Financial services set to buck IT spend trend
Financial services set to buck IT spend trend
Dec 20, 2004: While the IT economy at large is expected to remain fairly lukewarm in terms of growth in the coming year, the financial services industry is on pace to buck the trend, with significant increases in IT spending predicted for the sector.
That is according to Meta Group's annual Worldwide IT Trends & Benchmark Report. The report reveals that while cautious technology spending has fundamentally altered how organisations invest their IT dollars, this "new reality" has done little to suppress the enthusiasm for IT in the financial services sector, an industry which now leads many of its peers in terms of traditional IT intensity measures.
Financial services IT spending in 2005 is projected to increase by seven percent – with smaller (under $10B) financial services companies accounting for the majority of that growth. Companies over $10B have projections of 4 percent or less spending growth in 2004. Overall spending projections across all industries is 4 to 5 percent on average.
According to Meta Group analysts, such benchmarking is a critical measure for financial services executives with far reaching implications on organisational health, agility and scalability.
"The smart financial services executive knows where his/her organisation falls along the IT spending bell curve," stated Dr. Howard Rubin., report co-author. "He/she understands not only how the financial services sector compares to other relevant vertical industries, but how the individual organisation measures up against financial peers. Today's most successful executives are using these benchmark figures to identify, validate and support right IT investment decisions while mitigating risks associated with investing in wrong technologies."
Dr. Rubin went on to say that beyond the numbers, there are some significant trends emerging within the financial services sector. "Currently, there is a great deal of focus around cost transparency which has led nearly two-thirds of the major financial services companies polled to develop IT product catalogues as well as an increased focus on effective chargeback for services. This has also driven demand for benchmarking information at a unit cost level."
According to Meta Group, there are five critical categories by which industry IT intensity can be measured. While IT spending growth is the measure most often highlighted, analysts argue that it is also the measure that provides the least contextual information regarding the role that IT plays within a given industry or organisation. For more contextual relevance Meta Group examines IT spending as a percentage of revenue and as a percentage of operational expense.
In both cases, the financial services industry is well above overall averages, with projected IT spending of six percent of revenue in 2005, compared to an average of just over four percent and projected spend of 13 percent of operational expenses, compared to an average of five percent. The latter figure is particularly telling as it means that next year, the financial services sector will devote a higher proportion of its business investments to IT than any other industry surveyed in the report.
"It is no longer sufficient for the financial services industry to benchmark itself based on static measures," added Rubin. "Rather, industry executives must view the rate of change in business parameters to gain a view of IT agility. When done in this light, executives will see either one of two things: either a financial services sector that has realized so much value for IT that it is increasing investment at a disproportionate rate to other business costs, or, more likely, an industry in which IT costs have spiralled out of control."
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