Assessing Inter-Cultural Communication Challenges in the STANBIC Standard Bank S.A. Core Banking Replacement Program - Part 3



2.1 Introduction to the African banking industry

Global investors are increasingly interested in the African continent. Ernst and Young’s (2011:19) Africa Attractiveness Survey highlighted that Foreign Direct Investment (FDI) and the region’s growth potential increased strongly in the past decade, including strong growth as capital inflows are forecasted to reach USD 150 billion by the year 2015. Although Africa is the second largest continent in the world by size and population, foreign companies across all sectors have been primarily attracted to Africa by the natural resources on the continent. The natural resources span from oil in Nigeria, copper in Uganda to gold in Namibia (Standard Bank. 2012). Analysts indicate that oil and other natural resources directly accounted for 24% of Africa’s Gross Domestic Product (GDP) growth from 2000 to 2008 with wholesale and retail trade (13%), agriculture (12%) and transport and communication (10%) being the top three GDP growth contributors. (McKinsey & Company 2010)

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In recent years, the standard of living has improved across Africa due to increased foreign investment, creating a massive emerging market with an increased demand for new household goods, telecommunications, banking and technology. (Standard Bank 2012) Success in the African banking market often depends on innovation and creativity rather than size. Many of the world’s top banks have entered the African market but although African banks may not be able to compete with large multinational banks on other continents, they have a competitive edge in Africa. Their ability to offer local expertise, sizable local networks and leverage their understanding of local risks is a major advantage. In order to be successful in Africa’s diverse and challenging currency markets, local liquidity, and market understanding from a domestic partner (franchise) is often required to succeed. Table 1.0 depicts the Standard Bank Group that includes Liberty Group, the Standard Bank of South Africa, STANBIC Africa Holdings, UK, Standard International Holdings, Luxembourg, Standard Bank Group International (Isle of Man), and Standard Bank Offshore Group (Jersey).

Table 1.0 Standard Bank Group (Ref. S.A. Reserve Bank, July 2012)

2.2 Stanbic standard bank, south Africa

Standard Bank had its beginnings on the Eastern Cape in 1862. The vision was to create a bank that understood customers better and included employees with a strong knowledge of local business conditions. Standard Bank has grown to over 50 000 staff members today. (Standard Bank 2012) The head office is in Johannesburg, South Africa and during their 150-year existence; the bank developed and refined universal banking competencies while playing a central role in developing the sophisticated South African financial sector. The extensive experience and knowledge is advantageous and leads to expansion in other African and international markets (Figure 1.1). In Africa, the Standard Bank Group trades as STANBIC and is the largest African bank by assets and earnings with representation in 18 countries on the continent (Figure 1.1). Many of the Africa operations are partnerships with other investors (Appendix A). They have 1 222 branches, including loan centres, and 7 945 ATMs on the African continent, and an aggressive growth strategy for Africa and other selected emerging markets. (Standard, 2011:1)

Figure 1.1: Standard Bank Group Operations (, 2012)

STANBIC has business units that provide Personal and Business Banking (PBB), Corporate and Investment Banking (CIB) and Wealth offerings (Standard, 2012). It is forecasted that emerging markets will be growing faster than developed markets (Economist Intelligence Unit, 2012), with great scope for expansion of banking services in Sub-Saharan Africa till 2020 with the biggest increases predicted in Nigeria, and strong growth rates in Angola, Uganda, Ghana and Tanzania. South Africa, Swaziland and Zimbabwe will experience the slowest growth rates. (Economist Intelligence Unit, 2012)

Figure 1.2: 2012-2016 Real GDP growth forecast. (Ref. Economist Intelligence Unit, 2012)

The banking industry has great challenges in today’s financial atmosphere. The global credit crisis and the demands of austerity have left people with little to no money to spend. Local and national banks have lost their ability to handle all the challenges. Although in the past, banks did not install a core banking replacement as a serious choice, now the situation has changed. Information technology has made the banking industry seem to run much more smoothly but the information technologies are very complex systems operating with great seriousness. The banking landscape itself is becoming more complex and divergent forces expect banks to meet all their needs. Now banking officials understand there is pressure to embrace change if a bank wants to stay relevant in the global business arena. (Accenture 2009) General changes are during the core banking transformation process.

  • Operating model modularization to facilitate flexible sourcing options
  • Process automation and simplification to reduce service response times
  • Standardization of products and processes to reduce operational risk
  • Flexible product characteristics to facilitate rapid product innovation and bundling
  • System scalability and ease of configuration to facilitate mergers and rapid growth
  • Multiple countries, currencies and language capabilities to enable geographic expansion
  • Product and process standardization to minimize redundant resources (Accenture, 2009:5)

There are three major general steps to plan and each one requires detailed scope documents. The three are (a) Software Replacement, (b) Business Process Re-engineering, and then (c) the Core Banking Transformation. The Facile vendors, Infosys®, are striving to help the banks meet increased benefits from each of these three phases. The Software Replacement does not show as much cost reduction and revenue increases (only 0 to 5 percent) as the next two phases. Nevertheless, the difference will be obvious to the employees and clients of the bank because the IT capabilities will improve and the IT processes will be in alignment with the necessary software applications. The second phase will improve efficiency and banking/financial products will become enhanced with the new applications. The monetary benefits estimate is 10 to 20 percent in cost reductions and 5 to 10 percent in revenue increases. The third phase positions the bank for “long-term competitive readiness by targeting “a new business model” which supports the long-term goal of the bank (Accenture 2009: 7). The cost benefits for phase three are to 20 to 40 percent in cost reductions and 10 to 40 percent in revenue increases. (Accenture 2009: 7)

The current competitive environment with increasingly demanding customers is forcing banks to take a reality check on their technology environment and ensure that their IT strategy is aligned to their business objectives. And core banking replacement is often the only solution to their problems. However, replacement of core banking solutions - be it for large or small banks, global or regional - is akin to a heart transplant. This can be one of the greatest challenges for an institution, which can either result in the bank leapfrogging to a high degree of differentiation and an enriched customer value proposition, or it can create considerable risks for the bank if the transition is not managed properly. (Finacle, 2009:2)

In other words, when a bank chooses a core replacement strategy the bank is taking a large risk. Banks have not always chosen such a radical change but in today’s global economy, banks have to be competitive. Infosys® (2009:2) notes the three key factors that the bank has to face as the largest challenges. (a) The most important decision is choosing the appropriate vendor; the vendor that has the “highest capabilities and credentials; (b) dependence on legacy/vendor applications and impact on envisioned technology architecture, and (c) the bank’s business goals and alignment to leverage the new technology” (Key, 2009). The vendor the bank chooses must have financial stability, a commitment to the business, and the vendor must understand the banking system very well, and be very competent in the necessary technology. Good communications are essential. Initiating comprehensive planning even before the program replacement starts is crucial. Details are essential and a clear understanding between the bank and the vendor are essential. If a change request occurs during the process of the project, then the desired objectives will be harder to realize. Infosys® emphasizes the importance of resource availability be optimally scheduled. Timely availability of adequate skilled resources and infrastructure such as hardware and network is required. This goes a long way in ensuring a smooth transition within the timelines set as targets by the bank. (Key, 2009:6)

Infosys® is replacing the current core banking system with the replacement program, Finacle. The replacement is a strategic initiative because the current legacy core systems build on old technology. This increases operational costs, limits the ability to provide new solutions to the market and increases operational risks, as the underlying technology is harder to support or enhance. Finacle will deliver business and operational benefits, improve customer service and enhance system availability and stability. As Finacle is leveraging the latest technology and application architecture, it will allow STANBIC to respond more effectively to new growth opportunities. New products will be developed and deployed more rapidly, too. The strategy will provide STANBIC the flexibility to scale up their customer acquisition in Africa (Annual report 2011). The Centre leads the core banking replacement program. The Centre team gathers and retains the Information Programming (IP).

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Country resources allocated to the program for the planned engagement period are often involved with day-to-day operational tasks of the replacement phase. The delivery time framework for the Centre team is extremely high. Two Countries may have implementation of the replacement at the same time. (Appendix 4) At the same time, Countries already implemented require constant retrofit (Appendix 5) to ensure a common base support and enhanced support for the corporate strategy. (Annual report, 2011) The approach for the bank is a difficult challenge but the transformation should be what the bank needs to remain viable in the competitive climate of globalisation.

This type of large-scale project has multiple projects tasks running while the daily work of the bank carries on. Therefore, the work by Sarker (n.d.:71) regarding multiple projects offers some good advice to build upon. (a) Clearly define the goals and scope to all stakeholders so everyone is on the same page at all times. (b) Constantly focus on resource availability and customer co-ordination in order to try to avoid resource constraints and any negative surprises. (c) A software application with Gantt graphing capabilities is very helpful for keeping the project on its critical path, and (d) avoiding resource overload is as critical as resource constraints.

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