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Virginia Garcia, Sr. Research Director, Cross-Industry, TowerGroup
Virginia Garcia, Sr. Research Director, Cross-Industry, TowerGroup
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Firms Should Not Let Short Term Demands Cripple Long Term IT Strategy

The landscape in 2009 may look frightening to those in financial services IT, but recovery is in sight and finding an appropriate balance between short and long term goals will be key.

2009 will be a watershed year in financial services and, by extension, the financial services technology market. U.S. financial services IT spending began its decline in Q4 2008 as financial institutions reacted tactically to the gathering financial storm with IT project delays. As the tempest builds in 2009, IT spending will fall 4.3 percent, with investments in new technology decreasing overall by 13.7 percent as firms scrap ineffectual projects and delay new ones. This represents the first decline in IT spending in the history of the U.S. financial services technology market.

Large-scale enterprise projects are foundering as IT spending appetite and business sponsors are distracted by survival tactics. While IT spending on new technology initiatives is delayed, many institutions are likely to build strategic plans for IT transformation, understanding the limitations of their present IT structures. As the dust settles and banks execute strategic plans either revised or reinforced by crisis, new technology spending will recover, growing at a compound annual growth rate (CAGR) of 8.3 percent between 2009 and 2012.

Financial services executives are struggling to balance the competing mandates of capital preservation in the short term against strategic differentiation in the long term. Cost cutting born of desperation today may be so deep as to cripple the IT structure permanently and jeopardize the business. Smarter actions to rationalize IT and remove decaying technology may offer better short-term returns and also yield strategic benefits. Mandates for improved risk management and compliance, globalization, and shifts in customer demographics will force the retirement of old business models, making technology innovation an essential platform for survival and growth.

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