Why the role of IT in Financial Institutes is more important than ever

Most of today financial institutes see IT expenditure as an expense which eats into their profit margins. But, in todays world where you can order virtually anything on the Internet.  Interestingly , you can buy the Moon. But, try buying an insurance or apply for a loan and you would spend anywhere between 1 hour to days to get the policy or loan approved.

Why does this happen?
Why organisations tend to see IT as an expense rather than as an Investment?

From a finances perspective, IT expense does not convert to revenue. Something similar to using fuel in a Taxi. For a taxi driver the taxi is an investment and the fuel consumed is an expense. Even though his taxi does not run without fuel, it is always seen as an expense. This would mean, sometimes it might seem to be a good idea to use subpar fuel to improve profitability.

Businesses cannot survive without IT it is the life blood of modern organisations.But from a finances perspective it looks like an never ending expense which business cannot avoid. Similar to a taxi driver trying to optimise his taxi's fuel consumption, businesses can optimise their IT spend.But, there is difference between optimisation and outright cost cutting.

Lets find the main reason for IT costs

1. Hardware and IT infrastructure.
2. People with relevant skills.
3. Software licensing.

Of the three, the main ongoing cost is People(not resources, people != resources). IT infrastructure would be an initial cost, software licensing can be perpetual or ongoing but will be fixed for a period. The only variable cost is People. Not only organisations have to maintain People talent, but also have to spend money to train existing and recruit new talent. People talent also needs other support functions like HR and Finances to function, which is an indirect cost to the organisation.

So, in times of finance optimisation, the first option corporate leaders tend to see if Layoff or Offshore. Both of the options seems to look good on paper and in the short term shows results. People will be Laid off, projects put on hold, projects in progress will be written off and in the next quarter, business would see decent profitability.

But, business does not run in isolation.It runs in a competitive market where any misstep is seen as an opportunity by the competitor. This would mean, people laid off will be taken in by rival business leading to brain drain. Projects put on hold does not deliver much needed innovation to the business products. Businesses will be stuck with legacy products and business had to use these services and products to serve customers. This will ultimately lead to customer dissatisfaction and lost opportunity and business in the long run.

For example, the first bank to come up with Android Pay and Apple Pay would get the most publicity in the media. This leads to increased sales opportunities as customers wants to try these products. The bank might have spent a fortune in building the products but it did get a big share of the market.

Businesses should differentiate themselves not in terms of cost but in terms of quality of services. Change is the only constant in this changing business landscape and only organisations who are willing to change will survive the next 100 years. Change does not mean reducing your workforce or offshoring your core business. Change means creating innovative products and services for your customers.

You can manage IT as a seperate vertical in your business, but if you see IT as a cost and not as an investment, you will lose your differentiation and competitiveness in the market. Treat your IT People not as an expense but an investment. An investment that would help you differentiate yourself in the market.  If not, you will be stuck with legacy, disconnected systems which in turn leads to bad customer experience. This would in-turn leads to loss of brand value and customer attrition in the long run.

Finally, If you want to optimise IT costs, do

1. Recruit the best IT talent in the market. Quality would always win over quantity.
2. Do not divide your IT into individual disconnected departments. If you divide them into departments, protectionism comes into play and it will be hard to get departments to cooperate.
3. Reduce overhead costs, get Techno Managers who can string together business requirements with IT deliverables.
4. Offshore only the non core business.
5. Don't be afraid to fail. Even the most innovative companies like Google failed in monetizing some of their products(Docs). It's normal for  products/ideas to fail and it is part of the evolutionary process for any business.
6. Don't encourage Micro Management, this would lead to employee dissatisfaction and stifle innovation.
7. Spend enough on improving your existing infra and software assets.

In the next 20 years, most of the business functions will become digitised. A customer will not visit a brick and mortar store to buy a phone, get a loan, buy insurance or even get a financial advice. Even medical surgeries will be done by surgeons remotely.

IT is the future and don't see that as an expense.