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Business optimism and investment jitters

Good cheer does not translate into IT spend

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US publication Optimise Magazine recently produce some interesting conclusions concerning the correlation between business outlook and technology investment for 2004, writes Bloor Research analyst Bob McDowall. The magazine's analysis is based on a survey of business/technology executives from the financial services sector in an InformationWeek Research Priorities study. The survey may be US-based, but the results do not seem to differ from the European environment.

Financial services are, traditionally, substantial investors in Information Technology. Information Technology is a very visible and tangible means of leveraging business and resolving business, administrative, regulatory and compliance issues. Historically, business optimism is a prelude to increased investment and spending in the financial services sector:

  • Contrary to historic patterns it seems that the business optimism is unlikely to translate itself into increased IT spending. Executives are optimistic about business but seem to be continuing their cautious approach to IT spending.
  • Substantial technology investment is predictably going into enabling financial institutions to meet the plethora of compliance, regulatory requirements, outsourcing and risk management. This is neither the most stimulating area for technology investment. The nature of the work is unexciting, not usually innovative and almost certainly lacks innovative qualities. The fact it is absorbing proportions of It budgets hitherto unimaginable further blunts Enthusiasm for the nature of the work!
  • Outsourcing in the financial services sector continues to blunt substantial elements of IT spending, the appetite for outsourcing, not of wholesale operations but applications and project based technology development.
  • On the innovative side much of the work tends to be based on applications integration work. Much of this comprises integration of customer data, which enables financial institutions to better understand customers, their behaviour so they may provide additional and improved products and services for their customers.

Beneath this rather unappetising scene should there be concern that a time gap is now growing between business upturn and development and readiness of the technology resources to support it. An upturn in business there maybe but where is the innovation? Low interest rates and low inflation combined have succeeded in producing low returns on financial investments This has blunted much appetite for investment in financial assets as property and other tangible assets demonstrate better returns.

Financial products, which support such investment, have proved innovative. In other ways financial institutions have not provided any immediately attractive financial products for this environment. Financial scandals across the western hemisphere have assisted in producing a sense of cynicism towards investment in financial assets. A time gap may exist between business upturn and technology investment in the financial services sector but absence of innovation it may be calmly discounted.

© IT-Analysis.com

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