3 August 2007

Fortune favours the brave, so the adage tells us, and Iceland's Kaupthing Bank is ample illustration of that. Founded in 1982 with the emergence of the free capital market in Iceland, Kaupthing was always a forward-looking organisation. In 1986 it was a founder member of the Icelandic Stock Exchange. Kaupthing established the first global mutual fund in Iceland and, with the opening of its Luxembourg business in 1998, became the first Icelandic financial institution to launch a company abroad.

Much of its progress is due to Kaupthing's aggressive growth strategy – it has strengthened its international operations through acquisitions and the establishment of subsidiaries, expanding beyond the borders of the Nordic region to establish its presence in northern Europe, which it now considers its home market. Kaupthing was licensed as an investment bank in 1997, listed on the Icelandic Stock Exchange in 2000, and was granted a commercial banking licence in January 2002. Now with a presence in ten countries (all the Nordic countries, Luxembourg, Switzerland, the United Kingdom and the United States), the Bank shows no signs of slowing down.

Two significant elements supporting Kaupthing's expansion are its technology strategy and the man who directs it, chief information officer Ásgrímur Skarphéðinsson. On joining the bank in 1997, Skarphéðinsson made a decision that, at the time, could only be described as bold – he announced that Kaupthing Bank's entire infrastructure would be running on Microsoft technologies.

While Windows has since become a popular choice among financial services firms, ten years ago this decision was unusual. "At that time, Oracle was quite strong and almost the entire business was running Oracle or DB2 and Unix platforms," says Skarphéðinsson. "We got a lot of criticism for using Windows, especially on the database side. It was not thought to be reliable or scalable, and many of our peers thought it would not fit a bank – so we had to build on trust.

"The idea at that time was to leverage something small," Skarphéðinsson continues. "The bank consisted of only 80 people at the time, and Microsoft was the platform we worked on. Before I came to Kaupthing Bank, I had also run a consistent division of the Microsoft framework, so when I arrived here we took the opportunity to base everything on Microsoft technology. We put our requirement to all our vendors, and of course we encountered challenges along the way, but we were able to overcome them and the platform also worked better with our growth strategy, as it has proven to be a very scalable architecture."

A key benefit of working with Microsoft technologies is the opportunity to engage with the extensive network of partners offering technological and development expertise. Kaupthing's relationship with its vendors, Opin Kerfi and Applicon, is tremendously important. "We don't like to be simply customers," says Skarphéðinsson. "We want to be partners, so we can co- develop the solutions. We provide our expertise in the banking business and assist the vendors in any way we can. In return, we've established a very close relationship and very strong support from these companies."

"Applicon and Kaupthing have developed a strong partner relationship working with Microsoft and other solutions for over three years," says Sigurður Hilmarsson, Microsoft team manager at Applicon. "We provide consultancy and expertise in banking processes and integrated solutions. It has been tremendous value to have such a strong relationship with Kaupthing, and it has been essential for both companies to grow the partnership. Applicon has evolved to support Kaupthing and its strategy globally, both internally and through an efficient partner network."

"Kaupthing's IT software strategy is mainly based on standard platforms from SAP and Microsoft, and it is vital that these two vendors and technologies can interact and work seamlessly together," adds Hilmarsson "Microsoft applications, Web and smart client solutions will be the main front-end desktop for the future banker."

Over the past ten years, then, the bank's business, partnerships and technologies have evolved together. Skarphéðinsson explains: "Back in 1997 we were using Windows DNA, the forerunner of .NET. Microsoft was building the server platform by that time and we started with version 6.5 of SQL Server, which had a limited capacity. Then, when SQL 7 arrived there was also a new architecture. So the system has really evolved with SQL Server."

That evolution has enabled Kaupthing to maintain consistency throughout the organisation and respond quickly to the changing demands. "We have managed to deploy Active Directory in a unified way across all our companies, so the user experience and the user environment is the same everywhere," says Skarphéðinsson. "That enables us to run service teams across borders, so we have a service oriented company based on Active Directory and Web services technology. We've been able to really reshape how we work into service orientation so we have cross-border service teams with decentralised resources. For example, on e-mail we have a team taking care of Active Directory and e-mail services in all countries. They're sitting in different countries but they belong to the same team. We can change with the demands of the industry. We can pull in resources from each area of expertise, from every country, depending on where we have the most professional skills."

This type of consistency might present a challenge for any large, distributed organisation, but for Kaupthing there is the additional complication of a concerted expansion policy. Kaupthing exemplifies the issue faced by many banks across the world, in an industry that is being transformed by new arrivals and consolidation. But the rapidity of Kaupthing's growth also shows that consolidation need not lead to inconsistency. "Although we've built the bank on Microsoft technologies, we've also taken part in mergers and acquisitions," says Skarphéðinsson. "That means we've inherited all the IT that was at the other company. For this reason, we constructed a platform vision, and when we integrate another company, we simply start to roll out the platform. This is extremely helpful when we start to reorganise companies – we have a straightforward deployment, a clear infrastructure, a familiar user experience, and we've been able to custom-build the environment to suit our needs."

Kaupthing's approach also helps to ensure compliance and efficient information management despite any changes to company structure. "We've really taken our products through migration, rather than integration. We have a blueprint on every site, right from the ground, and we then do a rollout plan and deploy that to the new companies. We've centralised the entire system – we now have only one system, based in Stockholm, with a very secure environment. There are three data centres and we base the banking platform at one of them. All the transactions from all the companies that can by law be hosted, are hosted in the same database, which is SQL 2005 on 64-bit architecture. We have everything we need in one area."

As many banks have come to realise, the end user experience is of crucial importance to the success of its IT system in terms of cost, productivity and accuracy. "By bringing everything to one platform, we really opened up the information source to the business," says Skarphéðinsson. "We already had people in the bank who had skills in that kind of environment. That helped us dramatically to concentrate on risk management, as we didn't have to train or retrain staff on certain platforms. It was a kind of community – everyone had to learn SQL language in school, and it was fairly straightforward in terms of technology and know-how. That was a pretty good position to be in."

Hilmarsson recognises the diversity of end users' needs: "The end users are both customers and IT workers," he says. "We've provided them with solutions and platforms that they can develop further. The developers at Kaupthing have been able to use their current Microsoft .NET skills and techniques to develop and integrate with Applicon business solutions and the SAP system. We've also integrated InfoPath with an SAP loan module so that end users in the bank can use simple forms to access data and print out example loan contracts."

"As we started to grow," adds Skarphéðinsson, "one of the most complicated things to manage was the user environment. People normally have administration rights directed to the desktop. By making a political decision like closing down the system in terms of local administration, we limited a lot of the system usage that placed a high demand on the workstation. For us, it was not secure to have applications with full administration rights at the local workstation, so we closed down the environment and dramatically limited our partner network. We saw that the key to success was to focus on the partner network, and to establish strong relationships through large vendors. By that time, we knew that Microsoft had longevity, and that has been our guideline since. We've always chosen big vendors on platforms and stayed with them. The entire development load is undertaken inside the company. By following this policy since 1997, we've stayed on the edge in terms technology, based on the .NET environment and all the tools that relate to that."

Kaupthing's international presence means that the ability to support multi- currency transactions is crucial. "We do settlements in all currencies," says Skarphéðinsson. "We have direct access to the markets in all Scandinavian countries, and interconnection to the dollar in the US. This is done through our banking platform, which runs on SQL Server 2005 and is based on the Microsoft infrastructure."

There are two different types of Kaupthing customer. While it is the biggest retail bank in Iceland, with 35 branches, its operations outside the country focus exclusively on corporate banking. "We base all the technology for our branches on Microsoft," says Skarphéðinsson. "We try to centralise as much as we can both on Exchange and Server, which are serving Norway, Finland and Sweden from one location, and we're trying to consolidate our server farms into these three data centres. That accounts for SharePoint Server, SQL Server or Exchange Server."

Skarphéðinsson's perspective on Kaupthing's future is based on its success in the recent past. "Since 1997 the business has grown from 80 people to 3,000. We were in one country and now we're in ten, and we've basically doubled the assets of the company every year since 1997. We are now at number 795 on Forbes' list of the world's biggest enterprises, and we're the first company in Iceland to reach that list – in fact, among the banks on the list, we're around number 150. Our goal is to continue to move up the list." Based on Kaupthing's past performance, and the success of its technology strategy, that seems a realistic aspiration.