Case Study Schroders - Temenos · PDF fileIn 2006, Schroders Private Banking undertook a project to centralise its IT and support infrastructure into one central hub using Temenos’

Case StudySchroders

Schroders Private Banking – Three Perspectives On IT Centralisation

Business Benefits Of Centralisation Project

• Operatingcostsreducedsignificantly-byaroundathird.• ITarchitecturegreatlysimplified–numberofapplicationsusedcutby63%.• Managementinformationimprovedconsiderably–90costdriversarenowusedtoallocatecentralcosts.

• Markedimprovementincustomerservice–customerstatementsaresentoutaweekearlierthanbefore.

• Superiorriskandcompliance–ittookjust30minutestoestablishthebankhadnoexposuretoLehmanBrothers.

Name SchrodersPrivateBanking

AUM At 31/12/08 GBP11.7bn

2008 Revenue GBP111.3m

In2006,SchrodersPrivateBankingundertookaprojecttocentraliseitsITandsupportinfrastructureintoonecentralhubusingTemenos’T24corebankingsystem.Inthiscasestudy,we

measurethesuccessoftheproject,whichwentliveearlyin2007,inquantitativetermsagainstfourmaincriteria–riskandcompliance,customerservice,productinnovationandoperationalefficiency-andfromthreeperspectives:thoseoftheCOO,CFOandCIO.

Executive Summary

01 Introduction02 WhyDidSchrodersPrivateBankingChooseToCentraliseIts

ITSystems?04 TheProject05 TheOutcomes05 • COOPerspective07 • CFOPerspective08 • CIOPerspective09 Conclusion

Contents

TemenosCaseStudy01

About Schroders

EstablishedinLondonin1804,Schrodersisoneoftheworld’soldestandmostvenerablefinancialinstitutions.Runforover150yearsasaprivatefamilybusiness,andforevenlongerwith

activeinvolvementfromthefoundingfamily,Schrodershasenjoyedstableownershipthat,inturn,hastranslatedintoconsistentreturnsandsustainedgrowth.AsattheendofDecember2008Schrodersoperatedfrom34officesin26countries,employingmorethan2,800peopleandmanagingmorethanGBP110bninassets.

Introduction

15ThecurrentnumberofinternalITstaff,lessthan5%ofthetotalworkforce

About Schroders Private Banking

SchrodersPrivateBankingaspartoftheSchrodergroupoperateschieflyoutofthreelocations–London,ZurichandtheChannelIslands–althoughithasofficesinotherEuropeancitiesandagrowingpresenceinSingapore.

Accordingtopublicfilings,SchrodersPrivateBankinghasexperiencedstronggrowthinmarginsandprofitabilityinrecentyears.Between2006and2007,thebank’scost/incomeratioimprovedby15%anditsoperatingmarginincreasedby38%(from27.3%to37.7%),helpingittoachievea54%riseinoperatingprofitoverthesameperiod.

Asat31December2008,SchrodersPrivateBankingmanagedGBP11.7bnofclients’fundsandemployedmorethan300people.

Assets Under Management - GBP 110.2bn

Institutional54%

Retail35%

PrivateBanking11%

Source:SchrodersAnnualReport

Revenue And Operating Profit Growth 2007 vs. 2006 (GBPm)

Revenue

OperatingProfit

20

40

30

2006 2007

70

60

50

80

90

100

110

120

Source:SchrodersAnnualReport

Overview Of Schroders (As At 31/12/2008)

Employees

Offices

Funds under management (GBPbn)

Revenue (GBPm)

Profit before tax (GBPm)

Market cap (GBPbn)* * as at 17 March 2009

2,834

34

110.2

935.8

123.1

2.2

TemenosCaseStudy02

Thedecisiontocentralisethegroup’sITinfrastructurewastakenasaresultofastudycarriedouttodeterminehowtoincreasetheoperationalefficiencyandtomaximisesynergieswithinthegroup.

Thefindingshighlightedthefollowing:

• Thebusinessmodelsvariedconsiderablybetweenthedifferentbanks–theLondonbank,forexample,hadahighershareofdiscretionaryservicesthaneithertheSwissorChannelIslandsbankswithmoreadvisoryandcustodydrivenactivities.

• ThedifferentmodelshadresultedinsubstantiallydifferentITinfrastructuresandcostbases.

• TherewassignificantscopetoreducethecomplexityoftheITinfrastructureandimprove(andautomate)businessprocessesbycentralisingandharmonisingsystems.TheexistingSwissplatformwascharacterisedbyahighlevelofautomation,thanksinlargeparttohavingadapteditsprocessestothefunctionalityinT24withoutsignificantlocaldevelopments.

• ASharedServiceCentre(SSC)wouldbethebestwaytoachievethiscentralisationandwouldresultinbetterprofitability,improvedcustomerservice,fasterproductinnovationandsuperiorriskmanagementandcompliance.

Why Did Schroders Private Banking Choose To Centralise Its IT Systems?

Old System Architecture (London And Guernsey) Before Centralisation

Onyx Reuters RPMS

OMS

E-Banking

FTID

Warehouse

CGIX

Globus

Frank Russel Rebates

Columbus R StreamServe

BACS IBIS

CARS

Middleware

SWIFT Alliance

Tranmt

rFrame

SUN GL

Charles River Salerio

WM/CAPS

Kondor Devon

TRAM/BART

PM & RM Dealing

T P

FSA

Source:SchrodersPrivateBanking

32ThenumberofdisparateITsystemsusedacrossSchrodersPrivateBankingbeforecentralisation

TemenosCaseStudy03

ItwasdecidedthattheITinfrastructureandoperationsofthethreebankswouldbemergedintoasharedservicecentreinZurich,withT24actingasthecoreprocessingapplication(andsupportedbyonlyafewancillaryapplications).ZurichwaschosenbecauseitalreadymanagedtheoperationsforprivatebankinginbothZurichandGenevaandpartoftheinstitutionalbusinessbasedinZurich–atacompetitivecostlevel.

Target Business Model

Relationship Management

HR

FX / MM Dealing Desk

Accounting / Controlling / MIS

AssetAllocation

Internal Services

Risk Management / Risk Reporting

Valuation / Performance

Reporting

Order Entry

Cashier Operations

Securities Dealing Desk

Corporate Action QI Reporting

Portfolio Management

Compliance

Regulatory Reporting

Securities Operations

Product Management

Opening Client Documents /

Compliance Check

Correspondent Banking

FX / MM Operations


Areas Of Schroders Private Banking To Be Supported By The SSC

Schroders Private Bank London

Schroders & Co BanqueSA Geneva

Schroders & Co Bank AG Zurich

Service Centre, Zurich

Schroders Private Bank Guernsey

SIM Zurich Institution, Retail and Fund Management


Itwasenvisagedthatallaccounting,securityandpaymentsservicesforclients–includingcustodyoperations,maintenanceofclientdataandIT(infrastructure,developmentandmaintenance)–wouldbehandledfromZurich,whileallfrontofficeservicesandclientactivitiesaswellascompliance/legalservicesandtreasurywouldremainunderthecontrolofthelocalentities.Theanticipatedsplitofthedifferentbusinessservicesaccordingtolocationofprovisionisgivenbelow.

Theinitialmanagementprojectionwasthat,byusingtheSSCinZurich,totaloperatingcostscouldbecutbyonethirdversusthecostofmaintainingthethreestandaloneITandsupportcentres.

TemenosCaseStudy04

Theprojecttook18monthsandtheSSCinZurichwentliveinApril2007.Fromtheoutset,itwasagreedthata“bigbang”approachwouldbepreferable,sincethecomplexityand

interdependencyoftheexistingprocessesandplatformswouldhavemadeaphased(butlessrisky)approachalmostimpossible.Effectively,aphasedapproachwouldhavemeantthat,aftergo-live,certainfunctionalitywouldnothavebeenavailableandworkaroundswouldhavehadtobedeveloped.

Theprojectwassplitintofivephases,asshowninthediagrambelow,andaddingtothecomplexityoftheproject,anupgradefromT24R4toR6wasruninparallel.Theupgradewasdeemednecessaryinordertotakeadvantageofthefunctionalenhancements–particularlyinregardtothedifferentmarketpractices–andthefullmulti-threadcapabilityoftheCloseofBusinessprocessinginR6providinghighscalability.

Intermsofthetechnicalimplementation,themajortaskswerethebuildingofT24forLondonandtheChannelIslands,thedatamigrationfromseveralsourcesandtheredesignanddevelopmentofbusinessprocesses.Thedatamigration,inparticular,provedtobeverychallengingsincethelackofintegrationinthepasthadresultedinsilosofredundantandinconsistentdataandoftennouniquerelationshipacrosstheapplications.Toautomatethedatamigration,Schrodersdevelopedamigrationhubthatused200mappingroutines

The Project

totransformthedata.Manualdatatake-onwasonlynecessaryinahandfulofcasesandacompleteintegritycheckwasrunonthehubbeforeloadinganydataintoT24.

However,likeinmostprojects,therewerealsohumanchallenges.ThetwoissuesthatSchrodersfacedandsuccessfullyovercamebothrelatedtostaffbeingmaderedundantasaresultofthecentralisation:specifically,howtoensuretheircontinuedcooperationwiththeprojectandhowtoensureasmoothandcompleteknowledgetransfer.Variousinitiativeswereusedtoaddresstheissueofmotivationand,toassisttheknowledgetransfer(especiallyregardingthelocallydifferentlegal,taxandclientreportingrequirements),Schrodersusedamixofcomputer-basedtraining,leaflets,intranetinformationandclassroomteaching.TherewasexcellentcooperationthroughouttheprojectbetweentheLondon-andChannelIslands-basedstaffandthestaffintheservicecentreinZurich.

Theprojectwentlivewithintheplannedtimelineandthecostsoftheimplementationwereinlinewiththeplan.Thebenefits,however,whicharediscussedbelow,havecomfortablyexceededexpectations.

Project Phases

Serv

ice

Cen

tre

Fron

t Offi

ces Detailed Planning Of IT

and Operations

End Of Business Specifications Final Concept Confirmation Go-Decision End of First Build Begin User Acceptence Test

Revise Static Data

Training

Testing

T24 Implementation Project

3rd / 4th Quarter ‘05 1st / 2nd Quarter ‘06 3rd / 4th Quarter ‘06 1st / 2nd Quarter ‘07

Business Specifications

Detailed Planning Swiss Service Centre

Detail Concept / Process Design

Decision Projects 05 / 06

Go 1 2 3 4 5

1 2 3 4 5

Cut Over

Source:Temenos

Project Phases

TemenosCaseStudy05

Below,wesummarisethediscussionsheldinJanuary2009withtheCOO,CFOandCIOtoreviewtheprojectanditsoutcomes.

The Outcomes

90Thenumberofdifferentcostdriversnowusedtoallocatecentralcosts

Operational EfficiencyThemovetothesharedservicecentrehasallowedSchroderstorunthebank’soperationsmuchmoretightly.Muchofthisoperationalimprovementisclearlyreflectedinthelowercostbasepertransaction.However,movingtotheSSChasalsoenabledmanagementtoobtainbetterqualityinformationthat,inturn,allowsittomakebetter-informeddecisionsaboutthebusinessandhowtoallocateresourcesbetweencompetingpriorities.

AsHeinzScheiwillerpointsout,informationhasimprovedinthreekeyways:

1. Profitability measurement:usingconsolidateddatafromallthreebanksandapplyingthesamelevelofanalysistoallthreeentitieshasenabledSchroderstocomparefinancialdatamoreeasilyandmoreaccuratelyacrossthedifferentbanks,butalsoattheindividualcustomerlevel.

2. Cost allocation:moregranularandconsolidateddatahasaffordedamoveawayfromarbitrarycostallocationbetweenthedifferentbanksandprofitcentres.Instead,costsarenowallocatedonthebasisof90differentcostdrivers,whichreinforcetheaccuracyofprofitmeasurement.

3. Timeliness:asaresultofmovingtotheSSC,thequalityofinformationhasimproved,butsohasitstimeliness.HigherlevelsofautomationcoupledwiththeabsenceofreconciliationbetweendifferentdatasourcesmeansthatSchroderscannowperformthemonthlyconsolidationfortheentirebankwithinafewdaysaftermonthend.

Customer ServiceIngeneralterms,themovetotheSSChasimprovedcustomerserviceinanumberofways.Ithaspermittedcustomerrelationshipmanagerstospendmoretimewithcustomers(sinceithasfreed-uptimebyreducingtheIT-relatedtimeburden);ithasallowedSchroderstoincreasetheproportionofrelationshipmanagerstocustomers;ithasgivenrelationshipmanagersreal-timedesktopclientinformation;and,ithasempoweredcustomersbygivingthemreportswithmoredetailedandmoretimelyperformanceinformation.

IntermsofmorespecificKeyPerformanceIndicators(KPIs),thesevaryaccordingtothekindofservice,butSchrodershasachievedmarkedimprovementsinmost.Forexample,themostimportantKPIiscostoftransactionandsincegoingliveattheSSC,Schrodershassubstantiallyreducedthis.

Product InnovationCustomersofallofthebankshavebenefitedasthemovetotheSSChasresultedinSchroderstakingthebestproductsandpracticesfromthethreeconstituentbanksandrollingthemintoonestandard,butmoreextensive,offering.And,becausetherangeofproductsisnowstandardised,therearegreaterefficienciesattheoperationallevel.

ClientreportingisanotherareathathasimprovedsignificantlysinceoperationswerecentralisedandanareawherehefeelsSchrodershasbeenabletodifferentiateitselffromcompetitors.

“For me, the transition to the shared service centre has brought a more focused approach to private banking, reflected in improved efficiency and the realised cost synergies, but also in much better levels of service for our clients.” HeinzScheiwiller-COO-SchrodersPrivateBanking

COO Perspective

TemenosCaseStudy06

SincemovingtotheSSC,Schrodersisabletosendoutclientstatementsaboutaweekearlierthanbefore.Furthermore,whileallstatementshaveasimilarformat(thatallowsthebanktoleverageitsbrandingmorestronglythanbefore),theflexibilityoftheintegratedsystemallowsthecontentoftheclientreportstobetailoredtoindividualclientspecifications.

Asgeneraloptionsforallreports,clientscanchoose:

• Frequencyofreports.• Basecurrency.• Whetherperiodsareshownwithrollinghorizonor year-to-dateperformance.• Whetherperformanceiscalculatedusingtime-weighted ormoney-weightedmethod.• Whetherbenchmarksareshown.

A WeekThereductionintimeittakesforSchroderstosendoutcustomerstatementseachquarter

Asset By Class And By Currency (Extract From Customer Report)

Assets By Class

23.1% Equities27.8% Bonds18.9% Alternatives30.3% Cash

Assets By Currency

68.5% GBP18.8% EUR5.7% USD7.0% Other


Reporting Overview (General Options For Customer Reports)

Year-to-Date Rolling Overview Short Standard Extended 1 Extended 2 FullPage 8 Asset Breakdown Page 9 Assets by Class and by Currency Page 10 Asset Allocation Changes Page 11 Equities by Region Page 12 Equities by Sector Page 13 Cash and Bond Maturities Page 14 Position Statement

Performance Page 15 15 Overall Performance Page 16 Monthly Performance Page 17 Yearly Performance Page 18 Performance by Asset Class Page 19 Performance by Segment Page 20 21 Performance against Benchmark Page 22 Performance by Position

Movements and Liabilities Page 23 Statement of Account Page 24 Securities Transactions and Corporate Actions Page 25 Cash and Securities Inflows – Outflows Page 26 Loans, Guarantees and Letters of Credit

Page 27 Additional Information to Client

Reporting Overview

Standard Option

General Options for all Reports FrequencyPeriods Shown with Rolling Horizon OR Year-to-Date Quarterly (Standard) Performance Calculation Method Applied Time-Weighted OR Money-Weighted MonthlyCost Value or Accrued Interest Shown Cost Value OR Accrued Interest Half YearlyBenchmark Shown Yes OR No Yearly

Year-To-Date Rolling Overview Simple Short Standard Extended FullPage 8 Asset Breakdown Page 9 Assets By Class And By Currency Page 10 Asset Allocation Changes Page 11 Equities By Region Page 12 Equities By Sector Page 13 Cash And Bond Maturities Page 14 Position Statement

Performance Page 15 15 Overall Performance Page 16 Monthly Performance Page 17 Yearly Performance Page 18 Performance By Asset Class Page 19 Performance By Segment Page 20 21 Performance Against Benchmark Page 22 Performance By Position

Movements And Liabilities Page 23 Statement Of Account Page 24 Securities Transactions And Corporate Actions Page 25 Cash And Securities Inflows – Outflows Page 26 Loans, Guarantees And Letters of Credit

Page 27 Additional Information To Client

Reporting Overview

Standard Option

General Options for all Reports FrequencyPeriods Shown With Rolling Horizon OR Year-to-Date Quarterly (Standard) Performance Calculation Method Applied Time-Weighted OR Money-Weighted MonthlyCost Value or Accrued Interest Shown Cost Value OR Accrued Interest Half YearlyBenchmark Shown Yes OR No Yearly


TemenosCaseStudy07

Two-ThirdsReductioninthenumberofdatacentres(from6to2)followingthemovetotheSSC

Operational EfficiencyEfficiencygainsweremainlydrivenbyareductioninstaffnumbers.Ofthetotalcostreduction,approximately60%camefromreducedstaffnumbers.Theremaining40%ofcostsavingsstemmedfromnon-staffrelatedcosts,principallylowersoftwaremaintenancecostsandreducedhardwarespending.ITnowaccountsforlessthan10%oftotalcostsand5%ofthetotalworkforce.

SchrodersPrivateBankingnowoperateswithoneback-office,onesecuritiesmaster,oneclientstaticdataadministrationteamandonedealingdesk(asopposedtothreeormoreineachcasebeforetheITcentralisationproject).

“Our view is that IT and support costs, as percentage of total costs, should decrease over time. Our competitive advantage comes from excellent customer service and innovative products. We aim to direct as many resources as possible to the customer-facing parts of the business.”

Intermsoftherevenuesynergiesthathavearisenfromcentralisation(indirectlyfrombetterclientinformation,betterpricing,etc),thesearehardertoquantify,althoughSchrodersreportsasignificantimprovementinthelevelofassetsundermanagementperemployee,akeymeasureofproductivity.

Risk And Compliance

“The improvement in aggregated management information [since moving to the service centre] has been a huge advantage during the subprime crisis. For example, when we wanted to understand our exposure on the client and nostro side to Lehman Brothers, it took us half an hour to understand that we had no exposure. In contrast, at the time of the Barings collapse, we spent significantly more time retrieving this information.”

AftermovingtotheSSC,thecostofmonitoringactivitieslikecomplianceisdecreasing.OnlyhavingoneprocessinglocationmeansthatSchrodersisinapositiontodeliveranyrequestedinformationintheseareasinashorttimeframeasmanyoftheunderlyingdatadeliveryprocesseshavebeensimplified.

Conversely,havingoneconsolidatedbackofficecentrereducesoperationalrisks(andtherisksofnon-compliance)inthatthereismoremanagementoversight,butmoreimportantly,becausemanagementhasaccesstomuchbetterinformation(moreaggregated,fewererrors),receivedmuchmorequicklythanbefore.Itcanthereforemakebetterinformeddecisionsaboutthebusiness,helpingtomitigaterisks.

“Undoubtedly, the best aspect of centralisation has been the elimination of the big discrepancy that existed in the operating costs of the different platforms. We now run an extremely lean infrastructure with infrastructure costs lower by approximately one third, and with IT support in the service centre representing about 5% of the total workforce.”Pierre-LouisFavre-CFO-Schroder&CoBankAG

CFO Perspective

Sources Of Cost Reduction (%)

LowerITSpending40%

FewerStaff60%


Reduction In Number Of Data Centres

0

21

BeforeCentralisation AfterCentralisation

543

67


TemenosCaseStudy08

Operational EfficiencyMovingtoasingleplatformtosupportoperationsacrossthreelocationsresultedinasignificantreductioninthecomplexityoftheoverallarchitecture,makingitpossibletomanagetheenvironmentwithasmallerteam(nowjust15people)andtokeepthatteamfocusedonactivitiesthathelpdifferentiatethebusiness.Further,thereductionintheamountoftimespentreconcilinginformationhasalsofreeduptimeforthecustomer-facingstaff.

Moreover,simplificationoftheITinfrastructurehasalsoreducedtheneedforcomplexinterfacesandcutsignificantlythenumberofdifferenttechnicalandplatformskillstheteamhastoaccommodate.SincethemovetotheSSC,thenumberofdifferentsystemshasbeenreducedbymorethan60%andthenumberofdifferentprogramminglanguagesusedhasbeencuttojustthree.

End-to-endprocessinghasbeenachievedacrossmanyprocesses,suchassecuritiesdealing,FXandfundstransfercuttingtheamountoferrors,improvingcomplianceandthecostofcompliance,andreducingthecostoftransactions.Informationerrorsandlateprocessinghavebeenreducedsignificantlyandthecostspertransactionshavedecreasedsharply.

Customer ServiceTheavailabilityofaprocessingplatformthathascapabilitiesbeyondprivatebankinghasenabledSchroderstobeverysensitivetotherequirementsofthevariouscustomersegments.

Forexample,ithasbeenpossibletoextendtheofferingtobusinessownerstoincludeallservicesofferedbySchroderstoalllocationsandtodosowithoutincurringsignificantadditionalITdevelopmentoroperationalcosts.

Toensureagoodlevelofcustomerserviceandtoremainclosetothelocalmarkets,itwasdecidedthat,contrarytothecentralisedsecuritiesdealing,thetreasurydesksshouldremaindistributed.Aflexibleorderroutingmechanismwasputinplacetomakethisconfigurationpossible.Theimplementationofthisspecificrequirementwaseasilyachieved,thankstotheopenarchitectureofT24.

New System Architecture (Following Centralisation)

20Thereductioninthenumberofthird-partysoftwaresolutionsusedbySchrodersfollowingthecentralisationofitsITinfrastructure

The move to T24 as one core platform with only a few ancillary systems has brought large advantages regarding the daily delivery of IT-services. The reduced complexity has generally increased the availability of our systems, has strongly decreased the reconciliations issues and has allowed our resources to focus on fewer technologies. These advantages gain importance with the servicing of additional locations in various time zones.RolfFischer-CIO-Schroder&CoBankAG

CIO Perspective

T24VDF

DWH

Printing

eCRM SIX

CGIX

Kondor

CORONA

eBanking

SWIFT

Archiving


TemenosCaseStudy09

SchrodersPrivateBankingembarkedonatransformationalITprojectattheendof2005tocentraliseintooneplatformallofitsITandoperationalinfrastructureusingT24asthecore

bankingsoftware.Themotivationforundertakingthiscomplexprojectwasmultifold:toreduceoperationalcosts,enhancecustomerservice,increaseproductinnovationandimproveriskmanagementandcompliance.

Theprojectwasdeliveredontimeandonbudget,buttheprojectoutcomeshaveexceededexpectations.Thecomplexityofthesystemhasbeenreducedsubstantially(thenumberofdisparatesystemshasbeencutfrom32to12)andthelevelofprocessautomationhasbeenincreasedsignificantly,withstraightthroughprocessingachievedinanumberofareaslikeFXandfundstransfer.

AsaresultofthemovetotheSSC,theinfrastructurecostspertransactionhavebeencutsubstantially,which,inturn,hashadahighlypositiveimpactonthebank’sfinancialmetrics.

Furthermore,themovetotheSSChasenabledthebanktoredirectmorestaffandresourcestothecustomer-facingpartsofthebusiness.Thisredeploymentofresources,coupledwiththemoreflexiblesystemarchitecture,hasaffordedanimprovementincustomerservice,asreflectedinlowercosts,greaterproductchoiceandbettercustomerreporting.Moreover,thisimprovementincustomerservicehasbeguntobetranslatedintobetterproductivity,withSchrodersexperiencingamarkedincreaseinassetsundermanagementperemployee.

Lastly,themovetotheSSChasgreatlyenhancedthequalityandtimelinessofmanagementinformation,allowingmanagementtotakebetter-informeddecisionsaboutthebusinessandimprovetheeffectivenessofriskandcomplianceprocedures.

Conclusion

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