Like their counterparts in other industries, capital markets participants manage to three primary challenges: cost, growth and risk. Depending upon the circumstances, these are addressed individually or in some combination of the three. Currently they all come together as the industry faces dramatic change resulting from shrinking profit margins on mature products and the offsetting movement to higher risk and more complex products.

As a result, industry participants have intentionally or unintentionally segregated themselves into two tiered operating environments:

• Tier one — mature products
• Tier two — complex products.

For mature products, the industry has been trying to generate more transactional activity while at the same time transform its operating environments into low-cost scalable models – in effect simultaneously managing cost and growth agendas. For complex products, by contrast, the industry has been inserting new processes on top of legacy operating models while deploying countless spreadsheets to manage performance and risk – in effect simultaneously managing cost, growth and risk agendas.

Clearly, this multiple operating environment structure creates significant process and technology challenges – leaving industry leaders to determine the best approach to address them. The most common is addressing both simultaneously. From a process perspective, industry participants are reviewing their operating models and have invested in process-centric exercises. From a technology perspective, there is a buy versus build trend as industry participants take advantage of viable vendor solutions.

Historically, technology and operations organizations managed these initiatives on behalf of businesses they support. The industry has come to realize the benefits of direct business involvement. Now is the time to change this paradigm by moving towards a business-driven approach.

Changing the Paradigm
Business-driven application modernization helps capital markets participants transform existing and/or develop new business systems assets (processes, application and services) to improve business performance. With variable entry points, this approach can be applied regardless of where participants are in their modernization programs.

Using the Modernization Maturity Model displayed below, capital markets participants can focus first on aligning IT strategy with business strategy, and on developing a business case to support a modernization program. The model also addresses the establishment of service oriented infrastructure, the design, development and deployment of reusable business services, and the management and governance of both the modernization initiative itself and the resulting architecture and infrastructure.

The Modernization Steps:

Create the Framework
First the Business Metrics are defined:
• ‑Cost per transaction goals
• ‑Growth-handling requirements
• ‑Risk mitigation/governance strategies
• ‑A business case to support a modernization program is developed
The following are selected, designed, developed and deployed:
• ‑A lifecycle plan incorporating methodology and tools
• ‑A service-oriented infrastructure with reusable business services
• ‑The management and governance model of the resulting architecture
•‑The management and governance of the modernization initiative itself
• ‑Tools that can potentially accelerate the modernization initiative

Use the Tools
• ‑Assess current situation across six domains
of change
• ‑Organization
• ‑Location
• ‑Business process
• ‑Applications
• ‑Technology
• ‑Data
• ‑Define principles, constraints and assumptions; establish targets for modernization
• ‑Determine the entry point(s) for the modernization program
• ‑Leverage prior work
• ‑Avoid a big bang approach
• ‑Develop modernization roadmap and plan across all domains of change

Implement the Principles
• ‑Adopt Model-Driven Architecture
• ‑Develop system-independent business models that can be transformed into the most efficient technical implementations
• ‑This Improves efficiency and quality of systems solutions
• ‑Adopt Service-Oriented Architecture (SOA)
• ‑Define, design, develop and deploy business services and governance that can be orchestrated in support of multiple and dynamic business processes
• ‑This improves flexibility and level of reuse of systems solutions
• ‑Enable Business Innovation and Optimization
• ‑Manage and monitor IT assets, including business services, to ensure desired alignment with business processes
• ‑This improves responsiveness and optimization of systems solutions

See Results
By allowing application modernization to be driven by the business strategy, capital markets participants can:
• ‑Leverage existing systems in modernization frameworks;
• ‑Target the use of modernization techniques such as SOA (service oriented architecture)-based solutions and platform rationalization;
• ‑Improve business process performance through enterprise application and data architectures;
• ‑Enhance regulatory reporting with better data integration and standardization; and
• ‑Support more informed decision making across a broad spectrum of stakeholders through business and customer intelligence solutions.

Capital markets participants should explore business-driven application modernization as a viable option to rapidly address the challenges they are facing. While it is a relatively new concept, the dynamics associated with cost, growth and risk agendas strongly suggest that it be considered.

Mike Brennan is a Partner at CSC's Consulting Group, 212-251-6150; email: mbrenna2@csc.com;
web: www.csc.com.