Dhananjaya "Jay" Dvivedi

He joined Shinsei Bank in May 2000 and presently oversees a core team of several hundred engineers and programmers using the latest technologies to build an ultramodern IT infrastructure on a multimillion-dollar budget -- not bad for a guy who admits to being as different from a banker as he can be. Editor at Large Daniel Scuka spoke with Dvivedi at the Shinsei bank's new office complex in Uchisaiwaicho.

What brought you to Japan?
I started [with Citibank] in India, but left right off the bat for training. I came to Japan in 1990 because Citibank here was going through massive expansion. Actually, we were talking about designing systems for use in banking. In the US, you could have automation, but overseas, the size, scale, and complexity of different currencies and different methods of accounting required a totally different approach. You could not use conventional technology developed in the US; it has to be adopted -- the software, the hardware, the processes, and [everything]. The US has a [high] level of complexity, but overseas, business is a lot more complex; the variety is immensely complex. Currencies, regulations, accounting differences. How do you tackle [system] design problems if you can't have homogenous systems? You can't create homogeneity.

In 1976-77, Citibank started focusing on retail banking, and on [uniform] global services. It was an international bank but not a global bank. At my last job at Citibank, I was invited by [chairman] John Reed to take the entire retail bank, which is a humongous presence in 100 countries plus some 80 million customers, and see if we could create a common system. How do you take a business, which had grown organically in an unstructured manner over the last 25 years, and create a [common] structure? You can start looking at common things, methods of interest calculation, methods of presenting [data] to the customer, methods of transferring data into ATMs. ATMs [are liable to] heterogeneous management. So, what are those common elements, so that even though [a customer] is reading a German [screen], inside you have Citibank New York projections and data coming in? This was the ultimate test of how skillful [we could be] and how large-scale we could [think].

What culture clashes have you seen in large institutions' IT departments?
When I was [last] in Japan, Citibank had three or four separate lines of business. I came here from Citibank Europe, where I was managing wholesale banking for the continent; [it wasn't homogeneous], it was a federation of numerous country efforts under a common name, but different businesses. Japan had the same thing: you had retail banking, you had wholesale banking. Within retail banking, you have guys who are selling the product, guys who are making the product. When we looked at this amorphous body, we saw that differences existed because that's the way the world works. In technology, the challenge is how can we make sure that an [organization] that is so interlinked can work. If you wanted to make a change, how would you make the change in the most dramatic manner in the shortest possible time with the least amount of stress on the organization? Stress is necessary to make change.

What organization have you put in place to build Shinsei's IT?
We have a very, very knowledgeable group of people in this company. Probably 80 percent of Japan's Todai graduates are here. [Smiles.] Everybody you meet is from a blue-chip background. We have investors that are the top names in the world. We have access to their know-how, we have access to their technology -- Citibank, Deutsche Bank, PaineWebber. Help from all of these is available. We have a very, very sharp team of managers and engineers from Citibank and Goldman Sachs. What you need to do is design a method that leverages all of these factors to propel you forward. The main enabler for both Japan's economy and for banking is technology -- technology is actually 95 percent of what we do. If you don't have technology, you can't run a scalable business, either in wholesale banking or retail. So the starting point is that we have the most competent technology team, we have the best of the breed, we have the best people from all over the world, and we have a core team of our own numbering 40 or 50 people. And we additionally have a very, very capable team of several hundred people [on call from our partners].

The next question to ask is how do you look at Shinsei's entire system and divide it into chunks? It's like eating an elephant. An elephant is big. You don't swallow it whole -- you'd choke. But if you take your team and segment it, and assign parts to different individuals, the job becomes very manageable. It's like making a jigsaw puzzle. How do we assemble these components so that each piece can take its own time, but that, say in eight months, one year, or two years later, all the pieces will fit?

What's your approach for implementing the new IT infrastructure?
A typical Japanese organization will not go about such a large scale [makeover]. They will not talk about various changes that occur simultaneously. You have to run your current business and you still have to [manage] the change. And that causes trouble because you don't have enough bandwidth; you don't have enough staying power. Yet at the same time if you create sequential change, you will find that it takes you four, five, or six years' time [to reach your end state], and that is not acceptable in today's world. The sequential method wouldn't work. The special strength at Shinsei Bank is that we are pitching everything possible. We are designing [our IT] so that, just like chopping up the elephant, each piece can be chopped up, but while you chop it we contain the risk. We have techniques and methods where you can evolve each piece at its own pace. It does not have to be synchronized. But when it assembles together, it is complete. And because [this approach] reduces risk, we can move much more aggressively.

And if you look at it in banking terms, we are replacing all our networks, we are replacing all our ATMs, we are replacing all our banking systems, and we are replacing all our processes. The bulk of this work has already been done. If you look at my desk, you'll see the machines are all brand new. We are basically going to the extreme edge of technology. Since we have the freedom to choose and do whatever we want to, [we've chosen to assemble] each of the pieces, and the advantage is that since we have already gotten know-how from our partners, we don't have to reinvent, we don't have to sit and say, "This is my technology, this is my know-how." That would be the typical Japan model.

It sounds like you cannot do things by half-measures.
Half-measures and gradual work do look tempting. But actually it is much more complex and much more expensive. When you go with partial change, the big challenge is that [it is tempting to] work on one segment only; because it is less risky. But what you don't realize is that because the new has to work with the old, you're [just doing] plumbing work. In technology terms, the protocol or the handshake ... a bank transaction has a tremendous amount of complexity. [Implementing] the connection with the old system is very complex. But that is the typical [approach to building new] architecture; that is the typical environment. So it's a paradox. Effecting large-scale change simultaneously seems more complex and more expensive, but if you know how to do it, it's the easiest way. It would be like designing an extension to an old building. The new part is brand new and modern but making it work with the old plumbing and old heating and old wiring is a problem; you would find that it's much easier to build a brand-new building.

How long will Shinsei Bank take to reach world-class level?
We have basically completed all the engineering work. We actually have all the pieces working. What we are working on right now is the scalable process to support the customer. So all our technology work is ready, and we have right now close to 100 people who are going through indoctrination and training. As we feel comfortable that the [required] level of know-how to service the customers is there, which will happen in about four or five months' time, we will launch the system. So, if you look at the elapsed time, within a year we will have replaced our network and our accounting system; we will have replaced our ATMs; we will have replaced our phone technology with VoIP. So the engineering is complex throughout, but there is nobody in Japan who can do [what our systems allow us to] right now.

And there's a second point, which is very crucial for the Japanese context, and that is that we have people all over the country. If any of the major banks want to copy what Shinsei is doing in terms of price performance, they'd have to be worried about displacement of people. If they centralize [their IT systems], what do they do with the people who have joined under the promise of lifetime employment? Our technology allows [us to avoid personnel displacement]; our automated method of working will allow us to centralize the work. We will have "centers" of work, but we'll not have one center. We might have a center for loan production here, and a center for deposit handling in Osaka. We are not displacing people. This allows us to move very fast and actually realize a savings. [Any] stress is due to hard work, not because of, "Oh my goodness, what's going to happen to my job?"

What are the most interesting challenges you face right now?
The single biggest challenge is to make sure that people feel secure and comfortable about making change. Because we are talking about making large-scale change, it simplifies the work. We are talking about making changes very rapidly, so [we] need tremendous amounts of communication and convincing that it's safer to work this way than to go piecemeal or to do it slower.

If you're in the [banking] technology business, you have to assume that every three years your technology becomes obsolete. So consciously you have to be able to walk away from your old methods and take advantage of new. That's a key challenge. Our partnerships create scalability. We are right now working with maybe 700 people in technology: 400 of our staff, and more through our partners. If we need to, we can expand that to a thousand people by leveraging our partners. But we can do it at maybe a 60 percent cost advantage over a Japanese company because our production base is in the US, Singapore, and in India. And to be able to leverage that gives us a [good] scale in cost.

Has corporate Japan in general started to make strategic IT investments?
Engineering companies in Japan are the best you can get. Absolutely top-notch. And the technology usage in those companies is absolutely tremendous; it's at a very high level. The processes and the technology combination -- it's not technology itself [that matters], it's the use of technology, the design, the staging, all of it in combination. In the industrial sector, it's absolutely top-notch.

Banking [faces] a different challenge. For Japanese banks, the convergence of factors is just phenomenal. I don't think it has a precedent anywhere in the world. Let's look at what's happening: the most severe recession ever, depletion of revenue sources, credit problems. So the country's problems become the banks' problems. Deregulation is happening at a very rapid pace. Foreign players are coming into the market and applying pressure. Customers are turning to different sources. Also look at lifetime employment for IT professionals, and the level of excellence of [Japan's banks'] technology. Then you put it all together and [consider making] investment of ¥300 or ¥400 billion; it's very difficult to manage.

I understand there's a great deal of interest in bringing Indian IT professionals into Tokyo. Have you tried to recruit some of those people?
I have worked with large companies in India for the last 10 years. For example, when I was at Citibank, we had to add several hundred people in about two to three months' time. In traditional mode, hiring that many people in Japan is impossible. And hiring subject matter experts or technology specialists for a particular platform -- because it's not just IT [in general]; it's a language, a platform, the applications, the combination of all of that -- is very difficult. You need to have partners who have depth, size, and sustaining power. So we have partners who have large production bases in India. And we're using them. You have to build a checkerboard, because if you rely just on Japanese partners, then there aren't enough [IT] people. If you rely just on Indian partners, they don't have enough Japanese skills. So a combination [is necessary] to make an assembly which is focused on the problem you're trying to solve.

What do you think of Japan's national IT initiative? One element is bringing in foreign IT professionals. Many people talk about India, but other countries also.
I think it's a very, very good initiative. But like everything else in life, this is just one ingredient [necessary] for [Japan] to change. Having technology people is one necessary ingredient, but that's not enough. You need an overall method. You need the design. Because what happens is when you ask for something driven by technology, if you don't know what technology can do, if you've never seen anything, then your design, your requirements will be different. So, in the technology business you have to have orchestration of everything. You need networks, you need security specialists, you need product designers, you need program managers, you need a tech plan, and you need a very complex set [of skills]. And if you have a shortage of IT people you can plug in by getting technicians from outside, but what about the design and what about everything else? And unless we recognize that it's like an orchestra, [there'll be problems]. You need to make sure that it's a very balanced thing. We are not doing all this change in [Shinsei's] IT [alone]; we have everybody in the company involved in it -- the accountants, business managers, marketing people, the users.

What are some of the Japanese banks' biggest mistakes from an IT point of view?
Let's not call them mistakes, but I think the big challenge for Japanese banks is that they have to recognize that mastering the process of technology development, of technology architecture [building] are the most crucial components. Hardware is not crucial. Language is not crucial. The platform with which you work is not crucial. Now these are simple aphorisms, but they are extremely potent because in Japanese banks the starting point is your vendor partner, who's a hardware vendor. So it is NEC or Fujitsu or Hitachi or IBM. So it's an upside-down world. And once you've selected the hardware, [banks tend to become wedded to the product and not the] process. [Japanese banks] are still taking the approach that "these are my people," [expecting] the solutions will come depending on what they know. But in technology we get obsolete every three years, so the older you are, if you do not refresh yourself, you are obsolete. And refreshing is not possible if you are not changing.

What do you do to refresh yourself?
I don't sleep! [Laughs.] I sleep about five hours per day. My rule is to read about two hours before I come to the office, and I read at least two hours before I go to bed. It's very crucial that you are absolutely up to date. I've worked overseas all my life, so first thing is that you read about regulations, laws, local technology capability. That's just part of it -- and you can't live without [reading about technology].

Final word?
If we look at Japan, there's so much excitement about what is going to happen in the next five to six years' time. Japan's recessions, just like bubbles, don't last forever. And my personal view is that we're already two years past the bottom; so the recession is ending. If you look at changes that are happening in the banking world, due to the recession, deregulation, all the new technology, this is one of the most exciting times to be in business -- in any business -- in Japan. So in all the doom and gloom that you read, people aren't seeing the future possibilities. For example, the public does not know about most of the stuff that I've told you about Shinsei Bank. But if you close your eyes and open them in six months' time, you'll say, "Wow!" If there is a message, the message should be that, typically, when people think of banking, or the financial sector, or Japan, they think, "Oh, my goodness, what a challenge." [But what we're doing is] absolutely leading edge, [including] the experimentation in [adopting] Western management. Three years ago I wouldn't have dreamt that a bank like the Long-Term Credit Bank would ever become a sort of Western consortium. I wouldn't have imagined that they would allow anybody to come in. Imagine [the same] happening at Tokyo Showa or Nippon Credit Bank ... [Japan] is one of the most advanced places. Would you rather live in China, or in Japan? Would you rather work in the Philippines, or here? Would you rather live in New York? Everybody looks at Manhattan, but do you know their crime rate? When you look at the total, this is the most exciting place.