Smart IT Decisions Matter; Not Champagne Taste on a Beer Budget

At the end of the column, the issue of paying for the desired options was couched in another analogy: "There is the matter of paying for the meals and service, either in-house or outsourcing. I'm reminded of another phrase, 'Champagne taste on a beer budget.'" As promised, this column will discuss how bank management teams should make decisions about their technology appetite.

"Champagne taste" suggests a high-end, or expensive, cost to get the desired solution. "Beer budget" infers that the funds available are considerably less than the desired solution will cost. The real world facing bankers is more complex and varied than these two extremes suggest. I have lived in the Boston area (home of Sam Adams and other specialty brewers) for the past 20 years and can certify that local brewers would take offense over the expectation that a "beer budget" was skimpy to start with or, even worse, implied that the drinker’s taste for beer was pathetic.

For starters, bankers should not focus on champagne or beer, rather their focus should be very tightly refined on the needs facing their bank, its staff and customers for any requirements that are being evaluated. Planning for the future is highly recommended, and revisiting the technology plan on a regular basis is also an important component to meet the institution’s objectives. The question of in-house vs. outsourcing is not automatically the right one in every bank’s situation. Over the past 20 years I have observed tremendous technology success stories using in-house, outsourcing, or a mix of the two. On the other hand I am also aware of several painful failures in all three cases.

The message behind this column is really about the bank management team’s capabilities to analyze its needs, plan for any changes to its technology portfolio, build or implement its solutions, and run its operational businesses with a high degree of success and effectiveness. When I first joined the banking industry in the mid-1970s, my bank’s IT team was organized around "Plan, build, and run." That structure helped me understand the linkage between IT and the lines of business where I was involved. The long-term takeaway for me was the quality of the effort between the IT and business colleagues on any given project. When a project team was focused, committed, and collaborated in a very effective manner, projects were a resounding success. Unfortunately, there were a number of projects, including a massive conversion from one provider to another provider, that failed on multiple fronts, with an adverse impact on the lines of business.

Whenever an IT spending decision is being made, the management team should not be thinking about the equivalents of champagne or beer. Balancing short- and long-term business needs is what is important, even if the balancing process requires intermediate steps to limit risk, manage resources, or maximize the business priorities.

We are now entering the season of the annual IT budget ritual for most US banks and credit unions. Both IT and the management team (sometimes in the form of an IT council) should review business objectives, including any changes in business activity that impact IT spending, and the annual IT plan for the upcoming year. Calibrating changes to the IT plan, business plan and IT budget should be a coordinated and collaborative process. If that is not the case, then the odds of the "champagne taste vs. beer budget" analogy are far higher than they should be. Unfortunately, the cure for that latter condition is more difficult than taking two aspirin.

Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of US banks and credit unions.