White paper June 2009

IT service management in an uncertain economy: Resetting IT priorities in the nancial services industry

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Contents 2 4 Executive summary The impact of an uncertain economy on the nancial services industry The effect of intense business requirements for IT Setting IT priorities to support business requirements Measuring the value of IT projects Conclusion and recommendations For more information About IBM Service Management

Executive summary
Recent economic turmoil and uncertainty are driving important changes in how nancial services organizations are investing in IT, according to a global survey of CIOs and other IT investment owners conducted by IBM during December 2008 and January 2009. The results indicate that organizations are reprioritizing IT projects in response to economic change, and that they are specically using service management best practices to optimize IT-enabled business activities. The survey consisted of blind interviews with IT investment decisionmakers in 421 organizations, including 42 nancial services organizations. In every industry, those surveyed identied economic uncertainty as the numberone business issue currently affecting IT investment priorities. The nancial services industryincluding banking, investments and insurancereported the highest percentage of respondents identifying economic uncertainty as the number one issue, reecting the especially intense economic pressures that have been brought to bear on this industry in particular. The current economic and market conditions that these organizations face have had a signicant impact on enterprise budgets. But IBMs survey showed the opposite to be the case for IT budgets. The vast majority of IT decision makers (85 percent), in nancial services and across all industries, reported budgets remaining at or changing only slightly. Just 9 percent of those in nancial services reported signicant budget reductions, while 21 percent indicated that they were increasing their investment in IT. And 6 percent of nancial services organizations indicated they would be signicantly increasing their IT budgets in response to current economic and market

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According to a global survey of CIOs and other IT investment owners, organizations are reprioritizing IT projects in response to economic change, and they are specically using service management best practices to optimize IT-enabled business activities.

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Highlights

conditions. IBM believes that these IT investments are continuing because these companies recognize that in uncertain economic times, IT services can not only help the enterprise as a whole to operate more effectively and efficiently but also provide competitive advantage. The IBM study indicated that most organizations, globally and across industries, view the primary role of IT as providing quality and reliable IT services that support business requirements. Financial services organizations were also disproportionately more likely than other industries to also expect IT to be an innovator, to research and recommend enterprise strategic objectives, to identify opportunities for innovation and to develop new business areas or services. Leading CIOs are taking a business-driven approach to setting IT investment priorities today. This is a signicant challenge because organizations as a whole are facing increasingly volatile conditions and changing business requirements for IT serviceswith relatively at IT budgets. In order to optimize the business value of relatively at IT investments, CIOs have to rst ensure that the required areas of spending are funded, such as compliance, security, and better ways of managing the increasingly complex portfolio of IT systems the business depends on. Once these required areas are taken care of in the budget, CIOs in the nancial services industry prioritize IT investments to improve the quality and reliability of specic IT services to better support the most critical business activities. Essentially, these CIOs are driving a strategic and planned approach to building out the digital platform the business relies on, as well as making corresponding investments to improve their ability to manage it.

CIOs are driving a strategic and planned approach to building out the digital platform the business relies on, as well as making corresponding investments to improve their ability to manage it.

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The impact of an uncertain economy on the nancial services industry

Highlights
The nancial services industry is undergoing substantial transformation, characterized by mergers, acquisitions and new business-to-business relationships, as well as a tidal wave of new and expanded government regulation.

While businesses across the board have been hit hard by recent adverse economic developments, the impact in the nancial services industry has been particularly profound, and the consequences have been far-reaching. The entire industry is undergoing substantial transformation, characterized by mergers, acquisitions and new business-to-business relationships, as well as a tidal wave of new and expanded government regulation. To cope with rapidly and dramatically changing business conditions, nancial services companies must be dynamic and exibleresponding quickly and effectively to:

Keep pace with compliance requirements, yet minimize costly operational disruption that can be associated with meeting compliance objectives. Build out the digital platform of IT services that support, enable or automate just about every business process, business service and supply chain activity. The new business infrastructure is not just the physical infrastructure, but the digital infrastructure that provides the integrated platform of IT-enabled business services that make up the enterprise. Invest in improving their ability to manage this critical business infrastructure of IT services to reduce business risk and meet stringent compliance requirements.

Doing this requires establishing a focus on managing IT-enabled business services, rather than a technology-centric view of IT priorities. As many organizations are now realizing, the integrated digital platform of the business increasingly enables competitive differentiation as well as better control of costs and risks. This foundation is critical to growing market share and improving revenue and prot.

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Highlights
Financial services CIOs and other IT decision makers are reprioritizing IT investments to optimize key business processes and specically using service management best practices to improve the quality and reliability of IT services. The overwhelming majority of IT decision makers in the nancial services industry see economic uncertainty as the issue having the greatest effect on strategy and planning in their businesses.

To nd out how nancial services CIOs and other IT decision makers are navigating the economic turmoil and addressing the challenges of change, IBM surveyed IT and business leaders in charge of their companies IT investments. The results show that the uncertain economy is driving changes to enterprise priorities and, in turn, IT priorities. Increasingly, IT decision makers are using IT budgets not just to make technology available by keeping it up and running, but to make IT an enabler of business improvement. To accomplish this, they are reprioritizing IT investments to optimize key business processes and specically using service management best practices to improve the quality and reliability of the IT services the business depends on.

The effect of intense business requirements for IT

As Figure 1 shows, the overwhelming majority of IT decision makers in the nancial services industry see economic uncertainty as the issue having the greatest effect on strategy and planning in their businesses.

Today, economic uncertainty is the leading external inuence on business strategies and plans.

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These companies are recognizing that in uncertain economic times, IT services can become a catalyst for productivity and efficiency across the organization. Because of the costs and risks related to IT services, business investment decisions have put a disproportionately high priority on improving service management as a strategic asset. These businesses have realized that just cutting costs within IT has limited business benet and introduces unacceptable levels of risk to the entire organization that depends on the quality and reliability of IT services for efficiency, compliance, security and even competitive differentiation. If IT is 10 percent of the operational expense of a nancial services business, cutting IT by 50 percent will yield only a 5 percent reduction in business operational expense, but will most likely unacceptably expose the other 90 percent of the business to signicant new problems, risks and competitive disadvantage. The challenge for IT is to respond to economic pressures by enabling the organization to get more value from the capabilities and resources it already has. This means understanding the new business priorities and then resetting IT priorities. For instance, it becomes more important to use IT to improve efficiency and reduce costs associated with business activities than to make new capital investments. Reduction in capital expense to improve the cash position has a major impact on which IT programs get funded. Projects with signicant capital expense are very often cancelled or deferred. Those that are not cancelled or deferred are typically projects that enable smarter approaches to technology, such as standardization, rationalization, consolidation and virtualization of IT resources (network convergence, server consolidation, storage virtualization), and deployment of smart connected devices enabling enhanced information access and productivity in mobile workforces.

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Setting IT priorities to support business requirements

Highlights
The process of dening IT priorities to support business requirements begins with understanding current business priorities and then determining the impact of those priorities on IT plans.

The process of dening IT priorities to support business requirements begins with understanding current business priorities and then determining the impact of those priorities on IT plans. The most commonly reported nancial services priorities impacting IT investment plans were: improving access to and leveraging customer information, improving efficiency / reducing costs of business activities, and increasing customer retention. Figure 2 indicates the percentage of IT projects continued, expanded or initiated as a result of the inuence of these objectives.

Business objectives inuence the percentage of IT projects that are continued, expanded or initiated.

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The next step in establishing IT priorities to support business requirements is to determine which critical business processes depend on the quality and reliability of IT services, then to map those critical business processes to the IT services that support or enable them. Critical and regulated activities like processing nancial transactions and accounting, as well as potentially differentiating IT services that provide integrated access to customer information, are typical top priorities. After establishing business priorities that impact IT plans, IT decision makers then begin to reprioritize IT projects. Figure 3 examines the effect of the economic and business environment on IT programs and projects, as expressed by the percentage of programs and projects continued, expanded or initiated in specic areas. It reects the reality that there will always be mandatory areas that must take precedence; in the nancial services industry, compliance and systems management are by far the most important.

The economic and business environment inuences the types of IT programs and projects deployed.

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Highlights

Compliance is a more pressing concern for nancial services than it is for any other industry, with 88 percent of projects in this area continuing, expanding or being initiated. Healthcare respondents provided the next highest gure, at 75 percent. Like nancial services, healthcare is one of the most heavily regulated industries. Systems management ranks as high as compliance, which is understandable given that the business infrastructure that is required to enable market survival for todays nancial services company is increasingly an integrated digital platform of IT-enabled business services. Todays nancial services business infrastructure is more about applications, information and supporting infrastructure congured as services than it is about buildings and offices. Building out this new business infrastructure, and managing the cost and quality of this integrated digital platform, is the top priority for leading CIOs today. These activities also explain why technology virtualization and storage consolidation, at 78 percent and 72 percent, are also high on the list, coming only after security. A scalable and manageable IT infrastructure is required to provide the resilient basis for quality services.

Smarter management of IT services is the top business-driven priority for IT. Service management builds on foundational capabilities that provide the basis for the reliable IT services required by the business.

Smarter management of IT services is the top business-driven priority for IT. Service management builds on foundational capabilitiessecurity, compliance, managing IT systems, and virtualizing and consolidating the physical infrastructurethat provide the basis for the reliable IT services required by the business. As shown in Figure 4, the percentage of service management projects continued, expanded or initiated as a consequence of the economic and business environment was 68 percentahead of technology areas such as server deployment, mobility and network convergence.

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Service management tops the list of IT priorities once industry-critical needs have been met.

As reected in these gures, service management is critical to managing a dynamic infrastructure that can respond to rapidly and dramatically changing economic and business conditions. By integrating service management with consolidation, virtualization and other aspects of a dynamic infrastructure, nancial services companies can improve service quality, reduce business costs, and manage risks. The following table lists the kinds of service management projects in nancial services organizations that were maintained, expanded or newly initiated as a result of new business priorities.

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Objective

Approach

Priority projects

Improve the quality or reliability of IT services

External provider for process design improvement External provider for software implementation

Service strategy, portfolio, catalog and service request management Service level and availability management Governance of service management Incident, problem and service desk Education, training or brieng services Event management and monitoring Service level and availability management Event management and monitoring Performance and capacity management Education, training or brieng services Asset and conguration/change management

Increase workforce productivity

Internal process design project External provider for software implementation

Reduce or control costs

Internal project to design process improvements Project with external provider to implement software

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Measuring the value of IT projects

Highlights
IBMs study shows that nancial services companies place a higherthan-average focus on process and business-oriented metrics, when compared to other industries.

When it comes to measuring the value of IT service management projects, IBMs study shows that nancial services companies place a higher-thanaverage focus on process and business-oriented metrics, when compared to other industries. As illustrated in Figure 5, IT leaders in this industry expect to greatly increase the use of metrics related to costs, processes, and specic business functions.

Financial services IT leaders are increasingly focused on process and business-oriented metrics.

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IBMs survey also asked IT decision makers in nancial services to describe what they saw as the most common inhibitors and critical success factors for achieving value through service management initiatives. They tracked closely with their peers in other industries in describing insufficient funding as the main inhibitor to achieving ROI and in crediting communication with stakeholders as the main contributor to generating value. Successful CIOs focus their service management improvement plans on improving the quality and reliability of IT services that matter the most in todays business environment. Rather than focusing on optimizing technology subsystems or individual processes, successful CIOs start their service management plans by focusing on optimizing critical IT-enabled business services. This approach enables them to gain sponsorship for the projects as well as to ensure that value is delivered. Process improvement initiatives are then more successful when they focus on achieving business outcomes.

Conclusion and recommendations

According to the results of the IBM study, IT leaders in the nancial services industry are reprioritizing IT projects to focus on optimizing IT-enabled business processes. Accordingly, once they have met urgent requirements in areas such as compliance, systems management, virtualization/consolidation and security, they are investing in smarter management. This business-driven approach to service management emphasizes the role IT services can play in improving the efficiency and effectiveness of the organization as a whole rather than on the type of cost-cutting within IT that can produce negative and unacceptable business risks.

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The study results point to the following key recommendations:

Improve the quality and reliability of IT services that process nancial transactions, provide integrated access to and leverage customer information, improve customer loyalty and retention, enable workforce productivity and support compliance. Prioritize smarter ways of doing things through service management and technology consolidation. Revise measurements and reporting to provide more visibility to process performance, quality of service, outcome metrics, costs, and business value. Change the focus from technology and optimized subsystems to optimization of IT-enabled business activities. This includes building out the digital platform of the business and improving the ability to manage it as the new business infrastructure. Apply some investments to tactical quick winsbut also work toward eliminating service-quality inhibitors through longer-term strategic initiatives.

In todays uncertain economy, companies are no longer focusing on optimizing technology or process subsystems. They are working to improve IT-enabled business activities through smarter management and improved measurement practices that focus on IT service quality and business outcomes.

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For more information

For more resources and information on service management, contact your IBM sales representative or IBM Business Partner, or visit ibm.com/services/
us/cio/optimize

About IBM Service Management

IBM provides industry-specic business solutions, including application innovation services. We provide the business planning, model innovation and service-oriented architectural approach to the design of the digital platform on which the business relies. IBM also provides the infrastructure planning, design and implementation needed by the application innovation. Service management strategy, assessment, planning, design and implementation services can help organizations take a business-driven approach, improving their ability to manage the digital platform. Additional options are available for organizations that prefer to outsource some or all of their IT services to a reliable and scalable partner.

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