While over a third of the world’s financial institutions still treat information technology as an after-thought in their business planning, information technology plays a key role in the increasingly important global networking arena. These are the findings of a survey commissioned by British Telecommunications Plc’s systems integration division, Customer Systems – the largest UK systems house that no-one’s ever heard of. The aim of the research was to see in which areas of the financial world the firm’s services were most needed. So it hired a US market research company, G2 Research Inc, which specialises in systems integration and computer services, to question information technology directors, plus a mix of other directors and end-users, at 77 wholesale finance organisations in Europe, the US and Canada. These were primarily large institutions that fell into four groupings: commercial banks; financial exchanges; securities and investment banks; and others, such as building societies and credit unions. The research revealed several significant trends.

Adjunct

First, while 64% of all such organisations said that information technology planning was an integral part of their business strategy, the remaining 36% planned their business policy first and implemented their computing systems later. This, according to Customer Systems manager of finance sector marketing Bernard Uzzell, leads to pressure being placed on computer departments at a business level as they try to co-ordinate strategies on a limited budget. Those most inclined to integrate the two concepts are foreign exchanges – managers here are usually younger than those in other financial institutions, G2 consultant Oliver Pflug said, and have more appreciation of the benefits technology can offer. European commercial banks were also more likely to follow such a policy as they often have steering committees with functional executives to co-ordinate the integration of the two policies. Those most unlikely to see information technology as a core part of their business, on the other hand, are the overseas subsidiaries and divisions of Japanese commercial banks, because policies are decided centrally in Japan rather than locally. Pflug, therefore, concluded that the management view prevalent 15 years ago of information technology as an adjunct to, as opposed to a key part of the business, is still alive and kicking today. Furthermore, he believes that business and technical managers are polarised in their views – the former see systems engineers as simply interested in technology for technology’s sake, adopting a piecemeal approach to business rather than building systems that will lead to enhanced company profits. Information technology professionals, however, feel that business managers have no understanding of, or interest in, technology. But, says Pflug, the move away from mainframes in favour of distributed computing environments is forcing change – business professionals are making more and more final information technology decisions, while computing personnel are merely shaping the technical side of the project.

By Catherine Everett

Nonetheless, manufacturers are still not pushing the business benefits of technology to any great extent – some 80% of those questioned said that bidding vendors had never formally evaluated what they should invest in from a strategic point of view. Finally, Pflug concluded that As the industry becomes more competitive, with increased regulatory scrutiny and shrinking margins, it is the organisations that make the connection between business and information technology that are likely to survive and prosper. Second, while two thirds of respondents espoused an open systems policy, in reality few are adopting it – again, open systems is regarded as a technology to keep the computing professionals amused rather than something that will show real business benefits. Moreover, Uzzell said, companies are of the opinion that there are always more important things to be done. Other barriers to implementing open systems include the

initial cost of the move in terms of time and money; re-training; and the need for business re-engineering. Third, as the financial market becomes increasingly global and competition grows, financial institutions are finding that they need to network their resources more and more – whether that be data, staff, or computer hardware – both company-wide, country-wide and across different time zones. Global industries, such as securities and commercial banking are using isolated systems less and less, and are instead becoming increasingly dependent on both voice and data networks. Nonetheless, approximately 40% of those questioned still have separate computer and telecommunications departments, although Pflug does predict that these two functions will converge rapidly over the next three to five years. Fourth, spending on front-office systems, such as those supporting foreign exchange, funds and transfer payments, is not expected to grow as fast as that on back-office systems, covering such applications as transaction processing, clearing and settlement. Annual expenditure growth is expected to be about 15% and 19% respectively. According to Pflug, this is for historical reasons – during the 1980s, organisations focussed spending on mission-critical applications to the detriment of the less exciting back-office kit, but this is now coming back to haunt the industry. The imbalance now needs to be redressed, because if the back office is ineffective or incompatible, the costs can be phemonenal. In the words of Uzzell, people are looking to turn the back office from an overhead into a competitive tool. Possible ways of doing this include providing end-users with real-time information up-dates and valuations by means of digital data feeds and networked trading desks. Fifth, the study showed a clear trend towards facilities management. This market is currently valued at $6,500m worldwide and is expected to grow at an aggregate annual rate of 13%. Pflug reckons that in real terms, organisational expenditure on internal services is likely to fall as companies focus ever more on their core activities. The recession that hit the financial world in the late 1980s led to a rapid fall in spending, and a resultant pruning of staff.

Skills

This now means that many institutions no longer have the business and technological skills in-house to take on large systems integration projects, and are looking to external providers to save them money on services and hardware. In Uzzell’s opinion, companies now want their investment in computers and telecommunications to relate to business volumes as a way of ensuring that they get value for money. Finally the survey revealed that worldwide information technology spend in the wholesale finance market will hit some $20,000m during 1993, increasing at 9% or so a year over the next five years. While exchanges will show the fastest growth at 18%, commercial banks and capital markets still account for more than 75% of total spend. So, all in all, Uzzell said he felt quite reassured by the results – with the shift away from a hardware-oriented industry towards an emphasis on software, services and global networking, integrators who understand business issues have a vital role to play in the industry.