Reining In ‘Wild’ IT Costs

© Can Stock Photo Inc. / mpk1970What can your company do to wrestle the most out of its expensive IT investments?

The answer might be to think like a stockbroker and determine which assets to “buy,” “hold,” or “sell,” according to management strategist Bob Dvorak.

The enemy isn’t so much costs, Dvorak says, but in the value IT delivers. Any company that has been around for a few years will have investments in  technology that once made sense and solved a problem, but no longer do, and simply drain precious resources.

Banking and financial services ranks second among all industries in terms of IT budget vs. revenue at 6.3%, according to research from Gartner Inc. The software industry itself leads the list with 6.7% of revenue spent on IT, but they have a good excuse.

Gartner also predicted, in 2013, that by the end of 2015, 35% of enterprise IT expenditures for most organizations would be managed outside the IT department’s budget. Centralized IT, in other words, may be an endangered species.

It must be recognized that as the role of technology in lending grows, demands on IT departments today are without precedent, and seem to be increasing. A startup emerges with flashy software and a great user experience that delights customers, and a FI manager might reasonably ask his IT staff, Why can’t we build this ourselves?

The answer is simple: Too many resources are spent “keeping the lights on.” Often, more than 80% of an IT budget — and IT talent and brainpower — in financial services are devoted to this upkeep of the status quo. Here’s a breakdown of a financial institution’s IT spend that is all too common:

  • 80% — “Keeping the lights on” upkeep
  • 6% — Admin
  • 5% Compliance
  • 4% Security
  • 4% Innovation

To employ Dvorak’s stockbroker analogy, careful analysis can tell management which IT endeavors should be designated “Buys,” which are “Holds,” and which are “Sells.” After this painstaking (and often painful) analysis, a company can invest in the Buys, maintain the Holds, and starve the Sells, and if all goes well, emerge with a far more agile mix:

  • 60% — “Keeping the lights on” upkeep
  • 6% Admin
  • 5% Compliance
  • 10% Security
  • 17% Innovation

When assets that are no longer valuable are identified and eliminated through the Buy-Hold-Sell analysis, the IT operation can become leaner and meaner, more efficient and more able to launch innovative initiatives without breaking the bank or drawing resources away from “essential” tasks.

As IBM innovation chief Bernie Meyerson warned, “Those who stop innovating disappear.” That’s a warning worth considering when assessing IT needs.

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