At First Banks Inc., the name of the game is finding new ways to keep up with the giant financial institutions that have billions of dollars to spend on new products and services.
"We're a midsize bank. We can't keep up with the big guys in terms of their IT spending," says Rick Nolle, CIO at Clayton, Mo.-based First Banks. Even with a 10% to 12% budget increase planned for 2014, "we have to find ways where we can do things differently that give us a boost here and there," he says.
So about 36% of the bank's 2014 IT budget will be spent on service providers that do everything from hosting its online banking system and providing mobile apps for customers to providing assistance for corporate customers — some 40 apps in all, hosted by a handful of banking-specific vendors. Nolle's team customizes some vendors' "vanilla" apps, or waits for vendors to add new features that the big players already have.
"We try to work between the vendors to innovate — finding ways to connect things together differently that give us a new service, that give us some independence from vendors, that differentiate us from other guys in the market," he explains.
In fact, hosted services have become the bank's focus. "Whenever any kind of replacement need comes up, the first place we're going to look is in the cloud — what can we subscribe to or have somebody put up for us?" Nolle says. The bank has plans for a mortgage loan origination system hosted in the cloud, and possibly a new retail banking system that it will subscribe to via a software-as-a-service model. And both of those will cost less than it currently costs to maintain existing systems.
That's a common theme in 2014 enterprise IT budgeting.
Computerworld's Forecast 2014 survey of 221 IT executives shows that IT budgets are continuing to make a nice recovery. Some 36% of our survey respondents said that they expect an increase in their IT budgets, while half said that their budgets will hold steady. What's more, budgeting for services is outpacing spending on hardware and software, and that has a domino effect on the skills that IT organizations need. While some organizations have cut staff when adding outside help, others have held steady or even added IT staffers because, if an IT organization is buying services, it needs more people with vendor management and negotiation skills.
According to Gartner, IT budgets will chug along with small but steady 2.9% average annual increases through 2014.
That doesn't surprise some analysts even though the economy is looking up in many segments. "IT budgets are normally less precocious than the economy," says Gartner analyst John Lovelock. "We have longer purchasing cycles. We can [cut spending] relatively quickly, but the inverse isn't always true."
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