Cost Management Continues to Rank High on the Agenda of APEJ Public Sector in 2011

Tags: cloud computing, economic crisis, economic stimulus, government, innovation, public policy

In our latest report, “IDC Government Insights Asia/Pacific (Excluding Japan) Public Sector 2011 Top 10 Predictions”, we identified the top 10 predictions for 2011 that will heavily influence the direction and magnitude of IT investment of APEJ public sectors this year.

Although the APEJ economy has emerged noticeably stronger in the last few months, the public sector will be continuing its search for products and services that provide the best bang for the buck to better manage spending in 2011. Governments in the region are expected to channel their IT budgets to initiatives that give them the best deal for the dollar in four areas: operational efficiency, business-IT alignment, risk management and citizen-centricity.

In 2011, optimistic sentiments will be propelling the APEJ economy forward, transforming it to a market with tremendous growth potential. We believe this will change the global economic dynamics into one that is "multipolar".

In recent years, the rollout of various economic stimulus packages in the region have greatly increased infrastructure spending in the public sector and brought about notable transformations in the information and communications technology (ICT) landscape. This has led to advanced economies opening themselves to competition in ideas and experience from rising markets.

To create and cluster “hot spots” for the technology industry, APEJ governments are increasingly providing the soft and hard national infrastructure to create sustainable cities. This includes creating a critical mass of advanced knowledge sources (universities, and advanced public and corporate research labs), and attracting venture capital investments, entrepreneurial talents, knowledge workers, specialized professional services and sophisticated end users. Governments are also empowering institutions with capabilities to enforce intellectual property rights.

 To cope with progressively more borderless and collaborative business environments, APEJ public sector organizations need to achieve functional ICT integration and operational transformation agility.

Here are the highlights of the report:

• As the world economy evolves into one that is “multipolar”, the APEJ public sector is expected to surge ahead with a strong 7.1% year-on-year (YoY) projected growth in 2011.
  
• Governments in the APEJ region are increasingly driving sustainable economic growth within their jurisdictions instead of outsourcing. Lately, IDC Government Insights notices that there has been a push for IT insourcing/backsourcing.  
  
• The birth of social analytics will bring about greater intelligence into the public sector decision making process and Web 2.0 engagements. Coupled with the growth of personalization and conceptualization services, public sector employees will be increasingly empowered to improve citizen interactions. 
  
• The exploration of business-as-a-service (BaaS) will result in the wider adoption of private clouds. Most public sector organizations will consider the adoption of private clouds over public clouds to realize the flexibility and scalability benefits of cloud computing without compromising on security, availability and reliability threats. Although the technology risk is lower when adopting private clouds as compared to public clouds, the cost is noticeably higher.

If  you have any questions about the report, please feel free to contact me at geraldwang@idc.com.

 Figure 1: Key Themes for the APEJ Public Sector ICT landscape

From Green IT to IT for Green: The Move Towards a Sustainable Society

Tags: economic crisis, green it, pcs

The 'Green' movement continues to polarize individuals, businesses and policy makers across the globe. The lack of clear direction across this spectrum correlates with the view that significant portions of Green projects do not deliver tangible returns. And when the economy takes a turn for the worse, those 'discretionary projects' get cancelled or put on hold due to increasing budget constraints – which is exactly what has happened over the past 12 months.

However despite these economic pressures, climate change as a global issue is not going away – with the Copenhagen meetings looming in December and new emission reduction targets likely to become more of a reality – increased pressure will be placed on organizations to reduce impact of their operations on the environment. Running in parallel to this, more progressive organizations in the Asia/Pacific region are beginning to realize that objectives around environmental and economic sustainability can coexist, and in fact compliment each other in many instances. The role that ICT can play in terms of fulfilling these objectives is becoming a lot clearer – as part of a better understanding of how the market is transitioning from the Green IT (mainly focusing on reducing the electricity consumption associated with the powering and cooling the existing IT infrastructure) to IT for Green (a more intelligent use of technology to reduce carbon emissions within the business process itself).

The diagram below highlights how the adoption of Green technologies and associated services has evolved over time – thereby tracking the progress of this market transition. The starting point focused on the platform, and specifically energy efficiency within the data center – mainly in terms of virtualization and consolidation projects as part of an infrastructure optimization strategy. Building on this, organizations realized how better data, voice and video connectivity could enhance collaboration – as part of the unified communications trend to help employee productivity, creating a smarter work environment, while at the same time reducing carbon emissions associated with work travel (mainly by air and road). 

The next phase focused on the distributed environment in what IDC called the creation of the Green Office – better management of devices in the distributed environment. This contributed lower electricity consumption associated with PCs and printers – but also included a higher level of focus on responsible IT asset management (from procurement to end-of-life). This phase also placed greater emphasis on changing the corporate culture as it related to the usage of devices in the office environment. For example introducing paper management policies, changing from print to online where possible and launching device switch-off campaigns.  IDC expects the final and most important step of this market evolution to focus on what we call a 'Sustainable Society', which integrates all the underlying components, but takes the advantage of 'smart' technologies – particularly focused on buildings, transport systems and electricity grids to reduce the carbon footprint of the associated processes. We are seeing this being played out most prominently in the context of the wave of investments at the local government level as part of a drive to build 'Intelligent Cities' – a subsection of Intelligent Green and ultimately, the intersection between economic and environmental sustainability.

Hong Kong Bankers Prepare for Growth as Economy Starts to Recover

Tags: asia/pacific, banks, economic crisis, hong kong, risk management

IDC Financial Insights Asia/Pacific hosted 12 CIOs and IT heads from top Hong Kong banks at our recent Hong Kong Banking Roundtable. This was a closed-door session providing a platform for bankers to deliberate on the critical business, operational, and technology-related issues impacting their businesses, and forms part of a series of roundtables that IDC Financial Insights organizes across the Asian region.

Here, the consensus view was that the economic storm clouds seem to have cleared, with a glimmer of sunshine streaming through.

Latest Hong Kong Monetary Authority (HKMA) data indicates that Hong Kong has pulled out of its deepest recession since the 1998 crisis, and is currently joining Singapore on the road to recovery. The territory's seasonally adjusted GDP expanded 3.3% quarter on quarter in 2Q09, three times as fast as analysts had forecast, and finally ended four straight quarters of contraction.

Nonetheless, still wary of the fragility of the economic situation, Hong Kong bankers are placing concerted efforts to look for sustainable business growth - whether to consciously control expenses to fatten margins, to continually broaden customer engagements, or to undertake initiatives to strengthen payments and transaction services business.

With that in mind, topics that currently preoccupy business and IT divisional heads at the Hong Kong banks center around IT optimization, distribution channels, customer centricity and analytics, and compliance and risk management, most of which are tied to the omnipresent need to manage cost and unlock more value from customer engagements.

Technology optimization sees a focus on application portfolio management to reduce the cost of maintaining business suites, interest in Web-delivered IT services, and always with an eye on a quick turnaround on investments.

Meanwhile, a saturated, competitive market like Hong Kong where almost 200 banks and deposit-taking institutions jostle for wallet share means that creating an integrated and consistent customer experience across all delivery channels is key. Here, banks have entrenched internet banking presence but a weaker toehold for retail mobile banking, and point to the need to prepare themselves for the inevitable wave of mobile adoption.

The call for wider and deeper customer engagements sees increased investments in analytics to slice and dice customer data and accordingly redefine product design and marketing. Elsewhere, shareholders' push for more prudent risk management, reinforced by regulatory pressures, compels Hong Kong banks to review their internal risk control systems and reexamine technology investment in risk detection, avoidance, and management solutions.

The roundtable further sought feedback from participants on their growth strategy and technology initiatives for the short term. Here, the graph below outlines the strategic imperatives at Hong Kong banks over the next 12 months. There appears to be no letup in the focus on risk management and compliance, cost management and operational efficiencies. Banks are working on reining in cost and making the most out of limited resources via undertakings such as improving  processing turnaround times and throughput, reducing process redundancies, and perhaps integrating solutions onto fewer platforms in their drive to weed out inefficiencies.

The Hong Kong banks are also unique compared to peers around the region in that a core imperative includes market expansion - presumably with an eye into China, given plentiful opportunities in the mainland as it avoided the worst effects of the global downturn and still grew a robust 7.1% in 1H2009.

Note: Full insights are captured in the report entitled "Market Analysis: Hong Kong Banking Update 2009" (Doc #FIN219780). This covers discussions from the roundtable as well as the future strategy and technology undertakings of the participating banks for the upcoming months ahead.

Banks Turn the Spotlight on Vendor Risk

Tags: , asia/pacific, banks, economic crisis, financial services

In recent months, we received several inquiries from banks about how they are best to ascertain the business and financial viability of their vendors. The intent of the inquiries could partly be attributed to how banks are working to avoid another spectacular issue as that seen out of the former Satyam. Banks have more clearly  understood how technology failures, including the failure of technology vendors to deliver, can have dire implications for business continuity, bank reputation, and business strategy.

Indeed, the economic crisis has put in question the viability and sustainability of vendors' businesses. While several financial technology vendors have reported strong results despite a tumultuous economic environment, most players have shown their weakest performance in years. The pace of vendor consolidation has gained more speed. Early this year, we stated that 2009 will see 12 of the top 100 financial technology firms acquired or declaring bankruptcy, higher than the industry average over the past five years.
Vendors have been more mindful of fee structures and engagement margins. Banks justifiably have to be on guard for vendors drastically cutting staff levels (especially in banks' outsourcing partners), as well as those showing declines in SLA compliance and performance.

Although the fall of Satyam is not necessarily attributed to weak financial performance, the Satyam saga easily proved that lapses in reporting are possible. Financial institutions have thus intensified their scrutiny of the financial reports and balance sheets of their vendors. The lack of transparency is correctly considered a significant risk in itself. Vendors though have themselves responded with improved transparency. Disclosures made by vendors to current and potential clients have become more detailed to include other client references, new wins, and other metrics for performance and delivery.
Regulatory mandates have also scaled up to reflect the new regime of vendor transparency. There will be a greater push to report vendors' banking relationships (are vendors themselves clients of the banks they serve?) — something that we note especially in India. Although the most recent regulatory guidelines coming out of Asia/Pacific regulators speak more to data integrity, data privacy, and information security, the focus on effective governance of vendor relationships has indeed been heightened. We expect that in the medium term, more specific guidelines on vendor due diligence and monitoring will be put in place, following IT risk guidelines in Singapore (Internet Banking and Technology Risk Management Guidelines) and Hong Kong. This is similar to the developments we saw in the United States, where the Gramm-Leach-Bliley Act's mandates for privacy and integrity of customer information gave way to vendor due diligence and vendor risk management rules.

The Post-Crisis CXO

Tags: asia/pacific, banks, economic crisis, financial services

The post-crisis landscape will be a much different place for financial services institutions. Will the banks and insurers that survive the downturn be managed by a new breed of leaders?

What will the post-crisis CXO look like? We ask this question as we evaluate a good list of up-and-coming CEOs, COOs, CFOs, CIOs. In the Asia/Pacific region in particular, we are seeing that the average age of CXOs in the financial industry has fallen quite significantly. This is something worth noting, considering that we are talking about an industry composed of many different kinds of organizations - from large international and regional players, to dynamic domestic champions and small, family-run organizations.

Several qualities will be common among the industry's new leaders, foremost among which is, of course, competency in risk management. We have seen over the past years how risk management executives have become more prominent, playing ever more critical roles in the organization. The crisis will serve to underscore the need for astute risk management skills. Some other "new" qualities worth noting: marketing savvy and a keen appreciation of technology as a value-creator.

We also believe that alongside the rise of these future leaders, the industry will witness an upsurge of today's next-generation banking initiatives such as cloud computing (and its derivations), Green IT, Web 2.0, social networking and its use in financial services and Generation Y banking. It will be interesting to witness how the rise of the future CXO and the rise of new technology will change the dynamics of our industry.

1Q2009 Performance: How are Asian Banks Stacking Up?

Tags: asia/pacific, banks, economic crisis

We are seeing what seems to be three camps of financial performance being released. In the left corner are institutions in countries like South Korea and Malaysia which are still facing lackluster performance. In Korea for instance, whilst the banking industry has turned round the corner in 1Q2009 with most institutions returning to the black on lower-than-expected provisions (Korean banks are estimated to have logged a combined net profit of around US$146 million for the Jan-March period mainly from decreased loan-loss reserve), profit margins are expected to remain squeezed in the near-term. Banks continue to feel the sting of surging NPLs stemming from the slumping economy. We do not expect the market to achieve any form of stability till at least 2010 when loan delinquency rates get sorted out.

Meanwhile, clocking in commendable results despite the persistent global credit crunch and economic downturn are Hong Kong, mainland China and Vietnam. In the former two countries, the banks are generally coping well, being less impacted by their counterparts in the West. The Chinese government's stimulus package - with measures such as extending corporate credit and expanding bank guarantee deposits - has shored up financial stability. China's banking sector has consequently improved on the back of the stronger-than-expected corporate loans growth, deposits, domestic demand and consumption, and rebound in wealth management fees. Over in Vietnam, a recovery in overall lending activities resulted in joint stock banks performing better than expected in Q12009. Though the financial turmoil hit the Vietnamese market hard in 2008, with the government's subsidized loan stimulus program and banks relying on credit activity growth to boost bottom lines, there appears to be some modicum of stability in 2009. 

Nations that are witnessing the most robust 1Q2009 results to-date include India and Indonesia. In India for instance, Yes Bank's profits leaping a stellar 40% in its fiscal fourth-quarter (Jan-March 2009), while that for HDFC Bank surged 34% from the year-earlier period, boosted by higher loans growth. Most banks in Indonesia have yet to release their numbers, though early indications likewise point to a majority still being able to report hearty profits. A number of Indonesian banks have confirmed acquisitive growth plans, including Bank Raykat Indonesia (expectations for net profit expansion of 15% in 2009, with this optimism reflected in channel investments that include rolling out 4,000 new ATMs), Bank Mandiri (targeting a general insurance company acquisition to complement AXA Mandiri's life insurance business), and Bank Rakyat (considering a second tier bank purchase to expand its SME business).