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Cognizant 20-20 InsightsUnderstanding Failed Core BankingProjectsCorrectly analyzing a failed core banking implementation and assigningcollective responsibility is crucial for combating organizational resistanceto the initiative.Executive SummaryMost core banking IT system renewals suffersignificant overruns of cost and time estimates.Strong internal capabilities, careful selectionof implementation partners, clear contractualparameters and roles and rigorous project andchange management are the critical factorsthat determine the success of a core bankingimplementation.Given the magnitude and risk involved in suchlarge-scale initiatives, it is important to understand that the success of such efforts is the collective responsibility of all the stakeholders involved.In the event of a failed implementation, this senseof collective ownership should be applied toanalyze the causes of the failure. All the stakeholders should be brought on board to help figure outa solution and to put the initiative back on track.In this paper, we discuss the importance of selecting the right core banking solution, the challengesinvolved in its implementation and the importanceof skillfully managing a failed implementation.Based on our experience, we outline the entitiesimpacted due to a failed project, the nature ofcognizant 20-20 insights june 2013the impact, the entities’ immediate expectationsfrom a solution and the possible considerationsfor a potential vendor/SI in providing a meaningful solution.IntroductionA core banking system is essentially the heartof all the systems operating in a bank. It can bedescribed as the core of a bank’s IT platform. Withthe advancement of technology, core systemstend to cover more and more functionalities,providing the bank with an integrated solutionfor most of its operations in varied businesslines. A core banking system resides in the heartof a bank’s data center and provides a centraloperational database of customers’ assets andliabilities. It enables a 360-degree view of acustomer’s relationship with the bank.Experience shows that there is a high failurerate of core banking system implementations.We estimate that 25% of core bankingsystem transformations fail without any resultswhile 50% do not achieve the transformationobjectives – costs and implementation timesdouble or triple. Only 25% of the transformationscan be called successful.1

In February 2011, Irish Bank AIB sued Oracle over afailed 84 million implementation of its Flexcubebanking software. In July 2011, the Union Bankof California cancelled the implementation ofInfosys’ Finacle Solution – almost two years afterthe program was initiated.2Given its scale and organization-wide impact, afailed core banking initiative requires extremelyskilled management. It is crucial to emphasizecollective responsibility for this failure. This willprevent feeding into the resistance to changeinitiatives that bogs down most transformationalinitiatives.It is very important that the failure of the corebanking initiative not be perceived as a failure ofthe concept.Preparing for the TransformationAs core systems form the backbone of anybanking organization, a replacement/change/transformation should be a very well-thought-outprocess with due consideration given to the viewsof all impacted stakeholders.Such an initiative not only involves substantialinvestment but also needs to be backed by abusiness case that clearly demonstrates a steadystream of return on investment with minimumimpact and disruptions to the existing businessas usual (BAU) operations. It involves significantbrainstorming to get all the stakeholders on boardand convince them of the need for a core bankingsystem, its impact on operational efficiency andthe tangible gains and benefits that will accruewith its successful implementation.Most businesses are highly dependent oninformation systems. The banking industry is noexception. If the selection and implementationof the core banking system is not sound, it canresult in anything from a small glitch to acomplete operational shutdown.The Banking Systems Market Survey results for2012/13 indicated the following IT trends in thebanking industry:3 Of the respondents, 34% intend to replacetheir platforms; of these, 74% intend to moveto packages.The pressure on bank IT budgets over the pastfive and two years is notable.There is considerable activity within “satellite”systems, such as payments and channels.Banks are placing high importance on data warehousing and business intelligence technology.Social media is not making a great impact onmost banks as yet (other than in SoutheastAsia).The Boston Consulting Group conducted asurvey on “Renewing Core Banking IT Systems.”All the respondents said that they had struggled todeal with expanding projectEvaluating andscope and changing requirements. Clearly, it is essential selecting a corefor a successful core bank- banking producting system transformation tothat meets anunderstand, plan, control andexecute all aspects of a CBS organization’stransformation program.4businessEvaluating and selecting acore banking product thatmeets an organization’s business requirements is a crucialstep in the software engineering process. Selection ofrequirements isa crucial stepin the softwareengineeringprocess.Banking IT Budget Change Over Past Two Years(90 respondents)Increased23%46%31%Remained about the sameDecreasedSource: IBS Intelligence research and findings from Banking Systems Market Survey Results 2012/13Figure 1cognizant 20-20 insights2

an inappropriate core banking product can turnout to be very costly, adversely affecting businessprocesses. It can result in unsound strategic decisions, which in turn result in significant losses tothe organization. ChallengesChange in the project management team atthe bank level, the SI level and the vendor levelduring the project lifecycle; this often resultsin inadequate knowledge transfer, which inturn results in requirements and key issues notbeing addressed properly.Replacing a core banking solution is a dauntingtask for a large bank. Several banks tend to putoff replacing their core banking solutions fordecades by investing in local work-arounds, quickfixes and narrow point solutions. This leads to thecreation of a complex network of solutions, whichis expensive, risky and difficult to maintain.Managing a Failed ImplementationThe biggest challenge for large banks lies inknowing “what to do” and “where to start.” Here,a systems integrator (SI) can play a key role byproviding consultancy services on the pros andcons of system replacement. The ideal SI canprovide these services by leveraging a largepool of resources with the requisite skill sets aswell as hands-on experience with core bankingtransformations worldwide.Given the high stakes, a failed core banking implementation causes organizations to question thevery hypothesis underlying the initiative. Transformational initiatives such as a core banking implementation have to go through a long cycle whereinvarious stakeholders need to come on boardregarding the very idea of core banking and itsbenefits. Obviously, there will be some who supportit and some who are unwilling to change the organizational status quo. The failure of the initiativecan strengthen the stance of those who may havequestioned the benefits of the initiative. It tends toaffect the overall confidence about the transformational initiative within the organization.Many core banking transformation programsface challenges midway through the project dueto lack of coordination and lapses in communication between the vendor and the bank projectmanagement teams. An SI can help reduce thisconfusion through its expertise in overall programmanagement and through ensuring systematicinformation sharing among all the stakeholders.Some other issues encountered during a corebanking transformation include: Higher IT cost in the event that multiplesolutions need to be replaced.Insufficient information collected during therequirement gathering phase.Lack of historical information on geographical customizations made on the legacy coresystems, resulting in the existence of multipleversions of the legacy system.Change in banking dynamics during theproject lifecycle, leading to scope change.Inability of banks to distinguish between “wishlist” and “must-haves.”Over-engineering of the existing solution,leading to poor performance.The banking staff’s preference for existingprocesses and their reluctance to adopt newer,out-of-the-box functionality/processes fromnew solutions.cognizant 20-20 insightsA core banking initiative is a very large transformational program that impacts variousstakeholders within a bank. There is a very highlikelihood that even a single aspect handledincorrectly can lead to failure of the transformation as a whole.At this stage, it is crucial to understand that itis not a failure of the concept of core bankingbut rather a failure of the implementationapproach. It is not a failure of a particular groupbut a collective failure for which no single entitycan be blamed. Instead, all the entities involved –including the bank, vendor and SI – need to takeresponsibility. Only then can a more informedand well-thought-out remedy emerge.It is equally important to understand each groupof stakeholders’ views regarding what they believehas “failed.” Some may believe it was caused bybudget and time overruns. Others may blame theabsence of expected functionality or a failure toanticipate and prepare for the sheer magnitudeof the initiative.Based on our experience, we summarize in thetable in Figure 2, on the next page, the entitiesimpacted due to a failed project, the nature ofthe impact, the entities’ immediate expectationsfrom a solution and the possible considerationsfor a potential vendor/SI in providing a meaningful solution.3

Reasons for FailureBased on our observations during core bankingimplementations for various clients, we havebeen able to identify some key reasons for failedcore banking implementations: Lack of an appropriate product selection methodology: The product selectionmethodology is based on the bank’sspecific requirements and characteristics.What applies to one bank may not necessarily apply to another. Hence, unless the product selection methodology is well thoughtthrough, it can become one of the reasons forinitiatives such as these to fail.The vendor’s inability to deliver: Thevendor’s experience in delivering similarcore banking engagements is crucial. It istherefore important to analyze the vendor’s performance and capabilities in similarscenarios in the past, both in terms offunctionality as well as in terms of the sizeand complexity of the engagement.The project group’s limited capability: Justas the vendor needs to be experienced, it isalso important that the entire project group,which would include representatives from thevendor, SI and the client, have experience inand exposure to handling projects of similarsize and complexity.The SI’s limited capability: The SI plays animportant role as the interface between thebank and the vendor. Hence, the SI’s capability in handling projects and programs of thismagnitude is an important consideration.Lack of a well-thought-through modelset in place from the very beginning of theimplementation can be a major stumblingblock that can trip up the initiative.Multiple Levels of Impact from Failed Core Banking ImplementationsImpactedEntityNature of Impact/Area of ConcernProjectSponsors1. Under pressure to delivera core banking solution.2. Curtailed budgets due tomoney burnt in the failedimplementation.3. Credibility impact onsenior leadership.1. Regaining theconfidence of seniorleadership.2. Securing budgets forthe remedial measures.3. Providing tangiblebenefits and results in a3–6 months timeframe.1. Highlight quick wins.2. Target low-hanging fruitto make maximum impact.3. Apply 80–20 rule (addressitems that are high onimpact but low on effort)to provide immediate businessbenefits and gain the leadership’s confidence.Business1. Having to continue with1. Minimum involvementthe older system despiteof SME time.its shortcomings and2. Ability to bring in newunderlying issues.products quickly to2. Absence of new/desiredmatch/beat competitionfunctionalities that would haveand have impact onotherwise affected the top linerevenues.and/or the bottom line directly 3. Improved operationalor indirectly.efficiency.3. Large number ofcustomizations.4. Inability to market newbusiness products quickly(time-to-market).5. Considerable time and energyspent (SME time) without anytangible benefits.1. Leverage existing set ofdocumentation so thatSME involvement is minimized.2. Take up high-impactfunctionalities forimplementation in phase 1.3. Plan for tangible benefitsto accrue in 3–6 months.End Users1. Loss of confidence intransformation initiative.2. Sense of vindication of theirinitial resistance to change.1. Confidence-building sessionswith end users.2. Highlight business benefits ofthe potential solution.3. Demonstrate evidence ofsuccessful implementations torestore faith in CBS initiatives.Immediate Expectations1. Continue with legacy/traditional system withno change until a wellthought-through plan islaid out.Figure 2cognizant 20-20 insights4Considerations forPotential Solution

Lack of support from top management:If sufficient backing is not provided by thetop management of the bank for the corebanking transformation, any roadblockscan turn into significant impediments to thesuccess of the transformation.A well-thought-through model can only be workedout with support and cooperation from all entitiesinvolved. An experienced SI can fulfill the role ofa trusted consulting partner by helping organizations overcome the perceived “failures” moreeffectively.Role of an SI in Managing ChallengesConclusionIn this context, it is important to highlight therole of the systems integrator. Ideally, the SI willhave handled similar situations before and willtherefore be able to determine a suitable modelfor the bank’s specific situation.It is very important to understand that afailed core banking implementation does not inany way indicate a failure of the concept of corebanking. Often, this is used as an excuse to shuntransformational programs in the organization.It is very important for all stakeholders withina bank, and the SI and vendor to analyze thereasons for failure and take appropriate steps tomitigate the risks up front.The SI should ideally undertake an assessment toarrive at the real causes of the failure and howthese could be avoided. The SI will also need tobring all the entities together and restore trust.The SI must ensure that all stakeholders takecollective responsibility for the failure and arefully committed to the remedial php?option com content&view article&id 3-plus-free-extracts&catid 374:banking-systems-marketsurvey-201213&Itemid out the AuthorsRohan Kudav is a Senior Manager with Cognizant Business Consulting. He has more than 12 years ofexperience in retail and corporate banking, leading numerous core banking consulting engagements.Rohan majored in commerce at the University of Mumbai and is an associate member of the Institute ofChartered Accountants of India. He can be reached at [email protected] Bhasin is a Consultant with Cognizant Business Consulting. She has more than eight years ofexperience in the banking domain across retail and corporate banking. Megha has worked on severalcore banking products including Temenos T24, Flexcube, Finacle and The Complete Banking Solution(TCBS). She is a commerce graduate from Panjab University and holds a management degree in financefrom ICFAI, Hyderabad. She can be reached at [email protected] 20-20 insights5

About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business processoutsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquarteredin Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deepindustry and business process expertise, and a global, collaborative workforce that embodies the future of work.With over 50 delivery centers worldwide and approximately 162,700 employees as of March 31, 2013, Cognizant is amember of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among thetop performing and fastest growing companies in the world.Visit us online at www.cognizant.com for more information.World HeadquartersEuropean HeadquartersIndia Operations Headquarters500 Frank W. Burr Blvd.Teaneck, NJ 07666 USAPhone: 1 201 801 0233Fax: 1 201 801 0243Toll Free: 1 888 937 3277Email: [email protected] Kingdom StreetPaddington CentralLondon W2 6BDPhone: 44 (0) 207 297 7600Fax: 44 (0) 207 121 0102Email: [email protected]#5/535, Old Mahabalipuram RoadOkkiyam Pettai, ThoraipakkamChennai, 600 096 IndiaPhone: 91 (0) 44 4209 6000Fax: 91 (0) 44 4209 6060Email: [email protected] Copyright 2013, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

impact and disruptions to the existing business as usual (BAU) operations. It involves significant brainstorming to get all the stakeholders on board and convince them of the need for a core banking system, its impact on operational efficiency and the tangible gains and bene