Engineering Change

HVB Americas spent the past five years implementing a new technology architecture that integrates business process and data flow. The bank's Chris Wrenn, managing director and COO, and David Dart, CIO, discuss with InformationWeek's Steven Marlin how New York-based HVB Americas, a unit of HVB Group (Munich; $644.5 billion in assets), increased business efficiencies and engineered a cultural change that has encouraged knowledge exchange and entrepreneurial thinking among employees.

BS&T: Can compliance efforts translate into sustainable, improved business performance?

Wrenn: We see it as the inverse. We believe we're ahead of a lot of people who are dealing with compliance issues. In anti-money laundering, for example ... we were able to spend a minimal amount of money to enhance procedures because we'd already executed on a strategy for straight-through processing. Here at HVB, prior to compliance becoming a hot issue, we were transforming our business from a plain-vanilla banking business to a more capital-markets-oriented business, and we had to modify the IT strategy accordingly. Over the past five years we have tried to match our IT strategy with our business strategy.

BS&T: Can you describe the transformation?

Wrenn: Six or seven years ago, HVB was a small branch banking operation in the U.S., providing services to mid-tier customers. The strategic change we made was to go to a more capital-markets approach. We needed infrastructure to support that.

BS&T: What percentage of the IT budget is devoted to compliance?

Dart: Less than 10 percent. Compliance is a natural extension of our information environment.

BS&T: How do you align IT with business strategy?

Dart: When we do systems development or enhancement initiatives, we involve all the people in the business: our IT people, accounting, operations, compliance - everybody from front to back. Compliance is one part [of IT planning], but an integral part. People who undertake systems initiatives tend to be myopic - they leave it with IT and don't get input. Now, everyone gets a chance to input their requirements.

BS&T: What procedures do you have for ensuring that IT projects are aligned with corporate objectives?

Dart: We have a project approval process in which the business initiates the project, but the project is managed by IT. Sign-off is required by all participants.

Wrenn: The management committee monitors projects monthly. We view IT as a precious resource. But it's not up to IT to decide where that money gets spent - it's up to the business management team.

BS&T: How did you rethink the organization, architecture, people and processes of the enterprise?

Wrenn: When David and I got here, there was no alignment between business and IT. We faced a number of challenges related to growing our business and needed to communicate the importance of bringing IT and business closer together. We were fortunate in being an organization of only 300 people. As you get into larger organizations, transforming the culture is more difficult.

Dart: The businesses were accustomed to having IT strategy driven by the head office. The guy that ran the foreign exchange business in New York complained that he couldn't grow business because systems were out of alignment and all processes were manual. An FX transaction required a trader to interact with three or four different front-end systems. Then it went to the back office, which also had three or four different systems. The solution was to integrate the FX environment. The problems FX was having were replicated in other departments.

We went out and acquired middleware from SeeBeyond [Monrovia, Calif.]. The middleware has loads of business logic, such as exception handling. We have eliminated lots of errors common in manual processing. A data warehouse extracts data from operational systems, scrubs and normalizes it and makes it available to business units.

Wrenn: We also added two or three business analysts to reengineer business processes. Even SeeBeyond is just a toolbox; you need to ask people what they want to achieve.

BS&T: How much standardization exists across the HVB Group?

Dart: In terms of IT, we haven't replaced all the legacy apps from Europe.

Wrenn: But what we have changed are the processes used to get information in and out of those systems - that's changed dramatically.

BS&T: What major technical challenges did you face?

Dart: Moving from a batch-oriented to a real-time environment. It's a quantum leap from file downloads to delivering information instantaneously to traders' desks.

BS&T: What are your primary business drivers?

Wrenn: Cost control is one of the biggest drivers, in addition to operational risk mitigation. Many financial institutions operate with a benchmark cost-income ratio of 60, 70, 80 percent; our cost-income ratio in the U.S. is 30 to 40 percent.

BS&T: What are the major components of HVB Americas' technology architecture?

Dart: Key is implementation of real-time transaction processing. We looked at all the data associated with each asset class; some reengineering was required. We've wrapped a real-time environment with an exception-monitoring routine around a batch-oriented reconciliation process. We allow customers to enter an FX transaction on one of our Web-based offerings or over the telephone.

BS&T: Is STP a reality, or is it just a buzzword?

Wrenn: There's nothing truly novel about STP. We started out calling it "systems integration." We needed to eliminate manual processes. The key is getting information into users' hands more efficiently. We're not talking rocket science; we're talking about a culture that allows you to reengineer processes. Key is a culture where all people can participate.

BS&T: What's the IT budget?

Dart: The IT budget is about 15 percent of the total expense budget; we consider ourselves a low-cost provider.

BS&T: What IT initiatives are planned for 2005?

Dart: We continue to roll out the STP initiative. We're now focused on supporting more structured products.

Wrenn: We're also looking at moving and upgrading our disaster recovery facility. That requires lots of IT input.