Chennai (India), March 26, 2013:

Time to head home after a day in India at the launch of the new design centre for finance launched by Polaris Financial Technology in Chennai (Madras for the old folks out there).

World of rupeesAs you walk into the Design Centre, you are greeted by a map of the world ... completely made out of Indian Rupees!

A fascinating trip, not least because Polaris has injected something into software development that I have not seen before: creativity.

This was clearly demonstrated by Michael Harte, CIO of Commonwealth Bank of Australia (CBA).

Over the past five years, he has replaced the bank's core systems, moved much of the banks services to the cloud, created many apps and innovations that have given CBA global recognition and more.  

Anyway, I was in India for the launch of Polaris's Design Centre.

The design centre is a collaborative space for their clients to work with them in seven different development cells under the acronym: COPARIS.

COPARIS stands for Customer, Operations, Performance, Analytics, Risk, Integration and Security, and represent the seven core competencies required for any bank system.

These seven areas operate in the Design Centre as small teams of creativity to solve customer challenges and issues.

I’m not going to say much more about the Design Centre as you can read more about that at the end of this blog entry, as cut and pasted from my friend David Bannister’s summary  (David was also over here for the launch).

I’d rather focus upon the presentation from the four million dollar man. 

That’s how much Michael Harte, Chief Information Officer (CIO) at Commonwealth Bank of Australia (CBA) earns, and Michael gave the keynote at the opening of the Design Centre.

Michael HarteFor those oldies out there, you may remember the six-million dollar man, Steve Austin.  In those days, a million dollars was a lot of money.  Today, we would think about a programme called the six-BILLION dollar man, as a mere million is not so much, is it?

Anyways, four million dollars is the annual remuneration of Commonwealth Bank’s CIO, near double what some Bank CEO’s get paid  (RBS CEO Stephen Hester’s remunerationwas half this in 2012).

Why would you pay a CIO so much?

Because he’s worth it, as L’Oreal would say or, in this case, as the Australian CIO Magazine says:

In October 2008 the bank went through a substantial reorganisation that saw a new division created — Enterprise Services — which Harte was appointed to lead, while maintaining his existing CIO title. Quoting from Harte's CBA biography:

"The Group formed Enterprise Services in October 2008 to enable an end-to-end service and process focus as well as accelerate the delivery of innovative customer solutions."

What this really means, when it boils down to it, is that Harte is no longer really just a chief information officer or technology executive — or, looking at it the other way around — that the CIO role in large Australian organisations is increasingly changing away from just being focused on IT.

In fact, he’s a bit of a hero to some, such as The Australian newspaper, who regularly place Michael at the top of the rankings for Technology leaders in Australia:

There's an adage that the best IT system upgrades are the ones that users don't notice. If that's the case, Michael Harte must be a very happy man.

As Commonwealth Bank chief information officer, Harte has been responsible for driving a program of change that's touched every facet of the giant organisation's operations. Core systems have been replaced and delivery channels enhanced to improve customer service. 

Such things are not for the faint hearted. Changing the technology that underpins the bank's fundamental activities could have caused massive disruption, cost blowouts and customer frustration. Yet the four-year project has been completed without any major hitches. 

Now that’s not quite true as CBA has had several outages in the last couple of years:

But these are minor in the overall scheme of things when, as I blogged recently, banking technology is ‘biological suicide’ and will often be the downfall of any business.

Therefore, in the scheme of things, a five year core systems replacement project that has succeeded in placing CBA at the forefront of not just the Australian banks, but the global banking fraternity, is quite something.

Bear in mind that CBA were the bank that launched this innovative little vision three years ago …

… and have delivered that vision.

You only have to look at their Pi point-of-sale payments platform, the CommBank Kaching mobile app or the newly launched Signals PFM service ...

... to see why the bank is gaining leadership for innovation.

By way of example of the success of CBA's strategy, Kaching! had around 700,000 downloads in its first year of launch, and processed more than $3 billion in transactions ($416 million were P2P).  The app is now on Facebook and of CBA's ten million customers, over 6.5 million are online and more than 2.5 million access their banking via mobile platforms.

The bank is also gaining recognition for efficiency, as Michael got the message early on that cloud computing could switch the bank from IT being capital expenditure to being a pure operational expense.  That is why the bank not only replaced core systems but also moved a lot of work to the cloud.

This has saved the bank millions and the savings are just the tip of the iceberg as only a fraction of testing and development platforms have been outsourced to Amazon.

According to an interview with Michael in The Australian last year, the bank has saved “tens of millions of dollars ... over one year” and that was just from placing “about 30 per cent (on Amazon) ... there's a whole lot more to go so not every bit of testing and development is in the cloud.”

By moving to cloud, CBA is spending three times less on IT infrastructure than they were beforehand with the bank previously consuming “about 75 per cent of our IT budget on infrastructure, it is now down to 26 per cent.”

Interestingly, the bank uses Amazon's first data centre managed by Equinix in Sydney for their cloud services.

All in all, CBA is at the forefront of technology renewal, with a clear focus upon innovation agility or, as Michael and Polaris like to call it, design thinking.

Me, myself, I, prefer to call it creative banking, which is applying creativity to the design process of banking, and that’s a good thing.

With all that build up, what did Michael have to say in his keynote?

Here are a few loose notes interpreting his main points, and please note that I have widely added my own sprinkle of views into these notes.

Michael Harte, Top 0Organisations get too introspective, and this results in a lack of customer focus.

By being introspective, organisations design systems and processes for the organisation rather than for the customer.

You therefore have this old world organisation that is introspective and internalised fighting with new technologies and new customer relationship needs.

The customer is refreshed but the organisation is not and technology is not about interacting with organisations but interacting with humans as they live their lives.

That is why systems need changing.

After all, twenty years ago, banking was all about an account number.  That is how we managed our customers, as numbers.  In two decades, we have moved from account numbers to relationships, and the focus of our systems today need to be upon building relationships with customers for life.

That needs new thinking as that renewal needs a renewal of thinking.

You cannot have systems designed for the internal organisation when the customer is renewed and when their technology has been refreshed.

You cannot have old style systems when customers have refurbished.

That is why so many banks are changing core systems today.

It is because we need to focus upon how customers want to communicate and consume services, which is predominantly through mobile and IT, and this complex interaction between humans, organisation and technology is the friction we live with today.

Within this however is the greatest unknown quantity which is the human capacity for design and creativity.  That is why customers engaged with technology create much greater outcomes than the technology inputs.

This is what I call design thinking.

After all, we have given the customer the ability to create and share their lives through technology, and it is their creativity in design that is changing the process, the system,, the structure and the interaction.

We should give thanks to Google, Apple and Facebook for enabling our customers to create and share anything at anytime with anyone.

Anyone can create anything and, if it’s popular, it is valuable.

By way of example, software and information design companies like you (talking about Polaris et al) are now able to design and create anything for banking.  In fact, you have the ability to disintermediate IT (I’ve said for some time that a bank can move to outsourcing their IT shop and just having a strategic board that directs the information services design and operation).

You can design new services for banks, you can create, and you can put it out there before we, as banks, are even thinking about it.

The biggest challenge then is how to convert the business?

How do we persuade the bank to change?

How do we get the organisation to move?

How do you make the elephant dance?

The only way to do this is to cannibalise the organisation.

You have to create friction to renew the organisation.

You have to create freedom fighters to bring down the old and create the new.

This freedom force is the innovation bomb.

You place this group into a separate force to work out the best way to interact with the customer.

This group has to be separated from the existing organisation, as the existing organisation wants to keep the business as it is.

In other words, you have the freedom force fighting the business as usual (BAU) group.

The BAU force will fight any change, as they created what is there today.  It is almost like going to the BAU and saying: we are here to kill your children.

You cannot have the BAU destroying the existing organisation.  That is why you need the freedom force to challenge all aspects of the BAU and work out how to regenerate the organisation.

And the main direction to these freedom fighters is to focus upon the outcomes.

What are the key outcomes for the customer?

What does the customer want from the bank?

How do they see the bank?

How do they want to deal with the bank?

Work out what the outcomes by focusing upon what the customer is doing, how they want to interact, and then build and evolve the bank on a continuum for the relationship you want to have with those customers through those interactions.

But don’t try to design perfection.

If you focus upon perfection, you will fail.

You will never get there.

That is why you need a rapidly evolving, flexible firm that can fail fast at low cost.

You need to live with failure, but fail fast at low cost.

And that is the beauty of today’s technology capabilities, as we have the ability to fail fast at low cost.

You can design, test and fail, modify, redesign, retest and succeed.

You can have hundreds of mini failures to gain maximum success.

Multiple fast failures at low cost are how we work today.

IT used to involve billions of dollars of investment in R&D with a  binary outcome: success or failure.  Today, that is not the case.  IT today is a few dollars of investment with a suck it and see if it works outcome.

This is the safest environment for rapid experimentation today.

It’s different to the 1990s, when we talked about Rapid Application Development (RAD).  Back then, you were looking at months or years and thousands or millions of dollars to try things out, with significant reputational risk associated with it.  Today, it’s days and week with hundreds or  a few thousand dollars to try thing out, and managed risk with it.

Today, the tools to design creative banking are fast and cheap, so the organisation needs to adapt to be fast to change and cheap to adapt.

In fact, a group of engaged, energetic and creative people, working collaboratively to rapidly develop new tools that can be tested, tested and tested on a continuum of design and improve, rapidly at low cost, is the sure fire way to develop the future bank.

Michael said a whole load of other stuff, but you needed to be there to get it all.  Either way, it’s the most sensible message and strategy I’ve heard from a CIO or any senior banking guy for a while.

So is he really worth $4 million a year?

You decide.

Meanwhile here’s a summary of the Polaris Design Centre, courtesy of Banking & Technology Editor, David Bannister.

Polaris unveils $10m financial technology design centre in Chennai

8012 Design CentrePolaris Financial Technology has opened a $10 million financial application design centre at its headquarters in Chennai, India, where customers will be able to work collaboratively with the vendor’s development teams on applications and systems.

Called the 8012 FT Design Centre – the name comes from the latitude and longitude of Chennai – the facility is based around Polaris’s concept of good design being at the heart of better application development, said Arun Jain, chairman and chief executive of the company. “In most applications, 98% of the functionality can be done by anyone; it’s the last 2% that makes the difference,” he said, adding that the company has spent much of the last two years developing the concept behind the 8012 environment, studying examples of good design and best practice. “We spent 400 days planning it and 64 days on execution.”

At the heart of the centre are seven design labs, covering what the firm considers to be the elements essential to all financial technology developments: customer experience, operations efficiency, performance, analytics, risk management, integration and security. Within these, developers work in teams of between five and seven people – not a random number, but based on research carried out at Harvard University, showing that this is the optimum number for collaborative working. Customers will be able to work alongside these teams to develop and customise applications

Jain said that the centre marks a fourth phase in the development of Polaris, which has focussed on financial technology since its beginnings in services and outsourcing in the mid-1980s.

The second phase stems from its acquisition of products formerly owned by Citi, which saw it increase in scale and move to become more intellectual property-oriented as part of a deliberate plan to have products across all aspects of banking systems. “To improve time-to-market and implementation, you need to have intellectual property so that you can re-use code,” said Jain. The main undertaking at this time was to break down the products into a service-oriented architecture model, a five year task involving 800 developers – something Jain said could only really have been done in India: “4,000 man-hours of development in the US would have cost us $400 million.”

Behind this approach was the belief that the next generation of products would be cross-market, and this led to further simplification of the product components into “apps”. At the same time, the financial crisis was at its height and this also fuelled the desire for simplicity in design. “We went back to the design table and saw that complexity was high – and we believe that complexity was why the crisis happened,” said Jain. The apps form the basis of Polaris’s Canvas environment, which allows applications to be built and configured on the fly, dramatically reducing both development and implementation

The Chennai facility is likely to be followed by others – albeit on a smaller scale – in London and New York, other company officials said. No location has been decided, but as the company’s London offices are at Canary Wharf, virtually on the Prime Meridian running through Greenwich, a good bet for the name of the London facility would have to be the 0052 FT Design Centre.