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 in Gartner'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.
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.