The cost of complexity
Now, the extremely technology-intensive banking sector spends nearly three times more on IT, as a percentage of revenue, than the average of all industries. But still, the report called for 'infrastructure renewal'. Why? Not because the infrastructure was dated, but because it was far too complex.
IT infrastructure complexity is not restricted to UK banks; it's a global phenomenon. To understand how things came to such a pass, one need only look at the evolution of banking over the past few decades.
In simpler times, banking operations were organized around product verticals - deposits, cards, loans etc. - with applications optimized to run end-to-end processes for each. This created unnecessary duplication, but more importantly, these product silos set the stage for complexity to evolve along with the infrastructure. The proliferation of channels, for instance, led to the creation of more complex interfaces for each vertical thereby augmenting the complexity of the entire system. Then a wave of consolidation within the industry brought together disparate systems and processes and the attendant challenges of integration. Along the way, the decentralization of IT, indecisive governance and ad-hoc decisions only exacerbated the complexity.
But all this was executed with good intention - to deliver more to the customer in terms of products, services, channels and so on. And it is probably a similarly executed good intention that has left the bank mentioned earlier with charges of up to £125 million on account of the outage.
Deutsche Bank, on the other hand, which embarked on a EUR1 billion IT renewal program, says simplification and standardization has already paid back EUR200 million in cost savings in 2012.
Complexity costs. Simplification saves.
Read our follow up blog in the "Simplified Banking" series