IT project cuts during downturn a bad idea

Cutting IT projects to save money during tough times can be a mistake. It undermines the investments and productivity gains that the projects were set to achieve in the first place.

HSBC's strategic project to move the bank to common computer systems, known as One HSBC, is an example of an IT investment that has beaten the crunch. The bank embarked on an ambitious project two years ago to move its disparate business units to common computer systems.

The market conditions today are far removed from when the project began two years ago. But rather than cutting spending on the project in reaction to the downturn, Ken Harvey, chief technology and services officer at HSBC, is spending more on it.

Investing in IT is more important during tough times, he says. "The technology strategy is pivotal to dropping the overall cost base of the business."

HSBC spent $650m on One HSBC in 2007 and increased its investment to $1bn in 2008. Harvey is expecting to invest $1.2bn in 2009.

The project has so far allowed HSBC to cut the number of core banking systems it uses globally from 55 to 17. By the end of 2010 there will be one system globally. It is carrying out similar consolidation with internet banking systems, credit card systems and desktop standards. At the same time it has cut the number of data centres from 130 globally to four pairs.

But critically the project also has key business benefits. The integration of systems makes life easier for customers to deal with the bank through automated electronic services. One HSBC will also help the business to expand into new regions without having to build complex banking IT infrastructures from scratch.

Although HSBC's overall IT budget at the bank will remain flat at $6bn next year, Harvey plans to spend a greater proportion of it on One HSBC. The project will make it easier to reduce spending in other areas, he says. Consolidating core banking systems, for example, reduces fixed costs such as support and maintenance of decommissioned systems.

Peter Redshaw, analyst at Gartner, says finance directors often fail to differentiate between projects when they put pressure on CIOs to cut costs. "There are banks that just make blanket cuts and they often make no differentiation between tactical projects and strategic objectives."

Abandoning sound IT projects can damage long-term savings and productivity. Money already spent will be wasted and there will be costs associated with ending contractor contracts and supplier agreements.

He says the One HSBC project's advanced stage makes it difficult to cut back. "There are CIOs out there thanking their lucky stars that some of their projects were signed off before the slowdown."

HSBC's timing, for the implementation of One HSBC, was right, even if it did not know that at the time. The One HSBC project has had time to show its worth before the banking crisis took hold. It offers a good example for CIOs to hold up to CFOs to demonstrate that IT investments are for the long term. Cuts could be very expensive and ultimately damaging to business, even in a downturn.