All banks rely on technology to support their business operations — to bring products to market and service customers. Thus, it is not surprising that North American banks are increasing their technology spending. According to a recent study by Boston-based research firm Celent, U.S. banks will spend up to $38.5 billion on technology in 2005, representing a 4 percent increase over 2004. However, it is not the product offerings, or the supporting technology, that differentiate banks in the marketplace. Instead, the key differentiator often is the talent behind a bank's systems.

"Our banking customers ... only introduce a certain number of products a year — they know they cannot solely compete on products," relates Mark Lange, national vice president, human capital management, for SAP, a Newton Square, Pa.-based provider of enterprise application software. "Rather, human capital is their true competitive advantage. That is how banks can truly differentiate themselves."

Therefore, while a portion of banks' IT budgets will be allocated to outsourcing partners, savvy organizations are keeping their business knowledge and project delivery teams in-house. To strike a balance between competitive advantage fueled by internal expertise and efficiencies enabled by outsourcing, many banks are blending their internal and external IT resources to create a true global workforce.

Integrating local IT talent and offshore teams should seem old hat to the banking industry. Many banks have experienced similar adjustments while integrating systems during the recent wave of mergers and acquisitions, points out Ekaterina Walsh, research director for Boston-based research firm Aite Group. "After a merger, banks need to ensure that the IT team is trained and that formerly disparate systems can now operate seamlessly," she says. "If these systems are integrated poorly, the basic level of daily customer service is in jeopardy."