The Royal Treatment

For over half a century, Royal Bank has been, by the traditional measure of balance-sheet assets, king of Canada’s financial services sector. And as Mel Brooks so gleefully pointed out in The History of the World, Part II, “It’s good to be king.”

But wait a minute – if being king is so good, why isn’t Royal putting its privileged feet up and taking life easy? With 10 million customers, 1.4 million Canadian online customers, $280 billion in assets, and over a trillion dollars worth of assets under administration, why is the bank so bent on expanding its e-business domain, increasing its online customer base, and partnering with electronic service providers?

Maybe it has something to do with the fact that kings have the unfortunate habit of being deposed. And in today’s mercurial global financial-services market, the beheading block is only a few short clicks away.

As Royal Bank Chairman and CEO John Cleghorn put it, “Today financial transactions transcend geography, flowing swiftly across national borders and around the world….Staying ahead of the curve requires substantial capital investments in technology. To fall behind in this area is to risk being overrun by competitors who are no longer impeded by national barriers and who have the scale to be brutally price competitive.”

No wonder that the job of CIO at Royal carries a lot of weight. In fact vice-chairman and CIO Marty Lippert is one of nine executives charged with setting the overall strategic direction of Royal Bank Financial Group (RBFG), the name Royal uses when referring to its diverse financial services holdings. Lippert is responsible for the strategic direction and effective application of technology in all aspects of RBFG’s products, service delivery and internal operations. He’s also responsible for the group’s e-business strategies and initiatives.

If this were a real monarchy, Lippert would be the guy whispering in the King’s ear “We need to improve communications with the feudal lords…increase the productivity of our farmers and tradesmen…get the army some of those new high-tech catapults.”

Supporting The eBusiness Vision

RBFG’s e-business vision is to “electronically enable each customer’s quest for financial success”. Helping turn that vision into reality is the eBusiness Group, which is part of Lippert’s management portfolio. The group consists of about 175 employees with diverse backgrounds, ranging from engineers, computer scientists, security systems experts, and financial experts, to people from the business who bring a client perspective into play. In a sense it is a microcosm of the organization.

“The eBusiness Group has responsibility for driving many of the partnerships that we enter into. Much of this becomes an issue of networking – understanding what’s out there, keeping in touch with the venture capital community, and partnering with companies who themselves have broad-based networks of other companies that they’re involved with,” explained Lippert.

The group assesses potential e-business alliances and acquisitions and puts forward recommendations. Depending on the size of the investment, potential deals are looked at through different lenses, and could go all the way to the Board for approval. Fairly formal processes have been put in place to make sure that the appropriate financial assessment has been done, and post-implementation reviews look at the progress that’s being made.

According to the eBusiness Group’s Senior Vice President, Tom Wolf, a key function of the group is to help the business units put their e-business strategies together and make sure they are aligned with the organization’s overall vision and strategies. “Our belief is that e-business is not just something that one group goes off and does on the side; it’s something that we really need to instill in the entire corporation,” he said. “It’s really a transition in the way that businesses and financial service companies are doing business, and will do business in the future.”

The group also supports the businesses by doing certain things that make sense from a central point of view – things like e-business architecture and CRM applications. From a technology point of view, the group is responsible for everything from the middleware out to the customer.

“We want to make sure that we can share information across the corporation, that applications can converse, that we have single sign-on, and so on,” said Wolf. “Then there are things that we don’t think make sense to pull to the central group, such as an application that we’re front-ending that is core to a single business line.”

Committee Structure

The bank’s e-business strategy would not be successful without an effective governance mechanism in place. Realizing the difficulty of undertaking initiatives that go across business units, RBFG created the eBusiness Committee, comprising the company’s most senior executives, including the chairman and vice-chairman. The committee’s mandate is to validate the bank’s e-business vision and strategy, to resolve major cross-business-unit issues, and to approve major investments. Its monthly meetings afford senior management the opportunity to provide direct input into e-business directions, while being briefed on initiatives in progress.

“We bring forward [to the eBusiness Committee] what we refer to as E-intelligence,” said Lippert. “which is essentially a look at what other institutions around the world are doing. Are there things beginning to surface in one part of the world that we think would be leveragable here?”

What’s really important about this type of committee, according to Wolf, is making sure everyone is engaged. “When people come to the meetings they have to think that it’s important to them,” he said. “It needs to be a dialogue. It can’t just be presentations.”

Two other important committees are the Initiatives Management Group and the eBusiness Operating Committee. The Initiatives Management Group, managed by Lippert, has a bank-wide mandate to help drive e-business initiatives for the company. It tracks a lot of the activities that are going on broadly in the E-space and tries to validate what it sees against what analysts and research firms are writing. The group tries to determine what customers are looking for, where the technology might be moving, and when the combination of these things will come together. With this knowledge, the bank can adopt the right technology components as they become available and bring the right partners into the mix, enabling RBFG to deliver timely e-business solutions.

Four-Pronged Strategy

In order to deliver on its e-business vision, the company has put in place four enterprise-wide strategies aligning and supporting all business segments across RBFG:

1. Build essential relationships with customers and partners;

2. Create and distribute selected world-class e-business products and services;

3. Continually improve organizational cost efficiencies through e-business technologies;

4. Take a leadership role in creating new e-businesses.

We’ll look at each one of these strategies individually to get a feel for how Royal delivers on them.

1. (a) Build relationships with customers

The emphasis on building relationships with customers stems from the fact that the financial services business is becoming more electronically enabled.

“Close to 93 percent of our total transactions are being done through some electronic vehicle. Every time that happens our ability to interface with that customer – to offer another product, to try to do a cross-sell, to help build the relationship more – drifts a little further away from us,” said Lippert.

As a result, the company is moving its customer relationship management (CRM) capabilities, which in many respects it believes are best in class, into the eCRM space.

“When customers interface with us electronically,” said Lippert, “we’re linking our back-end data warehouses and data marts into those interactions. That enables us to again begin to recognize those customers for who they are and what their relationships with the institution are, and we can send some kind of value proposition to them through the electronic channel.”

For example, a client browsing through the mortgage section of in the future might be offered a discounted rate on a mortgage if she applies for one online within 30 minutes. To be able to do this, Royal must be able to recognize that client and do some checking in the background on credit ratings and other information.

“There are other things that you need to do to build essential relationships, such as integrating into life events and business workflow,” said Wolf. Life events are such things as buying a car or planning for retirement. Business workflow refers to the many things that are needed to run a business or get it started: the financing, accounting, hiring, acquiring furniture and so on, all of which may need financing.

“If you go to our website you’ll be able to see advice and some services there – a marketplace for some of our retail business customers,” said Wolf. “Soon we’ll have an online business centre where companies will be able to purchase goods for their business and also get ancillary services like HR and accounting services.”

1. (b) Build relationships with partners

Looking at the ‘partners’ side of relationship-building, Lippert points to a network of about 1,500 correspondent banks around the world that RBFG has very strong relationships with. Many of them are of a size that doesn’t allow them to develop certain types of e-business capabilities on their own, which presents an opportunity for RBFG.

“We’re looking at levering that network – using those correspondent banks as our outlet in those marketplaces to deliver some of the products and services that we’re driving here,” said Lippert. “By partnering we can leverage their knowledge of the geography and they can leverage the strength we bring in some of the products and service capability that we’ve built.”

Another aspect of partnering is new and improved relationships with vendors. Building sophisticated e-business offerings, such as online marketplaces, requires close cooperation with technology providers. Noted Tom Wolf, “One of the big changes is thinking of vendors more as partners. Beating up on your vendors all the time may not be the best strategy, if one day they may be your partner. So that’s a shift for us, and a lot of companies. We’re rethinking the way we go about things, and the vendors are changing too.”

2. Create world-class e-business products and services

The second focus of Royal’s e-business strategy involves ensuring that product and service offerings are – from an e-business perspective – as close to being best in class as possible.

“A lot of that goes back to the underlying infrastructure that we’re putting in place. As we build applications, and build that infrastructure, we’re doing it very much with open standards in mind, with XML in mind, with a very clear Internet focus. So as we bring solutions online they are going to be if not 100 percent Internet-based, then 90 percent,” said Lippert.

“We’re starting to see some anecdotal evidence of the success of some of this work,” he added. “For example Security First Network Bank, our Internet bank in Atlanta, has been rated the best Internet bank in the United States for eight quarters in a row.”

Lippert believes that in many respects RBFG is in front of many big competitors in the area of e-business services, and at a minimum is “in the same game” with them.

An example of this would be initiatives in the area of e-procurement. In October 2000, Royal announced that it had entered a joint venture with IBM and Fluor Corp., a large construction company, in the creation of a global e-procurement market that operates under the name TradeMC. The plan is to build a ‘superhorizontal’ e-market serving the B2B segment.

“Unlike other marketplaces, TradeMC targets both capital and indirect goods in the online procurement process to help members achieve even greater cost savings,” said John Hopkins, CEO and president of Trade MC. “By combining Royal Bank’s strong network of commercial and institutional banking customers with technology and supplier relationships from our founders, we’re positioned to capitalize on an area untapped by other exchanges.”

TradeMC customers should benefit from reduced prices on supplies and services – such as office equipment and mobile phones services – as well as strategically sourced capital goods in such industries as manufacturing, consumer products, oil and gas, utilities, and pharmaceuticals.

“Our ability to extend some of the traditional banking services into those marketplaces – bill payment, bill presentment, letters of credit, foreign exchange; all of those things that are core to our franchise – gives us the opportunity to start leveraging space that we wouldn’t have been able to otherwise,” said Lippert.

3. Improve organizational cost efficiencies through e-business technologies

Using e-business technology to improve internal efficiencies is deeply ingrained at Royal. It’s a philosophy that starts at the upper levels of management and drives behaviour throughout the company.

“You read the stories about [General Electric CEO] Jack Welch telling his management team that they need to begin web-enabling all of the businesses. We did that some time before GE did,” observed Lippert, “and that starts to drive the actions of the company. Our CEO, John Cleghorn, has very strong views about the implications of technology on e-business – and e-business on the business itself.”

“We’re looking to turn those e-business technologies on ourself and cut costs. Some of the things that are usually done in the branches we’ve put online and saved money,” said Wolf. “Cheque re-order is a good example. Rather than phoning the call centre or going to the branch and reordering, you can do it online now. We’re also doing internal e-procurement using Ariba [B2B commerce platform] so we’ll be able to cut some costs that way.”

4. Take a leadership role in creating new e-businesses

Royal’s emphasis on leadership in e-business starts at the top. The CEO and the rest of the senior management team are continually looking at how to satisfy the goals and objectives of being a leader in e-business.

“The basic tenet for successful companies must be make it easy for your customers to do business with you. With the emergence of e-business in our industry, this philosophy becomes absolutely crucial,” said Cleghorn.

Identifying advanced technologies and e-commerce as two of four important sectors the bank is focusing on in its venture capital opportunities, Cleghorn stated, “Through these key alliances and partnerships, we’ll be able to nurture every stage of the high-tech business life cycle and concept right through start-up and then growth…. It may be several years before some of these companies become profitable. But during those years, we expect to create more than a hundred new Canadian companies and several thousand new high-tech employment opportunities.”

A good example of Royal taking a leadership role in e-business can be seen in its alliance with America Online Inc.

“When you look back at the timing of it, other financial institutions weren’t making those kinds of plays,” said Lippert. “When we did the AOL deal in July 1999, we had slightly less than 400,000 online clients. Today we sit at about 1.4 million. Clearly, a lot of what we did with AOL lifted the awareness of our customer base around our electronic products. And today we rank among the top five in North America in number of online customers. Yet in size we’re about 18th or 20th.”

Far from being royally aloof from the volatile e-business marketplace, RBFG has jumped in with both feet. And whereas many companies have invested in dot-coms mainly for the equity lift associated with them, the bank has done so for strategic reasons.

“We’re keenly interested in these companies being successful primarily because the product they’re developing will end up extending our core banking services,” noted Lippert. “And we feel like we’re well positioned to continue to extend the banking franchise, which at the end of the day is the business that we’re in.”

Pretty sound philosophy. In terms of e-business, seems like Royal is an enlightened monarchy.

David Carey is a veteran journalist specializing in information technology and IT management. Based in Toronto, he is managing editor of CIO Canada.