In my former life as a CIO, business heads often wanted to know what I was providing for the many millions they spent on IT. I told them: “The truth will set us free but you may not like the answers.”

What I found were multiple systems doing the same thing, as well as constant “bolting-on” of new systems to old (often home-grown) to meet any new business requirements. This approach created huge complexity and costs while delaying the inevitable reckoning of replacing antiquated systems.

This state of affairs had built up over many years when booming revenues allowed everyone to do what they wanted and banks took a DIY approach to technology.

Managing the shop

CIOs traditionally managed the shop, adding systems for specific tasks and problems. In my experience, the ratio of spending on running the bank versus changing the bank was about 80:20.

At the same time, SAP was helping companies in other industries to overhaul their systems and capabilities while driving industry standardization and reducing cost and complexity.

Now banks know they need to change. Whether it’s keeping up with the regulatory avalanche, taking out long-term costs, or finding new routes for growth, it’s not enough for CIOs just to keep the lights on with what they’ve got in place.

Changing the mix

Shrinking revenues mean there isn’t any new money to meet these greater demands. What’s needed is a shift from running the bank to changing the bank.

Since the banking crisis, CIOs have tried to change the mix but even now a world-class ratio would be about 70:30. To effect bank transformation, banks should be aiming to drive their overall IT costs down and get to a run-change ratio of 50:50.

CIOs have been pretty good at taking out unit costs by outsourcing, offshoring and renegotiating contracts. But the problem now is that you can usually only do these things once.

To change the bank requires facing the final reckoning about taking out the cost and complexity they have built up over the years. Continuing to rely on a “one-off” approach to achieving spending cuts and point solutions grafted on to existing platforms isn’t enough. You can’t drive down long-term costs, eliminate complexity and support transformational change using the band-aid approach.

Take risk and regulatory compliance. Banks face large costs and reputational damage from publicly disclosed penalties for non-compliance. Truly minimizing compliance risk in today’s environment  requires analytical and operational capabilities that allow you to view them and take action in real time. Most bank systems today are still “batch” and not real-time.

Innovative commercial and retail banking products and services that improve the customer experience in the new online and mobile world require business lines to talk to each other – and the complexity created by silos left intact only drives up long-term costs.

Finally deciding to do something about these out-dated, overly complex, and costly systems at the core of the bank’s processing isn’t easy, but CIOs – and more importantly CEOs and business heads – increasingly understand that taking on this transformational journey is needed for them to be one of the winners in a world that has changed permanently.