|
By Ellen Pearlman
Strategic Thinkers: David Upton and Bradley Staats
Credentials: Upton is the Albert J. Weatherhead III Professor of Business Administration and Staats is a doctoral candidate in the technology and operations management unit at Harvard Business School in Boston.
Big Idea: Businesses need to develop flexible systems that can be improved rapidly and continuously after they've gone live.
Article: Radically Simple IT published by Harvard Business Review, March 2008. This article is number 10 on the list of "Readers Most Recommended Articles" at Harvard Business Review online.
It's no secret that IT projects are expensive, consume a lot of time and deliver value only when completed. This traditional way of deploying enterprise systems is inflexible and often doomed to be obsolete by the time the project is finished. A "path based approach", as David Upton and Bradley Staats have named it in an article in the Harvard Business Review ("Radically Simple IT"), doesn't try to define all specifications for a system upfront. Instead, companies that take this path, develop their systems to scale over time.
The authors explain how one company has used this methodology particularly well — Japan's Shinsei Bank — and how this may serve as a model for others to follow. Shinsei developed and deployed a new enterprise system in one year at a cost of $55 million. The authors say, "That's one-quarter of the time and about 10 percent of the cost of installing a traditional packaged system." This system was flexible enough to allow the financial institution to grow into new areas too, such as retail banking, consumer finance and a joint venture to sell Indian mutual funds in Japan.
How did the bank end up with this approach? It started with the need for a revolutionary new way to do retail banking in Japan. The bank's new leader, Masamoto Yashiro, wanted to be able to offer customers 24/7, free of charge ATM service, among other unique ideas for Japan at that time. To get there, Yashiro's newly appointed CIO, Dhananjaya "Jay" Dvivedi, was asked to make the bank's IT solutions fast and cheap. The two agreed the system would need to be flexible enough to scale with the bank's growth. Traditional solutions wouldn't get them there-they were either too costly, too risky or would take too long. So they opted to choose a modular infrastructure that would function in parallel with the current infrastructure. This solved a common people problem: it speeded adoption of the new system since it mimicked the look and feel of the old one, at least long enough for people to get comfortable with it and use it. Since human problems are often the cause of new IT systems failing, this was an important step to take.
The bank discovered other new pathways for solving IT problems. Instead of focusing on how existing systems and processes got the job done, they focused on the foreseeable business objectives. Looking backwards, the authors say, "results in a paving of the old dirt paths." This required forging tight links between business and IT. As anyone knows who has tried it, aligning IT and the business is tricky. At Shinsei, CEO Yashiro, and his successor, Thierry Porte, invested "substantial amounts of their time in learning about IT," the authors say. Porte met with Dvivedi at least once a week formally and visited the IT and operations centers at least once a month. The CEO and CIO also believed that there had to be constant interaction between its business and IT groups about business goals and IT decisions and constraints. "By engaging in iterative discussions, the two sides gradually come to speak the same language," the authors say.
Another important element to their path-based approach was to design their systems as simply as possible, using a small number of standardized components. This lowers maintenance costs and increases the likelihood that elements of the system can be reused for other solutions. But standardization is often a hard sell to business users. "Most IT managers," the authors say, "do not have the power or long-term discipline to hold the line themselves." Dvivendi was the driving force behind standardization at Shinsei. One radical decision was to eliminate their old mainframe system and replace it with Intel-based servers. This was a drastic change from other Japanese bank systems. This saved $40 million in maintenance and other expenses annually. Moreover, he settled on other standardized solutions as well: Dell PCs, Microsoft Windows, the internet, IP phones and standard messaging between business systems.
Another radical move was to take an unusual approach to building an ATM network. In order to have the network up constantly and keep it free (unlike other Japanese banks at the time) they had to find a less costly way to do it. So they identified all the functionality they needed and found the most cost-effective ways to implement them. Instead of connecting the ATM network to the bank's back-end system through costly leased lines, for example, they connected it to the Internet. This solution created another problem: how to get around Internet reliability issues? They did this by designing the system to "expect and deal with failure" by installing two Internet connections from different providers. "This yielded better reliability than a leased line at one-tenth of the cost," the authors say.
By breaking down problems into individual pieces, the IT team could find lower-cost solutions for each part of a project. This modular approach also made it easier to reuse a solution for another application the bank needed and helped the organization to continuously improve and grow. Without this approach to system design, the bank would not have been able to achieve its strategy.
The modular structure of their IT system should prove useful going forward since the bank announced on July 1 that it has agreed to merge with Azora Bank. If the merger proceeds, the new entity will become the 6th largest bank in Japan.
Excerpts reprinted by permission of Harvard Business Review. Excerpted from "Radically Simple IT" Copyright (c) 2008 Harvard Business School Publishing Corporation; All Rights Reserved.
Also of interest:
- Article: The Art of Agile IT, published by CIOZone.com. The former CIO of Network Service Company, Michael Hugos, has a new book about business agility.
Only registered users can write comments.
Please login or register. |
