Information technology (IT) has played a critical role in the investment banking industry over the last several decades. Before the financial crisis, IT helped fuel investment bank growth; following the crisis, it helped organizations respond to new reporting requirements. Today, the industry is realizing that these gains came at a cost.
Feeding the beast
Following a generation of technology accumulation, investment banks are often facing complex and unwieldy technology estates that are not only difficult to manage, but also costly to support and maintain. These legacy architectures are:
- Draining resources. Between 2013 and 2018, Accenture estimates that the average IT spend in capital markets will rise from around $85 billion to more than $100 billion. Spending on operations and maintenance is expected to keep pace, accounting for roughly 75 percent of total expenditures over the same period.
- Inhibiting digital innovation. With the bulk of IT spending being consumed by operations and maintenance, the level of discretionary funding and staff resources available for digital innovations is limited.
- Slowing time to market for new applications. Any new technologies must be tested across a complex network of application interdependencies, which increases their cost and time to market. As a result, banks face greater exposure to digital disruption and new market entrants.
In the current economic climate, where bank returns increasingly depend on lower cost-income ratios and digital innovation, the burden of legacy architecture is simply too onerous to bear.
Breaking the cycle
Breaking free of legacy architecture is not easy, however. Most investment banks are not in a financial position to fund a full system replacement, and institutional dependencies can make it difficult or impossible to change systems while they are in use. Fortunately, advances in cloud computing and legacy decommissioning offer a new path forward.
New cloud technologies are making it possible to virtualize legacy applications on an industrial scale. Automated tools can be used to move systems and data into portable “containers” that can be securely and fluidly deployed across a combination of internal and external infrastructure providers.
Removing physical IT assets from the balance sheet not only simplifies IT infrastructure operations, but also creates opportunities to partner with lower-cost service providers. A lower cost base for legacy systems means more funds for replacement systems and digital innovation.
Finishing the job
Jettisoning legacy architecture requires buy-in across the organization. Specifically, investment banks need:
- An institutional culture that values strategic investment and embraces lean principles.
- IT leadership with a clear vision, strong communication and good governance.
- Strong support from the chief operating officer (COO) and chief financial officer (CFO).
Some organizations may find it useful to adopt a “factory” model for centralizing services, cataloguing systems and tracking decommissioning progress. Others may adopt a “run-to-kill” approach, outsourcing legacy maintenance and support to lower-cost vendors to free up skilled staff for work on greenfield replacements. Regardless of the plan, what’s most important is that everyone is on board.