Management Strategies

03:08 PM
Gwenn Bzard, Research Director, Aite Group
Gwenn Bzard, Research Director, Aite Group
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Bank CIOs Remain Cautious With Spending, Says Exclusive Survey

If the economy is on the mend at last, what are the prospects for bank technology spending for the foreseeable future? In July and August 2009, with the help of Bank Systems & Technology, Aite Group conducted an online survey among 80 North American bank CIOs and technology executives to address the outlook for bank IT spending for the next 24 months. Among respondents, 40 were working for top 120 U.S. banks by assets and top 5 Canadian banks, and another 40 were from U.S. community banks and credit unions.

Budget Trends If the economy is headed toward a recovery, it has not yet affected bank CIOs' budget expectations. In fact, the vast majority of North American bank technology executives (72 percent) expect their budget to stay the same or decrease in 2010, a situation very comparable to that of 2009 (73 percent). Only 28 percent of bank technology executives expect their budget to increase in 2010, while 27 percent had seen their budgets increase in 2008. Given the fact that 46 percent had seen their budget increase in 2008, 2009 and 2010 are markedly thrifty years for bank IT.

Since the majority of bank IT budgets are usually consumed by non-discretionary items, Aite Group's survey paid special attention to the discretionary component of bank IT budgets. The trend we observed earlier with overall IT budgets is more acute with discretionary budgets; when looking at 2010, 82 percent of respondents expect their discretionary budgets to stay flat or go down, compared to 74 percent in 2009 and 68 percent in 2008. As many as 40 percent of bank CIOs expect their discretionary budget to decrease in 2010 compared to 34 percent in 2009 and a mere 15 percent in 2008. The share of banks expecting higher discretionary budgets falls to 18 percent for 2010, compared to 26 percent in 2009 and 32 percent in 2008.

Here, any possible economic recovery is not yet apparent in bank CIOs' discretionary budgets. Small-to-large vendors betting on a rebound in bank IT spending in the coming year may be in for a big disappointment.

CIOs' Top Priorities Bank CIOs have lived thriftily for the past two years, and expect to do more of the same in 2010. As such, a majority of North American bank CIOs are going to focus on improving efficiencies (84 percent) and cutting costs (66 percent) in the next 24 months. Half (52 percent) expect to focus on supporting risk and compliance enhancements within their organizations as well as enhancing information security (48 percent).

Forty-three percent are also busy investing in virtualization technology, with large institutions (54 percent) being more likely than smaller ones (30 percent) to invest in virtualization technology.

On a positive note, more than one-third of institutions (39 percent) are going to focus in the next 24 months on preparing for future growth. Also, one-third of institutions (35 percent) expect to be busy supporting growth by acquisitions in the next 24 months. The expectation is that more banks will fail, and that stronger banks will pick up the remains. As such, large institutions (43 percent) will be more likely to gear up for growth by acquisitions than smaller institutions

One-third of institutions will focus on upgrading applications and/or their infrastructure, while another 68 percent will treat it as a somewhat important priority. Large institutions are more likely to view applications upgrade as a very important priority at 40 percent, compared to small institutions (22 percent).

North American banks will continue to tread carefully with modern technology architecture such as service-oriented architecture (SOA). About one-fifth of institutions will make it a priority to invest in modern technology architecture (22 percent) in the next 24 months. Modern technology architecture has positive connotations since an additional 72 percent indicate it's a somewhat important priority, but most are stopping short of placing it at the very top of their priority list.

Although the convergence of IT services outsourcing (ITO) and business process outsourcing (BPO) represents the hallmark of the strategy of a number of major IT services providers, it has yet to create a sense of urgency among North American bank CIOs. Indeed, a mere 12 percent of our respondents indicated that they intend to make the integration of BPO and ITO a priority in the next 24 months. This is not to say they don't care, since 51 percent see it as a somewhat important priority, but CIOs simply do not see this as a very top priority.

An overwhelming majority of respondents indicate that their organization will not make a priority of increasing the use of offshoring. Only 4 percent of respondents said increasing the use of offshoring is a very important priority for the next 24 months, while 80 percent say it's not an important priority. Such findings will be disappointing to vendors betting that tight IT budgets will benefit offshoring.

Bottom line Whether the economy is on the verge of pulling back or not, North American bank CIOs expect to remain on a diet for the next 24 months. Vendors, which are betting on a rebound in bank spending to lift their boat, will be in for a big disappointment. The winners among vendors will be those that offer clear paths to rapid efficiency and cost saving gains. That list will include vendors delivering server virtualization, data security, and risk and compliance technologies and services.

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