“What are we getting for our tech spending?”
Technology spending is rising at most banks, and much of it is going to infrastructure and risk-related initiatives that don’t immediately generate revenue.
Research has shown no industry-level correlation between spending on tech and growth
Moreover, research has shown no industry-level correlation between spending on tech and growth. And beset by all the usual project delays, system outages, and other day-to-day hiccups, it is no wonder that leaders are asking, “What are we getting for our money?”
Some CIOs have gotten ahead of this uncomfortable line of questioning by developing superior technology management systems. Typical features of a tech management system include a structured process for developing goals truly grounded in the enterprise strategy and vision of the business’ destination, establishing a structured prioritisation approach, championing a new enterprise operating model that emphasises accountability for broadly defined tech and business ‘products’, using enhanced telemetry to measure and track the right metrics, and building a culture that enhances transparency and collaboration.
No two systems are identical, of course, because no two banks are. But there are some principles that will apply widely.
The foundation of the management system is how CIOs work to develop their goals and set priorities, including specific Objectives and Key Results (OKRs), and install them in an information system that permeates down to the scrum teams. This requires alignment mechanisms between the business and technology at all levels, a shared understanding of the destination, and a robust strategic prioritisation framework.
For example, if delivering scale is important to the business model, that should be articulated explicitly using a fully-loaded cost-per-transaction as the OKR to watch. This requires tech and business to work closely on the strategy.
A related question is how to accommodate “moonshots”—meaning big bets on futuristic technologies with uncertain near-term benefits. Examples include investments in cloud, data platform modernisation, or artificial intelligence (AI). The CIO needs to be able to persuade the CEO and board to get behind these programs. CIOs can make a stronger case if they work with their business partners to draw up a clear vision of the destination and establish accountability using incremental markers of progress towards that destination.
These management systems keep their focus on outcomes, not activity, and require the business and tech to organise into a product-oriented operating model to enhance accountability. Teams are made responsible for ‘products’ (broadly defined) – those could be actual products (such as credit cards), or experiences (account opening), or technology components (data products or the money movement system). Each product is run by a “mini-CEO”, who can act with a high degree of independence and has the authority to make decisions. This leader monitors the strategic landscape, negotiates priorities with the business, develops the platform roadmap, and measures ROI.
It is then equally important that these leaders be coordinated via the culture and explicit mechanisms. Too often, interdependent teams don’t interact, and eventually fall out of synchronisation. The operating model needs to ensure this, along with a management information system (MIS) that facilitates it, so all the teams are working off a common contextual understanding of progress.
The lynchpin of this operating model is the product manager, who ensures that the team is doing the right things in the right way. The product manager prioritises the backlog of the team, addresses dependencies on other teams, and manages the product development lifecycle from beginning to end.
After all this work, it’s important to know which efforts are productive and what they cost. Unlike advanced tech companies, which all measure productivity in some way, the same cannot be said in banking. We have found that many bank tech organisations do not track metrics such as how much time is being spent on administrative work vs. maintenance vs. development, what developers are working on, how many people are coding, or whether third-party vendors are delivering satisfactory work. Advanced telemetry can now enable a far more informed view of how the system is working in real time.
All this creates a very different culture – one of engineering excellence. What sets successful CIOs apart is that their management systems also articulate and quantitatively measure the culture (different from employee satisfaction or other HR surveys) and enable both the business and technology leaders to understand root causes, and address those openly and rapidly. This transparency, meritocracy, and the enterprise viewing engineering as a craft that is essential to the business, makes a big difference in how initiatives are successfully conducted.
As technological change continues to accelerate, the greatest differentiator among banks will be the speed with which they adapt. To do that, banks need advanced technology management systems to allocate resources and orchestrate outcomes.
About the authors
Martin Harrysson is a senior partner in McKinsey & Company’s Bay Area office, where he helps high-tech, software and financial services companies implement digitally enabled business models and improve product development.
Megha Sinha is a partner in McKinsey’s Bay Area office, advising financial and software companies on product, technology, agility and growth.
Vik Sohoni is a senior partner in McKinsey’s Chicago office, helping banks and financial institutions on strategy and operating model transformation in addressing growth, efficiency and digital change.
