Time for bank CIOs to become CEOs
However it doesn’t need to be this way. CIOs need to be getting onto the front foot and taking a business-friendly approach to the way that IT is run and services supplied to the business than the outsourcers who offer to take on the business of IT cheaper, better and with greater resilience.
Without getting to IT cost tranpsarency, how can the business units be expected to have trust in the recommendations and decisions that the CIO makes?
Many other business units of banks operate P&Ls, but often IT doesn’t, rather it is seen simply as a cost centre and there is no granularity about the cost and how that relates to the business units. Having said that, it doesn’t mean that it makes sense or is useful to share the detailed costs of IT with the business.
One of the big difficulties for many CIOs when challenged about the cost of the services that they deliver is that they don’t have the numbers available in a business-friendly way to enable the business to understand the true cost of providing services to the bank’s customers and therefore being able to make intelligent choices about how they want to consume IT services.
Whereas every IT department will have a General Ledger where entries are made, the structure of these accounts is often designed from IT’s perspective with categories such as hardware, software, network and people. Increasingly with the changes in the IT industry and alternative ways of delivering, such as cloud computing (Infrastructure as a service, software as a service, private v public clouds), off-shoring, outsourcing and the green agenda, it is becoming essential to be able to compare the costs of delivering these services.
Fundamentally there needs to be a transformation in the way that IT looks at its finances to being more commercial, and in the culture of IT departments to being far more outward looking and customer-centric. This shift needs to be underpinned by taking far more of a management accounting approach to the finances of IT. Bank CIOs need to become the CEOs of the IT services businesses that they run – an equal with their fellow business unit MDs.
The end game is to have a set of costs that provide the fully loaded cost of delivering a business process e.g. what is the IT cost for completing a customer’s application for a mortgage from initial enquiry to release of funds. This cost would include an appropriate share of the cost of the use of applications, infrastructure (storage, processor, network, power consumption, data centre and office space, etc.), IT staff and overheads.
An example of an organisation that is taking this approach is Bank of America, who with the rolling out of videoconferencing into their branches (see http://www.itsafinancialworld.net/2011/03/is-videoconferencing-answer-to-rdr.html ) is including the cost of not only the hardware but also the Telepresence licencing, the power consumption and the communications cost to work out the cost of sale using this channel.
Many IT organisations have made or begun to make the transition from a service delivery to a service management approach to IT. ITIL encourages this and, for many organisations, the first step along this path is to create a Service Catalogue. However the Service Catalogue really only becomes useful when there are fully loaded costs associated with each service.
However to get to a full financial model involves a significant amount of work and time, so the pragmatic approach is to take small steps towards this. The easiest way to break this work down would be to pick off a product or service such as network or mainframe, however doing that does not bring about the fundamental shift from internal IT focus to business focus, so a better alternative would be to take a single business process. For instance rather than going for something as complex as an application for a mortgage, a balance enquiry could make a simpler way to demonstrate transparency and build trust with the business, particularly if what is modelled is the IT cost of a balance enquiry over different channels e.g. branch, telephone banking, internet banking or mobile.
By changing the dialogue with business, by being able to explain costs in the terms they understand, CIOs operating as CEO of IT Service Businesses will move from supplier to true business partner.