Strategic Technology Investments Can Eliminate "Business-as-Usual" Pitfalls

By Smiley, Barbara | American Banker, October 20, 1997 | Go to article overview

Strategic Technology Investments Can Eliminate "Business-as-Usual" Pitfalls


Smiley, Barbara, American Banker


The consequences of poor technology spending are more than wasted dollars; banks that don't invest strategically can't support their business plans-or differentiate themselves.

Some conventional wisdom: only 15 to 20 percent of banks' technology spending is allocated to strategic investments. This means that North American banks will spend $18 to $19 billion this year just to make sure that their business goes on as usual. That's a good amount of money, but it's the smaller, strategic 15 percent that is really intriguing, because it represents banks' efforts to differentiate themselves, and it's where their vision of their future is revealed. It's also where the risk is greatest, not because of the size of the investment, but because of the consequences of failure.

Identifying this spending does not start with studying a bank's technology or project portfolio. Spending on technologies that are on today's "what's hot" list is not necessarily strategic, because technology does not define strategy. The strategic business plan drives technology strategy. The challenge for the information technology (IT) manager is to understand that business plan intimately, and only then to identify the projects and technologies that will make it happen. Today, that often means seeing beyond existing "application" areas, the traditional spending silos, and developing broader concepts-of customers, of service delivery, and of risk (firmwide). These are major areas that are often addressed in banks' business strategies, and the challenge to the IT organization is to translate them into the right combinations of application, experimentation, and infrastructure projects that make up strategic technology spending.

advanced tech auspices

Application projects are fairly traditional: they deliver technology to support a defined business function, usually a specific organization. There are strong accounting and processing aspects to them, and, if successful, they will be considered legacy systems in five years. Application projects are often part of a bank's strategy to support entry into a new line of business.

Experimentation projects are usually the ones that introduce and evaluate new technologies. These can be conducted in R&D-type settings, under formally designated "advanced technology" auspices, or they can be adjuncts to other development efforts. Even if part of a business-focused project, their purpose is usually evaluating and proving a technology for broader use in the bank. This is often how banks' Web sites were initiated, or object-ware was selected, or data mining was first tried. Although consuming the smallest part of that strategic 15 percent, these are often the projects that people first think of when "strategic technology initiatives" are discussed.

Infrastructure projects are where 70 percent of strategic spending can be found. That's for two reasons: infrastructure is inherently strategic, and infrastructure is expensive. These projects are the ones that position the bank to move forward in a different way. They are enablers, the necessary support for future projects. In the '80s, building corporate local area networks (LANs) and wide area networks (WANs) were strategic infrastructure projects, and banks have leveraged those expenditures with every client/server application they have installed since. …

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