Investment banks spend more for less IT

Investment banking spends 30 per cent more on IT than its retail cousins but shareholder pressure for dollar delivery leaves it with under performing IT systems and huge legacy issues.

The sector's preoccupation with quarterly earnings and being 'first to market' has resulted in a "silo mentality", disconnected systems and huge legacy and interoperability issues, warns IT outsourcing and services provider Accenture.

Getting new products out in the marketplace and keeping up with competitors is a bigger concern to investment banks - which spends more on a revenue percentage bnasis than the retail banking sector -- than the process of deploying a "well-thought out" IT project, Trevor Gruzin, global managing partner, banking for Accenture, said.

He said there was a mentality of speed to market, and then to "backtrack" to weave all the IT systems together. "New projects are not built to architecture."

Glenn Dixon, technology infrastructure manager for JPMorgan subsidiary Ord Minnett, disputes there are huge issues with investment bank IT systems, purely due to a lack of "improvement or change within IT systems (across the board) in the past five years".

"Within the last five years, there has not been any new technology that I have needed to evaluate and implement. Solutions for big investment banks overseas are not filtering through to the Australian subsidiaries."

Another investment bank IT manager also disagrees that the sector faces underperforming IT systems. "Problems with project silos have certainly been the case in the past, but most investment banks have worked this out. Especially with creating a trading product, the bank's systems cater for quick implementations and are quite flexible in capturing these solutions."

The IT manager said since investment banks are not "technology houses", they do have legacy systems and the systems in the back end are quite often "large and cumbersome".

"They may be old and clunky, but they are adequate and [are] replaced when appropriate."

However, Accenture warns while technology advances throughout business, there is little displacement of older technology and therefore, it will be "inevitable" that IT costs will continue to increase at a faster rate than other costs.

Technology decisions within investment banks are generally made to suit individual business unit needs. While base IT resources are shared, often each business unit has its own dedicated team of IT professionals.

Therefore, Accenture officials said, more efficient and cost-effective, cross-product IT initiatives seldom obtain the required political support to sustain executive commitment.

The company said investment banks are highly leveraged and capital-constrained, making them reluctant to invest in non-revenue-generating areas like new, large-scale IT initiatives.

IT professionals

IT professionals themselves present another barrier to efficient IT systems within the investment banking sector, Mikael Michau, senior manager within Accenture's Australian financial services practice, said.

"IT product managers don't focus on methodologies and architecture. The processes are not in place," he said in investment banks where awards and bonuses also appear to be blinding IT. "Award structures are in place [in investment banks to get a new product out in the market as soon as possible] and this applies to IT as well. Therefore, it is hard to introduce standards as IT is motivated by the awards," Michau said.

An investment bank IT manager said whether IT receives bonuses is up to each bank. "Bonuses for IT people definitely happen. I think that it is good that technology is seen as part of the success of the team."

Huge issues also exist with shelfware, Trevor Gruzin, global managing partner, banking at Accenture, said, as banks often buy large numbers of licences and rarely use all.

"Investment banks are under using what they are [purchase]. There are lots of products built in silos and [many examples] of not using the full functionality of the product."

Technology is important to investment banks as it gives them enormous leverage within business. Investment bankers are also technology literate, so "business has a strong say and this often leads to multiple product purchases".

"Investment banks need to take a decentralised approach with IT. At the moment, business units are in control of their spend and IT projects."

Accenture claims technology challenges cannot be surmounted within the framework of the current IT business model as implementations need to be controlled by "strong governance and architecture", because it is a CEO agenda.

Copyright © 2002 IDG Communications, Inc.

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