“The number one requirement we are seeing coming out of the financial services sector is the desire to recruit tech-savvy people to the executive committee level,” says Eric Anderson, head of the global fintech practice at executive recruiting firm Egon Zehnder. “Someone who can come in and talk about big data and digital to those in charge of the budget without scaring the life out of the board members.”
|
|
The technology industry has very little regulation so it’s not as simple as saying a senior executive at Google is perfect for a role at Bank ABC
Eric Anderson, |
Craig Stephenson, managing director of north American chief information officer recruitment at Korn Ferry, agrees. “The biggest trend right now is having a technology-astute leader who has a deep understanding of the business but who can also drive transformation. In addition, we are definitely seeing a trend develop which is to secure chief information or technology officers to sit on the board of directors to address the technology agenda, security concerns and growing technology budgets.”
It’s crucial. Banks are committing billions to innovation and their CEOs are constantly underlining how important innovation is to their firms. Santander invested €1.35 billion in 2014 for IT–related research and development. Deutsche Bank announced in February a 10-year multi-billion dollar deal with Hewlett Packard to upgrade the bank’s IT infrastructure. Bank of America spent $3 billion last year on new tech developments as part of its annual $9 billion IT budget.
It is at the very senior echelons of the institutions that experienced technologists are needed, but are they hard to find? There have been hires outside of finance into the committees and leadership roles – such as Dana Deasy, chief information officer (CiO) at JPMorgan who joined from BP where he was CiO and global head of information technology. Or Kim Hammonds at Deutsche Bank who was CiO at Boeing before joining the German bank.
But for the most part banks have appointed their CiOs from within the firm – someone who has worked their way up through tech and ops in various business lines – such as Martin Chavez at Goldman Sachs, who took a break from the firm to found Kiodex. Or Cathy Bessant at Bank of America who has been with the firm since 1982.
It’s rare that a bank hires directly out of the tech industry itself at a senior level. Deutsche Bank last November hired JP Rangaswami as its first-ever chief data officer from Salesforce.com, although his career has included positions as CiO at Dresdner Kleinwort Wasserstein. Don Callahan at Citi who leads the firm’s digital strategy, global tech and ops and chairs the CiO council, joined from IBM but was previously at Morgan Stanley and Credit Suisse.
Why there hasn’t been more cross-pollination between the tech industry and the financial industry at a senior level is simply that the two industries are so vastly different. Technologists are used to a large amount of freedom to experiment and fail whereas financial institutions are hyper-focused on regulation, security and shareholder requirements. Says Anderson: “The technology industry has very little regulation so it’s not as simple as saying a senior executive at Google is perfect for a role at Bank ABC.”
As one member of a bank executive board points out: “If I make one mistake, our fines are in the billions of dollars, or client money is at risk. It’s risk management first, technology second, and technologists don’t always have the stamina to deal with the mundane and laborious efforts required to look at risk and regulation.”
Experimentation
One way around the mismatch, says Anderson, is to recruit at a non-executive director level.
Just how to bring in insights from the tech industry directly, while having a formal structure in place to manage investments and risk and controls is something the industry is in the midst of grappling with. One option is to run external investment/ideas-sourcing ventures like Citi Ventures, Santander’s Innoventures Fund or Goldman Sachs’ private equity and venture capital investments. Setting up innovations labs that have a separate budget and are allowed to experiment before production is another.
Within the reporting lines there is also some experimentation happening. In some cases – like Deutsche Bank – the chief operating officer (Henry Ritchotte) sits on the executive committee and has two global technology heads – Hammonds and Jim Hurley – reporting to him, with further heads of innovation embedded within the business lines, and then Rangaswami dedicated to overseeing data.
“Some banks are separating out the roles of one senior manager overseeing technology from the viewpoint of cutting infrastructure costs, and then someone who oversees innovation and development. Others have each business line with an innovations head,” says Anderson.
And the innovation is working. Barclays says it shaved 4.5% off costs in the first half of last year thanks to digitization.
Says one source at Santander: “It is a new culture where research, networking, experimentation, self-analysis and perseverance are part of the equation. This innovation process is a mixture of technological accessibility, new working models and new roles. But these are roles that have not traditionally existed in conventional organizations nor in the market, so there is a big demand for them. Meanwhile, there is a vast number of companies or start-ups that offer their solutions and experience to solve important innovation challenges. This makes it difficult for big companies to decide where to invest.” There seems no steadfast way of how to approach innovation as yet.
|
|
Banks have to look at innovation in a very long-term and sensible committed fashion because technology is not slowing down. It is the opposite.
Suresh Kumar, |
Suresh Kumar is the senior executive vice-president and chief information officer for BNY Mellon. He is on the executive committee, as well as the company’s operating committee, and is responsible for the firm’s technology-driven innovation. “The changes taking places are so many in such a short period of time that it is causing all sorts of issues on how to stay up-to-date with the latest developments, while keeping the current technology platform running, and keeping an eye firmly on security. How do you hire? How do you structure? These are key points right now,” he says.
Companies, not just in finance, are better off with technologists on the executive committee, says Kumar. His firm opened an office in Palo Alto, California, last November that employs locally out of tech firms, start-ups and universities to work on analytics and cloud projects and solutions. That came about from meetings his colleagues on the executive committee had had. “Each year we take our executive committee to Silicon Valley for a week – that was how we ended up starting something there. From 8am to 10pm we meet with start-ups and technology leaders so people can get a good feel for what is happening in that world.”
BNY Mellon has been one of the first banks to develop an internal business structure for innovation. In addition to Palo Alto, the firm has two innovation centres in India, one in London and one in Jersey City close to its New York headquarters. The purpose of each is different says Kumar. “Jersey City is close to the business to understand the business strategy and leverage new technologies and is a mix of people with tech backgrounds in both finance and non-finance industries. The one in London is about clients – how do we get clients to come and co-create?”
Kumar says that outsourcing wasn’t an option for BNY Mellon. “Whether in India or the UK we prefer our own employees – they are an asset, not a cost – so if we develop them and give them the opportunity to shine, we will be better off. We have a campus recruitment programme to bring in fairly large numbers of people each year and we rotate them, train them and leverage them.”
Pace of innovation
Kumar says it is not an easy task to balance technology with the regulatory and slower-pace that financial firms tend to have when it comes to innovation. “Silicon Valley is completely different to Wall Street because it has a culture of sharing technology. You can attend meet-ups and presentations where firms are happy to share how they solve difficult problems; in many cases they have no problem even sharing their source codes.
That means the pace of innovation is so much faster there because not everyone is having to solve the same problems. In the banks that kind of information sharing only really happens as people move firms within the industry.” Just how protective the banking industry is evidenced by the reluctance for nearly any firm to discuss with the media its plans around technology.
Also when it comes to the type of technology used, the two industries have opposite stances at present.
“Open source commodity hardware and the cloud is the main stay of the internet companies, but because of concern with security within the finance industry there is a lot of hesitation around using cloud-based technologies,” says Kumar. “It will happen but may take a little longer. The opportunity for any financial company is to figure out what is the best way to enable our applications to be cloud-ready so when the time comes we can make the shift.”
Beyond the differences of approach in innovation, are simple differences of culture. Retaining employees has become more challenging as financial firms have attempted to hire from the tech industry.
Says Anderson: “It is guaranteed there will be turnover in tech and ops divisions once outside hires are made. Non-finance hires become exasperated by the lack of funding and the bureaucracy of financial firms, while the present tech and ops staffers resent being passed over for someone unfamiliar with the firm. And in both camps the true technology-lovers do not want to work for a bank because of the slow pace of change. I get calls from tech guys at banks who say: ‘Get me out. I will take the pay cut just to be able to do the tech job that needs to be done’”.
Kumar says BNY Mellon has tried to be smart about the hires and recognize the frustrations that former start-up tech employees may encounter. “On one level it is about compensation – equity is usually included within start-up compensation, so you have to address that when hiring. But also you have to be mindful of what type of person you are hiring. We’re not looking for start-up people. There comes a time when eventually people who have worked at enough start-ups want to be somewhere more settled with a career path. Those are more of a fit for us.” He says the appetite is there however. “In Silicon Valley there are many tech people who are savvy and looking for problems to solve – and we as an industry are not short of problems to solve.”
|
Further reading |
|
Stephenson says banks just need to be thoughtful about hiring. “In the past we have seen banks hire out of Silicon Valley with mixed results. Often, technology leaders are left on their own to develop solutions but this is going through a correction as banks embrace change and become more versatile. To secure the appropriate talent, financial firms should be aligned with strategic direction, investments and commitment,” he says. “From the other side of the fence, the bank needs to know that the person they are hiring understands the business, or at least is willing to, and that they understand the hurdles of regulation and security.”
He says the gap between the two sectors is decreasing however. Financial firms are rapidly becoming technology companies. More than half of Deutsche Bank’s global employees are within its global tech and ops division for example. Goldman Sachs’ chief executive Lloyd Blankfein reportedly refers to his firm as a tech firm: it employs 9,000 engineers and programmers out of its 33,000 headcount.
One alternative for banks has been to have tie-ups with tech firms or start-ups to keep abreast of developments in technology without having to commit. Anderson believes that strategy to be misguided. “It’s no good committing resources if the ideas or technology are not going to be integrated,” he says.
Kumar says integration has been essential for BNY Mellon. “We are trying to get the innovation centres to work together so the people who understand business, those who know the clients, and the technologists are working together. It’s about eliminating silos.” BNY Mellon has people travelling from one centre to the other to meet and share ideas. “We are creating a platform called Nexen which will enable all the developers to expose their services as APIs and to allow them to share common code,” he adds.
Anderson says one positive development he has witnessed is the introduction among banks of innovations advisory boards. “That is separate to the nonexecutive committee and reports to the chief executive. It’s a group of individuals who may not be related to the services offered but who will challenge the company in terms of customer experience and product,” he says.
It’s a challenge for chief executives. Throwing things against a wall and seeing what sticks is not what the current economic environment affords them. Yet the pace of change is so rapid that decisions have to made fast and the correct people hired to deliver the strategy. Lack of understanding about complex products wreaked havoc on the finance industry during the crisis, they cannot afford to have the same lack of understanding about the technologies they are implementing. How will they keep up?
Says Kumar: “Banks have to look at innovation in a very long-term and sensible committed fashion because technology is not slowing down. It is the opposite – the pace of change is accelerating. Because of the amount of data that is now able to be collected, we’re really just at the beginning.”
