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Saturday, March 31, 2007

Technology Embedded In Business Firing Huge Business Growth

If at anytime you wanted a proof for the moniker, IT Is Business, then do not look beyond the example of ICICI Bank, India’s largest private sector bank. With assets around $56 billion, ICICI Bank is the country’s largest private bank, with a vast consumer base served from more than 614 branches and 2,200 ATMs in 13 countries, it is growing very fast –growing at an astronomical pace in the last 10 years. The bank customers believe that technology is at the forefront of this dramatic growth, a view confirmed by K.V.Kamath, Managing Director & CEO of the bank. In an interview with the Mckinsey Quarterly, he shares the ideas and beliefs that helped shape the growth of the bank.

The technology journey in the bank started by noticing that garage start-ups in Silicon Valley were taking products from concept to market in 90 days because if they didn’t, somebody else would and asking the question, “Why can’t we?” That helped shape the rule: no project was to extend beyond 90 days. This was achievable, and it gave the bank a huge competitive edge.Emphasizing the need for executive support, he says he shared his vision that iIf the technology fails, it’s his fault; if it succeeds, then good for the organization. The best part is the decision to run technology in a radically different way from anyone else, so there’s no technology department or a glorious title like chief information officer. There is no CIO. Technology is embedded in every business, and the head of the business runs the technology. Ringing endorsement to the adage IT is Business,Business is IT. As George F.Colony wrote ,”If you are the head of IT, you are no better than a glorified librarian, dispensing information. In contrast, if you are the head of BT, you are shoulder-to-shoulder with fellow executives who are running the operation. You're focused on improving process and finding new sources of revenue. You apply technology for business results, not as a way to create information of questionable value”.
Emphasizing on the practicality of things, he believes that for banks focusing on retail customers, clearly user technology is a mind-set issue, but it can get turned into a structural issue because the platforms and the people around them make you rigid. Importantly the bank broke out of this and embraced technology that allows us to migrate and avoid older technologies like mainframes which would have locked the bank in. An early belief that technology would be a great hit in India and making appropriate investments meant that investing heavily in ATM’s, at a time when there were fewer than 100 ATMs in the whole country and the bank planned to roll out 1,000 ATMs in the first year. All this has helped the bank grow tremendously – from having 10,000 banking customers in 2000 to close to 20 million today. Six years ago, maybe 95 percent of all transactions took place in the branch and 5 percent at the ATM. Now branch transactions are down to 15 percent, ATMs have gone up to 48 percent, the Internet is 21 percent, and the call center is 5 percent. Instruments that go directly to the back office for processing, without hitting a branch, account for about 10 percent.
What’s the difference between ICCI Bank & other competitors– in one line : Every other bank was skeptical about technology, whereas ICICI Bank wholeheartedly embraced technology as the engine for growth and integrating technological operations as part of business. But the best part comes here – Kamath believes that his technology costs are 10 percent of those at other banks!! Attributing this to right hardware selection that facilitates migration as business grows, right vendor selection and getting new software wherever needed ( he says that the replacement software costs substantially less than maintaining old software) – well this is very interesting –many would like to understand these further but the point is taken – tech as a strategic competitive differentiator does not mean it will end up sucking all resources. The bank’s next focus besides international expansion is “banking for the unbanked.” Taking banking to the 600 million people in India with no banking facilities at all – they live in 600,000 villages spread over 600 districts. Again technology is at the heart of the solution here – “this will require new technology platforms at a fraction of the costs of current technology. A new delivery architecture is needed too—not based on branches, but using a partnership model. To work in 600 districts, we’ll need at least 200 microcredit institutions, each working on 3 districts” says Kamath.
This is interesting at a time when most business around the world blame technology for coming in the way of its growth and coming in the way of avoiding business model changes, ICICI bank is spearheading new business models for different classes of users with technology as the core differentiator!! On a personal note, I find that while ICICI bank’s focus on technology is yielding results and is there for all to see, it has to focus on customer service lot more- its telesupport for servicing complex requirements is pathetic to say the least – it must do well to study how the global banks measure up on this front and innovatively use technology (though part of the problem may be cultural) to excel in that dimension as well.

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