Credit Where Credit’s Due

Thomas Balgheim

SAP INFO: Mr. Balgheim, after one year of LoB Banking, what were the highlights?

THOMAS BALGHEIM: The highlights are always a culmination of the whole team working together. For example, at the end of 2007, we won Nationwide, the largest mortgage provider in the United Kingdom, as a customer. And that was in the middle of a period of great uncertainty in the industry because of the mortgage market crisis in the United States.

SAP INFO: What proved to be the crucial factor in winning this contract?

BALGHEIM: As with other contracts, it is the integrated sales and support approach that is most important – this is something CEOs have stressed to me many times. IT does not just play a supportive role in banks, it is their core business. The IT environment is a bank’s assembly line, to borrow an image from the automotive industry. Consequently, banks want an integrated range of products and services.

They don’t want to decide between product, consulting services, maintenance, and further solution development. The LoB has experts from all areas so that we can address the right issues from the very first meeting with the customer. This puts us in a position to quickly be able to offer our customers a solution tailored to their requirements, without first having to struggle with our internal organizational boundaries.

SAP INFO: What were the most difficult moments in the LoB’s first year?

BALGHEIM: Difficult moments are always when there are critical customer situations. In a few situations, for example, we had to deal with challenging promises that had been made earlier. I’m happy to say that in all these cases we managed to honor these promises. We were able to find solutions for our customers – also because of the structure of the LoB Banking – since we could quickly and pragmatically demonstrate all our capabilities to our customers.

SAP INFO: So has the creation of a separate LoB for banking been worth it?

BALGHEIM: Our success in the market shows we have the right approach, but what is more important than that is our improved image. That is why we are so pleased to see that in the recently published IBS Sales League Table, which ranks banking systems by their sales figures, we are the fastest growing among the top solutions, and for loan applications, we are actually number one. Internally, we’ve reduced the amount of coordination between the different areas.

The customers benefit from the fact that they have just one contact person who can make decisions for all areas – whether development, sales, or consulting. This makes the concept scalable. And we need this because the next step is to create volume and continue growing.

SAP INFO: Oracle advertises its solutions by saying the top 10 companies in the banking sector use Oracle software. Is Oracle our main competitor?

BALGHEIM: A positive but at the same time challenging aspect of the banking market is that banks have extremely large IT departments and use a wide range of systems. It’s impossible to say one provider really dominates this market. Banks use both Oracle software and SAP products. However, the majority of the systems, especially in the large banks, are in-house developments.

SAP INFO: In what way?

BALGHEIM: It is a bank’s processes that give it the competitive advantage. Obviously, they don’t want to leave this in the hands of another company. To stay with the automotive image: BMW doesn’t outsource its entire production; it’s just individual parts that are manufactured externally. Banks will always use their own IT products. There will never be a software solution that will dominate this sector in the same way as, for example, ERP software in other industries. Consequently, our aim is to adopt the role of an important supplier and to become a strategic partner of the banks’ in-house IT.

SAP INFO: What would SAP supply?

BALGHEIM: We differentiate between three large solution blocks: ERP systems, analytical applications for banks, and core banking solutions, for example, to manage a current account system. We position ourselves primarily as the software architecture experts.

SAP INFO: What does that mean specifically?

BALGHEIM: Going back to the automotive industry, we design the complete “assembly line” and define the interfaces to integrate the suppliers’ products. SAP’s business process platform provides the technological foundation. For example, we look at where the payment transaction system is connected to the current account system – in other words, how the CRM solution is connected to the financials solution. We discuss these kinds of topics with our customers and partners in the Industry Value Network (IVN).

SAP INFO: Speaking of the IVN, this committee for banking is the first independent IVN. What effect does this have on SAP?

BALGHEIM: It’s completely positive. It shows that the main purpose of the discussions about architecture plans is to set an industry standard – the focus is not necessarily on SAP solutions. This gives us a clear competitive advantage since our solutions are designed to these specifications.

SAP INFO: How does the SAP for Banking solution portfolio add value?

BALGHEIM: Our strength is our flexible architecture. We won one large core banking deal purely because we were able to map process changes in the live system during a presentation. This reduces the period between the design phase and the actual implementation of a new banking product from 10 months to just 10 days.

SAP INFO: That means it is possible to make adaptations to a live system?

BALGHEIM: Yes, and that is an important issue. For example, if a bank’s ATM network is not working, it takes an average of only 10 seconds before the first customer phones the call center to complain, even at night. Let’s take Germany, for example. If a banking system is down for one or two hours depending on the state, the Federal Banking Super-visory Office can take action – including closing the bank.

SAP INFO: Where are the greatest market opportunities for SAP?

BALGHEIM: We have grown significantly in dynamic markets such as Asia, the Commonwealth of Independent States, and Latin America. Furthermore, in some of the saturated markets, banks are currently investing heavily in strategic IT solutions. They want a flexible production environment. They can achieve this more quickly by taking advantage of concepts such as service-oriented architecture and standard applications, such as those provided by SAP, than they can with their own in-house developments.

Finally, there are also growth markets such as South Africa and China, where a large proportion of the population does not have a bank account. Our customer CMBC (China Minsheng Banking Corporation Limited), for example, acquires approximately five million new customers every year. They chose SAP because our solution is scalable and can map these volumes – and will continue to be able to do so in the future.

SAP INFO: In an ideal world, what would the 2008 banking year hold in store for SAP?

BALGHEIM: In an ideal world? Just like today, we will continue to win more new customers for our standard solutions as well as more partners and system integrators to help us manage this growth. Together with Business Objects, we also want to continue driving the analytical applications for banks.

Thomas Balgheim spoke to Christina Schnoklake

Innovation

SAP has used its outbound original equipment manufacturer partnerships to break new ground in the banking industry – not just for SAP, but for the entire software industry. Niche vendors build their specialist banking solutions around the core SAP business process platform and sell the finished products under their own brands.

Facts and Figures

• Banking-specific functions constitute more than 50 percent of the SAP for Banking solution portfolio.
  
• More than 600 banks use SAP software, including 21 of the world’s 30 largest banks.
  
• Just under 1,500 employees work for the LoB.
  
• More than 130 representatives of financial institutions and software providers are members of the Industry Value Network (IVN).