Faced with the most challenging financial environment since the 1930s, it would take the most irrepressible of optimists to suggest that the next 18 months will be anything other than hugely challenging for those tasked with managing banking information technology (IT) budgets: when an industry that accounts for some 20% of corporate IT and technology expenditure globally experiences a catalogue of shocking and extensive losses, there is little chance that IT – a function historically, and often wrongly, regarded purely as an over-bloated cost centre – will escape unscathed.
For chief technology officers (CTOs), chief information officers (CIOs) and IT directors globally, to say nothing of the technology, IT service and consultancy providers that support their operations, 2009 will bring dramatically smaller budgets in many areas of the banking business, and with it, substantial pressure to make efficiencies and cut costs, to kill unnecessary projects, and to achieve more for less.
In the subsequent pages, three of the world’s leading technology, IT consultancy and IT service providers – Accenture, Wipro Technologies and EMC – outline their visions of how strategic technology changes and investments can help organisations respond to the demands brought to bear by the board, the market, and the customer, in this hyper-pressurised environment.
As large global organisations, providing IT services and products to many of the world’s top-tier financial services players, they are able to offer a number of unique insights on how the banking community at large is responding to the renewed pressures on the IT function, and how, in turn, banking executives can optimise existing operations and resources.
Slash and burn?
In the first instance, the response to the new, leaner economic climate will assume the form of resource-restriction: as Daniel Benton, managing director, Systems Integration and Technology Solutions, Financial Services EALA at Accenture, points out in his article, IT accounts for about 15% of the total operating costs of the average bank, and it is in this cost centre that CFOs hope to make principal cuts, and offset the ever-growing pressure on revenues.
Indeed, many banks have recently acquired extensive assets – in some cases quite against their will and with little of the diligent pre-planning required under normal market conditions. For these players, identifying points of integration, cutting out the costly flab, and streamlining infrastructural operations, a chief component of which is IT, is imperative if they are to restore shareholder value. However, as Mr Benton notes, it is critical that at this time of high anxiety, banking chiefs take a long-term view and do not clamp down on important discretionary IT spend that allows the IT function to nurture long-term operational efficiencies.
Times of budgetary stress, it is now clear, frequently prompt a flurry of outsourcing activity, as banks reassess what exactly constitutes their core functions and where, in turn, they might differentiate themselves. This issue is explored in the interview with Daniel Marovitz, head of product management and CEO of technology and MIS, global corporate finance, Deutsche Bank, who is tasked with negotiating a number of outsourced agreements on a daily basis. As he explains, outsourcing must be deployed with strategic care and with a view to gaining the efficiencies of both scope and scale. This too will be a key area of focus for banking CTOs globally as they look to gain efficiencies in non-core functions.
None of which is to suggest, however, that the IT cupboard will be entirely bare. Although the focus is rightly on cutting costs, the long-term will necessarily bring with it several renewed areas of interest. In certain areas of the banking business, across the retail, capital markets and commercial businesses, a combination of regulation, commercial self-preservation and savvy opportunism will force organisations to make both strategic IT investments, and to reallocate resources from one area of the business to others.
Chasing the cash
According to analyst firm Financial Insights, for example, the big shift, in terms of the overarching business model for the next few years will be the old-fashioned imperative to chase customer cash. As the chief line of new growth capital, deposit-taking will become a top priority, leading banks down a very different path of IT investment to that of recent years. Consequently, many banks will be forced, at least in the medium to long term, to build out much more expansive and sophisticated retail infrastructures. Popular ‘mass affluence’ schemes, for example, by which banks hope to attract high-earners and their chunky salaries, are becoming an area of ever-increasing focus to retail banking giants.
But executing these campaigns and retaining such highly valuable customers, as Ravi Kiran, head of the banking domain at Wipro Technologies, identifies in his article, will depend on the bank’s ability to offer a rich and compelling customer experience (as opposed to mere customer service) across multiple channels. As extensive research shows, the ability to offer customers a banking experience that stretches beyond service levels and, in turn, encompasses all interactions with that organisation, increases the probability of repeat business, while serving to strengthen the bank’s brand: in an industry that badly needs to restore customer faith, this prospect is no longer a matter of added value, but of commercial urgency.
It seems natural, therefore, that many banks, as Ivan Fernandez, EMC’s marketing director, points out in his piece, are now aiming to invest in what he describes as “customer centricity”, in parallel to a number of IT and business efficiency projects. Using technologies such as multi-channel communications and business intelligence analytics, financial services organisations can gain close visibility of customer needs, reduce customer churn and increase up-sell rates.
Gaining insight
To this extent, the financial crisis may expedite some of the slow-burning projects, in particular front-end channel integration, that have lingered unfulfilled in the background for some time. As the crisis has cast an unflattering light on the industry’s knowledge, or lack of, regarding its consumer base, an enhanced ability to understand and in turn risk-assess the customer is also likely to spur on the back-office integration of siloed information streams – a strategy that has long been the aim but rarely the reality of a large proportion of retail banks in developed markets.
In such unprecedented times, IT strategy is one of the few areas which lends itself to cautious forecast, not only because IT itself is a fundamental necessity, but also because its value to the banking industry, across all areas, is becoming widely recognised. For this reason, it is more important than ever to accumulate quantitative data on future IT investment patterns: The Banker, in conjunction with a number of sponsors, will therefore be launching a global quantitative survey of IT decision-makers, throughout the banking and financial services industry, in the New Year, in order to understand more clearly how budgets will be divided up, resources reallocated and where hidden opportunity will lie.
Watch out for The Banker’s IT Investment Survey 2009 in the New Year and, in the meantime, enjoy the following insights on how to negotiate the ensuing constraints strategically and effectively.
