No, that's not what a good process looks like. Bond traders sat in front of their screens, followed the markets, bought and sold. IT staff stood by their side, adapting the IT systems as quickly as possible. The trading data was transmitted to the back office, where it was reviewed to determine whether it met financial accounting and regulatory requirements. Time and again, data was also edited manually.
While all of this was indeed a process, it certainly wasn't a good one. Back-office data processing is expensive and ties up resources. It would be better for all employees to work with a single system with the same data standard, eliminating the need to establish data consistency later on.
"Data production mustn't be too complex and elaborate. Employees in the finance department should have more time for the analysis of data rather than for its production," says Deutsche Bank EMEA CFO Joachim Müller.
Between 2010 and 2012, it became increasingly apparent that the architecture and processes in the Bank's finance department would no longer meet the future market requirements. Since the beginning of the new millennium, investment banking was primarily about gaining market share and increasing turnover. With the aim of becoming a global player in mind, this was seen as being strategically desirable. The role played by processes, infrastructure and automation as well as standardisation ranked second. So it is little wonder that IT was unable to keep up with the rapid growth of investment banking, and that a complex IT structure with fragmented processes developed. The goal was to transform this into a competitive advantage by having IT and finance seize the potential in the infrastructure. "We wanted to improve efficiency by about 20 per cent," according to Müller. "There was a lot of pressure on the back office."
"Largest change project"
So now the question was how to better organise the finance figures, producing data more effectively and free of errors. "It was all about flexibility, the timing of availability, granularity and the scope of data. The quality no longer met the expectations of a world-class finance department," Müller explains. However, this also meant dealing with tremendous complexity. All data from millions of transactions such as trading shares and currencies, selling structured products or issuing loans has to be stored in a central system in such a way as to meet all financial accounting and regulatory requirements.
With this goal in mind, finance and IT began establishing a new infrastructure basis and process architecture for reporting by launching a large-scale project called StRIDe (Strategic Redesign of Information Delivery). "StRIDe is the largest change project the finance department at Deutsche Bank has ever seen," Müller emphasises. On the technical side, finance and IT are expanding and improving the central financial data warehouse (FDW). Data from three existing systems is to converge in the strategic FDW platform: regulatory information, accounting data and local regulation data from various countries. For the employees, this reduces the usually manual reconciliation process between the systems.
Information comes from a large number of the Bank's legal units, with around 1,000 data streams and more than 100 transaction systems contributing to the FDW. "The challenge was, and remains, converging the data from around 1,000 data streams. In order to accomplish this, we have to remove detours and data adjustments while making data refinement stricter and more consistent," Müller explains.
A client loan, for example, affects several levels in reporting. Equity backing has to be calculated for regulatory purposes, a risk management value must be determined to evaluate the credit default risk and the payment flows have to be recorded for accounting. In other words, different data is used in various parts of the company. Ideally, the data is provided from a uniform source and is subject to strict processes in order to ensure quality and consistency.
Here, too, the bank defined a uniform data standard, establishing how specialist departments have to load the data into the systems. "The original data quality at the source is the key, since any manual post-processing costs money and increases the risk of errors. Picture it as having to install a filter in a cloudy stream to clean the water, which is expensive and slows the speed," Müller explains.
But even the best-laid plans go awry. StRIDe initially aimed to organise finance data and to make processes better, more efficient and less costly, bringing the entire finance architecture to a higher level of quality. Yet as time went on, the new regulatory requirements imposed by the outside world grew noticeably stricter. Now, for example, the Bank had to provide information that it had either not collected so far or that did not even exist yet. What's more, the regulatory authorities wanted to receive the data faster and more frequently. "The scope developed so massively that regulatory requirements had a critical impact on milestone planning for the project," Müller notes.
Still, this was not the only reason the Bank initially failed to push the project with the kind of determination that the project name StRIDe might suggest. Things became more focused in October 2013. "We had put a lot of energy into the concept, but there was upside potential when it came to the implementation and realisation," reports Stefan Sutter, who attended the project on the IT side as managing director. "You can put a lot on PowerPoint slides, but ultimately it's the implementation that counts."
"It was clear to us that the Bank had to speed things up," Sutter says. EMEA CFO Müller agrees: "We had to execute the routines more effectively, which demands extremely good cooperation and trust between the various areas." The project was reorganised to ensure better cooperation by having finance and IT share responsibility. Now around 600 IT and 200 finance employees are working in teams, some of them in the same rooms, in a matrix organisation that is structured vertically by country and horizontally by process and data delivery.
"An exaggerated way to look at this is that in the old world, a bank's CFO placed an order with IT and waited for IT to deliver. We cannot afford this anymore today," Müller says. "Now a CFO has to get much more involved in processes and IT in order to ensure project success, in large part also because the competition demands it. You can look at the production of data like the production of goods in an industrial enterprise." Just like industrial production, it has to keep becoming more efficient and of higher quality.
Certainly Müller's new understanding of his role did not come about entirely voluntarily, but all the more intensively. "It was a very extensive learning process. You just have to dedicate yourself more in order to understand the requirements and always keep the proper distance in order to see where you stand, whether the milestones are still being reached, if you are still within the strategic architecture," Müller says. "But when you are made jointly responsible for the implementation of such strategically important projects, you can assume that willingness is high."
The Fed gets involved
Late 2013 brought proof that the 800 project team members are not about to run out of work. That is when the Fed wrote a letter criticising data quality, unreliable regulatory reporting and IT systems, among other things. "We maintain a continuous and critical-constructive dialogue with all major regulators, who support us in driving this important project forward with full intensity," Müller says.
Moreover, Deutsche Bank launched StRIDe long before many regulations had been tightened. "Had that not happened at the time, we would not have come this far today," says Müller. "Today we deliver more, faster and better -- also to regulators. But there is still a lot to be done, of course."
Success was already apparent by the end of 2014. Last year, there were six rollouts, more than ever before in a year, and nearly 60,000 out of 70,000 milestones were reached. Additional demanding rollouts for software, IT systems and processes will follow this year. Today, the Bank has already transferred central regulatory data for the entire bank into the central FDW warehouse. Regulatory and finance data will continue to be added here this year.
And the project will go on. "StRIDe has important targets, of course. The essential improvements and expansions of the architecture and processes are slated to be achieved by 2016/17. Nevertheless, the project can also be seen as a long-term improvement process. We will always be pursuing further improvements, since the competition, cost pressure, regulations and what we expect from a world-class department are not going to decrease," Müller notes.
Bond traders are now also delivering their data in the new data standard -- otherwise the back office no longer accepts it. For a long time, the front office lacked an understanding of what happens to the transactions afterwards in the back office. And the back office lacked an understanding of the flexibility and speed needed in the front office in order to remain competitive, Müller explains. "A lot has changed here for us in the in last few years because we have adopted far more process-based rather than functional thinking and are looking at a transaction end to end. Understanding has dramatically improved."
COMPANY | Deutsche Bank
Headquarters: Frankfurt am Main
Total assets: €1,611 billion (2013)
Employees: 98,254
IT FIGURES
IT employees: 24,500 (2013)
IT budget: €3,074 million (2013)
CIO: Kim Hammonds
PROJECT | Overview of the facts
Project name: StRIDe -- Strategic Redesign of Information Delivery
Cost: Several hundred million euros
Employees: 600 IT and 200 finance
Service provider: Luxoft (software development)
Applications: Oracle Exadata, SAS Business Analytics
Duration: 2012 to 2017
Scope: Over 1,000 legal units, 1,000 data flows, 100 transaction systems
Software development: Frankfurt am Main, London, India and external vendors
Milestones: Almost 60,000 of 70,000 reached in 2014
Responsibility: Finance and IT
PROJECT | LESSONS LEARNED
" Have a consistent strategic direction, don't get tactical too fast, and always return to the strategic path quickly
" Many, especially large ones, get stuck in the concept phase
" Become more effective in execution, which demands extremely good cooperation and trust between parts of the company and the department
" Find a rhythm and achieve interim goals regularly
" Don't start a project with larger entities, but with small units, and start there with manageable complexity to gain experience
" Have a joint vision of structure; all participants must have the same understanding
" Major change programmes are a matter of culture, communication and leadership
" Culture also includes addressing problems openly and conducting constructive dialogue