Banking & Financial Industry

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Banking & Financial Ser vicesNew regulations and oversight are forcing change

on this sector. With IT budgets bigger than other

industries, these companies also have higher levels

of outsourcing. But its not just IT work going

offshorebusiness activities of financial services

firms are going global, too, and IT must find ways

to support those efforts.

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A n a l y t i c s . I n f o r m a t i o n W e e k . c o m

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Report ID: 1460910-B


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B a n k i n g & F i n a n c i a l S e r v i c e s

CONT

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3 Research Synopsis

4 Analysis: Big Budgets, Big Challenges

7 Q&A: Vanguards Paul Heller and Tim Buckley

11 Appendix

5 Figure 1: Banking & Financial Services Spending Overview

5 Figure 2: InformationWeek 500 Spending Overview

11 Figure 3: Innovation Plans

12 Figure 4: New Web Technologies

13 Figure 5: Global IT Strategies

14 Figure 6: Technology Initiatives That Improved Company Productivity

15 Figure 7: IT-Driven Patents and Copyrights

16 Figure 8: IT Adding Value Back to the Business

17 Figure 9: Reporting Structure for CIO

18 Figure 10: CIO Areas of Responsibility Outside of IT

19 Figure 11: CIO Involvement with New Product Development

20 Figure 12: IT Budget Allocation

21 Figure 13: IT Spending Expectations

2 September 2010 2010 InformationWeek, Reproduction Prohibited

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Survey Name: 2010 InformationWeek 500Survey Date: December 2009 through April 2010Region: United StatesNumber of Respondents: 38

Methodology:To be ranked in the InformationWeek 500, companies with revenue of

$250 million or more must complete a rigorous application on their tech-nology strategies. The process includes quantitative and qualitativeassessments of business tech innovation. Completed applications arereviewed by a panel ofInformationWeek editors, who determine the rank-ing. The data is aggregated for all 500 companies and by industry; indi-vidual company data isnt disclosed without permission.

This report focuses on the IT strategies and practices of the Banking andFinancial Services companies that made the 2010 InformationWeek 500 list.

For more information, please visit the InformationWeek 500 Resource

Center at informationweek.com/iw500. Send questions pertaining to theprocess to [email protected].


A n a l y t i c s . In for ma t i on W e e k .c om


Rese

archSyn

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ABOUT US | InformationWeek Analyticsexperienced analysts arm business technology

decision-makers with real-world perspective based on a combination of qualitative and quantitative

research, business and technology assessment and planning tools, and technology adoption best

practices gleaned from experience.If youd like to contact us, write to managing director Art Wittmann at [email protected],

executive editor Lorna Garey at [email protected] and research managing editor Heather Vallis

at [email protected]. Find all of our reports at www.analytics.informationweek.com.


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Analysis: Big Budgets, Big ChallengesIts been a wild ride for banks and financial services firms in the wake of the financial melt-

down. New banking regulations and overseers, rigorous stress testing and stringent capital ade-

quacy requirements have led banks to re-examine their operating practices, business models

and customer offeringsand all of these changes contribute to the challenge for bank CIOs.

One priority for CIOs is to enable their firms to adjust business models and operations in

response to the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.

Banks have got to figure out a different way to make money than fee income, says Jim

Eckenrode, research executive for banking at TowerGroup, a research and advisory firm in

financial services. You have to work a lot harder, while giving the customer confidence that

your processes are consistent, fair and easily understood.

As an industry driven by data, CIOs in banking and financial services enjoy the biggest IT

budgets in the InformationWeek 500, in both absolute terms and as percent of revenue.

Financial CIOs reported an average company IT budget of $448 million compared to an all-

industry average company IT budget of $243 million, and the financial IT budget represents

8.2% of company revenue compared to 2.9% across all industries.

With these big budgets, financial services firms engage in higher levels of outsourcing than

companies in other industries. Fully 70% of financial services CIOs report doing IT outsourc-ing outside of the U.S. (vs. 58% for all industries), while 46% send business processes offshore

(vs. 32% for all industries). People are looking at outsourcing with renewed vigor, not only to

continue to address cost issues, but also to roll out new functionality more quickly, especially

in a compliance situation, Eckenrode says.

Yet its not just IT work thats going overseasbusiness activities of financial services firms and

their customers also are going global, with 24% of financial services CIOs (versus 14% for all

CIOs) actively pursuing new global activities. Indeed, trade finance and treasury services have

been among the few bright spots in the financial services industry during the past two years.

Because of the continued weakness in the U.S. and Europe, many corporates and even smallbusinesses are looking to expand trade into growth areas in Asia and Latin America,

Eckenrode says. As smaller businesses look globally, their banks need to think about how

theyre going to provide trade services and foreign exchange for their clients.

The increased need to support global business has spurred investment at banks of all sizes.



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The largest banks that have traditionally provided trade services dont necessarily have the

scale to deal with higher customer volumes, Eckenrode says. Then, at the level of the midtier

and smaller, they need to think about how to provide those servicestypically by outsourcing

to correspondent banks or third parties.

For 60% of bank and financial services CIOs, this years IT spending in financial services is expected

to exceed last years spending, which is in line with expectations in other industries. However, IT

spending in financial services has a stronger customer focus than the survey total: 53% of financial

services CIOs plan to introduce new IT-led products and services (vs. 40% for all industries), and

45% are building improved Web operations and customer experiences (vs. 34% for all industries).

The mutual fund giant Vanguard is an example of a company doing both. In terms of new serv-


Banking Spending OverviewRevenue and IT budget

Average company revenueAverage IT dollars spent

Average IT budget as a percentage of revenue

Note: Dollars in millionsBase: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek500 executives

$10,874$488

8.2%

Note: Dollars in millions

Data: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

Average company revenueAverage IT dollars spentAverage IT budget as a percentage of revenue

Revenue and IT Budget

InformationWeek 500 Spending Overview

$9,978$2432.9%

Figure 1

Figure 2


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ices, in the last year it began doing its own clearingsomething that took a $20-million to

$25-million investment, a project that Vanguard decided to keep funding despite the financial

meltdown and recession. We think long-term, says Vanguard CEO Bill McNabb.

In terms of improving the customer experience, Vanguard has made several improvements.

One is to revise the Web interface for opening new accounts. Previously, less than 40% of peo-

ple who started that process finished. After revising the interfaceallowing people to jump to

different places in the process depending on their needs, for examplearound 50% of people

who start now finish. Another improvement was to go mobile, launching an iPhone app. Its

very small numbers using the mobile app, but theyre pushing for ever-more functionality.

Vanguard sees mobile becoming one of its critical channels, alongside its Web site, which gets

20 million logins a year, and call center, which takes 5 million calls a year. You cant wait until

theres mass adoption, says CIO Paul Heller.

Also, financial services as an industry tends to foster a stronger link between IT and business

value. IT organizations at financial services firms are more likely than other industries to devel-

op revenue-generating products and services (79% for financial services vs. 60% total), almost

twice as likely to license IT to third-party providers (29% for financial services vs. 15% total)

and more likely to trademark an IT-based product or service (24% for financial services vs.

19% total).

CIOs in financial services tend to report to the CEO or president (53% vs. 45% for all indus-

tries) or the COO (16%, same as average); and only rarely the CFO (5% vs. 21% for all indus-

tries). Compared to other industries, CIOs are less likely to have other responsibilities such as

telecommunications, and more likely to partner with business units and lead R&D teams.

Ivan Schneider and Chris Murphy



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Q&A: Vanguards Paul Hellerand Tim BuckleyVanguard Group isnt like most companies

when it comes to IT leadership. Look at the

career tracks of two top executives, Paul

Heller and Tim Buckley, whose work at the

mutual fund giant have taken them in and

out of tech leadership roles. Buckley left a

business unit role to develop Vanguards Web

presence, became CIO, and now is managing

director of its retail investor group. Heller

moved out of IT management to run the retail investor business, and now is running IT as

CIO.

Under Heller, Vanguard also has taken a different route to spur innovation. If theres an emerg-

ing tech project, like building an iPhone app last year, Vanguard will ask for volunteers to work

on it. Volunteers keep their regular roles and work on the emerging project as well. Heller says

it helps assure people are passionate about a project, and it gets a project moving that, by the

numbers, couldnt yet justify dedicated staff and budget.

Heller and Buckley recently spoke with InformationWeek editor Chris Murphy.

InformationWeek: You essentially switched jobs. Why does that approach work for Vanguard?

Buckley: We think people shouldnt move up in a silo. You gain better context of how the business

works, and youll make better decisions for the client. We also believe leadership is about

competencies, not skills. We believe you can be successful in a leadership job if we develop

those competencies. We also believe you should have different bosses, different mentors, to help

build those competencies.

Another element is its a very collaborative culture. So you tend not to just go off and make deci-

sions in your business on your own without talking with anyone else. If were doing somethingin the retail business, the first person Im going to call is Paul. Hey, what do you think about

this? Were very collaborative. I dont worry, too much to tell you the truth, about what happens

in IT. Having been there, I know he has a fabulous team. I dont worry about whether theyre


Paul Heller Tim Buckley


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getting better at delivery. I know theyre worried about getting better at delivery each and every

year. I know theyre worried about availability. I dont stress out about that.

So what typical companies might stress out aboutwhys my project late, how are you mak-

ing my systems more reliable, are you spending money wiselyIm confident theyre doing a

great job about that. We spend all our time talking about better solutionswhat can we do

better for the client? We dont waste time on the mechanics of IT. We let the IT guys worry

about that.

Heller: One of the things that fits with that is were pretty straightforward as a firm. Were not

selling a thousand different things; its not selling the most complex thing. Its an investment, it

comes in a few flavorsstocks, bonds, money markets, you can mix them up and its a bal-

anced fund. The business is pretty straightforward, and to do that business well, you have to

provide great fund returns. And technology is huge to providing great fund returns. Much

of what we do in-house is index funds and [thats] quantitatively oriented and takes a lot of

technology.

Were a virtual firm, and while on the institutional side we do go out and meet with people,

with so many of our customers we only see those clients through the Web, so it takes a boat-

load of technology. And part of our core advantage is were low cost, which takes a lot of tech-

nology. In a way, while were not IBM or Google where you are a technology company, we haveto be fabulous at it. Which is why we try to rotate people through both business and IT. Its

one thing to appreciate the business if youre in IT; its one thing to appreciate IT if youre in

the business. Its a whole other thing to walk in their shoes a while. It makes for wonderful

clients. Tim, its nice to hear you dont worry about it. If you hadnt spent five years in IT

directly, youd probably worry about it a lot more.

InformationWeek: Weve been looking at growth and the opportunities IT teams see. Where do you

see growth opportunities that IT can drive?

Buckley: When the crisis hit, we were in the middle of converting to self-clearing, which means

we were taking in the back office operations of our brokerage, from a firm Pershing. Its a veryexpensive endeavor with IT to complete this, you have to have a tight partnership, theres a lot

of risk involved. We decided lets push forward. By pushing forward, were saving $20 to $25

million a year. It wouldve been easy to say lets cut the project; we dont have to spend on the

hardware, these expensive people. That pricing gave us the flexibility back in May to cut the



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price of our ETF to basically zero commission and drastically reduce the commission in our

brokerage.

InformationWeek: How much did that cost?

Buckley: Tens of millions of dollars to do that.

Heller: We divide the portfolio along a number of dimensions. One key aspect is in any given

year, how much of what were spending on technology is really oriented to the client? How

much is the client going to see? Another aspect is how much is geared to operational efficiency.

This is a firm that becomes lower and lower cost, which leads to higher and higher perform-

ance. So thats very important to ususing technology to lower costs. A third area we track:We have a ton of peoples money, and its a virtual business, so you obviously have to be fabu-

lous at security and risk reduction. We spend quite a bit on that. And last, we dont wait for

roads to crumble before we replace them. Were always investing in technology infrastructure.

Generally we spend 40% to 45% in the space where clients directly see it and feel it. The

next biggest would be 30% in a huge operational efficiency paybackself clearing falls into

operational efficiency and payback. When you come to growth, many of the client initiatives

are really growth initiatives. We really believe not just because we adore the place and drink

the Kool-Aid, that your brother, sister, wife, best friend should invest in Vanguard. So its not

just about a sales objective, but were just trying to make it easier for clients to invest in us.

InformationWeek: How did your iPhone app get into the project pipeline?

Heller: Its what I think of as more practical innovation. This isnt innovation as in Lets be cool

to show stuff off to our external clients, and do retina scans. We try to be really connected to

our business and clients. When we put an iPhone app out, I wouldnt call it innovation. There

were already hundreds of thousands of iPhone apps. Yet, there werent many in the retail mutu-

al fund space. Its applied R&D. We can look two, three years out, and say, Rich internet apps

are going to happen. We already see it on The New York Times or Amazon.com, dont we want

to do it? So we want to pave the way on the technology, so the first businessperson up who

wants to do a rich Internet app doesnt have to figure it out on their project.

In the mobility space, the BlackBerry and iPhone had major market share, we knew at some

point the business units would be knocking on our doorseven though no one was really

using the channel yet. Given that, we asked [for volunteers to work on an iPhone app]. People,



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by the way in IT and business love this because its cool and new. So its easy to attract a team

within IT and the business to put together a pilot or prototype app, and people adore volun-

teering. And thats also been symbiotic, because we get to see some of best up and coming tal-

ent that volunteer to work on this. And thats exactly what happened with the iPhone app. It

was a quick, in a way undercover, effort.

Buckley: It wouldnt have happened if we didnt have IT people who knew the business. They

launched it, and it wasnt like we said Oh, that doesnt look like Vanguard at all. You did that

all wrong, thats not how we think about that. They showed it to us, we said, Perfect, lets ele-

vate this and keep building on it.

InformationWeek: Why is volunteering important? Isnt there a tension in squeezing a bit more out of

people who are already busy?

Heller: I think it just makes the pie bigger. People are totally psyched to go and do that work.

They do it during the day, and they also get their work done. And, its what our crew is ask-

ing for. People want to work on things theyre passionate about. It fuels that.

Buckley: In some fields, innovation is discovering the new technologies. In our world, its under-

standing the new technologies and how they can be applied to help the clients. This is what

Paul enabled. At a lot of companiesyou hear about Googleyou can spend 20% of your

time and just be creative and think through things, or take a group and go do innovation. Buta good part of innovation is passionif you find people who know the new technology and

have a passion for it and are driven to figure out the best thing to do for the client is. Paul

blessed that and said, Do that.

We dont pay by the hour. Theyre Vanguard folks. Basically Paul said, If youre working a

project, you still have to do that. But if you want to spend time, and want to come up with an

iPhone app because youre passionate about that, go be creative and do that. If youre on the

self-clearing project, you still need to do that, because thats bread and butter for us, but he

allowed them to carve out time in their day and said, You can go do this.

Heller: Its not work on anything. Were very purposeful in tying it to the business and to spon-

sors and technology trends. But it tends to be things people love. I cant tell you the number of

people who want to make Vanguard more green.



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B a n k i n g & F i n a n c i a l S e r v i c e sA n a l y t i c s . In for ma t i on W e e k .c om


Introduce new IT-led products/services for our customers

Improve Web operations/customer experience

Make business processes more efficient

Lower IT costs/business costs

Get better business intelligence to more employees, more quickly

Engage customers in new ways

Improve customer service

Pursue new global opportunities

Create a new business model/revenue stream for the company

Move organization toward an eco-friendly IT environment

53%

45%

39%

34%

32%

24%

24%

24%

18%

Improve interaction with partners and suppliers

5%

3%

Note: Three responses allowedBase: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

Innovation PlansFrom the list below, please select the top ways in which your company plans to innovate

with technology in 2010.

Figure 3


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68%

63%

50%

47%

39%

24%

18%

13%

Were using wikis, blogs or social networking tools for external collaboration

Were using software as a service

Were using hosted collaborative applications (e.g., calendaring, spreadsheets, document management)

Were using storage, compute or other cloud computing services

Were creating mashups that combine Web, enterprise content and applications in new ways

Employees are encouraged to use consumer-oriented online applications they find useful

Were using GPS-enabled or location-aware Web applications

Were using platform as a service (e.g., Microsoft Windows Azure, Google App Engine)

Note: Multiple responses allowedBase: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

New Web TechnologiesWhich new Web technologies are being adopted by your company?

Figure 4


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70%

46%

43%

38%

38%

16%

14%

We do IT outsourcing with vendors outside the U.S.

We do business process outsourcing with vendors outside the U.S.

Were making global support and development part of most IT workers regular jobs

Were expanding our own IT operations and hiring outside the U.S.

Were integrating more IT workers with business operations that are global in nature,such as purchasing and supply chain

Other

None of these


Global IT StrategiesWhich of the following global IT strategies are in place in your organization?

Figure 5


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66%

47%

37%

24%

21%

18%

18%

Developed mobile applications

Deployed videoconferencing

Distributed smartphones

18%

16%

5%

3%

Deployed new types of collaboration software (Microsofts SharePoint or other)

Deployed business intelligence tools

Deployed unified communications (single solution providing e-mail, VoIP, videoconferencing, IM and presence)

Deployed desktop virtualization infrastructure

Encouraged workers to use Web 2.0 technologies (e.g., social networking, online applications)

Increased support for telecommuting and remote workers

Adopted online collaboration tools (e.g., Google applications)

Modeled business processes using CASE (computer-aided software engineering) or related tool

Note: Three responses allowedBase: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

Technology Initiatives That Improved Company ProductivityWhich of the following are the most effective steps managers in your organization have made

in the past 12 months to raise company productivity?

Figure 6


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IT-Driven Patents and CopyrightsHas your organization patented, trademarked or copyrighted any IT architectures, products, services

or IT-driven business processes in the past 12 months?

Base: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

37%

63%

No

Yes

Figure 7


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79%

29%

24%

21%

Developed a revenue-generating product or service

Licensed information technology to third-party providers

Trademarked an IT-based product or service

None of the above


IT Adding Value Back to the BusinessIn which of the following ways has your IT organization added value back to the business?

Figure 8


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Reporting Structure for CIOTo whom does the CIO of your organization report?


COO

CFO

CTO

Other seniorcorporate executive

Other

CEO/president53%

16%

5%

3%

10%

13%

Figure 9


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53%

32%

21%

16%

13%

13%

8%

5%

37%

21%

Telecommunications

Innovation

Operations

Business process management/improvement

Global business services

Procurement

Logistics/supply chain

HR

Other

Our CIO is not officially responsible for any areas outside of IT


CIO Areas of Responsibility Outside of ITIs your CIO officially responsible for areas other than IT?

Figure 10


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92%

76%

3%

Partner with business units to develop new products or services

Provide the systems and support mechanisms for new product development

Lead an R&D team accountable for new products or ser vices

Not involved with new product development

24%

Note: Two responses allowedBase: 38 banking and financial companiesData: InformationWeek Analytics survey of 2010 InformationWeek 500 executives

CIO Involvement With New Product DevelopmentWhat are the most important ways in which your CIO is involved in developing

new products for your company?

Figure 11


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IT Budget AllocationWhat percentage of your organizations projected 2010 worldwide IT budget, including capital

and operating expenses, is devoted to the following?


62%

38%

Ongoing IToperations

New IT projectinitiatives

Figure 12


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21 September 2010 2010 InformationWeek Reproduction Prohibited



IT Spending ExpectationsWill your total IT spending in 2010 exceed, be equal to or be less than your 2009 IT spending?


60%

24%

16%

Exceed

Equal to

Less than

Figure 13

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