Crafting an IT strategy has seldom been more difficult, or more important. The role of the IT department in a financial services organisation is undergoing fundamental change, and an outdated IT strategy, which fails to recognise these changes, could have devastating effects on the entire supply chain of the organisation, with dramatic results for all stakeholders.
There will always be a multitude of internal and external factors influencing a CIO`s strategy, but we`ve summarised some key drivers underlying the increasing complexities facing all financial services CIOs:
* Increased use of technology: Over time, the use of technology within the different parts of a financial services organisation has increased substantially. Initially, the IT focus was the automation of administration in back-office systems. Today, IT is used extensively in practically every aspect of the business. Technologies enabling this broader impact include workflow, business intelligence, CRM, Internet-based client facing systems, B2B systems, online transactions and so forth.
* Increased variety of technologies: Today, a much wider variety of technologies exists in a typical financial services organisation than was the case even five years ago, owing to the increased use of technology (as covered in the previous point) and the rapid rate of change of the technologies themselves. Administration platforms now typically include mainframe technologies, client/server technologies and sophisticated multi-tier architecture technologies. The number of packages (ERP and other) needed to run core parts of the business, such as finance, HR, call centres and CRM are also prolific; and newer technologies, such as mobile and collaboration technologies, are added to the list on a regular basis. The levels of integration are unprecedented. The resultant impact on architecture, skills requirements and risk management has been enormous.
* Requirement for rapid change: The financial services industry is also undergoing rapid change, driven by many factors, including the entrance of non-traditional competitors (eg retailers offering financial services products), globalisation, and the effects of changing regulation and compliance. This demand for rapid change by the business has often resulted in quality sacrifices over the years, leaving many fragile legacy systems in its wake. These systems are often seen as liabilities rather than assets by the organisation, yet they need to be carefully managed and maintained in order for the day-to-day operations to continue undeterred.
* Lack of increase in IT effectiveness: The increased demand for change by the business has not been matched by an equivalent increase in the level of productivity in IT capability, including methodologies, tools, processes and skills. In some cases, the increased complexity in IT environments has led to a reduction in the ability of IT to respond to change.
There is clearly a significant increase in the level of demand placed on IT, and CIOs need to consider the best manner in which to respond, and be prepared to act quickly and decisively. Operational challenges alone are not the only contributing factors; the boardroom is placing its own set of pressures on IT to deliver on the strategic agenda. Some additional challenges and opportunities that need to be addressed within the IT strategy are listed below:
* Different time horizons: Many business strategic objectives are relatively short term, often less than three years, owing to increased competition and the rapid rate of change. Yet IT application deployments, whether you`re building or buying them, are still a long-term investment (often greater than 10 years). It is currently not possible to introduce, use and remove large application systems in short time frames, given the radical effect on the business and its running efficiency. A CIO`s strategy needs to carefully consider these dynamics and bring them together responsibly in his strategy.
* IT architecture - designing for the unknown: Following from the previous point, it is also true that IT architects need to recognise the different time horizons. No longer can the IT architect design for the currently known requirements, as many of these will change within the life-span of the system. Architects need to focus on the design attributes of the system, rather than the business requirements and functions. The most fundamental attribute in this case is capability for change, but there are a number of other critical attributes requiring design consideration. Fortunately, with the advent of new architecture models such as SOA, the architects of today have much more material on which to draw when designing systems of the future.
* Different generations: The IT department consists of a cross-section of staff from different generations requiring ongoing management to maintain harmony between the so-called generations X, Y, the baby boomers etc. These different generations have different needs and requirements from a business; regarding cultural expectations, reward systems, talent management and working conditions. Yet each skill is critical to the overall capability of the IT organisation. Managing and acquiring talent is a global concern and CIOs need to consider this area of the strategy as critical to the success of their operation.
* Skills sourcing: Whereas yesterday`s IT department often did much of the development work in-house, the wide variety of skills needed in today`s world often means that this is not a viable option or even an ideal one. The increasing level of the IT skills shortage compounds this challenge. New strategies and competencies for the sourcing of IT skills are needed within the IT department. Outsourcing, vendor management, contract management and relationship management are potential critical success competencies for the IT department of the future.
* Software sourcing: IT departments will also need to start looking for alternative delivery models for faster and lower-risk software delivery. In the past, the two options have been build or buy a package - where packages are normally very large grained applications that you use on an all or nothing basis. In today`s world, software-as-a-service or SaaS is becoming more popular, where smaller-grained services can be supplied - usually over the Web - on protocols that make it easy to integrate into current systems and architectures. It is clear that SaaS has many potential advantages in terms of rapid software delivery - plug-and-play is starting to become an achievable ideal. The costing models also are normally transaction-based, meaning no capital investment is required and software is therefore easier to switch on and off.
* IT Finance Models: As IT spend increases as a proportion of the total budget; current IT finance models will increasingly need reassessment in terms of appropriateness. The current method of writing off application development costs as expenses skews the thinking about the management of these very expensive applications. Applications currently have no asset value in the books of the company, yet they clearly add value. If the development costs were accounted for as assets (in the form of the applications), different conclusions could be drawn with respect to certain strategic IT decisions. Imagine how the cost/benefit calculation could be impacted if it was necessary to write off a multi-million rand legacy system asset, as part of the business case to move to a new application.
It is clear that the manner in which the CIO and his IT department deliver value to the business is undergoing fundamental change. It is critical for the CIO to develop appropriate strategies to take advantage of these changes, where opportunities exist, and also to protect the organisation against the new risks introduced by these changes.
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