The Chief Information Officer’s role is a relatively new one, which the industry as a whole is still working out. Should the CIO report into the COO, the CFO, or to the CEO?
Often the CIO is seen as a tactical asset – minimising infrastructure issues at the lowest cost possible – but excluded, especially in the early stages, from much of the strategic discussion around bank transformation.
This is a dangerous position to take in any industry, but especially so in in banking, where technology is mission critical both today and tomorrow.
Most banks spend more than 5% of their revenues on ITC (Gartner studies estimate the average at 6.5%), with a bias of spending towards maintenance (“keeping the lights on”) of 95%; on average, innovation represents just 5% of ITC expenditure.
After decades of internal development, “maintenance” could mean negotiating a thousand interdependent applications or hunting for programmers to service a legacy banking software system. This ongoing process of management drains time, energy and cash.
Who, ultimately, is responsible for this spending? It should be the CIO. And “responsible” should mean not just in control, but also accountable. It is hard for this to happen if the CIO does not have a “seat at the table”, helping to co-author the business strategy with the other Group executives.
The real cost of “keeping the lights on”
Estimates put annual IT expenditure in the global finance industries – banking and insurance – at $250 billion. That is a huge amount of money, but the 5% of it available for genuine innovation is not really game-changing.
Often, CIOs become CIOs precisely because they are the best at keeping systems running, or finding new components which do the same job, but a little better, a little cheaper or a little faster. But CEOs need to know that their CIO is looking past maintaining infrastructure.
It is easy to get caught up in the detail – there is always a system to be tweaked, or a problem to be fixed. But when a paradigm shift is taking place, and taking place fast, and with technology front and centre, underestimating and underpowering the role of the CIO is a strategic error.
Bringing technology to the Board
By connecting understanding of an institution’s operational strengths and weaknesses with the objectives and strategic goals of its leadership, the CIO can move beyond incremental improvement to address the future technology base required to meet those goals.
Transformational decisions will need to be made. When they do, a CIO with the confidence of the CEO and the Board, built up by regular contact, can make a much more effective case for change.
Are financial institutions using their CIOs effectively? Should CEOs keep out of the server room, metaphorically speaking, and rely on Finance or Operations to flag the big issues?
The debate is ongoing – but our view is clear. As one customer told me just this week, the CIO and the business are like two people in a rally car. Business does the driving, but without a CIO to navigate it could be driving into danger.