The German language contains some fascinating – if hard to pronounce – words. From ‘vergangenheitsbewaeltigung’ (an inability to cope with the past) to ‘schadenfreude’ (happiness derived from someone else’s pain), there’s often a singular expression which can be used to describe specific – often complex – scenarios. For Deutsche Bank, and the position it finds itself in, ‘zugzwang’ is apposite. This term is used when one is under extreme pressure to make a strategic move. As its Q3 2015 results show, Germany’s biggest bank is beleaguered, weighed down by multiple operational and technological issues which require serious remedial actions to resolve. In John Cryan, the new co-CEO, Deutsche Bank appears to have a leader who recognises the scale of the problems and isn’t daunted by the size of the tasks to make material, sustainable improvements.
Comprehensively reorganising the executive team and announcing the launch of a new standalone digital bank signalled Cryan’s intent. And if anyone was still in any doubt as to his resolve, the Strategy 2020 presentation which Cryan gave to investors and analysts in London on October 29th demonstrated that long-term survival depends upon decisive, wide-ranging actions being taken in all areas of the bank. Along with reducing headcount by 9,000, exiting 10 countries, disposing of Postbank, dispensing with the services of 6,000 management consultants, resizing the bonus pool and dumping unwanted assets, Cryan has committed to the thorough overhaul of Deutsche Bank’s legacy IT systems. If executed successfully, this will help “achieve a competitive cost structure based on a more efficient infrastructure.”
So, what – exactly – is going to happen where technology is specifically concerned? Firstly, there is the digitalisation of Deutsche Bank, which will involve the industrialised automation of manual processes to drive efficiency and control and a fundamental redesign of the customer interface. These steps are sensible rather than radical, and reflect the broad trends in the market. Of greater significance is the transformation of the target operating model, one component of which involves the in-sourcing of critical IT capabilities. Deutsche Bank’s many systems are unwieldy, and the act of reconciling, maintaining, and developing them is an arduous, labour-intensive process which frankly doesn’t befit a modern global bank. Re-engineering this excessively complex IT architecture and creating a simplified set of systems should bring positive results, and developing a front-to-back data environment is an imperative for all institutions. However, turning vision into reality will be far from straightforward as per usual.
The technology-related KPIs revealed in Cryan’s presentation make for fascinating reading. In summary, by 2020:
- 45 core operating systems will be reduced to 4;
- 166 hardware/software elements identified as being at end-of-life will be removed;
- Virtualisation (currently 46%) will be increased to 95%;
- Private cloud adoption (currently 20%) will be increased to 80%;
- ~1,000 Intersystem reconciliations will be reduced to ~300; and
- ‘Run the bank’ costs will decline by ~€800m.
With the ink barely dry on the printed copies of Cryan’s slide deck, it’s clearly far too early to tell if Deutsche Bank’s stated ambitions will ultimately pay dividends. Technology transformation is typically far easier to describe than it is to actually perform. But in recognising that technology is an impediment to overall success and divulging high-level details of what’s going to be done to improve the situation Cryan has put the IT department into the spotlight. Having promised target gross savings of ~€1bn in the Technology/Operations function for the period 2015-2018, investors will demand hard evidence of this occurring. And, crucially, the dismantling and reassembly of the existing infrastructure must be undertaken without creating additional risks. This is akin is removing Jenga blocks, rather than simply de/reconstructing Lego bricks into a new design. Deutsche Bank has a big task on its hands.