Two Financial Services Firms Discuss Their Challenges at SAP Ariba Event

Another session from the recent SAP Ariba event in Prague saw two financial services firms discussing the challenges facing that industry. They weren’t your archetypal “big banks” though. This was Nedbank, one of the largest banks in South Africa, and the Islamic Bank of Abu Dhabi. But before we heard from those two organisations directly, there was some discussion around the issues facing the financial sector generally.

Cost pressures continue, which we suspect has always been the case and certainly was in 1997-2000 when I worked in the sector. That leads to pressures on staff numbers and customer service, and has been emphasised by the emergence of new wave “fintech” firms who aren’t burdened by some of the historical cost base of the more established players – such as a physical branch network. These new entrants are often taking the more profitable business, leaving the established players with less attractive sectors.

More generally, digitisation is both a threat and an opportunity. Millennials expect a certain type of user experience, and financial services is leading in some areas of machine learning and AI. And it is easier perhaps to move forward with digital initiatives in procurement than on the customer side of the business, which is more regulated and sensitive.

But within the procurement space, firms often have multiple legacy procurement tools, and still suffer from labour-intensive processes, although there has been some offshoring and outsourcing of transactional work. One major change since my time in the industry is the focus on regulation, compliance and corporate social responsibility. Procurement has major roles to play in those areas, for instance having to report to the regulator on major outsourced contracts and activities. Technology can obviously help with this, for example through digital contract and supplier management platforms.

Nedbank, although one of the largest banks in South Africa, has only 19 people in strategic sourcing. Their new operating model for procurement has set a target of 95% spend under management by 2019 – which is ambitious, we would say. Another target looks for 70% of spend to be “under contract”, which is ambitious as getting to grips with the contract “estate” is a real challenge, according to Shiraz Sarang, from the procurement team at the bank.

“We have had to threaten to turn off contracts if users didn’t co-operate – we had contracts all over the place”, he told us. The firm has made a major investment in SAP Ariba, with a target to return 1.5 times investment (which does not seem very ambitious really, but perhaps reflects reality here).

Alongside the efficiency and value objectives, the bank has a strong reputation for CSR and has a major goal to support small, black, and female-owned businesses. There is still very high unemployment in South Africa and supporting small businesses is seen as key.

As in other countries, the established players are under threat from fintech firms. Market growth is low at around 1%, and South Africa has had an investment downgrade. There are many areas of regulation too - so it is a nightmare if you don’t have a grip on contracts. And “revenue is not going to grow much so the cost side of the equation is very important”.

I suspect we could have had a very interesting but controversial discussion about the drivers of corruption in the country, but there was no time for that, rather, we moved on to the Islamic Bank of Abu Dhabi and Philip Clarke.

The Bank offers Sharia compliant financial services, and Clarke explained that “we have to engage through the supply chain to ensure compliance”. Procurement only started as a function in mid-2015, and technology generally will be key to developing a new operating model.  The UAE is a fairly saturated market for banking, regulatory requirements are heavy, with constraints on data and outsourcing. But there are also real cost pressures, so overall the bank must understand spend better, and know where risks lie.  

We heard interesting comments from both about their SAP Ariba experience. Clarke talked about using the technology to drive savings but also for reporting – whether CSR, payments, regulatory, or project reporting. He chose SAP Ariba based on speed and agility, and is only doing minor configuration, and “zero bespoke developments”. In terms of his business case, he has made 70% of the savings after 2.5, which is half way through the period considered. “We use SAP Ariba to buy cheaper, to buy smarter through looking at specifications or re-engineering. We also buy less; we use the intelligence to drive demand down”.

Sarang talked about SAP Ariba “guaranteeing success” but he also said “don’t assume anything. Adoption doesn’t just happen, and don’t skimp on change management. Don’t assume current skills will work in new environment”.  He said the platform was a “wonderful tool” but you need to grow staff capability, and the initial few months of transition were not easy. Stakeholder engagement is key, and like Clarke, he says “adopt not adapt”.

So two impressive speakers, with some similar and some very different issues, and a short but fascinating insight into banking in two countries with great challenges and opportunities.

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