Selling technology to the financial services industry has changed dramatically since John M. Lutz joined International Business Machines Corp. in 1984.
Mr. Lutz, who was named Big Blue's general manager for global financial services late last year, says that banks' tech spending was once driven by two fundamental goals: cutting costs and increasing revenue.
That is changing, he said. In a wide-ranging interview last week, he said that technology spending now focuses on regulatory and compliance demands - what he called "gotta do" projects. These draw so much funding that they sometimes crowd out others.
In response, some financial companies are also trying to get cost cuts or revenue gains out of gotta-do compliance projects.
IBM's view of the outsourcing business is also changing, Mr. Lutz said. It aims for many small deals, not a few major ones, because many customers now would rather outsource just a few IT components than their entire technology infrastructure.
The emphasis on compliance "is having a material effect on the projects" that financial services companies outsource to IBM, Mr. Lutz said.
Banks have limited control over how much they spend on compliance-oriented projects, like those meant to meet Basel II or Sarbanes-Oxley obligations, or to deliver strong data-security and disaster-recovery capabilities, he said.
That is why they are trying to get extra revenue or economizing bang for the buck, he said. "People are starting to do projects with more than one of these [objectives] in mind," he said.
For example, he said, IBM has worked on merging customer relationship management software, used to track what people buy (to predict what they can be sold), with risk management software, which predicts whether they will pay off their debts.
To help it combine these two capabilities IBM bought Systems Research and Development Inc. of Las Vegas in January of last year. That company, renamed IBM Entity Analytics, produces software for background checks on potential customers and employees - software that can also help determine who might buy additional banking products, Mr. Lutz said.
Another deal that will help IBM combine compliance with other kinds of projects is the acquisition last August of DWL Inc. of Atlanta, Mr. Lutz said. DWL makes software that enables companies to integrate customer data from several lines of business, he said.
Mr. Lutz oversees the IBM service teams assigned to financial customers, which total 2,000 people. (He succeeded Jerry Cole, who retired.) Whole teams are assigned to servicing major clients' systems and trying to sell them new ones; smaller clients may have just one representative or be served by a team that handles multiple clients.
The common element of the job is to always "look after the relationship," Mr. Lutz said. The heart of the strategy is offering products and services that will help the client, rather than touting specific IBM products, he said. "We can't be a hammer looking for a nail."
Though banking companies are buying technology for different reasons, selling to them has become easier, Mr. Lutz said. That is because the people who run many such companies and individual business lines grew up with computers - "had them in their dorm rooms" - and are therefore more likely to realize the potential of technology, he said.
The rise of executives who take technology for granted, as a basic element of their daily life, in and out of the office, has led to "a significant uptick in the real integration of the business and IT objectives" at banking companies.
Furthermore, the emergence of the Internet as a fundamental part of the business world has underscored the importance of technology, he said.
But financial companies that in the past might have let an IBM take over their entire tech operations "are componentizing their business" today and devoting more energy to deciding what to outsource and what to keep in-house, Mr. Lutz said. For IBM, "the megadeal era" of providing all technology needs, "has receded."
One striking example is its relationship with JPMorgan Chase & Co. The banking company has been an IBM customer for years. Mr. Lutz was the managing director of its JPMorgan Chase team from 2001 to 2002 - when the two companies entered into a comprehensive outsourcing pact.
In that seven-year deal, JPMorgan Chase turned over its entire tech operation to IBM. The price tag, $5 billion, was the biggest ever for an IT outsourcing deal in the banking industry.
But two years later JPMorgan Chase pulled out. In 2004 it bought Bank One Corp., whose chief executive, James Dimon, became the New York company's president and chief operating officer. Mr. Dimon was well known for his hands-on approach to cost-management - and an aversion to outsourcing projects.
But Mr. Lutz said there was an upside to losing the contract. Major outsourcing projects require significant outlays from the technology provider in the first few years, so losing this one cut IBM's expenses, he said.
JPMorgan Chase remains a major customer, though a more selective one, Mr. Lutz said. Banks have "replaced big-bang, all-or-nothing events with ones that are more granular," he said.
