Financial services realizes dividends from SOA strategy

BANGALORE, INDIA: It’s no secret that the demands of the financial services industry require innovation and flexibility in order to gain competitive advantage. However, what’s changing the landscape of today’s financial institutions is the alignment of IT with business goals.  This fusion has led to the proliferation of service oriented architectures (SOA) to help reduce costs and lost revenue attributable to redundant functions and duplicated efforts. 

Realizing the benefits of reuse and maximizing productivity is the foundation of an SOA.

For example, a currency conversion table on an employee’s PC in Beijing may be different from one that is being looked at by an employee in London.  While these two employees may serve different functions in different countries, they share similar business needs.  It stands to reason that the similarities and best practices should be duplicated throughout the company to eliminate inconsistencies, maximize productivity, and reduce costs associated with maintaining different applications that perform similar, if not identical, processes.

This is where SOA proves to be most valuable in helping to identify the company’s best business practices and enabling reuse. 

While there’s been much discussion about SOA in terms of its definition and value to the company, the bottom line for the financial services sector is that SOA saves business and technology resources while avoiding the need to manage multiple competing and overlapping functions.

Many financial services organizations today are in the midst of an SOA journey while others are taking a wait and see approach until this ‘trend,’ makes way for the next big thing.  However, with industry analysts citing the SOA market will reach tens of millions of dollars by 2008 while also helping large organizations save upwards of $53 billion per year, it’s clear that SOA is not a passing trend. 

Rather, SOA is an evolutionary approach to using existing technology resources to align with business goals.  Most importantly, SOA avoids a rip and replace strategy and offers banks and financial institutions a business and technology strategy that can be incrementally adopted as business needs change.

What’s more is that SOA enables collaboration inside and outside an organization, promoting innovation and leveraging information for business insight – all helping to grow profitable revenue while reducing costs and deepening relationships with customers.

Specifically, SOA takes everyday business processes and breaks them down into individual business functions, called services. These services can then be reused, integrated and exposed to other channels, customers and suppliers to create new or modified business processes — all while leveraging the existing front-office and back-office banking applications already in place. 

For example, one of the largest retail banking organizations in the United States has implemented an SOA to gain a single and common approach to account opening capabilities across different channels, thereby eliminating process redundancy and improving lead management.  Furthermore, by reducing the costs and the time spent managing duplicate systems, this same company realized a return on investment within one year on this project alone.  This retail bank’s business needs are not unlike many similar institutions and demonstrates how reuse and best practices can be applied outside the organization.

Another example is one that features a leading consumer bank that has realized tremendous growth through a successful merger and acquisition strategy.  Along with the acquisitions came a healthy new customer base as well as a patchwork of customer information and applications. Integrating all of these different sources of information could have easily turned this bank’s technology resources into mounds of spaghetti that would never become untangled, resulting in productivity losses and unhappy customers due to an inability to accurately and quickly respond to inquiries.  In addition to making sure the integration of the different systems was successful, this bank was also focused on organic growth that could be achieved by cross-selling and up-selling its products and services.

The bank’s aggressive three-year objectives included aligning business and IT strategies, bringing products to market faster and dramatically increasing revenue, all while reducing costs.

Through an SOA, the bank was able to combine systems and integrate critical information which led to a reduction in operational, networking and management costs. In addition to reducing costs by 25 percent, the bank was able to achieve a return on investment in less than 12 months.

More and more, banks are turning to SOA to achieve better business flexibility, improved responsiveness and quantifiable returns on investment. These projects have shown that SOA can help solve immediate business problems while simultaneously laying the groundwork for a flexible business that is capable of adapting to quickly changing market conditions. Although these solutions were implemented by specific banks to address specific business needs, the basic concepts are universal. Concepts such as reusing business functions to reduce costs and speed time to market for new products, creating a single view of the customer, differentiating customer service and protecting investments in core banking systems are relevant to virtually every banking firm. 

* Naveen Gupta is the VP, Technical Sales & Services, SWG, IBM India/ SA.