American Banker

How to pull out of a technology tailspin

Financial services companies pour enormous resources into building information technology capabilities to gain a competitive edge and power profitable growth.

By David Shpilberg and Christine Detrick

Published on October 28, 2005
min read


Financial services companies pour enormous resources into building information technology capabilities to gain a competitive edge and power profitable growth. So why is it that so many banks, insurers, and brokerage houses view information technology as a hindrance rather than a help in hitting growth targets? To find out our company recently surveyed 362 senior business and IT executives around the world. The results showed that the vast majority—more than 70% of the respondents—agreed that IT spending is essential for growth. But even among believers, 29% report that their IT capabilities create obstacles that inhibit growth. Most of the executives we interviewed could identify a clear tipping point, a single failed project or cluster of projects, that precipitated their company's downward spiral. Trouble usually starts when an IT project veers off course, undermining confidence in the ability of IT to deliver. Spending falls; under pressure of speed to market, the company's IT infrastructure and long-range applications take a back seat to getting new features out the door. Eventually the organization starts to lose confidence in IT and withdraws support. IT tailspins can take many forms, but two are especially common: A breakdown of alignment and trust between business and IT originates in a few failed growth-oriented IT initiatives. The bank's business executives delay highly visible IT projects. The resulting drop in IT budgets means fewer new initiatives and deferred upgrades to infrastructure. The bank's ability to use IT to sustain growth withers. Trust between business and IT remains intact, and IT spending remains stable, but the bank's business executives resist investing in anything not connected with their immediate needs for business applications. Systems infrastructure falls out of date, common databases do not get built, and legacy systems become increasingly complex and fragile. Projects that rely on IT begin to fail, and success comes with longer delivery times, greater risk, and higher costs. IT leaders and senior executives often respond by trying to "fix" their technology, but initiatives that attack the problem systemically with massive investments usually fall short. In our experience, the best way to restore trust is to identify a single growth initiative that relies on IT, gain the support of the business unit sponsoring it, and focus intensively on making it a success. Three principles can help your company recognize an appropriate project to supply the IT uplift: First, the project must relate directly to business growth. Investments to enable growth—loyalty initiatives, sharper customer segmentation, expanding from products into services—are vital to the business and therefore good candidates for regenerating trust in IT. Second, the executive responsible for the relevant business unit, not the CIO, must "own" the project and commit to its success. Third, the project must take no longer than 12 months to complete. The results can be dramatic. At Charles Schwab, for example, executives had long viewed technology as a source of competitive advantage. But while overall IT spending remained strong, pressure to deliver new applications meant less money to refresh infrastructure, swap outdated legacy systems, and eliminate complexity. By 2003 the firm's IT efforts had drifted off course. And when a major two-year initiative to develop a new portfolio management system stalled, trust in IT entered freefall. To restore balance, Schwab launched a business-led IT project in 2004, putting the individual investor business unit—the group that stands to gain the most from the project's successful completion—in charge. The new initiative attacked head-on the IT infrastructure clutter that had caused operating costs to escalate and response times to slow down. Schwab earmarked $50 million to migrate the processing of trades from its mainframe IT environment to a more flexible platform. Over the past year, the business unit and IT-team alliance has gone a long way toward restoring trust in IT's contribution to profitable growth—and instilling a sense of shared destiny among the IT and business organizations. Once the tailspin has been averted, financial services companies must remain vigilant to avoid tumbling into a new downward spiral. As every CIO and line business executive knows, the alignment between IT and the underlying businesses it is meant to support is inherently unstable and requires constant adjustment to stay on course with business growth goals. Integrating IT more closely with the rest of the business means your bank will no longer have to concern itself as much with tailspins and can focus on soaring. The authors are Bain & Co. partners in New York. Mr. Shpilberg leads the firm's information technology practice, and Ms. Detrick leads its financial services practice for the Americas.

Financial services companies pour enormous resources into building information technology capabilities to gain a competitive edge and power profitable growth. So why is it that so many banks, insurers, and brokerage houses view information technology as a hindrance rather than a help in hitting growth targets?

To find out our company recently surveyed 362 senior business and IT executives around the world. The results showed that the vast majority—more than 70% of the respondents—agreed that IT spending is essential for growth. But even among believers, 29% report that their IT capabilities create obstacles that inhibit growth.

Most of the executives we interviewed could identify a clear tipping point, a single failed project or cluster of projects, that precipitated their company's downward spiral.

Trouble usually starts when an IT project veers off course, undermining confidence in the ability of IT to deliver. Spending falls; under pressure of speed to market, the company's IT infrastructure and long-range applications take a back seat to getting new features out the door. Eventually the organization starts to lose confidence in IT and withdraws support.

IT tailspins can take many forms, but two are especially common:

A breakdown of alignment and trust between business and IT originates in a few failed growth-oriented IT initiatives. The bank's business executives delay highly visible IT projects. The resulting drop in IT budgets means fewer new initiatives and deferred upgrades to infrastructure. The bank's ability to use IT to sustain growth withers.
Trust between business and IT remains intact, and IT spending remains stable, but the bank's business executives resist investing in anything not connected with their immediate needs for business applications. Systems infrastructure falls out of date, common databases do not get built, and legacy systems become increasingly complex and fragile. Projects that rely on IT begin to fail, and success comes with longer delivery times, greater risk, and higher costs.

IT leaders and senior executives often respond by trying to "fix" their technology, but initiatives that attack the problem systemically with massive investments usually fall short.

In our experience, the best way to restore trust is to identify a single growth initiative that relies on IT, gain the support of the business unit sponsoring it, and focus intensively on making it a success.

Three principles can help your company recognize an appropriate project to supply the IT uplift:

First, the project must relate directly to business growth. Investments to enable growth—loyalty initiatives, sharper customer segmentation, expanding from products into services—are vital to the business and therefore good candidates for regenerating trust in IT.
Second, the executive responsible for the relevant business unit, not the CIO, must "own" the project and commit to its success.
Third, the project must take no longer than 12 months to complete.

The results can be dramatic.

At Charles Schwab, for example, executives had long viewed technology as a source of competitive advantage. But while overall IT spending remained strong, pressure to deliver new applications meant less money to refresh infrastructure, swap outdated legacy systems, and eliminate complexity.

By 2003 the firm's IT efforts had drifted off course. And when a major two-year initiative to develop a new portfolio management system stalled, trust in IT entered freefall.

To restore balance, Schwab launched a business-led IT project in 2004, putting the individual investor business unit—the group that stands to gain the most from the project's successful completion—in charge.

The new initiative attacked head-on the IT infrastructure clutter that had caused operating costs to escalate and response times to slow down. Schwab earmarked $50 million to migrate the processing of trades from its mainframe IT environment to a more flexible platform.

Over the past year, the business unit and IT-team alliance has gone a long way toward restoring trust in IT's contribution to profitable growth—and instilling a sense of shared destiny among the IT and business organizations.

Once the tailspin has been averted, financial services companies must remain vigilant to avoid tumbling into a new downward spiral.

As every CIO and line business executive knows, the alignment between IT and the underlying businesses it is meant to support is inherently unstable and requires constant adjustment to stay on course with business growth goals. Integrating IT more closely with the rest of the business means your bank will no longer have to concern itself as much with tailspins and can focus on soaring. The authors are Bain & Co. partners in New York. Mr. Shpilberg leads the firm's information technology practice, and Ms. Detrick leads its financial services practice for the Americas.