How Financial Firms Decide on Technology

(Part Four)

2.3¡¡¡¡IT Investment Decisions

¡¡¡¡While there is no concise definition of "best practice" in IT investment decisions, there are a number of consistent arguments advanced in the IT management literature that can be synthesized into an understanding of the conventional wisdom.
¡¡¡¡For the pruposes of discussion it is useful to subdivide the process of IT management into seven discrete, but interrelated processes. The first six processes are oriented around the proposal, development and management of IT projects, while the last process is about maintaining the capabilities of the IT function and its interrelationships with the rest of the business:
¡¡¡¡1.Identification of IT opportunities
¡¡¡¡2.Evaluating opportunities
¡¡¡¡3.Approving IT projects
¡¡¡¡4.The make-buy decision
¡¡¡¡5.Managing IT projects
¡¡¡¡6.Evaluating IT projects
¡¡¡¡7.Manage and Develop the IT Function
¡¡¡¡This subdivision loosely corresponds to many of the major issues in IT management such as outsourcing, line management-IT alignment, software project management, and evaluating IT investments.
¡¡¡¡In addition, this list loosely corresponds to frameworks for the management of IT. The primary difference is that this list views the IT management process as managing a stream of projects rather than focusing on the function of the IT department overall or the role of the CIO, the typical perspective in the previous literature. For example, a common framework used to align IT to business starategy, the critical success factors(CSF) method, include three workshops: the first to identify and focus objectives, the second to decide and prioritize on systems investment, and the third to develop, deploy and reevaluate prototype systems. Boynton, Jacobs and Zmud(1992) identify five critical IT management processes: setting strategic direction, establishing infrastructure systems, scanning technology, transferring technology and developing systems. Rockart, Earl and Ross(1996) propose eight imperatives for the IT organization which can be grouped into managing the IT-business relationship, building and managing systems and infrastructure, managing vendors, and creating a high performance IT organization. Thus, while previous work has subdivided the process in different ways, collectively the studies cover all the seven processes we examine.
¡¡¡¡We will discuss each of the individual points in detail below.

2.3.1¡¡¡¡Identificant of Opportunities

¡¡¡HHistorically, the IT function was primarily reactive, responding to requests by business units. A business unit. A business unit manager would identify a need for a new system or a repair/enhancement to an existing system and communicate this need to the IT function. The IT personnel would then evaluate the idea for technical feasibility and develop a project proposal include an initial determination of resource needs, cost, and delivery time. While this makes effective use of IT personnel in evaluating particular ideas, it provides only a limited role for IT personnel to aid in the identification of technology-based business opportunities.
¡¡¡¡For that reason, some authors have suggested that the IT function should play a larger role in the identification of technological opportunities. For example, Davenport and Short (1990) emphasize that IT capabilities should inform business needs as well as the business units placing demandson the IT function. Fockart, Earl and Ross and Boynton, Jacobs and Zmud identify the role of "technology scanning" and "technology education" as an important component of a centralized IT department; they argue that information systems specialists should be reponsible for evalusting new technologies for business applicability since business units will generally lack the resources or the technological capability to perform these evaluations themselves. Moreover, central IT is best positioned to educate the end uses to make them good "custmers" of the central IT group.
¡¡¡¡In the banking industry, IT may be able to play an additional role in coordinating technology. Because banks and other financial firms are often managed with largely autonomous business units (for example, banks are often divided into product lines ---cash management, investment----or along customer segments---wholesale, commercial, retail) only the central IT function will have a perspective over the porfolio of systems projects and capabilities. One critical role in this respect is the provision and development of the shared IT infrastructure (e.g. central processors, networks, software standards, etc.). Often these projects naturally span business units such that the only ral owner is the IT function; also they generally tend to be highly technical and thus the natural responsibility would also fall on the IT department.