Technology's an Imperative at Canadian Imperial

Since Canadian Imperial Bank of Commerce announced its intention last spring to build a full-fledged investment bank, the Toronto-based institution has been recruiting veteran executives to make it happen.

Take Thomas Kielty, the $112 billion-asset bank's senior vice president in charge of global technology since last June. Mr. Kielty, who most recently worked at Daiwa Securities, has also had stints at J.P. Morgan & Co., CS First Boston, and Bankers Trust New York Corp.

Mr. Kielty, 40, has been charged with building a worldwide technology infrastructure to support the new focus on derivatives.

He said the bank will spend about $100 million in 1995 on new technology, employee education, and supporting existing businesses. It's needed, he said, because the bank presently lacks a communications infrastructure to support its ambitious aims.

In its focus on investment banking, Canadian Imperial is following the lead of several major American and foreign banks, such as J.P. Morgan & Co., Bankers Trust New York Corp., and Deutsche Bank.

"When you look at serving the needs of major corporations, I think the smart thing is to go the investment banking route.," said Roy Palmer, an analyst with Bunting Warburg Inc. in Montreal. "They certainly don't think they can serve them as well without developing the investment banking arm."

Mr. Palmer also noted the importance of technology in meetings those goals. "In terms of making a mistake, you are more likely to go wrong on the technology than you are with the people," he said, noting that poor decisions on deploying technology could cost millions.

A Toronto analyst, who asked not to be named, said, however, that there are risks in putting such an emphasis on investment banking. "They are rolling the dice a little bit," he said. "The long-term risk is (making) an undue amount of investment in a business (derivatives) that has a collapsing margin."

That business is maturing, he said, and becoming commoditized. "It will be a seriously costly endeavor," he said. "It may not be the right time to emulate Bankers Trust."

What's more, he said, the move may not be necessary, given what he called his "sanguine" view of the bank's earnings growth.

"CIBC seems to be concerned that the Canadian corporations are going to bypass Canadian banks in their dealings," he added. "I don't believe that."

At any rate, it's clear Canadian Imperial is firmly committed to the strategy.

Mr. Kielty said that over the next three to five years the bank wants to strengthen the links among its operations in New York, London, Asia, and Toronto. The bank will also spend heavily to build better risk management capabilities.

The bank's strategy also involves outsourcing. Already, much of its securities operation is handled by ADP and a big chunk of its retail data processing needs have been turned over to Electronic Data Systems Corp.

Once the new technological foundation has been laid, the bank also expects to undergo a significant reengineering to further improve efficiencies.

"Up until this point, there was never a strategy. The technology was fragmented," Mr. Kielty said. "When you are primarily a Canadian-dollar- based organization, and most of that trading has originally been done out of Canada, you know the (technological) implications are enormous."

While the bank, Canada's second-largest, has far-flung operations today supporting a large customer base, Mr. Kielty said it needs to leapfrog ahead.

"We have looked at the various communications topologies in the world that we have," he said. "And from one regional location to the next they are all different. There are very weak links between London and New York. There are weaker links (among Asian offices) and between Asia and every place else in the world."

As a result, the bank is upgrading its network so that systems in every region will be recognizable to employees throughout the organization.

"We've got many different data structures, architectures, and models," said Mr. Kielty. "What we're trying to do is come up with a single - what I'll call corporate - information environment."

To do that, the bank is forming what it calls process-driven teams comprised of people from several disciplines, such as finance, operations, and the various lines of business.

The goal, said Mr. Kielty, is to "break down the functional hierarchies and, in effect, use that to raise everybody's knowledge base."

To make employees work smarter in an evolving organization, the bank is also boosting its commitment to education. Formal classes are being conducted in New York and Toronto and employees are encouraged to take external courses as well.

"We really don't do an effective job of educating. We are focusing very heavily on educating our senior management," said Mr. Kielty. "Hopefully, what that turns into is user effectiveness, user efficiency, things like that."

As the bank rebuilds its infrastructure, it has also decided to outsource major back office functions. "If a business is in the business of processing those systems, they are generally far better at providing the customer support," he said.

Another reason for farming out the back-office tasks is that the bank wants to devote its energies to finding ways to boost revenue. "The idea is to take those (legacy) systems and take as much of the functionality out and put it into the front-office system," said Mr. Kielty. "So, in effect, what you are turning the back office system into is a factory."

"As your business changes, the factory doesn't have to change," he continued. "It is at that point you outsource."

Once the bank has better tied together its global operations, Mr. Kielty said, managers plan to reengineer processes in its securities businesses.

Is he concerned the bank may be addressing those two initiatives in the wrong order?

"Not at all. You need to have a foundation before you can build a house. We have had a lot of the house built for many years now. The difficulty is there is no foundation," said Mr. Kielty.

He said the goal over the three to five years of the project is to continue to support existing systems until the infrastructure is in place. That will give the bank a base from which to reanalyze each system.

Today, he said, a particular business may have multiple front-end and back-end systems supporting it.

"When you look around the world, you see all these pockets," he said. "Now we have a global strategy. What we are doing is looking at all of that technology with the objective of coming up with as close to one front office system to support the business globally and as close to one back office system to support the business globally."

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