Banks run on IT. Yet as they transform themselves through technology, many remain awash in outdated code and system architecture that needs constant support. Think aging middleware and bespoke trading and lending systems.
The result is a growing load of technical debt — and no payoff in sight. But by reducing the debt through a combination of rigorous decision making, sunsetting and modernization, financial institutions can maximize the business impact of their IT spend.
The Business Value of Paying Down Technical Debt
Every banking CIO acknowledges technical debt is an issue. But many view it as an important topic rather than an urgent one, and its reduction is often seen as an exercise with no business value. The thinking goes that if few end users will experience a difference when outdated systems are refreshed or cleared away, why bother?
The answer is that while some amount of technical debt may be useful — for getting strategic projects to market faster, for example — incurring it on an ongoing basis isn’t. For one thing, the “interest” on technical debt is steep: Large financial services organizations spend approximately 20% of their IT budget to keep current on product changes in underlying applications, middleware and hardware, or nearly $90 billion per year worldwide.
For another, technical debt presents substantial risk. The programmers who know the systems are often long gone, and when only the compiled code and not the source code remains, maintenance and changes are difficult or impossible.
The First Cut is the Deepest
Reducing technical debt is a straightforward exercise with a tangible outcome: the liberation of budget dollars for the IT initiatives that are competitive differentiators.
Here’s a five-step plan that borrows (pun intended) from the financial concept of debt, which banks can use to immediately bring clarity and intention to the process.
1 Stop adding to the debt.
The first law of holes is to stop digging. In the case of technical debt, that means calling a halt to non-strategic, usually decentralized IT decisions. But putting the shovel down is harder than it sounds. Business pressures on a matrixed IT organization make it difficult to resist well-crafted marketing messages from IT vendors.
Establish enterprise-wide governance from the CIO’s office to make the right long-term decisions regarding technology policies and options. It’s not uncommon for banks to launch technical governance but watch the effort fade after an organizational change or two. The oversight of technical debt reduction is about being a responsible steward of the bank’s business. Play the long game.