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Managing your IT portfolio – one size does not fit all

Anita Chandraker
PA Consulting Group 
Financial Times
19 June 2008

Businesses in the financial sector are essentially information businesses, so it is no surprise that they were early adopters of IT. The attraction of technology that could manage and control information was obvious. That early adoption brought significant business advantages from automation to more sophisticated products, as well as an ability to connect with both internal financial and reporting systems and external audiences.

However, while early adopters gain the initial advantages, they can face problems down the line when new developments render the initial technology obsolete or constraining,  and, in order to meet ongoing demands from customers and regulators, systems have to be replaced or new functionality bolted on.

As a result, the many companies have a proliferation of new applications integrated with heavily modified legacy applications, not helped by extensive business mergers and acquisitions bringing yet more diversity and complexity to the portfolio.  The result is that most large companies have a tangled web of IT systems ranging from 30 year old mainframe systems to modern browser based applications.

The responsibility for solving this puzzle lies with the CIO, who faces a continuous stream of complex decisions and challenges each of which bring financial, business and reputational risks. These decisions range from ensuring that the IT supports the ever-growing demands of regulators for compliance data, finding a way of supporting the next new product without adding yet more complication to an already complex picture. Then there are the resourcing issues around managing ageing systems, at a time when certain technology skills are rapidly disappearing. Against this backdrop, according to Harvey Nash’s recent “Strategic Insights Survey: An IT Leadership Perspective”, what Boards want technology to deliver is enhanced operational efficiency.

The obvious answer is to simplify the portfolio, but it is clear that today’s business realities mean that the costs and risks of a big bang approach are too high for most businesses to contemplate.  Instead, the CIO needs a clear strategy which recognises the complexity of the current environment, the future business needs, and provides framework for decision-making that will support the goal to simplify and modernise the IT portfolio.

So what are the key elements in that strategy? The starting point needs to be to identify which elements of the portfolio are  the more back room ‘routine’ elements and which are central to the business retaining its competitive edge. The former could be managed by a programme of continuous improvement, the latter are likely to justify significant investment in radical solutions. Both are important, but separating the two helps bring clarity to the overall strategy and to the drivers of investment decisions.

Within these two segments there are a number of options for improving capability in the short to medium term.

The first is to wrap multiple systems with common front ends or process layers. There are solutions available that can effectively glue existing systems together and, at the same time, create new capabilities to fill the gaps in existing applications. This may simplify things from a user perspective but also adds another layer of complexity over the existing environment.

The second approach is to augment current legacy functionality with solutions that can be bolted on to existing systems. There are products in the market that offer specific add-on solutions in new areas of need such as fraud detection, compliance and document management and production. The challenge here is to ensure integration across areas such as data and operations.

A third option lies in porting existing systems to a lower cost platform. There are service providers who will now move older systems, typically running in a mainframe environment to a more cost effective Unix or Windows platform. This can bring significant benefits by simplifying the underlying IT architecture but may not deliver a more agile environment for adding new products.

These options can deliver simplification for the end user and cost reductions  but do not solve the underlying issue of complexity or support major business transformation. For that, more radical approaches are needed.

One of those radical options is to rationalise and replace major functional applications. This is not new, but the industry has a poor record on delivering major systems replacement programmes. In order to succeed, this approach cannot simply be an IT-led initiative but needs the business as a whole to embrace the opportunity for major business transformation. 

A second option is to take the Service Oriented Architecture (SOA) approach. That means looking at what new common services or building blocks will be required in the future and then set out a plan to develop and integrate these as part of new initiatives, and, in this way, gradually transition towards to the new services while decommissioning the old. 

Clearly these more radical options are higher risk undertakings but can solve the fundamental underlying problems of complexity if there is a business-wide commitment to change.

In the current economic climate, and with the complexity of the puzzle, the CIO’s natural response may well be to focus on short term improvement and low cost, low risk options alone. That would be a mistake. Now, more than ever, financial organisations need a clear strategy for simplifying the IT portfolio. The gap between business need and IT fit will not close by itself and businesses need to ensure they choose the right approach for each problem – recognising that no one size can fit all.

Anita Chandraker is a member of PA Consulting Group's management team.

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