The outlook for financial services in 2014 – How can organizations achieve transformational change in a limited budgetary reality?

As economists have recently revised global economic growth prospects downward, the expectation for 2014 is that interest rates will remain low. If global economies are slated to grow sluggishly, logically, the prospects for IT spending in the banking and financial services sector would also remain slow.

This uncertain outlook is supported in the US by a few factors. The stock market, which is at record highs, needs firms to continue to provide stellar results, which unfortunately becomes more difficult as year-over-year comparisons are no longer being done on the lower post-crisis results. This could motivate firms to begin investing to generate new and improved sources of revenues but to date there is little empirical evidence of this and expectations remain muted. Merger and acquisition activity, a big driver of investment bank revenue, may also be dampened since stock share prices have reached these new heights. Housing, the traditional driver of economic growth and major source of banking revenue through mortgage lending, may be losing steam as supply and demand has driven prices higher in many regions. Growth in new construction will need to gain momentum in order to increase supply and help drive sales and ultimately the economy.

Spending in IT isn’t all so pessimistic. In a recent Gartner study they predicted that cloud-based security will continue to see growth, especially in non-mission critical tasks such as email, web and identity and access management solutions. Gartner has also predicted acceleration in growth in business technology transformation.  However, if initial budget estimates for 2014 are any indication, banks and financial services firms will continue to expand and broaden mobile and social computing capabilities. This will occur as a result of the continuing growth in customer demand at the expense of more traditional areas of IT spending, which could cannibalize budgets in order to pay for these newer technologies and platforms.

Among the questions that arise is that as financial firms continue to chase the growing mobile customer in a period of reduced expectations, what happens to existing areas of focus such as regulatory compliance? Regulatory mandates are continuing and will require financial service firms to remediate current systems and processes. For example, the Basel III requirement  for daily reporting of their Liquidity Coverage Ratio in 2015 will force major technology changes for most institutions in the coming year.

The conundrum facing these institutions and the IT service community will be how to implement much-needed transformations to improve efficiency and respond to regulatory changes in a limited budgetary environment. The answer is, very carefully. All humor aside, large transformational projects will need to be planned to provide a somewhat consistent set of deliverables to be both successful and transformational. First, the organization needs to decide on the long-term goals of the project. Since large capital budgets are difficult to attain, projects may need to be spread out over a period of quarters or fiscal years. Thus, an organization will need to also plan for a series of short-term goals that provide quick wins in the interim while also fitting into the framework that is being created for the longer term goals that might not be met for some period of time. If an organization embarks on a project that doesn’t provide those quick wins it stands never to achieve the buy-in required and eventually could find itself unfunded and not achieving any of the initial goals that drove the project – no matter how well intentioned.

So how does an organization approach large transformational programs that provide both short and long-term goals for achieving improved business efficiency?

Any approach towards these complex goals must drive towards an aligned business and technology path. It should utilize an agile development process that includes an initial planning phase. The planning must include a conceptual design and roadmap that includes four factors:

  • Visioning – requires setting the vision for the program, including both short and long-term goals. This phase requires detailed discovery to ensure that the requirements are understood across multiple lines of business. It also calls for a current state technology audit to ensure that existing technology is considered as part of the visioning phase.
  • Prioritization and budgeting – calls for taking the list of deliverables and prioritizing them according the organization’s budgetary realities. This phase requires analysis to uncover pain points and value relative to the goals within each line of business. An organization undertaking this method must also determine the capabilities and business architecture for each of the affected businesses.
  • Conceptual design – requires creating a conceptual design and high level architecture that will be the framework for the project going forward. The design includes both the architecture and the roadmap for implementation which identifies the initial projects. This phase is best served when utilizing an accelerated solution design workshop that allows stakeholders to contribute to the design and provides for a pilot solution to gain buy-in and confirm the approach.
  • Roadmap – this approach requires a detailed roadmap that outlines the plan, all key milestones, governance approach and a breakdown of resources based on the vision, priorities and budget. This roadmap is utilized to guide the implementation and to ensure that all of the goals defined during the visioning phase are achieved.

Financial institutions need to continue to evolve or risk losing ground to their competitors. Regulations continue to become more complex. However, as the economy continues to grind along slowly budgets are not available to solve the many challenges facing these firms. New and phased approaches that provide for both short and long term wins provide a potential for institutions needing to transform processes to achieve both competitiveness and regulatory compliance. This approach requires both careful planning and patience in execution across a longer time horizon.