on
when we flip on the switch. That’s where the non-core and non-differentiating
functions of IT are getting “commoditized”. It has been observed by the author in two
major investment banks.
In the current highly competitive environment business organizations are becoming
more and more agile, hence business changes need to be adopted quickly in the IT
system. IT department should try to make their process more flexible and agile to
cope-up with business demand. Today, IT department cannot go into seclusion and
work on a project for few months at a given time. The hyper competitive environment
will make your IT project irrelevant during that time.
Source: http://itstrategyblog.com/
Objective appraisal of resources: An organization should develop the strategy by
effective exploitation of its internal resource strengths, while improving areas of
weakness. Some key tasks in an investment banking IT organization leading to
objective appraisal of resources are given below..
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 Development of teams with common goals and objectives.
 Creation of attitude towards continuous learning, change adoptability,
knowledge sharing, team working etc.
 Placement of a right person with right skill for a right job.
 Effective utilization of the existing IT infrastructure and platform.
 Enhancement of existing trading and operational platform on line with the
current market trend (In the investment banking trading arena; Straight
Through Processing, Electronic trading, Risk and P&L aggregation across all
asset classes, Common trading portals, Real time risk, Real time p&l, and
Real time trade blotter are few examples of current market trend).
 Decommissioning of age old platforms with old technologies and replace them
with current market leading technological platform.
Strategy analysis & planning: Strategy analysis & planning is a broad area in
strategic management. Various strategic models used for strategy analysis & planning
will be discussed later of this chapter. In a nutshell, strategy analysis is associated with
detailed analysis of organization’s goals, objectives, values in association with internal
resources, capabilities, structure, systems, competitors, customers, and suppliers.
Detailed strategic plan is drawn based on the analysis results to create a well executed
strategic fit.
Effective implementation: The best-laid strategies are of little use without effective
utilization. Effective execution, focused monitoring & controlling, formulation of a
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strategy team, and quick responses to changes in the competitive environment are
critical to the success of a strategy plan.
2.3 Strategy & Competitive advantage:
Source: Contemporary Strategy Analysis, Sixth edition, by Robert M Grant, Chapter: 5, 7
The basic definition of competitive advantage is “When two or more firms compete
within the same market, one firm possesses a competitive advantage over its rivals
when it earns (or has the potential to earn) a persistently higher rate of profit.”
However, superior profitability is not the only competitive advantage. Competitive
advantage can be achieved on specific business market share, technology, customer
service & loyalty, employee hire & retention, executive perks, and robust & simplified
process.
As per http://www.bankingtech.com/content/ipi/bankingtech/pdf/BTAwards_2009.pdf,
Deutsche Bank has a competitive advantage on STP technology, HSBC has a
competitive advantage on Treasury / Cash management technology, Citi has a
competitive advantage on Green IT initiatives. Similarly, one bank has a competitive
advantage over others on their business processes, methods, practices and ability to
attract bright and talented people from the market.
There is another modern aspect of competitive advantage is the firm’s ability to
respond to change on an external and internal impact. A quick turnaround against the
impact will make the firm on the edge of competitive advantage. In today’s world
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where IT enables the business to take a new opportunity and respond to the change, it
is very much necessary for the IT department to provide quick solutions to the business
and reduce or simplify the process and bureaucratic obstacles. Adoption of agile
development methodology and rapid development methodology in IT department will
increase the software delivery frequency to the business.
Source: http://agilemethodology.org/ ,
http://en.wikipedia.org/wiki/Rapid_application_development ,
http://www.mariosalexandrou.com/methodologies/rational-unified-process.asp
World famous strategist Michael Porter suggested four "generic" business strategies
that could be adopted in order to gain competitive advantage. Following figure
displays the model suggested by Michael Porter.
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Source: http://tutor2u.net/business/strategy/competitive_advantage.htm
The differentiation and cost leadership strategies seek competitive advantage in a
broad range of market or industry segments. By contrast, the differentiation focus and
cost focus strategies are adopted in a narrow industry segment.
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Strategy – Differentiation: This strategy involves selecting one or more criteria used
by investment banking business, positioning the IT organization and platform uniquely
to meet those criteria. This strategy is usually associated with high cost and an extra
value-added feature provided for the business. It also provides business customers
clear reasons to prefer the product over other, less differentiated products. As example,
Cross Currency Basis Swaps, FX Options, Inflation Linked Bond, Structured Bond,
Bond Options Futures are some investment banking products, where more specialized
and complicated pricing and risk models are required.
Strategy - Cost Leadership: With this strategy, the objective is to become the lowest-
cost producer in the industry. Many (perhaps all) market segments in the industry are
supplied with the emphasis placed minimizing costs. This is not different for IT
organization. In IT organization, this can be achieved by utilizing the arbitrage
opportunities of low cost IT professional in emerging markets via vendor, using
standardize IT infrastructure and IT platform from the market and aggregating IT
platform globally. But, this strategy will provide little to moderate differentiation and
competitive advantage over rivals. However, there is nothing wrong with this strategy
as it will serve all basic purpose to sustain in the market and most importantly reduce
the cost. This strategy is very useful for standardized asset classes in an investment
bank like vanilla Interest Rate Derivatives, FX, standard Money Market products,
Futures, Equities, and Options.
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Strategy - Differentiation Focus: In the differentiation focus strategy, a business aims
to differentiate within just one or a small number of target market segments. The
special customer needs of the segment mean that there are opportunities to provide
products that are clearly different from competitors who may be targeting a broader
group of customers. The important issue for any business adopting this strategy is to
ensure that customers really do have different needs and wants - in other words, that
there is a valid basis for differentiation - and that existing competitor products are not
meeting those needs and wants. If any part of investment banking business goes for
above strategic model, IT organization also has to adopt a similar model by focusing
on development of customized IT platform to support the business organization
to achieve its goal. However, it will incur more costs due to customizations of IT
platform to meet the specific need. In an investment bank Complex, Hybrid,
Structured and Exotic products are few examples where the above strategy will
be very useful.
Strategy - Cost Focus: Here a business seeks a lower-cost advantage in just one or a
small number of market segments. The product will be basic - perhaps a similar
product to the higher-priced and featured market leader, but acceptable to sufficient
consumers. Such products are often called "me-too's". To achieve this objective in IT
organization, externally or internally available standard IT platform can be used or
simplified IT platform can be developed to support the basic features of the product.
As an example, an investment bank wants to start a business in Bahrain, it makes sense
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for them to deploy existing IT platform from other locations of the bank or outsourcing
non-core processes to India and China.
Adoption of any of these above mentioned strategies depends on organization’s vision
and goal, the revenue growth, capital ratio, the present market conditions etc. After
2007-2008 credit crunch, many organizations have opted cost leadership strategy to get
the competitive advantage.
2.4 Sustaining Competitive advantage:
Source: Contemporary Strategy Analysis, Sixth edition, by Robert M Grant, Chapter: 5, 7
Once it established, competitive advantage is subject to erosion by competition. The
speed with which competitive advantage is undermined depends on the ability of
competitors to challenge either by imitation or innovation. Imitation is the most direct
form of competition; thus, for competitive advantage to be sustained over time,
barriers to imitation must exist. “Isolating Mechanisms” by Richard Rumelt, a
professor of strategy at UCLA's Anderson School of Management can be used to
sustain competitive advantage on a long run. To identify the sources of isolating
mechanisms, we need to examine the process of competitive imitation. For one firm
successfully to imitate the strategy of another, it must meet four conditions, which are
described below.
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Figure 1.3
 Identification: The firm must be able to identify that a rival process a
competitive advantage.
 Incentive: Having identified that a rival process is a competitive advantage, the
firm must believe that by investing in imitation, it too can earn superior returns.
 Diagnosis: The firm must be able to diagnose the features of its rival’s strategy
that give rise to competitive advantage.
 Resource acquisition: The firm must be able to acquire through transfer or
replication the resources and capabilities necessary for imitating the strategy of
the advantaged firm.
In investment banking industry, it is very difficult to create a strong barriers on
imitation as new product features are available to rivals through over the counter and
internal process, pricing & risk modeling, systems, structure can be easily identified by
human resource acquisition. However, an investment bank which is a first mover in
terms of optimizing process, innovation of pricing & risk models, development or
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enhancement of market leading IT platform always will have a more sustained
competitive advantage for a longer period irrespective of imitation.
On the other hand, an IT organization of an investment bank can use imitation to create
innovation, which can create another level of competitive advantage. So, the
investment banking IT organization should have a strategy which will support
innovation, creativity, simple & straight forward process, recognition, task oriented
project team and reduced hierarchical control, which will in turn create the competitive
advantage.
2.5 Core Competencies analysis:
Core Competencies are those internal and external capabilities that are critical to a
business achieving competitive advantage. The idea of Core Competencies was
developed by famous strategist C K Prahalad and G Hamel (1990) through a series of
articles in the Harvard Business Review followed by a best-selling book - Competing
for the Future. Their central idea is that over time companies may develop key areas of
expertise, which are distinctive to that company and critical to the company's long term
growth.
'In the 1990s managers will be judged on their ability to identify, cultivate, and exploit
the core competencies that make growth possible - indeed, they'll have to rethink the
concept of the corporation itself.' C K Prahalad and G Hamel 1990.
Source: http://tutor2u.net/business/strategy/core_competencies.htm
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Figure 1.4
These areas of expertise may be in any area but are most likely to develop in the
critical, central areas of the company where the most value is added to its products.
For example, for software company key skills may be in the overall simplicity and
utility of the program for users or alternatively in the high quality of software code
writing they have achieved. Also, it can be a unique and robust business requirement
analysis process and transformation process of business requirements into functional
requirements so that functionally reached IT systems can be developed or capability to
attract highly talented and skilful individuals by creating challenging working
environment and market leading compensation.
Core Competencies are not seen as being fixed. Core Competencies should change in
response to changes in the organization’s environment. They are flexible and evolved
over time. As a business evolves and adapts to new circumstances and opportunities,
so its Core Competencies will have to adapt and change.
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To identify Core Competencies, Prahalad and Hamel suggest three factors, which are
described below.
 Core Competencies are the factors that enable the organization to create
innovative products and processes. In IT organization, the presence of strong
R&D wing can be a core competence.
 Core competencies are the skills that enable an organization to deliver a
fundamental customer benefit. In IT organization, a fundamental customer
benefit can be achieved by keeping production system up and running 99% of
time, providing system with required functionality, and delivering the reliable
system always within the time with reasonable cost tolerance.
 A core competence should be "competitively unique": In many industries,
most skills can be considered a prerequisite for participation and do not provide
any significant competitor differentiation. To qualify as "core", a competence
should be something that other competitors wish they had within their own
organization. Presence of people with strong knowledge both in business
engineering and IT can create real differentiation in an IT organization.
Source: http://tutor2u.net/business/strategy/core_competencies.htm,
http://www.mindtools.com/pages/article/newTMC_94.htm
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2.6 Creating value to customer:
To gain the competitive advantage, creating the value to customer is very much
essential. If the customer does not understand the value of the solution, it will be
practically impossible to gain the confidence and satisfaction of the customer. IMD,
Switzerland has carried-out research on this topic, which is explained below.
Figure 1.5
Source: Presentation by Dr. Stefan Michel of IMD, Switzerland
There are six main areas, which can add value to customer resulting in superior
competitive advantage.
Provide solutions: When we think about providing a solution to the customer, we
think about providing product with various functionalities or attributes. We rarely
think about whether these functionalities will be benefited to customer or not. Recent
research from IMD, Switzerland clearly shows that by providing desired solution to the
customer, we can add value to customer rather than various attributes.
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Partnership with customer: To understand the desired customer solution, we need to
create close partnerships with customer. This will help us to identify various benefits
customers are looking from our solution. In IT, regular meeting with business,
involving business with IT planning and solution design, prioritising the work slate
together with business are few good examples of developing healthy partnership with
customer.
Understand customer benefits: Understanding of what really benefit to the customer
is one of the most important tasks. Clear understanding of customer benefit will help to
build the most desirable solution for the customer.
Create value with customer: It is a very new concept. To add a customer value,
realization of the value from customer prospective is very important. This can be
achieved when value analysis will be done together with customer.
Value constellation: Key values will be categorized from various aspects once value
analysis is performed along with customer. Each category will have values grouped
together. Customer solution should address each value category.
Consistency and reliability: Delivering a solution to customer with consistency and
reliability is most important factor. It is a great value to the customer because without
it the best solutions will have little meaning to the customer.
2.7 IT Governance:
Effective IT governance becomes part of the firm's DNA and is a source of
competitive advantage rather than perceived as a burden and bureaucracy. It can put
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the maximum value to the business and can be directly linked to financial results.
Overlay IT governance onto "what-ever makes the company great" is a vital factor. IT
governance should be carried-on from senior management level to program level and
to project level. The IT governance body of a project or program should consist of at
least IT program or Project Manager, Business Manager, Major Sponsor, Architect,
Business Senior Management etc. Following figure shows roles of the effective IT
governance model.
Figure 1.6
Source: My own derived model from “Maturing Your IT Governance – An Update” by Dr. Peter Weill
of MIT Sloan Centre for Information Systems Research Forum, http://cisr.mit.edu/members/index.php
Define business and IT strategy: In the meeting of an IT governance body, business
strategy should be discussed explicitly along with how business and IT can work
together in a partnership to improve the business process, innovate the business, and
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make business and IT strategy aligned. There should be clear visibility of business
strategy in IT strategy. The body should evaluate the go vs. no go decisions, tactical
vs. strategic decision.
Define business and IT objectives: Obvious business objective should be drawn in-
conjunction with IT objectives to accomplish the strategic goal once strategy
alignment is complete. These objectives should support overall business and IT
strategy. Again visibility and tractability between business objectives and IT
objectives is a very important factor.
Establish accountability: Clear accountability from business and technology side to
execute a program or project is very much important. The governance body will ensure
that accountability has been established and agreed.
Create IT framework & architecture: IT program or project managers along with IT
architects will draw the plan about how existing IT framework can be utilized, what
are new initiatives should be considered in the current architectural frame-work, and
how overall architecture will be changed to achieve a specific objective. The
governance body should ensure that best practices are followed, integration
(leveraging on another internal IT platform), standardization, and innovation are
considered in the IT framework and architecture model.
Decide investment & priority: IT Governance body should decide how the investment
should be made to achieve a specific business objective, how prioritizations will be
done among various business objectives, how IT cost can be transparent to business
value. Effective investment strategy linked to business goals and objectives can bring
an organization on the edge of competitive advantage.
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Establish communication: The objective of IT governance body and decisions should
be communicated to project team level, so that common goal and objectives can be
established across the team. The body should encourage working closely with the
business as a team, to work towards shared vision, interest, and knowledge, and to
carry-out lesson learnt exercise at the end of the project. Effective communication of
an IT governance body is a vital factor to change the culture of the IT organization and
integrate the IT organization with business.
Define reward system: The governance body is responsible for creating effective
reward system to provide reward to an individual or a team by financial means or other
means like team dinner, letter of accomplishment, recognition in company magazine or
news letter etc. This reward system will increase individuals’ or teams’ motivational
level and encourage other team or people to work similar way and finally improve the
efficiency of overall IT organization.
2.8 IT Innovation :
Innovation is very much essential to get the success and competitive advantage. In an
organization, IT innovation can add massive value to the business. However,
innovation does not just happen. It needs dedicated effort, leadership and most
importantly funding. The IT organization of a firm can have a small R & D
department who will work at various innovations in IT, which can add direct values
to the business. Few examples of IT innovation are creation and measurement of value
of re-usable components across the organization, creation of a common repository of
commonly used functions or components, exploration of usage of cloud computing in
an enterprise environment, and many more. A success of an innovation project
depends on certain factors, which are shown in the following figure.
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Figure 1.7
Source: “Building an Effective IT Innovation Capability” by George Westerman of MIT Sloan Centre
for Information Systems Research Forum, http://cisr.mit.edu/members/index.php
The description of the above figure is given below.
Separate: The innovation team should be separate with full time people. The leader of
the team can build the right culture, skill, common objectives, and complete focus on
innovation. The team should interact very closely with IT architects in the
organization.
Systematic: Clear but flexible criteria and methods to gather and filter ideas, plan and
conduct experiments should be in place. This improves the team productivity and
measurement; improves credibility to rest of the business.
Small: The team size should not exceed eight including a strong leader. This will help
on co-ordination, idea generation, and increased focus.
Sponsored: Strong investment support from business senior management is required to
protect the team so that the fund can-not be the obstacle in the research work.
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Shared: The team should work across all functional areas of the business and
technology to gather the shared ideas, and identify the common problem.
Seen: The team should be visible to other teams and business in the organization. The
team should regularly publish their innovation journals, show prototypes, provide
brown bag talk etc to technology and business teams.
2.9 IT Savvy:
Source: “Rethinking IT Investments as a Portfolio & IT Savvy” by Dr. Peter Weill of MIT Sloan
Centre for Information Systems Research Forum, http://cisr.mit.edu/members/index.php
An IT Savvy company generates maximum value of IT at its business success. IT
Savvy is reflected in a firm's ability to use IT to consistently elevate firm performance.
An IT Savvy company considers IT as a strategic asset rather than liability. Following
test will reveal how IT Savvy your firm is.
Can you:
respond to new customer demands in a timely manner ?
reproduce business success in new a location within a reasonable timeframe ?
integrate the new acquisitions quickly ?
ensure that managers and decision makers simultaneously do what is best for
your company and customer?
present a single face to global customers?
An IT Savvy company is more often able to answer yes to these questions. Their
systems support strategic business priorities. In contrast, non IT Savvy firms often
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have some good systems but those systems were built to support isolated business
needs. They do not work together to meet business needs.
To become IT Savvy first, it requires clear vision, strategic development of digitized
platform, and a significant change management effort. To achieve this, it needs strong
leadership in business and IT across the organization and more investment in IT
integration, aggregation, product innovation, and architecture should be made.
IT Savvy is a journey, it can-not be done in one day. Firms should learn how to
implement their vision and strategy in IT arena to get the measurable value.
2.10 IT Growth pyramid:
Following figure has been derived from the concept of McKinsey’s growth pyramid.
Source: http://tutor2u.net/business/strategy/mckinsey_pyramid.htm
Figure 1.8
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It shows that how competitive advantage can be achieved through IT & Business
strategy alignment, IT governance model and IT cross-functional team. It also shows
that increasing investment is required in IT to achieve the competitive advantage.
2.11 Emerging view of IT management :
Source: “What Makes IT Leaders (and Their Units) Effective: IT OVERSIGHT” by Dr. Peter Weill of
MIT Sloan Centre for Information Systems Research Forum, http://cisr.mit.edu/members/index.php
Through-out the last two decades of 20th century and beginning of 21st
centuries, IT
has been evolved dramatically and become an integral part of any organization’s
success. Managing IT in the organization also has been passed through various
challenges over the year and has been matured. Role of IT management has been
changed dramatically on current years. Delivering system using traditional SDLC
(Software Development Life Cycle), maintaining and supporting IT systems, carry-out
business as usual enhancement work, people management, project management &
execution, testing, quality & risk control, disaster recovery test, off-shoring to India
and China are become more regular tasks of IT management, which need to be carried-
out anyway. Current IT management role is more focused on adding value to business
by integration, innovation, simplification, aggregation and effective communication.
Few emerging IT management roles in the IT organization are given below.
-- Work more with non-IT colleagues (like business, customer).
-- Re-engineering of a business process before implementing the system.
-- Innovative IT solution in synchronization with business process re-engineering.
-- High focus on transformation of business strategy into IT strategy.
-- Cross-functional (horizontal) integration across the organization.
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-- Product integration and innovation.
-- Free up internal IT department to work on projects and applications that will create
and sustain competitive advantage for the company and outsource business as usual
work, infrastructure management to a third party in cost advantage locations.
-- More emphasis on IT governance at a program & project level.
-- Rational IT investment fulfilling overall business strategic objectives.
-- Facilitate open discussion about certain issue or matter.
-- Communicate explicitly to employees about business goals, objectives and
importance of customer satisfaction.
-- Timeliness of delivery with reasonable cost and quality.
-- Encouragement of more usage of agile methodology of system development and
diverting from traditional SDLC.
-- Strong accountability on project delivery and process implementation.
-- Reduction of bureaucracy, internal politics and egoism inside the organization.
-- Allow business goal and objective transparent in all levels of the IT organization.
-- Assist on creation of a team with common goals and objectives.
-- Focus on “lessons learned” mechanism after post project review.
-- Keep best people in the organization by adjusting compensation or using other
motivational factors of each individual.
-- Attract best people from the market to the organization by providing challenging
working environment.
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2.12 SWOT analysis:
SWOT analysis is an important tool for auditing the overall strategic position of an
organization and its environment. SWOT stands for Strengths, Weaknesses,
Opportunities and Threats. This tool is widely used in the industry and provides a very
quick measure of positive and negative aspects of a particular scenario. Following
figure shows the SWOT matrix.
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2.13 Scenario planning:
Scenario planning [or scenario thinking or scenario analysis] is a strategic planning
method that some organizations use to make flexible long-term plans. Scenario
planning is not about predicting the future. It is about exploring the future. If you are
aware of what could happen, you are better able to prepare for what will happen.
Oddly, organizations play out the ‘bad’ situation only after that situation has happened
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and once a ‘normal’ condition is back, organization throws their scenario planning tool
out. Though it is impossible to identify all the future events that can impact the
business, but ‘how’ it may impact is an important component that can be easily
integrated into scenario planning. Preparing responses to imagined changes in
conditions, allows organizations to educate themselves about the probable risks. As an
example, in an IT organization, disaster recovery testing and business continuity
testing are part of scenario planning. More scenario planning can be done in the
organization during business and IT strategic alignment (like how fast IT can provide a
solution if the business wants to provide a new product to customer or how IT budget
will be impacted if the business makes a loss in the future or how IT can work on
reduced budget in a difficult market condition by providing maximum value to
business or how IT can work seamlessly irrespective of favorable or difficult market
conditions. )
Source: http://en.wikipedia.org/wiki/Scenario_planning, http://itstrategyblog.com/
3. Current strategic methodology & approach:
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3.1 Current methodology & approach:
Business strategy has been taken into consideration along with IT strategy to identify
areas of investment in the IB IT trading department. Following strategic methodology
and approach have been used to evaluate the strategic investment direction.
Business strategy and value of IT analysis: In this section detailed business strategies
of a trading department and its sub-department have been considered and how IT can
add value to it has been identified. Please follow Appendix A for the sample analysis.
Application characteristic analysis: Based on above business strategy, detailed
strategic analysis has been done in the IB IT trading department. Characteristics of
various applications in the department and its sub-department have been identified.
Please follow Appendix B for the sample analysis.
Application source analysis: In this section source of major applications (In-house or
Vendor) have been identified in the IB IT trading department. Please follow
Appendix C for the sample analysis.
Analysis of project and current investment trend: In this step, objective/benefit
analysis, current and near future budget allocation of all major ongoing projects of the
IB IT trading department have been considered. Please follow Appendix D for the
sample analysis.
Current situation analysis (Fitness check): In this section, “Fit for future vs. Fit for
purpose” matrix has been created to identify which applications in the trading
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department need more and immediate investment. This analysis has made it clear that
which applications need immediate investment consideration to fit for the future.
Figure 2.0
Current situation analysis (Competitive positioning): In this section critical analysis
has been done to evaluate the competitive positioning of various applications or
application groups in the trading department. Three measures (Base, Differentiating
and Competitive) have been considered for the competitive analysis. The standard is
applications should be at least competitive, anything below competitive need
investment. Please follow the Appendix E for the sample analysis.
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Current situation analysis (Life cycle analysis): Application life cycle analysis is one
of the main tools to identify which applications are in an initiation state, operating
state, matured state and retired state. Applications which are in an initiation (test) state
need more investment than applications, which are already in operating state or
retirement state. Also, it identifies when a particular application will be in a retirement
state and how long the operating state will continue. Please follow the Appendix F for
the sample analysis.
Current situation analysis (Challenges & Actions): In this section major current
challenges of a trading department have been listed and proposed high level action
plans have been drawn to meet those challenges. Please follow the Appendix G for the
sample analysis.
Proposed initiatives and investment: In this final section, proposed future initiatives
along with benefits/objectives and investment plan have been drawn based on current
situation analysis. Please follow Appendix H for the sample analysis. Finally various
programs have been created in the IB IT trading department to address proposed
initiatives.
3.2 Current strategic challenges:
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The current strategic methodology and approach meet the overall objectives on some
extend, but it has some challenges, which need to be looked at to gain the competitive
advantage. Following section details some strategic challenges, which should be
considered.
1) Establish the clear link between a global business goals, regional business goal
and technological goal and how investment should be made to achieve each of
these goals.
2) Map business objectives directly with technological objectives. There should be
clear, visible and traceable mappings between business and technology objectives
not only at higher level but also at the operational level.
3) Creation of a cross-functional group to implement strategic analysis & changes.
Investment needed for cross-functional strategic analysis in business and
technology together regionally and globally.
4) In investment banking IT organization, separate sub-department should be formed
to carry-out strategic management covering strategy analysis and planning,
strategy execution, controlling & monitoring and strategy implementation.
5) Absence of a strategic plan to identify duplicated systems (functionally) across
various regions nationally and internationally. No investment decision has been
made to carry-out the exercise.
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6) Similar asset classes are traded in different systems. No strategic direction has
been followed to identify those systems.
7) Clear strategic investment plan to be drawn to incorporate IB trading platform into
Private Banking department to boost the investment of private banking customers.
More robust strategic investment plan for the trading IT department needs to be
created to bring investment and private banking together.
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4. Proposed strategic direction:
4.1 Proposed strategy:
This section is aimed to provide probable strategic direction along with existing
strategic methodology. This can be followed to meet the challenges identified in the
previous section.
Goal integration and alignment: Knowing and understanding of organizations’ vision
is a very important factor to identify goals of each business unit. Each business unit
must identify their goals globally, which will relate to the organization’s overall vision.
These business specific goals will be further analysed regionally and each region will
have its own goals, which are linked with global business goals along with its own
regional goals. As the IB IT trading department of a region supports various business
areas of investment banking, they have to align with regional business goals. At the
same time, they have to align vertically with global IB IT trading goals. It will
increase the focus on horizontal goal integration across different regions. The overall
goal alignment is not an easy task, it needs massive amount of co-ordination, co-
operation, and communication across different business and technology groups. Strong
support and investment are needed to carry-out this exercise. Following figure shows
the example of a vertical and horizontal goal integration and alignment process.
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Figure 2.1
Objective Synchronization: In Investment Banking IB IT department, each business
objective should be mapped clearly with a technological objective. It should detail
what each business objective means and how IT can help to achieve those objectives.
IT people should understand business values and benefits of IT solution to business.
Following figure shows how IT should work to understand business values and
benefits. Once understanding of business values and benefits are clear, it will be much
easier to map business objectives and technology objectives.
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Figure 2.2
Detailed analysis also required on a level of innovation needed in IT to achieve the
target solution, the time limit to provide the target solution to business, and how
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similar objectives are handled globally and across different regions (through horizontal
alignment). Again investment is needed to carry-out this exercise.
Formation of Cross-functional group: Cross-functional development teams have
proven to be a highly effective mechanism for integrating the different functional
capabilities required to develop a solution and for developing co-operation and
communication across different business segments and regions. This team can work
across different business segments regionally and globally. The primary objective of
this team is to integrate common goals and objectives in trading IT, provide strategic
IT solution suggestions, carry-out gap analysis between similar systems across
geographical regions, analyse on internal resources & capabilities, establish core
competences to full-fill the overall business objective, facilitate the communication
between different groups, come-up with a strategic implementation plan,
communicate the message across different line organizations and reduce the cultural
indifferences between different groups. Following figure shows how a cross-functional
group in an IT organization can enable the strategic direction.
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Figure 2.3
Source: Course material of ‘The Strategic Leader by Dr. David Pendleton’ module of PGDOL,
Said Business School, University of Oxford.
From the above figure, it is very much clear that the cross-functional group will be
very much active to
 enable a strategic direction across the organization along with enabling
leadership and team work.
 inspire and reinforcement of creating alignment and building sustainable
relationships.
 provide a strong focus on the strategic planning, organization, implementation
and delivering results.
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The out-come of strategic planning is number of programs and projects, which will be
finally implemented. During the whole process, the group will continuously learn and
improve the path-way of strategic implementation.
The work of the cross-functional team is not only limited to setting-up strategic
direction & planning but also carry-out strategic gap analysis of similar function
systems, identification of inefficient systems, provide strategic solutions to overcome
inefficiency of systems and create the marriage (shared values, systems, structure,
skills, strategy, style and staff) between the IB and PB IT trading department by
deploying IB IT trading environment in PB area.
Currently there is no existence of a cross-functional group in the IB IT trading
department who can carry-out the above exercise. Investment needed to form this
group for the purpose of long-term sustainable success of the organization and deep
roots in solid ground.
Outsourcing of non-core processes: The trend of a business process outsourcing to
cost effective locations has been increased rapidly over last 10 years. IB IT trading
department has to identify core and non-core processes. Non-core, matured, and
business as usual processes can be outsourced to offshore on a fixed price contract
basis. This can reduce the overall IT operating cost dramatically. This cost saving on
non-core processes can be utilized on core processes for the purpose of innovation.
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4.2 Benefits of the proposed strategy:
Benefit highlights of the proposed strategic direction are given below.
 Overall organization’s vision and goal can be drilled down to the IB IT
operational level.
 Clear picture, the road-map, and the impact of IB IT on business visible to
everyone. The cross-functional team will be accountable for establishing the
visibility.
 Due to top down business strategy alignment with IT strategy, better
meaningful investment strategy can be formulated and more customer
satisfaction can be achieved.
 The result of IT investment will be clearly visible to customers (IB business).
 Communication and alignment between different functional areas regionally
and globally will improve, which can trigger internal resource movement
regionally and globally.
 Integration of IT systems regionally and globally can bring competitive
advantage and can lead to further innovation of more intelligent IT solution.
 Decommissioning of redundant systems will increase the operating efficiency
and reduce the maintenance cost and support cost.
 Cultural indifferences across regions will be reduced and more diversified work
force and team will be created with common goal and vision.
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 More end customer satisfaction will be achieved and overall organization will
get the competitive advantage due to a high level of alignment and integration
between business & IT.
4.3 Conclusion:
Strategic management process is a dynamic process which enables the
transformation of organization’s vision, mission, and objectives into reality. It is an
ongoing process that evaluates and controls the organization’s growth, stability, and
integrity. The result of strategic management is implementation of a number of programs
and projects, which will meet organization’s overall strategy. In this work, it has been
seen that, strong alignment is required between business and IT to get best benefits of IT
in the Investment Banking organization. Investment prioritizations based on business
strategy and objectives can improve organization’s accountability on IT. Presence of a
cross-functional group can help IT organization to integrate vertically and horizontally
across geographical regions, which can eventually boost the business performance and
bring the competitive advantage for the overall organizations. On 21st
centuries, business
processes are defined based on functionality of IT system. Investment is required in R & D
to innovate IT platform, which can help to draw the most optimal business process and
enable business to take correct decisions in the competitive market place. Today,
innovation in IT is happening at a higher speed than earlier days and effective use of IT
will do open-up new business opportunities, which were not seen before in a full scale.
In this project work, various challenges related to business & IT alignment, integration of
IB with PB, harmonization of various IT systems with similar functionality across
geographical regions, and life cycle issues have been addressed. Various strategic
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methodologies like creation of a cross-functional group, formulation of program and
project level governing bodies, an existence of a strategic team inside trading IT
organization, goal & objective synchronization, IT investment prioritizations on line with
business objectives, and benefit analysis are considered to meet above challenges. This
is the main achievement of this project.
Finally, it can be concluded that strong and robust partnership and alignment between
business & IT will be the key to success for an Investment Bank on coming future.
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Appendix A:
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Appendix B:
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Appendix C:
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Appendix D:
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Appendix E:
Page 58 of 62

Appendix F:
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Appendix G:
Page 60 of 62

Appendix H:
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References:
1… Grant, Robert M., Contemporary Strategy Analysis, Sixth edition
2… Michel, Stefan., Presentation on Service Strategy, IMD,Switzerland
3… Pendleton, David., Course material of ‘The Strategic Leader’ module of PGDOL,
Said Business School, University of Oxford.
4… Weill, Peter., W.Ross, Jane., C.Robertson, David., Enterprise Architecture As
Strategy, Harvard Business School Press
5… Weill, Peter., What Makes IT Leaders (and Their Units) Effective: IT
OVERSIGHT, MIT Sloan Centre for Information Systems Research Forum
6… Weill, Peter., Maturing Your IT Governance – An Update, MIT Sloan Centre for
Information Systems Research Forum
7… Weill, Peter., Rethinking IT Investments as a Portfolio & IT Savvy, MIT Sloan
Centre for Information Systems Research Forum
8… Westerman, George., Building an Effective IT Innovation Capability, MIT Sloan
Centre for Information Systems Research Forum
9… http://agilemethodology.org/
10… http://cisr.mit.edu/members/index.php
11… http://en.wikipedia.org/wiki/Rapid_application_development
12… http://en.wikipedia.org/wiki/Scenario_planning
13… http://en.wikipedia.org/wiki/Strategy
14… http://itstrategyblog.com/
15… http://tutor2u.net/business/strategy/competitive_advantage.htm
16… http://tutor2u.net/business/strategy/core_competencies.htm
17… http://www.mindtools.com/pages/article/newTMC_94.htm
18… http://www.mariosalexandrou.com/methodologies/rational-unified-process.asp
19… http://www.nyse.com/
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