Banks must make IT a priority<\/p>\n
By Djoko Suryoko Ruslan<\/p>\n
JAKARTA (JP): The role of information technology (IT) in
\naccelerating the recent regional economic crisis, through paving
\nthe way for the stampede of electronic bears, has been well-
\npublicized.<\/p>\n
The foundation for this was set many years ago in the banking
\nindustry with the fast growth of both the customer base and
\nbranch distribution networks.<\/p>\n
On the other hand, the IT infrastructure was not sufficiently
\ndeveloped to support the operations.<\/p>\n
Some of the key reasons were the large investment required, a
\nscarcity of skilled resources and a lack of understanding among
\nsenior bank executives on the critical role of IT.<\/p>\n
As a result, there has been an underinvestment in IT; that is,
\nthe IT infrastructure is not developed or integrated.<\/p>\n
As a double-edged sword, information technology has an equally
\nimportant role in the reconstruction of the Indonesian financial
\nsector through its ongoing bank restructuring process.<\/p>\n
In the short term, the rationalization and optimization of
\ninformation technology will minimize further exposure to
\nfinancial risks.<\/p>\n
In the medium to longer term, information technology will play
\nan enabling role in the development of new financial service
\ncapabilities, and the reduction of operational costs in the
\ndelivery of these financial services to its customers.<\/p>\n
Primary among the short-term objectives of the restructuring
\nprocess in Indonesian banks is the minimization of further
\nfinancial risk exposure through capital expenditures
\nrationalization.<\/p>\n
For example, in Bank Rakyat Indonesia (BRI), the treasury
\noperation needs to be able to better manage risk based on
\naccurate and timely information.<\/p>\n
The bank recently implemented a new treasury application and
\norganization, which enables the treasury division to perform
\nunder international standards.<\/p>\n
Ongoing and planned IT investments need to be reviewed against
\na bank's refocused business strategy; IT investments are
\nprioritized accordingly, with some planned IT initiatives
\ndeferred or canceled altogether.<\/p>\n
Again using BRI as an example, short-term IT investments will
\nbe rationalized in terms of their contribution to the
\nimplementation of new core retail banking capabilities.<\/p>\n
A significant IT investment was made by Indonesian banks
\nduring the rapid expansion of the financial services industry in
\nthe late 1980s and early 1990s as they raced toward capturing a
\ngrowing customer base.<\/p>\n
In many cases, this has led to the underutilization of
\nexisting IT infrastructures, including network and service
\ndelivery channels, such as automatic teller machines (ATMs).<\/p>\n
In order to achieve the operational efficiency expected of its
\nexisting IT investments, an IT infrastructure optimization
\nstrategy needs to be developed before the banks commit to
\nadditional significant investment in the same area.<\/p>\n
For example, instead of installing more ATMs, a bank should
\nconsider reallocating underutilized ATMs to other places or
\nclosing them altogether. To expand its ATM network, the bank
\nshould also consider sharing ATMs with other Indonesian banks.<\/p>\n
IT capabilities tend to evolve from pockets of IT agendas and
\nskills embedded deep in different business units within a
\nbusiness organization, and this is no different among some
\nIndonesian banks.<\/p>\n
While some progress has been made in some Indonesian banks in
\nthe centralization of IT organization and capability, more effort
\nneeds to be made toward developing a lean and responsive IT
\norganization.<\/p>\n
Key outcomes of the optimization of IT organization include
\nthe centralization of IT skill bases, partnership of the
\ncentralized IT organization with various business units and
\njustifiable use of outsourcing alternatives.<\/p>\n
For instance, the ongoing restructuring effort in BRI includes
\nthe definition of the target IT organization structure to support
\nthe IT needs of all business units, including the retail and
\nmicro-banking business units which currently maintain independent
\nIT organizations.<\/p>\n
While BRI has been judicious in outsourcing certain technical
\nsupport and implementation functions to external vendors,
\nadditional opportunities for outsourcing may be identified.<\/p>\n
The deployment of an appropriate information technology
\ninfrastructure is critical in supporting the cost effective
\nimplementation of Indonesian banks' refocused business
\nrequirements.<\/p>\n
This may include the implementation of new or enhanced
\nexisting core banking applications, service delivery systems,
\nrisk management systems and financial management reporting
\nsystems.<\/p>\n
Contrary to the prevailing practice of Indonesian banks in
\nimplementing in-house developed applications, the new
\napplications targeted for implementation tend to be vendor-driven
\npackaged systems that incorporate current best practices in their
\nrespective areas.<\/p>\n
In BRI, for example, the selection of a new core retail
\nbanking system to support both retail and micro-banking business
\nrequirements is currently underway.<\/p>\n
The new core retail banking system will provide consolidated
\ncustomer information and tighter integration in the business
\nprocess flow, and hence support operational efficiency and
\nminimize operational risks inherent in manual processes.<\/p>\n
The target information technology infrastructure of the
\nrestructuring banks must be future proof.<\/p>\n
In addition to meeting the medium term needs of enabling the
\ndelivery of cost effective business solutions, it must be
\nsufficiently flexible to incorporate the future demands of
\nIndonesian banks.<\/p>\n
This includes support for additional electronic delivery
\nchannels (e.g. electronic and mobile commerce), enhanced customer
\nrelationships and further integration with other financial
\nservices partners.<\/p>\n
In the ever-increasing information technology-rich financial
\nsector, Indonesian banks must take advantage of the ongoing
\nrestructuring process to refocus the IT investment priority,
\ndrive out the utilization of the existing IT infrastructure,
\nrealign the IT organization to the business and develop strategic
\nbusiness capabilities with information technology. These steps
\nare vital to remain competitive in the Indonesian and regional
\npostcrisis economy, and in order to be invulnerable to the next
\nbear run stampede.<\/p>\n
The writer is BRI's chief operations officer of information
\nsystem technology and management information systems.<\/p>",
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