Changing the IT dynamics in financial services

Changing IT dynamics-596646-edited-941881-edited.pngOver the last 30 years the financial industry has gone through a continuous cycle of growth and retraction, the latter caused by internal structural issues, or by macro-economic events. There is no way one can plan for these events, except to accept that they are a factor that has to be catered for.

During that time, IT has become, particularly in the capital markets businesses, the major business cost factor. Events have shown that many firms discovered, when performing “productivity efforts”, that the spend levels had a high degree of fixed costs, which were highly resilient to efforts at reduction. 

It is a fact that having high fixed costs bases means that in any contraction the burden is most likely to fall on the softest areas, people and discretionary spending. This often means that reductions have to be made below prudent levels which opens up operating risks. This also causes denudation of the “core” capability, impacting the ability to grow when demand and budgets allow. Also, during these periods, the people that go, voluntarily or not, are not necessarily the right ones for the long term. 

IT management is challenged with delivering the highest potential ROI, and ensuring that they have flexibility to deal with the opposing demands of business growth and cost management by doing more with less. 

This is often cast as the management of  costs of RTB (run the bank) versus CTB (change the bank). RTB costs have also been remarkably resilient to efforts to reduce it, and the industry average of 70/30 RTB/CTB remains as the benchmark. We have seen different ratios, but that’s because of bananas being counted as apples. Sadly, the efforts at re-engineering the “legacy” environments we all had identified as the main drag on the RTB numbers coincided with downturns, and efforts that got started, got cut back and stopped, leaving another layer of legacy for the future.

Improving productivity is not only altering the RTB/CTB ratio dynamic, but also lowering the fixed cost base, and most importantly it is improving the actual product costs of delivering service to the business.

The CIO is therefore challenged probably more now than ever because:

  • management and the customer demand a digital transformation;
  • delivery cycles close down towards the goal of constant delivery;
  • regulations become more demanding and intrusive;
  • new transformative technologies become mainstream;
  • new technologies need to be assimilated and institutionalized before solving issues. 

I would argue that the transformation of “the bank into a software company” (often cited as the goal) or into a nimbler fintech organization at the macro level, should be outside the normal IT budget cycle. Most of the IT budget is consumed by what is already in place and that won’t be going away overnight. It’s as much an investment in the future as it was to build branches and put them at every street corner. But one has to be a realist, because only a few firms see things this way, and have their CIO’s report to the CEO, not the head of Operations or Finance.

There is no silver bullet for the CIO, this is the proverbial turning around of the battleship. This involves a comprehensive management strategy for IT service delivery. It has to happen across multiple layers of what, how and who are involved in delivering it. It also does not stop at the door of IT, because this is cross-organization and requires collaboration where everyone works towards the same goals.

Do you have a cross-organization strategy for IT service delivery? 

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Topics: Financial technology innovation

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