Delivering value to the organization is the mandate of every CIO and IT department, yet it’s long been a difficult goal to achieve, and perhaps an even harder one to quantify. At Bank of Montreal Financial Group, five key steps are being taken to ensure that IT pulls its weight, and then some. Technology head Lloyd Darlington gives CIO Canada readers an inside look at how it’s being done.

Many will recall the controversy stirred by the Bank of Montreal back in 1996 when it used Bob Dylan’s hippie anthem “The Times They Are A’changing” to advertise mbanx, North America’s first stand-alone, full-service e-banking option. What may not be so well known is the subsequent failure of mbanx to attract sufficient numbers of customers. In particular, it failed to get buy-in from a key demographic, tech-savvy young customers eager to bank in cyberspace.

“What we found was that the times weren’t a’changing as fast as we had anticipated,” recalled Lloyd Darlington, who has helmed IT at the bank for the past 15 years. “We let enthusiasm for the vast potential of Internet banking overwhelm our judgment of how flesh-and-blood customers might actually respond.”

With mbanx, customers couldn’t do business in a branch. Underestimating the value of the branch system to the customer turned out to be a gross underestimation. In the end, mbanx was converted to just another channel in the spectrum of banking options BMO offered to customers.

Darlington, now president and CEO of BMO Financial Group’s technology organization, Technology & Solutions (T&S), experienced many of the highs and lows that accompanied the ‘IT Revolution’ of the 1990s. As he put it, “I’ve seen both the irrational exuberance and the morning-after hangover of aggressive IT spending.”

That ‘IT Revolution’ is now, thankfully, a fading memory. And along with it have faded the rampant fears that helped spawn it – the paranoia around falling behind in the IT race and losing competitive advantage or possibly even sinking the company. When it comes to IT investment, organizations are now proceeding with more caution, seeking to minimize risk and ensure the investment returns good value to the company.

This is very much the case at BMO Financial Group. The company has long been a technology leader in the Canadian financial sector, but its view of technology leadership is now quite different than it was in the mid-nineties. The company continues to regard innovation as one of its sources of competitive advantage. It wants to be fast to market in applying new technology where it will benefit customers, employees and ultimately shareholders, but it does not aspire to be at the bleeding edge of technology deployment.

Over the past few years, T&S has put a strong focus on improving the productivity of IT and increasing its value to the bank.

This article looks at the five key steps it has taken to enable this to happen. Those steps are:

1. Centralize the IT function 2. Manage supply and demand 3. Standardize, standardize, standardize 4. Benchmark, measure and reward 5. Change the culture, through the systematic upgrading of leadership and process changes that permit employees to do their best

Centralize The IT Function

About three years ago, BMO Financial Group began to look for a sea-change in its productivity ratio. The organization was spending about 68 cents for every dollar of revenue, and it was felt that this was too high. The goal was to improve this ratio not merely by a percent or two, but substantially.

“We’re probably down 400 basis points or so from that high point three years ago, and we’ve got to continue to drive that improvement,” said Darlington. “The way to do it is to get more efficient and effective in how we do the work. And that’s where technology comes in.”

A big factor in boosting efficiency and effectiveness is centralization. BMO has long held a centralized view of technology management, but with the proliferation of PCs and open systems, it became easier for individual departments and lines of business to invest in IT on their own. Unfortunately, decentralized investments were not subjected to the same rigorous analysis that T&S applies to centralized investments. That being the case, the trend has been reversed. The IT function has now been centralized under T&S, which follows the operating principle: one organization; one set of principles – what Darlington refers to as the Power of One.

“By centralizing we are able to leverage scale, enforce standards and aggressively manage our vendors,” he said. “This has allowed us to absorb 30 per cent growth in computing resources annually while keeping our costs flat.”

When completed, the IT functions that are now being centralized will decrease in cost 15 to 20 per cent. Centralization also streamlines governance functions, which will greatly simplify the organization’s ability to demonstrate compliance with Sarbanes-Oxley.

The organization has worked closely with its business partners in effecting an investment shift from one that is heavily line-of-business focussed to one that puts far greater emphasis on the good of the enterprise as a whole. Lines of business have also had their own discretionary IT budgets substantially reduced.

“The shift has been dramatic,” said Darlington. “Line-of-business budgets have given way to cross-line-of-business budgets, and often they extend fully across the enterprise.”

IT spending is now reviewed corporately at the most senior levels of the organization. To enable ‘apples to apples’ comparison of projects, T&S has worked with Finance to create a methodology – a tool – to objectively compare investment opportunities. This enables BMO to assess and understand the cost and value to the organization as a whole of the various options presented to it.

The result is that BMO is no longer investing in IT that responds to the needs simply of one particular line of business, delivery channel, pool of customers, or geographical segment.

“It comes down to economies of scale,” said Darlington. “We look for opportunities to leverage the technologies implemented in one part of the bank so that it can be used in other parts. We are on the right road to maximizing the value of all or our IT investments.”

Manage Supply; Manage Demand

With a centralized IT function, BMO is in a better position to exercise discipline and control of what Darlington calls the “two bookends” of IT expenditures. The first bookend is supply management – a function that is commonplace in most IT-intensive companies today. The second bookend is demand management, and this is much more rare – especially in companies that have not weaned themselves off the technology acquisition habits of the 1990s.

Supply and demand management are handled by T&S’s Strategic Sourcing and Procurement group, which manages BMO’s end-to-end procurement, payment and fixed-asset processes, including governance, cost efficiencies and process improvements. Their scope includes all goods and services consumed by BMO Financial Group, not just technology expenditures.

For further insight into this aspect of BMO’s efforts to deliver IT value, see the article “Getting Strategic About Supply & Demand”, which appeared in the November 2002 issue of CIO Canada. It can be found in the CIO Canada archives on the IT World Canada Web site (

Standardize, Standardize, Standardize

The third measure that T&S has promoted throughout BMO is standardization. The company standardizes the technology it uses, standardizes its IT practices, and standardizes project management and IT applications.

“We are only doing what manufacturing companies have understood for sixty years. You can increase productivity enormously and minimize the frequency of errors by developing and implementing standard ways of doing work that represent best practices,” noted Darlington.

Every IT project the bank undertakes has a charter that outlines what both the client and project manger are expected to deliver. Every project includes standard procedures, change management procedures, and risk assessment. And every project must represent a priority, and deliver bottom-line value.

“Throughout the process we constantly challenge ourselves with questions such as: can the project’s benefits be increased by growing revenue or decreasing costs? Will the project add value to the business? Will the bank’s customers benefit from the project?” explained Darlington. “The result is a portfolio of higher-value projects with reduced risk of failure.”

BMO was the first Canadian bank to achieve ISO 9001 certification for its project management process. Using ISO 9001 standards, project managers build teams more quickly, because everyone in the organization is familiar with the PM process. Project managers focus on making commitments, managing expectations and delivering value, and employees know what is expected of them at every stage of the project.

“We are zealots in the accreditation and the training of project managers, and that has brought incalculable value to the bank and its businesses,” said Darlington. “Our project manager program is now so successful that we don’t only train technology project managers, we have people within the businesses that worked on projects with us taking these courses.”

In addition to ISO 9001 certification, BMO is well down the path of adopting the Software Engineering Institute’s Capability maturity Model for software development, based on the simple yet powerful principle: the probability of a successful outcome from a process depends on the degree of process maturity.

“As we move up the maturity curve,” said Darlington, “we expect to gain 39 percent increase in productivity.”

Benchmark, measure and reward

There’s an old saying that “what gets measured gets done”. Measurement helps motivate people to achieve the company’s goals. Linking compensation with achieving targets helps align an individual’s professional goals with the company’s goals.

T&S has benchmarked major parts of its operations with the street and outsourced activities when it was clear that this was the best option for the bank.

In addition, it has implemented a balanced scorecard system of metrics, designed to clearly communicate the company’s business plan objectives for the year and its progress in meeting those objectives.

It’s a ‘balanced’ scorecard because the company is not just measuring financial results. The scorecard has a shareholder component, which accounts for 60 percent of the overall performance; a customer satisfaction component, accounting for 25 per cent; a processes component for 10 per cent; and an employee component for five percent. By balancing these perspectives with economic results, BMO has a better chance of creating future value for all areas of the bank, and achieving some consistency in its approaches year over year.

According to Darlington, the process of adopting a balanced scorecard is not only a ‘journey’, it’s also hard to do.

“The challenge is to get out to the 5,600 people that work with us the objectives and measurements that will allow us to move the business to achieve those objectives,” he explained. “So how do you tackle the complexity of it? How do you cascade it? How do you build these commitments that we are making to the Board and to the CEO and get them reflected in the day-to-day operations of the T&S people, so that their piece of it is reflected in their plans for the year, and so that ultimately they are recognized and rewarded for their contribution? That’s what’s tough, and there’s no cookbook for success.”

By linking the balanced scorecard results to a compensation plan, BMO has a powerful motivator that drives behaviour throughout the organization. With it, the company ensures that it can meet critical objectives for next year and beyond, while making progress on activities that are critical for success in subsequent years.

“The balanced scorecard is difficult to do but it is hugely rewarding, from an economic perspective, because it helps ensure that all your employees know where the organization is going and what’s important, and how they contribute to what’s being achieved,” added Darlington.

Change the culture

The final key aspect of BMO’s approach to delivering IT value was to change the IT organization into a business group sharply focused on the creation of shareholder value.

Over the past five years, Darlington’s leadership team has taken many steps to create an organization focused on the bottom line. One of the early steps was to change the technology group’s name to signal that profound changes were afoot to make IT a top tier competitive organization.

“We introduced corporate values to the organization,” said Darlington. “We call it ‘SPIRIT’, an acronym for Service and solutions, Personal excellence, Integrity, Respect and trust, Innovation, and Teamwork. These values represent the fabric of our Technology and Solutions culture.”

The IT organization took a careful look at the quality and potential of its executive leadership, and made several tough choices that allowed it to bring in new leaders with experience in running IT and consulting businesses for profit.

“We got dead serious about the need for a change in culture back in 1996/97. I felt at that time that we needed to substantially upgrade our leadership within the group,” said Darlington. “When people talk about changing leadership, they seem to talk about the lower levels. But I felt that we had to make some significant changes at the senior level.”

In addition to putting in a top-tier leadership, drivers of the cultural change have been the balanced scorecard and rewarding and recognizing the talented people that accomplish the objectives of the organization.

“You cannot expect to move from where you are to where you want to be, from a cultural perspective, if you don’t at the same time ensure that your reward and recognition processes are top tier and very effective,” said Darlington. “Compensation, scorecards, quality of leadership, quality of performance evaluation and feedback – these are all the kinds of things that collectively have allowed us to effectively execute the other points of the strategy.”

Finally, one of the most impressive aspects of BMO’s five-step initiative is the fact that T&S has been able to make these improvements while holding costs flat or reducing them. That in itself is a pretty good indicator that the company is on the right track to delivering IT value.

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

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