Strategic vs. Tactical IT: Both Add Value -- Timing Is Important

Much of the bank, thrift and credit union industry segments have been pitched, sold, and even sometimes have requested, IT solutions that can be described as either strategic on the one hand or tactical on the other hand. Which type of solution is the right one for a financial institution, regardless of its size? Is there a way for the institution's management team to sort through the options and prioritize what solution(s) are the right ones for the near term (this year), medium term (2012 and 2013) and longer term (2014 and beyond)?

"Of course" is the answer -- and there are a number of consulting firms that help financial institutions sort through this process. One of last year's columns ("Why Bankers Should Make an Effort to Become IT Savvy") is based on my belief that "bankers in every line of business should become IT savvy." An important component to becoming IT savvy is the presence of key successful IT supplier partnerships -- because every institution needs high-quality/value help. Institutions should have two lists -- strategic and tactical. Management should understand the difference between the two and why the lists tend to be mutually exclusive. Reviewing each list on a regular basis is highly recommended, as institution needs will change.

Strategic vs. Tactical Investments. One of my annual research objectives since the late 1990s was to identify strategic IT initiatives for financial institutions. Not only did the institutions want this analysis to help them prioritize strategic issues, but the bank technology vendor community also wanted the analysis to make sure they were in touch with client initiatives and its underlying analysis. Often, many of these initiatives were near a tipping point for adoption beyond the early adopters. In other cases, a strategic initiative was early stage, but destined (in my analysis) to become mandatory at a later date. Each year's list of 10 strategic initiatives was different from a tactical list of initiatives for good reason. Tactical IT investments are practical, where the institution needs it now either from an infrastructure perspective or from an industry specific solution requirement. One could argue that Check 21 was destined to be tactical. However, in prior years, check imaging as a broader solution category had strategic elements, which have proven to be significant -- just look at how many check image capture channels exist today -- and are being adopted by institutions!

2012 - 2013. This time period will include a mix of strategic and tactical initiatives. Some of the tactical ones could be very important and associated with meaningful spending or major changes in operations that are implemented over time (say over 12 to 18 months). Rolling out a new branch teller and platform solution can have both strategic (CRM, customer centric selling) and tactical (faster transactions, fewer key strokes) components. Strategic initiatives for this time period are closer to go/no-go decisions.

2014 and Beyond. This time period is really about strategic initiatives, not tactical ones. Research, fact gathering, and specifying business requirements can all be part of qualifying an initiative as strategic. The need to spend money now (in 2011) may be low, say for research and fact gathering, such as a Request for Information that is sent out to a group of suppliers. Spending time meeting with industry players at conferences and attending webinars are other forms of discovery that can help an institution improve its understanding of the issue. Major, future commitments that will require substantial spending, say a core banking replacement decision, can, and should, have strategic rationale. Other solution areas that command a strategic perspective will vary by institution, but certainly risk management is destined to remain a strategic priority for at least another five years -- even though some of its piece parts are already tactical (think anti-money laundering). I would look more carefully at compliance -- certainly this issue gets a lot of attention, but often is a reaction to regulation, which makes it more tactical than strategic. What qualifies as compliance? Be sure to ask a regulator.

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