Banks must make IT a priority
Banks must make IT a priority
By Djoko Suryoko Ruslan
JAKARTA (JP): The role of information technology (IT) in
accelerating the recent regional economic crisis, through paving
the way for the stampede of electronic bears, has been well-
publicized.
The foundation for this was set many years ago in the banking
industry with the fast growth of both the customer base and
branch distribution networks.
On the other hand, the IT infrastructure was not sufficiently
developed to support the operations.
Some of the key reasons were the large investment required, a
scarcity of skilled resources and a lack of understanding among
senior bank executives on the critical role of IT.
As a result, there has been an underinvestment in IT; that is,
the IT infrastructure is not developed or integrated.
As a double-edged sword, information technology has an equally
important role in the reconstruction of the Indonesian financial
sector through its ongoing bank restructuring process.
In the short term, the rationalization and optimization of
information technology will minimize further exposure to
financial risks.
In the medium to longer term, information technology will play
an enabling role in the development of new financial service
capabilities, and the reduction of operational costs in the
delivery of these financial services to its customers.
Primary among the short-term objectives of the restructuring
process in Indonesian banks is the minimization of further
financial risk exposure through capital expenditures
rationalization.
For example, in Bank Rakyat Indonesia (BRI), the treasury
operation needs to be able to better manage risk based on
accurate and timely information.
The bank recently implemented a new treasury application and
organization, which enables the treasury division to perform
under international standards.
Ongoing and planned IT investments need to be reviewed against
a bank's refocused business strategy; IT investments are
prioritized accordingly, with some planned IT initiatives
deferred or canceled altogether.
Again using BRI as an example, short-term IT investments will
be rationalized in terms of their contribution to the
implementation of new core retail banking capabilities.
A significant IT investment was made by Indonesian banks
during the rapid expansion of the financial services industry in
the late 1980s and early 1990s as they raced toward capturing a
growing customer base.
In many cases, this has led to the underutilization of
existing IT infrastructures, including network and service
delivery channels, such as automatic teller machines (ATMs).
In order to achieve the operational efficiency expected of its
existing IT investments, an IT infrastructure optimization
strategy needs to be developed before the banks commit to
additional significant investment in the same area.
For example, instead of installing more ATMs, a bank should
consider reallocating underutilized ATMs to other places or
closing them altogether. To expand its ATM network, the bank
should also consider sharing ATMs with other Indonesian banks.
IT capabilities tend to evolve from pockets of IT agendas and
skills embedded deep in different business units within a
business organization, and this is no different among some
Indonesian banks.
While some progress has been made in some Indonesian banks in
the centralization of IT organization and capability, more effort
needs to be made toward developing a lean and responsive IT
organization.
Key outcomes of the optimization of IT organization include
the centralization of IT skill bases, partnership of the
centralized IT organization with various business units and
justifiable use of outsourcing alternatives.
For instance, the ongoing restructuring effort in BRI includes
the definition of the target IT organization structure to support
the IT needs of all business units, including the retail and
micro-banking business units which currently maintain independent
IT organizations.
While BRI has been judicious in outsourcing certain technical
support and implementation functions to external vendors,
additional opportunities for outsourcing may be identified.
The deployment of an appropriate information technology
infrastructure is critical in supporting the cost effective
implementation of Indonesian banks' refocused business
requirements.
This may include the implementation of new or enhanced
existing core banking applications, service delivery systems,
risk management systems and financial management reporting
systems.
Contrary to the prevailing practice of Indonesian banks in
implementing in-house developed applications, the new
applications targeted for implementation tend to be vendor-driven
packaged systems that incorporate current best practices in their
respective areas.
In BRI, for example, the selection of a new core retail
banking system to support both retail and micro-banking business
requirements is currently underway.
The new core retail banking system will provide consolidated
customer information and tighter integration in the business
process flow, and hence support operational efficiency and
minimize operational risks inherent in manual processes.
The target information technology infrastructure of the
restructuring banks must be future proof.
In addition to meeting the medium term needs of enabling the
delivery of cost effective business solutions, it must be
sufficiently flexible to incorporate the future demands of
Indonesian banks.
This includes support for additional electronic delivery
channels (e.g. electronic and mobile commerce), enhanced customer
relationships and further integration with other financial
services partners.
In the ever-increasing information technology-rich financial
sector, Indonesian banks must take advantage of the ongoing
restructuring process to refocus the IT investment priority,
drive out the utilization of the existing IT infrastructure,
realign the IT organization to the business and develop strategic
business capabilities with information technology. These steps
are vital to remain competitive in the Indonesian and regional
postcrisis economy, and in order to be invulnerable to the next
bear run stampede.
The writer is BRI's chief operations officer of information
system technology and management information systems.