November 21, 2007 was the 10th anniversary of IMF bailout. Woori Financial Group (WFG) was established in 2001 as an outcome of long and torturous process of restructuring of the nation's failed banking industry.
After six years, WFG successfully turned around and proudly stands out as the largest financial group in the nation through the fierce competition. It reached asset size of 26.4 trillion Won - and ranked number 64th in the world by Bankers' magazine in 2006. During the period, the group's market value increased 520% while the total asset and net income jumped up to double and triple folds respectively.
Among many success stories behind the scene, the transformation of information technology sector in the group is worth notifying in terms of its unique beginning as well as its adaptability to turbulent environment. I have gone the whole journey with hundred of brilliant and hard working people as a member of top management team who did drive the transformation. Now I am pleased to share my experience and lessons with you.
Laying out a foundation
Right after WFG had founded, it set up Woori Financial Information System (WFIS) as an IT shared service center which consolidated all IT organizations and assets from the subsidiaries within the group. The mission of the company was to build a cost synergy platform of the group with the economy of scale and pool of IT professionals.
From the beginning WFIS made total IT outsourcing contracts covering application development and maintenance to data center operations with three banks in the group, Woori Bank, Kyongnam Bank and Kwangju Bank, in 2001 and 2002 period.
It was unique settings because it was not only the first time to build a shared service center as a separate entity within a financial group but also it had a advanced full scale formal outsourcing contracts between business units and a shared service center. Building a dedicated company as a vehicle to tackle the cost synergy seemed a good, but unproven idea. But it worked.
After the incorporation of WFIS, WFG has been able to execute a series of postmerger systems consolidations while successfully completing the development of Woori Bank's new core banking system. Many believed that without consolidated professional resource pool, it was nearly impossible to execute such huge tasks in parallel in such a short time period.
In mid 2004, major projects of WFG were approaching to its successfully completion scheduled in September, the group IT management team prepared a new midterm IT strategy for coming years, in order to improve the IT cost efficiency and service quality. Three key elements of new strategy were to build new IT governance structure, to reduce IT cost, and to achieve world class IT operation excellence.
The objective of IT governance strategy was to define roles and responsibilities among many IT organizations which group including WFIS. New direction clearly redefined that WFIS was an IT shared service center and its mission should become an effective and efficient IT service provider. It laid out the foundation for the execution of the other two strategies.
To reduce IT operating cost, WFG introduced several new processes. The IT Investment Review Committee was one of them. The Committee, a business-IT joint review board, consists of senior managers from strategy, finance and technology units. It reviews all major IT investment projects from the viewpoint of better allocation of capital and resources to align with the group's synergy policy.
For instance, for the past three years, the Committee launched many small to large joint projects such as Bancassurance, Group Risk Management and Group BRS Center, which gave a great deal of cost saving opportunities to each affiliate as well as the group. Along with it, WFG renovated IT charge-back system for cost transparency and initiated many operating cost initiatives. As a result of those efforts, IT cost fell down two straight years by CAGR 10% in 2005 and 2006.
The cost reduction initiatives were not only just about squeezing spending, but also aiming to improve the service quality. For quality improvement, three clear objectives were set . (1) to get internationally renowned quality standards in IT service management area, (2) to reduce system failure (number of incidents and downtime), (3) to improve Customer Satisfaction Index (CSI).
Thanks to dozens process improvement programs and hard works to carry out mounting tasks, WFIS got ISO 20000 and CMMI Level 3, the international IT service management standard and application development maturity standard respectively, while the system failure reduced to less than a fifth and met all CSI targets.
In early 2007, the group management team assessed the performance of IT sector for the past few years to draft a new strategic direction. After reviewing each functional area of WFIS, the team concluded that there has been great improvement in IT infrastructure operations and process management in terms of cost efficiency and service quality. However, it also noted that there were still some areas to be improved in order to compete with IT service providers in the market.
Based on the assessment WFG set new goals for the group IT in five areas. First, WFG decided to put more focus on the application development to improve go-to-market speed. Secondly, in order to execute the first goal effectively, it needs to improve Business IT Alignment (BITA) by building effective communication channels between IT and business organizations at all levels.
Along with this, WFG planned to introduce market competition in captive IT market. Through the open, head to head competition with the external service providers, WFG believe that WFIS could be a lean, speedy, cost efficient and technically competitive company.
WFG set two directions as long term initiatives - the resource optimization and the enterprise architecture management. Transforming resources to the more effective and highly skilled professionals has been top in the management agenda and should be in the future too. Also it is important to have a constant review and update process for the enterprise architecture.
For instance one of the architecture initiatives, the standardization program has been in progress as a multi-year project.
Challenges ahead and key projects in 2008
In order to strengthen the group's cost competitiveness in coming years, WFG needs to consistently drive forward its long-term cost reduction initiatives in IT operations. Regarding application development WFG plans to introduce the lean manufacturing method to application services processes to reduce reworks and remove any productivity loss factors. In parallel with these efforts, the consolidation of IT resources and assets within the group will be pursued consistently, because the group synergy is the single most critical success factor of IT operations.
In 2008 WFG plans two big projects. One is an IFRS project to adapt new international accounting standards, which is scheduled to be introduced from 2009. Another is to build an intranet system connecting all companies, customers and partners to a single interconnected communication network.
A few thoughts on IT of Korean financial institutions
In general, I think Korean financial institutes have successfully managed to develop their core business systems. Those newly built IT systems are really powerful application systems, as they integrated business functions built on the consistent architecture and advanced platform technologies. Today, it is not unfamiliar that overseas financial institutions are benchmarking Korean counterpart's state-of-art applications.
However, if you watch closely how the applications systems are planned and built, you can find there is something similar to "Not Invented Here" attitude to external solutions, open systems, and/or global standards. Instead, they put emphasis on unique requirements of the users and Korean environment as an excuse to such attitude. From this perspective, Korean IT managers need to be more open to external ideas and new technologies.
From technology point of view, I would like to stress the importance of having flexible and agile architecture. To meet changing needs of uncertain future, it is necessary to act now to make gradual changes to the legacy systems toward more flexible structure by standardization, simplification, and consolidation. This can not be achieved in a short period but CIOs should consider the future-oriented system architecture from now on.
Finally, it is often said that IT systems and infrastructure are excellent even compared to those of the developed countries but level of management skills and processes are not. In other words, they are good in hardware, but poor in software. This development of soft skills, such as planning the investment, reducing cost, or developing new strategy are the key to upgrade the maturity of Korea's IT services to the next level.
Unless IT leaders in financial industry put much resource and effort in IT management skills, the overall capability gap between the internal IT organization and the leading IT service providers in the market will inevitably widen further.