Source: Finextra interview
Guy Warren was appointed executive vice president and general manager of core banking at Misys Banking Systems in January this year. The former CEO of LogicaCMG UK spoke to Finextra about his plans for the banking division and his outlook for the market.
Q: Last year was a turbulent year for Misys, with the failed management buy-out, Kevin Lomax leaving, and leadership in the banking division changing hands several times. What challenges has this given you coming into your new position?
A: Things are a lot more stable now. Most of the shareholders are long-term investors, looking at a three-to-five year window for driving improvements across the business. Mike Lawrie has come in as CEO, is making positive changes and invested a significant amount of his own money. I've invested in the company as well and am hoping for at least five years of continuity in this position to see my plans through.
I knew coming in that I faced a number of challenges. Our credibility in the market had suffered a bit – not really through the corporate level changes, but through too many changes in strategy, some late delivery of products and bug issues. We're addressing this now, focusing on our people and customer base as well as the technology – ensuring quality and predictability.
Q: At the last annual meeting company chairman Sir Dominic Cadbury admitted Misys products have not kept pace with the changing competitive landscape. What's being done to address this?
A: What he actually meant in context was that we risked falling behind if we didn't invest.
We are investing, but the tendency to overhype new technology should also be looked at – particularly claims that products based on new technology can meet all the functionality required by a retail bank, a corporate bank or a universal bank. Older solutions with a long history, whether written in-house by banks or from a vendor, do actually meet requirements across the full range of functional areas. They can do this because of the time and resources invested in them. You can't write all of this functionality – tens of millions of lines of code – on a new technology base within just a year or so.
Q: But you do have some new technology yourself, with the acquisition of BankFusion from Irish start-up Trapedza last year?
A: Yes and it's worth pointing out that this is not an out-and-out replacement for our Midas Plus, Equation or BankMaster products, and we're not forcing our customers to migrate. BankFusion is a set of technology that we are using to build a packaged banking system on modern technology, but more importantly it's also a framework that our customers can use to add a flexible, service-oriented architecture layer on top of their existing back-office systems. In this respect it's similar to what we've done with Midas Plus and integrates nicely with the Java functions in that product. It provides a means to quickly compose new products and integrate with business rules engines and customer facing channels, bringing SOA speed and flexibility to the systems that are already running the bank.
Using BankFusion our customers can set their own agenda for migrating to newer technology, while maintaining all the rich functionality in their legacy systems. And we are still being driven by customer demand to continue improving our existing products.
To improve product quality and predictability I've also introduced two monthly code drops. Our developers are using Agile methods, so we are going to have a lot less time between releases. Being able to show customers early versions, get feedback and speed up our development cycle is very important.
Q: Last month the company announced plans to cut £145 million in costs over the next four years and re-invest £70 million to upgrade its product set. What will this mean for the banking division?
A: The market might have wanted to hear that we're doubling or tripling R&D budgets, but what's been allocated should easily be enough to do what we need to do.
We're already the UK's number one software company in terms of R&D investment according to the Department of Trade and Industry. But this isn't the most important thing – it's what you get from this investment that counts
The increased investment commitment at group level manifests as no drop in R&D investment for the banking division. We can't talk exact figures now, but from June each division (banking, treasury and capital markets, and healthcare) will have its own P&L.
Other changes underway mean we'll be getting a lot more bang for our buck. There are currently 35 development centres across the group and this is being reduced. For banking this will mean the closure of two-to-three centres and improvements in the remainder. Currently about 65% of our development is offshore in India and we're looking to increase this to about 80%. Requirements specifications will continue to be the focus of onshore development in the UK and Ireland, and for the coding and testing work we can benefit from a greater number of full-time employees in India for the same money.
Within the banking division we are also going to benefit from having a consolidated roadmap for all our products. Previously funding was allocated for each one. With BankFusion, we can increase the speed of change and be driven by our customers' requirements. We can also benefit from improving and standardising in areas like tools, software management and QA/testing.
Q: What about the cost cutting and other changes?
A: There's been a move away from the holding company structure with each separate company within that having its own duplicated infrastructure. Now we're moving to a shared service model with back office functions such as finance and administration, procurement and HR delivered at a group level.
We're also changing our approach to sales and pre-sales to present a unified face of Misys to customers to get away from some of the overlap and internal communication issues that have occurred occasionally in the past.
Q: Talking to your large customer base worldwide since joining Misys, what trends and market opportunities are you seeing for the company?
A: We're seeing banks wanting to take a globalised approach to processing and operating linked branch offices in different geographies on a global time zone. Banks are moving into new geographies being driven by their largest corporate customers' demands. Eastern Europe provides a good example of this, as many banks are setting up operations in London to better support their customers.
We're also seeing banks moving into new areas – retail banks offering corporate banking or private banking services, for example, or corporate banks moving into syndicated lending. Trade finance is another huge growth area driven by globalisation and the continued increase in worldwide container traffic. This is an area where our Trade Portal and Trade Innovation solutions are particularly strong.
Q: What about the US market for core banking systems? Some of your competitors are chasing opportunities over there?
A: To be honest, I think it's more the analysts calling for the need for core banking system replacement than the banks themselves. Risky 'heart and lung transplants' are required, and we're not seeing the appetite or RFPs. But further consolidation will possibly be a driver.
We are active in the US for the core banking solutions, however, mainly on the back of European banks expanding and setting up operations there. There are also a lot of Trade Portal and Trade Innovation opportunities, and we think that BankFusion could also be useful for many of the large banks in the US to help them add flexibility to their existing legacy core systems.