MIT CIO Symposium – Financial Services Panel Notes – “Customer Experience” & “Focus”

I’m at the MIT CIO Symposium and am sitting in on the Financial Services panel. Here are my notes and I apologize if it comes out as a bit of a stream of consciousness:

Panelists are:
Niraj Patel (Witmer LLC)
Marc Gordon (CIO, Bank of America)
Keith Dennelly (MD, State Street Global Advisors)
Joseph McCartin (CIO, National City Corp)
Guillermo Kopp (ED, TowerGroup)

Alignment
Business IT alignment goes beyond business & IT all the way to the customer
One way on of the panelists worked to get alignment was to get on plane with user on flight all the way to Tokyo
B of A… IT is embedded within the business. People sit physically in the same location as the business. IT has a seat at management table. They are completely integrated parts of their businesses. Working to get aligned with customer is their commitment. Marc (and other B of A executives) spends 4 hours per week directly interacting with their customers.

State Street… His group is paid directly by line of business. Alignment is natural for them.

National City… IT used to have a line of business alignment. Now durable process orientation – alignment with customers. Ability to integrate product and services for customer benefit. Key direct reports are called Business Information Officers.

TowerGroup…. Don’t look inside out anymore (read: are the business processes aligned to what is being delivered to the customer). Instead, look outside in… What does the customer need and want? Web 2.0 technologies enables the customer to know faster what the companies can do for them. Clear focus on customer brings alignment both internally and with the ecosystem of suppliers.

What changes do you need to be making based on the economy, etc…
B of A… Doing 3 large acquisitions / integrations at once (typically they did acquisitions serially). The amount of change they are dealing with is unprecedented. They need to focus aggressively on only what needs to be done. Need to be keenly focused. “relentless focus” to handle the capacity of what needs to be done. They have had a dramatic reduction on the number of projects with almost no decrease in total spend.

State Street… Major leadership changes internally. Challenge to bring new leadership team up to speed and to make sure the technology team is aligned to their objectives. Focus is also a key. Customer of experience is a key – information more readily available and timely.

National City… Mortgage mess has made it very nasty. $7 billion recapitalization. Before this – all key projects were protected. These were all transformational. He did have to reduce staff and they did this by drawing down contractors. They closed some systems as they exited businesses.

TowerGroup… Customer driven innovation in products. Collaboration tools. Business intelligence. Customer intelligence. Need to release capacity for innovation. Typical FS firm uses 80% of IT spend for maintenance. Need to push that number down to increase innovation.

B of A… This is a time to differentiate ourselves – bring products to market to help customers in their situation.

How do you innovate given what the consumer is going through?

B of A… Traditionally bank was organized around products. Now it is organized around customer. We are agents of change. We have always had a platform for change, but that is a burning platform today. It is a wonderful time help customers.

National City… Know me, look out for me, reward me, and trust me. What is the customer’s objective? Business architecture review board is all business people and facilitated with IT. This group sets the strategy IT initiatives. Even given the financial challenges of the bank not one of these strategy projects has been impacted.

Are you willing to spend more to get another customer interaction?
B of A…. B of A measures failed customer interactions, and can translate that in dollars, customer experience, etc… It is critical for them to get more customer interactions.

State Street… Increased demand for business analytics. Institutional trading used to be a relationship game, now an analytic game.

From the Q & A

B of A… Expected to be the low cost IT department in the industry. Currently they are 25% better than the norm. The goal is not just to maintain that cost advantage, but improve the advantage.

B of A… Sponsoring the MIT Media Lab for 5 years. The goal of this sponsorship is to answer “what is the next generation of financial services?”

Wall Street… Compliance… Profits…. Could better analytics help?

Yesterday, the WSJ reported that the SEC is looking into Merrill Lynch’s trading activity for potential front-running violations. To quote the article

The trading probe is a broad look at the relationship between big, institutional investors and the brokerage house. Specifically, one area of inquiry involves whether certain Merrill employees improperly stepped in front of orders placed by Fidelity Investments, the large mutual-fund operator, these people said. The period under scrutiny covers 2002 through 2005.
[...]
The practice is known as “front-running,” and previous regulatory scrutiny has resulted in regulatory fines and changes in industry practice. It gives an unfair advantage to traders because orders from big investment houses such as Fidelity often move stock prices.

For example, if a trader received an order from an institutional investor to buy stock, the trader could then step ahead of the order to buy shares for the house account that could then be sold to Fidelity at a higher price, locking in a profit.

While I have no insight in this case in particular, and know that all firms watch for front-running as part of their standard surveillance activities, I do wonder if better business analytics could be useful in finding and rooting out potential regulatory issues before the regulator finds them. Main Street firms such as FedEx, Apple, Dell, and Wal-Mart routinely use business analytics to make business decisions, to improve business processes, to streamline logistics, to target customers, to influence customer behavior, and ultimately to generate income and profits.

Why doesn’t Wall Street follow Main Street’s example in their use of business analytics? Why doesn’t Wall Street use business simulations to model the behavior of traders and trading floors? As the business of Wall Street is more and more automated, Wall Street firms are not following Main Street’s example and building analytics and simulations. Why not? The tools are there. The data is there. The technology is mature. Is it that Wall Street trading houses are still focused on the day-to-day trading P&L and are unwilling to take a step back to look at ways to incorporate best practices from Main Street to their processes? Is it ego? Wall Street is not some mysterious dark place where the lessons of business analytics, simulation, supply chain, and customer experience do not apply. It is a place where these lessons have not been applied.

What a shame. An NGE would look to use business analytics and simulation as part of its standard day-to-day work.