Banks throughout the world, and the vendors that provide
them products and IT services, are reeling from the crisis that has
gripped financial markets. Most banks are cutting IT spending while
they regroup to consider their strategies for 2009 and beyond,
writes David Furlonger, a vice-president and distinguished
analyst inGartner's industry research
group.
The impact of this financial upheaval on banks has been greater
than most observers expected, and trust of banks has been eroded to
a degree that few could have foreseen. The brokerage segment, which
accounts for nearly a quarter of financial services IT spending,
will be hit the hardest, followed by the banking segment, which
accounts for nearly half of global financial services spending.
Gartner believes the slowdown in IT spending by financial
institutions will persist through 2009 and likely linger for 12 to
18 additional months.
Cost cutting
Firms are ruling out discretionary spending and most new capital
expenditures. Financial services CIOs are telling Gartner that they
will lengthen the replacement cycle for PCs and servers, except for
mission-critical activity, such as securities trading. While all
types of technology investments will be under pressure, the biggest
cuts will be initially in internal bank staffs and then in layoffs
at large IT services firms.
However, there is a significant downside to layoffs. Most banks,
and the IT vendors that support them, boast significant
intellectual property among their staff. A top concern is that a
firm might lay off the one person who knows a lot about the IT
application or exceptions process that manages risk or supports
revenue flows. That could spur significant operational risk and
competitive pressure, as well as jeopardise business
continuity.
What can the CIO do?
In all your business cases for any type of IT spending, stress
the business benefits to be derived. Determine how your
organisation can produce short-term returns on investment and cost
controls. Other actions to take include:
- Plan for all contingencies. Your firm might acquire a failing
institution or be acquired by someone else. You must ensure that
your IT environment is able to accommodate that
uncertainty.
- Be flexible and supportive. You must reassure the business side
that you can address latency and support issues at a time when
business growth is critical to survival.
- Assess your skills inventory. Prioritise new hires (if you are
in a position to add staff) and identify jobs that deliver the
fewest cost-benefits and that can be eliminated with limited
risk.
- Develop a holistic approach to compliance. Expect governments
and regulators to introduce more-stringent legislation and rules
for transparency.
- Keep an eye on your vendors. Bank CIOs should be careful not
to make knee-jerk reactions in assessing vendor viability or demand
such excessive concessions from vendors that they drive them out of
business. However, pay close attention to changes in vendor cash
flow, service and support loss of clients and upgrade
delays.
Not all financial services firms will be standing on the
sidelines, waiting for markets to return to a relative level of
calm. Executives at some financial firms - for example, community
banks and credit unions - see an opportunity for increasing market
share and targeting new markets in this environment. Innovation
cannot be ignored - it will still separate winning or surviving
firms from losing firms.