Does It Payoff Strategies of Two Banking Giants
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ALI FARHOOMAND
DOES IT PAYOFF? STRATEGIES OF TWO BANKING GIANTS
You can see the computer age everywhere but in productivity statistics.
- Robert Solow (1987)
In the previous 20 years, there had been a debate concerning whether or not IT paid off in the long run. While some questioned the positive contribution of IT to productivity, others attributed the so-called IT paradox to measurement methodology and to the lack of measurable data, such as increased quality, variety, customer service, speed and responsiveness. To make matters worse, a controversial article published in Harvard Business Review argued that, as IT was being commoditized, the opportunities of gaining IT-based competitive advantages were rapidly disappearing (Carr, 2003). If this was true, then companies should spend less, wait longer to invest in more matured technologies and should be more careful about the costs of IT investments. Financial services firms had long been among the most intensive users of information technology (IT), starting in 1867, when the stock ticker began bringing current Wall Street information to Main Street. Starting in the 1980s, the development of the Internet and telecommunication technologies had further facilitated the development of new banking products and introduced alternative delivery and distribution channels. It was estimated that IT spending accounted for 20-25% of non-interest costs and around 6% of annual revenue for financial institutions (Kauffman and Weber 2002). The global banking industry was expected to spend US$241.2 billion in 2007 on IT, including hardware, software, IT services, internal services and telecommunications (Moskalyuk 2007). Despite these behemoth investments, it is not all that clear whether IT investment pays off for banks. It is also not clear whether these investments would improve just the operational efficiency of banks or if they would also enhance their strategic positioning and sustainable competitive
ALI FARHOOMAND
DOES IT PAYOFF? STRATEGIES OF TWO BANKING GIANTS
You can see the computer age everywhere but in productivity statistics.
- Robert Solow (1987)
In the previous 20 years, there had been a debate concerning whether or not IT paid off in the long run. While some questioned the positive contribution of IT to productivity, others attributed the so-called IT paradox to measurement methodology and to the lack of measurable data, such as increased quality, variety, customer service, speed and responsiveness. To make matters worse, a controversial article published in Harvard Business Review argued that, as IT was being commoditized, the opportunities of gaining IT-based competitive advantages were rapidly disappearing (Carr, 2003). If this was true, then companies should spend less, wait longer to invest in more matured technologies and should be more careful about the costs of IT investments. Financial services firms had long been among the most intensive users of information technology (IT), starting in 1867, when the stock ticker began bringing current Wall Street information to Main Street. Starting in the 1980s, the development of the Internet and telecommunication technologies had further facilitated the development of new banking products and introduced alternative delivery and distribution channels. It was estimated that IT spending accounted for 20-25% of non-interest costs and around 6% of annual revenue for financial institutions (Kauffman and Weber 2002). The global banking industry was expected to spend US$241.2 billion in 2007 on IT, including hardware, software, IT services, internal services and telecommunications (Moskalyuk 2007). Despite these behemoth investments, it is not all that clear whether IT investment pays off for banks. It is also not clear whether these investments would improve just the operational efficiency of banks or if they would also enhance their strategic positioning and sustainable competitive
References: Banks, J. “Only Connect,” IT Leadership, 1 May 2006, http://www.theitleader.com/features/feature437/. Carr, N.G. “IT doesn’t matter,” HBR AT Large, May, 2003, pp. 41-49. Citigroup Annual Report, Citigroup, 1997 – 2006. Citigroup Diversity Report, Citigroup, 1997-2006. Deloitte Global Financial Services Offshoring: Scaling the Heights, Deloitte Touche Tohmatsu, 2005. Deloitte Global Banking Industry Outlook: Issues on the Horizon 2007, Deloitte Touche Tohmatsu, 2007. Eckenrode, J. “2007 Bank Technology Forecast: Challenges and Opportunities,” Bank Systems and Technology, 1st February 2007. HSBC “HSBC Holdings Plc: Presentation to Financial Stability Institute”, HSBC, 19 June 2006. HSBC Corporate Strategy, 2007, HSBC, http://www.hsbc.com/hsbc/investor_centre/strategy. HSBC Annual Report, 1997-2006. Kauffman, R.J., and Weber, B.W. “Introduction to the Special Issue on Advances in Research on Information Technologies in the Financial Services Industry,” Journal of Organizational Computing and Electronic Commerce (12:1), 2002, pp. 1-4. Moskalyuk, A. “Banking Industry IT Spending to Reach $241.2 bln in 2007”, DZNet Research, 5th March 2007, http://blogs.zdnet.com/ITFacts/?p=12508. Rapp, W.V. Information Technology Strategies: How Leading Firms Use IT to Gain an Advantage, Oxford University Press, Oxford, 2002. Solow, Robert M. (1987) “We’d better watch out,” New York Times, 12 July, Book Review, p.36. Quittner, J. “Beyond IT: Outsourcers Expand Services,” American Banker (171:216), 9 November 2006, pp. 26-28. Vashistha, A. “What is the weakest link in global outsourcing?” InformationWeek’s Optimizer (66), April 2007. Wikipedia “Citigroup”, 2007, http://en.wikipedia.org/wiki/Citigroup#Business_model. 15