Optimising IT spend with the power of the Magic Orange Solution
The importance of IT for the strategy and operations of large financial services organisations is highlighted by the recent financial results published by the "Big Four" banks in South Africa. Their annual reports for the year ended June 2016 indicate that these four banks spend in excess of R30 billion per year on IT (inclusive of IT staff costs). According to a recent article published in Moneyweb (Big Four' IT spending tops R30 billion a year (Moneyweb, 19 Sept 2016) these costs, excluding staff costs, range from 10% up to 19% of operating costs, with FirstRand being the lowest, and Standard Bank the highest.
To what extent is this an indication of the extent to which IT has become key to the ability of the financial services organisations to operate? Or have we simply reached the point at which IT spend has become out of control? Answering this question is made more difficult by the reputation that IT has acquired of being seen by businesses as an unquantifiable mystery that is important, but not accountable, as far as return on investment is concerned. Historically, CFOs and CEOs have invested millions on recommended software and technologies without truly understanding the full benefits and returns these investments should be yielding.
As an alternative to simply blaming IT for being unable to communicate effectively with business, more creative organisations have sought to develop new ways in which to enable the conversation required between business stakeholders and IT. The solution to this source of conflict in business is found only by facilitating a more constructive dialogue between IT and business. The disciplines of cost transparency and business technology management are frameworks that enable enterprises to understand their investment in IT more effectively, and to make better fact based decisions concerning their investment in IT.
Co-Founder and CEO of Magic Orange, Greg Guye, has extensive experience at implementing these disciplines at a number of global financial services organisations. He explains that implementation of these enable large enterprises, particularly in financial services, to relate the total IT spend to actual business operations. As a result, allocation of costs to business units may be more accurately based on the actual consumption of IT spend by the businesses. They are then able to empower business managers to understand their IT costs within the context of their business, and how to relate these to their strategy and operations at a level of detail which is not possible using general ledger based financial reporting on its own.
The implementation of these disciplines requires not simply a change of mindset, but also the adoption of new toolsets. Many companies begin the journey toward implementation of cost transparency by attempting to use reporting solutions based on spreadsheets and standard financial or BI reporting tools. According to Guye, this is one of the first impediments to success. The familiarity of these tools make them beguiling, and often much time is spent in a first attempt based on the use of these tools. Once the limitations of these tools have been reached, organisations begin to look beyond the familiar.
"The complexity of the calculations and the combination of financial and other metrics, combined with the requirement to present the data in many different ways for different business users," says Guye, "requires the use of new tools."
Guye, together with his other founding shareholders, recognised an opportunity to address this market, and founded Magic Orange in 2015. They have developed a solution based on the cost transparency and technology business management frameworks, and have a consulting team with specialist experience at implementing these. Guye and his fellow shareholders have already enjoyed success in this new area of business both with global and local banks. "We have become specialists within an exciting niche market," says Guye, "with the opportunity to grow significantly both here in South African, and globally."