Is money spent on IT always worth it?

http://www.businessweek.com/technology/content/jan2007/tc20070116_940551.htm "Banks do not spend wisely on IT" Burton, Chris.

Jess Roper

Having up to date technology has always been a problem for all industries. The banking industry is no exception. This article comments that some banks have the misconception that spending the majority of their IT budget on fixing their old systems instead of just buying new technology. However, buying new systems is not always an option for banks. Obtaining a new system not only takes the money it costs to purchase it, but all the cost of training employees on the new systems. There are times when simply upgrading a system is necessary and getting new technology overall would be going over the top. If a bank has only had the technology for a year or two, there is no reason for it to spend the thousands of dollars it might be to replace it, instead it can spend less and upgrade the software or whatever it needs. The article implies that this is a waste of money and that the banks will pay for it in the end when the various systems slow down to an extent that customers get fed up and leave for another bank where the technology is faster.

When you are talking about a normal checking account or savings account, most people have no idea how long it takes the system to process their money. They do not know if it takes five seconds or fie minutes and most do not care as long as the money ends up in their account; if it took 5 hours then the bank would have problems and would definitely need to look into getting new systems. If the article talked about investment banks and transactions tied to investments, where ever tenth of a second counts in the price that the customer would get, that would be different.

Another comment that the article makes is that many banks concentrate more on the physical appearance of the bank than on the IT components that are the really important part of the bank. It claims that the IT behind the bank is much more important than what the bank looks like and how nice the lobby is. However, a balance is important in many cases. Financial institutions have always had to have a good, almost wealthy, appearance so that their customers can be confident that they already have money, so there would be no reason that the bankers or investment professional would steal the customer’s money. If you walk past a financial institution that looks shabby, you will judge it negatively and will most likely not want to put your money in it. Look at Fannie Mae: they have a large, impressive, beautiful building as their corporate headquarters. IT is important too. It does not matter how gorgeous the building is, if a company does not have the systems to back up the look of the building (the walk to back up the talk) the company might get the customers initially but the company will not hold onto them for very long. Customers are smart (to an extent) and look for something that they think will be reliable. If the company that they have trusted their money to turns out to not be able to deliver what they promised, the customer will turn to a competitor. A balance on what the financial institution spends it money on and focuses on must be made.

The article acknowledges that the transition will not be easy for many institutions. There will be banks that are so steeped in tradition of maintaining their old systems until they are about to die or perhaps the bank is small and/or isolated and so they can not afford to update completely. Finding a solution that works is heavily dependent on each individual institution; there can be no blueprint for every company to follow.