With huge budgets, it’s time for financial services CIOs to start running their IT department like a Fortune 500 CEO, relentlessly identifying and eliminating money pits.
Consider the names of some of America’s most recognizable organizations. According to the Fortune 500 ranking, Hershey has revenues of more than $7 billion, Motorola takes in $8.7 billion, and popular toymaker Mattel is credited with almost $6.5 billion in revenue.
America’s most recognizable banks, however, spend more just on technology.
According to estimates from industry analyst firm Gartner Inc., at 6.3 percent of revenue, IT spending in the banking and financial services industry is second only to the software/internet industry. That is powerful, especially given Gartner’s cross-industry average shows companies only spend 3.3 percent of revenue on IT.
With budgets the size of some organizations, it is time for banking and financial services CIOs to start running their IT department like a Fortune 500 CEO, identifying money pits and relentlessly eliminating them from the bottom line.
According to a recent report by McKinsey, banks that relentlessly standardize their IT infrastructure and application architecture spend an average of 41 percent less on day-to-day IT operations. Yet, CIOs spend 55 percent of the applications budget on maintenance and support, according to Forrester Research’s most recent “State Of Enterprise Software And Emerging Trends” report.
This number is disturbing when considering the amount of software that languishes. On average, 28 percent of all deployed software is unused, while $224 in wasted licenses sits completely unused on every PC, according to a study by 1E. A conservative estimate of the total cost of the deployed yet unused software within companies of 500+ desktops is $6.6B in the U.S.
Long story short, CIOs can find their IT money pit in valueless and unused applications. For organizations spending billions on technology, the amount of wasted money can be both daunting, and an opportunity for growth.
The gravity of this scenario becomes apparent when examining a real life hypothetical. The median Fortune 500 Company Gilead Sciences – a medical biopharmaceutical organization – pulls in $11.2 billion in revenue. If Gartner estimates its IT budget is $358.5 million, that means Gilead Sciences is spending an estimated $122 million on software, according to Gartner’s research showing medical pharmaceutical companies spend roughly 3.2 percent of revenue on IT. With maintenance and support consuming, as Gartner suggests, 55 percent of software budgets, Gilead is spending roughly $67 million keeping existing applications afloat.
Think about what a difference it would make if the CIO audited his or her application portfolio and discovered that valueless software was consuming even just five percent of his budget. By weeding out these applications, this mere five percent would translate to a savings of $3.35 million in maintenance fees alone.
Unfortunately, IT leaders often find themselves skipping this step because C-suite executives pressure them to allocate talent to keeping IT running rather than transforming it in ways that bolster the budget.
It is imperative that executives recognize the importance of IT department audits, because this issue is not going away; in fact, it is becoming more paramount the passage of time. According to the 2015 Society for Information Management (SIM) IT Trends Study, which surveyed more than 1,000 senior IT leaders and CIOs, 63 percent of IT leaders say their IT budget is increasing. With organizations committing a growing percentage of their budget to IT, C-suite executives need to support IT audits, as they could ultimately become business drivers.
It may be a somewhat new concept, but it is true: understanding a notoriously costly IT asset portfolio can influence business and budget decisions, for both IT and the entire company. Identifying applications and their associated business functions enterprise-wide will reveal redundancies, as well as applications that do not justify the high overall costs. These valueless IT assets can prove harmful for executives’ perception of IT’s role, as they perpetuate the idea that IT is only “keeping the lights on,” consistently maintaining status quo projects rather than introducing new digital capabilities. The C-suite should regard IT as a strategic business partner, but it simply is not there yet.
The risks that come with not having an application strategy could also spell trouble as cyber security concerns rise. This presents a serious problem, as financial institutions are facing the most daunting level of cyber threats they have ever seen:
- According to the FBI, hackers stole 500 million financial records in a 12 month period spanning 2013-2014, according to the FBI. Approximately 35 percent of the data thefts were from website breaches, and 22 percent were from cyber espionage.
- Hackers who stole data from JPMorgan in 2014 also targeted 13 other major financial players including Citigroup, HSBC, E*Trade Financial, Fidelity Investments, Regions Financial and Automatic Data Processing (ADP).
- According to the Ponemon Institute, the cost of cyber attacks rose to $20.8 million per financial services company in 2014.
In an age where their most valuable assets are under attack, banks must adopt a vigilant stance in protecting them. Identifying and removing valueless assets can help banks drive business and fortify cyber security.
In order to achieve this, CIOs must think like a CEO and take a strategic approach to their budget and department.
Bob is Founder and President of KillerIT. He is responsible for KillerIT’s strategic direction and execution. During Bob’s 25 years at Forsythe Technology, he has held a number of national management positions and earned numerous distinctions. Most recently, he was senior vice president, general manager, responsible for serving clients in the company’s Central Area. His industry experience includes both software and hardware solutions at Unisys Corporation (F/K/A Burroughs Corp.), Dun & Bradstreet Software (F/K/A MSA Software), and Computer Associates, Inc. (F/K/A Cullinet Software).