Hsbs and Citigroup

Topics: Strategic management, Management, Technology strategy Pages: 14 (4891 words) Published: October 17, 2012
As per requirement of Managing Information module, the authors are asked to complete a case study assignment on “Does IT Payoff ? : Strategies of Two Banking Giants ” answering three particular questions. Some have argued that companies should spend less on information technology (IT) and wait longer to invest in more matured technologies because IT is a commodity and brings little competitive advantage. In this assignment, the authors are required to critically examine the validity of this view and determine how the two banks could justify their multi-billion dollar annual investments in IT. It is also necessary to critically analyse the IT investment strategies of HSBS and Citigroup. Finally the authors will analyse how companies should go about assessing the value of their IT investments and determine in their opinion, which of the two banks in clever in its IT investment. Carr (2003) stated that as information technology's power and ubiquity have grown, its strategic importance has diminished. His article “IT doesn’t matter” created huge controversy within information technology circles. He stated that in order to make a resource truly strategic and to gain sustained competitive advantage then the resource should not be omnipresent but in short supply. He believed in order to achieve and maintain a long term strategic advantage from IT, proprietary technology needed to remain protected. Regarding infrastructural technologies, more value could be gained when these were shared rather than used in isolation. The clear advantage is having a superior insight into the use of new technology. As IT systems are now incorporated within the majority of business functions a large proportion of corporate spending could be incurred on IT. Unfortunately to remain competitive and on par with their rivals a majority of companies will require large IT investment just to remain in business. It is essential for organisations to separate the essential element of IT from the discretionary and counterproductive. Carr (2005) reiterates again how IT has become commoditised. Steinert-Threlkeld responds to Carr (2005) by stating that even if the infrastructure is commoditised, it is how you compute, how you embody your strategic thinking in code and how you get your instructions executed will be the source of competitive advantage. Hugos cited in Carr (2005) equally agrees that a lot of the elements involved within IT like installing and supporting packaged software are no longer strategic to most organizations and have become commoditised. He questions why it would be more beneficial to outsource them to an IT utility provider, just as we outsource the production and delivery of electricity to an electric utility provider. Carr (2003) strongly argues that greater IT spending rarely leads to improved financial performance. An Alinean survey in 2002 concluded that the companies with larger economic returns spent on average 0.8% of revenues on IT, compared to the industry norm of 3.7%. The key to success, for the vast majority of companies, is no longer to seek advantage aggressively but to manage costs and risks meticulously. Maintain discipline of spending parsimoniously and think pragmatically even when economic conditions are more favourable. Szygenda (2003) cited in O’Brien & Marakas (2008) concurred with Carr’s (2003) recommendation to spend less in IT. Szygenda believed that precision investment in core-infrastructure and process-differentiation IT was required in an intensely cost conscious environment and more caution is required versus the “shot gun approach” (p.46) which was used in the past. Carr (2003) advocates Moore’s Law where it guarantees the longer you wait to make an IT investment the more you will get for your money. Collins (2001) partly agrees with Carr’s (2003) argument. He asserts how thoughtless reliance on technology is a liability not an asset. An essential driver in accelerating forward...

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