Transcript of BriefingsDirect podcast recorded at Oracle OpenWorld conference in San Francisco the week of Sept. 22, 2008.
Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Learn more. Sponsor: Hewlett-Packard.
Dana Gardner: Hi, this is Dana Gardner principal analyst at Interarbor Solutions and you're listening to a BriefingsDirect Podcast recorded at the Oracle OpenWorld conference in San Francisco. We're here the week of Sept. 22, 2008. This HP Live! podcast is sponsored by Hewlett-Packard (HP) and distributed via the BriefingsDirect Network.
Today, we welcome Maria Allen, EDS vice president at leader of the Global Financial Services and Products Group at EDS, and HP company.
We 're going to be discussing the financial services sector at a very tumultuous time in its history, look at how HP and EDS together are bringing services to that market, and get a better understanding of how technology and transformation services can help these companies in the financial sector at a crucial time. Welcome to the show, Maria.
Maria Allen: Thank you very much. Glad to be here.
Gardner: The last few weeks and, I suppose, the last year and a half have been very eventful for Wall Street, the City of London and other major financial centers around the world.
The last two weeks have demonstrated some unprecedented volatility and, in some respects, a level of uncertainty not seen in 70 or more years. This is a time when financial companies, banks, investment banks, and insurance companies are finding themselves on the fly and government intervention is taking place at unprecedented levels.
Tell us what EDS and your financial services group do and set the stage about the history in the financial services sector. What has been put in place that allows some companies to weather the storm and react and be agile in this environment better than others?
Allen: Sure. EDS has been focusing on the financial industry for over 40 years. So, we have had quite a bit of exposure and experience. We have actually gone through many of the transformational activities within the industry.
In fact, back in the late 1980s when the Resolution Trust Corporation (RTC) took over a lot of the savings and loans institutions, EDS was actually a partner of the RTC and helped integrate and clean a lot of the portfolios that the RTC had taken over. What we try to do is bring our experience into the financial institutions to enable them to integrate to better manage their business, to have a better control over their cost, and prepare them for better times.
Many of the institutions back in the 1980s, as they are today, were very focused on reducing their cost, so that they would have additional funds to invest to get them to a better financial position. We have used our experience in the technology sector to reduce cost, integrate their systems, use our outsourcing services to better manage the business, and, again, prepare them for better times.
Gardner: Now, of course, these organizations aren't just dealing with today's worries. There are longer-term trends afoot. They're dealing with such issues as Sarbanes-Oxley, Basel II, and the payment card industry (PCI) data standards. Many of these involve important regulatory, security, and risk management issues, and we are probably going to see some more regulatory issues coming down the pike.
How do you work with these companies to put them in a position of dealing with tactical, short-term, and crisis-level issues, and also put in place what they need to adhere to for these longer-term issues around risk and compliance?
Allen: Because of our experience and the fact that we have worked with many financial institutions and banks around the world, we are constantly making sure that we have the right information and the right insight in terms of the regulatory issues that the banks are experiencing. We have worked with many of the banks to ensure that not only their datacenters and their infrastructure, but also their services, have the right key risk indicators that enables them to be compliant with the various regulations.
You mentioned Sarbanes-Oxley, Basel II, all the privacy acts, and MasterCard and Visa requirements to be PCI compliant. EDS is investing quite a bit to ensure that we are not only complying ourselves, but also that our clients meet the compliance requirements of the issuing companies.
There has been a lot of focus in the privacy and security areas. Data management is one of the areas that we have been focused on, but our experience in running the systems for many of the banks throughout the last 40 years has better positioned us to address the needs and the requirements of the regulators and the banks together.
Gardner: Of course, the role of technology has never been more important. Many business sectors look to the financial services arena for some guidance. In many cases, leading adopters are found in the financial sector. Also, they tend to keep their technology. So, there are legacy, integration, and modernization requirements, perhaps larger in number than in any other sector.
Tell us a little bit about how technology transit, service-oriented architecture (SOA), business intelligence (BI), complex event processing (CEP), risk management, and process management come together to help organizations deal with an unprecedented need for visibility and predictability during rough times.
Allen: Using our experience in financial services, we recognize the importance of having data transparency. That is absolutely the key to addressing the requirements that banks have around privacy and ensuring that they have the right key risk indicators to respond to the regulatory requirements.
We've done a lot of work in the area of data management, the integration aspects, and legacy modernization. We have quite a bit of focus in that area to help the financial institutions have better transparency across their silos.
There is still a lot of work to be done. So there is a big opportunity for EDS and HP together to really enable the transformation that the banks have really been focused on. It's difficult for them to stay on track, when they have all these other issues around regulatory compliance and the market turmoil in subprime mortgages and the credit pressures.
There is an opportunity for EDS and HP together to capitalize on the activities in the marketplace, and position ourselves as key players with the financial institutions and the government agencies. That's one of the key areas that we need to be focused on, looking at government agencies, because they are going to need a lot of help. The FDIC, with the banks that are going under that they are taking over, needs data management, and there is a huge opportunity for us to work together around that space.
Gardner: Now, EDS is in many of these government organizations, as well as these financial institutions, both public and privately held ones. This does put you in a unique position, when it comes to government taking over assets, but then having the managers within these organizations manage those assets for the government. Tell us at this early stage how you understand this could work and the unique role that that EDS and HP would play in that?
Allen: Well, that's going to be interesting to see, because there is actually a lot of discussion around that. For example, Freddy Mac and Fannie Mae, and what the federal government is going to do to integrate these two agencies. One of those agencies is a client of EDS. So, we're very well positioned to help the government not only do the integration, but also clean the portfolio to better position the agency to transform itself, because we see transformation going on at the same time.
Five or maybe ten years from now, the financial markets may be very different. It may look very different in the U.S. One of the key areas is going to be the real estate lending, residential lending business. We can capitalize from the relationships that we have, not only with the agencies, but also the banks and other financial institutions that are looking to enhance and position themselves to be a survivor during this transformation in the market.
Gardner: For the edification of our audience, HP purchased EDS recently. The completion went through, and now EDS is a wholly owned company within the HP family of companies. We just wanted to point that out. Given the opportunity in the financial sector, and given that HP has had a long services heritage as well, tell us how HP and EDS together can offer something different than they could have individually just a few months ago?
Allen: It's a big opportunity for EDS to capitalize on the relationships that HP has across the global financial industry marketplace. HP brings a set of customers that is potentially much broader than what EDS has. There are a few very large financial institutions where we both have relationships, but there is a lot of opportunity for us to work together and enable that transformation that's going on in the marketplace for financial services.
I can't wait to get started working with the HP Financial Industry Group. We have some activities scheduled in the next couple weeks to assess and determine how we address some of the activities and opportunities that we see in the market. We are already working together on a very large opportunity in the statement print area. We see a lot of more of that type of large opportunities coming to both of us.
Gardner: In addition to how the two companies come together in terms of their services, offerings, and value, there are also some adjustments in terms of channel and sales. Is there a philosophy of how to approach this market that may differ from some of your competitors, perhaps becoming more of a partner with many of the global systems integrators? How does that shake out in terms of how you actually go to market now that you are together?
Allen: We have an opportunity to definitely integrate some of our business in our channel strategy. However, there is also an opportunity to keep a very open mind as to how we go about the market, because there are some key agility alliance partners that we have who have enabled the growth in our business.
Oracle is one of them. We work very closely with Oracle in the financial industry, because of their breadth of solutions in our industry. HP also has a very strong relationship with Oracle. So, there is a lot of opportunity for us to explore different channel partnerships and different ways to address certain markets.
Gardner: I wonder if you have any sense -- and again, it's a little early -- of how IT spending in the financial services sector will pan out. There are, on one hand, the services and opportunities that you have discussed, but with consolidation, perhaps there is also some slackening in growth in some other areas. Do you have a sense at this point, given the turmoil in the financial services market, of how market growth might be impacted across a variety of the major services and product segments?
Allen: IT spending is an interesting subject that financial institutions always look at. The average spent on IT in the financial industry is about seven percent of revenue.
I have a very different approach to looking at what a financial institution spends across the board. I was look at non-interest expense, because I think it's important to look at the total cost of doing business. If you have a financial institution that's really focused on improving operations and their services, integrating the silos that they have today, and bringing some automation to SOA, then that means that their overall cost is going to be impacted positively.
Their overall non-interest expense hopefully is going to shrink, as they work with companies like EDS and HP together. I see IT cost growing, but for a total benefit, if you will. So, there is an opportunity for us to work together and see how we can impact the total spend within a financial institution.
Gardner: The pie grows, but perhaps as a percentage of revenues for individual companies it decreases.
Gardner: I wonder if you can share with us any case studies. If you can mention a company, that's great. If not, perhaps you can describe the type of company and project and relationship and give some examples of how EDS Financial Services has created this benefit of employing technology in such a way as that you can get more bang for the buck.
Allen: I can't mention the name of the bank, but it is a European bank, a very large mortgage lender in the U.K. EDS started working with this bank about five years ago. They had the desire to reduce their total cost of mortgage processing. So, EDS took over their operations, both their systems and their back office servicing operations to bring automation and enhance the way they approach the market.
It was very, very successful. We integrated their systems, took over their back office, reduced their total cost of mortgage processing, and were very successful within three years of taking that business over. So, we have had a lot of experience. The back-office processing does have a huge impact in a financial institution's total cost of doing business. Our experience can be applied to many different institutions and many different business operations across the financial institution.
Gardner: Well, great. We've been talking about the financial services sector, and we've been trying to understand in these tumultuous times the benefit of increasing value and lowering cost, but also increasing the need for transformation, integration, and agility, particularly as we are seeing the reformation of companies under different types of ownership, unprecedented types of ownership. And, we've been talking about how EDS and HP have come together as companies, and are going to be going out to this market with a variety of services and support.
We've been discussing this with Maria Allen. She is a vice president at EDS and leads the Global Financial Services and Products Group. We certainly appreciate your time, and your interesting comments on these subjects.
Allen: Thank you, very much.
Gardner: Our conversation today comes to you through a sponsored Hewlett-Packard Live! podcast from the Oracle Open World Conference in San Francisco. Look for other podcast from this HP Live! event series at www.hp.com, as well as via the BriefingsDirect Network.
I like to thank our producers on today's show, Fred Bals and Kate Whalen. I'm Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening, and come back next time for more in-depth podcasts on enterprise IT topics. Bye for now.
Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Learn more. Sponsor: Hewlett-Packard.
Transcript of BriefingsDirect podcast recorded at the Oracle OpenWorld Conference in San Francisco. Copyright Interarbor Solutions, LLC, 2005-2008. All rights reserved.