Ironically, logic is often the scarcest commodity in the information technology funding process.

Consider Bank One Corp., which announced on Wednesday a fourth-quarter loss of 44 cents per share. The company, seemingly unable to assemble the basic management information necessary to understand its financial performance and earnings dynamics, continued to invest in its Web banking tar baby,, and introduced a nifty (if mostly unnoticed) person-to-person Internet funds transfer system.

Do cause and effect link these two projects to Bank One's loss? Surely not. Does the juxtaposition effectively frame the everyday dilemma faced by bankers charged with making information technology spending decisions? I think so.

The truth is, there are no easy choices when it comes to technology investing. At any given bank, dozens of proposals compete for money from a limited pool.

Management is responsible for effectively allocating scarce resources. Yet expenditures for Internet banking and other "must-have" innovations are rarely the result of rational decision-making but rather are defensive moves to avoid being "left behind."

Management's phobia about being left behind technologically is largely a byproduct of extraordinary hype generated by less-than-objective third parties: hardware and software vendors and information technology consultants.

Unfortunately, chief information officers and information system employees are all too frequently guilty of aiding and abetting the hype. Most information technology employees would much rather install the latest wireless innovation than retrofit the general ledger or loan accounting systems to improve management reporting.

One way to improve a bank's focus on the most crucial goals is for senior executives to improve their understanding of technology. Forming an information technology steering committee, while hardly a new notion, is a valid and valuable practice.

Here are a few basic suggestions for improving the odds that your next information technology project will produce a measurable benefit:

  • Do not let the vendor that stands to benefit from an information technology expenditure "educate" management about the technology. Get truly independent input, especially contrary views.
  • Do not do anything just because you fear losing business to a competitor that has announced an initiative. Doing so will only hold you hostage to decisions made by the biggest fool in the market.
  • Be sure you understand why a new technology is required in the first place. Too often systems or equipment are bought to deliver benefits that could be captured without additional technology.
  • Be skeptical of information technology projects that promise new consumer revenues, especially ones that claim your bank would gain an advantage by being the first to install a system. There is no compelling evidence that this proposition ever holds up. The most profitable banks do not immediately pursue the newest technologies.
  • Favor projects that offer internally controlled expense reduction over those that promise increased revenue. The benefits of reduced costs are significantly more likely to be realized.
  • Avoid research and development proposals altogether unless your bank has very deep pockets. The overwhelming majority of funds spent on "getting ahead of the competition" through technology produce no benefit.

The first item funded in every technology budget should be maintenance of systems that have already been acquired. Failing to do this is tantamount to buying a new car and never servicing it.When confronted with the latest innovation, bankers should remember something they already instinctively know: Technology, for all its real and potential benefits, has been promising more than it has delivered for 30 years. Keep that thought foremost in your mind the next time you sit down for an information technology steering committee meeting.
Mr. McGrath is a managing partner at Bank Earnings International LLP, a consulting firm based in Orange, Va.

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