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What Banks can learn from the 1 billion move from IBM

Last week, surrounded by all the pop shows and colors that only Las Vegas can provide, IBM revealed its latest marketing play: opening its billions of dollars middleware products to the internet for the first time and bolstering the connectivity of enterprise applications and data to the cloud.

Unsurprisingly named, “BlueMix”, it combines IBM's software, third-party and open technologies. The event was accompanied, unwillingly of course, by news on the press of IBM massive layoffs around the world. Couple of months before, IBM made the announcement that they were selling his servers division to Lenovo, the Chinese company which previously acquired the pc and laptop divisions.

The strategy from IBM towards a self-service, do-it yourself shop appears to be driven by the concern of its own high costs during the sales process. The software division of IBM represents a 26 USD billion business, and in the last years it has been exposed to the rude and ruthless concurrence from Internet start-up companies, which are offering almost every bit of innovation IBM talks about by a fraction of the price, and ready to try and use. The blue giant, on its own defense, shops and acquires software companies at a rate of 1 to 3 billion yearly. These massive transfusions of innovation are a powerful but expensive way to stay young.

This same strategy is practiced by other internet giants like Google, Facebook or Yahoo. They're just massive and they wait for others to innovate. When others innovate, they acquire them. But on the more dynamic side of the consumer industry the integration of technologies is not the highest priority as it’s the case on the corporate sector. As private consumer, one doesn’t demand, and you may even don’t want at all, to see your Facebook account integrated with your WhatsApp and Instagram communities. However, on the corporate side, the TCO (total cost of ownership) rises when a company introduces a new tool or software to its employees. Nobody wants to carry, and some can’t even afford, the integration costs, which are often as expensive as the solutions themselves, not to mention the horrendous costs on the change management side within the organizations.

Who really owns the Dance floor?

In the Banking world, even if IBM by many financial brands is considered as a trusted and reliable technological partner, its relevance is often restricted to the lowest level of the chain production: providing hardware only in many cases and, but not necessarily, machine operations in and/or off-house via outsourcing services. Since IBM doesn’t publish anymore official figures about its workforce, we can only rely on unofficial sources which mention the reduction trend in its workforce in the blue Indian outsourcing centers.

On the Business applications layer, often IBM software is also used, but in limited scope and via some acquired brand in the area of Business Intelligence or communications, but the Core or any other critical banking System is not blue. Accenture, Infosys, TCS, SAP, CSC and Oracle are more than often the bunch of frustrated nerdy boys who tried to gain the hearts of the Banks in the big dance parties of the multimillion Core Banking projects, while the Banks, even if they complain about their bad manners, eventually decide to go on with the more experienced usual boys: FIS, Fiserv, Jack Henry, and D+H, in America or the Misys, Temenos, Avaloq and other core banking brands, in Europe.

And yet, the move from IBM into opening up and trying to collaborate and co-create business opportunities on a platform with a community of partners and developers, shows that even the biggest player of the industry can’t resists the relentless force of the technological startup community which, in the last years, has often disrupted Industries not only technologically but thru inventing anew or recreating business models from scratch. The strength and the success from Amazon, Square or PayPal relies not only on the technology but especially on the trusted and engaged relation with their end users, the consumers; which is something Software editors try to avoid at all cost.

Without appear pedantic, I’d like to bring up two quick examples which better illustrate the compelling necessity of this evolution. It’s well known, that in the 19th Century, the British Empire was the biggest and most powerful nation of the planet, and the USA was a new born country. In few decades, however, two single complementary technologies provoked one of the biggest shifts in the history of political and economic power: steam and railways. The vast size of its territory, which ironically was the sheer source of its power, became an unbearable burden for England, while the USA, thanks to the railways, managed to build up a tight community of economic interests between its two oceans, and successfully become the richest country of the world.

Few years ago, Nokia owned more of 70% of the mobile market, they didn’t know their end users, and the Finnish giant wouldn’t care less about them. Apple built up community of users with iTunes and the iPods and when Steve Job decided to enter the mobile industry, in just couple of years he swept Nokia out of the market into the oblivion. Samsung so far owns the non-apple community of the mobile. But something has changed, our mobile devices are not just hardware anymore, they are kept alive by Apple and Samsung with updates and bug fixing. We end users are in connection with the Brands.  

The Banking Industry and its exoskeleton, the Banking software industry, are surely paying a very close look into this evolution.  Simple Bank and now the upcoming new generation of pure digital Banks will play a key role in the direction the Banking industry will take. Let’s hope that the bumpy road ahead and the required speed won’t break some engines.


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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

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