Inside Deutsche Bank’s technology function before the new bosses arrive
It shouldn't be long now before Deutsche Bank’s technology function receives a substantial shot in the arm. Not only are two new men at the top due to arrive in early September, but CEO Christian Sewing has committed to spending €13bn on technology before 2022. For some in technology at DB, the sentiment is, “about time.”
“It's like a junkyard here, organized like one of those basements on ‘Hoarders’,” says one Deutsche technology professional, speaking off the record. “We’re still running Solaris 9 and people are patching things that are 15 years old. Everyone knows about DB's antiquated IT infrastructure, but few appreciate how tremendously difficult it is to actually fix anything.”
Deutsche Bank declined to comment for this article, but not everyone at the bank would concur that things are as dire as all that. Although former COO Kim Hammonds famously said Deutsche was “the most dysfunctional place” she’d worked and former CEO John Cryan described the 45 operating systems and 100+ booking systems he encountered when he joined in 2015 as a “Horlicks,” there has been progress. In a presentation in March 2019, COO Frank Kuhnke said the number of operating systems was down to 26 and that IT “uptime” was running at 99.97%. Yes Deutsche is still using Solaris 9, a technology that dates back to 2002 and that's being phased-out, but it seems to be working just fine. The bank even won an award for digital transformation earlier this year.
This isn’t to understate the enormity of the task faced by Bernd Leukert and Neal Pawar when they arrive on 2 September. Leukert, who joins from SAP, will be Deutsche's new board member responsible for technology, data and innovation. Pawar, who joins from AQR Capital, will be the new chief information officer.
Big things are expected of the two men. There's the €13bn to spend across the bank's operating infrastructure and control framework, whilst also investing in 'innovative products.' Announcing Leukert's appointment, Sewing said he will be tasked with accelerating Deutsche's progress, "in the age of cloud-computing and platform economies." Pawar, whose background is in cloud computing and data visualization, is likely to push in the same direction.
Effecting change won't be easy. "On paper, €13bn looks good, but we've been down this road before," says one DB insider. "All the grand plans founder on the same issue - an ancient collection of badly documented and poorly maintained applications."
The same, uncharitable observer says Deutsche Bank’s infrastructure is a tale of, “old applications, often run by people who never had a hand in creating them,” which are both, “impossible to patch and very expensive to upgrade/rewrite or terminate.” Making things happen in these circumstances means, "begging MDs to agree to upgrade and transform their applications," he says. But many MDs at Deutsche allegedly, "have no idea what code they are managing, and they are not charged the true cost of what they use." Nor do they want to do anything that will hit their bottom lines.
Despite the €13bn, there will be a predictable emphasis on cost-containment. From 2020, "absolute annual spending" on technology is actually expected to decline slightly according to Deutsche's strategy document. The bank says this will reflect, "benefits of prior investments, organizational efficiencies and more focused business perimeters."
In Deutsche Bank-speak, "focused business perimeters," means the closure of business areas. Accordingly, one of Pawar and Leukert’s first tasks may be to reconfigure the bank’s IT budgets in the absence of the equities division. “A significant fraction of the IT budget comes from a business that theoretically no longer exists,” says one insider. Another may be to review the 10-year deal Hammonds signed with HP to outsource Deutsche’s servers, data centres and storage in 2015. Known internally as ‘Project Nucleus’, some argue this was an expensive mistake. Critics say Deutsche has been slow to move to the cloud, although others point to the fact that the bank’s ‘Cloud Centre of Excellence’ has been running since September 2018. Deutsche has had Dev and UAT applications in the public cloud since last year and is transferring other functions gradually, subject to security precautions.
For Pawar and Leukert, getting to grips with Deutsche's IT will take courage and cash. Insiders talk bleakly of a "death spiral" where changing IT in the past was simply too expensive and risky, and so the culture was therefore one of making-do and patching-up. "Upgrades were frequently made to basic infrastructure only because the existing hardware was running out of extended support," says one insider. "We are stuck with something that can't be cheaply fixed, at a time when all our competitors are figuring out how to do a lot more with less."
At the very least, it sounds like a challenge.
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