Eric Baudson is the head of global IT and operations at Crédit Agricole Corporate and Investment Bank (CIB), formerly Calyon. In a recent conversation with The Boston Consulting Group’s Antoine Gourévitch, he spoke about his ongoing efforts to optimize IT’s value to the company, the challenges of managing through the economic crisis, and his vision of how the CIO’s role will evolve over time.
Eric, can you describe your start at Crédit Agricole CIB?
Sure. I arrived at the company in August 2005, a time when the bank was seeking to significantly build its capital-markets business. I was to be responsible for that business’s entire back-office operations. At the time, the company had two IT organizations, one serving capital markets and the other serving corporate banking. Naturally, I interacted a lot with the former. This was an organization in a state of disarray. It had long been organized along internal-client lines but had recently, and over a matter of only months, been reorganized by shared functions. There was no steering taking place at all within the organization: no master plan, no management of the project portfolio, no budget, and no financial monitoring. So this was my starting point.
The capital markets business, as an IT client, must have been somewhat unhappy with the level of IT support.
Yes, it was. The business lines within capital markets have a very strong sense of ownership of their support functions, and the reorganization concerned them greatly. Not only had they lost control over daily activities because there was no longer any dedicated team or governance, but they didn’t see any leadership or direction. In response, the company asked me in May 2006 to take control of both the capital markets back-office operations and IT.
How did you feel about managing both together?
I could see the potential synergies. But when they asked me to take the reins, I knew nothing about IT. I had always managed projects and was quite experienced as a project sponsor, but taking charge of IT was, for me, as if the engine of my car had been dismantled on the sidewalk next to the car. I know what a car is and how to drive, but I have no idea how to assemble an engine.
What were your top priorities once you took the job?
I had three. First, immediately reestablish the client-supplier relationships—and with dedicated governance. I considered this indispensable. Second, and equally important, set up a steering mechanism that would allow us to know what’s happening and where we’re going. Third, create a master plan that would provide visibility.
How difficult were these priorities to implement?
We realigned the IT organization by internal client within a few days. Both the teams and the clients had asked for it, so there was no debate. We quickly returned to the organizational scheme that had existed six months earlier.
Creating a steering mechanism was painful, because this was something that was absolutely not in the organization’s culture. Basic questions about budgets, expenses, and the number of employees were alien to them. To deal with this, I put in place the same system I had implemented for the back offices for staff steering. We also designed and put in place a budget dashboard with a monthly project-by-project forecast. The dashboard helped almost immediately: in July 2006 it allowed us to alert the general management about a 15 percent cost overrun due to lack of cost control. By September, the steering program was up and running—and we still use it today.
In parallel, we initiated a master plan approach to management, which took seven or eight months to complete. This reassured people about our control of our expenses and our direction.
How did you simultaneously support the capital markets business’s growth imperative?
Our mandate was to give each business line what it needed to develop in full autonomy. Worrying about cost-effectiveness, synergies, cross-function service centers, and so on was out of the question. Each lead manager should have all that he or she was asking for. The top priority was not to optimize the system; we wanted to satisfy the need as quickly as possible. This translated into a high rate of growth in our workforce—about 15 to 20 percent per year. We also developed a sourcing strategy focused mainly on onshore outsourcing, because we were searching for competencies rather than trying to optimize costs.
We eventually selected three firms: a company that had historically been a partner of Crédit Agricole and was one of the market’s major players; a small firm strongly focused on capital markets in general and on derivatives in particular; and, in order to challenge the first two, a small Indian firm that had the same business profile as the second player. The basic principles of that strategy were the following: first, we wanted to work with people for whom we were big enough and important enough to ensure that we were well served, and second, we wanted win-win agreements, so we committed to certain volumes in exchange for fixed prices and a high flexibility in response to market needs.
This is how we managed growth, and four years later we can say that it all went well. The true KPI is that the system held together through the subprime crisis. There has been no clash and no backlash, and all of the projects eventually delivered. So it was a winning strategy.
Did you make specific changes in IT management during that period?
Yes. The most significant was a change in how we managed sourcing. Over time, our IT managers had developed suboptimal practices for handling our relationships with external providers. Sourcing decisions were based more on cronyism than economics, and as a result, we were paying far too much for services. We had also established long-standing relationships with many of these providers and there was now a high degree of dependence. So we tackled that issue head-on. This met with a fair amount of resistance, because when you break an established model, you touch the core of the way people work. When you ask a manager who has been working in a certain way for more than ten years to take work that he had typically distributed to multiple smaller providers and instead to aggregate that work in order to be able to outsource it, and then to outsource it offshore, and to relearn how to manage internal staff, you change the rules of the game completely. So this was challenging.
We also upgraded our quality-management practices. Budget and staff monitoring is quantitative, which helps to ensure that we are not drifting, but it is not by itself sufficient to make sure that the money is well spent. So we progressively put in place programs to monitor the quality of project methodology, planning, respect for deadlines, and delivery.
All told, by March 2008, two years after the start of this adventure, we had restructured capital markets IT. We had also restaffed it, because this was not just about outsourcing but also about recruiting managers from the outside. And this had a peripheral benefit, because we had recruited managers from outside the capital markets business in order to get fresh ideas, and it was a success. We had learned to work with partners and to get visibility—and the machine worked well. So we were in a good position.
This proved to be good timing, because you were handed another organizational challenge shortly thereafter, correct?
Yes. Around that same time, I was asked to drive the merger of the capital markets and corporate banking IT departments. The mandate was to get it done as quickly as possible and organize the consolidated department along internal client lines. Up to that point, the corporate banking IT department had been organized by function, while analysts were centralized and developers were organized by application family. There was also a small offshore center in Singapore that wasn’t really well connected to the whole. Any internal client who requested an IT project faced at least three people: the analyst manager, the dedicated developer manager, and someone in Singapore. So a reorganization was in order.
We took several key steps with regard to corporate banking’s IT. One, which we’re still implementing, was to shift project leadership to the business lines, because we think a strong managerial mandate is necessary to drive change. IT can collaborate and provide technical answers, but the business line should lead. Two, we instituted quantitative and qualitative steering, which we completed in about a month. Three, we established rigorous, high-level governance.
Ultimately, we completed the merger and hit our objectives within a few months. By the end of June 2008, Crédit Agricole CIB had a unified IT management, monthly reporting on projects and costs, and total transparency.
What were your next steps?
As it turned out, our attention had to be shifted to dealing with the financial crisis. There was a period of denial at the company in late 2007 as the first signs of the crisis emerged, and we started 2008 as if nothing were happening. But by April, the company was experiencing losses and we knew that the crisis was real, acute, and deep. The company’s focus turned to reducing costs as quickly as possible to improve the year-end P&L. On the IT side, we decided between April and June to stop some projects that were under way or being launched, and we reduced the development budget by about 20 percent, cutting roughly 400 providers.
Having our steering capability was key as we considered what steps to take. Knowing where we were going, project by project, gave us the ability to quickly identify which projects to stop and to understand the immediate economic impact. The same held for staffing.
Were those steps sufficient or did you need to do more?
By the end of June 2008, we had dealt with the emergency. We realized, though, that the recession would continue, so the next step was to make some hard decisions in anticipation of a greatly reduced 2009 budget. In early September 2008, we cut 50 percent of the project portfolio in order to match the halved 2009 budget, taking out several hundred FTEs. At the end of December 2008, we forced teams to cut staff a little more, so we actually started 2009 with about 150 fewer people than we needed.
These were tough moves to make. But the advantage was that our IT teams entered 2009 with the crisis behind them. We had staff, a budget, and a project portfolio that matched the budget. So I would consider our year in 2009 quite normal. We were not in crisis management any more.
With the return to normality in 2009, where did you turn your focus?
In early 2009, we were still focused to a large degree on reducing costs, lowering the breakeven point, and so forth. A key thrust here was to increase our utilization of offshoring, with an ultimate goal of having 40 percent of our outsourced work allocated to offshore providers. (We are at 25 percent currently.) We are also taking a number of steps to optimize the delivery system, including the creation of service centers for some capital-markets activities, taking care not to compromise the client-supplier relationship.
Simultaneously, in early 2009 we were a company that had to redesign its business model and review its strategy and positioning. So a second objective for IT was to start to rethink all of our longer-term objectives and targets, in parallel with the implementation of our cost-cutting measures and the launch of a lean approach to all support functions. By mid-2009, we started to have more time to consider the next steps, because we were no longer focused on growth or the crisis—and we approached the task with a considerable degree of purpose because we had a much better understanding of the stakes.
We are aggressively pursuing three objectives currently. One is the development of an optimal sourcing strategy that leverages all that we have learned from our experiences with onshore outsourcing, offshoring with providers from India, and our captive center in Singapore. We already have a successful system today, one that saves us about €25 million per year in development costs. But we are positioned to improve further. Our 40 percent offshoring target would have been unimaginable before. We have also launched plans to rationalize our infrastructure and delivery. This has already yielded concrete savings as we have decreased the size of our server pool. Finally, we have worked to identify and prioritize other areas that we need to focus on. Ultimately, we expect the combination of these three thrusts to generate a savings of €60 million over three years.
Beyond those three, we have two emerging topics that we plan to tackle, although it will take time. The first is to find a way to industrialize our processes so that we achieve the maximum cost savings and efficiencies but do not lose flexibility and agility, which are critical to a corporate and investment bank. We have a long way to go on this. The other project is to anchor Crédit Agricole CIB’s IT in Crédit Agricole Group’s IT and realize all synergies and smart-collaboration possibilities in a win-win mode while reducing IT costs for the whole group. So we have a lot on our plate.
On the basis of your experience, what motivates people to change?
In this business, people will change when they realize that doing so can help them deal with constraints. Once people have experienced first-hand that a particular change has concrete value for them, the battle is won. For example, our offshoring initiative, once people saw the sizable benefits that could be achieved, is emblematic of this. On the other hand, people will also change when they are put under very strong pressure and realize that they have no choice.
I really believe that there are two steps in achieving fundamental change: improvement and transformation. Improvement happens when you put people under constraints. They don’t necessarily buy into the idea and are merely doing what they are told, but at least you have changed, reorganized, and optimized things. Transformation happens when people are convinced and there is no more debate about it. Achieving this is very difficult. I therefore think it’s necessary to go through step one first. Believing that people will proactively support the transformation from day one is, in most cases, an illusion.
Do you think that IT organizations should remain in transformation mode permanently?
Yes, I do. Ongoing transformation is necessitated by at least two things. The first is the normal evolution of the environment. Changing conditions are a given, and IT needs to adapt in real time—otherwise the gap between IT’s capabilities and the demands on IT could be fatal. The second is changes in budgets. Each year, the meters are reset on a certain number of topics and projects, so team sizing varies, as do the functioning modes. So yes, IT should expect to transform itself on an ongoing basis—but that change has to be structured. It shouldn’t be anarchy or viewed as change for the sake of change. Rather, it should be managed like a project, one that has a periodic rollover whose periodicity is rather short.
How do you see the role of the CIO of the future?
First and foremost, the CIO will have responsibility for the consistency of the company’s information systems and their adequacy vis-à-vis the company’s needs. This means that he or she will need to control the decisions regarding applications, architecture, and the technical response to those needs, which does not always happen today.
Second, the CIO will need to be a highly effective orchestrator and possess a range of technical and managerial competencies. He or she will need to be able to optimally manage internal and external talent, understand and know how to leverage relevant technologies and solutions, manage sourcing, and so forth—and will be expected to square everything and manage it efficiently.
Third, the CIO may be increasingly involved in company management. IT’s growing role in helping the company execute its global strategy, combined with IT’s proportionately higher costs as it becomes more complex, will likely give the CIO a greater voice in business decisions. The unique perspective and expertise as a technician and an orchestrator will make the CIO a valuable business partner in the discussion.
So is the pure technology-management component of IT leadership decreasing in importance?
To a degree, yes, but it varies greatly by company. The demands on a CIO of a high-tech company with 50 people are very different from those on the CIO of a bank that has 30,000 employees and a staff of 6,000 in the IT department. A certain understanding of the technology will always be required in order to understand what people are doing, but technology is ultimately becoming a commodity. Many companies will buy their own tools and engage a provider and thereby gain access to technologies and technical features that they themselves do not manage.
One thing is certain: the CIO needs a diversified tool kit. Purely technical knowledge, whatever the company, is not sufficient any more. Other capacities and qualities are required today to manage the whole scope of the job.
- Antoine Gourévitch
- Senior Partner & Managing Director