Bankers see extensive expenditures in information technology as the inevitable price of a prosperous future. Yet how can they be sure that the information technology (IT) department itself is meeting the operational objectives of the institution: efficiency, cost effectiveness and customer service?
A recognized practice in the business world at large over the years, activity-based costing gauges efficiency in objective, quantifiable ways. It enables senior executives to compare their respective organization's performance with the rest of the industry, as well as with their own expectations (see chart). The practice is now being applied to IT in the financial services industry.
One way to achieve activity-based costing is to literally create a picture of the IT department's performance. Photographs tell truths beyond the range of their subjects' vision. By offering insights into how work really gets done, the "performance snapshots" which emerge from analysis and benchmarking can help senior management and IT executives find inefficiencies, pinpoint wasteful business practices and work processes, highlight organizational strength, and compare their operations to industry norms.
Architected by Charles Florit, president of San Diego-based Michael- Delia, Inc., Performa Organizational Performance Analysis and Benchmarking Service can help senior bank executives demonstrate the value provided to the business enterprise for IT expenditures; optimize current staff for maximum effectiveness; identify and prevent "high risk" projects; improve relationships with internal clients; integrate new functions, processes and technologies; and improve cost competitiveness.
The analysis, which compares information with peer organizations, develops a multifaceted vantage point. "Organizations have a general idea about (IT) operations based on the number of heads they see," says Florit. "But they don't know how time, skills and dollars are applied at work. An individual works 10 hours a day. Where do the 10 hours go? When you multiply those elements by the number of people, the levels of skill and experience, and multiplicity of projects and functions involved, you get an idea of the complexity of the issue."
benchmarking against peers
At the onset of the analysis, staff members answer questions about spending their time across an array of activities culled from a database of work with 300 companies in 15 years. Consequently, the image that arises is worth a thousand bits of data, whether the focus is a panoramic sweep or nostril-baring close-up.
Take Barclays Bank, for example. For years the bank's IT department had compared its productivity with the rest of the industry, fared pretty well, and incorporated best practices in its data center. Then came the time to zoom in on readiness for technological change, according to Ken Hamilton, then executive vice president of Barclays. "Keeping in mind that we were beginning the transition to client/server computing, we started (the analysis) simply to benchmark development resources which were easier to control and measure," he says, "to see how its distributed, aligned business groups stacked up."
Part of the problem for these groups migrating to client/server computing was to identify who actually was a development resource. Enter what could be called the "Rashomon effect" (the tenuous relationship of perception to reality), which rules the workplace. "Everyone has a perception of what he/she should do, how to do it and what is more or less important. If (these views are) not in harmony, you will have less than optimal performance," Florit says.
Barclays' IT executives learned that, contrary to popular belief within its ranks, IT employees did not spend a lot of time on infrastructure: training, education, quality assurance testing and the like, according to Hamilton. Since IT was not helping personnel with legacy skills move into the client/server environment, it had to bring in consultants and new hires to do the job. It also set up an educational program for most of the staff; based on personal preference a few staff members would work as liaison with the legacy systems. The program included new skills matrices and titles to match, and a curriculum explaining how staff could grow laterally with a combination of work experience and training prerequisites. And a lesson emerged. As Hamilton puts it, this whole effort was more deliberate rather than intuitive.
The most surprising results-which also yielded a major benefit- illustrated the vagaries of Rashomon part II, or employees versus management. What IT executives thought were project and area managers responsible for various activities were really individual contributors with nothing to manage. This dichotomy explained personnel problems; supervisors thought that the mislabeled workers were not doing their jobs. Relieving these workers of non-existent responsibility made everyone happy. Performance improved and productivity went up as well.
All in all, Barclays increased its IT output 16 percent (ten to 30 percent is the usual improvement in efficiency, according to Florit). The department originally had no measure for quality. As a result of changes inspired by the study, higher quality, which Hamilton defines as a radical reduction in incidents of failure by application, cut down on re-work and made for more satisfied internal customers. As Hamilton puts it, "When you put something in production and it blows up, clients are not happy."
supporting clients' business needs
Unlike Hamilton, Tony Paxton required a wide-ranging view of operations in order to gauge performance and cost effectiveness and determine whether a customer service culture existed when he joined what was then Credit Suisse at the end of 1995. Now a member of senior management at Credit Suisse First Boston, Paxton was taking over IT North America, a department that had been without a leader for two years. "I wanted to start with an open situation, to see what IT had and what (staff) thought they were doing," he says.
The last issue was especially important since Paxton also faced Rashomon part III, or IT versus the company as a whole. According to the bank, IT was neither concentrating on business needs nor very effective in dealing with user requirements. "Users felt IT was a very expensive entity; it was responsible for 26 percent of total expenditures within Credit Suisse North America," he says. At the same time, IT personnel thought everything was fine and under control, with all concerned doing just what they were supposed to do.
The Performa analysis revealed that IT cost too much and did not satisfy customers. "It showed significant areas in which our resource deployment was not in line with other (bank IT groups)," says Paxton. A lot of personnel were focusing on indirect activity with no customer contact such as administrative work, partly to support the IT organization. The biggest customer of IT turned out to be IT itself. Similarly, IT was a high cost provider in areas such as systems architecture, strategy and planning, where again workers could be spending a lot of their time helping customers directly in measurable ways.
Both the Barclays and Credit Suisse scenarios reveal that operations centers are dynamic, like the people who make them work. Because of turnover, promotions, or transfers to other departments, some 20 percent of staff changes yearly, thus altering the composition of the work model.
Paxton envisions performing the analysis once a year to gauge the effectiveness of the changes, and using it as a marketing tool inside the organization to benchmark how IT uses resources through activity-based costing. The merger with First Boston has precluded this so far, but he is considering taking a Performa look at the present IT group later this year. -bosco tfn.com