Avoiding National Australia Bank scandals

Fresh off a flight from San Jose, Business Objects director of financial services marketing is targeting Asian banks.

Based in San Jose, California, Andy Hirst is the director of worldwide marketing for financial services at Business Objects. After its recent merger with key rival, Crystal Decisions he now feels a push into Asia is ripe for the business intelligence software giant.

What does the merger means for your business in the region and why is business intelligence is relevant to Asian financial services companies?

Andy Hirst: Business intelligence is a growing segment and we're increasingly trying to make it one of the major segments of the software industry. I think that's what Business Objects wants to achieve. We have to evangelise a little about the business intelligence segment. What we have found within business intelligence is that banks and finance institutions are adopting this intelligence strategy and technology faster than any other industry. This is not just the standard business intelligence reporting and query analysis, but also increasingly performance management.

We believe that we've formed the market leading gorilla company in the space. As you know, Crystal Decisions was the number three player in the marketplace and Business Objects was pretty much joint number one with a company called Cognos. Revenues were around the same at that time and have been that way for about eight to 10 years and we did not have a reporting technology at Business Objects. We needed a reporting technology and thought about writing it ourselves, and then the opportunity came up with Crystal to merge in December. And now, we have in effect, created a much larger footprint.

Business Objects was very large in Europe with its heritage as France's largest software company. Crystal Decisions had developed in North America, specifically in Canada, and had become a very large player in Asia. Put those together and you have a very large world player. What also came out of this was that some of the fastest growing areas for us were in the Asian region. Crystal has started a little bit earlier with their investments in the region than Business Objects and putting the two together now has gained us a significant footprint in the region and has made this region one of the fastest growing for us. We're starting to put resources into investing in the region, because we think the level of adoption is still relatively low in this region.

What would you estimate it is percentage wise?

We think in financial institutions it is less than 10%. If you take the example of UBS in London, there are 15,000 employees, and around 10,000 of them use Business Objects, that's 66% of the office's population, and they're using it for all manner of trade analysis and financial analysis. But if you look at the local UBS in Hong Kong, you're probably at 10-15% usage, if you're lucky. So there is a lot of potential to improve penetration in the region, and some of that potential comes from the new information architecture that has to be put in place by many of the companies here.

Penetration is still low which means that Asian countries still have a lot of catching up to do with the way the major European and North American clients currently use business intelligence. I really expect to see significant growth in the region in the next two or three years as the region gets to the same level of usage as some of the European and North American countries.

Can you give us some concrete examples of these performance management programmes and why they are useful?

Performance management can be at a number of different levels. If you think of every major role- customer roles, financial roles or risk roles- they all have a few key indicators. We all have key metrics we must meet for the quarter and the year.

If you in the customer area at a firm like Morgan Stanley, they track customer data. They have the individual investor group that looks after the High Net Worth Individuals, and there they have a dashboard of the key cross-selling stats, or net new money reports. This indicates how much new money has come into the bank this week, and how many of X number of products have we sold. Literally, it is a dashboard of the key metrics in which they measure their business. At the beginning of the year, they may have said, "we must increase our customers and the amount of business that we do with our customers". They can then track how well they're doing with those metrics and there will be a very clear, easy to look at dashboard.

In the risk area, it would be key risk indicators, relating to very clear risk goals. This comes from Basel II compliance, in which we must monitor and track some of the operational risks. In financial areas, CFOs look at profitability, key efficiency ratios, and those kind of key metric.

You're saying that obviously that Basel II is a key opportunity for you in Asia because banks will have to invest in new systems to comply?

Yes. Outside of the US, I believe that Basel II represents the largest opportunity to grow in the financial services in the next 18 months. All financial institutions that are international by nature have to put information into a large risk data warehouses, and we may be helping them to do this. For example, for the National Australia Bank, we are the tools that helps them extract from different risk systems and put them into one large risk warehouse. Then they run reports and enquiries against this risk data warehouse and those are our tools that then run those enquiries.

You mentioned National Australia Bank, and they've obviously had a few problems recently with risk.

After the $300 million dollar hole that formed, they have undertaken a drive in compliance and in meeting regulations, and making sure they comply with those regulations. They have become ultra-conservative. Part of the reason that they didn't know what was going on was that the managers were not exposed to the information and they didn't have access to the information. The information was held in the mainframe and these guys were able to hide it because getting the information out of all the back-end systems was difficult. So this drove this new major project, which is where we came in and got hired. We now have a much better information and architecture so all of our managers know what is happening and have control of all of their operations.

So you came in after the scandal?

Yes, we did. It's running right now and it's real-time, major initiative to emerge from the scandal, in terms of meeting the regulatory requirements and providing a much better understanding of their information architecture, where they get their information and form their information.

Presumably this is quite a good marketing tool for you because it is a very blue chip bank and if that can happen to a blue chip bank you can go and say to any bank in the region, if this can happen to a blue chip bank it can happen to you?

Yes, but I also think the regulators are doing that for us, by saying, you must comply with these new Basel II rules, which is already causing huge disruption in the area because you must show how much capital you're aligning to your risks. A lot of banks have not had the systems in place to do this in a competent way. In addition, international accounting standards and the new financial rules mean that they have new regulations and new ways in which they have to do their reporting. That is causing them to do some of that information architecture as well.

When we look at National Australia Bank, we see that it is driven mostly by regulatory pressure.

For JPMorgan and Morgan Stanley, we've just helped with a very large credit risk and operational risk infrastructure project, and again it's driven by regulatory fear. Those guys have just been fined about $400-500 million for regulatory problems, where they have been out of control of their operations. The managers have simply not been able to see what is happening in their operations in a clear enough way.

Apart from regulatory-driven investment in IT, is the other big growth in this part of the world, wealth management?

Absolutely. Wealth management, and understanding more about your customers. There is a long way for some of the Asian banks to move in this area. Here they are certainly aligned by the products, and still siloed by products. They know they have to become more customer-centric. It is quite a big change in culture for operations and in doing business.

Normally a lot of these banks, whether it be HSBC or smaller bank in Indonesia, will have a legacy systems they have been using for the last 10 or years, how does your software react to that?

Our value proposition is that we go to see somebody that doesn't have a data warehouse, which is the norm in most developing countries, and we help unlock the information from your back-end system. Business Objects can help you unlock information from your risk system, your transaction system, and your core banking system.

One of the core banking solutions is flex cube made by IFlex Solutions, the Indian company. IFlex now integrates our software into their core banking solutions. So when they sell new systems now, they're selling it with our solutions embedded. A lot of our business is embedding in a partner application, so it's IFlex reporting but it is Business Objects reporting in the system.

What would stop Asian clients using your services, is it a cost thing?

Even for costs, we have different product sets. We actually have products for each price point. I think it is more of an understanding of what business intelligence is as a technology and understanding what you can actually do with our technology.

We know from our experiences in different geographies that we need to represent and showcase the capabilities of the product and give real concrete examples of how it can quickly add value. The return on investment of business intelligence software is very quick, and it has helped us through the last downturn in technology.

Is it your sense that spending by Asian clients is actually going up now?

In China, we had a very good reception, I was very surprised. I went to the Shanghai Stock Exchange, and some others in Beijing, and everyone has some kind of budget for the data warehouse information area. The hampering factor here is that maybe the information they've got is not that clean. We can help extract the information and there is some cleaning of that data that needs to happen, which may slow down some projects. Generally, the customers I've met this time have budgets.

There are some worries about the sustainability of global growth but we are seeing a change from a cost control environment to an increased revenue environment.

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