DevelopmentBankofEthiopia

PartIIReviewonInformation
Technology

April2005
 TableofContents
Page
I. Background Information 43
II. Impact of Technology on the Banks
Organizational Transformation 44
2.1 Impact of IT on Organization Arrangement 44
2.2 Impact of IT on Manpower Resources 48
III. Status of Computerization 50
3.1Office Automation and Networking 50
3.2 Payroll and Human Resource
Administration 51
3.3 Banking Services and Loans 52
3.3.1 Retail Banking 52
3.3.2 Loaning Functions 53
3.3.3 Other System Facilities 54
3.4 Remaining Tasks 54
IV. Benefits expected from The New System 56
4.1 Benefits 56
4.2 Capability available for employees 56
4.3 Business Process Management (the
Reward Facility) 57
V. Proposed Automations 59

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I. Background Information

The Bank was using an old NCR Mini-computer system, which was
out of the market currently, to handle its regular banking
operations. The system provided partial services due to its low
processing and storage capacity. All the functions of the Bank were
not supported by the computerized information system.
Operational units were not entitled to get the service of the
computer through direct system access, rather only the Finance
and Banking Departments staff got some degree of access to the
system using dummy terminals. Most of the units of the Bank were
using personal computers with low processing power and without
any specialized applications or tools to handle their day-to-day
banking operations.

The old system, moreover, did not have any local support and spare
parts readily available for any hazardous conditions. The capacity
of the mini-system was extremely low and is about to stop
entertaining any additional data as its storage capacity was very
low. The MIS report processing requirements of the Bank were not
well addressed, for internal as well as external consumptions, by
the system for decision-making.

The software application that the Bank was using was very limited
in its functionality and scalability to the growing volumes of work.
Most of the required functions were not supported, and these
functions were done manually. Above all, during that time the

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UNIX operating system, the old banking application system, and
related utilities were not made fully Y2K compliant.

In due consideration of the above facts, the old information system,

therefore, necessitated change and should have been replaced by a
new one which should be designed in line with the strategic
business objectives of the Bank.

As per the initial requirements, the subject under review basically

covers the assessment of the new network and software platforms
being implemented and used in the Bank. It moreover specifies the
future trend of computerization efforts in the Bank.

The benefits inherent in the information technology applications

and its associated impact in productivity and organizational
arrangements will also be presented.

II. Impact of Technology On the Banks Organizational

Transformations

In recent times, technology has become an ever increasing presence

in the workplace of the Bank. The Bank has been trying to
incorporate the latest technology into its business operations. The
appeal of the whole information technology arena is that it is
designed to make people and the Bank more knowledgeable,
efficient, and/or profitable.

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2.1 Impact of IT on Organization Arrangement

The scope of technology that the Bank may adopt or employ is vast,
ranging from something seeming simple, such as buying personal
computers with commercial/off-the-shelf applications, to investing
in the latest state-of-the-art banking software solutions.

Regardless of the complexity of the system or the size of the Bank,

one thing is certain - the incorporation of such technology or
information systems will accompany change. Implementation of
technological systems can either act as a catalyst for change or be
the means of achieving a desired change. Regardless of the
motivation, a properly integrated system ideally will take into
account the impact on the organization before it is put into place.

This section will look at the relationship between technological

advances/information technology and change in the Bank (i.e.,
what overall impact will IT bring in the formulation of the Banks
organization chart).

The evolution of information technology these days has brought the

largest single influence on organizational architecture. Technology
certainly has its place among the key elements, which shape an
organization.

The interconnectivity of all operations of the Bank obviously

facilitates business. One cannot be changed in a transformational
sense without at least consideration of others. While the formal
structure or arrangements within the Bank will likely be affected by
the arrival of new technology; this does not have to be the case in
all situations. The transformation process can also occur through
the business changing the way it operates. More specifically,

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information technology can be linked to changes in factors such as
job design, physical layout or location, supervisory relationships
and autonomy, cooperation inside and outside the Bank, and
formation of work teams.

It seems to be a common theme that information systems will

change even more traditional supervisory relationships. Computer
networks allow people to communicate quickly, share ideas, and
transfer information without regard to physical locations, or to a
reasonable extent, even without regard to the temporal dimension.

Therefore, a supervisor will be able to monitor the activities of a

larger number of subordinates without requiring them to report
directly to him/her. This has been usually referred to as "span of
control" as a measure of how many individuals or teams that a
supervisor can effectively manage. This theme, under information
technology, has been currently changed into span of
communication. In this context with the help of information
technology, an executive could supervise hundreds of empowered
individuals and groups. It is important to note that again
interdependency of people and technology comes up in the form of
empowerment. Obviously, such relationships would not be possible
under traditional job limitations, but through empowerment of
employees, such a stage can be appropriately set.

This implies that employees are properly trained on the technology

and that they understand the direction taken by the organization
and their role in it. Thus the informal organization is also affected
because now the culture is changing by giving employees more
authority and self-direction. The renowned management theorist
Peter Drucker sums up the autonomy of this new empowered

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employee by saying "Employees in the new information-based
company will know what they have to do without a flock of vice-
presidents feeding them information and orders."

The use of information systems can also impact a firm's

relationship with suppliers or customers. The ability to gain
information from others up or down a process or distribution
channel makes having control over that process or entity less of an
issue. This is especially true of companies that may have
considered a vertical integration strategy, but now realize that
"vertical integration becomes less necessary when companies use
information systems imaginatively."(Main, p.51) The ability to share
information and the ease of transferring designs can also lead to an
increase in outsourcing, which is a growing trend as companies try
to reduce their own workforces and may find themselves
shorthanded.

The tasks that employees perform within an organization are being

drastically affected by the increased mechanization and application
of technology as a part of the production process. In many settings,
tasks previously performed directly by human operators are being
automated, changing the human's task to one of supervisory
control. Now the expectations of an average employee in such an
environment has to change, because they are no longer performing
repetitive tasks, but rather must be able to recognize and react to
problem situations. Such progress has to start somewhere, and in
reality this movement towards robotics has its roots in the theories
of scientific management.

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The above discussion emphasizes that the formal organization
structure will nearly always be affected by the implementation of
technological systems. More than being helped by computers, the
Bank will live by the technology, shaping the strategy and the
structure to fit the new information technology acquisition.

Thus, a key advantage of information systems is to be able to

simplify organizational structures. Although they served a purpose
at one time, the benefits of improved coordination and increased
supervision discussed earlier replace the need for tall, hierarchical
organizations. In fact firms with well-developed management
information systems lend themselves to a move towards flat
structures.

From this discussion, it is apparent that technology is a critical

element of the Banks transformations. It is generally viewed as
progressive and a means to increase the efficiency and overall
performance of the Bank. This can only happen if it is done as part
of a larger change effort, regardless of whether the change is driving
the technology, or technology is driving the change.

The Bank if able to successfully undergo such changes will be

better prepared for the future, since there is no doubt that the
emphasis on increased use of information technology and advanced
automated systems will continue.

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2.2 Impact of IT on Manpower Resources

The introduction of information technology will have significant

effects on the structure, management and functioning of the Bank
in the future. It demands new patterns of work organization and
affects individual jobs, the formation and structure of groups, the
nature of supervision and managerial roles.

Changes that involve new and complex technologies are especially

stressful, particularly to older and less educated workers. They are
fearful of losing their jobs, of losing control to machines, and of
becoming useless. Technology, however, changes the way people
work and think and make them more productive. Technology
specialists are well aware of these fears and usually train these
people and need to directly address these fears in an honest and
forthright manner, both to enhance the probability that the new
system will contain the accumulated knowledge of these workers
and will be used and to acknowledge their individual worth.

Technology literacy training and awareness efforts were conducted

in the Bank to enhance the understanding of employees regarding
the underlying automation. The major reason that management
supports the use of technology in the Bank is to improve
productivity, which in many instances mean the elimination delays
in customer services and avoid unnecessary business process
steps. The productivity associated with technology is less labor
intensive and would always make people more knowledgeable to
handle activities with a reduced number of experts. This states that
the number of new operational staff recruits will be reduced
overtime as almost all activities would be highly supported by the

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technology. Whereas the number of IT staff would be increased to
support the technology in all facets of development (i.e.,
networking, software support, disaster recovery, and upgrade
efforts).

Technology would have harsh impact if the existing employees are

not fit to use the available computerized information system as
expected. In this particular incidence the Bank would have only
two choices: get these people another chance to be trained or take a
decisive measure to have only those who keep fitted to the new
information system.

In general, the information technology currently exercised in the

Bank would change the way people think and work, and its impact
on employment would be apparently seen in subsequent years.

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III. Status of Computerization

3.1 Office Automation and Networking

The network infrastructure of the Bank has two major components,

which include the telecom communication infrastructure to link the
various branch offices with the Head Office (HO) and the network
facilities in place.

Currently the local area network system has been established and
various units of the Bank in the HO are linked each other and with
the central data center. The infrastructure has the capacity to scale
up and can easily be upgraded.

The old computer system has been replaced by networked PCs

PCs are connected to the central server for resource sharing
and management:
- Data, printer, and dedicated leased line Internet sharing is
now possible
- Central information storage and management system
capability has been established.

Three branches (i.e., Bahirdar, Jimma, and Awassa) have been

connected using a dial-up communication system, and the
communication infrastructure was tested. The telecom
infrastructure would however be changed into a leased line by June
2005 to properly accommodate data communication among all
units of the Bank.

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Desktop computers and related accessories basic requirements at
braches have been given so as to accommodate their needs.

The speed and level of office automation strictly adheres to the

software every unit is using to facilitate their day-to-day operations.
That is, the trend of the office automation follows the level and
usage of the new software applications, which have been
customized in the Bank (i.e., Globus banking and the HRA &
Payroll). That is, units in the HO have been given personal
computers and other accessories subsequently following the live
run of these software applications.

3.2 Payroll and Human Resource Administration

The Banks Payroll and Human Resource Administration (HRA)

System had been automated. This is a separate non-banking
software application but it has been made to interface with Globus.

The Payroll: System was customized based on the unique

requirements of the Bank, and it has been in live run
and operational since January 2004

The human resource administration functions: Along with the

Payroll functions, the sub-system was customized based on
the unique requirements of the Bank, and it has been in live
run and operational since January 2004.

The human resource management (HRM) functions: This sub-

system is yet to be completed.

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3.3 Banking Services and Loans

3.3.1 Retail Banking

The Globus software application is purely a banking business
application. It is not true to think that this application
computerizes other non-banking functionalities. The software
solution computerizes two basic banking areas: Retail Banking and
Loans. The following are some of the areas of retail banking which
have been automated and user acceptance testing was made.
-Customer

- Accounts
- Data Capture
- Stop Payment
- Teller
- Standing Order
- Funds Transfer
- Bonds
- Equity Investment
- Time Deposit
- Waste Management
- Fixed Asset
- Nostro
- Trade Finance
- Treasury
- Image management
- Funds Transfer
- SWIFT
Currently, the domestic banking part of the software system has
been in catch up process from 1st July 2004.

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3.3.2 Loaning Functions

The Banks loan functionalities have been automated through

Globus banking software and other related and integrated tools.
Some of these functions include the following:

Loans in general:
- Long-term
- Medium-term
- Short-term
Some of the specific functionalities being automated can be listed
as follows:

- Stabex Loans
- Managed Funds,
- Additional Loans
- Loan Rescheduling
- Guarantee Fund
- Staff Loans
- Own Funds
- RUFIP
- Local Borrowings
- Foreign Borrowings
- Limits
- Collateral
- Provisioning
- Syndicated Loan
- Decision Support

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3.3.3. Other System Facilities

Several tools and facilities are being considered in the new software
application implementation among which the followings are few of
them:

Standard Relational Database Management System:

Universe
Security Management System inherent in the system
Globus interface with Unique applications (i.e., Payroll and
Human Resource Administration)
SWIFT Interface with Globus
Reward as a driving tool for Globus and business processes

3.4 Remaining Tasks

The current computerization effort covers networking the Head

Office under local area network (LAN) system and implementing
Globus at the Head Office as an initial pilot project.

The subsequent steps, which would be carried out to install the

application software at branches subsequently.

(1) Office Automation

Branch offices and Head Office units will be strengthened through

time with additional computers and other facilities. Moreover,

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remote branches will be made connect with the central server in
the Head Office through a wide area network using dedicated
leased lines. These tasks will be made step by step so as to fit
infrastructure requirements with software implementations plans.

(2) Roll over of Globus at the three Branch Offices

The three branches whose roll out will be made following the Head
Office implementation include Bahirdar, Jimma, and Awassa. This
will help the Bank start roll outing branches with the new
technology.

These branch offices are required to keep their data cleansing and
conversion in place up front to the start of the software
implementation.

(3) Roll over of Globus at Remaining Branches

After Globus has been roll out at the three initial branches, the
next step will be implementing the software at the remaining five
branches. These branches are Nazareth, Addis Ababa and
Surrounding, Nekemt, Mekele, and Diredawa. This process
necessitates the wide area network connection of these branches
with the central server located at the Head Office.

Currently, the need of computers, printers, and other accessories

has been dramatically increasing. The purchase and the supply of
technology resources will continue in line with the automation
process.

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VI. Benefits expected from the New System
By computerizing most of its functions, the Bank would be able to
achieve the following benefits:

4.1 Benefits

o Meet customer service expectations

- Attract and retain customers
- Minimal business process for a function
- Manage competitions in the market

o Cut operational costs

- As a result of automating routine functions, operational
cost would be minimal.

o Speed of processing/on-line operations

- Transactions would be processed as they occur
- No more manual and labor-intensive functions

Standardized reporting and decision support information

system
- Reports would be standardized
- There is a report wizard to produce any report needed
- New System Capabilities

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4.2 Capabilities Available for Employees

Keep staff well-trained on the use of applications

Create customers and capture customer information on line
Capture several transactions on-line (as they occur)
Carry out business process electronically
Produce different reports (i.e., generate reports by any
query/search criteria)
Securely store and backup data electronically
Realize fast customer service

4.3 Business Process Management (the Reward Facility)

Loan Application Processing:
- Capturing Loan Applications
- Gathering all necessary information and automatically
generating appropriate correspondence

Risk Assessment:
- Evaluating risk and managing the collaborative process of
approval
Event Management:
- Managing specific events within the daily transactions on
any customer account

Debt Management/Arrears Management

- Effectively dealing with overdue accounts/delinquencies

Human resource management:

- Ensuring that the law is adhered to and all procedures are
followed correctly and recorded
-

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 Insurance Claims Processing
- Dealing with queries, attaching documents for reference,
generating letters and contacts, etc.

Decision Support Capabilities/Tools:

In-built Budgeting & Forecasting Capabilities in the System

- Budgeting credit operation
- Forecasting Credit operation
- Budget scenarios preparation
- Budget revision capability
- Budget control capability
- Budget preparation capability by responsibility center
- Standard and non-standard report generation by any
search criteria

In-built Decision Support Capabilities in the System

- Asset liability management
- Liquidity management
- Foreign exchange risk analysis
- Interest rate risk analysis
- Risk Management
- Cash management
- Cost of fund calculation
- Position management
- Product profitability analysis
- Branch profitability analysis
- Loan recovery analysis
- Customer profitability analysis
- Maturity profile analysis (asset and liability side)
- Standard and non-standard report generation by any
search criteria

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V. Proposed Automations

The current software, which is about to go live, will be given

sometimes for stability and usability. After the software has been
well built and confidence has been established, the new
functionalities to be automated will be identified from different
areas of operations.

In the mean time, other business functionalities, which need to be

automated and interfaced/integrated with Globus banking software
will be worked out and studied. Business requirements will be
determined. Then after, specification will be developed and solution
providers will be invited and selected for the supply and
customization efforts.

The new functionalities to be automated will be thoroughly

identified with close cooperation and involvement of concerned
operational units or business functional owners. This task is
proposed to be carried out in the 2005/2006-budget year. In the
year under consideration, project schedule and budget and other
resources will be prepared.

So as to be realistic about the requirements of the right software

solutions, different units should be given the chance to see and
work on the underlying banking software. After a good assessment
of the current system, units will be able to identify areas, which
need to be further automated.

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