Kim Hammonds is modernizing Deutsche Bank's technology with a set of dramatic choices to outsource some functions, bring others in-house and work extensively with tech startups.
Many banks are farming out the portions of technology work and infrastructure that are considered commodity functions and expanding relationships with innovative startups, in an effort to keep up with the digital times while keeping costs down. But Hammonds is moving at a faster pace than most large banks. Along the way, she's applying process improvement principles acquired during her days as an engineer and IT executive in automotive and manufacturing companies.
Hammonds, who has been with Deutsche a year and a half, is a mechanical engineer by training and held IT executive positions at Ford Motor, Dell, and Boeing, where she was CIO for five years. The background suits her role as CIO of a $1.7 trillion-asset financial institution with operations in 70 countries, she said.
"I think it's all about problem solving, the engineering discipline, and the tenacity to learn new content every day," said Hammonds, who works from the 145-year-old bank's London office. "The technology environment is changing every day. I learn something new every day or every other day some new technology, some new startup. You have to be a voracious learner."
Hammonds' work coincides with a major shift in Deutsche Bank's overall business strategy. It is selling some of its retail banking and securities businesses and leaving 10 countries. At the same time the bank has said it is committed to keeping its U.S. corporate banking business intact.
Farming Infrastructure to HP
In a multibillion-dollar, 10-year agreement that goes live this month, the Frankfurt-based bank is outsourcing wholesale banking IT infrastructure including servers, data centers and backup to Hewlett-Packard, using virtualized components such as off-the-shelf PCs. The model, the bank hopes, will enable it to quickly scale up or down as well as cut costs.
"We'll have much more ability to scale across, reuse and traverse applications across a hardware stack in a much more flexible way," Hammonds said in an interview last week at Deutsche's New York office. "It's really infrastructure-as-a-service that we're moving to," she said. The new technology will provide a modern foundation for the bank's digital initiatives, she said.
Deutsche Bank's decision to outsource responsibility for its wholesale banking infrastructure to HP makes sense for both parties, according to James O'Neill, senior analyst at Celent.
"The deal allows Deutsche to reduce the capital intensity as well as the expense base of its wholesale banking business," he said. "For HP, it validates the commitment the firm has made to delivering cloud services to corporates and financial institutions in Europe."
Taking Back Control of Apps
At the same time, Hammonds is bringing development of critical software applications back in-house in this case, to Deutsche Bank's development center in Pune, India. The bank has hired 400 engineers in the past six months to staff this effort. (It still works with some of its former application outsourcing providers, such as TCS, Wipro and mPhasis, on less-critical applications.)
"We've done a very specific analysis on what should be outsourced and why and what should be brought back in house," Hammonds said.
One goal here is to streamline and standardize applications, as well as keep valuable intellectual property inside Deutsche Bank.
"We're going to use this as an opportunity to simplify the bank and drive more standardization," Hammonds said. "One of the big lessons from [the] automotive and aerospace [industries] is the need for standardization, reuse of componentry, and industrialization."
She and the four CIOs who report to her will go through all the bank's applications and rework and simplify them before porting them to the new, HP-provided infrastructure. Hammonds wants to avoid, wherever possible, having multiple versions of applications and unnecessary complexity.
It will take three to four years to get this work done and shift the streamlined applications over to HP, she said.
O'Neill considers Deutsche Bank's decision to maintain control over the management of its business applications wise. "Software can serve to differentiate the bank's services in the eyes of its clients while providing a competitive edge against the bank's rivals," he said.
Hammonds has set an ambitious goal for her team (she oversees a staff of 50,000) of meeting with 500 tech startups and implementing new technology from 50 of them this year.
The financial investment is significant: In a plan called Strategy 2020 the bank issued last week, it committed to investing approximately $1.11 billion in digitization over the next three to five years; some of this will go to tech startups.
To facilitate the startup interaction, the bank is setting up innovation labs in Berlin, Silicon Valley, and London.
"The goal is to bring business teams together with tech teams with startups into this environment to innovate," she said. "It's not mega-thousand-square-foot space. It's just a very different working environment."
Many banks have formal innovation labs, including Wells Fargo, Citi and BNY Mellon. They're places where IT staff can play with the newest technology, develop their own apps for it, and try the latest offerings from vendors, including tech startups.
Such initiatives are rarer among banks like Deutsche that are more heavily focused on corporate markets, where the transactions and software are naturally more complicated, deeply mired in back-office detail and therefore harder to change.
Some large banks' efforts to work with tech startups are inspired by the business possibilities of the flood of venture capital money flowing to this category of companies.
"We're trying to find best and brightest, whether it's infrastructure technologies, analytics technologies, digital authentication, security we're spanning the planet of capabilities," Hammonds said. "The goal is to drive more innovation into the bank through developing relationships with the startup companies that help the other end of our business. It becomes this full cycle of benefit for the company."
Twice a year, Hammonds and a few members of her team spend a few days in Silicon Valley meeting with startup companies. She has plans to do the same in London (which has emerged as a hub for fintech entrepreneurs) and Berlin.
One area where the bank is already working with startups is client onboarding, the process of getting new customers signed up.
"The whole client onboarding experience in this industry could be a lot better," she said. This goes for consumers, corporate customers and high-net-worth clients, she said.
Hammonds worked at Ford for 16 years, starting as a safety test engineer, and brings some of the process improvement focus of the automotive industry to problems like this.
She is also applying value-stream-mapping a lean manufacturing method used to document, analyze and improve the flow of information or materials to the effort.
"Knowing all the handoffs in the process, knowing who's doing what at each step, knowing the cycle time of each step, and figuring out where the waste is" are all part of the discpline, Hammonds said. Wasteful steps not only add no value, they also frustrate customers and employees, she noted. The work also results in fewer errors, fewer reworks, less paper, and fewer interactions, she said.
The same principles will be brought to bear in streamlining Deutsche Bank's loan and mortgage processes, she said.
The Finish Line: A Digital Bank
When all is completed, Hammonds hopes Deutsche will be more of a digital bank, with a pleasing tech and ops cost structure, that's innovative and embraces outside companies for help and support. "And one that's refreshed on a consistent basis," she said.
She also hopes to make the employee experience more efficient. In a project called "IT on the Go," the bank is developing apps that let employees handle approvals on their iPhones and iPads.
"This whole digital conversation is about helping clients but also helping internal staff," she said.
Workflow software, digital signature software, and legacy system upgrades will all be part of this effort, to spare employees from having to re-key information, for example.