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The financial services sector has one of the most sophisticated and complex systemic environments around, and as a result institutions struggle to keep their portfolio up-to-date. Balaji Raghavan, head of banking and financial services at Tata Consultancy Services, explains how institutions can streamline their legacy technology portfolio.
Establishing positive, mutually beneficial and even interpersonal relationships with suppliers will help differentiate organizations and ensure that customers are always well served. Although without careful management of these relationships, inefficiencies and unnecessary costs will quickly begin to accrue.
In the financial services sector, increasing competition from flexible start-ups highlights the importance of businesses that “break the mold” of traditional partner ecosystems. Siled multiple vendors are commonplace in the financial services sector, and it’s not unheard of for one business to have more than 100 partners for its technology portfolio alone.
These crowded vendor portfolios burden organizations with disparate tools, complicated service management, and mounting technical debt, resulting in wasted time and money. Organizations should seek to mitigate these issues with a more efficient supplier ecosystem, although this does not necessarily mean that financial services should avoid new solutions or partners. Rather, they should consider technology investments holistically.
Companies need to step back and evaluate how their technology ecosystems currently address business processes to ensure transparency across the entire stack and maximize customer service, profitability and market agility.
In addition to managing vendors, understanding the scope of capabilities is essential to ensure they can provide the necessary breadth and continuous support through increasing market volatility and economic turbulence. Regular reviews and a transparent supplier evaluation process ensure that businesses can take advantage of market opportunities.
For many, it is the old world
According to the Australasian Supply Chain Institute, the number one contingency that poses a risk to supply chain resilience for local organizations is “reliance on legacy technology”.
This is not great news for the financial services sector, as despite some recent trends towards innovation, it is still dominated by legacy technology vendors and decades-old mainframes. You only need to look at the persistence of COBOL—a 60-year-old programming language still used by many large banks for core services—to see that the industry has a problem with legacy systems.
Although the challenge goes beyond the infrastructure itself. Bloated legacy vendor networks and a lack of effective management can impact profitability and make it difficult to identify problems throughout the supply chain. Additionally, a clear distinction needs to be made between suppliers and partnerships, as both play a vital but distinct role in supporting the business.
If traditional financial institutions fail to modernize and streamline their vendor portfolio, they will find themselves behind the challengers in terms of innovation. The financial services industry is undergoing such a rapid pace of disruption, with many new kids on the block coming up with innovative cloud solutions. This presents a challenge for those more traditional institutions stuck in the legacy world.
Traditional banks find themselves up against younger competitors who have newer infrastructure and more agile processes. This has a direct impact on the quality of service offered to customers, as large banks are hampered by the rising costs associated with maintaining legacy technology.
The process of evaluating current partnerships is an integral part of determining the current state of supplier relationships, highlighting any fragmentation of the ecosystem and the opportunity to create greater value. Organizations should begin to shift their thinking from product-focused vendors to technology strategists who provide platforms, technologies and people, which can also be part of a broader “Business Process as a Service” model.
Streamlining the process
There are several barriers to streamlining supplier portfolios, including legacy structures, archaic sourcing strategies and a lack of quality data, which itself is caused by a lack of supplier information. To meet these challenges, organizations will need to rethink the way they think about their supplier relationships and audit each business process in terms of how it is supported by their technology ecosystem.
This needs to be done very carefully as no two sellers are the same. The Covid-19 pandemic has put a lot of additional pressure on suppliers as businesses increasingly adopt risk-averse supply chain strategies.
Larger companies may have a greater capacity to bring solutions to clients because of the depth and breadth of their expertise and resources. In comparison, many smaller players may not be able to deliver the digital transformation that financial institutions require.
Organizations should try to get a 360-degree view of all suppliers, both existing and potential, to ensure they are able to meet your needs. Vendor management systems are beneficial here because they allow businesses to view existing vendors while comparing them to other potential customers.
The streamlining process can also involve working more closely with suppliers to collaborate on solutions and encourage more two-way communication. In this sense, organizations should go beyond simply employing salespeople and start looking for strategic partnerships with priorities tailored to your needs.
Another consideration is that an organization’s supply chain increasingly poses security and privacy risks. In addition to the increase in supply chain cyberattacks, regulatory scrutiny and audits are reaching deeper into the network of business partners, and vendors must be aligned as an extension of the business itself.
For all of these reasons, financial services organizations should begin to establish or re-establish relationships with suppliers on a human-to-human level and engage them in open conversations within the procurement process to discuss where they can add value across your organization. The result is two-way, open communication between the store and vendors, enabling better customer service.
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