Leaders of financial firms face many of the same challenges as other sectors when they make decisions about technology: they must sort through the hype and apply analysis to their nuanced business needs. This is increasingly difficult to do as the technology landscape continues to grow. Put simply, there is too much technology out there for any one financial firm to master it all.
Compounding this challenge for financial firm leaders is compliance that's unique to their industry. They must also fulfill obligations set out by regulatory bodies such as the Office of the Comptroller of the Currency (OCC) and Consumer Financial Protection Bureau (CFPB) in the US and the European Banking Authority (EBA) in Europe. The added layer of compliance is making it even more difficult for financial business leaders to effectively evaluate and choose technology to introduce into their organizations.
So, how can leaders thoughtfully approach technology investments? The following three questions—with special considerations for each—can help leaders develop a structured and successful approach to selecting the right technology for their organization.
How does the technology fit into the big picture of the financial firm?
Build or review reference architecture
If an organization has established a reference architecture, decision makers are far more empowered to make decisions on adopting new technologies. The Open Group Architecture Framework (TOGAF) provides an enterprise architecture methodology that can assist in describing any organization’s reference architecture. While a reference architecture can contain multiple levels of detail, its availability can help leaders more easily align technology adoption decisions to the North Start of the organization.
Mapping strategic IT investments
Today technology decisions should not be made in isolation as every system is typically interconnected directly or indirectly. This connectivity impacts how IT investments are valued within organizations. Every IT investment should be evaluated to determine if this investment is required for a point solution or part of a wider value for the organization.
Understand the lifetime horizon
View every new technology as if it will remain in place for a long time. Take, for example, the 1960s programming language COBOL, which is still in use by some organizations today. Leaders must take a long-term view of the technology, and not view solutions as temporary.
How will the technology be operated, supported and implemented on a day-to-day basis in the financial firm?
It's important to consider the integration of the new technology with already in-place technology. An organization should consider: what interfaces are supported, what standards the system is compatible with, what, if any, open source elements are present, and if the system allows for modifications by the end user organization.
A lack of standards can quickly drive an organization into a monopoly arrangement whereby you are limited in the number of vendors who can support and enhance the system. Some might call this vendor lock-in, which can be costly and should be avoided.
Support for skill development
In the past, large financial organizations elected to adopt the Linux and Java technology stack, and other smaller and medium sized organizations elected to adopt the Windows and .NET stack. This ‘two camps’ approach is no longer dominant in the market. Today an organization can easily mix the technology stack for the project requirements without experiencing much technical difficulty—if skills are up to speed.
One of the most important considerations of a technology should be the team’s ability to developer and master the skills needed to fully leverage the solution. The wider the technology portfolio an organization has, the greater the number of skills the technical team will need.
Use a value framework
Several frameworks exist that attempt to help leaders make better IT investment decisions, such as ValIT and Value Measuring Methodology (VMM). But these frameworks should be approached with caution. Unless the use of these metrics is adopted and widely accepted across the organization and are utilized, ideally, with the expertise of a specialist who has experience in the use of such frameworks, they should be avoided.
Is the technology compliant?
Third-party risk management
Regulators recognize that technology adoption can regularly involve the provision of technology from a service provider, and they have strict guidelines and expectations in relation to this third-party management. If the service being provided is deemed critical, the procuring organization must undertake significant due diligence prior to adoption. And exercise ongoing monitoring and third-party risk management during the lifetime of the service provision.
Vendor due diligence
Whilst the adoption of a common framework or language may not be subject to the same risk management as a service provider, it's important to consider how the use of new technology will affect regulatory obligations. Due diligence on the vendor, including financial viability, the ability to support the technology and acceptable service levels are all key considerations.
Many leaders experience a decision-making process in adopting new technology that's ambiguous, but it doesn't have to be. Using high level (big picture) and low level (day-to-day) reference points along with deep due diligence for compliance will help established financial firms avoid major pitfalls in adopting new tech.
Learn how financial firms can move faster with our on-demand webinar on technology in the financial sector.
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