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How centralized should my I.T. department be and what should I do if it’s not?

Here in gonzo land, we spend our days working with people from all corners of banking. It never ceases to amaze us how different the organizational structures are at the banks we deal with. I don’t think there’s a department within a bank that varies more in organization style than the I.T. department. Like the snowflake, we think there are indeed no two I.T. organizations out there quite alike. And since we have a true Gonzo mindset, we endorse this diversity in all its splendid glory. We’ve never been one for a cookie cutter mentality, and we ain’t about to start now.

Having said that, we would suggest there be some common goals and expectations for your I.T. department – no matter how it is organized. These include:

• Planning for technology
• Budgeting for technology
• Providing business solutions through deployment of technology
• Project management for technology projects
• Providing for information security
• Managing the technology vendors
• Providing for business continuity

With few exceptions, we think the I.T. departments at the financial institutions we deal with deliver magnificently on these expectations to the extent they are able to. In fact, I would hold up the skills and effort of I.T. departments in banking against I.T. departments in any field. Having good skills and effort doesn’t necessarily equate into satisfactory delivery, though. We work in a fast paced environment where technology is changing, regulators are increasing their focus, and cost control demands are forcing us all to do more with less. All of this is affecting banks’ ability to deliver technology smoothly, cost effectively and in a timely manner. It wouldn’t be much of a stretch to say that we are going to have to do everything we can to increase our ability to deliver needed technology in today’s environment. In other words, this is a great time to position our I.T. departments for success.

With all of these external factors pressing on the I.T. department, what we don’t need are internal constraints. Probably the single largest gripe we hear from I.T. departments is that the I.T. department is expected to deliver on technology across the enterprise but is only given control over pieces of the technology. Common complaints we hear include:

• I.T. department is notified to install solutions that some other department has identified, negotiated and possibly even purchased.
• Certain key contracts and vendor relations such as item processing, EFT and Internet banking are managed outside of the I.T. department.
• Outlying departments are allowed to provide for their own technology with no mandate that purchasing of technology has to go through I.T.
• Some departments outside of I.T. have managed to find a way to have an employee or two dedicated to supporting technology for that department.

There is an age old management maxim that says if you have a responsibility, you should have the command and control in place to perform that responsibility. Does the banking industry allow its I.T. departments to perform at the levels they could by giving them the control they need? Or is there something preventing higher performance? I would say there is something indeed preventing some of our I.T. departments from performing at higher levels. It is our old friend and perennial bug-a-boo, decentralization. But rather than use the politically incorrect term of decentralization when it comes to technology, let’s use the more progressive term, “lack of centralization.” What are we talking about here? Let’s all take a short quiz to see where we stack up on the Centralization of Technology Chart:

	True	False
1. I have a technology steering committee that is healthy and engaged.
2. My I.T. manager/CIO has responsibility for all contracts for technology service providers including telecom, core, EFT, IP, Internet banking and bill pay.
3. My I.T. manager/CIO prepares a budget that includes all of the hardware, software and services for technology throughout the organization (including desktops, printers, teller equipment, ATMs, voice equipment in all locations).
4. I.T. procures all technology throughout the organization.
5. All staff supporting technology currently reports to the I.T. Manager/CIO.

 

How’d you do? Based on our quiz, if you answered False to any of the above you are not a fully centralized I.T. department. Ironically, when we ask the people in the corner offices whether they feel their I.T. departments are centralized, we usually get a resounding “Yes!” But when we start digging into the corners, we find exceptions galore. In reality, it appears as if many banks have given up on any further centralization of technology and/or decided that the role of I.T. is simply to install and support solutions chosen by others (“and we want that new system in yesterday!”).

So what’s wrong with that? Well, folks, how is I.T. going to meet our expectations for reducing technology costs and putting in better solutions if we don’t allow them to research the technology, own the contract or deal with the vendor? In addition, they are the only department at the bank charged with providing for information security and business continuity for technology. How in the world can I.T. gauge the effect of a new system if Fred down in accounting is inking the contract for a new accounts payable system without giving them a chance to do their due diligence? For that matter, as “installers of other people’s technology,” how does I.T. come up with a realistic technology budget so that your institution can get a better handle on I.T. spending (which is second only to personnel costs)?

There are other factors at work here as well. If I’m a qualified CIO looking for a job in banking, do I take seriously a job in which I’m going to be given only the pieces of it nobody else wants? It would seem to me that we are going to start losing some of our best I.T. talent to other fields if we can’t get this worked out.

The most compelling reason for centralizing all of your technology under the I.T. department should be the reduction of your technology costs. As an industry we are leaving too much money on the table when we allow different departments to control pieces of the technology puzzle. Vendors love it when they can deal with one person on the core maintenance and another on EFT services, and yet another on Internet banking, etc. They stand a much better chance of keeping their particular solutions in place and are less exposed to the significant discounts that would be expected if all of the products were being negotiated by one person with one vendor. 

Don’t take me wrong here. I firmly believe that the lines of business outside of I.T. should be the final choosers of their solutions based on functionality and price. But does that preclude the I.T. department from owning the technology and the vendor relationship? I don’t think so. (Full disclosure here: I came from the I.T. ranks of banking.) But rather than rail on the injustices and the history of how this bizarre situation has come to pass, let me offer some thoughts on how we can improve the process.

1. No matter how centralized you are (or are not), make sure your I.T. department is involved in all things technology even if they’re not now responsible for it. If the COO negotiated the last EFT contract, let’s make sure that the COO involves the I.T. department in the next renegotiation. Perhaps they have some ideas for better integration or needed services this time around. If you’re the president of a loosely affiliated bank and have a failing phone system and the vendor you called to fix it tells you it’s kaput and needs replaced, how about picking up the phone and calling your bud over in I.T.? Perhaps he has some recommendation in what to buy. Maybe he’ll even offer to take care of it for you in the future.
2. Look to centralize further. Make centralization of technology part of your organizational and succession planning. Perhaps your head of retail was the best person for negotiating the Internet banking contract and owning the vendor relationship in the early days, when Internet banking was coming into its own and no one (not even I.T.) had a leg up on how to get started in implementing a retail Internet banking site. But does the next head of retail need be an Internet banking expert as well? Gadzooks, that could make a person hard to replace, couldn’t it? Or can this be moved to I.T. in conjunction with the head of retail’s retirement and eventually put the responsibility where it belongs?
3. Hold your I.T. department to a higher standard. Over time, as you give the I.T. department the command and control they need to perform, there should be paybacks. For example, if we are going to cede control of I.T. for all of the PBXs across the enterprise, might we not expect 4 digit dialing and voice mail across the enterprise? If I’m going to let them negotiate the bill pay contract this time around, mightn’t I expect better interfaces, better reporting and lower rates? The answer is absolutely, yes you should expect better integration, lower prices and better provision for information security and business continuity as technology is centralized. 
4. Create a technology plan that encompasses all of the technology at your bank regardless of who owns it. As technology ownership becomes more decentralized, there is a tendency to plan in silos. This can result in technology solutions that don’t play well together, resulting in higher overhead costs.
5. Have a unified front with your vendors. If your ATM salesman goes into one office to pitch his wares, and your EFT salesman goes into another and your core vendor goes into a third, exactly how are we ever going to get to the Holy Grail of integration? These systems need to talk to each other, man!! And if you’re not totally centralized in technology now, as owners of individual pieces of the overall technology puzzle, you need to talk to each other and all be singing the same songs to the vendors you deal with.

I’m not thinking that my ideal of centralization of technology into I.T. is just around the corner for the banking industry as a whole. But I am seeing progress. Hopefully some of the items above will help your organization get some of the gains of centralization of technology and avoid the pitfalls of decentralization in the meantime.   

Happy trails……………
-br

You CAN get there from here!

Cornerstone Advisors’ Technology Assessment provides your organization with pragmatic recommendations of how to more effectively leverage your investment in technology and bring your organization’s overall technology management to best practice levels.

You’ll see these and other benefits:

• A comprehensive analysis of your organization’s software applications and infrastructure
• Reliable staffing and spending benchmarking data from a customized Cornerstone Scorecard® that will help you in making critical decisions
• A clear understanding of technology needs and priorities for the future
• Recommendations for optimal staffing levels and skill set requirements
• Alignment of your I.T. governance and management processes with the needs of the institution

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