While doing some light recreational reading I came across a few statistics on the condition of roads and bridges in the United States. Fifty-one percent of major roads are in poor, mediocre or fair condition. Thirty-one percent of our bridges are structurally deficient or functionally obsolete.
How did this happen? Very simply, we (or actually our governments — national, state and county) have under-funded both maintenance and improvements to this invaluable resource. In fact, we continue to under-fund maintenance by more than $20 billion per year and improvements by more than $40 billion per year.
OK, you are probably thinking the GonzoBankers have lost it and can’t come up with a thoughtful piece on banking this week. But stay with me, here. Just as we have witnessed a slow deterioration of road and bridge systems resulting from insufficient capital expenditure, banks have seen their technical infrastructures weaken to the point of near collapse because they have failed to make the investments necessary to prevent these infrastructures from becoming unreliable and obsolete.
This declining infrastructure includes the essential elements of desktop computers, the local area network (LAN) hardware and software tying them together, and the wide area networks connecting the various LANs. It is my pleasure to visit or talk with a large number of banks each year. In most cases, these banks are using data networks designed and implemented more than 10 years ago. The majority of these banks use Microsoft’s Windows 95 (and, in a surprising number of cases, DOS – egads!) operating system on the desktop. Often the desktop computer is a Pentium I or older machine. Routinely, the end user is reporting poor and unreliable performance.
Why are banks under-funding their technical infrastructures? The foremost reason is that the CIO does not want to touch something that is working. “If it ain’t broke, don’t fix it.” It can take years to create a reasonably stable environment. Major changes in the operating system, networking system or hardware can upset that apple cart and generate significant waves of negative user reactions. CIOs who value their jobs tend to be risk avoiders. Besides, they are often judged on the end users’ level of happiness.
Bank CEOs continue to hold a misguided belief regarding the lack of payoff in technology investments. The numbers in Cornerstone Advisors’ recently released “Mid-Sized Bank Study” underscore this fact. When the CIO brings forth a project to upgrade the infrastructure, the capital allocation committee nixes the deal because 1) there is no discernible impact on the end user, and 2) an ROI cannot be calculated.
When you think about it, this reluctance does make sense. Like the roads and bridges, if you can continue to drive on them, why spend any money? But the question is not really “why” but “when”. Like the old oil commercial says, “You can pay me now or you can pay me later.”
OK, now let me explain how an ongoing strategy of “pay now” can significantly ease the pain of a potentially bigger “pay later”:
- A sustained investment in infrastructure means reliability and performance delivered to the end user will be maintained and likely improve over time. Every new software product seems to require even stronger desktop systems, and the only way to maintain performance is to build a foundation strong enough to support these increased software requirements. (A branch employee at a bank I visited last week told me that since the bank replaced its old equipment, the number of calls for service has dropped to nearly zero.)
- Making continuous technology investments will result in infrastructure costs that are year-over-year evened out and in aggregate no higher. I have long been a proponent of investing the annual infrastructure depreciation into upgrading hardware and software. This strategy ensures your technology is reasonably current.
- Over time, a responsible spending policy regarding infrastructure means that, down the road, new technology initiatives can be supported without a large, incremental cost to upgrade the infrastructure. We often see important initiatives left on the table because that new application comes not just with its own cost but with the additional expenditure of upgrading or replacing the hardware and software that support the application. To me, this is a poor reason to not pursue a good business strategy.
- When was the last time your bank took a hard look at your network? I’m going to guess it was designed many years ago. The good news is the new network designs, which use the latest technologies and will deliver much higher reliability and bandwidth, are often no more expensive than an upgrade to your existing network. As more and more data is pushed through your network, the more important it is to be utilizing new technology that is more reliable and cost-effective than ever.
For all you risk-averse CIOs out there, here is a good rationale to support funding the much-needed infrastructure maintenance that has not been occurring. I am not proposing a one-time, high-dollar capital investment that will propel you into current technology. Instead, begin a journey that you can expect to take up to five years.
Start by creating an image of the ideal environment in your mind. Transfer your ideas to a picture or written description. This is very high level and contains phrases like “provides the ability to move an item image to any desktop within two seconds of the query”. Bounce your ideas off peers, staff and others until a good vision has been developed and documented.
Create a similar document for your current environment. This often takes the form of an inventory of the infrastructure. Be sure to include the network picture.
Finally, the fun part! Build a road map that will take you from where you are to where you want to be. Take your time deploying the environment to minimize the effect on day-to-day performance. It is unlikely you will ever reach your destination, but getting close is far better than limping along in your current environment. Once you get close, keep investing regularly to maintain the edge.
Why not set up a time to meet with your CEO and start the discussion on how to build and maintain a cost-effective, reliable, high-performance technical infrastructure? -caf