Management failings rather than technology are to blame for a growing number of botched core banking system replacements, according to Forrester Research.
Replacing legacy technology is a top priority for many banks as they face increased regulatory burdens, internal cost cutting requirements, and customer demands for digital services.
But according to Forrester principal analyst Jost Hoppermann, in the ‘Anatomy Of A Disaster — Learn From Major Banking Platform Transformation Failures’ report, “more and more” modernisation projects are running into problems due to poor management.
“Today’s banking platform transformations rarely fail because the technology is not up to the task,” he said. “They fail because the organisation that has to deliver the transformation initiative - typically over many years - isn’t mature enough.”
Project failures – four main causes
Hoppermann highlights four key reasons why transformation projects run into problems. First, projects are often run entirely within the technology management team; second, there is a mismatch between a bank’s corporate mentality and the sourcing model; third, the transformation team takes ill-designed shortcuts; and finally, there are continued increases in project scope.
Another factor is that projects to overhaul core banking occur rarely, making it difficult to access relevant expertise.
“Most banks only undertake major transformations every few decades — and so members of the previous transformation team are either working for different firms or have retired,” he said.
Core replacements – beset by management problems
Core system replacement problems have affected banks all over the world. Hoppermann points to Allied Irish Bank’s troubled Oracle FlexCube implementation in 2007, the Union Bank of California’s decision to scrap Infosys’ Finacle platform in 2011, and an unnamed bank which wasted hundreds of millions of euros by ending its transformation eight years after its start and continuing to use a 40-year-old banking platform instead.
He also mentions the Co-operative Bank’s planned move to Infosys’ Finacle platform, a project which was cancelled in 2013 with a bill of almost £300 million.
In a review of the Co-op Bank problems, Sir Christopher Kelly said that core banking replacement programme “was not set up to succeed” and was “beset by destabilising changes to leadership, a lack of appropriate capability, poor co-ordination, over-complexity, underdeveloped plans in continual flux and poor budgeting”.
In order to avoid repeating these problems, banks need to learn lessons from previous projects, said Hopperman.
For example, banks should link vendor contracts to “transformation goals" and aggressively manage delivery targets to avoid delays, as well as assessing the ability of internal teams to deliver projects. IT teams must also engage with the wider business on resolutions, and should be confident to push back on additional project requirements demanded by executives.
"Application development and delivery professionals need to be aware of the most critical obstacles to delivering the banking platform of the future if they are to achieve ongoing business success while mitigating transformation risk," he said.