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Driven by acquisitions and CRM initiatives, banks are hiking enterprise system spending

With 7,999 years to go until the next anticipated date rollover problem, many banks are taking the opportunity topress ahead with initiatives for enterprise systems-integrated information systems serving multiple departments, functions and locations.

Whether purchased from a large vendor of integrated business software or cobbled together from an assortment of in-house and best-of-breed applications, enterprise systems provide strategic information linkages between and within organizations.

GartnerGroup estimates that spending by U.S. banks on enterprise systems will total $4.27 billion in 2000 and rise to $9.85 billion by 2003. (See chart on page 48.)

"We've seen over the last year or two, particularly after Y2K, some pretty significant adoption by banks," said Mike Adler, a partner in the financial services practice of PriceWaterhouseCoopers.

Companies with reputations in enterprise resource planning (ERP) software, such as PeopleSoft, Oracle and SAP, are gearing up to meet the demand for integrated systems by extending their presence into the financial services market.

"What banks are doing in some cases is looking at the three main ERP vendors and looking at their applications for profitability and strategic reporting and integrating them with their legacy systems," said Adler. "Many have said, 'We're not in a position to replace everything, but let's replace that.'"

"I don't anticipate banks moving towards implementing entire ERP systems," said GartnerGroup analyst Kurt Brenemman. "The motivation for banks is not there like it would be for manufacturing companies. Those companies were lacking core IT systems."

But software vendors are painting a different picture. "In the last twelve months, we're probably averaging a new sale per month in this area just on the East Coast," said Anthony Fernicola, financial services group vice president and general manager at Redwood Shores, Calif.-based Oracle. "These take a long time to sell-it's probably a 12-16 month sales cycle. That's a pretty rapid pace of adoption."

Oracle has enhanced its enterprise suite for the financial services market with analysis and reporting software acquired from Treasury Services, formerly of Santa Monica, Calif., which it purchased in 1997 for $120 million. Sumitomo Bank (see sidebar on page 50), First Union, GreenPoint Bank and Chase Manhattan Bank are among the recent adopters of Oracle Financial Services Applications.


Yet with individual components of an enterprise system widely available, many bankers are hesitant about extending their current ERP systems outside of limited functional areas.

Like many financial institutions, KeyCorp, Cleveland, uses the PeopleSoft 8 human resources application. The latest release from the Pleasanton, Calif.-based enterprise systems company, PeopleSoft 8, eliminates the "thin-client" end-user architecture and makes all functionality accessible from a standard Web browser.

For planning and reporting, however, KeyCorp uses Hyperion's OLAP tools, drawing data mostly from core banking systems of Hogan Systems, now part of Computer Sciences Corporation, El Segundo, Calif. (Also, KeyCorp's new KeyProcure marketplace, powered by Ariba, handles internal procurement-see story on page 16.) The combination "by and large meets the bill for what we've got," said Bob Rickert, chief information officer of KeyCorp.

Vendors of enterprise systems will have a tough time getting banks to let go of their existing core systems, even if they use enterprise solutions for related applications, observers say.

"Transaction efficiency has arguably been achieved. That's the reason you're going to have a pushback in the industry," said Steve Rodgers, vice president and general manager of Neovation, a back-office solutions provider. "We've already got transaction efficiency, so why should we put more back-office systems in?"

Bankers are showing more interest in the front-office piece of the puzzle, and the enterprise systems vendors are responding with a wide range of software to manage the proliferation of new customer channels.

"ERP for financial systems really is in the customer relationship management systems," said Rickert. "That's probably the frontier for financial services firms." He noted that there would be an opportunity for a CRM vendor to provide KeyCorp with an integrated back-to-front-office enterprise system, "if that would let me save money."

Of the three large ERP vendors, only Germany's SAP A.G. offers core banking functionality, drawing from experience in its home market. SAP offers solutions for loan and deposit products, primarily in retail banking and small commercial banking. Current customers include Volkswagen Bank, SGZ and Bank Frankfurt.

"The major charter customer that we have in that area is Deutsche Postbank, which is in fact the largest retail bank in Germany," said Randy Packham, product manager for SAP Banking. "Their intention over the next three years is to replace all of their retail banking components with SAP back office."

Still, gaining market share among U.S. banks may prove difficult for SAP. But its strong foothold among manufacturing and consumer goods companies raises an interesting question: What if a non-financial company decided to offer banking services to bolster its customer relationships? Examples of non-banks with expansionary aspirations into retail banking are readily found in Japan, including companies ranging from Sony Corporation to Ito-Yokado, the parent company of 7-Eleven.

For a company with an enterprise system already in place, the prospect of a business line extension into financial services can become less of a technical issue than an organizational one.

"That's a little like what SAP has done in retail," said Mark Livingston, head of the implementation value capture practice at the Chicago-based consultancy A.T. Kearney, noting SAP's downstream efforts after reaching a level of saturation in the Fortune 500 market in manufacturing. "ERP vendors are realizing they're doomed in the future if they don't put a broader functionality to a larger range of business functions and industries."

Still, some banks, particularly smaller institutions, have found that they don't need high-end enterprise systems in order to get some of the benefits of a data warehouse with OLAP capabilities. Vendors such as Hyperion, Sunnyvale, Calif., and Ottawa-based Cognos can pull together data from multiple systems to create a holistic view of a company.

Emprise Financial, a $750 million bank holding company in Wichita, Kan., uses Cognos Impromptu's ad-hoc reporting software to stratify accounts, to find accounts meeting various criteria, and to analyze the profitability of products or customers. The Cognos system works in conjunction with ITI Prime, which Emprise uses for its core banking systems including general ledger accounting and demand deposit accounts. ITI is a division of FiServ, a Brookfield, Wis. banking software vendor.

"Before we used the Prime module, we'd have to write a request for a report and go to our data processing area to have it run," said Betty Dohrman, senior vice president and manager of operations and technology for Emprise Financial. "The Cognos system is at the fingertips of the users."

The ITI Prime system has approximately 250 users in total, including about 25 support personnel with access to the Cognos report writer. The OLAP technology allows business decisions to follow from timely analysis of transaction data. "We can create a report that shows us how many customers make up the bulk of our fees," said Dohrman. "We use it as a research tool to help isolate certain things we're trying to get to the bottom of. If the fees were adjusted, how many customers we'd impact, what our net fee difference would be."


Analysts see mergers and acquisitions as a major force driving adoption of enterprise systems in the banking industry.

"Say a bank has been in a heavy, aggressive acquisition mode during the past four to five years. Guaranteed, they have seven customer information systems, six deposit systems and nine accounting systems," said Lou Ottrando from Technology Solutions Company, a Chicago-based systems integrator, who describes the typical banking acquisition as "consolidated real estate" rather than consolidated data and applications.

Enterprise systems have the potential to manage the complexity of an expanding banking empire. But at the same time, that very complexity makes the systems more difficult to implement for a company on the prowl.

"It's really hard to put in these enterprise systems when you have a huge amount of organizational change going on," said Thomas Davenport, professor of information management at Boston University and author of Mission Critical: Realizing the Promise of Enterprise Systems (Harvard Business School Press, 2000). "If there's a lot of consolidation in your industry, you've got to think twice about whether the timing is right."

"If you are pretty confident that you're going to be a big acquirer, then it might make a lot of sense to get an ERP architecture that you're very happy with, and have a strategy of moving acquired companies onto it very quickly," advises Davenport.

Convergence between banks, brokerages and insurance companies will create opportunities for companies that can demonstrate operational excellence through the use of enterprise systems, particularly for global companies expanding across both borders and industries.

"The more global our clients are, the less standardized they've been," said PriceWaterhouseCoopers' Adler. "They're under internal pressure for their own management requirements and external pressure from regulatory and risk management to standardize on one common application, so they can manage reports, close books, and see their risk positions and financial positions quickly and accurately. "

UniCredito Italiano S.p.A., a $150 billion bank in Milan with over 3,500 branches, plans to acquire The Pioneer Group, an investment management firm in Boston, for $1.17 billion. (At presstime, the companies were awaiting final approval from the Federal Reserve Board.) Along with complementary products, clientele and geographic coverage, Pioneer offers UniCredito valuable enterprise systems expertise.

The Pioneer Group corporate headquarters currently uses four PeopleSoft applications: general ledger, accounts payable, fixed asset management and purchasing. Previously, the company had been using Solomon software for general ledger and accounts payable, a standalone FAS system for fixed assets, and a pen-and-paper purchasing system for procurement.

"Now we've got this nicely integrated quartet of applications," said John Bukovich, manager of corporate accounting systems for The Pioneer Group. In the near future, the company plans to upgrade to PeopleSoft 8, and then to deploy the modules for project management, budgeting and human resources, for which they already own licenses.

"We're not a big company by most standards, but we have a complex reporting structure," said Bukovich. "PeopleSoft allowed us to consolidate all of that on one system. Before, all of the books were kept in different stovepipes and thrown into a big spreadsheet."

UniCredito intends to combine Pioneer Group with its EuroPlus asset management division. "In Milan they have some homegrown system and they recognize what we've done here," said Bukovich. "They'll be looking to Boston to create things here and abroad."

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