Making IT Serve Business Strategy
I recently attended a conference where one manager, in a discussion of her bank’s Information Technology (IT) strategy and operations, expressed the commonly held belief that “IT doesn’t speak the language of business.” She added that by 2007, her company knew that “IT was broken, and needed to be fixed.”
2007 was the year that McKinsey & Co. published their influential report on Better IT Management for Banks. In a study of the financial performance and underlying IT practices of 105 banks in Europe, Asia, and Latin America, McKinsey concluded that “Top-performing banks tend to form their IT strategies in close cooperation with the business by using formal governance processes and engaging the business to focus on value creation levers that are influenced by IT. What’s more, high-performing banks see IT as more strategic, and they drive more of their IT agenda directly; that is, they outsource less.”
Key insights in the report included: “Top performers spend 45% of their IT budgets on innovation (new services or capabilities); lower-ranked banks only 29%. Best-practice banks also introduce new products in only three to six months, compared with six to nine for less well-run banks.” And, “Leading performers standardize their IT operations on a limited set of platforms and use infrastructure such as machines more effectively than others do. In Asia, for example, leading banks achieve utilization rates of 30% to 40% on their Unix servers, compared with less than 30% for lower achievers.”
It’s an interesting piece of research and well worth a read but I have a more basic view of business and technology. Technologists are a blockage for most businesses because any change to the technology can create huge amounts of change to their organization, resources, budgets and capabilities. As a result, most technologists resist change, adaptations and implementations of new infrastructure.
This is why the discussion of IT being unaligned with business is about as old as Men being from Mars and Women from Venus. Meanwhile, there are some fundamentals at play that most firms, as George W. Bush might say, “misunderestimate.”
A key one is the role of technology in banking. Banking is a technology business, as underscored by bankers over and over again. Banks must therefore clearly align technology with their business goals, and work as a cohesive council of governance between the business heads and the technologists to ensure achievement of delivery to business needs, on time and to budget. This is why governance is such a critical factor.
And how do you achieve good governance? You put a business person in charge of technology.
Not a chief financial officer (CFO) or chief information officer (CIO), but a CBO – a Chief Business Officer. CIOs will be too blinkered because, coming from a technology background, they will be too encumbered by the technology limitations to see the potential for innovation; a CFO comes from a numbers background and is too handcuffed by the numbers to see the potential. Only a CBO comes from the business view and will see the potential. Whoever a bank puts in charge of technology must see the potential.
Unfortunately many financial firms put someone in charge of technology who does not see the potential for technology to differentiate the organization. As a result, the technology becomes subservient to the business needs rather than strategically innovating for the business.
It’s as simple as that.