Linking information technology to business strategy at Banco Comercial Português

Journal of Strategic Information Systems 1995 4 (1) 89- 110

Case study Linking information technology to business strategy at Banco Comercial PortuguCs Soumitra Dutta and Yves Doz INSEAD,

Boulevard de Constance, Fontainebleau

Cedex 77305, France

Banco Comercial Portugues (BCP) has grown to become one of Portugal’s largest and most profitable banks in little over half a decade. Since its inception in May 1986, by mid-1993 it had around 300 locations, 4300 employees and the equivalent in Portuguese escudos of over $11 billion in assets. BCP’s extraordinary growth has been marked by a series of innovations (remarkable for the Portuguese banking environment in the 1980s) including extensive research of client needs in the target markets, careful segmentation of the bank groups, the appointment of a personal account manager for each customer, rigorously designed and efficient branches and the rapid introduction of new banking products. Technology has played a critical role in enabling these innovations, such as strategic databases for prospecting and selling to clients, distributed processing with centralized data for the different bank groups, comprehensive information support systems for account managers, sophisticated automation in branches and the flexible and rapid deployment of systems to support new banking products. BCP is in many ways a leader in the strategic use of information technology (IT) among European banks. However, its leadership position arises less from the use of cutting-edge technology as from a deliberate attempt to link IT to its business strategy and built a competence in the business use of IT. This case study focuses on the management of IT within BCP and illustrates how BCP has successfully linked IT to its business strategy. Keywords: management

Background

strategic planning of in banking, information

on the Portuguese

information technology

technology, information and innovation

technology

banking environment

The Portuguese banking environment was relatively immature until the mid-1980s. Under the dictatorial rule of Antonio de Oliveira Salazar and his successor, Marcel0 Caetano, from 1928 to 1974 the banks and the economy were effectively closed to Europe and the remainder of the Western world. Following a bloodless coup in April 1974, a government strongly influenced by the Communist Party acquired power in 1975 and proceeded to nationalize major sectors of the economy including banking and insurance. The use of nationalized banks by the government as instruments of its monetary policy and lending policies influenced by political criteria helped to create a rather nonchalant attitude towards efficiency and customer satisfaction within the banking sector, which was already protected by a system of regulated interest rates. 0963-8687 1995 Elsevier

Science B.V. 0

1993 INSEAD

89

Case study: S Dutta and Y Doz

Real change only began in 1984 when the government passed legislation enabling individual investors to create private banks in Portugal. The government invited both domestic and foreign applicants to establish private banks with a minimum capital requirement of 1.5 billion escudos ($9.3 million). Several foreign banks (such as Chase Manhattan, Manufacturers Hanover Trust, Barclays, Banque Nationale de Paris and Citibank) entered Portugal in subsequent years. The Founding

of Banco Comercial

The underlying philosophy ‘technology-driven’ bank.

is to

PortuguCs be

a ‘marketzdriven’,

‘people-driven’ Christopher

Member

of the Board,

Banco

Comercial

and

De Beck Portugu&

Spurred on by the fast-moving developments in the country during the mid-1980s two senior bankers from Uniao Bancos Portugueses were approached by a group of investors in the northern city of Oporto with the idea of creating their own private bank to serve specific business needs in northern Portugal. In November 1984, this group invited Jorge Manuel Jardim Gonqalves, then Chairman of Banco Portugues do Atlantico (BPA) (the largest commercial bank in Portugal), to become Chairman of the proposed new bank. Under Gongalves’ leadership, six key policy decisions provided the foundation of Banco Comercial Portugues’s (BCP) overall strategy: l l l l l

l

BCP would not confine itself to one region or one segment; it would be a nation-wide, universal, high-quality bank; BCP would begin by targeting the ‘high net worth individuals’ and the medium-size corporate market; BCP would be run by a professional board that would be independent of the shareholders; BCP would be a ‘new bank’ rather than a copy of anything that existed in Portugal; BCP’s initial share capital would be 3.5 billion escudos, more than twice the minimum set by the monetary authorities, which was already considered excessive; BCP would employ the latest technology for delivering high quality customer services to the target markets.

In June 1985, BCP was founded with a total of 204 shareholders escudos ($25 million). BCP articulated its overall mission:

and 3.5 billion

To become a major Portuguese bank by providing excellent, innovative, and personalized products and services that are designed to meet all financial needs and expectations of the most relevant domestic market segments.

Initial market research by BCP From the outset BCP acted in a professional, rigorous and thorough manner with regard to market research. Market research companies were just starting in Portugal in the early 1980s. Finding the surveys from these marketing agencies too aggregated and simplistic to be useful, BCP decided to develop its internal market research capabilities. BCP established a ‘market segmentation’ task force 90

Journal of Strategic Information Systems 3995 Volume 4 Number 1

Case study: S Dutta and Y Doz

(supplemented with two consultants from a major international company) to analyse in-depth target market segments, customer needs, existing products and business potential. The task force spent 11 months reviewing selected market segments, chosen according to such criteria as unfulfilled needs, estimated level of profitability, and BCP’s ability to succeed. High net worth individuals and medium sized companies were identified as the most lucrative market segments for BCP to focus on initially. Figure I provides more details on BCP’s market research and segmentation strategy. The information gathered during the market research was stored in a database which was continually updated. This later developed into the strategic marketing database, a valuable intelligence gathering and analysis tool exploited by BCP over the years.

Early commitment to information technology In July 1985, soon after creating its market segmentation task force, BCP initiated a study to articulate a vision for using information technology (IT) in support of the Bank’s overall strategy. The team consisted of a senior business manager, the data processing manager, a junior staff member and two external consultants. The study came up with the following ‘generic definition’ of IT at BCP: l l l l

applications applications applications BCP would

were to be real time and flexible; were to be based on the client; were to be independent of the branch;’ be a ‘user’ rather than a ‘developer’ of technology.

The study also addressed the two important issues of the hardware platform and the software infrastructure. The hardware decision was tied to BCP’s aim to be a major Portuguese bank. To achieve this goal BCP felt it needed a large and flexible IT system. If BCP were to opt for mid-size solution, such as the (then) commonly used IBM system 38, the Bank’s ability to grow quickly might be stifled. In such a case, a painful migration process would be required in the future, distracting BCP from its key growth objectives. The other choice was a large mainframe in the IBM 43xx series. A large mainframe was expensive but it would allow BCP to meet the processing needs of rapid growth. The board deliberated upon the choices in depth and finally decided upon the mainframe alternative. A senior manager involved in the decision process commented 011 the outcome: There is no technical solution to a management problem, but there is a management solution to a technical problem. The beauty of the decision was that it was a management decision, not a technical one. The industry,

and some shareholders,

thought

we were crazy putting

all that

money

into a mainframe computer while opening only two branches. Even more important than hardware was software. BCP felt software was key for supporting close customer relationships and high service levels. As BCP’s business strategy was built around customers, BCP adopted (after a careful study of the 1 This would allow clients to switch branches as BCP grew and offered additional branch locations. At other Portuguese banks, in contrast, clients needed to set up new accounts with new numbers in order to change

branches.

Journal of Strategic Information Systems 1995 Volume 4 Number I

91

Case study: S Dutta and Y Doz

Market

segmentation

( 1989)

(19891

NavaRede

(1989)

Small business corporations ( 1992)

Individual

Strategic Market Market

pyramid

Corporate

concepts

opportunities

Market

segments

Implementation of a customer relationship

have differentiated financial needs in terms of :

banking

products equality service

) identify

approach

approach

Type of approach

Consequences Definition of the proposal of value : the customer is the basic concept

: Organization

l

. image . premises The value offer should be defined in accordance with the customer

homogeneous attractive market segments

I specify

major needsof each market segment

:

business areas per market segment . different networks l

l

different

marketing

account

managers

( instead Bdefine a proposal value

of

of product managers)

to offer to the Support

customers

systems

:

e customer

All competitors follow product -oriented market approaches

I serve each segment

profitability . branch account manager profitability

through a brand autonomous distribution

. integrated

network

. business objectives

Figure 1 Initial market segmentation Source: Internal BCP documents

selling

systems

by BCP

available choices) the customer information system (CIS) package from Hogan (a US-based banking software firm) as its core platform. The CIS organized information around customers (not by products as was the case with usual banking packages) and gave BCP managers a comprehensive view of relationships with their clients. The CIS was viewed as critical to allowing BCP to provide an enhanced level of service to its customers. The initial decision to invest heavily in large-scale computer and software 92

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

systems was painful, absorbing board member described it:

about

one-third

of BCP’s

start-up

capital.

As a

We invest a lot in technology, but sometimes it is not easy to justify the investment for the future. It is a question of culture. If you spend a lot to buy a building the result is visible. But if you spend a lot to buy a computer then everyone complains - but the computer is more important for the company.

BCP’s initial growth (1986-88) It was not hard in those early days to attract key staff. Many good IT and banking professionals in state-controlled banks were frustrated and were waiting for just such an exciting opportunity.

BCP recruited over 100 talented employees and opened its doors on time in May 1986 with an aggressive marketing campaign featuring, for the first time in Portuguese banking history, a full page newspaper advertisement. The emphasis, the advertisement said, was on innovation, new products, new services, and advanced information technology systems - ‘exclusively to serve you’. From the beginning, excellence in customer service was explicity established as BCP’s key operating objective. The bank stated in its 1988 Annual Report: Banco Comercial Portugu&s persists in evaluating the level of achievement of its objectives not so much by the numeric expression of the business variables but rather by the level of satisfaction of its clients. A critical decision in assuring high levels of service was to assign primary customer-service responsibility to the account managers.2 The account managers acted as personal financial advisors for a designated set of clients and as specialists for all of their client’s transactions. The account manager was supported in both of these roles by the bank-wide CIS systems, which provided data on all of BCP’s products, as well as a comprehensive view of a client’s financial position and dealings with BCP. The account manager also played a vital innovating role in seeking better ways to satisfy customer requirements by obtaining feedback on products and ideas from clients. BCP launched lead products for high net worth individuals and medium-sized corporate segments: ‘conta mais’ - a demand deposit account paying 6 per cent annually to high net worth customers; and ‘conta gestCo de tesouraria’ - a treasury management account paying 5 per cent to corporate customers (other Portuguese banks paid zero interest on cheque accounts). BCP’s initial marketing campaigns did not stress credit products because regulatory credit limits restricted lending levels. But BCP introduced a deposit account named ‘conta duplique o vencimento’, which gave high net worth account holders access to automatic credit of up to twice their monthly salary. Six weeks after BCP’s opening, the Portuguese government, in response to lobbying from established retail banks, introduced a regulation limiting interest payments on demand deposit accounts to 4 per cent. However, due to BCP’s flexible customer-oriented software structure, BCP was able to develop in two weeks a new product that could ‘sweep’ balances between client accounts. Each evening, checking account balances were swept into overnight treasury bills paying 8 per cent interest and then the balance was reposted in the checking account the ’ BCP was the first Portuguese bank to establish the role of account managers for clients. Journal of Strategic Information Systems 1995 Volume 4 Number I

93

Case study: S Dutta and Y Do.7

following morning. The market response, enthusiastic:

as one BCP executive explained,

was

With the fantastic publicity the BCP dual accounts gave us, the fact that no one could copy us easily allowed us to grow quite nicely. BCP’s flexible technology infrastructure gave it the unique ability to create and handle complex financial products, which consistently appealed to the Portuguese market. For instance, BCP produced an account paying interest at differing rates depending on the average daily outstanding balance. Technology also helped to differentiate BCP in the eyes of its customers by enabling it to meet rapidly changing market conditions. A senior executive provided an example: During the boom in the Portuguese stock market from 1986 until October 1987, BCP captured a 20 per cent share of the Portuguese stock market transactions because our computerized system for stock trading offered decentralized services for trading stocks by telephone and allowed us to give next-day feedback on transactions to our customers. In contrast, our competitors had centralized processing and needed weeks to get back to their clients on an order. We captured many new clients on the back of our securities service. When the stock market crashed in October 1987, our clients were also less damaged as they could sell more quickly. BCP spared no effort in trying to differentiate its service to provide a high level of service to its customers. Noting the importance of speed and precision in foreign trade transactions, BCP decided to make the expensive decision of moving the foreign transactions activity to the branch level (all other Portuguese banks centralized their foreign trade activities). This decentralization was made possible by a PC-based propram called EXIMBILLS, which incorporated all the necessary forms and SWIFT interface for processing import/export transactions locally and which could be used by all personnel.

BCP’s subsequent growth (1988-93) By the end of 1988, BCP was well-established in Portugal with total assets of 296 billion escudos ($2.02 billion) and a networth of 19 individual and corporate branches. Over the next few years, BCP launched a series of different business groups which catapulted it from a small startup bank to a major player in the Portuguese banking market. In early 1989, BCP launched two other business groups focused on private and corporate banking respectively. A major turning point in BCP’s development came in November 1989 with the establishment of ‘NovaRede’, a banking group targeted at individuals in the medium income range. In May 1992, BCP established its sixth business group to serve small companies and independent businessmen. Figure 2 provides an overview of the growth of BCP and Table I provides an overview of the development of BCP’s banking operation. BCP had a thorough and professional process for considering the opening of new business groups. In cooperation with external consultants, extensive market research studies were carried out before the launch of each group to determine the objectives for serving the target market, cost structures of the business, and desired service levels. As the Chairman explained it: 3 SWIFT is the inter-banking network, established by a consortia of international banks to facilitate the movement of funds between them.

94

Journal of Strategic Information Systems 1995 Volume 4 Number 1

l

Medium-sized corporations

Portugal’s top 500 corporations

Extremely wealthy customers

Urban retail customers

Portuguese emigres in France Small business

1989-91

1989-91

1989-93

June 1991-93 Mar 1992-94

Corporate banking

Private banking

NovaRede

International

Retail banking facilities

0 Hire purchase-type financing . Cheque management service 0 Loans

l

Investment products . Mutual funds l Insurance products 0 NovaRede account l NovaConta salary account . Funds transfer 0 NovaRede visa credit card . Insurance products l

0 . 0

l

0 0

Source: Banco Comercial PortuguCs, 1993 (INSEAD case no 289 and THESUS case no 1992-104).

Small business

Cash management products (eg conta mais) l Mortgage credit l Personal loans l Prestige credit cards b Package of insurance Cash management products Short term capital financing Treasury accounts Investment accounts Offshore financing and cash management Swaps Loan syndication Capital market services

l

High net worth individuals

1986-X9

BCP Parent Group

l

Products and services

Target clients

of BCP’s banking operation

Main ohase

Development

Ooeration

Table 1

Autonomous branch network Decentralized back-office Global range of flexible financial services Account managers Personalized treatment

l

l

l

l

l

l

l

l

l

l

l

l

l

l

l

Specialized credit scoring Revolving line of credit

Joint venture with Spain’s Banco Popular

Fast service, low costs Low cost branch operations Monthly combined statements Automatic cheque dispensing Direct hotline and telephone banking Credit scoring techniques

Access to dealing rooms Corporate terminals Electronic banking Tailor-made products High level of discretion Exclusive branches

l Cross-selling to insurance and leasing 0 Corporate terminal l Risk assessment system

l

l

l

l

l

Operating systems

$ I;

2 @ .

k m

Case study: S Dutta and Y Doz

1

1987

1988

Total

Main Portuguese

Assets

Banks

1989

1990

I

1991

Year

Figure 2

Growth of BCP. In less than five years, BCP has clearly outpaced the two other Portuguese commercial banks, which appeared in 1985 (BCI and BIC), and joined the group of Portugal’s largest commercial banks (note that BP1 merged with BFB in 1991). BPA, Banco Portugu&s do Atlantico; BTA, Banco Totta e AFores; BPI, Banco Portugu&s de Investimento; BIC, Banco International de CrCdito; BESCL, Banco Espirito Santo & Comercial de Lisboa; BPSM, Banco Pinto e Sotto Mayor; BCI, Banco de ComCrcio e Indlistria Source:

Banco

Comercial

Portugu&s

(1993),

INSEAD

case no 289

Before launching a new business group we first ask: is there a market? We then conduct market research , We look for the key drivers - what we should focus on . . . Our driving force has not been product pricing, it has been service. The launch of the new business groups was accompanied by a wave of new products and services, all very innovative for the Portuguese banking environment of that time (see Table 2). BCP’s technological infrastructure played a key role in enabling the development and launch of innovative products and services with such rapidity and flexibility. For example, BCP’s IT infrastructure enabled NovaRede to maintain a minimum number of staff. NovaRede’s maximum of five employees per branch contrasted with an average of 40 for the branches of its competitors. Cost per branch was also low. NovaRede branches took an average of just 18 months to break-even. In addition, the IT system made every NovaRede employee a generalist. As one NovaRede manager explained: At NovaRede, everyone can do everything. Also technology enabled us to use smaller units and smaller teams. In teams of more than five people productivity is lower there is someone who doesn’t work, who just controls. At NovaRede, But NovaRede 96

BCP eliminated the personalized services of an account customers had direct access to the IT infrastructure Journal

manager. for their

of Strategic Information Systems 1995 Volume 4 Number 1

New concept

Image through

group

scgmcntatton

New product New product

Managing predated chcqucs Crcdtt based on predated chequcs

1986 19X6 1986 1986

__._

._ - .

--

- ---- ---- ---.--

response

followed

late 1988

I

1990

1989

1989

1989

April April

1992 1992

October 1990 April 1992

1990 August

November

November

November

November

product product

BCP also adopted a policy of ‘zero-interaction’ that was ‘leaked-out’ from BCP.

No other bank offers such a comprehensive No other bank offers such a comprehensive

and

Portugal Others followed in 1992 (BESCL, BFB, ctc) Other followed with 415 months lag

Others followed m the same year No other Portuguese bank is listed outside

BPA launched a hot-line in late 19YO. Barclays BFB m 1992 No other bank offers such a complete service

with

Other hanks opened a few branches of that same size afterwards Others followed in 1990-91 with similar products

Barclays launched a gold credit card in lY91 BPSM followed 213 months later

a year later

Others

a similar product

Mid-1989

followed

A year later BESCL launched No one followed Others followed in late 1989

BPA and Barclays followed in 1990. BCI in 1991 and BFB in 1992 1990 Barclays and 1991 BCI. Others developed products aimed at special market se men%. BCP still remains the only bank to follow a fu f market segmentation strategy Others have slowly developed a financial group

Others

1990 Barclays, 1991 BCI (Santandcr) 1990 Barclays. 1991 BC (Santandcr) BCI launched gold card 1987 No one followed

Competitive

Mtd-1989 Late 1989 1989

1986 Late 1988 January 1989

1987

May 1986

May 1986

BCP‘s main competitors bccamc increasingly good at imttatmg BCP mnovattons; however. no one bank could follow all of BCP‘s ucw product introducttons. other banks in Portugal [lor tnstance on the inter-banking network \ystem. SIBS]. This was done in order to reduce the amount of competitive mformatton Source: Banco Comercinl PortuguPs, 1993 (INSEAD case no 2X9 and THESEUS case no 1992.104).

New concept New product

Sponsormg TV show Personal credit

New scrvtcc

New product New conccpt

statcmcnt

Mortgatc credit ADR program

combined

New scrvicc

Hot-lmc

Monthly

New product

Salary account

dtstrlbution

New concept

New product

NovaRcdc

nctwork

branch

account

New product New product

income

New product New product New concept

level for each of the tightly defined

In order to serve each customer’s global fmancial needs. BCP established a group to co-ordinate such aspects as insurance. leasing, factoring, ctc An information scrvtcc to business around the world Innovative shortlmednnn term bonds for medium size compamcs Taking advantage of tax and operating conditions in Madeira‘s financial ‘offshore’ status A new financial product combining a high interest rate with flexibility of withdrawal and the payment of monthly income Viba Premier (gold) credit card. First ever gold credit card issued in Portugal Securities issued by medium size companies at very compctttwc interest rates with 1 war maturitv Small L&anchcs wit; reduced staff (five maximum), automated and close to customers. ATMs I” all 200 branches (end 1991) An account based on automatic transfer of monthly salary. enabling early payment of salary from the 15th. an automatic credit line, and free accident tnsurancc A telephone scrvtcc through which chents may place orders, or request information A document which summarizes all fmancial transactions, and states all the client‘s assets BCP moved mto an area that was ‘exclusive‘ of soccial credit instttutions BCP was the first Portuguese company to have their share capital listed in a foreign market Sponsoring a popular TV show BCP launched credit factltties for mdividuals just after the removal of legal restrictions A product designed to manage predated chcques for small businesses A credit line based on accounts rccetvablc (as predated chequcs) held by small businesses

and service

New concept

the product

BCP specified segments

May Late Late May

Personal service High yteld hank account Vtsa premter gold debtt card (first gold debit card m Portugal) A mote flcxtblc securities account. Supported in BCP central system, it allows any customer access to the stock exchange at branch level BCP introduced direct markctmg methods such as telemarketing and mailing. The first in the Portuguese bankmg industry BCP premises designed m order to appeal to the segments they scrvc May 1986

Date

Description

New conccpr

Prestige credit” Short term bonds

Monthly

Tradelink Commercial bonds Madeira ‘off-short’

Financial

Market

New conccpt

Direct marketing

prcmiscs

New New New New

Account managers Nova coma mas Ptcsticc debicu coma fttulos

service product product service

Category

BCP’s main innovations

product

Table 2

Case study: S Dutta and Y Doz transactions. BCP established a direct line for telephone banking which customers could access round the clock. To overcome the competitive limitations4 of Multi-Banco (a centralized automated teller machine (ATM) service owned by a consortia), BCP developed its own parallel network to provide additional services (not available from Multi-Banco) such as checque dispensing. Unlike its competitors, whose ATMs are in almost every case directly accessible from the street, NovaRede adopted a layout where its ATMs and related services are located inside a specific self-banking area inside the branch premises, accessible by customers and non-customers alike, but isolated from the front-office area and from the outside by transparent glass walls. This particular layout was intended to enhance users’ safety and privacy and, simultaneously, enable total view into the branch facilities - thus attracting non-customer’s attention. BCP also developed a system of digitizing signatures that could be called up on-line by a teller in any branch to directly verify signatures on cheques (thus reducing the cost of back office cheque processing). In addition, if there were insufficient funds to cover the cheque amount, the teller of the bank had the ability to send an electronic mail message to the account holder’s branch to request special clearance. The whole procedure took a few minutes, compared with up to an hour at other Portuguese banks and also allowed a saving of about a million fax messages a year. A major innovation for NovaRede was the ‘salary’ account, which resulted from the initiatives of NovaRede’s dedicated sales force. The salary account allowed clients to receive access to their salaries on the 15th day of the month (instead of the traditional end of the month), an automatic personal line of credit equal to three months of salary, and free personal accident insurance. A BCP executive emphasized the importance of the salary account: The salary

account was something highly specific software products. anyone else could match it.

completely new for Portugal and relied on some NovaRede had an entire year’s head start before

Group structure and culture The management of each business group was divided between the manager of a ‘co-ordination division’ (with line responsibility for the business group) and the manager of a ‘marketing division’ (who had authority to determine the business group’s marketing mix, subject to co-ordination by a central planning division in terms of timing and pricing). Reporting to the co-ordination manager were the branch managers of the business group, who were in turn responsible for the account managers (where they existed). The operations supervisors and, in some cases, operations managers (who were equal in rank to branch managers) reported directly to the operations group structured in the same way as a business group, with a centralized co-ordination management at the national level. 4 The centralized automated teller machine (ATM) service Multi-Banco gives Portugal a tremendous advantage over other countries in being able to offer a consistent network to all banking customers within the countrv. However there are drawbacks in this for BCP. All ATM development plans must be channelled through an external company for developing new services. However, BCP provides additional services which helps to provide enhanced service to existing customers and helps to attract new customers. For example, BCP has contracted with a firm to refill its ATM machines on a 24 hour basis every day of the week. Thus on a Saturday night, when the ATM machines of many other banks are empty, non-BCP customers can use BCP’s teller machines as they are always full.

98

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

The market research efforts of the marketing divisions in the different business groups was coordinated by the strategic marketing unit (a special corporate unit created in October 1991). Figure 3 describes the typical organization of a business group. The branches themselves were originally designed to operate as autonomously as possible, with separate front and back offices in order to maintain a high quality of service. The intention was to decentralize operations and differentiate them by business group. Although the front office remained separate in all but a few locations, the back offices at each location were being merged gradually. An exception was the highly automated NovaRede which maintained a separate back office at the level of the business group. The bulk of the information flows in BCP were informal and rapid. BCP attached considerable importance to informal communications and motivating people. As one manager explained: We don’t have a real organization chart. We might draw them from time to time. But we never approve one. When you approve something and then you want to change it, you have to make a decision to change it. Team work was encouraged to implementation. was essential to

valued highly within BCP since the start. Teams members were and often continued working on it after ‘own’ a project A manager explained that the culture of informal communication team work within BCP:

Whenever I have an idea or problem, I directly contact the person who I think can have something interesting to say on it. If we feel it necessary, we get a group of people together to work as a team. We do not have bureaucracy obstructing the formation and functioning of teams.

I

T

Branch

SALES

Figure 3 Source:

MARKETING

Typical organization

BCP internal

OPERATIONS

STRATEGIC

PLANNING

of a business group

documents

Journal of Strategic Information Systems 1995 Volume 4 Number I

99

Case study: S Dutta and Y Doz

Comments by staff members reflected the same feelings: At BCP people don’t keep ideas to themselves. They help each other. The people above understand if we make mistakes. They are enthusiastic if we have ideas. There is strong loyalty by the staff to BCP and the Group. The staff feel that they are working in a clear project. BCP also believed

in rotating

the managers.

One executive

explained:

Staff rotations happen about once a year. We ask the employees about their main interests, and try to accommodate their wishes when we move them. People rotate at all levels - for example the Number 2 in the data processing department left to work in data processing at Ocidental [the Group’s insurance subsidiary]. We also rotate people between areas and between teams. The advantage of these rotations is that they make people more flexible. You also enrich the culture by making people more aware of the issues and difficulties being faced elsewhere.

Group technology structure The central data processing group consisted of about 200 staff members divided into four divisions: applications development; systems, communications and operations; business group performance and change management; and organizational quality assurance and help desk (see Figure 4). The general manager of the central data processing group reported directly to the board. In addition to the centralized IT department, a certain number of IT staff were distributed in each business group. The central applications development team was further sub-divided into several permanent project teams with each project team ‘responsible’ for a set of major (related) software products. Each project team had a corresponding ‘IT users committee’ which comprised the general manager of a business group, several key front line users and some technical specialists form the associated project team. The IT users committee played a key role in integrating the technology staff with the users and overseeing the implementation of new projects. There were frequent rotations of the IT staff between the central department and the business groups. The general manager of the central data processing group commented on the job rotations: The IT department does lose a lot of technical people, who move to other areas of the bank. However, this reinforces mutual understanding and ensures that there are good technicians in user departments like marketing and planning. There is a negative aspect: when the Board decides to move someone, it wants the move done quickly which has costs for the data processing department. But in general rotation moves are

very good for the bank. The software structure at BCP was modular and relied on interfaces between software packages arranged in three conceptual levels (see Figure 5). At the lowest level, there were different software modules serving the multiple products sold by BCP such as drafts, credit cards, securities and demand deposit accounts. The CIS package was at the next level. The CIS aggregated information on customers and channelled it to the account managers in the various business groups. The CIS formed the core system for the day-to-day operations of front line staff within BCP. For the retail interface, BCP had two software switches: on-line delivery system 100

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

Figure 4 department

Organization is organized

of the data processing department. into four areas (see Figure 4a):

BCP’s

data

processing

a

l

Applications development. This group is responsible for selecting or developing application packages to match user requirements. This group is further sub-divided into different project teams. Each project team has a corresponding IT users committee which consists of some technical staff from the project team, business group senior managers and line staff (see Figure 4b)

b

Systems, communications and operations. This group is concerned with the operations of the computer systems, networks and ‘production’ activities BCP Group performance and change management. This is a support group, responsible for coordinating changes in BCP’s technology infrastructure Organization, quality assurance and help desk. Activities managed by this group include: accounting systems; analysing the performance of systems; quality assurance; change management, ie controlling software changes; and a help desk Source:

BCP internal documents

Journal of StrategicInformation Systems I995 Volume 4 Number I

101

Case study: S Dutta and Y Doz

r-l

Customer information System (CIS)

I

I

t integrated Computer Interface 81Software Switches (ODS & PASS) t Drafts

v Securities

Software Heirarchy

t

tt

Demand deposit

Credit cards

Architecture

at BCP

Topic

Group

Exampl

1st Level

NovaRede, High Net Worth Individuals. Corporate Banking MIS, Personnel, Building 8 Facilities

2nd level

$

TDA, DDA, COD, CA, etc..

3rd level

Individuals, Enterprises

Engineers, Doctors, etc..

I ~

E&md*.:*.>

Bu:

..... .k~

Overview

.,

of the Earnings

Technology architecture BCP internal documents

Figure 5 Source:

Assets, liabilities, Interest, ::.

Analysis

x.>..w,...*Y..

..:..>

I_...,,,.. I,,.., &;,i:.:&<

System

...,di

,,,.

(EAS)

at BCP

(ODS) for financial transactions; and platform automation support system (PASS) for channelling non-financial transactions such as account enquiries. The software switches enabled BCP to separate presentation from processing. When, for example, BCP decided to integrate videotext into the business group, PASS translated the videotext transmission to the standard format for processing. Thus, 102

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

modifications only needed to be made at the videotext level. The Earnings Analysis System (EAS) package (bought from Hogan in June 1991) lay at the ‘top’ of the conceptual ‘software pyramid’. The system was organized hierarchically along ‘organization’, ‘customer’, ‘product’, and ‘line of business level’ lines (see Figure 5). EAS gave BCP the capability to measure such key criteria as daily profitability by product, by client, by branch and by account manager. A senior manager characterized BCP’s technology strategy to be a quick adopter of new technologies: We are near the top (of technology),

but not so high that we can fall.

As far as possible, BCP purchased (after conducting thorough market studies) available packages from vendors. Only when no suitable packages were available, BCP developed the systems in house. BCP was cautious about the extensive use of outsourcing as explained further: We looked at outsourcing and then gave up on the idea. The outsourcing market in Portugal is not well developed and we have better technicians than the outsourcing vendors. Beside, there is the issue of confidentiality of corporate data while using an out-sourcing

Planning

vendor.

technology

applications

A key feature of the management the users. Mr Jardim Goncalves, of users:

of IT at BCP was that it was defined and led by Chairman of the Board of BCP described the role

At other banks, it is the data processing department system. In BCP it’s the users that decide it.

that defines the information

Requests from users for IT services typically fell into two categories: those which could be satisfied by the formulation of new queries to the existing databases and those which needed new software applications to be designed and developed. The former type of requests generally arose from the marketing managers of the different business groups and were usually satisfied rapidly by the IT staff within the respective groups. For requests needing new software to be developed, users started by filling in a one page proposal form (see Figure 6) which contained brief descriptions of the proposed change, its objectives, impact on service levels, productivity and profitability, the name of the user ‘owner’ and a subjectively assigned priority. Each business group collected such proposals and submitted them to the data processing department every summer for inclusion in its planning for the coming year. The data processing department determined the software products affected by the user requests and assigned them to the project team responsible for the concerned product(s). The IT users committee for each project team reviewed the assigned requests and determined relative priorities and redundancies among them. All conflicts were sorted out by informal meetings of the IT users committee members with the concerned users. The data processing general manager commented on this process:

Setting priorities relative

importance

for projects is the responsibility of different

of the users. They know best the

proposals.

Journal of Strategic Information Systems 1995 Volume 4 Number 1

103

Case study: S Dutta and Y Doz

Comite de Projecto: Depositos em 92.11 .16 PROJECT0 AREA ESTADO

DEPOS No 14-t D. M. P. -9OlOO-DlR.MARK.PARTICULARES No 1+ Por lniciar

ACT/V/DADE

CONTA A ORDEM COM DO PURO

ACTIVITY DESCRICAO DESCRIPTION

SUBSTITUICAO DA ACTUAL OPERATIVA DA NOVA CONTA MA/S POR UMA APL/CACAO EM QUE A REMUNERACAO SEJA EFECTUADA EM DO PURO

OBJECTIVES

SlMPLlFlCAR 0 PROCESS0 OPERATWO MELHORARA RELACAO DE CONFIANCA ENTRE BANCO E CLIENTE. OPTIMIZARA TRANSPARENCIA EA CLAREZA NO CALCULO DE JUROS

RECURSOS

50 Dias * Homen

OBJECTWOS

RESOURCES OBSERVACOES REMARKS

PROP.D.S.IINF

Consideramos incluidas nesta actividade todas as facilidades constantes do document0 “Analise comparativa dos varios tipos de contas DO” JR

PRODUTIVID.

GANHAM-SE N HORAS NO BATCH D/AR/O. SOLICITADA in DS UMA EST/MAT/VA DO GANHO RESULTANTE DESTA ALTERACAO, NAO OBTIVEMOS RESPOSTA CONCLUSIVA.

PRODUCTIVITY NlVElS SERV. SERVICE LEVELS PROVElTOS PROFITS

MELHORA-SE A PERFORMANCE DO PRODUTO. DINCILMENTE SE PODERA CONTABlLlZARAS VANTAGENS DA TRANSPARLNCIA. NO ENTANTO, 0 POTENCIAL DE PERCA N/!O DEVERA SER /NFER/ORA 10% DOS SALDOS: 10 M.C. REDUAZ OACTUAL TEMPO DE PROCESSAMENTO DO BATCH DA NCM. MELHORA A RELACAO DE CONFIANCA BANCOICLIENTE. ASSUMINDO UMA MARGEM DE 5%, PODEREMOSAUMENTAR OS PROVElTOS EM 500 M.C., A QUEACRESCERB, A REDUCAO NOS CUSTOS DE

CONTACT

DR. SANTOS PINTOIDR. ALMNDA

PRlORlDADES

na Area.: 1.05

no C. Projecfo: 0.00

JORGE Grp. Estat6gico 7.3 no Comit.6 0.00

PRIORITIES

Figure 6 User request form for new IT applications Source: BCP internal documents

After some negotiations, a list of proposed projects for the year was produced for each project team. This list was presented to the board which gave final approval after reviewing the projects in accordance with the strategic directions of the Bank. The IT users committee reviewed the progress of the different projects on a regular basis. If there were any changes which called for new projects or for modifications in planned projects, the IT users committee decided upon ways to accommodate the change requests. Every three months, the IT department produced a brief report on the progress of the different planned projects (see 104

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

Figure 7 for an excerpt from a sample report).

This report was used as the basis for discussions between the general manager of the data processing group and the IT user committees. Information

management

The effective management

of both external and internal information

was of high

Tituios - Plano de actividades - 1993 1

Data: 13 Jul

a0

I -

Figure

7

Excerpt

Source:

BCP internal

from periodic

review

of ongoing

IT projects

documents

Journal of Strategic Information Systems 199.5 Volume 4 Number I

Case study: S Dutta and Y Doz

strategic importance within BCP. Detailed information about customers and external markets was stored in two databases: the CIS and a special strategic database. The CIS stored information about current customers and was accessed by the account managers (while servicing their clients). It also stored information on hundreds of potential high value customers (both individual and corporate). As the information contained on prospective customers was often incomplete (such as lacking social security numbers for individuals) and was gathered from several sources, BCP developed special matching algorithms and procedures to check for duplicates and ensure consistency of information. The strategic database stored detailed customer information profiles and relevant market information. The information contained in the strategic database was updated weekly and was obtained from several internal applications and external sources. The strategic database was used primarily by the marketing divisions of the different business groups. A central staff unit was responsible for maintaining the CIS and the strategic database. The manager of this central unit explained his role: We maintain a clear distinction between information maintenance and technology maintenance. While the data processing department is responsible for the technical maintenance of the strategic database and the CIS, my unit is responsible for managing the information within them. We act as an interface between users and the data processing department, When our users have a need, they come to us. We translate their needs into action requirements for the data processing department. This is easy for us as we understand the needs of our users. Information about key internal profitability parameters was available through the EAS. BCP viewed EAS as a strategic asset. Through its use, BCP had the ability to focus quick attention on specific areas that required close management scrutiny. Based on EAS-reported information, BCP was able to quickly obtain a very clear picture of profitability for each business area. The Bank used such data for setting and controlling its objectives. For instance, EAS proved to be a valuable tool for establishing clear incentive schemes for account managers. Based on meeting objectives, account managers received 30 per cent or more of their annual base salary as bonus. Analogous to the CIS and the strategic database, a separate staff unit in the research and planning division was responsible for maintaining the EAS. The manager of the staff unit responsible for the EAS commented on the role of his division: During the initial years, the emphasis within line management was on volume. A few years ago, the focus shifted to: volume plus profitability. The EAS has been critical in enabling us to refocus our business with the modified emphasis. The information available from the EAS is causing shifts in the way we manage our business. For example, previously account managers looked only at the volume of business with clients and were unaware of the costs of operations associated with clients. Today the EAS gives them information about these costs. We view ourselves as information providers to our users. We have to ensure that the information we provide is reliable, clear and timely. We have to decide what we want to measure, how we want to measure and have to explain these measures to the users. This is our job. It cannot be done by the data processing department. 106

Journal of Strategic Information Systems 1995 Volume 4 Number 1

Case study: S Dutta and Y Doz

Over the years, in addition to expanding its internal banking operations, BCP had also expanded its product range, assisted by the acquisition or establishment of subsidiaries in insurance (Ocidental Holding), asset management (BCP Investimentos), real estate, leasing, factoring and venture capital. BCP’s strategy was based on the vision that its success in the Portuguese market depended upon the range of ancillary products it could offer. Thus in 1993, BCP was stressing the translation of its skills in information management into sophisticated cross-selling and direct marketing systems. A manager elaborated on the developments: We would like to make our knowledge of matching prospective customer profiles with products available directly to the account managers and the tele-marketing personnel. For example, account managers could be prompted with cross-selling suggestions based on their client profiles.

Technology

culture

With 1.2 terminals per employee, working with computers was an operational necessity for all employees in BCP. As a line staff member put it: Working with computers for the first time was a real surprise, but now we cannot live without them. Training on computer systems formed a major part of the initial three-week training given to all new employees. Additional training was provided on specific systems on an as-needed and on-going basis. Frequent and close interaction between users and technical specialists was key to maintaining a strong technological awareness within BCP. The manager of the strategic marketing unit commented on BCP’s ‘IT culture’: We are a technology-driven and technology-conscious company. There is a lot of interaction between users and technical staff. There are IT staff members located within the business groups. Beside, users are involved actively in different IT users committees and interact frequently with employees from the central IT department. The data processing General of BCP’s senior management

Manager towards

had the following technology:

comment

on the attitude

The board is very aware of the strategic importance of IT to BCP. In fact, one of the board members was previously the general manager for IT. The senior managers of the different business groups are also continually involved in IT decisions through the IT users committees. Periodic internal surveys of BCP users revealed a high degree of satisfaction with the quality of technology services. However some concerns were raised about the time needed to develop new systems and enhancing communication with users in case of problems. A manager commented on this: Users are demanding and underestimate the time needed to develop new systems. Our data processing staff give us good products, but need time to manage interactions with other software and to maintain high standards of quality.

Technology

initiatives

In 1993, two major

initiatives

were

underway

within

Journal of Strategic Information Systems 1995 Volume 4 Number I

the central

data processing 107

Case study: S Dutta and Y Doz

group: problem and change management and computer aided software engineering (CASE) methodologies. The problem and change management initiatives was aimed at controlling problems and managing changes in BCP’s technology infrastructure in order to maintain the desired levels of service to users. Through a series of workshops, formal processes for identifying problems and managing changes were defined. Table 3 lists the major elements and objectives of the problem and change management processes. Roles, responsibilities and ownership guidelines associated with each process element were clearly identified in these workshops. The problem and change management initiative arose partly as a response to concerns which surfaced in internal surveys of BCP users. The process of planning and developing new applications in BCP had been relatively informal since the start of the bank. Given the recent rapid growth and current size of the bank, the central data processing group was also exploring the use of CASE methodologies for new application development processes (such as emphasizing the building of prototypes), to formalize user involvement in new applications (such as incorporating a formal acceptance of systems by users) and to standardize application documentation. Table 3

Problem and change management Problem management

processes

process

Mission

To effectively manage all BCP Group service related problems according to agreed and committed service levels. It should maintain a high quality of problem resolution in the fastest and most cost effective business manner

Major elements and roles

. . . . . . . .

Aims

. . 0

.

. l

.

.

Source:

108

Problem Problem Problem Problem Problem Problem Problem

reporting logging determination routing or assignment resolution and fixing closure and review co-ordination

To reduce the number of recurring problems related to BCP group services Provide the most practical resolution for outstanding problems Ensure that problems are resolved within agreed service levels and to users’ satisfaction Identify and automatically route problems to the most appropriate group Resolve conflicts with regard to ownership and responsibility of problems Improve problem resolution techniques To be able to communicate status of active problems to BCP users Provide a single point of contact for status of all active problems To highlight problems resulting from the implementation of changes

BCP internal

Change

management

process

To manage and control all changes to IT assets, production, quality assurance and development services including the environment and procedures that support and deliver those services

. Change requesting 0 . . . . . .

.

.

. .

.

.

.

Change Change Change Change Change Change

technical justification planning and scheduling quality assurance authorization and approval implementation review and closing

To minimize the risk of changes on users of service To make successful change implementation easier and quicker Identify and reduce the number of problems caused by changes Maintain committed levels of service Facilitate agreement between concerned parties prior to change implementation Plan, control and report the necessary information related to changes Maintain committed communications with the users of BCP services Ensure change management as an effective business process

documents.

Journal of Strategic Information Systems I995 Volume 4 Number I

Case study: S Dutta and Y Doz

In addition to the above initiatives, other issues related to the management of technology were being considered within BCP. The current organization of the applications development group into project teams (see Figure 4) was product-based with permanent teams responsible for major (software) products. This enhanced continuity of knowledge about products but could lead to a sub-optimal allocation of priorities with a backlog of projects for certain project teams. An alternative would be to move towards a dynamic business need-based organization in which teams of technical specialists and business users would be formed on an ad hoc basis depending upon the nature of requests submitted by users. Such a change would have major implications for both internal data processing staff and the participation of users in the technology planning process. The importance of shifting technology closer to business users was clearly recognized in BCP. A move was underway to provide friendly query languages and screens to users so that they could directly satisfy many of their information needs which currently had to be satisfied by the technical staff within the business groups. This ability was considered critical to the rapid definition of new products in the future. Some thought was also being given to the structure of BCP’s technology infrastructure. BCP was evaluating a shift aware from its central mainframe system to a client server architecture in which sophisticated new tools could be made available directly to the branches. While the benefits of client server architectures were obvious, the data processing general manager emphasized the complexity of such a shift: Moving to a client server architecture is a big change - not only in terms of hardware, but also in terms of software, technical support, communication technologies, additional manpower required and education of users. We are carefully evaluating all these implications. There was the additional issue of budgeting for technology costs. While BCP spent significantly less on technology than comparable Western banks, this difference would erode as the maintenance cost of BCP’s systems increased with age. The central data processing group was currently treated as a cost centre. However, ideas for organizing it as a profit centre were being discussed. Future challenges BCP has clearly enjoyed enormous success over the past seven years. A strong market focus has enabled it to reap enormous benefits from a well-defined segmentation strategy. The energetic entrepreneurial drive among its employees has been critical for the successful implementation of its strategies. A flexible and modern technological infrastructure has also played a vital role in supporting its rapid growth and timely introduction of new and innovative products. However, the business environment has been getting very challenging in the mid-1990s. BCP’s Portuguese competitors have been getting better at imitating its innovative products and services. The liberalization of Portugal’s border with the European Union has brought its own challenges in the form of technically sophisticated foreign competition and enlarging financial markets. The Portuguese customer has become increasingly sophisticated and has started to channel savings through alternative instruments such as insurance products and investment funds. Pressures have also been building within BCP. It has not been easy to reinforce BCP’s strong entrepreneurial and flexible culture in the current organization. The Journal of Strategic Information Systems 1995 Volume 4 Number I

109

Case study: S Dutta and Y Doz

future of the management of technology within BCP is also debatable. Would BCP’s sophisticated technology infrastructure be equally useful and distinctive in the coming years? How much of a competitive advantage could be derived from technological investments in the future? Would technology not become simply a ‘distraction’ away from the core business of banking? How can BCP’s competence in the management of IT be nurtured and enhanced?

110

Journal of Strategic Information Systems I995 Volume 4 Number 1