Monday, November 04, 2013

How would banks make money if banking products or services were free?

My response on this discussion is
Banks are going through what Telco's have gone through in last decade. That is, that their core product voice (analogue) is digitised and hence voice based service is free in competitive markets. In case of banks money is still not fully digital, but its not that far either, it will be digitised in few years. In that case then banks or telcos become digital platform for transaction enablement, like Google is for search. And so downstream consumers get free services and upstream consumers pay for interacting/engaging with downstream consumers using the digital platform and in that case it will be banking's core platform. Not only banks but any industry where core offering can be digitised as a multisided platform will have to be adopted else the business will go belly up. Media is evolving on those same lines. 
In case of Australia its bit hard because markets across verticals are either monopoly or duopoly, its not a competitive market as compared to US/Europe. Having said that internet and internet of things will force it and banking will have to adopt that model else they risk of losing out to others. 
That means services on downstream might not be totally free but some will be for sure. If Australia was more competitive and less regulation then downstream services will be totally free. Other thing about digital based model is that Marginal Cost (MC) is nearly negligible when it has to expand the business, where as in a brick and mortar/non digital based business Profits become maximum when MC = Marginal Rev. Digital business doesn't suffer from this economics. 

Monday, September 16, 2013

Linkage of Corporate Strategy to IT Strategy via IT-CMF

Why IT - CMF For IT Strategy - It differs from other IT frameworks in several fundamental respects:
• It is comprehensive. While other frameworks focus on one dimension of IT management—for example, ITIL (Information Technology Infrastructure Library) concentrates on infrastructure and operations, while CMMI (Capability Maturity Model Integration) focuses on application development—the IT-CMF examines the full spectrum of dimensions.

• It is holistic and value-focused. Other frameworks tend to focus solely on IT process maturity, which by itself does not create business value. The IT-CMF, however, focuses on the business value delivered by IT and how a combination of process, skills, culture, and tools can maximize that value.

• The IT-CMF is also action oriented. An IT-CMF assessment not only confirms the IT organization’s current maturity for a given capability or set of capabilities, it also defines both short- (that is, 12-month) and medium-term (that is, two- to three-year) target maturities and the results the IT organization could expect to achieve by hitting those targets. Further, it identifies the specific steps necessary to achieve those targets, as well as appropriate metrics to use to track progress—and can provide case study examples of companies that have taken similar measures.

• Finally, the IT-CMF is not disruptive. Assessments for some frameworks require armies of consultants with clipboards and can be highly disruptive to day-to-day operations. IT-CMF assessments, in contrast, can gather the necessary information and achieve a credible degree of rigor without being obtrusive.

Overview on IT - CMF can be found here.

Source : BCG  and IVI

Sunday, September 01, 2013

Private Cloud Solutions

Hype Curve Emerging Technologies - 2013

 Source: Gartner

IT Economics for Business - II

Real Options Valuation (ROV):
A complex technique than TCO, ROI and EVA. It is based upon the financial estimation techniques used in stock option theory. ROV is used to modify the ROI calculation by taking into account the value that the current project could contribute to future projects. This approach typically enhances the ROI of projects such as IT infrastructure where the cost of implementing a whole new infrastructure for just one project for one business unit’s needs is so burdensome that no one business unit could ever justify starting the new infrastructure. However, the overall value of the new infrastructure to all the business units in the organization could be huge. ROV provides a technique for justifying that first project based on the future derived value.

Return on Assets (ROA):
A popular measure for the performance of companies, ROA can also be applied specifically to the IT assets.ROA for IT assets can be calculated by isolating the IT-specific assets from the organisational assets and the net income due to IT assets from the overall net income. This can be hard to do and the accounting systems need to be set up appropriately to provide any chance of achieving this on a repeatable basis. ROA approach has deeper implications than might be immediately obvious.

 Return on Infrastructure Employed (ROIE):
 ROIE is similar to ROA but it focuses on IT services rather than IT assets. With ROIE, IT service cost (including depreciation) is the basis for computing a return. While ROIE can be used for a single project, it works best when calculated for aggregations of projects. For example, it might be used to compare the performance of different in-house or outsourced IT Providers. ROIE might be improved by providing the same IT service at a lower cost or by containing the cost growth of providing a particular IT service to less than the rate at which the organisation’s net income is growing.

Part 1 is here

Source/Credit : The Business Value of IT

Gartner IT Enterprise Key Metric Data Summary 2012

Same Report for 2011 can be found here 

IT Economics For Business - I

Total Cost of Ownership (TCO): It seeks to capture the full cost of an IT asset from initial purchase through implementation and operation to maintenance and “end of life” costs. This is a cost-based approach which does not equate to value. It is useful for measuring IT value because it allows comparison of alternative implementations that will meet the same business need and, presumably, have very similar values to the business. If the TCO of one alternative is significantly less than the others, then it represents better value for money. It includes consideration like training costs, security costs, scalability costs, and the costs of reliability deficiencies. TCO incorporates perspectives that are not purely financial.

Limitation: It involves predicting future costs. This limitation can be minimised over time by tracking actual costs but, by then, the investment decision has been made.

Return on Investment (ROI):
It means calculating the revenue that the business generates or the costs that it saves in return for the investment that it is making. For an IT investment to be approved by the business, the IT Providers and the business must work together to demonstrate that the business will get its money back with a nice profit in an acceptable period of time (the payback period). In reality, ROI is typically expressed as a percentage of the investment, either annually or over the duration of the project with the cash flows rendered as net present values. Typically, the assumed discounting rate is called the internal rate of return (IRR) and is linked to the cost of capital of the business or the amount of interest the business will pay to borrow the money make the investment. Acceptable IRRs and payback periods vary immensely from business to business but an IRR of at least 20% and a payback period of one to three years are a reasonable starting point for a discussion. It is very widely used to justify IT investments, particularly for new projects. Having said that there is still the problem of predicting the future, ROI provides a good way to compare the financial value of very different projects and also provides hurdles, through the payback period and IRR, that quickly cut off further, costly consideration of some projects.

Limitation: Organisations often have good systems established for making their investment decisions using ROI but may have weak systems for monitoring the actual ROI achieved and using historic data on project ROI results to inform their current and future investment decisions. Another limitation with ROI is that cost savings must be in real money rather than theoretical “efficiencies.” For example, a projection that an IT investment will save the business 12% of staff time is only a real cash flow if it results in the employment of 12% less staff. It is fair to note that the staff may not necessarily be terminated but may deploy their efforts to other productive work; however, this is rarely monitored or measured carefully.

Economic Value Added (EVA):

This approach starts with the assumption that the organisation exists to provide economic value to its shareholders. This may not be entirely true for not-for-profit organisations but the approach still has value. The calculation and comparison of Economic Value Added is very similar to ROI except that the benchmark used for making investment decisions is not the IRR but the opportunity cost of using the money to make other business investments, (e.g., leaving the money in the bank rather than funding projects).

Source/Credit : The Business Value of IT

Monday, August 12, 2013

Running IT as a Business

A great slide on Benchmarking  IT spend averages across the industry

Source :

 Source :

Monday, July 08, 2013

Australian IT Industry Growth and Competitive Snapshot 2013-2014

Aussie banks to start rolling out real-time payments by next year

With the Australian Payments Clearing Association (APCA), the banks - including ANZ, Bendigo and Adelaide Bank, Citi, CBA, Cuscal, NAB, and Westpac - subbmiited this attached to make this happen in February. KPMG has won a competitive tender to become programme manager, the plan now is to put out a request for tender next year for, and selection of, the key elements of the operating system.

Wednesday, July 03, 2013

What happens when Coles keeps prices down

A fantastic speech By - Ian McLeod, Coles Managing Director, "What happens when Coles keeps prices down?”. Transcript below, its a good read.

Sunday, May 26, 2013

Digital Transformation - Update

I have made some more progress towards my effort on Digital Transformation as shown in the embedded presentation. More needs to be done, but sharing some insights on what I have done until now. Feedback is always welcome. 

Digital Transformation - Sweet Spot

 Different organisation require different approach for leveraging benefits from digital transformation in their evolution.
  • Pure Digitisation leads to expansion of core business to digital platforms.
  • Pure Transformation leads to change in traditional business model to a new type of business model.
  • Combination of executing Digitisation (services and platforms) and Business Transformation (transforming culture and business model) in parallel is less agile and is a challenging task to achieve. However this is the best option, executing either option individually or sequentially will not give the desired outcome.