In financial services, efficiency is measured by the cost/income ratio that is often most impacted by the cost efficiency of IT and operations. The Information Technology (IT) Group of Bancolombias goal to reduce the banks cost/income ratio could not have been a more complex systems change. Bancolombia began the transformation project by focusing on the banks business needs, the changes that it could design and implement to provide optimal products, services and experiences for the banks customers and shareholders. In order to develop a more modern, streamlined IT platform, CIO Olga Botero and her team employed the Gartner enterprise architecture model.  

An IT visionary, Botero prepared her team to push beyond decentralized technical upgrades and implement a transformation process that would align with meeting the business needs of the bank over a five-year period. The full scope of the project would involve risk management, data center outsourcing, managed end-user support services, payment systems and storage provisioning. The IT Group is currently implementing this comprehensive architecture and has already achieved some unprecedented successes. 

Overall, the IT groups costs-to-income ratio has already improved from 7.3% to 6.0% and the improvements in IT risk and control management have helped reduce the external and internal audit findings by 56%. Relying on the cost efficiencies of software factories in India and the strategic outsourcing of data center operations and unified communications and convergent network enables the team to focus their efforts on contributing to the business success.

While firms in many countries have been accustomed to outsourcing arrangements for decades, in Colombia and throughout much of Latin America, outsourcing is still a novel approach to business, even for Bancolombia, the largest bank in Colombia. In this respect, the Bancolombia IT Group is truly innovative and progressive, implementing an outsourcing strategy as one of three main drivers of cost efficiency. The other two drivers  consolidating infrastructure and data centers and modernizing the applications platform are equally transformative. The IT Group is in the planning stage of building what will be the most modern data center in Latin America. Thus far, 15 data centers have been consolidated to 10. Two of the largest data centers have been outsourced to Unisys. This decision has enabled more of the teams time and resources to be freed up to focus more deeply on meeting the business goals outlined, including the development of new products and revenue streams and opportunities to capture a larger percentage of the unbanked. Furthermore, the project to change the core system, including the credit card, derivative and treasury systems, are well underway. 

In fact, from all the projects the team assessed in its research around the globe, it became clear that Bancolombias transformation ambitions would be one of the largest worldwide.

Technology was always the backbone of this project, and effective use of technology will ultimately determine the projects long term impact and success. Bancolombia is undergoing a comprehensive systems change to its IT infrastructure to support fundamental operations and its responsibilities to shareholders and customers.
 
In financial services especially, technology is very important because of the critical role that security plays in all operations of the business. One of the long-term goals of the transformation project is to make security an integral part of the Bancolombias brand name. While Bancolombias operations have always been secure, it is imperative that the IT Group factor compliance and control into every technology application and infrastructure decision it makes for the transformation. For instance, in a world of digitized information and electronic data, fraud detection is now more important than ever to protect the integrity of the banks service offerings. Security is just one example of how Bancolombia is implementing an entirely new way of leading IT to serve the business. Indeed, what makes Bancolombias IT team unique is that this new strategy, while aggressive and dynamic, is equally focused on risk control and management.

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Internally, the data center consolidation project serves as one component of and, in certain ways, a preface to pave the way for the full scope of the transformation project. Bancolombia needed to consolidate data center operations across the two main facilities in Santillana and Carabobo in order to improve the efficiency and consistent use of best practices across the centers. Once the scope of the facility management services provided at the Santillana Data Center was expanded to include the Carabobo Data Center by Unisys in March 2008, Bancolombias IT Group could focus on the transformation process. The data center consolidation improved the efficiency, reliability and standardization of the data center operations, yielding significant bandwidth to pursue the transformation project.

The consolidation also allowed the IT Group to enhance the level of service provided to the combined bank, including WinTel server support for performance; capacity planning and administration of production servers for a variety of platforms; physical database administration and administration of the production storage environment.

The IT Groups transformation project has provided the greatest benefit to Bancolombias corporate and government, retail and treasury business. After a comprehensive assessment of the full platform and consolidation opportunities, the team is in the process of renewing just 42% of their software applications, streamlining IT operations dramatically. This entire initiative has been implemented since November 2006 and will continue over the next two years in addition to the customary responsibilities of a banks IT group to develop new products. While modernizing Bancolombias comprehensive architecture, the IT Group has also continued to develop new and robust products including mortgages that have not been exposed to toxic assets, as well as new loan and account types. The transformation that the IT Group of Bancolombia has undertaken and will continue to facilitate demonstrates their innovative and strategic leadership in supporting the banks mission to achieve efficiency, profitability and growth in its operations and compete in the global marketplace. 

Externally, the data center consolidation and transformation project offers Bancolombias shareholders and customers a myriad of advantages and opportunities. In less than a year, the IT Group provided the hardware and software technology support for a new customer channel of 319 non-correspondent banking locations. These locations, often within small retail stores and other commercial establishments, reach the countrys substantial unbanked population by providing financial services closer to where they live and work. Bancolombias work in this arena, and the IT Groups leadership in supporting it, not only grows their market share, but also encourages financial literacy among populations that are often vulnerable and disconnected from the financial mainstream due to lack of access and education.

Transforming Bancolombia's IT strategy and operational model has been done to create value to the business. 

First, by focusing on operational model and including outsourcing, consolidation of infrastructure and data centers, as well as innovating in our cost structure, we target directly one of our four corporate goals  efficiency. As a consolidated financial group, our cost-to-income ratio has improved from 64.4% to 48.9%. Our IT costs-to-income ratio has improved from 7.3% to 6.0%. We have been able to free up 650 servers, moved from 15 data centers to 10 in 12 months and outsourced the 3 main data centers to a partner (Unisys) in 18 months. We have consolidated our IT partners from 117 to 103 as well as consolidating our contracts from 124 to 96. This efficiency has been obtained at the same time that our group grew 30% in our net income, 20% in our loans and 19% in our assets. During 2008 our transaction volume increased from 792,214.898 total transactions during 2007 to 929,140.444 in 2008, or a 17% increase. This dramatic change underscores our second business goal  growth. 

Second, the IT Group is organized under the Control Objectives for Information and Related Technology (CoBIT) framework, recognized by the Sarbanes-Oxley Act of 2002 (SOX), which emphasizes governance and control. The improvements in IT risk and control management that have come from implementing CoBIT have helped us diminish the external and internal audit findings by 56%. We have already implemented in a shared services model 27 out of the 34 processes included in the CoBIT standard. 

Juan Carlos Mora, Chief Risk Officer of Bancolombia says, "Bancolombia's IT Group today is one of a kind in Latin America. Control and risk are easier to monitor, audit and prove when external bodies require it. Bancolombias IT team has made a significant effort to make available efficient tools that allow the risk management team to cope with the challenges the banking industry is facing. Today it is easier for us to fulfill supervisors' requirements as well as to respond appropriately to the business lines developments." 

Third, a very important corporate goal is to provide excellent customer service. Bancolombia has a system of measuring internal satisfaction within different areas of the organization, and historically IT had been given very poor scores. During 2008 however, IT was one of the areas of largest improvement, demonstrating higher scores in every single one of the variables measured, including opportunity and readiness. The perceptive index has changed from 70% to 73.6%. 

"Our IT group is moving forward. They are making great efforts in giving better internal service that will, for sure, result in better service for our customers," says Gonzalo Toro, Vice President Corporate Banking for Bancolombia. Furthermore, moving the applications maintenance and development to offshore software factories has also contributed to better quality and therefore better service. None of the 35 requirements finished by software factories had any negative incidents related to them. Finally, innovating with new products and services, such as the non-financial agents, has increased Bancolombias customer reach.

Bancolombia ended last year with 893 branches and 322 new non-financial agents. In addition, on average Bancolombia implemented a new ATM every single working day. The applications transformation has already accomplished a great deal, but the best is yet to come. Ultimately, less than 12 applications will replace 42% of our applications architecture, and the results of this part of the transformation will be seen in two years when that implementation is complete.

While Bancolombia boasts the largest market share in Colombia and El Salvador, the companys relatively small size on a global scale affords the IT Group the advantage of being nimble and progressive enough to set very aggressive goals. Boteros team has developed an entirely new way of leading IT to serve the business. 

As one of the only banks in Colombia on the New York Stock Exchange (NYSE) for the last 15 years, Bancolombia complies with Sarbanes-Oxley. Boteros team is implementing a transformation strategy that will not only match the banks reputation as a business leader, but also, enable the bank to deliver value to its customers and shareholders well into the future. Though Bancolombia is smaller than other global players, the company is a pioneer for its region and how it participates in the international community.

One of the most innovative aspects of Bancolombias IT Group is the leadership the team has demonstrated in knowledge-sharing and outreach to customers and peers. In Colombia, a country of 45 million people, about 60% remain unbanked. Bancolombia is aggressively pursuing this market by using existing and new IT tools creatively. For instance, the team has executed a mobile banking strategy to reach the banked and unbanked alike. In addition, the IT Group is employing a platform that has been used for internal knowledge transfer with partners and vendors to facilitate improved partnerships. The C-level committee of Bancolombia also maintains several blogs to share progress on initiatives, lessons learned and best practices from each team. Finally, they are focusing on a unified communications platform; indeed, 3,600 employees have moved to a new campus that is being supported by unified communications and all over IP. All of these strategies reinforce Bancolombias IT Groups commitment to a new paradigm of leadership that innovates in order to impact strategically the companys business and growth.

One of the most important obstacles, which also serves as the greatest and most exciting aspect of the challenge, is the sheer magnitude of the project. Bancolombia has undertaken a long term, progressive initiative that incorporates a host of moving parts in parallel. 

By nature, the project has had many difficulties and is confronting many risks. Changing peoples mindsets is the first and foremost challenge. The consolidation of components, infrastructure and data centers is seen as a threat because people fear that streamlining will cause the IT organization to lose importance. People are always attached to the old ways of doing things, fearful and resistant to change even when that change is beneficial. The IT group is not only managing change by opening minds to do things differently, but also influencing the way the institution and the people that belong to it think and act. For instance, the first time that the IT Group leadership proposed working with Indian companies as partners, the reaction was "We cannot do it. We do not speak English in Colombia. Our people have a severe language barrier.

However, today we have a project with approximately 200 people collaborating in an environment that resembles the United Nations. Most meetings are conducted in English and 40% of the IT Group is becoming certified in the English language. We have more than 200 people already working with us in software factories abroad. In addition, we have bought a French treasury system that is being implemented for the first time in Colombia, German ERP and CRM systems, an Indian Core Banking System and a Spanish credit card system. We have learned that by outsourcing with diverse partners, we can spend more time managing and strategizing to improve the core business. And by opening our minds, we are able to learn and do more.

Another challenge has been finding the right talent and partners that will bring us best practices and who are open to learning about our markets and adapting. We are managing many risks, including functional risks, architectural risks, budget risks and risks related to people. We know we will always have them and the important aspect is to manage them effectively. We are committed to identifying these challenges, monitoring them and always having a plan to mitigate them.

The project has not faced some of the obvious objections such as approval or funding. These issues need to take their right course and follow the processes our organization has for approval and funding. However, every change we have proposed has been analyzed in detail to understand how it is aligned with the business and what results it will have. Our C-level committee ultimately approved the IT strategy that materialized into this transformational effort.

The biggest challenge was the multiple committee approvals needed for the initiatives from across the organization. The consolidation and outsourcing was taken to our spending committee. Our risk management initiatives, including the CoBIT efforts, were presented to our Auditing committee, who easily understood the benefits that could be achieved. The applications renewals efforts went to our Board of Directors for approval.

We have been very careful identifying risks, analyzing them and finding ways to mitigate them. Our main risk has been identified around people - having the right number of people and their knowledge to not only tackle the transformation, but to continue the day-to-day demands of our customers, thus not stopping the today because of the promise of tomorrow.

Exceeded

The IT Group of Bancolombia is emerging as a leader in the region by employing an unprecedented outsourcing strategy as part of a comprehensive IT transformation project. Before embarking on the transformation project, members of the IT Group visited banks throughout Europe and in India to learn about what other leaders in the financial services industry have implemented successfully and what can also be improved upon. These relationships will continue to facilitate exchange as well as help bring Bancolombias transformation project to the forefront so that others can learn from Bancolombias innovation. The transformation project incorporates elements of IT that the team saw in Spanish banks, the ICIC bank in India and several others, however from all the projects the team assessed, it became clear that Bancolombias transformation ambitions would be one of the largest worldwide.

The transformation project is enabling Bancolombia to achieve tangible cost reductions and operational efficiencies in IT to meet the core business needs of the organization. It is also providing measurable value to the organizations customers and shareholders by transforming and modernizing the IT platform.

While the IT Groups full transformation project is still in progress, the results that have been achieved by the teams strategic development and diligence are remarkable. The cost-to-income ratio has gone from 64.4% in December 2006 to 48.9% in Decemberf 2008. In 2008, assets grew 19%, loans 20% and net income (non-consolidated) was up 30%.

The success of Bancolombias transformation project will encourage other businesses in the region and worldwide to pursue ambitious, rewarding innovations in Information Technology. We are also confident that the success of our project will contribute to ameliorating the global financial crisis by demonstrating that the financial services sector is committed to sound investments in business strategy and restoring confidence.

Bancolombias core stakeholders, the shareholders, employees and customers, have embraced the progressive nature of the IT Groups transformation project with trust and admiration. The IT Group has demonstrated its capabilities in minimizing risks to Bancolombias core business while maximizing impact and effectiveness. While the full transformation is still underway, the dividends to Bancolombia are already sufficiently apparent and appreciated.