Thinking in Threes with managing expenses and finding talent.
There are multiple drivers impacting large financial institutions today. These include regulation, unconventional competition (fintechs) and emerging technologies. These provide opportunities for both new business models and expanded client offerings, as well as growing fraud, cyber threats and expanded methods of money laundering, for which banks must be prepared.
In light of this, banks need to find the right balance between maintaining revenue growth and investing in new technologies in order to experiment, explore and execute on new business models which, it is hoped, will ultimately transform their businesses. Given the speed of technology change and the uncertainty around which technologies will and will not be long lived, banks are under great pressure to increase their technology understanding so as not to make investments in error. They need, in other words, to find the correct balance between ideas and dollars.
Complicating things further, effecting the correct balance is not only a matter of investing in the correct technology offerings. Banks are complex organizations with competing demands among their various lines of business. Needs assessments are necessary and the balance between ideas and dollars must be achieved with attention to an assortment of needs and demands.
To acquire greater visibility into total IT spending, banks need to correctly assess its breakdown, which includes dedicated IT spending, business unit IT spending and shadow IT1 spending. Portfolios must be rebalanced and prioritized by stakeholders on an ongoing basis to align with overall business and technology strategy. And, as an additional complication, this needs to be done while maintaining business as usual. How this breaks down within BNY Mellon is roughly as follows.
Run the business: Resources focused on continuing operations for the business. This is fundamental and essential for providing customers a steady positive experience of existing products and services. Typical spend for this is 60-65%.
Grow the business: Resources focused on enhancing current systems to expand the business. This is nominal organic growth. Typical spend for this is 20-23%.
Transform the business: Resources focused on leveraging technology to convert the existing business and generate new business models. Typical spend for this is 10-12%.
Banks are learning from startups and fintechs, particularly the benefits and advantages of their smaller size, and are trying to emulate them by creating small dedicated teams of people drawn from technology, business and operations who focus on emerging technologies and their potential applicability. These small teams typically explore emerging technology engagements and possible collaboration with fintechs to create effective partnerships that drive innovative products and services and new business models.
It is most important to keep pace with the changing technology landscape, and talent plays a crucial role. Banks are constantly reviewing their current talent pool in pursuit of diverse talent whose single task it is to explore, experiment and develop new ideas. A rule of thumb for trying to attain a balanced creative mix when hiring new talent is that one-third be promoted from within the team, one-third move laterally from other areas of the bank, and one-third be sought from without.
Banks have done extremely well over the past hundred years by adapting to the changing financial landscape. But adapting might not be sufficiently proactive. More and more, banks have come to realize that in order to be competitive in today’s marketplace they need to be disruptive in their own market, lest they face the disruption of their business by non-bank providers. So banks must ensure that they are investing in new technologies adequately and appropriately in order to provide an ecosystem that enables their workforce opportunities for success in creating new avenues for business growth.
1. Shadow IT is information-technology systems and solutions built and used inside organizations without explicit organizational approval.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
©2018 The Bank of New York Mellon Corporation.
CIO Treasury Services Technology, BNY Mellon Treasury Services
Saket Sharma is the Chief Information Officer (CIO) of Treasury Services Technology, where he is the driving force in developing and executing strategy and implementation of all products and services offered by BNY Mellon Treasury Services (Payments, Supply Chain, and Electronic Banking & Trade). In this role, Mr. Sharma works very closely with the Treasury Services Business, Product, Sales and Operation partners to come up with unique and innovative ideas complemented with the latest technologies to help drive Operational Excellence and provide state of the art solutions to generate revenue and reduce expenses.View Profile